Case 3:12-cv-01249 Document 1

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UNITED STATES DISTRICT COURT DISTRICT OF PUERTO RICO

MARK RISHELL and DIANA RISHELL, CASE NO. Plaintiffs, v. MEDICAL CARD SYSTEMS, INC., Defendant. JURY TRIAL DEMANDED

COMPLAINT TO THE HONORABLE COURT: Plaintiffs Mark Rishell ("Mr. Rishell") and Diana Rishell ("Mrs. Rishell) (collectively, the "Plaintiffs") sue Defendant Medical Card Systems, Inc. ("MCS" or "Defendant") and allege as follows: NATURE OF THE ACTION 1. This action stems from MCS' bad faith refusal to abide by its obligation to

advance legal fees and expenses incurred by Mr. Rishell in connection with an investigation being conducted by the U.S. Department of Health & Human Services and the U.S. Attorney's Office for the District of Puerto Rico (the "Investigation") as to MCS' activities while Mr. Rishell worked as Chief Financial Officer (initially) and Chief Executive Officer (subsequently) of MCS. 2. MCS' breaches, bad faith and tortious conduct is a violation of MCS' By-Laws as

well as the employment agreement executed between MCS and Mr. Rishell. Importantly, such conduct is significantly interfering with and putting at risk Mr. Rishell's ability to defend himself in connection with the Investigation, causing Plaintiffs damages, including grave mental suffering.

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JURISDICTION AND VENUE 3. The Court has jurisdiction of this action under 28 U.S.C. 1332(a)(1) because the

matter in controversy exceeds the sum or value of $75,000, exclusive of interest and costs, and is between citizens of different States. 4. Venue in this Court is proper under 28 U.S.C. 1391(a)(2), as a substantial part

of the events or omissions giving rise to the claim occurred in this District. THE PARTIES 5. Mr. Rishell is a resident of the State of Florida. Mr. Rishell was initially

employed in 2007 by MCS as MCS' Chief Financial Officer. Subsequently, Mr. Rishell was promoted to Chief Executive Officer ("CEO") of MCS, until December 2011 when he was terminated without cause. Mr. Rishell executed with MCS the employment agreement (the "Employment Agreement") attached as Exhibit A. 6. 7. Mrs. Rishell is Mr. Rishell's wife and a resident of the State of Florida. MCS is a Puerto Rico corporation with its principal place of business in Hato

Rey, Puerto Rico. MCS is a health administration and health insurance organization that offers private health plans as well as products under the Medicare Advantage program. FACTUAL ALLEGATIONS A. MCS's Contractual Promises to Advance Mr. Rishell's Fees and Costs 8. Through its By-Laws, MCS assumed the obligation to advance litigation expenses

to its directors and officers. In relevant part, the By-Laws read as follows: [MCS] shall pay the expenses (including attorneys' fees) incurred in defending any proceeding in advance of its final disposition, provided, however, that the payment of expenses incurred by a director or officer in advance of the final disposition of the proceeding shall be made only upon receipt of an undertaking by the director or officer to repay all amounts advanced if it should ultimately be determined that the director or officer is not entitled to be indemnified under this Article or otherwise.

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By-Laws, Art. VI, Section 6.2 (the "Advancement Provision") (emphasis added). A copy of the By-Laws is attached hereto as Exhibit B. 9. The only condition precedent imposed by the Advancement Provision is the

"receipt of an undertaking by the director or officer to repay all amounts advanced if it should ultimately be determined that the director or officer is not entitled to be indemnified [under the By-Laws.]" Id. 10. The Employment Agreement also imposes upon MCS the contractual obligation

to abide by the By-Laws, by requiring MCS to retain the current indemnification provisions in place. Exhibit A, at Section 12. B. Mr. Rishell Exercised His Right to Seek Advancement 11. In or around October 2011, the U.S. Department of Health & Human Services and

the U.S. Attorney's Office for the District of Puerto Rico commenced the Investigation. According to information provided to Mr. Rishell, Mr. Rishell is one of a few officers that are being investigated as part of the Investigation. 12. Consequently, shortly after the Investigation began, MCS agreed to the

engagement of attorney Francisco Rebollo-Casalduc ("Mr. Rebollo") as Mr. Rishell's counsel in connection with the Investigation and negotiated an engagement agreement with Mr. Rebollo. 13. Subsequently, in February 2012, following Mr. Rebollo's recommendation, Mr.

Rishell also retained the law firm Black, Srebnick, Kornspan & Stumpf, P.A. ("BSK&S"). 14. On February 8, 2012, Mr. Rishell (through its counsel) sent a letter to MCS

informing that Mr. Rishell had retained BSK&S. A copy of the letter is attached as Exhibit C. Therein, Mr. Rishell requested MCS to pay the retainer fee and deposit requested by BSK&S, as MCS was required to do.

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15.

Attached to the February 8 letter is a written undertaking signed by Mr. Rishell

(the "Undertaking") which reads as follows: As required by Article VI, Section 6.2, of the Medical Card Systems, Inc.'s Bylaws ("Section 6.2"), I, Mark Rishell, undertake to repay Medical Card Systems, Inc. ('MCS') all amounts advanced by MCS under Section 6.2 if it should ultimately be determined that I am not entitled to be indemnified under Article VI of the Bylaws or otherwise. Id. C. MCS Breached Its Duties and Outright Refused to Comply With Its Advancement Obligations 16. MCS breached its duties by refusing to pay the retainer and deposit requested by

Mr. Rishell and essentially assumed the position that it will not pay any fees or expenses that BSK&S incurs on behalf of Mr. Rishell. 17. In addition, MCS required Mr. Rishell to sign what is essentially an agreement

(the "Undertaking and Cooperation Agreement") that includes not only an undertaking, but also additional conditions and obligations that are not required under the By-Laws. Attached hereto as Exhibit D is the "Undertaking and Cooperation Agreement."1 18. To add insult to injury, MCS informed Mr. Rishell that MCS would cease to make

any advancement whatsoever unless Mr. Rishell signed the Undertaking and Cooperation Agreement by February 17, 2012. 19. Mr. Rishell did not sign the Undertaking and Cooperation Agreement that failed

to comply with the By-Laws and unilaterally imposed conditions not contemplated by the ByLaws. D. Mr. Rishell's Good Faith Attempts to Mitigate Damages and Avoid Litigation, Ignored by MCS

Specifically, MCS is requiring Mr. Rishell to cooperate with MCS in the Investigation. While Mr. Rishell is willing to negotiate a bilateral cooperation agreement with MCS, MCS cannot unilaterally impose a cooperation obligation, much less as a condition to the advancement that was not included in the By-Laws or the Employment Agreement.

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20.

On February 17, 2012, counsel for Mr. Rishell sent a letter to MCS, informing --

among other things-- that Mr. Rishell hoped that MCS would comply with its advancement obligations without the need for litigation. See February 17, 2012, letter, attached as Exhibit E. In the letter, MCS was also informed that Mr. Rishell would consider any proposal that MCS would make to resolve this matter that in good faith considered everyone's needs. 21. On February 21, 2012, counsel for MCS advised Mr. Rishell's attorneys that MCS

would respond to the February 17, 2012, letter on the week of March 5, 2012 or sooner if practicable. 22. As of today, MCS has not responded to the February 17, 2012 letter nor complied

with the February 8, 2012 demand for the payment of BSK&S' retainer fees and deposit. E. MCS's Bad Faith Failure Is Causing Significant Damages 23. MCS' refusal to pay the retainer fees and deposit due by BSK&S and refusal to

make any further advancement is causing significant economic, emotional and psychological injury to Mr. and Mrs. Rishell. 24. To be sure, MCS' conduct is causing Mr. and Mrs. Rishell injury, as Mr. Rishell

faces the prospect of criminal prosecution in connection with his conduct as MCS' officer, without having the support from MCS that MCS promised to provide when Mr. Rishell took his position as CFO and CEO of MCS.

Count IBreach of the By-Laws (By Mr. Rishell) 25. 26. Mr. Rishell re-alleges each of the preceding allegations as if fully set forth herein. MCS' failure to provide the advancement in question constitutes a breach by MCS

of its obligations under the By-Laws.

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27.

MCS has also breached its duties with Mr. Rishell by refusing to make any

further advances in light of Mr. Rishell's refusal to sign the Undertaking and Cooperation Agreement, a document that is not required by the By-Laws. 28. The breaches by MCS of its obligations under the By-Laws have caused and

continue to cause economic, emotional and psychological damages to Mr. Rishell, all of which Mr. Rishell is entitled to recover as a mater of Puerto Rico law. To be sure, MCS has breached its duties in bad faith and with malice.2 29. Consequently, Mr. Rishell is entitled to recover from MCS over $3,000,000 in

damages; Mr. Rishell is also entitled to specific performance under Puerto Rico's Civil Code. Count IIBreach of the Employment Agreement (By Mr. Rishell) 30. 31. Mr. Rishell re-alleges each of the preceding allegations as if fully set forth herein. In Section 14 of the Agreement, MCS promised Mr. Rishell that he would receive

the protections afforded by advancements and indemnification provisions in place at the time of the Agreement. 32. Notwithstanding MCS' promises to Mr. Rishell, MCS has, in bad faith and with

malice, deprived Mr. Rishell of all of the protections afforded by the advancements provisions in place at the time the Agreement was entered into. 33. Because of MCS' breach of contract, Mr. Rishell is entitled to recover from MCS

over $3,000,000 in economic, emotional and psychological damages that it is estimated Mr.

While MCS refuses to honor its advancement obligations with Mr. Rishell, MCS has for itself hired one of the largest and most expensive law firms in the United States, Skadden, Arps, Slate, Meagher & Flom LLP ("Skadden"). This double standard alone evidences MCS' bad faith. To be sure, Mr. Rishell is pretty certain that Skadden's fees, which are estimated to be in the millions of dollars, are significantly higher than the fees Mr. Rishell is being forced to incur to address the Investigation. Moreover, Mr. Rishell's actions at MCS-- which were not improper or illegal as MCS well knows-- were at all times encouraged, supported, known and approved by Mr. Rishell's superiors.

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Rishell is and will suffer as a direct result of MCS' actions and omissions. Mr. Rishell is also entitled to specific performance under Puerto Rico's Civil Code. Count IIITort Claim (By Mrs. Rishell) 34. 35. Mrs. Rishell re-alleges the preceding paragraphs as if fully set forth herein. Under Puerto Rico law, Mrs. Rishell is entitled to assert a tort claim under Article

1802 of the Civil Code to recover all of the damages that will be suffered by her as a consequence of the breach by MCS of its contractual obligations with Mr. Rishell. Muiz-Olivari v. Stiefel Labs., 174 D.P.R. 813 (2008). 36. As a result, Mrs. Rishell is entitled to recover from MCS the more than

$2,000,000 in damages that it is estimated Mrs. Rishell is and will suffer as a result of MCS' breach of duties with Mr. Rishell. Indeed, no family should be forced to undergo the pain and suffering that MCS has intentionally caused Mr. Rishell and his family, especially Mrs. Rishell. Count IVDeclaratory Judgment (28 U.S.C. 2201) (By Mr. Rishell) 37. 38. Mr. Rishell re-alleges the preceding paragraphs as if fully set forth herein. As expressed by the foregoing allegations of the Complaint, Mr. Rishell and MCS

have adverse legal interests in connection with MCS' advancement obligations to Mr. Rishell, including the sufficiency of the Undertaking issued by Mr. Rishell. 39. This actual controversy is of sufficient immediacy and reality to warrant the

issuance of a declaratory judgment, especially in light of the pendency of the Investigation and the threat of criminal prosecution. 40. Mr. Rishell is thus entitled under 28 U.S.C. 2201 to a declaration that: (a) MCS

has the obligation to advance the fees and expenses incurred by Mr. Rishell's attorneys in connection with the Investigation, including the fees and expenses incurred by BSK&S, and (b)

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Mr. Rishell has complied with the condition precedent of the Advancement Provision by executing the Undertaking. Count VClaim for Fees on Fees Under the By-Laws (By Mr. Rishell) 41. 42. Mr. Rishell re-alleges the preceding paragraphs as if fully set forth herein. Section 6.3 of MCS' By-Laws provides as follows:

If a claim for indemnification or payment of expenses under this Article is not paid in full within sixty (60) days after a written claim therefore has been received by the Corporation, the claimant may file suit to recover the unpaid amount of such claim and, if successful in whole or in part, shall be entitled to be paid the expense of prosecuting such claim. In any such action the Corporation shall have the burden of proving that the claimant was not entitled to the requested indemnification or payment of expenses under applicable law. Exhibit B, Art. VI, Section 6.3 (emphasis added). 43. On February 8, 2012, Mr. Rishell received a written claim by Mr. Rishell for

MCS to pay the retainer fee and deposit due to BSK&S. 44. More than 60 days have passed since that claim was received by MCS, yet MCS

has failed to make the indemnification requested. 45. Therefore, Mr. Rishell is entitled to the payment of all the expenses incurred in

this action, including attorneys' fees. PRAYER FOR RELIEF WHEREFORE, Plaintiffs respectfully requests entry of a judgment: a. Granting contractual damages to Mr. Rishell for MCS' breach of the By-Laws and the Employment Agreement, including for mental anguish and suffering; b. Ordering specific performance by MCS of its advancement obligation, including the immediate payment of the fees due to BSK&S; c. Granting tort damages to Mrs. Rishell for MCS' breach of the By-Laws and the Employment Agreement; 8

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d. Declaring that: (i) MCS must advance the fees and expenses incurred by Mr. Rishell's attorneys in connection with the Investigation, including the fees and expenses that Mr. Rishell owes BSK&S, and (ii) Mr. Rishell already complied with the condition precedent of the Advancement Provision by executing the Undertaking; e. Ordering the payment by MCS of all the expenses incurred by Mr. Rishell in this action, including attorneys' fees; and f. Granting all other relief that is proper. Respectfully submitted, HOLLAND & KNIGHT LLP s/Jesus E. Cuza JESUS E. CUZA USDC # 206509 jesus.cuza@hklaw.com 701 Brickell Avenue, Suite 3000 Miami, Florida 33131 Tel.: (305) 789-7513 Fax: (305) 789-7799 s/Ina M. Berlingeri INA BERLINGERI USDC-PR #209306 ina.berlingeri@hklaw.com 515 Las Olas Blvd., Suite 1200 Fort Lauderdale, FL 33301 Tel. (954) 468-7827 Fax: (954) 463-2030 Attorneys for Mark and Diana Rishell