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ARC Lifemed8/2/2005
This case involves the supply of pharmaceutical products to persons residing in assisted living facilities and the collection of payments for such products. ARC Lifemed, Inc. ("ARC") is a large corporation with many years of experience in the nursing home business. LifeTrust America, Inc. is a corporation formed in 1996 during the infancy of assisted living facilities ("ALF") constructed to house residents who are in need of assistance but are not physically or mentally disabled to the point that they require nursing home care. AMC-Tennessee, Inc. ("AMC-TN") is a sizeable retail pharmacy.
I. HISTORY OF LIFEMED, LLC.
ARC was a long-standing leader in the construction and operation of nursing home facilities, principally in the eastern and southeastern United States, prior to the advent of ALF in the mid 1990s. Desiring to enter the ALF field, ARC, in 1997, embarked upon a plan to develop 40 assisted living facilities. By the fall of 1998, ARC had 20 such facilities in operation. LifeTrust, Inc., organized in 1996, had no prior experience in the ALF market but, by the end of 1998, was operating 30 such facilities. LifeTrust began exploring ways to develop revenue from sources other than the typical provision of room and board. It recognized that the pharmacy business might provide additional income. LifeTrust began discussing the formation of a joint venture with "The Pharmacy," an institutional pharmacy serving skilled nursing facilities and assisted living facilities primarily in Tennessee. "The Pharmacy," owned and managed by Buddy Stephens, had a good reputation and had profitably concentrated its business in the long-term care market. LifeTrust learned that "The Pharmacy" would soon be acquired by American Medserve Corporation. Following this acquisition, "The Pharmacy" was named AMC-TN. Later, American Medserve would itself be acquired by Omnicare, Inc., the leading institutional pharmacy in the nation, but AMC-TN would retain its separate identity.
During negotiations between LifeTrust and AMC-TN, the concept of "the pharmacy within a pharmacy" ("PIP") was discussed under which a joint venture would operate on AMC-TN's physical premises to supply pharmaceutical service and products to LifeTrust and its ALFs. The PIP arrangement would allow the joint venture to share the overhead of an established provider and utilize those services without having to overcapitalize the project. LifeTrust and AMC-TN formalized their joint venture with the creation of LifeMed, LLC in 1997. LifeTrust contributed $200,000 in exchange for a 40% ownership in the joint venture. AMC-TN contributed $300,000 for the remaining 60% ownership interest. A Limited Liability Company Agreement established a board of managers for LifeMed, LLC.
In 1997, ARC learned of the LifeMed, LLC joint venture while searching for ways to increase its revenues. Unlike LifeTrust, ARC had some prior experience with the pharmacy business, having operated an institutional pharmacy in Richmond, Virginia. ARC learned that the LifeMed joint venture had been operating at a break-even point financially. In 1998, ARC contributed $300,000 to the venture with AMC- TN receiving a $150,000 distribution of capital from the joint venture at such time. An Amended and Restated LLC Agreement executed by the three parties allocated ownership equally among the members.
Two agreements governed the joint venture following the admission of ARC as a joint venturer. These were the Amended and Restated Limited Liability Company Agreement (the Operating Agreement) dated October 29, 1998, and the Management Agreement previously executed on June 11, 1997,between LifeTrust, Inc. and AMC-TN under which AMC-TN was to mana
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