Computer Programs & Systems, Inc. et al v. Texas General Hospital et al
Filing
79
MEMORANDUM OPINION & ORDER, Plfs' 49 Motion to Dismiss Texas General Hospital & Texas General Hospital--VZRMC's Counterclaims is GRANTED in part & DENIED in part as set out. Plf's motion is GRANTED as to Dfts' second, third, fourth, fifth, seventh, eighth, ninth & tenth counterclaims & DENIED as to Dfts' first & sixth counterclaims. Signed by District Judge Terry F. Moorer on 9/11/19. (tot)
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF ALABAMA
SOUTHERN DIVISION
COMPUTER PROGRAMS & SYSTEMS, :
INC., et al.,
:
:
Plaintiffs,
:
:
vs.
:
:
TEXAS GENERAL HOSPITAL, et al.,
:
:
Defendants.
:
CIVIL ACTION NO. 1:18-cv-112-TFM-N
MEMORANDUM OPINION AND ORDER
Pending before the Court is the Motion to Dismiss Texas General Hospital and Texas
General Hospital—VZRMC’s Counterclaims and Incorporated Memorandum of Law. Doc. 49,
filed January 19, 2019. Pursuant to Fed. R. Civ. P. 12(b)(6), Plaintiffs move the Court dismiss
Defendants’ counterclaims against them because the counterclaims are either not plausibly pled,
not actionable in the present context, or both. Id. at 2-3. Having considered the motion and
relevant law, the Court finds the motion to dismiss is due to be GRANTED IN PART and
DENIED IN PART.
I.
PARTIES
In this Memorandum Opinion and Order, Plaintiff/Counterclaim Defendant Computer
Programs & Systems, Inc., will be referred to as “CPSI”; Plaintiff/Counterclaim Defendant
Trubridge, L.L.C., will be referred to as “Trubridge”; and CPSI and Trubridge will be collectively
referred to as “Plaintiffs.” The Court will refer to Defendant/Counterclaim Plaintiff Texas General
Hospital as “Texas General” and Defendant/Counterclaim Plaintiff Texas General HospitalVZRMC’s as “Van Zandt.” The Court will collectively refer to Texas General and Van Zandt as
“Defendants.”
Page 1 of 18
II.
JURISDICTION AND VENUE
The district court has subject matter jurisdiction over the claims in this action pursuant to
28 U.S.C. § 1332 (diversity).
The district court has personal jurisdiction over the claims in this action because CPSI and
Trubridge both have their principal place of business in Mobile County, Alabama, which is within
the Court’s district. See BNSF Ry. Co. v. Tyrrell, -- U.S. --, 137 S. Ct. 1549, 1558, 198 L. Ed. 2d
36 (2017) (internal citations and quotation marks omitted) (“Goodyear and Daimler clarified that
a court may assert general jurisdiction over foreign (sister-state or foreign-country) corporations
to hear any and all claims against them when their affiliations with the State are so continuous and
systematic as to render them essentially at home in the forum State. The paradigm forums in which
a corporate defendant is at home, explained, are the corporation’s place of incorporation and its
principal place of business.”); see also Consol. Dev. Corp. v. Sherritt, Inc., 216 F.3d 1286, 129192 (11th Cir. 2000) (citations omitted) (“Specific jurisdiction arises out of a party’s activities in
the forum that are related to the cause of action alleged in the complaint. . . . General personal
jurisdiction, on the other hand, arises from a defendant’s contacts with the forum that are unrelated
to the cause of action being litigated.
The due process requirements for general personal
jurisdiction are more stringent than for specific personal jurisdiction, and require a showing of
continuous and systematic general business contacts between the defendant and the forum state.”).
Venue is proper in this Court pursuant to 28 U.S.C. § 1391(b)(1) because CPSI and
Trubridge have their principal places of business in this judicial district.
III.
FACTUAL AND PROCEDURAL BACKGROUND
On February 7, 2018, Plaintiffs originally filed their complaint in the Circuit Court of
Mobile County. Doc. 1 ¶ 1. In Plaintiffs’ complaint, they bring against Defendants two (2)
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Alabama state law claims for breach of contract. Doc. 1-1 at 6-7.
On March 12, 2018, Defendants filed their notice of removal to this Court based on
diversity of citizenship, which the Court orderd Defendants to amend to correct their jurisdictional
pleadings. See Docs. 1, 5. Defendants filed their answer to the complaint on March 19, 2018, and
their amended notice of removal on March 22, 2018. Docs. 7, 15. The Court denied Defendants’
motion to transfer venue to the Northern District of Texas on August 7, 2018. See Docs. 16, 38.
On November 2, 2018, Defendants filed their Motion for Leave to Amend Pleadings to add
defenses and counterclaims and amend their answer to the complaint, which the Court granted.
Docs. 40, 46. On December 5, 2018, Defendants filed their amended answer, in which they
brought against Plaintiffs Alabama state law counterclaims of breach of contract, negligence,
wantonness, breach of warranty for services, breach of duty of good faith and fair dealing, breach
of fiduciary duty, fraud or negligent misrepresentation, fraudulent concealment, fraudulent
inducement, and estoppel. Doc. 47.
Plaintiffs filed the instant motion to dismiss counterclaims on December 19, 2018. Doc.
49. Defendants timely responded in opposition, to which Plaintiffs filed their reply. Docs. 51, 52.
The Court finds oral argument unnecessary for resolution. Therefore, the motion is fully briefed
and ripe for adjudication.
IV.
STANDARD OF REVIEW
Pursuant to Fed. R. Civ. P. 12(b)(6), a defendant may move to dismiss a complaint on the
basis that the plaintiff has failed to state a claim upon which relief may be granted. See FED. R.
CIV. P. 12(b)(6). To survive a motion to dismiss, a plaintiff must plead “only enough facts to state
a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127
S. Ct. 1955, 1974, 167 L. Ed. 2d 929 (2007); see also Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.
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Ct. 1937, 1949, 173 L. Ed. 2d 868 (2009) (“To survive a motion to dismiss, a complaint must
contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its
face.’ [Twombly, 550 U.S.] at 570, 127 S. Ct. [at] 1955. A claim has facial plausibility when the
plaintiff pleads factual content that allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged. Id. at 556, 127 S. Ct. [at] 1955.”). Since a Fed. R.
Civ. P. 12(b)(6) motion questions the legal sufficiency of a complaint, in assessing the merits of
the motion, the court must assume that all the factual allegations set forth in the complaint are true.
See, e.g., United States v. Gaubert, 499 U.S. 315, 327, 111 S. Ct. 1267, 1276, 113 L. Ed. 2d 335
(1991); Powell v. Lennon, 914 F.2d 1459, 1463 (11th Cir. 1990); but see also Iqbal, 556 U.S. at
678, 129 S. Ct. at 1949 (citing Twombly, 550 U.S. at 555, 127 S. Ct. at 1955) (“[T]he tenet that a
court must accept as true all of the allegations contained in a complaint is inapplicable to legal
conclusions.
Threadbare recitals of the elements of a cause of action, supported by mere
conclusory statements, do not suffice.”). Moreover, all factual allegations shall be construed in
the light most favorable to the plaintiff. See, e.g., Brower v. County of Inyo, 489 U.S. 593, 598,
109 S. Ct. 1378, 1382, 103 L. Ed. 2d 628 (1989). Obviously, therefore, a district court may not
resolve factual disputes when adjudicating a motion to dismiss. Page v. Postmaster Gen. and
Chief Exec. Officer of the U.S. Postal Serv., 493 F. App’x 994, 995 (11th Cir. 2012) (citing, among
other cases, Lawrence v. Dunbar, 919 F.2d 1525, 1529 (11th Cir. 1990), for the proposition that,
under Fed. R. Civ. P. 12(b)(6), the existence of disputed material facts precludes a district court
from granting a motion to dismiss). “‘When considering a motion to dismiss . . . the court limits
its consideration to the pleadings and all exhibits attached thereto.’” Thaeter v. Palm Beach Cty.
Sheriff’s Office, 449 F.3d 1342, 1352 (11th Cir. 2006) (quoting Grossman v. Nationsbank, N.A.,
225 F.3d 1228, 1231 (11th Cir. 2000) (per curiam)); see also Reese v. Ellis, Painter, Ratterree &
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Adams, LLP, 678 F.3d 1211, 1215-16 (11th Cir. 2012) (“Because the Ellis law firm’s dunning
letter and enclosed documents were attached to the Reeses’ complaint as an exhibit, we treat them
as part of the complaint for [Fed. R. Civ. P.] 12(b)(6) purposes.”).
V.
DISCUSSION AND ANALYSIS
The Court will address Plaintiffs’ arguments for the corresponding counterclaim in order.
a.
Counterclaim 1 (Breach of Contract)
In Defendants’ first counterclaim, they allege Trubridge breached Section A(1) of Exhibit
A to the Master Services Agreement because Trubridge failed to provide medical coding of all
patient encounters, charge for observation and emergency department services, jointly establish a
policy for updating a problem list, and provide hospital management with quarterly quality
assurance reporting. Doc. 47 ¶ 84. Defendants allege CPSI breached the License and Equipment
Agreement because CPSI withheld Defendants’ access to software that Defendants need to operate
their business, despite their payment for the software, and failed to provide service under certain
agreements. Id. ¶ 85.
Plaintiffs argue Defendants admit in their allegations they failed to perform under the
agreements at issue, and because they admitted such, they cannot demonstrate they performed
under the agreements and their breach of contract claim fails. Doc. 49 at 4. In response,
Defendants argue they were excused from their contractual obligations because Plaintiffs failed to
perform their part of the agreements before Defendants’ alleged breach. See Doc. 51 at 7.
Under Alabama law, “[i]n the ordinary breach of contract action, the claimant must prove:
(1) the existence of a valid contract binding the parties in the action, (2) his own performance under
the contract, (3) the defendant’s nonperformance, and (4) damages.” S. Med. Health Sys., Inc. v.
Vaughn, 669 So. 2d 98, 99 (Ala. 1995). “‘Where [a party] has agreed under the contract to do a
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particular thing, there is a breach and the right of action is complete upon [the party’s] failure to
do the particular thing he agreed to do.’” Cunningham v. Langston, Frazer, Sweet & Freese, P.A.,
727 So. 2d 800, 805 (Ala. 1999) (quoting Seybold v. Magnolia Land Co., 376 So. 2d 1083, 1085
(Ala. 1979)). “‘In order to establish that a defendant is liable for a breach of a bilateral contract, a
plaintiff must establish that he has performed, or that he is ready, willing, and able to perform
under the contract.’” Beauchamp v. Coastal Boat Storage, 4 So. 3d 443, 450 (Ala. 2008) (quoting
Winkleblack v. Murphy, 811 So. 2d 521, 529 (Ala. 2001)).
Here, Defendants allege Plaintiffs breached the agreements at issue from at least March
2017 because Plaintiffs failed to adequately perform their contractual duties, while Defendants
admit they ceased payments under the agreements in fall 2017. See Doc. 47 ¶¶ 16, 62-63; see also
id. ¶¶ 64-79 (describing Plaintiffs’ failures to perform contractual duties). Defendants also allege
they “performed, tendered performance, or were excused from performing their contractual
obligations” because of Plaintiffs’ breach. Id. ¶ 81. Therefore, Defendants have properly alleged
a breach of contract claim because, at the time of Plaintiffs’ alleged breach, Defendants allege they
performed under the agreements.
Plaintiffs’ motion to dismiss Defendants’ first counterclaim is denied.
b.
Counterclaims 2 (Negligence) and 3 (Wantonness)
In Defendants’ second and third counterclaims, they allege Plaintiffs were negligent when
they breached their contractual duty to timely submit claims to payors for reimbursement of
healthcare services that were provided by Defendants. Doc. 47 ¶¶ 87-90. Defendants further
allege Plaintiffs breached their contractual duty with a reckless or conscious disregard of
Defendants’ rights. Id. ¶¶ 91-93.
Plaintiffs argue, under Alabama law, a tort has not been committed when a party fails to
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perform a contractual obligation. Doc. 49 at 4-5. In response, Defendants argue Alabama law
does provide, when a party performs a contractual obligation, the performance of the obligation
may be negligent and give rise to a tort and, in any case, these counterclaims need factual
development for the Court to determine whether Plaintiffs’ performance of their contractual
obligations was negligent or wanton. Doc. 51 at 8.
In Alabama, “the line of distinction between actions in tort and contract is thin and
often nebulous.” Hamner v. Mut. of Omaha Ins. Co., 270 So. 2d 87, 90 (Ala. Civ.
App. 1972). Put simply, “the breach of contract in not performing the obligation
there expressed, or not doing it in the way specified, is not in tort . . . [b]ut if
[performance is undertaken], [the] performance may be negligent, giving rise to a
tort.” Vines v. Crescent Transit Co., 85 So. 2d 436, 439 (Ala. 1955 ) (quotations
omitted) (emphasis in original). In other words, there is a possibility that a
negligent performance of a contractual duty will result in both a breach of contract
and, possibly, a tort. Hamner, 270 So. 2d at 90. In these instances, involving
misfeasance rather than nonfeasance, Alabama law requires courts to determine
whether the action sounds in tort or contract by looking to the “gravamen of the
complaint.” Id. If the source of the duty is the “general duty of care owed to
everyone,” the action sounds in tort, but if “the duty allegedly breached arises from
the contract,” the action sounds in contract. Cooper v. SW. Marine & Gen. Ins. Co.,
No 2:13-cv-1651-KOB, 2014 WL 769394, at *12-13 (N.D. Ala. Feb. 26, 2014).
Ultimately, “a negligent failure to perform a contract . . . is but a breach of the
contract.” Vines, 85 So. 2d at 440.
Killough v. Monkress, 2018 WL 3641859, at *10, 2018 U.S. Dist. LEXIS 128846, at *23-24 (N.D.
Ala. Aug. 1, 2018).
The court will look to the “gravamen of the complaint” to determine whether the source of
the duty at issue is the “general duty of care owed to everyone” or “the duty allegedly breached
arises from the contract.” Id., 2018 WL 3641859, at *10, 2018 U.S. Dist. LEXIS 128846, at *24.
Since the Court is limited to examining the complaint in its inquiry, the Court declines Defendants’
request to allow them to develop the facts for the Court to later determine whether Plaintiffs’
actions were negligent or wanton. See Doc. 51 at 8. The Court determines Defendants’ negligence
and wantonness claims generally sound in contract because the allegations of the claims explicitly
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reference the breach of duties that are owed pursuant to their agreements and do not reference an
independently negligent action related to the breach.
Plaintiffs’ motion to dismiss Defendants’ second and third counterclaims is granted.
c.
Counterclaim 4 (Breach of Warranty for Services)
In Defendants’ fourth counterclaim, they allege Plaintiffs breached a warranty for services
when they represented to Defendants certain characteristics of the services they would provide as
part of the agreement between them, and Plaintiffs failed to perform those services. Doc. 47 ¶¶
94-99.
Plaintiffs argue Alabama law does not recognize a cause of action for breach of warranty
of services, while Defendants argue it does. See Doc. 49 at 5; Doc. 51 at 8-10.
At the outset, the Court notes it has not found in Alabama case law a cause of action for a
breach of warranty for services. Generally, “[a]n action alleging a breach of warranty is a subset
of a breach-of-contract claim.” Turner v. Westhampton Court, L.L.C., 903 So. 2d 82, 90 (Ala.
2004). The cases to which Defendants cite to support their argument are in the context of services
that were provided by architects, contractors, and doctors.
For example, Defendants cite to Mitchell v. Richmond, 754 So. 2d 627 (Ala. 1999), to
support their argument. See Doc. 51 at 9. Specifically, Defendants emphasize a statement which
reads, “[a]ny claim made concerning the quality of the services provided under the contract must
be a warranty claim.” Mitchell, 754 So. 2d at 629. In Mitchell, an architectural malpractice action,
the Alabama Supreme Court analyzed whether the claim at issue was timely filed pursuant to an
Alabama legislative act that imposed a single period of limitation for civil actions that were
brought against architects, engineers, and builders. A breach of warranty for services is not directly
mentioned in Mitchell.
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Defendants also cite to Pennsylvania National Mutual Casualty Insurance Co. v. St.
Catherine of Siena Parish, 790 F.3d 1173 (11th Cir. 2015) [hereinafter Pennsylvania National], to
support their argument. Specifically, Defendants cite Pennsylvania National for the proposition
that “Alabama law creates an implied warranty that a contractor will ‘use reasonable skill in
fulfilling his contractual obligations.’” Id. at 1178 (quoting Blackmon v. Powell, 132 So. 3d 1
(Ala. 2013)). Again, a breach of warranty for services is not directly mentioned in Pennsylvania
National.
Under Alabama law, architects’ and contractors’ work are subject to certain implied
warranties. “[U]nder the proper circumstances, an architect impliedly warrants that his plans and
specifications for the construction of a building are sufficient to make the structure reasonably fit
for its intended purpose.” Fed. Mogul Corp. v. Universal Constr. Co., 376 So. 2d 716, 725 (Ala.
Civ. App. 1979) (citing U.S. Fid. & Guar. Co. v. Jacksonville State Univ., Ala., 357 So. 2d 952
(1978)). For contractors, “Alabama law recognizes an implied warranty of workmanship, i.e., a
duty that a contractor will use reasonable skill in fulfilling [his] contractual obligations.”
Nationwide Mut. Fire Ins. Co. v. David Grp., Inc., -- So. 3d --, 2019 WL 2240382, at *3, 2019
Ala. LEXIS 52, at *7 (Ala. May 24, 2019) (internal quotation marks and citations omitted). Such
implied warranties are extraneous to those found in the Uniform Commercial Code (“UCC”).
Finally, Defendants cite to Skelton v. Druid City Hosp. Bd., 459 So. 2d 818 (Ala. 1984), to
support their argument. In Skelton, the Alabama Supreme Court analyzed whether the UCC
applied where the individual plaintiff brought a breach-of-warranty claim for a suturing needle
that broke in the plaintiff’s body during an operation. See Skelton, 459 So. 2d at 821-23. The
Alabama Supreme Court concluded the transaction at issue was both a service transaction and a
“transaction in goods” that would subject the claim to Article 2 of the UCC, ALA. CODE §§ 7-2-
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101 to 725. See Skelton, 459 So. 2d at 821. Under the UCC, certain implied warranties would be
applicable to the transaction. See ALA. CODE §§ 7-2-314 to 315. In Skelton, the claim was based
on an implied warranty of fitness for a particular purpose. See Skelton, 459 So. 2d at 821.
However, much like Mitchell and Pennsylvania National, a breach of warranty for services is not
directly mentioned in Skelton.
Since the Court cannot find in Alabama case law authority that supports a cause of action
for breach of warranty for services and Defendants have not cited to a case that directly references
such, the Court finds Defendants’ claim for breach of warranty for services fails as a matter of law.
Plaintiffs’ motion to dismiss Defendants’ fourth counterclaim is granted.
d.
Counterclaim 5 (Breach of Duty of Good Faith and Fair Dealing)
In Defendants’ fifth counterclaim, they allege Plaintiffs, because of the special relationship
between the parties, breached a duty of good faith and fair dealing when they submitted claims to
the wrong payors for reimbursement of healthcare services that were provided by Defendants,
failed to timely file claims for reimbursement and/or appeals, and failed or refused to perform their
duties. Doc. 47 ¶¶ 100-103.
Plaintiffs argue, because the agreements at issue between the parties are not insurance
contracts, Alabama law does not recognize a cause of action for breach of duty of good faith and
fair dealing, while Defendants argue it does. See Doc. 49 at 6; Doc. 51 at 10-11.
In Grant v. Butler, 590 So. 2d 254 (Ala. 1991), the Alabama Supreme Court directly
addressed the issue:
Although every contract contains either an express or an implied covenant that the
parties will act in good faith in performing the contract, in Alabama only insurance
contracts give rise to a duty imposed by law on which a tort claim for bad faith
performance can be based. We have consistently declined in the past, and we
decline again today, to extend to the area of general contract law the tort of bad
faith that we have recognized in the context of insurance contract cases. See Harrell
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v. Reynolds Metals Co., 495 So. 2d 1381, 1388 (Ala. 1986).
Grant, 590 So. 2d at 256; see also Breaking Free, LLC v. JCG Foods of Ala., LLC, 2019 WL
1513978, at *7, 2019 U.S. Dist. LEXIS 59630, at *19-20 (N.D. Ala. Apr. 8, 2019) (quoting Grant
for the proposition cited, supra, at 10-11); Hall v. Nationstar Mortg. LLC, 2016 WL 3971428, at
*8, 2016 U.S. Dist LEXIS 96488, at *23-24 (N.D. Ala. July 25, 2016) (finding a claim for a breach
of the implied covenant of good faith and fair dealing in a mortgage loan dispute fails as a matter
of law because Alabama law does not recognize such a cause of action outside the insurance
context); Whitney Bank v. Murphy, 2013 WL 1191235, at *6, 2013 U.S. Dist. LEXIS 40046, at
*19-20 (S.D. Ala. Mar 22, 2013) (quoting Grant for the proposition cited, supra, at 10-11).
Since the agreements between the parties are not insurance contracts, Defendants’
counterclaim of breach of duty of good faith and fair dealing fails as a matter of law.
Plaintiffs’ motion to dismiss Defendants’ fifth counterclaim is granted.
d.
Counterclaim 6 (Breach of Fiduciary Duty)
In Defendants’ sixth counterclaim, they allege Plaintiffs owed Defendants a fiduciary duty
that they breached when Plaintiffs submitted claims for reimbursement to the wrong payors, failed
to timely file claims for reimbursements and/or appeals, and expressly and/or impliedly failed
and/or refused to perform their duties. Doc. 47 ¶¶ 104-105.
Plaintiffs argue Defendants cannot prove Plaintiffs owed them a fiduciary duty and the
agreements at issue specifically disclaimed any type of fiduciary duty between the parties. Doc.
49 at 7-8. Defendants argue they were completely dependent on Plaintiffs to maintain their
financial stability, which created the confidential relationship that is necessary to support a breach
of fiduciary duty claim. Doc. 51 at 12.
The elements of a breach-of-fiduciary-duty claim are: “(1) the existence of a fiduciary duty
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between the parties; (2) the breach of that duty; and (3) damages suffered as a result of the breach.”
Regions Bank v. Lowrey, 101 So. 3d 210, 219 (Ala. 2012) (citing Hensley v. Poole, 910 So. 2d 96,
106 (Ala. 2005)). Alabama law defines a fiduciary or confidential relationship as:
“[O]ne in which one person occupies toward another such a position of advisor or
counselor as reasonably to inspire confidence that he will act in good faith for the
other’s interests, or when one person has gained the confidence of another and
purports to act or advise with the other’s interest in mind; where trust and
confidence are reposed by one person in another who, as a result, gains an influence
or superiority over the other; and it appears when the circumstances make it certain
the parties do not deal on equal terms, but, on the one side, there is an overmastering
influence, or, on the other, weakness, dependence, or trust, justifiably reposed; in
both an unfair advantage is possible. It arises in cases in which confidence is
reposed and accepted, or influence acquired, and in all the variety of relations in
which dominion may be exercised by one person over another.”
DGB, LLC v. Hinds, 55 So. 3d 218, 233 (Ala. 2010) (quoting Bank of Red Bay v. King, 482 So. 2d
274, 284 (Ala. 1985)).
In Defendants’ counterclaims, they allege:
[Plaintiffs] each contract with Providers, purporting to act as a partner agency and
provide tools that help meet the everyday financial challenges within the [Revenue
Cycle Management (“RCM”)] process. [Plaintiffs] each claim to tailor products
and services to the individualized needs of the Provider. Plaintiffs integrate their
services and products into healthcare systems with the promise of improved cash
flow, quality reporting and actionable financial data, making the Provider fully
dependent on [Plaintiffs] for continued financial well-being.
Doc. 47 ¶ 53. Further:
Defendants contracted with [Plaintiffs] for services, including RCM, relying to
their detriment on [Plaintiffs’] representations of their knowledge, know-how,
expertise, customized systems and tools, among other things. To that effect, the
Parties entered in to a series of “Agreements” from December 2011 to March 2015.
Id. ¶ 54.
Based on Defendants’ allegations, the Court finds they have pled enough to state a claim
for breach of fiduciary duty.
Plaintiffs argue the agreements at issue disclaim any alleged fiduciary duty and Defendants
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failed to address this argument. See Doc. 47 at 7. However:
Express disclaimers of agency do not necessarily eliminate the existence of an
agency relationship:
“The relation which the law calls agency does not depend upon the
intent of the parties to create it, nor their belief that they have done
so. To constitute the relation, there must be an agreement, but not
necessarily a contract, between the parties; if the agreement results
in the factual relation between them to which are attached the legal
consequences of agency, an agency relationship exists although the
parties did not call it agency and did not intend the legal
consequences of the relationship to follow.”
Restatement (2d) of Agency § 1 cmt. b (1958). Otherwise, parties could enjoy the
benefits of an agency relationship free of legal consequences simply by the
insertion of a disclaimer clause in the agency contract.
Carr v. StillWaters Dev. Co., L.P., 83 F. Supp. 2d 1269, 1279 (M.D. Ala. 1999). While the
determination of a duty is a question of law for the Court to decide, Aliant Bank v. Four Star Invs.,
Inc., 244 So. 3d 896, 908 (Ala. 2017) (citing Ex parte BASF Constr. Chems., LLC, 153 So. 3d 793,
801-02 (Ala. 2013)), the nature of the parties’ relationship will be determined by the facts that will
be developed.
Plaintiffs’ motion to dismiss Defendants’ sixth counterclaim is denied.
e.
Counterclaims 7 (Fraud or Negligent Misrepresentation),
Concealment), and 9 (Fraudulent Inducement)
8
(Fraudulent
In Defendants’ seventh counterclaim, they allege Plaintiffs submitted flawed reports,
purported to have knowledge and skill to perform their duties under the agreements at issue, and
knowingly made false statements or omitted materials facts-or alternatively, represented without
knowledge as to the truth or falsity of the representation, or represented under circumstances in
which they should have known of its falsity-which induced Defendants to act and suffer injury
because of their reliance on Plaintiffs’ representations. Doc. 47 ¶¶ 106-107. In Defendants’ eighth
counterclaim, they allege, under the agreements at issue, Plaintiffs had a duty to disclose certain
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facts, but failed to do so, which induced Defendants to perform under the agreements and caused
injury. Id. ¶¶ 108-109. In Defendants’ ninth counterclaim, they allege Plaintiffs claimed to have
knowledge and skill to perform their duties pursuant to the agreements at issue, but Plaintiffs
knowingly made false statements of material fact with the intent that the representations induce
Defendants enter into the agreeements with Plaintiffs, and Defendants were harmed by their
reliance. Id. ¶¶ 110-111.
Plaintiffs argue Defendants’ allegations of fraud do not comply with Fed. R. Civ. P. 9(b)’s
particularity requirement for fraud claims and Defendants’ fraud claims are based on their
allegations that Plaintiffs failed to perform pursuant to the agreements at issue, and such a failure
to perform a contractual promise cannot give rise to a fraud claim. See Doc. 49 at 8-10. In
response, Defendants argue Plaintiffs did not address Defendants’ alternative negligent
misrepresentation claim in their seventh counterclaim, Defendants pled enough information about
the alleged fraud to satisfy Fed. R. Civ. P. 9(b), and a single transaction can support an award of
damages for both breach of contract and fraud under Alabama law. See Doc. 51 at 12-16.
Defendants’ seventh, eighth, and ninth counterclaims are all based on fraud. “‘The
elements of fraud are (1) a misrepresentation of a material fact, (2) made willfully to deceive,
recklessly, without knowledge, or mistakenly, (3) that was reasonably relied on by the plaintiff
under the circumstances, and (4) that caused damage as a proximate consequence.’” Allstate Ins.
Co. v. Eskridge, 823 So. 2d 1254, 1258 (Ala. 2001) (quoting Brushwitz v. Ezell, 757 So. 2d 423,
429 (Ala. 2000)).
“In alleging fraud or mistake, a party must state with particularity the circumstances
constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a person’s mind
may be alleged generally.” FED. R. CIV. P. 9(b). The Court of Appeals for the Eleventh Circuit
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has stated its views on what Fed. R. Civ. P. 9(b) requires a plaintiff to plead and what purpose the
rule serves:
The particularity rule serves an important purpose in fraud actions by alerting
defendants to the precise misconduct with which they are charged and protecting
defendants against spurious charges of immoral and fraudulent behavior. The
application of [Fed. R. Civ. P] 9(b), however, must not abrogate the concept of
notice pleading. [Fed. R. Civ. P.] 9(b) is satisfied if the complaint sets forth (1)
precisely what statements were made in what documents or oral representations or
what omissions were made, and (2) the time and place of each such statement and
the person responsible for making (or, in the case of omissions, not making) same,
and (3) the content of such statements and the manner in which they misled the
plaintiff, and (4) what the defendants obtained as a consequence of the fraud.
Ziemba v. Cascade Int’l, Inc., 256 F.3d 1194, 1202 (11th Cir. 2001) (internal citations and
quotations marks omitted). Fed. R. Civ. P. 9(b)’s particularity rule also applies to negligent
misrepresentation claims. Lamm v. State St. Bank and Tr., 749 F.3d 938, 951 (11th Cir. 2014)
(citing Souran v. Travelers Ins. Co., 982 F.2d 1497, 1511 (11th Cir. 1993)).
Based on Defendants’ pleadings, Defendants failed to satisfy Fed. R. Civ. P. 9(b)’s
particularity rule and pled only general facts to support their fraud-based and negligentmisrepresentation counterclaims. See Doc. 51 at 13; Doc. 47 ¶¶ 54, 61, 67, 69, 74-75, 106-07.
[Fed. R. Civ. P.] 9(b)’s heightened pleading standard may be applied less
stringently, however, when specific “factual information [about the fraud] is
peculiarly within the defendant’s knowledge or control.” United States ex rel.
Stinson, Lyons, Gerlin & Bustamante, P.A. v. Blue Cross Blue Shield of Ga., Inc.,
755 F. Supp. 1040, 1052 (S.D. Ga.), reconsideration granted, 755 F. Supp. 1055,
1058-59 (S.D. Ga. 1990) (finding that [Fed. R. Civ. P.] 9(b) applies to the FCA as
amended in 1986); see also United States ex rel. Russell v. Epic Healthcare Mgmt.
Grp., 193 F.3d 304, 308 (5th Cir. 1999) (“We have held that when the facts relating
to the alleged fraud are peculiarly within the perpetrator’s knowledge, the [Fed. R.
Civ. P.] 9(b) standard is relaxed . . . .”). In that instance, the plaintiff may plead
based upon information and belief, Epic Healthcare Mgmt. Grp., 193 F.3d at 308,
provided that she “accompany[ies] [her] legal theory with factual allegations that
maker [her] theoretically viable claim plausible,” In re Rockefeller Ctr. Props., Inc.
Secs. Litig., 311 F.3d 198, 216 (3d Cir. 2002) (emphasis omitted) (internal
quotation marks omitted); see also [United States ex rel. Clausen v.] Lab Corp. of
Am., 290 F.3d [1301,] 1314 [(11th Cir. 2002), cert. denied, 537 U.S. 1105, 123 S.
Ct. 870, 154 L. Ed. 2d 774 (2003)] (recognizing that “a more lenient pleading
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standard” is appropriate under [Fed. R. Civ. P.] 9(b) when “evidence of fraud [i]s
uniquely held by the defendant” provided that “the complaint . . . set[s] forth a
factual basis for such belief” (internal quotation marks omitted)).
United States ex rel. Hill v. Morehouse Med. Assocs., 2003 WL 22019936, at *3, 2003 U.S. App.
LEXIS 27956, at *10-*13 (11th Cir. Aug. 15, 2003) (per curiam) (footnote omitted).
The Court finds Defendants have not alleged enough to avail themselves of the less
stringently applied pleading standard for Fed. R. Civ. P. 9(b). Defendants have not alleged factual
information that is peculiarly within Plaintiffs’ knowledge or control that would relax Fed. R. Civ.
P. 9(b)’s pleading standard.
Therefore, Plaintiffs’ motion to dismiss Defendants’ seventh, eighth, and ninth
counterclaims is granted.
f.
Counterclaim 10 (Estoppel)
In Defendants’ tenth counterclaim, they allege Plaintiffs willfully or negligently
misrepresented facts, upon which Defendants relied to their detriment. Doc. 47 ¶¶ 112-13.
Plaintiffs argue Defendants have failed to state facts upon which their promissory estoppel
counterclaim rests and they cannot recover under their counterclaim because there are valid
contracts between the parties. See Doc. 49 at 10-12. In response, Defendants argue they pleaded
enough factual content to support their counterclaim, and estoppel is not precluded because the
counterclaim is based on Plaintiffs’ pre-contract misrepresentations. See Doc. 51 at 16-17.
For Defendants to prove their counterclaim of promissory estoppel, they must show: “(1)
that [Plaintiffs] made a misrepresentation in the form of a promise, (2) that the misrepresentation
concerned a material existing fact, (3) that [Defendants] relied on the misrepresentation, (4) that
the reliance proximately caused the injury or damage alleged, and (5) that when [Plaintiffs] made
the promise, [they] intended not to perform the act promised, but intended to deceive
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[Defendants].” Aldridge v. DaimlerChrysler Corp., 809 So. 2d 785, 795 (Ala. 2001) (citing Ex
parte Grand Manor, Inc., 778 So. 2d 173 (Ala. 2000)).1
Here, Defendants argue their promissory estoppel counterclaim is based on Plaintiffs’ precontract representations; however, Defendants have not distinguished between the damages
incurred from Plaintiff’s alleged pre-contract misrepresentations and those they incurred from
Plaintiffs’ alleged breach of contract. Defendants allege: “Defendants contracted with CPSI and
TruBridge for services, including RCM, relying to their detriment on CPSI and TruBridge’s
representations of their knowledge, know-how, expertise, customized systems and tools, among
other things. To that effect, the Parties entered into a series of ‘Agreements’ from December 2011
to March 2015.” Doc. 47 ¶ 54. Defendants’ pleadings, coupled with the fact that Defendants
admit in their first amended answer the parties entered into a set of contractual agreements,
compare Doc. 1-1 ¶¶ 10-14, 16 with Doc. 47 ¶¶ 10-14, 16, show any alleged misrepresentations
by Plaintiffs resulted in a contract between the parties and the pleadings do not state promissoryestoppel-reliance damages that are independent from any breach-of-contract damages. Therefore,
Defendants have not stated a claim for promissory estoppel.
Defendants’ argument in the alternative that if the Court finds the contracts between the
parties are unenforceable, or there was not consideration, their counterclaim of promissory
estoppel is viable, is also without merit. As to whether the Court may find unenforceable the
contracts between the parties, “‘estoppel cannot operate to create binding effect against a party
under circumstances which would not sustain a contract if one had been made.’” Aldridge, 809
So. 2d at 794 (quoting Bates v. Jim Walter Res., Inc., 418 So. 2d 903, 906 (Ala. 1982)). As to
1
Here, the Court substitutes Plaintiffs and Defendants as appropriate based on the fact that these
are counterclaims.
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whether the Court may find there was not valid consideration to create an enforceable contract,
Defendants admit in their first amended answer the parties entered into a set of contractual
agreements. Compare Doc. 1-1 ¶¶ 10-14, 16 with Doc. 47 ¶¶ 10-14, 16.
Plaintiffs’ motion to dismiss Defendants’ tenth counterclaim is granted.
V.
CONCLUSION
Based on the foregoing discussion and analysis, Plaintiffs’ Motion to Dismiss Texas
General Hospital and Texas General Hospital—VZRMC’s Counterclaims and Incorporated
Memorandum of Law is GRANTED in part and DENIED in part. Plaintiffs’ motion is
GRANTED as to Defendants’ second, third, fourth, fifth, seventh, eighth, ninth, and tenth
counterclaims and DENIED as to Defendants’ first and sixth counterclaims.
DONE and ORDERED this the 12th day of September 2019.
/s/ Terry F. Moorer
TERRY F. MOORER
UNITED STATES DISTRICT JUDGE
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