Medalogix, LLC v. Alacare Home Health Services,Inc.

Filing 27

MEMORANDUM OPINION OF THE COURT. Signed by Chief Judge Kevin H. Sharp on 10/20/15. (DOCKET TEXT SUMMARY ONLY-ATTORNEYS MUST OPEN THE PDF AND READ THE ORDER.)(afs)

UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF TENNESSEE
NASHVILLE DIVISION
MEDALOGIX, LLC,

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Plaintiff/Counter-Defendant,
v.
ALACARE HOME HEALTH
SERVICES, INC.,
Defendant/Counter-Plaintiff.

No: 3:15-00472
Judge Sharp

MEMORANDUM
In this diversity action, Defendant/Counter-Plaintiff Alacare Home Health Services, Inc.
(“Alacare”) has filed a Motion to Transfer Venue (Docket No. 17), which Plaintiff/CounterDefendant Medalogix, Inc. (“Medalogix”) opposes (Docket No. 18). For the reasons that follow,
the Motion to Transfer will be granted.
I. Factual Allegations
Based upon the parties’ filings, the relevant factual allegations are as follows:
Medalogix is a Delaware limited liability company with its principal executive office in
Nashville, Tennessee. It is a “health data analytics firm” that “specializes in creating predictive
analytic software and tools designed to assist home health care providers in identifying and
managing patients for whom hospice care is appropriate and in deploying clinical resources so as
to reduce hospital admissions among their patients.” (Docket No. 1, Complaint ¶ 6). Towards that
end, Medalogix has developed two software products that it markets and sells to clients:
The “Bridge” product uses predictive analytics to help home health care providers
identify more quickly and accurately those patients who are ready for transfer to
hospice care, which commands higher reimbursement rates from payors than do
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ordinary home health care services. The “Touch” product uses predictive analytics
to help home health care providers identify those patients who have the highest
probability of needing inpatient care so that the provider can allocate the clinical
resources necessary to avoid such admissions, if possible.
(Id. ¶ 7). Both products are designed to increase revenue for providers and afford the most
appropriate level of care for patients.
Alacare provides home health care and hospice services to patients throughout Alabama.
In January 2013, Alacare entered into a Services Agreement with Medalogix. That same day, the
parties also entered into a Business Associate Agreement.
Medilogix claims that, pursuant to the Services Agreement, Alcare agreed to provide access
to historical patient data and other information. Based on this information, Medilogix then
developed or enhanced its Bridge and Touch products for use by Alacare.
Apparently, things went well for a while and, in October 2013, the parties entered into an
amended Services Agreement. That agreement, Medalogix claims, allowed Alacare free use of its
products in exchange for Medalogix’s continued access to historical patient data and other
information. Alacare also allegedly agreed to help Medalogix market and sell the Bridge and Touch
products to other providers in exchange for commissions.
Sometime towards the end of 2014, the relationship betweem the parties soured. Medalogix
claims that “Alacare suddenly began demanding additional compensation from Medalogix for the
information and services it had provided . . . during the development of the Bridge and Touch
products,” and what “began as a request for perpetual free use of those products,” turned into a
demand for “a substantial, non-dilutable equity ownership interest in the company.” (Id. ¶ 14).
By way of this suit, Medalogix requests declaratory relief. Specifically, it asks the Court
declare that:
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a. The patient records, patient assessments, patient record format, hospice referral
and admission procedures and other information provided by Alacare to Medalogix
in connection with the development and enhancement of the Bridge and Touch
products (collectively, the “Alacare Information”) do not constitute “trade secrets”
or information that is otherwise proprietary to Alacare;
b. Medalogix did not improperly disclose, misappropriate or otherwise misuse the
Alacare Information by using it to develop the predictive functionality contained in
the Bridge and Touch products;
c. By entering into the Addendum to the Services Agreement after the Bridge and
Touch products had been developed and both parties had knowledge of their contents
and functionality, Alacare consented to and/or licensed Medalogix's use of any
Alacare Information contained in the Software; and
d. By endorsing, marketing and selling the Bridge and Touch products in the
marketplace, Alacare has consented to and/or licensed Medalogix's use of any
Alacare Information contained in the Software and waived and/or is estopped from
asserting any claim for misappropriation of the Alacare Information.
(Id. ¶ 27).
Alacare has filed an Answer and Counter-Complaint. In its Counter-Complaint, Alacare
alleges that it is relatively unique in the healthcare industry because it provides both healthcare and
hospice services and that, based upon many years of experience, it knows when to move a patient
from regular home health care to hospice care. Alacare claims its
know-how and proprietary expertise has been captured in a confidential and
proprietary patient database . . . spanning patient data from 2006 to the present. The
patient database includes but is not limited to Protected Health Information (“PHI”)
and is guarded by security systems to maintain its secrecy. The arrangement and
sequencing of patient data in the patient database is proprietary to Alacare and is
protected by Copyright Registration No. TXu001937973.
(Docket No. 16, Counter-Complaint ¶ 8). In addition, Alacare claims to have developed proprietary
systems to assess and assist a patient in transitioning from a home healthcare environment to a
hospice environment which it refers to as the “Alacare Hospice Transition Model.”
Alacare acknowledges that the parties entered into the Business Associate Agreement, a
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Services Agreement, and an Addendum, but claims that none of the agreements provided Medalogix
with any ownership interest in Alacare’s PHI. Alacare contends that “[i]n 2013, Medalogix had
absolutely no experience with hospice patients, but it quickly realized that, through its access to
‘known patient outcomes’ in the Alacare Database,” and through the enlistment of help from service
level employees at Alacare, Medalogix “had a unique opportunity to develop analytic rules[.]” (Id.
¶¶ 31-33). Alacare asserts that the information Medalogix received was beyond that which was
“reasonably required” to perform services under the agreements between the parties. (Id. ¶ 35).
Moreover, when the “Addendum was executed, Medalogix failed to disclose to Alacare the extent
of IP [intellectual property] taken from Alacare and incorporated into the Medalogix software
programs,” and “likewise failed to disclose its intent to incorporate Alacare’s IP into its software
programs in perpetuity without a license or permission from Alacare.” (Id. ¶ 43).
Alacare contends “[i]t has now become clear that significant IP, PHI, and Proprietary
information belonging to Alacare – information that was not required for Medalogix to perform its
services under the Agreement – was incorporated by Medalogix into its software products and sold
to the general public.” (Id. ¶ 44). It brings claims under Alabama law for breach of contract,
violation of the Trade Secrets Act, unlawful trade practices, conversion, unjust enrichment, and
fraudulent suppression. Alacare seeks both money damages and injunctive relief.
II. Discussion
Alacare moves to transfer this case based upon a forum selection clause contained in the
Business Associate Agreement. Section 13 of that Agreement provides:
Section 13. Governing Law and Venue. This BA Agreement shall be governed by,
and interpreted in accordance with, the Privacy Rules and Security Rules and the
internal laws of the State of Alabama, without giving effect to any conflict of laws
provisions. Any action at law, suit in equity, or other judicial proceeding for the
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enforcement of this BA Agreement, or any provision hereof, shall take place in the
State of Alabama in the County in which Covered Entity has his/her/its place of
business. Business Associate hereby consents to the personal jurisdiction of the state
and federal courts in such County, in any dispute arising from or related to this BA
Agreement.
(Docket No. 1-1 at 24). Since Alacare is the covered entity and has its principal place of business
in Birmingham, Alabama, Alacare request that this case be transferred to the Northern District of
Alabama.
“[F]ederal law, specifically 28 U.S.C. § 1404(a), governs [a] District Court’s decision
whether to give effect to the parties’ forum-selection clause and transfer [a] case[.]” Stewart Org.,
Inc. v. Ricoh Corp., 487 U.S. 22, 32 (1988). That section provides that “[f]or the convenience of
parties and witnesses, in the interest of justice, a district court may transfer any civil action to any
other district or division where it might have been brought or to any district or division to which all
parties have consented.” 28 U.S.C. § 1404(a).
With regard to Section 1404(a), the Supreme Court in Atl. Marine Const. Constr. v. U.S.
Dist. Court for W. Dist. of Texas observed:
In the typical case not involving a forum-selection clause, a district court considering
a § 1404(a) motion (or a forum non conveniens motion) must evaluate both the
convenience of the parties and various public-interest considerations. Ordinarily, the
district court would weigh the relevant factors and decide whether, on balance, a
transfer would serve “the convenience of parties and witnesses” and otherwise
promote “the interest of justice.”. . . The calculus changes, however, when the
parties’ contract contains a valid forum-selection clause, which “represents the
parties’ agreement as to the most proper forum. . . The “enforcement of valid
forum-selection clauses, bargained for by the parties, protects their legitimate
expectations and furthers vital interests of the justice system.” For that reason, and
because the overarching consideration under § 1404(a) is whether a transfer would
promote “the interest of justice,” a valid forum-selection clause [should be] given
controlling weight in all but the most exceptional cases.”
134 S. Ct. 568, 581 (2013) (internal citations omitted). The Court went on to explain that “[t]he

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presence of a valid forum-selection clause requires district courts to adjust their usual § 1404(a)
analysis in three ways”: “First, the plaintiff’s choice of forum merits no weight”; “[s]econd, a court
evaluating a defendant’s § 1404(a) motion to transfer based on a forum-selection clause should not
consider arguments about the parties’ private interests”; and “[t]hird, when a party bound by a
forum-selection clause flouts its contractual obligation and files suit in a different forum, a § 1404(a)
transfer of venue will not carry with it the original venue's choice-of-law rules – a factor that in some
circumstances may affect public-interest considerations.” Id. at 581-82. In short, “[w]hen the
parties have agreed to a valid forum-selection clause, a district court should ordinarily transfer the
case to the forum specified in that clause,” and “[o]nly under extraordinary circumstances unrelated
to the convenience of the parties should a § 1404(a) motion be denied.” Id. at 581.
Medalogix does not dispute the existence of the forum selection clause or its validity. Nor
does it claim that venue would not be proper in the Northern District of Alabama. Rather, its
argument is that the forum selection clause “is, quite simply, a red herring,” and “provides no basis
to transfer this case.” (Docket No. 18 at 2). Medalogix argues
this is a dispute over the creation of two software programs—the “Bridge” and
“Touch” products—and, specifically, whether Plaintiff Medalogix, LLC
(“Medalogix”) breached the parties’ Services Agreement when it used information
that Alacare provided to design and build those programs. The Services Agreement,
therefore, is central to this case, and it is out of the Services Agreement that the
parties’ claims arise.
(Id. at 1). It claims, “[t]he genesis of this lawsuit is a dispute over Medalogix’s rights under the
Services Agreement, as opposed to the ancillary Business Associate Agreement,” because the
Services Agreement “set forth what information Alacare would provide and how Medalogix would
use it,” while the Business Agreement was “intended to facilitate Alacare’s provision of information
to Medalogix as contemplated in the Services Agreement.” (Id. at 3). For two reasons, the Court
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is unpersuaded by these argument.
First, a fair review of the pleadings indicates that more than the Services Agreement is
implicated. A core issue appears to be whether Medalogix improperly obtained and used Alacare’s
intelectual property which Alacare contends consists of certain PHI which is covered by the
disclosure and use pro visions of the Business Agreement.
Among other things, Medalogix has requested a declaration as to whether “patient records,
patient assessments, patient record format, hospice referral and admission procedures and other
information provided by Alacare to Medalogix

in connection with the development

and

enhancement of the Bridge and Touch products . . . constitute ‘trade secrets’” or information that
is otherwise proprietary to Alacare,” and whether “Alacare consented to and/or licensed
Medalogix’s use of any Alacare Information contained in the Software.” (Docket No. 1,Complaint
¶ 27). In turn, the focus of Alacare’s Counter-Complaint centers on whether Medalogix has
misappropriated its intellectual property, PHI and other information governed by the Business
Agreement.
Second, the Business Agreement, executed the same day as the Services Agreement, states
that it is to “be construed as broadly as necessary to comply with the Privacy and Security Rules.”
(Docket No. 1-1 at 23). More fundamentally, the Business Agreement specifically states that it
“supplements and is made a part of th[e] Service Agreement, to include amendments and addendums
thereto[,]” (id.), suggesting that the forum selection clause applies to the Service Agreement and
Addendum in this case.
Medalogix’s reliance on paragraphs 11 and 22 of the Settlement Agreement is misplaced.
In paragraph 11, the parties “acknowledge that a breach of the obligations of confidential . . . would

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cause irreparable injury, and agree that “[a] party may seek . . . temporary or preliminary injunctive
relief in a court of competent jurisdiction in Davidson County, Tennessee to retrain a violation of
the confidentiality obligations.” But this language is merely permissive, whereas the selection forum
clause of the Business Agreement mandates that disputes related to its enforcement be heard in
Alabama. See, Rivera v. Centro Medico de Turabo, Inc., 575 F.3d 10, 17 (1st Cir. 2009)
(“Permissive forum selection clauses, often described as consent to jurisdiction clauses, authorize
jurisdiction and venue in a designated forum, but do not prohibit litigation elsewhere”); Flight Sols,
Inc. v. Club Air, Inc., 2010 WL 276094, at *3 (M.D. Tenn. Jan. 14, 2010) (citation omitted) (noting
that, unlike a mandatory selection clause, “[a] permissive forum-selection clause “authorize[s]
jurisdiction in a designated forum, but do[es] not prohibit litigation elsewhere,” and “the parties are
not bound to bring suit in the designated forum’”). Besides, the parties are not seeking a temporary
or preliminary injunction in this action.
In paragraph 22, the parties agreed that disputes involving the Services Agreement “shall be
governed by, and construed in accordance with, the laws of the State of Tennessee without giving
effect to choice of law principles.” (Docket No. 1-1 at 22). While Medalogix quotes the Supreme
Court’s decision in Gulf Oil Corp. v. Gilbert, 330 U.S. 501, 510 (1947) for the proposition that
[t]here is a local interest in having localized controversies decided at home [and] in having the trial
of a diversity case in a forum that is at home with the state law that must govern the case,” the
Supreme Court made that observation in the context of discussing the public interest factor under
the doctrine of forum non conveniens. As noted, however, the calculus changes when there exists
a valid forum selection clause.
Finally, Medalogix argues that Plaintiff has not shown that the Section 1404(a) factors favor

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transfer and, in fact, the balance of those factors “weighs heavily against transfer. Under Atlantic
Marine, however, those factors have little or no weight.
Medalogix, as “[t]he party opposing the forum selection clause[,] bears the burden of
showing that the clause should not be enforced.” Wong v. PartyGaming Ltd., 589 F.3d 821, 828 (6th
Cir. 2009).

It has not carried that burden, and it certainly has not shown “extraordinary

circumstances unrelated to the convenience of the parties,” Atl. Marine, 134 S. Ct. 582, that would
warrant denial of the request for transfer.
III. Conclusion
On the basis of the foregoing, Alacare’s Motion to Transfer will be granted. An appropriate
Order will enter.

____________________________________
KEVIN H. SHARP
UNITED STATES DISTRICT JUDGE

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