Physicians ACO, LLC v. Computer Sciences Corporation et al
ORDER granting 12 MOTION to Dismiss 9 Amended Complaint/Counterclaim/Crossclaim etc. (Signed by Judge Melinda Harmon) Parties notified.(rhawkins)
United States District Court
Southern District of Texas
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF TEXAS
COMPUTER SCIENCES CORPORATION, et §
February 17, 2017
David J. Bradley, Clerk
PHYSICIANS ACO, LLC,
CIVIL ACTION NO. 4:16-CV-1293
ORDER AND OPINION
Before the Court is Defendants’ Motion to Dismiss (Document No. 12), Plaintiff’s
Response (Document No. 13), and Defendants’ Reply (Document No. 14). Having considered
these filings and the applicable law, the Court concludes that Defendants’ Motion (Document
No. 12) should be granted.
Plaintiff Physicians ACO, LLC (“PACO”) is a Texas LLC formed as an accountable care
organization. (Document No. 9 at 2). PACO had a Medicare Shared Savings contract with the
Center of Medicare and Medicaid Services (“CMS”) from 2012-2015. Id. Pursuant to the
contract between PACO and CMS, PACO would be eligible to share in CMS’s deemed savings,
in exchange for providing “elements of care coordination and case management.” Id. at 3-4. As
part of this agreement, CMS imposed various reporting requirements on PACO. Id. These reports
were to be filed via a web portal called the “GPRO Portal,” which was designed and managed by
Defendant Computer Sciences Corporation (“CSC”).1 Id. at 2-4. PACO alleges that, due to the
malfunction of the GPRO Portal, it was unable to timely file its reports. Id. at 9. As a result,
Plaintiff alleges that Defendant CRSA was created via CSC’s divesture of its public contracting unit, and therefore
may be jointly liable for CSC’s actions. (Document No. 9 at 3).
CMS denied its portion of shared savings. Id. Therefore PACO has filed a variety of claims
First, PACO alleges breach of contract. Id. at 10. Although CMS contracted with CSC to
create the GPRO Portal, PACO alleges that it was an intended beneficiary of that contract, and
that CSC breached the contract by failing to design a functioning GPRO Portal. Id. Second,
PACO alleges negligence in the design and operation of the GPRO Portal. Id. at 11-12. Third,
PACO alleges that CSC made a negligent misrepresentation when it confirmed to CMS that the
“GPRO Portal, staffing, and maintenance were adequate,” and when it reported to CMS that the
GPRO Portal had properly functioned on the day that PACO missed its deadline. Id. at 12.
Fourth, PACO also alleges that CSC committed fraud via these representations. Id. at 13.
Defendants have filed a Motion to Dismiss each of these claims under Rule 12(b)(6) and Rule
9(b).2 (Document No. 12).
Standard of Review
When a district court reviews a motion to dismiss pursuant to Fed. R. Civ. P. 12(b)(6), it
must construe the complaint in favor of the plaintiff and take all well-pleaded facts as true.
Wolcott v. Sebelius, 635 F.3d 757, 763 (5th Cir. 2011) (citing Gonzalez v. Kay, 577 F.3d 600,
603 (5th Cir. 2009)). Dismissal is appropriate only if the complaint fails to plead “enough facts
to state a claim to relief that is plausible on its face.” Leal v. McHugh, 731 F.3d 405, 410 (5th
Cir. 2013) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “A claim has facial
plausibility when the pleaded factual content allows the court to draw the reasonable inference
that the defendant is liable for the misconduct alleged.” Montoya v. FedEx Ground Package
System, Inc., 614 F.3d 145, 148 (5th Cir. 2010) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678
The Court does not need to discuss Rule 9(b), as all of Plaintiff’s claims can be dismissed for failure to allege an
essential element under Rule 12(b)(6).
(2009)). The plausibility standard is not akin to a “probability requirement,” but asks for more
than a “possibility that a defendant has acted unlawfully.” Twombly, 550 U.S. at 556. “While a
complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual
allegations, . . . a plaintiff’s obligation to provide the ‘grounds’ of his ‘entitle[ment] to relief’
requires more than labels and conclusions, and a formulaic recitation of the elements of a cause
of action will not do. . . .” Id. at 544.
Breach of Contract
As an initial matter, both parties agree that federal common law applies to this issue,
because the contract between CMS and CSC was a government contract. Excel Willowbrook,
L.L.C. v. JP Morgan Chase Bank, Nat. Ass'n, 758 F.3d 592, 598 n.6 (5th Cir. 2014) (“It is wellestablished that government contracts are governed by federal common law.”) (citing Clem
Perrin Marine Towing, Inc. v. Panama Canal Co., 730 F.2d 186, 189 (5th Cir. 1984)). “Federal
common law prohibits any person except a party or an intended third party beneficiary from
claiming legal rights under a contract. Thus, to sue as a third party beneficiary to a contract, a
person must show it was the express or implied intent of the parties to contract for its benefit.”
Skillman-Eastridge, Ltd. v. JPMorgan Chase Bank, Nat. Ass'n, No. 3:09-CV-01988-M, 2011 WL
4528391, at *4 (N.D. Tex. Sept. 29, 2011) (citations omitted). Therefore the Court will examine
the intent of the parties and the terms of the contract to determine whether a plaintiff is an
intended third-party beneficiary. Bowhead Info. Tech. Servs., LLC. v. Catapult Tech. Ltd., 377 F.
Supp. 2d 166, 171 (D.D.C. 2005) (citations omitted). To be a third-party beneficiary a plaintiff
“need not be named in a contract,” but “the parties to a contract must ‘directly and unequivocally
intend to benefit a third-party in order for that third-party to be considered an intended
beneficiary.’ The parties’ mere knowledge or awareness that a contract may benefit a third-party
is insufficient, without more, to demonstrate an intent to confer a benefit on the third-party.” Id.
“Third party beneficiary status is rarely granted under federal common law, but is granted even
less frequently when the contract at issue involves a government entity, as parties who benefit
from government contracts ‘are generally assumed to be incidental beneficiaries, and may not
enforce the contract absent a clear intent to the contrary.’” Skillman-Eastridge, 2011 WL
4528391, at *4. See also GECCMC 2005-C1 Plummer St. Office Ltd. P'ship v. JPMorgan Chase
Bank, Nat. Ass’n, 671 F.3d 1027, 1033 (9th Cir. 2012) (presumption is that third parties to a
government contract are merely incidental beneficiaries).
Defendants argue that PACO cannot state a claim for breach of contract, because PACO
was not a party to the contract between CMS and CSC, nor was PACO a third-party beneficiary
to it. (Document No. 12 at 12). PACO does not specifically claim to be a party to the contract,3
but PACO does make allegations suggesting that it believes it has standing to enforce the
contract as third-party beneficiary: “By reason of its contract with CMS Defendant for profit
voluntarily undertook to provide for PACO’s benefit … a GPRO Portal that was sufficiently
robust to accommodate data sets from each ACO on the day of the deadline.” (Document No. 9
at 7). PACO also alleges that “Defendant … was aware that PACO was among the intended
PACO does suggest that CMS may have delegated part of its contractual duties to CSC:
CMS by requiring its entire first flight of ACOs to report their quality measures through the GPRO Portal
by March 21, 2014 undertook the duty to its contracting parties, including PACO, to obtain for their benefit
a workable reporting GPRO Portal and system sufficiently robust and with adequate bandwidth to permit
successful reporting by the deadline. CMS delegated this obligation contractually to Defendant to design,
build, implement and maintain a suitable GPRO Portal.
(Document No. 9 at 7). Therefore it would appear that, in addition to arguing that it is a third-party beneficiary,
PACO is also attempting to hold CSC liable under PACO’s contract with CMS, because CMS delegated some of
those duties. This theory fails. Bernard Johnson, Inc. v. Cont'l Constructors, Inc., 630 S.W.2d 365, 369 (Tex.App.—
Austin 1982, writ ref'd n.r.e.) (“As a general rule, a suit for breach of contract may not be maintained against a
person who is not a party to the contract, particularly a non-party who is assigned duties by the terms of the
contract.”) (citations omitted). The Court may use this Texas law to inform the general principles of federal common
law. See Skillman-Eastridge, Ltd. v. JPMorgan Chase Bank, Nat. Ass'n, No. 3:09-CV-01988-M, 2011 WL 4528391,
at *4 n.45 (N.D. Tex. Sept. 29, 2011) (citation omitted).
beneficiaries of CMS’ contract with it for implementation and use of the GPRO Portal.” Id. at
10. The Court agrees with Defendants that these allegations are insufficient to allege that PACO
was an intended third-party beneficiary to the contract. Neither statement suggests that CMS and
CSC “directly and unequivocally” intended to benefit PACO; the allegations merely state that
CSC was aware that PACO would be using the GPRO Portal. As described above, this
awareness is not sufficient to suggest third-party beneficiary status, especially considering the
high bar to such status in government contracts, and the presumption that PACO is only an
incidental beneficiary. Therefore the Court finds that the allegations in the Amended Complaint
do not plausibly state a claim for relief against CSC, and should be dismissed.
In its negligence claim, PACO states that “Defendant undertook contractually, and as a
result had a duty to take due care and to exercise good and workmanlike performance to properly
design and maintain the GPRO Portal” and “CSC undertook contractually, and as a result had a
duty of due care, to properly maintain the GPRO Portal particularly during periods of its most
acute stress – the day of reporting deadline, March 21, 2014.” (Document No. 9 at 11-12).
However, as discussed above, PACO is not a third-party beneficiary to the contract, and
therefore cannot enforce any standard of care owed to CMS under the contract. Without a proper
allegation that CSC owed it a duty of care, PACO cannot establish a negligence claim. McLaurin
v. Waffle House, Inc., 178 F. Supp. 3d 536, 563 (S.D. Tex. 2016) (“To establish negligence, a
party must produce evidence that (1) another party owed it a legal duty, (2) the other party
breached that duty, and (3) damages were proximately caused by that breach.”) (citation
omitted). Therefore the Court will dismiss the negligence claim. Rios v. City of Del Rio, Texas,
444 F.3d 417, 421 (5th Cir. 2006) (“Dismissal is proper if the complaint lacks an allegation
regarding a required element necessary to obtain relief . . . .”).
Fraud and Negligent Misrepresentation
The statements alleged to be negligent misrepresentations are: (1) CSC’s representation
to CMS that the “GPRO Portal, staffing and maintenance were adequate” and (2) CSC’s
representation to CMS “that the GPRO Portal had properly functioned.” (Document No. 9 at 12).
PACO alleges that these same statements also constituted fraud. Id. at 13. Defendants argue that
these allegations fail to state a claim for relief on either cause of action, because “neither claim
alleges that PACO actually or justifiably relied on any statement by CSC.” (Document No. 12 at
“The four elements of negligent misrepresentation are: (1) the representation is made by a
defendant in the course of his business, or in a transaction in which he has a pecuniary interest;
(2) the defendant supplies ‘false information’ for the guidance of others in their business; (3) the
defendant did not exercise reasonable care or competence in obtaining or communicating the
information; and (4) the plaintiff suffers pecuniary loss by justifiably relying on the
representation.” Tukua Investments, LLC v. Spenst, 413 S.W.3d 786, 802 (Tex. App.-El Paso
2013, pet. denied). “In order to recover under a theory of fraud, a plaintiff must show: (1) the
defendant made a material representation that was false; (2) the defendant knew the
representation was false or made it recklessly as a positive assertion without any knowledge of
its truth; (3) the defendant intended to induce the plaintiff to act upon the representation; and (4)
the plaintiff actually and justifiably relied upon the representation and suffered harm as a result.”
Defendants also include discussion of indirect misrepresentation claims, which occur (as in this case) where a
defendant (CSC) makes a misrepresentation to one party (CMS), and a third party (PACO) receives and relies on the
misrepresentation. Even in these types of claims, though, the plaintiff must allege that it actually received and relied
upon the misrepresentation. Admiral Ins. Co. v. Heath Holdings USA, Inc., No. CIV.A. 3:03-CV-1634G, 2004 WL
1144062, at *4 (N.D. Tex. May 21, 2004). Plaintiff has not done so here. In addition, where the alleged
misrepresentation was indirect, PACO must also allege that CSC intended that PACO receive and rely upon its
representations. Id. However, PACO does not have any such allegation in its Amended Complaint. For this
additional reason, PACO’s claims fail.
Burroughs v. APS Int'l, Ltd., 93 S.W.3d 155, 161 (Tex. App.-Houston [14th Dist.] 2002, pet.
denied) (citation omitted). Both of these causes of action require that the plaintiff relied on the
statement made by the defendant,5 but nowhere in the Amended Complaint does PACO allege
that it relied on CSC’s statements. In fact, PACO does not even allege when it became aware of
these statements; without knowledge of the statements it would be impossible for PACO to rely
upon them. Therefore PACO has failed to allege an essential element of these claims, as required
by Rule 12(b)(6), and dismissal is proper. Rios, 444 F.3d at 421.
For the foregoing reasons, the Court hereby
ORDERS that Defendants’ Motion to Dismiss (Document No. 12) is GRANTED.
SIGNED at Houston, Texas, this 16th day of February, 2017.
UNITED STATES DISTRICT JUDGE
The cases cited by Plaintiff in its Response do not dispute this proposition, as none cite to Texas law.
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