Physicians ACO, LLC v. Computer Sciences Corporation et al

Filing 25

ORDER AND OPINION denying 23 Motion for Reconsideration. Plaintiff has thirty days from the entry of this order to amend its complaint(Signed by Judge Melinda Harmon) Parties notified.(jdav, 4)

United States District Court
Southern District of Texas

ENTERED
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
§
§
Plaintiff,
§
VS.
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§
COMPUTER SCIENCES CORPORATION, et§
al,
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§
Defendants.
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July 27, 2017
David J. Bradley, Clerk

PHYSICIANS ACO, LLC,

CIVIL ACTION NO. 4:16-CV-1293

ORDER AND OPINION
Pending before the Court is Plaintiff Physician ACO, LLC’s (“PACO”) Motion for
Reconsideration. (Document No. 23). Defendants Computer Sciences Corporation and CSRA
Inc. (collectively “Defendants”) have filed a Response. (Document No. 24). Having considered
these filings and the applicable law, the Court concludes that Plaintiff’s Motion (Document No.
23) is denied.
Background
This Court previously dismissed Plaintiff’s claims of breach of contract, negligence,
negligent misrepresentation, and fraud. (See Document No. 22). Plaintiff now presents
arguments that the

Court incorrectly dismissed its breach of contract, negligent

misrepresentation, and fraud claims, but does not dispute the Court’s dismissal of its negligence
claim. (Document No. 23).1
Standard of Review
Plaintiff filed its Motion for Reconsideration under Rule 59(e). “To prevail on a Rule
59(e) motion, the movant must show at least one of the following: 1) an intervening change in
controlling law; 2) new evidence not previously available; 3) the need to correct a clear or
1

Please refer to the previous opinion for a discussion of the facts. (Document No. 22).

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manifest error of law or fact or to prevent manifest injustice.” United States v. Saldivar, No.
2:03-CR-182-2, 2014 WL 357313, at *1 (S.D. Tex. Jan. 31, 2014). Relief under this Rule is
considered to be extraordinary and “should be used sparingly.” Templet v. HydroChem Inc., 367
F.3d 473, 479 (5th Cir. 2004) (citations omitted).
Discussion
Breach of Contract
The Court previously explained that PACO did not state a claim for breach of contract,
because it did not sufficiently allege that it was an intended third-party beneficiary to the
contract. (Document No. 22 at 4-5). The Court stated that:
PACO does not specifically claim to be a party to the contract, 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 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.
Id. In its Motion for Reconsideration PACO again advances its theory that it was a third-party
beneficiary to the contract, because “Plaintiffs alleged themselves to be in that select class, and
beneficiaries of the procurement contract between Center for Medicare and Medicaid Services
(CMS) and Defendants to provide the interactive GPRO Portal intended specifically for their use
as one of the first cohort of Accountable Care Organizations charged by CMS to use the GPRO
Portal to timely lodge required reports with CMS.” (Document No. 23 at 4). This argument fails
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because it does not point to any portion of PACO’s First Amended Complaint which sufficiently
alleges that the contract “directly and unequivocally” intended to benefit PACO. Instead, it relies
only on Defendants’ awareness that PACO would use the GPRO Portal. The Court already
explained that this awareness was not sufficient; PACO’s attempts to rehash this argument fail.
Plaintiff then argues that:
On its third-party beneficiary claims, if Texas law were applicable, the Court may
dispose of them summarily only, after evidence to evaluate the intention of the parties to
the contract. For under Texas law, the fact that a plaintiff entity is not a named or called a
beneficiary to the contract is not determinative of whether it is an intended beneficiary of
the contract entitled to damages for its non-performance. Rather it is a fact based inquiry.
Basic Capital Mgmt., Inc. v. Dynex Commercial, Inc., 348 S.W.3d 894 (Tex. 2011).
Id. at 4-5. This argument fails for several reasons. First, the Court already explained that federal
common law governs the contract, and Texas law can only “inform the general principles of
federal common law.” (Document No. 22 at 3-4). Moreover, Plaintiff does not cite any case,
based on either Texas or federal law, which states that discovery is always required to determine
the intent to benefit a third party. Therefore Plaintiff’s claim is both inapposite and unsupported.
Second, while it is true that a third-party beneficiary need not be named in a contract, the Court
did not base its decision on the fact that PACO was not named in the contract. The Court’s
decision was based on PACO’s failure to allege that the contract was “directly and
unequivocally” intended to benefit PACO. Finally, PACO’s claim that the determination of a
party’s status as a third party beneficiary is a “fact based inquiry” misstates the law in Dynex
Commercial. In that case the court explained that, when a contract is unambiguous, a party’s
status as a third party beneficiary is a matter of law. 348 S.W.3d at 901. For all of these reasons,
Plaintiff’s arguments fail.
Negligent Misrepresentation/Fraud
The Court previously explained that:
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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. […]
Both of these causes of action require that the plaintiff relied on the statement made by
the defendant, 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.
(Document No. 22 at 6-7). Nowhere in its Motion for Reconsideration does Plaintiff state that it
relied on CSC’s statements. In fact Plaintiff expressly states that “[i]t is not PACO that was
misled but CMS, who relied upon Defendants [sic] false statements that the GPRO Portal
worked on the day of the deadline.” (Document No. 23 at 2). In some circumstances, though, a
misrepresentation is not required to be made directly to a claimant; an indirect misrepresentation
may be actionable under Texas law. In those cases “the plaintiff must allege that it actually
received and relied upon the misrepresentation.” (Document No. 22 at 6 n.4) (citing 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’s First Amended Complaint contains no such allegations, nor does
Plaintiff’s Motion for Reconsideration attempt to argue that Plaintiff received and relied upon
CSC’s statements. Therefore Plaintiff has not stated a claim for relief under Texas law.
Perhaps recognizing this, Plaintiff now argues for the first time that it “believe[s] the
claim to be under Federal law of false statements to a federal office” and that “such a claim
exists at common law.” (Document No. 23 at 5). Plaintiff then cites federal law for the
proposition that “[t]he direct foreseeable consequence of Defendants’ false statements to CMS
was to deprive Plaintiff of its entitled MSSP payment. This is sufficient proximate cause at
common law.” Id. at 5-6. The Court first notes that it is inappropriate for Plaintiff to raise this
new argument in a motion for reconsideration. Broyles v. Texas, 643 F. Supp. 2d 894, 897 (S.D.
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Tex. 2009) (“A motion to alter or amend the judgment under Rule 59(e) […] cannot be used to
raise arguments which could, and should, have been made before the judgment issued.”)
(citations and internal quotations omitted). However Plaintiff is correct that, according to Bridge
v. Phoenix Bond & Indemnity Co., “while it may be that first-party reliance is an element of a
common-law fraud claim, there is no general common-law principle holding that a fraudulent
misrepresentation can cause legal injury only to those who rely on it.” 553 U.S. 639, 656 (2008)
(discussing a RICO claim predicated on mail fraud). However, confusingly, Plaintiff has
technically alleged claims of fraud and negligent misrepresentation. Bridge explicitly states that
mere fraud claims do “require first-party reliance,” and offers no opinion on the reliance required
in a negligent misrepresentation claim. Id. Therefore Bridge is not helpful to the causes of action
which Plaintiff has alleged, and Plaintiff’s arguments fail. However, recognizing that Bridge may
allow for a fraudulent misrepresentation claim under federal law,2 the Court will grant Plaintiff
30 days to amend its complaint.
Conclusion
For the reasons stated above the Court hereby
ORDERS that Plaintiff’s Motion (Document No. 23) is DENIED. Plaintiff has 30 days
from the entry of this order to amend its complaint.
SIGNED at Houston, Texas, this 26th day of July, 2017.
___________________________________
MELINDA HARMON
UNITED STATES DISTRICT JUDGE

2

The Court does not opine at this time as to whether Texas or federal law governs Plaintiff’s claims, as neither party
has meaningfully addressed this issue.

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