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Prairie River Home Care, Inc. v. Procura, LLC

United States District Court, D. Minnesota

July 30, 2018

PRAIRIE RIVER HOME CARE, INC. Plaintiff,
v.
PROCURA, LLC a/k/a Complia Health Defendant.

          JADE BAILEY JORGENSON AND PAMELA ABBATE-DATTILO, FREDRIKSON & BYRON, PA, FOR PLAINTIFF.

          HILLARD M. STERLING, WINGET SPADAFORA SCHWARTZBERG LLP, KLAY C. AHRENS, HELLMUTH & JOHNSON PLLC, FOR DEFENDANT.

          MEMORANDUM OPINION AND ORDER

          JOHN R. TUNHEIM CHIEF JUDGE

         Plaintiff Prairie River Home Care, Inc. (“Prairie River”), brings this fraud and contract action against Defendant Procura, LLC, arising from the sale of software. Procura moves to dismiss Prairie River's Amended Complaint in its entirety. The Court will conclude that Prairie River has sufficiently stated claims for fraudulent inducement, breach of contract, and breach of express warranty. However, the Court will dismiss Prairie River's claims for breach of implied warranty of merchantability, rescission, and consequential damages. Accordingly, the Court will grant in part and deny in part Procura's motion.

         BACKGROUND

         I. FACTUAL BACKGROUND

         The following recitation of facts is based on the allegations contained in Prairie River's Amended Complaint. (Am. Compl. (“Compl.”), Dec. 13, 2017, Docket No. 23.)

         A. Sale of the Software

         Prairie River is a Medicare-certified, home health care provider in the state of Minnesota. (Id. ¶¶ 1, 5-8.) Procura designed and developed the Procura Software Program (the “Software”) - an agency-management software package for health-care providers. (Id. ¶¶ 9-12.) The Software provides clinical, mobile, operational, financial, and resource-management tools for health-care providers working with elderly and disabled populations. (Id. ¶ 10.)

         In May 2015, Prairie River contacted Procura about its Software because Prairie River was looking for new software with enhanced documentation capabilities. (Id. ¶¶ 12-13.) Between June and October 2015, Procura demonstrated its Software for Prairie River on a number of occasions. (Id. ¶ 14.) During these demonstrations, Procura made numerous representations about the Software's capabilities. (Id. ¶¶ 15-18.) Prairie River informed Procura that it needed the Software to “go live” no later than January or February 2016. (Id. ¶ 20.) Procura led Prairie River to believe that this deadline was feasible and that Procura had transitioned “tons” of Riversoft clients to Procura's Software. (Id. ¶¶ 20-21.)

         In September 2015, Procura sent representatives to Prairie River's corporate office to negotiate the Software sale. (Id. ¶ 24.) Prairie River insisted on having more time to consider the deal. (Id.) However, Procura informed Prairie River that it was important for the parties to complete the sale before the end of Procura's third quarter so that Procura could report the sale on its financial statements. (Id. ¶¶ 24-25.) Prairie River and Procura entered into a Master Software License and Support Agreement (the “Agreement”) on September 30, 2015. (Id. ¶ 26; Aff. of Klay C. Ahrens ¶ 2, Ex. A (“Agreement”) at 15, Dec. 27, 2017, Docket No. 30.)

         B. The Agreement

         Prairie River purchased a perpetual enterprise license of the Software for “on-premise” installation. (Agreement at 13.) This “Perpetual License Term” grants Prairie River “a perpetual, non-exclusive, non-transferable right and license to access and use the Software and any Work Product to which the Software relates.” (Id. at 3.) The Agreement defines “Software” as “the software, in object code form, identified in the Software Order, including related Documentation, Enhancements, Modifications, Upgrades, and Embedded Software.” (Id. at 2.) “Documentation” means “the user guides, operating manuals, educational materials, product descriptions and specifications, technical manuals, supporting materials, and other information relating to the Software.” (Id. at 1.)

         For Software “acquired by Customer as an ‘on-premise' software product, ” the Agreement's Warranty Provision warrants that, “during the ninety (90) day period commencing on the Effective Date [i.e., September 30, 2015]: (a) the Software will be capable of functioning substantially in accordance with its applicable Documentation.” (Id. at 8.) To invoke the warranty, Prairie River was required to “notif[y Procura] of the specific non-conformance within the ninety (90) day period referred to” in the Warranty Provision. (Id.) The Agreement excludes all other warranties - express or implied - and states that the Software is provided on an “AS IS” basis. (Id. at 9.)

         Procura also agreed to provide Prairie River with “Software Problem and Hardware support.” (Id. at 6.) Upon confirmation of a “software problem” (defined as “an inability of the Software to perform, in all material respects, in accordance with its related Documentation”), Procura agreed to “make reasonable efforts to correct the matter.” (Id. at 2, 6.)

         The Agreement contains a number of limitations of liability and damages, including a disclaimer of consequential and incidental damages. (Id. at 9.) The Agreement also limits Procura's liability to the amount of fees actually paid to Procura in the 12-month period before initiation of the claim. (Id.)

         Finally, the Agreement contains an integration clause, which states that the final agreement constitutes “the final and complete expression” of the agreed-to terms and “supersedes all prior proposals, understandings and negotiations between the Parties, whether written or not.” (Id. at 11.) The Agreement is governed by Illinois law. (Id.)

         C. Implementation

         Implementation, training, and configuration of the Software were undertaken by Procura and an associate company, Salo Solutions, Inc. (“Salo”). (Compl. ¶ 33.) The transition did not go smoothly.

         Prairie River anticipated that the Software would go live in January or February 2016 - as it had been assured by Procura. (Id. ¶¶ 20, 40.) Around November 2015, Procura delivered a database to Prairie River but the database was not functional because it was missing key features necessary to bill Medicare or Medicaid. (Id. ¶¶ 37-38.) In November 2015, Salo informed Prairie River that it was impossible for the Software to go live by January or February 2016 and that it took other customers one year to complete the implementation phase. (Id. ¶ 40.) The Software finally went live on June 1, 2016. (Id. ¶ 41.)

         After the Software went live, it failed to function in accordance with its documentation. (Id. ¶¶ 43-88). Prairie River notified Procura about these problems but Procura failed to remedy the defects. (See, e.g., id. ¶¶ 42, 47-48, 89-102.) Moreover, Prairie River discovered that Procura had made misleading or false statements about the functionalities of the Software during the sales process. (See, e.g., id. at pp. 32-33). The defects in the Software hindered Prairie River's ability to bill patients, pushing it to the edge of bankruptcy. (Id. ¶¶ 90-91, 102.) Prairie River paid over $800, 000 in out-of-pocket expenses as a result of the Software's failure - not including lost profits, lost personnel, and lost business opportunities. (Id. at 102.)

         In November 2016, Prairie River Chief Information Officer Austin Figge sent an email to Procura asking for assistance. (Id. ¶ 91.) In February 2017, Prairie River and Procura met to discuss the situation, and Procura promised to propose a plan to correct the Software's deficiencies by February 20. (Id. ¶ 95.) Procura never sent Prairie River a plan. (Id. ¶¶ 96-99.) On March 1, 2017, Prairie River decided to abandon the Software. (Id. ¶¶ 100-101.)

         II. PROCEDURAL BACKGROUND

         Prairie River filed this action in state court on October 18, 2017. (Notice of Removal ¶ 3, Ex. A, Nov. 15, 2017, Docket No. 1.) Procura removed the case to federal court. (Notice of Removal ¶ 11.) Prairie River filed an Amended Complaint on December 13, 2017. (Compl.) Prairie River pleads claims of breach of contract, (id. ¶¶ 106-23); breach of warranty, (id. ¶¶ 124-34); rescission, (id. ¶¶ 134-41); and fraudulent inducement (id. at pp. 31-33.) With respect to the breach-of-contract claim, Prairie River requests consequential damages, arguing that Procura's willful misconduct permits recovery notwithstanding the Agreement's disclaimer of consequential damages. (Id. ¶ 122.)

         Procura's Motion to Dismiss is now before the Court. (Mot. to Dismiss, Dec. 27, 2017, Docket No. 27.)

         DISCUSSION

         I. STANDARD OF REVIEW

         In reviewing a Rule 12(b)(6) motion, the Court considers all facts alleged in the complaint as true to determine whether it states a “claim to relief that is plausible on its face.” Braden v. Wal-Mart Stores, Inc., 588 F.3d 585, 594 (8th Cir. 2009) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)). “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.” Iqbal, 556 U.S. at 678. “Where a complaint pleads facts that are ‘merely consistent with' a defendant's liability, it ‘stops short of the line between possibility and plausibility[, ]'” and therefore must be dismissed. Id. (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 557 (2007)). Although the Court accepts the complaint's factual allegations as true, it is “not bound to accept as true a legal conclusion couched as a factual allegation.” Id. (quoting Twombly, 550 U.S. at 555). Therefore, to survive a motion to dismiss, a complaint must provide more than “‘labels and conclusions' or ‘a formulaic recitation of the elements of a cause of action.'” Id. (quoting Twombly, 550 U.S. at 555.)

         I. FRAUDULENT INDUCEMENT

         Procura moves to dismiss Prairie River's fraudulent-inducement claim, arguing that (1) Prairie River failed to plead fraud with particularity as required by Federal Rule of Civil Procedure 9(b); (2) Prairie River cannot maintain both fraudulent-inducement and breach-of-contract claims; (3) Prairie River's allegations defeat its fraudulent-inducement claim, and (4) the false statements alleged by Prairie River were statements of future events or opinions.

         Under Illinois law, fraudulent inducement is a form of common-law fraud. Avon Hardware Co. v. Ace Hardware Corp., 998 N.E.2d 1281, 1287 (Ill.App.Ct. 2013). In order to plead a claim of fraudulent inducement, a plaintiff must allege “(1) a false statement of material fact; (2) knowledge or belief by the defendant that the statement was false; (3) an intention to induce the plaintiff to act; (4) reasonable reliance upon the truth of the statement by the plaintiff; and (5) damage to the plaintiff resulting from this reliance.” Id.

         The Court will deny Procura's Motion to Dismiss with respect to Prairie River's fraudulent-inducement claim.

         A. Pleading Requirements

         The Court must decide whether Prairie River pleads fraud with sufficient particularity. The Court will conclude that Prairie River has met the pleading requirements of Federal Rule of Civil Procedure 9(b).

         “In alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake.” Fed.R.Civ.P. 9(b). Allegations of fraud must include “such matters as the time, place and contents of false representations, as well as the identity of the person making the misrepresentations and what was obtained or given up thereby. . . . [C]onclusory allegations that a defendant's conduct was fraudulent and deceptive are not sufficient to satisfy the rule.” Parnes v. Gateway 2000, Inc., 122 F.3d 539, 550 (8th Cir. 1997) (alterations in original) (quoting Commercial Prop. Inv'rs., Inc. v. Quality Inns Int'l, Inc., 61 F.3d 639, 644 (8th Cir. 1995)). However, Rule 9(b) does not require the plaintiff to “allege specific details of every alleged fraudulent claim forming the basis of [the] complaint.” United States ex rel. Joshi v. St. Luke's Hosp., Inc., 441 F.3d 552, 557 (8th Cir. 2006). Instead, the plaintiff must simply show ‚Äúrepresentative ...


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