United States District Court, D. Minnesota
PRAIRIE RIVER HOME CARE, INC. Plaintiff,
PROCURA, LLC a/k/a Complia Health Defendant.
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
R. TUNHEIM CHIEF JUDGE
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.
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.)
Sale of the Software
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.)
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. ¶¶
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.)
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.)
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.)
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.)
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.)
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.)
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.
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.)
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.)
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.)
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.)
Motion to Dismiss is now before the Court. (Mot. to Dismiss,
Dec. 27, 2017, Docket No. 27.)
STANDARD OF REVIEW
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.)
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
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
Court will deny Procura's Motion to Dismiss with respect
to Prairie River's fraudulent-inducement claim.
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).
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 “representative ...