Hennepin Healthcare System, Inc. v. Freedom Medical, Inc.

          MEMORANDUM AND ORDER

          Paul A. Magnuson United States District Court Judge.

         This matter is before the Court on the parties' cross-Motions for Partial Summary Judgment. For the following reasons, the Motions are denied.

         BACKGROUND

         Plaintiff Hennepin County Healthcare System, d/b/a Hennepin County Medical Center (“HCMC”), contracted with Defendant Freedom Medical, Inc., for specialty medical beds. HCMC alleges that the beds were defective and therefore HCMC was forced to cancel the parties' contract. Freedom Medical insists that the parties' agreement did not provide for early termination and thus required HCMC to pay the difference between the discount the parties had negotiated for the equipment and the list price for that equipment, or approximately $600, 000. HCMC brought this lawsuit in state court seeking a declaration of its rights under the parties' agreements. Freedom Medical removed the case to this Court, asserting a counterclaim for breach of contract and breach of the implied covenant of good faith and fair dealing.

         The dispute in this case centers on two contracts. The first is a Capital Equipment Supplier/Group Purchasing Agreement (“GPO Agreement”) between Freedom Medical and the equipment-discount wholesaler Novation, now known as Vizient. (Wells Decl. (Docket No. 81).) This agreement required Freedom Medical to supply equipment to Vizient's customers at a discount. HCMC was one of Vizient's customers, denoted in the GPO Agreement as a “Member.” The second contract at issue is an Equipment Rental Agreement and two Addenda (collectively, the “ERA”), between Freedom Medical and HCMC. The ERA gave HCMC an even greater discount on Freedom Medical's mattresses than that provided in the GPO.

         In 2017, HCMC claims that it began experiencing problems with the mattresses Freedom Medical provided. (Compl. ¶ 18.) HCMC contends that Freedom did not sufficiently address those issues. In March 2018, HCMC notified Freedom Medical that it was terminating the ERA in 60 days. (Vettleson Decl. (Docket No. 73) Ex. FF.) Freedom Medical responded that, if HCMC terminated the agreement, it would consider HCMC in default and would retroactively charge HCMC the difference between the GPO price and the ERA price for the mattresses. (Henry Decl. (Docket No. 71) Ex. B.)

         In April 2018, HCMC filed three incident reports regarding the mattresses with the FDA. Those reports were ultimately dismissed, but Freedom Medical contends that HCMC refused to cooperate with Freedom Medical's investigation into the problems, and that refusal forms part of the basis of its good-faith-and-fair-dealing counterclaim. In July 2018, Freedom Medical sent an invoice to HCMC for $601, 336.12, the difference between the GPO price and the ERA price for the mattresses HCMC purchased from Freedom Medical. (Compl. Ex. E.) This lawsuit followed.

         HCMC's Complaint contains two counts. The first seeks a declaratory judgment under Minn. Stat. Ch. 55 that (1) HCMC is allowed to terminate the parties' contract; and (2) HCMC is not required to pay any penalty to terminate the contract. HCMC's second claim contends that Freedom Medical's failure to make repairs to the mattresses and Freedom Medical's issuance of the $600, 000 invoice constituted a breach of contract. As noted, Freedom Medical responded with a counterclaim for breach of contract and breach of the covenant of good faith and fair dealing. (Docket No. 3.)

         Freedom Medical seeks summary judgment on its counterclaim, HCMC's request for a declaratory judgment, and HCMC's breach of contract claim as to the invoice. HCMC cross-moved for partial summary judgment, asking for a declaratory judgment under Count I of its Complaint that it was entitled to terminate the contract and it owes no penalty for doing so. HCMC also responded to Freedom Medical's Motion with a Rule 56(d) affidavit, contending that there is outstanding discovery necessary to respond to Freedom Medical's Motion with regard to the good-faith-and-fair-dealing claim.

         DISCUSSION

         Summary judgment is proper if there are no disputed issues of material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(a). The moving party bears the burden of showing that there is no genuine issue of material fact and that it is entitled to judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986).

         Two contract provisions underlie these cross-Motions. The first is a provision of the GPO Agreement between Freedom Medical and Vizient with the title “Pricing Enhancements.” In relevant part, the provision states,

In the event that Supplier contracts with a Member(s) for Products . . . Supplier shall [give Vizient notice and allow the disclosure of the enhanced prices to Vizient]. . . . Any Member desiring to avail itself of the pricing, terms, and conditions described in this Agreement may terminate ...