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Ashland Hospital Corporation v. Provation Medical, Inc.

United States District Court, E.D. Kentucky, Northern Division, Ashland

October 29, 2014



DAVID L. BUNNING, District Judge.

I. Introduction

Defendant ProVation Medical, Inc. moves to dismiss Plaintiff Ashland Hospital Corporation's fraud claim, arguing that the claim is barred by Kentucky's economic loss doctrine. Alternatively, ProVation states that dismissal is appropriate for the following reasons: (1) KDMC did not plead its fraud claim with the particularity required by Rule 9(b); (2) KDMC did not establish that it acted in reliance upon the alleged misrepresentations; and (3) ProVation's representative did not make any statements amounting to actionable fraud under Kentucky law. The Court has original jurisdiction over this removed action pursuant to 18 U.S.C. § 1332.

II. Factual and Procedural Background

Plaintiff Ashland Hospital Corporation, doing business as King's Daughters Medical Center (hereinafter "KDMC"), is a regional hospital located in Ashland, Kentucky. (Doc. # 1-2, p. 2, ¶ 7). Defendant ProVation Medical, Inc. (hereinafter "ProVation") markets, licenses and maintains documentation software for use in medical facilities. ( Id. ). In Fall of 2011, ProVation sent its Cardiovascular Sales Director, Mike DeRosier (hereinafter "DeRosier"), to meet with KDMC representatives and discuss the possible implementation of ProVation software in KDMC's cardiac catheterization lab. ( Id. at p. 2, ¶ 8). During this visit, DeRosier tried to determine whether ProVation software was compatible with KDMC's existing information technology (hereinafter "IT") infrastructure by speaking with KDMC staff, examining the software system in the cardiac catheterization lab and studying KDMC's electronic, orders-based workflow. ( Id. at p.2, ¶ 9-10).

After inspecting the lab's IT setup, DeRosier allegedly assured KDMC representatives that ProVation software could interface with KDMC's existing software, including EPIC, and accommodate the lab's needs and workflow requirements. ( Id. ). DeRosier further stated that he had previously worked for EPIC and was familiar with its software, as well as its operation and integration with ProVation software. ( Id. at p. 2-3, ¶ 11). Finally, DeRosier represented that ProVation's software had been successfully implemented for use in other cardiac catheterization labs. ( Id. at p.2, ¶ 9-10). According to KDMC, ProVation's website also generally states that its software could be easily integrated with the existing IT infrastructure and "[s]treamline integration between multiple systems' to ensure that the software is configured to meet the workflow and documentation needs of physicians.'" ( Id. at p.3, ¶ 12). These assurances persuaded KDMC to purchase ProVation's software. ( Id. ).

On December 29, 2011, KDMC and ProVation entered into a Software License and Maintenance Agreement (hereinafter "Agreement"). ( Id. at p. 3, ¶ 13). For several months thereafter, ProVation tried to install and integrate its software in KDMC's cardiac catheterization lab. ( Id. at p.3, ¶ 14). KDMC's IT staff provided considerable assistance in these failed attempts to "go live" with ProVation's software. ( Id. at p. 3, ¶ 15). During software testing, the IT staff realized that patient information was not passing from the pre-existing EPIC software, which promotes an "orders-based" workflow, to ProVation software, which supports a "notes-based" workflow. ( Id. at p. 3-4, ¶ 16). When asked about ProVation software's compatibility with an "orders-based" workflow, ProVation employee Mialena Walker told the IT staff that this issue left ProVation in "uncharted waters." ( Id. at p. 3-4, ¶ 18). While ProVation software had previously been implemented in KDMC's gastroenterology lab in Portsmouth, Ohio, such labs commonly use a "notes-based" workflow, while most cardiac catheterization labs use an "orders-based" workflow. ( Id. at p. 4, ¶ 20). ProVation later admitted that its software was only designed to function with a notes-based workflow. ( Id. at p. 4, ¶ 21).

On May 24, 2013, KDMC invoked the Agreement's informal dispute resolution provision. ( Id. at p. 5, ¶ 22). ProVation's senior management requested more time to resolve these software implementation problems. ( Id. at p. 5, ¶ 23). KDMC agreed to this arrangement. ( Id. ). By November 2013, ProVation still had not managed to successfully integrate the software, so KDMC notified ProVation that it was revoking acceptance of the software and requesting a refund. ( Id. at p. 5, ¶ 24). ProVation denied this request, stating that KDMC had no grounds to revoke acceptance or request a refund. ( Id. at p. 5, ¶ 25). KDMC filed suit in Boyd County Circuit Court shortly thereafter, and ProVation promptly removed the action to this Court. (Docs. # 1, 1-1 and 1-2). At the time of filing, KDMC had never successfully used ProVation software in its cardiac catheterization lab. (Doc. # 1-2, p. 5, ¶ 27). ProVation no longer provides software support to KDMC's Ashland location. ( Id. ).

III. Analysis

1. Applicable Law

Federal courts sitting in diversity apply federal procedural law. Hanna v. Plumer , 380 U.S. 460, 465 (1965). The substantive law of the forum state governs the claims asserted. Erie R. Co. v. Tompkins, 304 U.S. 64 (1938); Moore, Owen, Thomas & Co. v. Coffey , 992 F.2d 1439 (6th Cir. 1993); Gafford v. Gen. Elec. Co. , 997 F.2d 150, 165 (6th Cir. 1993). Accordingly, the Court will evaluate ProVation's Motion in accordance with the Federal Rules of Civil Procedure and apply substantive Kentucky law to KDMC's fraud claim.

2. Standard of Review

Pleadings must generally include a "short and plain statement of the claim showing that the pleader is entitled to relief." Fed.R.Civ.P. 8(a). However, fraud claims are subject to a higher standard, which requires the plaintiff to "state with particularity the circumstances constituting fraud." Fed.R.Civ.P. 9(b); Bender v. Southland Corp., 749 F.2d 1205, 1216 (6th Cir. 1984)(stating that "a plaintiff must at minimum allege the time, place and contents of the misrepresentation upon which he relied"). The complaint must contain "sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)(quoting Twombly , 555 U.S. 544, 570 (2007)). "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." Id .

When reviewing a motion to dismiss for failure to state a claim, the Court "must construe the complaint in a light most favorable to the plaintiff, and accept all of [his] factual allegations as true." League of United Latin Am. Citizens v. Bredesen , 500 F.3d 523, 527 (6th Cir. 2007). If an allegation is "capable of more than one inference, it must be construed in the plaintiff's favor." Ashland Hosp. Corp. v. Int'l Bhd. of Elec. Workers Local 575, 807 F.Supp.2d 633, 638 (E.D. Ky. 2011)(quoting Bloch v. Ribar , 156 F.3d 673, 677 (6th Cir. 1998)(citations omitted)). However, the Court ...

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