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Corizon Health, Inc. v. Correctek, Inc.

United States District Court, W.D. Kentucky, Paducah Division

May 17, 2017

CORIZON HEALTH, INC., PLAINTIFF
v.
CORRECTEK, INC., et. al, DEFENDANTS No. 5

          MEMORANDUM OPINION AND ORDER

          Thomas B. Russell, United States District Court Senior Judge

         This matter is before the Court on Defendants CorrecTek, Inc., Burton Ulrich, Dan Jarrett, and Matt Wurth's (collectively, “Defendants”) Motion to Dismiss Counts I, II, and II of Plaintiff Corizon Health, Inc.'s complaint as to all Defendants and to dismiss Count IV as to Defendants Ulrich, Jarrett, and Wurth. [DN 32.] Plaintiff responded, [DN 35], and Defendants replied, [DN 41.] For the reasons stated herein, Defendants' motion is GRANTED IN PART AND DENIED IN PART.

         BACKGROUND

         Plaintiff Corizon Health, Inc. (“Corizon”) is a healthcare provider for correctional facilities in the United States. Defendant CorrecTek, Inc. (“CorrecTek”) licenses electronic medical record software to correctional healthcare providers. On January 16, 2013, Corizon and CorrecTek entered into a Master Software License and Support Services Agreement (“MSA”), pursuant to which Corizon planned to license software from CorrecTek. [DN 1 at 4.] CorrecTek offered two types of medical software products, “CorrecTek EMR” and “CorrecTek eMAR.” [Id.][1] Later in 2013, in response to a request for proposal from the Idaho Department of Corrections (“IDOC”), Corizon sought to implement an Electronic Medical Records (“EMR”) system and an Electronic Medication Administration Records (“eMAR”) system. [Id.] As part of its response to the IDOC's request for proposal, Corizon included information it received from CorrecTek about its EMR and eMAR software. [Id. at 5.] Specifically, Corizon relied on information included in a document provided by CorrecTek titled EMR Overview: Information for Corizon RFP Response (“EMR Overview”). [Id.] In that document, CorrecTek stated that its EMR is customizable, allows for fast and accurate data entry, and allows for automated and electronic medication prescribing. [Id. at 5-6.] Corizon attached this document to its September 30, 2013 proposal to the IDOC. [Id. at 6.]

         On December 4, 2013, IDOC and Corizon met with CorrecTek representatives in Idaho. [Id.] Present at this meeting were Defendants Jarret, CorrecTek's president, Ulrich, and Wurth. [Id.] At the meeting, Corizon and the IDOC inquired into the configurability, functionality, and productivity of CorrecTek's EMR and eMAR. [Id. at 6-7.] Corizon alleges that, in response, the CorrecTek representatives made many statements, including that the software was “robust” and “state of the art, ” that it was “fully configurable, ” that it “could generate any reports” that Corizon and the IDOC required, that CorrecTek could create any forms that Corizon needed, that its eMAR could properly manage the administration of patient prescriptions, that the system would increase productivity, and that its “system could automatically make provider referrals based upon patient responses to certain information.” [Id. at 7.]

         According to Corizon, in reliance on these many representations, it executed the Schedule to Master Service Agreement Dated March 4, 2014 (the “IDOC Schedule”). [Id. at 8.] Pursuant to the IDOC Schedule, Corizon would license CorrecTek's EMR and eMAR for its contract with the IDOC. [Id.] From July 22, 2014 to August 8, 2014, representatives from both companies met in Idaho for Conference Room Pilot meetings. [Id.] At the second meeting, Corizon highlighted several requirements for the IDOC system, including “comprehensive, user-friendly reporting and required field technology.” [Id.] CorrecTek indicated that it could configure the software to satisfy these requirements. [Id. at 9.]

         Ultimately, according to Corizon, CorrecTek, Jarret, Ulrich, and Wurth's representations about the features of the software proved to be inaccurate in numerous ways. [Id. at 9-14.] For example, Corizon claims that CorrecTek's EMR was not robust or state of the art because it did not include proper “form field technology, ” “pre-defined dropdown choices in key fields, ” scanning capabilities, “allow referrals to healthcare providers based upon patient responses, ” permit a formulary update or store medication doses, and it allowed for inconsistent entries. [Id. at 9-11.] Additionally, Corizon states that the software was not fully configurable because it could not be configured so as to auto-populate patients' routine vital information such as height and weight and could not provide all of the necessary reports required by Corizon, IDOC, and the courts. [Id. at 11-12.] With regard to patient prescriptions, the eMAR did not effectively manage the administration of medications because it did not properly track prescription schedules and dosing requirements and CorrecTek was unable to integrate successfully with pharmacy vendors. [Id. at 12.] Finally, the software did not increase productivity, as its shortcomings required Corizon to resort to paper recordkeeping, healthcare providers spent substantial time completing records, and the software ran much more slowly than it did during CorrecTek's demonstration. [Id. at 13.]

         On October 27, 2015, Corizon notified CorrecTek, via letter, of the alleged deficiencies of the software. [Id. at 14.] CorrecTek responded in a December 9, 2015 letter in which it denied any responsibility for the claimed issues. [Id.] In a letter dated February 2, 2016, Corizon's counsel again outlined the alleged misrepresentations and inadequacies regarding CorrecTek's software and provided written notice that Corizon was terminating the IDOC Schedule. [Id.] Corizon further demanded a full refund of the licensing fees it paid to CorrecTek. [Id.]

         On March 21, 2016, Corizon filed suit against CorrecTek, Ulrich, Jarrett, and Wurth in the District of Idaho claiming fraud, violations of the Idaho Consumer Protection Act, violations of the Tennessee Consumer Protection Act, and breach of contract. [DN 1 at 15-19.] Defendants then filed a Motion for Change of Venue to the Western District of Kentucky, which was granted on February 3, 2017. [DN 9; DN 46.] The case was transferred to this Court on March 10, 2017. [DN 28.]

         STANDARD

         A complaint must contain “a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2). In order to survive a motion to dismiss under Rule 12(b)(6), a party must “plead enough ‘factual matter' to raise a ‘plausible' inference of wrongdoing.” 16630 Southfield Ltd. P'ship v. Flagstar Bank, F.S.B., 727 F.3d 502, 504 (6th Cir. 2013) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)). A claim becomes plausible “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 (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556 (2007)). When considering a Rule 12(b)(6) motion to dismiss, the court must presume all of the factual allegations in the complaint are true and draw all reasonable inferences in favor of the non-moving party. Total Benefits Planning Agency, Inc. v. Anthem Blue Cross & Blue Shield, 552 F.3d 430, 434 (6th Cir. 2008) (citing Great Lakes Steel v. Deggendorf, 716 F.2d 1101, 1105 (6th Cir. 1983)). “The court need not, however, accept unwarranted factual inferences.” Id. (citing Morgan v. Church's Fried Chicken, 829 F.2d 10, 12 (6th Cir. 1987)). Should the well-pleaded facts support no “more than the mere possibility of misconduct, ” then dismissal is warranted. Iqbal, 556 U.S at 679. The Court may grant a motion to dismiss “only if, after drawing all reasonable inferences from the allegations in the complaint in favor of the plaintiff, the complaint still fails to allege a plausible theory of relief.” Garceau v. City of Flint, 572 F. App'x. 369, 371 (6th Cir. 2014) (citing Iqbal, 556 U.S. at 677-79).

         To plead a claim sounding in fraud requires a bit more. Civil Rule 9(b) imposes a heightened pleading standard: A complaint must state the facts constituting the fraud with particularity. Fed.R.Civ.P. 9(b); see Chesbrough v. VPA, P.C., 655 F.3d 461, 467 (6th Cir. 2011). Accordingly, the plaintiff “must generally (1) specify the time, place, and content of the alleged misrepresentation; (2) identify the fraudulent scheme and the fraudulent intent of the defendant; and (3) describe the injury resulting from the fraud.” SFS Check, LLC v. First Bank of Del., 774 F.3d 351, 358 (6th Cir. 2014) (citing United States ex rel. SNAPP, Inc. v. Ford Motor Co., 532 F.3d 496, 504 (6th Cir. 2008)). The purposes animating Civil Rule 9(b) are “(1) to alert defendants to the particulars of the allegations against them so they can intelligently respond; (2) to prevent ‘fishing expeditions'; (3) to protect defendants' reputations against fraud allegations; and (4) to whittle down potentially wide-ranging discovery to only relevant matters.” Id. (citing Chesbrough, 655 F.3d at 466-67).

         DISCUSSION

         In the instant motion, Defendants argue that Corizon's claims against them must be dismissed for multiple reasons. First, Defendants contend that Corizon failed to satisfy Rule 9(b)'s heightened pleading standard for fraud, which Defendants argue underlies each of Corizon's claims. [DN 32-1 at 13-16.] Second, Defendants contend that Corizon's claims under the Idaho Consumer Protection Act and Tennessee Consumer Protection Act must be dismissed because of the Kentucky choice of law clause in the MSA. [Id. at 16-17.] Third, Defendants argue that the breach of contract claim should be dismissed as to the individual ...


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