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East Bay Women's Health, Inc. v. Glostream, Inc.

United States District Court, E.D. Michigan, Southern Division

January 6, 2015

GLOSTREAM, INC., Defendant

For East Bay Women's Health, Inc., Yvette Gentry, M.D., Plaintiffs: David M. Blanchard, Nacht, Roumel, Salvatore, Blanchard & Walker, P.C., Ann Arbor, MI USA; Matthew Allen Brinegar, Physicians' Advocates, Berkeley, CA USA.

For Glostream, Inc., Defendant: Steven M. Potter, LEAD ATTORNEY, Rick J. Patterson, Robert C. Clark, Potter, DeAgostino, O'Dea & Patterson, Auburn Hills, MI USA; Thomas M. DeAgostino, Potter, DeAgostino, Auburn Hills, MI USA.



On March 19, 2014, Yvette Gentry, M.D. and East Bay Women's Health, Inc. (collectively " Plaintiffs"), filed a third amended complaint (" TAC") against gloStream, Inc. (" gloStream" or " Defendant") for damages for the following counts: (1) fraud by deception; (2) intentional misrepresentation; (3) negligent misrepresentation; (4) violations of the unfair competition law; (5) breach of express warranty; (6) breach of contract; and (7) breach of implied covenant of good faith and fair dealing. (Third Am. Compl. 1.) This matter is currently before the Court on Defendant's motion to dismiss Counts 1, 4, 5, and 7 of Plaintiffs' TAC, filed pursuant to Federal Rule of Civil Procedure 12(b)(6) on May 30, 2014. (Def.'s Br. 1.) Defendant also requests that Plaintiffs' damages request be stricken as outside the scope of " agreed-upon allowed relief." (Id.) On October 8, 2014, the Court held a motion hearing, at which Plaintiffs voluntarily agreed to dismiss Count 7. For reasons set forth below, Defendant's motion to dismiss is GRANTED in part and DENIED in part.

I. Factual Background

Because this matter is before the Court on a 12(b)(6) motion to dismiss, the Court must generally confine its 12 (b)(6) ruling to the matters contained within the pleadings and accept all well-pleaded allegations as true. Tackett v. M & G Polymers, USA, LLC, 561 F.3d 478, 481 (6th Cir. 2009) (citing Gentek Building Products, Inc. v. Sherwin-Williams, 491 F.3d 320, 330 (6th Cir. 2007)). Plaintiff Yvette Gentry, M.D. (" Dr. Gentry") is a board-certified obstetrician and gynecologist, currently residing in Alameda County, California. (Third Am. Compl. ¶ 10.) Plaintiff East Bay Women's Health, Inc. (" EBWH") is a California corporation, providing obstetrics and gynecological services to patients residing throughout the San Francisco Bay Area (Id. at ¶ 11.) Dr. Gentry is the sole owner of EBWH. (Id.) Dr. Gentry, on behalf of EBWH signed a Software Licensing Agreement (" the Agreement") with Defendant for EBWH's use of Defendant's electronic medical records computer system (" EMR"), in or around December 2009. (Id. ¶ 14.) Plaintiffs purchased the EMR based upon Defendant's representation that its EMR would manage all of Plaintiffs' various charts, records, bills, and insurance forms in one repository. (Id. at 2) Per terms of the contract, Plaintiffs were appointed a certified partner, EndSight, to implement and support Defendant's product. Plaintiffs had to pay additional fees to EndSight for professional services, as well as annual costs and monthly support. (Id. ¶ ¶ 20, 21.) Plaintiffs assert that Defendant guaranteed that the EMR would streamline Plaintiffs' clinic operations, thereby creating increased revenues by serving more patients. (Id. ¶ 18.) However, Plaintiffs assert that in fact, Defendant's EMR was still in " beta" (experimental) testing mode, and instead of relieving paperwork obligations as promised, the system brought havoc to Plaintiffs' medical practice. (Id. ¶ ¶ 40, 41.) Defendant's EMR supplied incorrect diagnostic and procedure codes on automatically-generated insurance billings, randomly deleted treatment notes, and assigned patient charts randomly to the wrong files. (Id. ¶ ¶ 25, 29, 35.) Plaintiffs' clinic operations slowed tremendously as both medical providers and staff " fought an uphill battle to staunch the flow of mistakes and correct the records." (Id. at 2.) Plaintiffs allege that the ongoing disruption diverted significant resources from patient care, caused the loss of valuable staff and exposed plaintiffs to potentially crippling liability. (Id. at 3.)

Plaintiffs assert that they repeatedly complained to Defendant about these problems, but were only offered empty guarantees that if they spent more money and time in troubleshooting Defendant's EMR, the EMR would work as promised. (Id. at 3.) The aforementioned problems continued, and Plaintiffs became frustrated and hired additional technical support to make the EMR system workable. (Id. ¶ 40.) After consulting with additional support, Plaintiffs discovered they had served as testers for the EMR, and that the system would never work as promised by Defendant. (Id. ¶ 41.) Plaintiffs promptly demanded a refund of all sums paid to Defendant and EndSight. (Id. ¶ 43.) Defendant declined to offer a refund stating that it appeared that Plaintiffs were unwilling or unable to provide the resources necessary to make the EMR system successful. (Id. ¶ 44.) Subsequently, Plaintiffs filed this lawsuit. Defendant, in response to Plaintiffs' TAC moved the Court to dismiss counts 1, 4, 5, and 7 of Plaintiffs' TAC, pursuant to Federal Rule of Civil Procedure 12(b)(6), and to strike Plaintiffs' requested damages as outside the scope of agreed-upon allowed relief. (ECF. No. 15.)

II. Motion to Dismiss Standard

Under Federal Rule of Civil Procedure 8(a)(2), a pleading must contain " a short and plain statement of the claim showing that the pleader is entitled to relief. To survive a 12(b)(6) motion to dismiss, Plaintiffs " must allege 'enough facts to state a claim of relief that is plausible on its face.'" Traverse Bay Area Int. Sch. Dist. v. Mich. Dep't of Educ., 615 F.3d 622, 627 (6th Cir. 2010) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)).

Facial plausibility requires that the complaint plead factual content that allows the court to draw the reasonable inference that the defendants are liable for the misconduct alleged. Ohio Police & Fire Pension Fund v. Std. & Poor's Fin. Servs., LLC, 700 F.3d 829, 835 (6th Cir. 2012) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009)). " This standard does not require detailed factual allegations, but a complaint containing a statement of facts that merely creates a suspicion of a legally cognizable right of action is insufficient." HDC, LLC v. City of Ann Arbor, 675 F.3d 608, 614 (6th Cir. 2012) (citations and internal quotation marks omitted).

The court must " accept all well-pleaded factual allegations as true and construe the complaint in the light most favorable to plaintiffs." Bennett v. MIS Corp., 607 F.3d 1076, 1091 (6th Cir. 2010). The court " need not, however, accept unwarranted factual inferences." Id. (citing Twombly, 550 U.S. at 570). Nor will the Court entitle " [t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements" to an assumption of truth. Iqbal, 556 U.S. at 678. " [W]here the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged -- but it has not 'show[n]' -- 'that the pleader is entitled to relief.'" Iqbal, 556 U.S. at 679 (quoting Fed. Rule Civ. Proc. 8(a)(2)). A complaint does not " suffice if it tenders 'naked assertions' devoid of 'further factual enhancement.'" Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 557). To survive a motion to dismiss, a complaint need not contain " detailed factual allegations, " but it must contain more than " labels and conclusions" or " a formulaic recitation of the elements of a cause of action . . ." Twombly, 550 U.S. at 555.

Although a court ruling on a Rule 12(b)(6) motion " primarily considers the allegations in the complaint, " matters of public record, orders, items appearing in the record of the case, and exhibits attached to the complaint may also be considered. Amini v. Oberlin Coll., 259 F.3d 493, 502 (6th Cir. 2001) (citation omitted). The court also may consider documents incorporated by or referred to in the pleadings, as well as documents that are central to the plaintiff's allegations even if not explicitly incorporated by reference. See Weiner v. Klais and Co., 108 F.3d 86, 89 (6th Cir. 1997).

III. Applicable Law and Analysis

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