Opinion
2:17-CV-00347-CRE
08-17-2018
WEIRTON MEDICAL CENTER, INC, Plaintiff, v. CERNER HEALTH SERVICES, INC, and SIEMENS MEDICAL SOLUTIONS USA, INC., Defendants.
REPORT AND RECOMMENDATION
I. RECOMMENDATION
For the reasons stated herein, it is respectfully recommended that the motion to dismiss filed on behalf of defendant Cerner Health Services, Inc. (ECF No. 47) be denied and the motion to dismiss filed on behalf of Siemens Medical Solutions USA, Inc. (ECF No. 49) be denied.
II. REPORT
A. Procedural History
This action was instituted on March 17, 2017, upon the filing of a complaint by plaintiff Weirton Medical Center, Inc. ("Weirton Medical"), which sues defendants Cerner Health Services, Inc. ("Cerner") and Siemens Medical Solutions USA, Inc. (Siemens"). The First Amended Complaint ("FAC") was filed on November 6, 2017. (ECF No. 43). and is the operative pleading. Both defendants have filed motions to dismiss, which have been fully briefed. The matter is ripe for disposition.
B. Standard of Review
The standards for a 12(b)(6) motion to dismiss are well known. The complaint must be read in the light most favorable to the plaintiff and all well-pleaded, material allegations of fact in the complaint must be taken as true. See Estelle v. Gamble, 429 U.S. 97 (1976). The question to be resolved is: whether, taking the factual allegations of the complaint, which are not contradicted by exhibits and matters of which judicial notice may be had, and taking all reasonable inferences to be drawn from those contradicted factual allegations of the complaint, are the "factual allegations . . . enough to raise a right to relief above the speculative level, . . . on the assumption that all the allegations in the complaint are true even if doubtful in fact[.]" Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). Or put another way, a complaint may be dismissed pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief can be granted if it does not plead "enough facts to state a claim to relief that is plausible on its face." Id. at 570. Dismissal is proper under Rule 12(b)(6) where the court determines that the facts alleged, taken as true and viewed in a light most favorable to the plaintiff, fail to state a claim as a matter of law. See., e.g., Gould Electronics, Inc. v. United States, 220 F.3d 169, 178 (3d Cir. 2000).
Courts generally consider the allegations of the complaint, attached exhibits, and matters of public record in deciding motions to dismiss. Pension Benefit Guar. Corp. v. White Consol. Indus., Inc., 998 F.2d 1192, 1196 (3d Cir. 1993). Factual allegations within documents described or identified in the complaint also may be considered if the plaintiff's claims are based upon those documents. Id. (citations omitted). In addition, a district court may consider indisputably authentic documents without converting a motion to dismiss into a motion for summary judgment. Spruill v. Gillis, 372 F.3d 218, 223 (3d Cir. 2004); Lum v. Bank of America, 361 F.3d 217, 222 (3d Cir. 2004) (in resolving a motion to dismiss pursuant to Rule 12(b)(6), a court generally should consider "the allegations in the complaint, exhibits attached to the complaint, matters of public record, and documents that form the basis of a claim.").
As to the allegations of fraud, Rule 9(b) requires a party to "state with particularity the circumstances constituting fraud or mistake"—in other words, the "the who, what, when, where and how of the events at issue." In re Rockefeller Ctr. Properties, Inc. Sec. Litig., 311 F.3d 198, 217 (3d Cir. 2002).
C. Facts as Alleged
The Parties
Plaintiff, Weirton Medical, is a community non-profit hospital headquartered in Weirton, West Virginia. (FAC at ¶¶1-2). Weirton Medical has operations throughout the Western District of Pennsylvania and serves patients in Pennsylvania, West Virginia, Ohio, and beyond. (FAC at ¶¶ 1-2). Defendants Siemens and Cerner are large technology companies offering electronic health record and other comprehensive information technology products to the healthcare industry, including small, community-based hospitals such as Weirton Medical. (FAC at ¶¶ 3-6).
Effective March 11, 2013, Siemens and Weirton Medical entered into the "Agreement between Siemens Medical Solutions USA, Inc. and Weirton Medical Center" (the "2013 Master Agreement"). (FAC at ¶¶ 9-20). In early 2015, Cerner closed a $1.3 billion deal to acquire the assets, client relationships, and other benefits of Siemens, including Siemens' relationship specifically with Weirton Medical. (FAC at ¶ 5). In connection with that acquisition transaction, in February 2015 Siemens assigned its contract with Weirton Medical to Cerner, without Weirton Medical's consent. Under the assignment provisions of the contract, however, Siemens as assignor remains obligated for Cerner's continued performance after the acquisition as well as Siemens' continued obligation for performance under the original agreement. (FAC at ¶ 6). Cerner is now performing the obligations under the 2013 Master Agreement. (FAC at ¶¶ 5-6). Weirton Medical alleges a history of subpar software solutions and services provided by Siemens, and later with the addition of Cerner. Weirton Medical alleges that following the execution of the 2013 Master Agreement and continuing to this day, Weirton Medical has not obtained the very basic benefit of its bargains with Defendants: a working information technology solution for the hospital. (FAC at ¶188).
The 2013 Master Agreement
Pursuant to the 2013 Master Agreement, Siemens promised to provide a whole-house healthcare information technology suite of software and services to satisfy Weirton Medical's electronic health record and other business needs. (FAC at ¶ 15). Siemens assured Weirton that a comprehensive purchase and license of a full range of technology, services, and support would produce efficiencies, cost savings, and enhance patient care. (FAC at ¶ 15). Siemens made several warrants and covenants under the 2013 Master Agreement. Siemens promised that its applications, programming, services, and related integrations would operate through the term of the 2013 Master Agreement (as amended, December 31, 2024) and that Siemens would fix any failure of its applications to perform substantially as required. (FAC at ¶¶ 16-17). Siemens agreed to provide "operational responsibility" for certain aspects of Weirton Medical's IT department. (FAC at ¶ 18). Siemens "covenanted to provide Help Desk Services, Applications Services, Operations and System Administration Services, Network Services, and Desktop Services" that met or exceeded the applicable standard. (FAC at ¶¶ 18-19).
August 21, 2014 Release
Weirton Medical alleges that it encountered "serious and repeated problems with Siemens' 2013-14 implementation of the Applications" but that those problems were addressed under the parties' "concession agreement," culminating in an August 21, 2014 confidential settlement and release ("August 21, 2014 Release"). (FAC at ¶¶ 23, 24, 28).
On August 4, 2014, 17 days before the August 21, 2014 Release, Cerner and Siemens' German parent, Siemens AG, "announced they signed a definitive agreement for Cerner to acquire the assets of Siemens' health information technology business unit, Siemens Health Services, for $1.3 billion ($1,300,000,000.00) in cash." (FAC ¶ 29). Weirton alleges that Cerner's president reported that: "the acquisition will have no effect on support for Siemens Health Services core platforms and current implementations will continue," and that Cerner planned "to support and advance the Soarian platform for at least the next decade." (FAC at ¶ 30). Weirton further alleges that a Siemens employee represented in an email to Weirton that "Cerner is committed to supporting the Siemens Soarian platform for at least the next 10 years for current clients." (FAC at ¶ 34). Weirton alleges that the foregoing representations induced Weirton Medical, with knowledge that Cerner would soon begin performing the 2013 Master Agreement, to enter into another Amendment to the Master Agreement in September 2014 that extended the terms for four years, from December 31, 2020 to December 31, 2024. (FAC at ¶¶ 34-36, 59).
Cerner completed its acquisition of the assets of Siemens' Health Services business on February 2, 2015, became the assignee of the 2013 Master Agreement and its amendments, and started performing under the contracts. (FAC at ¶¶ 61, 62). Unlike a typical assignment, this assignment to Cerner did not relieve Siemens of any of its contractual obligations to Weirton Medical, whether before or after the assignment date. Section 19 of the 2013 Master Agreement specifically provided:
19. ASSIGNMENT.... [T]he Parties may assign without consent to a parent or subsidiary or a subsidiary of its parent, or a successor by purchase, merger, or
consolidation of all or part of its business. No assignment will relieve the assignor of its obligations under this Agreement or effect any of those restrictions on the use of the Deliverables set forth in this Agreement. Any assignment not meeting these provisions is void.(FAC at ¶63) (emphasis in FAC). Cerner's failures and misconduct were immediate and the new relationship was "contentious from the very start." (FAC at ¶ 64). Among other things, Weirton Medical alleges that Cerner: (1) provided inadequate site executives; (2) advised Weirton Medical that it had inherited an unprofitable deal and undermined the contractual arrangement; (3) staffed Weirton Medical with inadequately trained services personnel; and (4) failed to perform a contractually-mandated analysis as to why Cerner failed to meet performance standards or provide a proper report and remediation plan. (FAC at ¶¶ 66-72, 101-106).
Siemens represented that it had analyzed Weirton Medical's operations to ensure that Siemens would have the ability through its applications and managed services to provide for the electronic record needs of Weirton Medical as it promised to do under the 2013 Master Agreement and September 2014 Amendment, when in fact, it had not. (FAC at ¶¶ 50, 51). Weirton Medical also learned from former Siemens employees who became Cerner employees post-acquisition that Siemens had lied about its experience in successful implementations of the Soarian system. (FAC at ¶ 53). Siemens claimed it had installed Soarian software and implemented managed services successfully in at least six or seven other hospitals. In truth, however, Weirton Medical was the "first or second" hospital to proceed with a Soarian implementation. (FAC at ¶ 54).
Based on Cerner's alleged failures under the 2013 Master Agreement and amendments, Weirton Medical initiated this action against Cerner. (FAC at ¶¶ 66-72, 101-106, 108-188). Weirton Medical also named Siemens as a defendant in seven out of eight of Weirton's contract based claims against Cerner. In each claim, Weirton alleges "Siemens, as an Assignor that was not relieved of the contractual obligations undertaken in the 2013 Master Agreement, and Cerner as Assignee and successor to Siemens, are jointly and severally liable for all amounts due in connection with this Count." (FAC at ¶¶ 201, 202, 215, 228, 235, 239, 240, 250, 264). Weirton Medical was told by Cerner that the underestimation by Siemens based on its "bad data" was so severe that Weirton Medical would need to invest an additional $20,000,000 with Cerner to obtain the whole house EMR system and required support that Siemens advised that it could and would provide based on its promised, but defective, analysis of Weirton Medical's needs. (FAC at ¶56). But for Siemens' false representations and omissions, Weirton Medical would not have executed the 2013 Master Agreement or the September 2014 Amendment that extended the term of the Soarian deal. (FAC at ¶57).
The Syngo Agreement
After these revelations of Siemens' fraudulent misstatements, it is alleged Siemens engaged in additional fraudulent conduct concerning the Syngo Agreement, which Weirton Medical alleges related to a radiology information system unrelated to the Soarian system. (FAC at ¶ 76). Prior to execution of the Syngo Agreement the Syngo representative for Siemens Healthcare in the Pittsburgh region stated in an email that the Syngo Agreement, which he dubbed a Virtual Agreement: "just takes the terms and conditions from the previous Siemens health services contract for Syngo workflow ('RIS') and transfers them to a new Siemens agreement." (FAC at ¶ 77). Despite these statements, Siemens now claims that the Syngo Agreement actually was intended by Siemens to release any and all claims by Weirton Medical against Siemens, whether related to the Syngo or Soarian systems, dating from the inception of the 2013 Master Agreement through February 2, 2015 when Siemens transferred the Soarian business to Cerner. In other words, Siemens now claims that the Syngo Agreement was a general release to the significant detriment of Weirton Medical. (FAC at ¶ 81).
This failure to make Siemens position as to the purpose of the Syngo Agreement known was a material and fraudulent omission by Siemens. (FAC at ¶ 84). The non-disclosure of Siemens' position that the Syngo Agreement covers and releases all claims relating to the Soarian system induced Weirton Medical to execute the Syngo Agreement. (FAC at ¶ 85). Siemens chose to procure the execution of the Syngo Agreement through Dave Angalich, Chief Information Officer of Weirton Medical, in order to avoid detection of its improper purpose, a result Siemens would not have achieved if it had pursued authorized channels for contract procurement at Weirton Medical through either its CEO, Charles O'Brien, or CFO, Robert Frank, and disclosed Siemens' intent for the scope of the release. (FAC at ¶ 93). Siemens chose to do an end-around Weirton Medical's conventional, authorized contract procurement channels to avoid disclosure of its intended purpose while securing execution of the Syngo Agreement from Mr. Angalich. (FAC at ¶ 94).
His signature appears on the Syngo Agreement as "CIO" and is dated December 29, 2015. (ECF No. 50-1 at 4). The Agreement states that it is effective as of February 2, 2015. (ECF No. 50-1 at 2).
Cerner mismanaged and failed to support the Soarian system in various ways, including failure to train its personnel, and employed IT staff with limited experience. This and their errors resulted in failure to meet its obligation to provide managed services in a businesslike manner under the 2013 Master Agreement. (FAC at ¶¶99-107). Weirton Medical further alleges that Cerner attempted to leverage the Soarian problems in an effort to force Weirton Medical to buy new Cerner products. (FAC at ¶¶ 108-124).
Service Level Agreement
In an effort to work with Cerner to address this institutional dissatisfaction with current IT services, Weirton Medical, effective October 1, 2016, entered into an amendment for an updated Service Level Agreement (the "2016 SLA"). This 2016 SLA replaced a prior 2014 SLA, which, in turn, had replaced the original 2013 SLA incorporated as part of the 2013 Master Agreement. (FAC at ¶ 127). Numerous failures to meet the terms of the SLA are alleged, including manipulation of the statistics measuring its performance in addition to the faulty and inefficient categorization of request for service from its customers. (FAC at ¶¶ 128-165).
Weirton's 51-page FAC alleges thirteen causes of action. Counts I, II, III and IV name both defendants and allege breach of warranty as to four different aspects of the 2013 Master Agreement: applications (Count I), custom programming (Count II), professional services (Count III), and integration (Count IV). Counts V, VI, VII and VIII allege breach of contract under various agreements and for various products: updates (2013 Master Agreement) (Count V); managed services (2013 Master Agreement and the 2014 SLC) (Count VI); managed services (2013 Master Agreement and 2016 SLA) (Count VII, which is against Cerner only); and 2013 master agreement as a whole (Count VIII). Count IX alleges fraudulent misrepresentation against Siemens; Count X alleges negligent misrepresentation against Siemens; Count XI alleges fraudulent non-disclosure/fraud in the execution as to Siemens; Count XII alleges fraudulent misrepresentation as to Cerner; and Count XIII seeks entry of a declaratory judgement that both defendants have materially breached the agreement and that Weirton has a right to terminate the agreement.
D. Discussion
Siemens argues that the FAC should be dismissed for the following reasons. First, Weirton Medical's claims against Siemens are barred because Weirton Medical released Siemens from all obligations under the 2013 Master Agreement when it entered into the in the Syngo Agreement. Next Siemens argues Weirton has failed to plead the fraudulent misrepresentation, negligent misrepresentation, and fraud in the execution claims with sufficient particularity under Federal Rule of Civil Procedure 8 and 9(b). Siemens further argues that the fraudulent and negligent misrepresentation claims are barred by the applicable two-year statute of limitations as well as the gist of the action doctrine. Finally, Siemens argues that Weirton has failed to allege it followed the parties' agreed upon dispute resolution process set forth in section 7.1 of the 2013 Master Agreement.
Cerner argues that Weirton's claims against it are barred by the August 21, 2014 release. Next, Cerner seeks dismissal on the ground that Weirton's claims against Cerner are premature in that Weirton failed to comply with the dispute-resolution obligations and notice provisions in the parties' contract. Cerner also argues that Weirton fails to plead sufficient facts or recognized damage theories and therefore does not state a claim upon which relief may be granted against Cerner.
1. Dispute Resolution Process
Defendants argue that Weirton Medical's claims are barred by the provision of the 2013 Master Agreement, at § 7.1, which requires the parties to engage in a step-by-step series of good faith meetings to resolve their dispute before litigation. In response, Weirton Medical contends this argument necessarily requests the court to consider matters outside the pleadings, in contravention of the general rule that on a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6) we are to consider only allegations contained in the complaint. That objection is well founded, but nevertheless, out of an abundance of caution, on May 22, 2018, we directed Weirton Medical to file an additional brief addressing this issue, and it has. (ECF No. 59). Based upon representations made therein, there is sufficient evidence to support Weirton Medical's argument that it complied with the dispute resolution provisions. Weirton's CEO wrote a letter to Cerner's General Manager, River Valley Region on December 22, 2015 expressing dissatisfaction, and on March 10, 2017, it sent a dispute resolution notice pursuant to Section 7.1 of the 2013 Master Agreement to both parties. According to Weirton Medical, Siemens has not responded to the Section 7.1 notice. On June 22, 2017 Weirton and Siemens met and executed a confidentiality agreement and attempted resolution after the original complaint in this matter was filed, and at Weirton's uncontested request, court stayed the action to facilitate settlement discussions between the parties. (ECF No. 31). The stay was extended on August 29, 2017. (ECF No. 41). According to Weirton Medical, during that four month stay, Cerner had an opportunity to cure and/or seek involvement from appropriate representatives; instead, Cerner discontinued negotiations. Given this material compliance with the dispute resolution procedures, Weirton Medical's claims need not be dismissed and may proceed to discovery, and indeed, be addressed through the court's mandatory alternative dispute resolution process.
Siemens also argues that the dispute resolution process requires a notice of default and cure period prior to proceeding to litigation, citing section 12.2 of the 2013 Master Agreement. However, the agreement allows Weirton Medical, as an alternative to invoking default, to pursue its claim for damages. The cure remedy is not a condition precedent to this lawsuit. This is especially true given the allegations of fraudulent conduct. See Milton Regional Sewer Auth. v. Travelers Cas. & Sur. Co. of Am., 648 F. App'x 215, 217 (3d Cir. 2016).
It is therefore respectfully recommended that the motion to dismiss the cause of action based upon non-compliance with the dispute resolution provisions of the 2013 Master Agreement be denied.
2. The Syngo Agreement
Siemens argues that the Syngo Agreement precludes each of Weirton Medical's claims as a matter of law, as the Syngo Agreement expressly relieves it from all obligations under the 2013 Master Agreement. Siemens also argues that the Syngo Agreement acts as a novation that extinguishes the 2013 Master Agreement.
Release is an affirmative defense. Fed. R. Civ. P. 8(c). While affirmative defenses are usually only permitted to be raised in the answer, the Court of Appeals for the Third Circuit allows an affirmative defense to be raised in a motion to dismiss if it is apparent on the face of the complaint and no development of the record is necessary. See e.g., Rycoline Prod., Inc. v. C & W Unlimited, 109 F.3d 883, 886 (3d Cir. 1997) (applying affirmative defense of res judicata).
Under Pennsylvania law, "the effect of a release must be determined from the ordinary meaning of its language[,]" Buttermore v. Aliquippa Hosp., 522 Pa. 325, 328, 561 A.2d 733, 735 (1989), and must be interpreted using the traditional principals of contract interpretation. Harrity v. Med. Coll. of Pennsylvania Hosp., 439 Pa. Super. 10, 20, 653 A.2d 5, 10 (1994) (citing International Organization Master, Mates and Pilots of America, Local No. 2 v. International Organization Masters, Mates and Pilots of America, 497 Pa. 102, 109, 439 A.2d 621, 624 (1981)). The court must adopt an interpretation that "is most reasonable and probable bearing in mind the objects which the parties intended to accomplish through the agreement[.]" Wrenfield Homeowners Ass'n, Inc. v. DeYoung, 410 Pa. Super. 621, 627, 600 A.2d 960, 963 (1991). "Releases are strictly construed 'so as to avoid the ever present possibility that the releasor may be overreaching.'" Bowersox Truck Sales and Serv., Inc. v. Harco Nat'l Ins. Co., 209 F.3d 273, 280 (3d Cir. 2000) (citing Restifo v. McDonald, 426 Pa. 5, 230 A.2d 199, 201 (Pa. 1967)).
Where a contract's language is "clear and unambiguous, the focus of interpretation is upon the terms of the agreement as manifestly expressed, rather than as, perhaps, silently intended." Steuart v. McChesney, 498 Pa. 45, 444 A.2d 659, 663 (Pa. 1982). However, if a release is "reasonably susceptible of different constructions and capable of being understood in more than one sense," it is considered ambiguous. Kripp v. Kripp, 578 Pa. 82, 91, 849 A.2d 1159, 1163 (2004). "While unambiguous contracts are interpreted by the court as a matter of law, ambiguous writings are interpreted by the finder of fact." Id.
According to Siemens, in the Syngo Agreement, which they attach to their motion to dismiss as Exhibit A (ECF No. 50-1) and the authenticity of which is not in dispute, Weirton acknowledged that: (1) the 2013 Master Agreement, as amended (referred to as the "Shared Contract"), "was duly transferred in full from Siemens" to Cerner effective February 2, 2015 "in connection with the divestiture of Siemens' Health Services business ('HS Business') to Cerner and its affiliates;" (2) the 2013 Master Agreement covered, in part, Siemens' syngo line; (3) syngo remained Siemens-owned following the divestiture of Siemens' Health Services business; and (4) concurrently with the Syngo Agreement, Weirton and Cerner entered into an amendment to the 2013 Master Agreement to terminate any ongoing obligations contained therein as to syngo. Siemens further argues Weirton then agreed that Cerner, not Siemens, assumed responsibility for all other services and support due under the 2013 Master Agreement other than syngo services and support. § 1.2. Section 1.3 provided:
Other. [Weirton] represents to Siemens that it has executed the Cerner Syngo Termination as of the Effective Date of this Syngo Agreement with the effect of terminating all rights and obligations with respect to the Syngo Items and all other aspects of the Syngo Business under the [2013 Master Agreement]. Effective as
of [February 2, 2015], [Weirton] hereby releases Siemens from all obligations under the [2013 Master Agreement] and agrees that this Syngo Agreement shall govern all future aspects of the Syngo Business between [Weirton] and Siemens.(emphasis added). The Syngo Agreement also contained an integration clause at § 7, stating:
This Syngo Agreement (which consists of this document, the Existing Syngo Provisions (as amended herein), and the attached Attachment A) states the entire contract of the parties and supersedes all other prior or contemporaneous representations, agreements, understandings, or commitments, whether written or oral, between them relating to the subject matter herein.
Here, the court is not convinced that as a matter of law the release bars Weirton Medical's cause of action. The language of the release is susceptible of different interpretations and is thus ambiguous. Specifically, the Syngo Agreement can be read to only apply the Syngo Business in an effort to separate the Syngo Business from the 2013 Master Agreement, which was being assigned to Cerner. There are multiple references to the Syngo-related business (Sections 1.1, 1.2, 2.2, 2.3, 3, 6, and 7) as opposed to the entirety of the 2013 Master Agreement. On the other hand the Syngo Agreement states that Weirton Medical "hereby releases Siemens from all obligations under the Shared Contract" at §1.3. The release could be understood to take on different meanings. In addition, given the ambiguity in the terms of the agreement and the allegations surrounding its execution, in addition to the procedural posture of this case, and no record having been developed on the issue of consideration, we decline to find at this time as a matter of law the Syngo Agreement was a novation of the 2013 Master Agreement.
It is therefore respectfully recommended that the motion to dismiss Weirton Medical's claims against Siemens on the grounds of the release in the Syngo Agreement be denied.
3. Gist of the Action
Defendants argue Weirton Medical's fraudulent and negligent misrepresentation claims against Siemens (at Count IX and X) and Cerner (at Count XII) are barred by the gist of the action doctrine. "Generally, the gist-of-the-action doctrine precludes a party from raising tort claims where the essence of the claim actually lies in a contract that governs the parties' relationship." Sullivan v. Chartwell Investment Partners, LP, 873 A.2d 710, 718 (Pa. Super.2005). Pennsylvania courts are generally cautious about permitting tort recovery on contractual breaches. Glazer v. Chandler, 414 Pa. 304, 200 A.2d 416, 418 (Pa.1964). The gist of the action doctrine is a common law theory "designed to maintain the conceptual distinction between breach of contract claims and tort claims" by precluding "plaintiffs from recasting ordinary breach of contract claims into tort claims." eToll, Inc. v. Elias/Savion Adver., 811 A.2d 10, 14 (Pa.Super.Ct.2002) (internal citation omitted); see also Werwinski v. Ford Motor Co., 286 F.3d 661, 680 n. 8 (3d Cir.2002). The doctrine bars tort claims: 1) arising solely from a contract between the parties; 2) where the duties allegedly breached were created and grounded in the contract itself; 3) where the liability stems from a contract; or 4) where the tort claim essentially duplicates a breach of contract claim or the success of which is wholly dependent on the terms of a contract. Hart v. Arnold, 884 A.2d 316, 340 (Pa. Super. 2005) (citations omitted); see also Lombardi v. Allstate Ins. Co., CA No. 08-949, 2009 U.S. Dist. LEXIS 52951, *25-*26, 2009 WL 1811540, *7-*8 (W.D. Pa. June 23, 2009). The fact that "a plaintiff may not sue in tort for economic losses arising from a breach of contract, however, does not preclude the possibility of a tort action between parties to a contract." Valley Forge Convention & Visitors Bureau v. Visitor's Servs., Inc., 28 F.Supp.2d 947, 951 (E.D. Pa. 1998).
Under the gist of the action test, "to be construed as a tort action, the [tortious] wrong ascribed to the defendant must be the gist of the action with the contract being collateral. . . . The important difference between contract and tort actions is that the latter lie from the breach of duties imposed as a matter of social policy while the former lie for the breach of duties imposed by mutual consensus." Bohler-Uddeholm America, Inc. v. Ellwood Group, Inc., 247 F.3d 79, 103-104 (3d Cir. 2001), quoting Redevelopment Auth. of Cambria County v. International Ins. Co., 454 Pa. Super. 374, 685 A.2d 581, 590 (Pa. Super. 1996) (en banc).
"Whether the gist of the action doctrine applies in any particular setting is a question of law." Knit With, 2009 U.S. Dist. LEXIS 98217 at *13, 2009 WL 3427054 at *5. A court should be cautious when determining that a claim should be dismissed under the gist of the action doctrine, due in part to the fact that Fed. R. Civ. P. 8(d)(2)2 allows parties to plead multiple claims as alternative theories of liability. Such is the case here.
It is respectfully recommended that the motion to dismiss Weirton Medical's claims based upon the gist of the action theory be denied. Courts exercise caution in that regard at the motion to dismiss stage. Southersby Dev. Corp. v. Township of S. Park, 2015 WL 1757767, at *16 (W.D. Pa. April 17, 2015); Interwave Tech., Inc. v. Rockwell Automation, Inc., 2005 WL 3605272, at *13 (E.D. Pa. Dec. 30, 2005); see also Weber Display & Packaging v. Providence Wash. Ins. Co., 2003 WL 329141, at *3-4 (E.D. Pa. Feb. 10, 2003) (noting that it is often premature to determine the gist of a claim before discovery has been taken). It remains to be seen whether the alleged breach of duties giving rise to Weirton Medical's tort claims are the same duties set forth in the contracts between the parties.
4. The August 21, 2014 Release
Siemens next argues that even if the Syngo Agreement release does not apply, each of Weirton Medical's claims against Siemens that are alleged to have arisen from misconduct prior to August 21, 2014 (Counts I-VI, IX, and X) are barred by the August 21, 2014 Release. That contract states that Weirton Medical released all "actions, causes of action and claims . . . which have accrued as of the Effective Date of this Amendment and Release arising out of or relating to the [2013] Master Agreement, the software licensed thereunder or its implementation." By its terms the August 21, 2014 Release is not prospective. Viewing the FAC in its favor, Weirton Medical has alleged various categories of misconduct for which it contends Siemens remained responsible under the 2013 Master Agreement but nevertheless began after the date of the release and continuing thereafter.
It is therefore respectfully recommended that the motion to dismiss Counts I-VI, IX, and X on the ground they are barred by the August 21, 2014 Release be denied.
5. Breach of Warranties
Counts I, II, III and IV name both defendants and allege breach of warranty as to four different aspects of the 2013 Master Agreement: applications (Count I), custom programming (Count II), professional services (Count III), and integration (Count IV). The parties agree that to state a breach of warranty claim, Weirton Medical must allege that defendants breached or failed to meet a warranty promise, that the breach was the proximate cause of the harm to plaintiff, and ensuing damages. Samuel-Bassett v. Kia Motors Am., Inc., 34 A.3d 1, 35 (Pa. 2011) (citing Price v. Chevrolet Motor Div., 765 A.2d 800, 809 (Pa. Super. 2000). At each Count, Weirton states which warranties are at issue, and explains why and how the warranties were allegedly breached and how Weirton Medical was harmed. Weirton has alleged numerous performance issues with the applications and custom programming (FAC at ¶¶ 175-188, 192, 197, 198-199, 205, 208, 210-211) as well as professional services (FAC at ¶¶ 217-225) and integration (FAC at ¶¶ 230-232).
It is therefore respectfully recommended that the motion to dismiss Counts I through IV be denied.
6. Breach of Contract
Counts V, VI, VII and VIII allege breach of contract under various agreements and for various products: updates (2013 Master Agreement) (Count V); managed services (2013 Master Agreement and the 2014 SLC) (Count VI); managed services (2013 Master Agreement and 2016 SLA) (Count VII, which is against Cerner only); and 2013 Master Agreement as a whole (Count VIII). To state a breach of contract claim under Pennsylvania law, a plaintiff must allege "(1) the existence of a contract, including its essential terms, (2) a breach of a duty imposed by the contract and (3) resultant damages." Borrell v. Bloomsburg Univ., 955 F. Supp. 2d 390, 407 (M.D. Pa. 2013), citing CoreStates Bank, N.A. v. Cutillo, 723 A.2d 1053, 1058 (Pa. Super.1999) (citing Gen. State Auth. v. Coleman Cable & Wire Co., 27 Pa. Cmwlth. 385, 365 A.2d 1347, 1349 (Pa. Cmwlth.1976)). Reading the facts as alleged in the FAC in the light most favorable to Weirton Medical, it is respectfully recommended that the motion to dismiss the breach of contract claims be denied. Plaintiff has alleged sufficient facts overall to support its claims put defendants on notice that the defendants have failed to meet the understood standards set forth in the agreements, failed update software to meet state and regulatory requirements, failed to meet the 2014 SLA obligations for managed services under the 2014 SLA and 2016 SLA, and materially breached the 2013 master agreement overall.
It is therefore respectfully recommended that the motion to dismiss the breach of contract claims for failure to state a claim be denied.
7. Fraudulent Misrepresentation
Siemens argues that Weirton Medical has failed to adequately plead fraudulent misrepresentation at Count IX. Cerner argues the same as to Count XII. To prevail on a claim for fraudulent misrepresentation Plaintiff must establish six elements: 1) a representation, 2) which is material to the transaction at hand, 3) made falsely, with knowledge of its falsity or recklessness as to whether it is true or false, 4) with the intent of misleading another into relying on it, 5) justifiable reliance on the misrepresentation, and 6) the resulting injury was proximately caused by the reliance. Bortz v. Noon, 729 A.2d 555, 560 Pa. 1999). Both defendants argue that Weirton Medical does not set forth sufficient factual allegations to support the legal conclusion that representations made were justifiably relied upon by Weirton Medical. However, plaintiff alleges that at the November 2015, an employee of Cerner who had moved from Siemens as part of the Cerner acquisition numerous false statements were made which induced Weirton Medical to enter into the 2013 Master Agreement and September 2014 Amendment, as described supra. As to Count XII, brought against defendant Cerner, Weirton Medical has alleged, inter alia, that Cerner manipulated Help Desk service tickets and that it relied on the misrepresentation to the detriment of patient care and at Weirton Medical's expense. It is therefore respectfully recommended that the motion to dismiss the fraudulent misrepresentation claims at Counts IX and XII be denied.
8. Negligent Misrepresentation
Siemens argues that the plaintiff has failed to adequately plead the negligent misrepresentation claims at Count X. In order to establish a cause of action for negligent misrepresentation, Plaintiff must show there was 1) misrepresentation of a material fact, 2) made under circumstances in which the misrepresenter ought to have known of its falsity, 3) with an intent to induce another to act on it, and 4) which results in injury to a party acting in justifiable reliance on the misrepresentation. Bortz, 729 A.2d at 561. Weirton Medical has alleged that prior to the 2013 Master Agreement, as later revealed in the November 2015 meeting, Siemens represented it had performed a full analysis of Weirton Medical's electronic medical needs and based upon that analysis would provide applications, custom programming and all services necessary for Weirton Medical to have a whole house electronic record system, when, in fact, it had made a rough estimate. (FAC at ¶¶ 21, 51, 273). It has also been alleged that reports were falsified prior to -- and in order to induce Weirton Medical to enter into—the 2014 Amendment.
It is therefore respectfully recommended that the motion to dismiss Count X on the grounds of failure to state a claim be denied.
9. Statute of Limitations
As to the fraudulent and negligent misrepresentations claims, Siemens argues that the two year statute of limitations bars claims as to any claim arising prior to March 17, 2015 (two years prior to the initiation of this lawsuit), pursuant to 42 Pa. C.S. § 5532. It argues, "[t]he linchpin of Weirton's claims against Siemens for fraudulent and negligent misrepresentation is that Siemens' alleged misrepresentations induced Weirton to execute the 2013 Master Agreement and September 2014 Amendment." Yet Weirton Medical's arguably first learned of the its injury at the meeting which occurred on November 11, 2015, which is within the limitations period. (FAC at ¶¶ 45, 46). Regardless, at this stage of the proceeding, without a sufficient record to make a binding determination, the motion to dismiss based on the statute of limitations should be denied.
It is therefore respectfully recommended that the motion to dismiss the fraudulent and negligent misrepresentation claims on the ground they are barred by the statute of limitations be denied.
10. Fraud in the Execution
Next, Siemens argues that Weirton Medical has failed to adequately plead its claim for fraud in the execution of the Syngo Agreement. A claim for fraud in the execution has been described as when "a party alleges that he was mistaken as to the terms and the actual contents of the agreement he executed due to the other's fraud." Toy v. Metro. Life Ins. Co., 928 A.2d 186, 205 (Pa. 2007). As summarized supra, Wierton Medical has alleged that Siemens represented in an email that the Syngo Agreement would include limited terms related only to the Syngo product but instead, it included what it hoped to be a general release of any and all claims.
It is therefore respectfully recommended that the motion to dismiss Count XI be denied and that Weirton Medical be provided an opportunity to offer evidence as to this claim.
11. Declaratory Judgment
Cerner argues that Count XIII should be dismissed on the ground it is duplicative of the breach of contract claim, which Cerner views as having been insufficiently plead. In response, Weirton Medical relies upon, and aptly so, Federal Rule of Civil Procedure 8(a)(3), which permits parties to plead causes of action in the alternative, as well as Federal Rule of Civil Procedure 57, which provides that the existence of another adequate remedy does not preclude a declaratory judgment that is otherwise appropriate. It is respectfully recommended that the court not exercise its discretion to dismiss the declaratory judgment claim at this early juncture.
12. Damages
Cerner argues that Weirton Medical has failed to state a claim upon which relief may be granted against it as to the damages it now seeks to recover. Specifically, Cerner contends the 2013 Master Agreement specifically precludes any request for indirect, consequential, punitive, or related damages. Cerner asks that we limit damages to only those "direct damages" detailed in the 2013 Master Agreement at §§ 13, 14. The question of whether a particular component of damages is direct or indirect is generally a question of fact to be decided at trial. Clark Distribution Sys., Inc. v. ALG Direct, Inc., No. 1:10-CR-2575, 2012 WL 3686771, at *3 (M.D. Pa. Aug. 27, 2012) (citing Combustion Sys. Servs., Inc. v. Schuylkill Energy Res., Inc., No. Civ. A. 92-4228, 1993 WL 496946 at *2 (E.D. Pa. Nov. 19, 1993). Weirton Medical may be seeking damages in excess of those agreed-upon in the 2013 Master Agreement, but whether those remedies would provide adequate and meaningful relief that after a full evidentiary record remains to be seen.
It is therefore respectfully recommended that the motion to dismiss the request for indirect, consequential, punitive or related damages claims be denied.
III. CONCLUSION
For the reasons discussed above, it is respectfully recommended that the motion to dismiss filed on behalf of defendant Cerner Health Services, Inc. (ECF No. 47) be denied and the motion to dismiss filed on behalf of Siemens Medical Solutions USA, Inc. (ECF No. 49) be denied.
Pursuant to the Magistrate Judges Act, 28 U.S.C. § 636(b)(1)(B) and (C), and Rule 72.D.2 of the Local Civil Rules, the parties shall have fourteen (14) days to file written objections. Failure to timely file objections will constitute a waiver of any appellate rights. Brightwell v. Lehman, 637 F.3d 187, 193 n. 7 (3d Cir. 2011). Dated: August 17, 2018
s/ Cynthia Reed Eddy
Cynthia Reed Eddy
United States Magistrate Judge cc: all parties via CM-ECF