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Pain Center of Se Indiana, LLC v. Origin Healthcare Solutions LLC

United States District Court, S.D. Indiana, Indianapolis Division

January 24, 2017

ORIGIN HEALTHCARE SOLUTIONS LLC; SSIMED d/b/a SSIMED Holding, LLC; ORIGIN HOLDINGS, INC., a Delaware Corporation; JOHN DOES 1- 50 inclusive; and JOHN DOES 1-100 inclusive, Defendants.



         This matter comes before the court on the parties' cross motions for summary judgment. Plaintiffs, Pain Center of SE Indiana, LLC (“Pain Center”), the Indiana Pain Medicine and Rehabilitation Center, P.C. (“PMRC”), and Anthony Alexander, M.D. (“Dr. Alexander”), brought this action asserting twelve claims against Defendants, SSIMED; Origin Healthcare Solutions, LLC; and Origin Holdings, Inc. (collectively, “SSIMED”). Plaintiffs' claims arise out of two licensing contracts for practice management and electronic medical records software from SSIMED. Plaintiffs seek summary judgment on their breach of contract claim, their theory of joint and several liability under the corporate alter ego doctrine, and Defendants' affirmative defenses of waiver, statute of limitations, laches, and judicial estoppel. Origin moves for summary judgment on each of Plaintiffs' claims. For reasons set forth below, the court GRANTS summary judgment in favor of SSIMED and DENIES Plaintiffs' motion for partial summary judgment.[1]

         I. Standard

         On summary judgment, the court should “pierce the pleadings and . . . assess the proof in order to see whether there is a genuine need for trial.” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). The moving party must show “that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). To survive the motion, the nonmoving party must present specific facts showing the existence of a genuine issue for trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). “A genuine issue of material fact arises only if sufficient evidence favoring the nonmoving party exists to permit a jury to return a verdict for that party.” Springer v. Durflinger, 518 F.3d 479, 483 (7th Cir. 2008) (internal quotation marks omitted). At the summary judgment stage, the evidence put before the court need not be admissible in form, but it must be admissible in content. Wheatley v. Factory Card & Party Outlet, 826 F.3d 412, 420 (7th Cir. 2016) (citing Winskunas v. Birnbaum, 23 F.3d 1264, 1267-68 (7th Cir. 1994)); see also Gunville v. Walker, 583 F.3d 979, 985 (7th Cir. 2009) (“Admissibility is the threshold question because a court may consider only admissible evidence in assessing a motion for summary judgment.”).

         II. Factual Background[2]

         SSIMED provides full-service billing to health care providers using its proprietary software, Practice Manager. (Filing Nos. 324-1, 338-15, 328-5, and 333-1 (“McMahon Dep.”) at 26:18-24, 29:1-11).[3] Full-service clients leave the billing and revenue collection aspects of their practices to SSIMED to manage. (Id.). SSIMED also licenses Practice Manager to “systems clients” who opt to manage their own billing and collection operations. (Id. at 29:1-11; Filing No. 324-3 (“Defs.' Suppl. Answers to Pls.' Interrog.”) at 7-8). In addition to Practice Manager, SSIMED also licenses its medical records management software, known as EMRge, to practices that use electronic medical records. (Filing Nos. 324-4, 338-5, 327-5, 333-4, and 346-1 (“Pls.' 30(b)(6) Dep.”) at 82:3-6).

         In 2005, a group of investors acquired SSIMED and other companies that provided technology products and services to medical providers. (Filing Nos. 324-5, 338-13, 328-3, and 333-5 (“Kvam Dep.”) at 21:8-17). The investors formed Origin Healthcare Solutions, LLC to provide financial, marketing, and management support for the acquired companies. (Id. at 26:2-27:19, 31:2-20). Origin Holdings, Inc. indirectly owns Origin Healthcare Solutions LLC. (See Filing No. 25).

         Dr. Alexander founded Pain Center in 2001 to provide clinical services to patients suffering from chronic pain. (Pls.' 30(b)(6) Dep. at 22:18-21). Pain Center reorganized itself as PMRC in 2008.[4] (Id. at 30:8-11). PMRC assumed all contracts executed by Pain Center, including the licensing agreements at issue in this matter. (Id. at 31:23- 32:5).

         A. SSIMED licenses Practice Manager and EMRge to Pain Center

         In 2003, Joy Deckard, a representative of SSIMED, contacted Pain Center's billing specialist and office manager, Rhonda Mellencamp, about converting to Practice Manager as its billing software. (Filing Nos. 324-7, 338-17, 328-7, and 333-7 (“Mellencamp Dep.”) at 70:9-25; Pls.' 30(b)(6) Dep. at 128:6-8). Pain Center and SSIMED executed a licensing agreement for Practice Manager on June 18, 2003. (Pls.' 30(b)(6) Dep. at 129:23-130:10). On June 28, 2006, the parties executed a separate licensing agreement for EMRge. (Id. at 143:21-144:13). Deckard represented SSIMED during the sale of each software package. (Id. at 144:1-7).

         As a systems client of SSIMED, Pain Center used Practice Manager to generate its own claims for payment. (Filing No. 324-10, 338-18, 328-8, and 333-10 (“Harmon Dep.”) at 144:19-145:11). The staff at Pain Center, including Mellencamp, received a week of on-site training on the software from SSIMED trainer, Amy Kiernan. (Filing Nos. 324-9, 338-9, 327-9, and 333-9 (“Kiernan Dep.”) at 87:1-7). Kiernan trained the staff Monday through Thursday and then “shadowed” them on Friday as they used a demo version of Practice Manager. (Id. at 87:1-7, 76:17-24). Kiernan also briefly shadowed Dr. Alexander on Practice Manager, but testified that he did not attend the majority of the training. (Id. at 88:2-10). Kiernan testified that she showed Dr. Alexander how to use the software to schedule appointments, run billing reports, and how to obtain product support from SSIMED. (Id. at 90:1-11). Kiernan returned to Pain Center's office in 2006 to train its staff on the EMRge software. (Id. at 95:20-22, 129:12-15; Pls.' 30(b)(6) Dep. at 85:15-17).

         B. Pain Center experiences problems with Practice Manager and EMRge

         Although systems clients must use Practice Manager to generate their own claims, SSIMED directs the claims to insurers and provides pertinent information regarding the status of claims. (Filing Nos. 328-1 and 338-11 (“Burke Dep.”) at 104:5-24; Filing Nos. 327-7 and 338-7 (“Defs.' 30(b)(6) Dep.”) at 229:16-22, 232:18-25). The claim submission process begins with the client's transmission of daily “closing files” to SSIMED. (Defs.' 30(b)(6) Dep. 229:16-22). SSIMED then takes successfully transmitted closing files and generates claims files to send to insurers through its clearinghouse. (Burke Dep. at 105:10-16). Insurers may take two to three days to process the claims. (Id. at 104:18-24, 105:17-19). Once processed, claims reports appear in a tool in Practice Manager known as the “Client Center.” (Id. at 105:3-19). The claims reports inform the client whether claims successfully transmitted to insurers and, if so, whether an insurer paid a particular claim. (McMahon Dep. 115:6-23, 213:5- 13).

         Claim processing may fail at any stage of the submission process. (Burke Dep. at 94:21-95:15). Certain data-entry errors, such as incorrect diagnosis codes or patient birthdates, may prevent successful transmission of daily closing files to SSIMED, requiring the client to correct the errors. (McMahon Dep. at 115:8-23; Filing No. 324-11, 338-16, 328-6, and 333-11 (“Pierce Dep.”) at 44:8-14, 50:18-25, 52:10-17; Harmon Dep. at 38:22-39:12). Some claims might transmit to the insurer but nonetheless “error out.” (Burke Dep. at 95:12-15). When a claim fails, a report is generated in the Client Center that informs the client of the claim's status and any submission errors requiring corrections. (Id. at 104:18-105:16; McMahon Dep. at 115:15-19). Corrupt files in SSIMED's internal software might also prevent a claim file from generating properly. (Burke Dep. at 10:16-11:3, 16:13-24). Unlike submission errors, glitches from corrupt files require SSIMED-not the client-to troubleshoot the problem. (Id. at 11:4-10). Claims with submission errors (i.e., errors on the client's end) remain in the Client Center and unpaid unless they are corrected and resubmitted. (Id. at 16:2-12; Harmon Dep. 38:22-39:5, 47:4-48:8).[5]

         Pain Center (and later, PMRC) used Practice Manager from 2003 to 2012 and, according to Plaintiffs, experienced problems with the software from the beginning. (Pls.' 30(b)(6) Dep. at 82:11-23). Specifically, Dr. Alexander testified that his entities experienced transmission problems between Pain Center and SSIMED, missing claims, and errors in patient data and billing amounts. (Id.). Revenue shortfalls from unpaid claims regularly compelled Plaintiffs to call SSIMED to inquire about the status of claims. (Id. at 196:11-24). Dr. Alexander testified that SSIMED repeatedly blamed unpaid claims on the failure or refusal of insurers to pay. (Id. at 222:2-6). He further testified that his staff routinely followed up with insurers who, “on numerous occasions, too numerous to even talk about, ” reported that they had not received claims. (Id. at 221:10-222:25).

         Another former billing specialist, Demetria Hilton Pierce, joined PMRC in October 2011 and immediately noticed that insurers were not paying all submitted claims. (Pierce Dep. at 242:2-14). When Pierce inquired about the disparity between collections and claims billed, SSIMED directed her to the Client Center where she discovered approximately three thousand unattended claims containing submission errors. (Id. at 44:3-14, 44:24-45:4, 49:3-11). SSIMED informed Pierce that no one from PMRC had logged into the Client Center in approximately eighteen months. (Id. at 45:16-21). This backlog of uncorrected claims rendered many of them stale, and, despite Plaintiffs' subsequent efforts, insurers ultimately denied payment. (Id. at 45:16-21, 49:12-50:22).

         Plaintiffs licensed EMRge in 2006 and experienced problems with the software “almost from the beginning, ” in 2006 or 2007. (Pls.' 30(b)(6) Dep. at 81:3-9). A medical records software, EMRge provides a means of inputting and storing patient information electronically. (Id. at 79:5-80:7). According to Plaintiffs, EMRge frequently dropped certain data inputted during a particular visit, requiring Plaintiffs' staff to reenter the lost information. (Id.). Consequently, Dr. Alexander instructed his nurses to maintain paper charts and printed screen images from EMRge as a precautionary backup in case of lost data. (Id.). Plaintiffs do not, however, present evidence that EMRge contributed to the purported losses associated with claim errors or missing claims for payment.

         C. Plaintiffs' financial problems and investigative efforts

         In May 2010, PMRC filed a voluntary petition for Chapter 11 bankruptcy. (Id. at 38:18-39:6). In a disclosure statement filed on March 3, 2011, PMRC represented that its financial troubles stemmed from its “managers and other staff members . . . mismanaging the business, ” and that Dr. Alexander “was not aware of this mismanagement until April of 2010.” (Id. at 64:1-15).

         Between 2003 and 2012, Dr. Alexander made many attempts to discover the source of revenue problems. He made personnel changes in the billing department, hired an economist to investigate the problem, routinely contacted SSIMED to inquire about unpaid claims, and, subsequently, followed up with insurers about those claims. (Id. at 102:10-23, 221:10-222:12, 335:23-336:4; Filing No. 338-4 (“Dr. Alexander Decl.”) ¶ 32). In 2005, Plaintiffs contemplated pursing legal action against certain insurers for failing to honor claims. According to Plaintiffs' counsel, Patrick Harrison, discussions with Plaintiffs continued through 2011, but “sporadic payments” from insurance companies “stymied” their investigation. (Filing No. 338-22 (“Harrison Decl.”) ¶ 2; Pls.' 30(b)(6) Dep. at 196:11-21).

         According to Plaintiffs, two events in early 2012 caused them to suspect SSIMED as the culprit for their financial distress. (Pls.' 30(b)(6) Dep. at 335:23-337:2). First, Demetria Pierce discovered an abrupt and significant change in PMRC's claims submission history. (Pierce Dep. at 144:10-145:14). Every morning, Pierce provided Dr. Alexander a report generated through Practice Manager that showed PMRC's outstanding claims-that is, claims with errors that required corrections. (Id. at 145:18- 146:19). One morning in March 2012, Pierce noticed that outstanding claims dropped from approximately $21 million to approximately $15 million. (Id. at 144:24-145:3). Pierce inquired with SSIMED, which explained that PMRC had either adjusted its accounts receivable (i.e., write off balances as losses) or received payment. (Id. at 146:20-147:7). Pierce testified that PMRC had not received payment and she had not made adjustments to the accounts receivable.[6] (Id. at 147:18-148:8).

         The second event giving rise to Plaintiffs' suspicion involved PMRC's “meaningful use” credit. (Pls.' 30(b)(6) Dep. at 205:14-206:12). The government provides financial credit to health care providers who use electronic medical records and billing systems in ways that improve the quality of health care. (Id. at 206:13-20). The program credits providers when they counsel patients on the health hazards of smoking. (Id. at 206:16-23, 208:3-7). Unsatisfied with the credit PMRC had received, Dr. Alexander sought assistance from SSIMED. (Id. at 205:14-22). According to Dr. Alexander, the software's patient questionnaire from which the meaningful use data derives contained a grammatical “double negative, ” making it difficult for patients to accurately report whether they received counseling for smoking cessation. (Id. at 206:16-208:11). Dr. Alexander testified that PMRC had received credit for only five percent of patients, “when [it] should have been getting credit for every patient that came through the door.” (Id. at 208:14-25). In response to Dr. Alexander's complaint, SSIMED changed the structure of the sentence, boosting PMRC's credit received from five percent to ninety-nine percent of patients. (Id. at 207:21-208:2). This interaction, Plaintiffs maintain, alerted them to SSIMED's deceptive practices and the extent to which its software failed to function as advertised. (Id. at 205:14-206:12, 207:12-20).

         D. Procedural background

         Plaintiffs commenced this action on January 25, 2013, asserting twelve claims against SSIMED. (Filing No. 16 (“Amended Complaint”)). On December 1, 2014, the court dismissed four claims, and Dr. Alexander abandons his claim for intentional infliction of emotional distress. This leaves the following claims for decision on summary judgment: fraud, fraud in the inducement, breach of contract, breach of warranty, fraudulent misrepresentation, and tortious interference with business relations.[7]Plaintiffs root their breach of contract and breach of warranty claims in SSIMED's failure to deliver Practice Manager and EMRge as represented to Plaintiffs. (Amended Complaint ¶ 101). They also claim that SSIMED failed to provide the support, unlimited claim submission, or software upgrades as required in the contracts. (Id. ¶ 100). Plaintiffs base their fraud claims on the misrepresentations Deckard made about the functional capabilities of the software and the quality of associated support services SSIMED would provide. Finally, Plaintiffs claim that SSIMED's conduct interfered with their ability to pursue various lucrative business opportunities. Before reaching the merits of the parties' motions, the court must resolve certain evidentiary issues.

         III. Evidentiary Matters

         A. Dr. Alexander's declaration

         SSIMED objects to certain portions of Dr. Alexander's declaration as inconsistent with his deposition testimony and therefore inadmissible. A declaration used to oppose summary judgment must be made on personal knowledge and set forth facts that would be admissible in evidence. Fed.R.Civ.P. 56(c)(4). When a party submits its own declaration to supplement prior deposition testimony, the court disregards any portion of the declaration that conflicts with the prior testimony. Preddie v. Bartholomew Consol. Sch. Corp., 799 F.3d 806, 809 n.1 (7th Cir. 2015); Russell v. Acme-Evans Co., 51 F.3d 64, 67-68 (7th Cir. 1995) (“We have been highly critical of efforts to patch up a party's deposition with his own subsequent affidavit.”). To avoid exclusion of a conflicting statement, the party advocating its admission must demonstrate that “the statement in the deposition was mistaken . . . .” Russell, 51 F.3d at 68.

         SSIMED first challenges certain statements in Dr. Alexander's declaration concerning the representations Deckard made to Dr. Alexander in 2003 and again in 2006 about the capabilities of Practice Manager and EMRge, respectively. Dr. Alexander submitted to a Rule 30(b)(6) deposition as the sole corporate representative for Pain Center and PMRC. When asked by his counsel to describe the representations Deckard made with respect to SSIMED's product testing, Dr. Alexander testified that:

Well, a lot of that had to do with the fact they had thousands of customers, and that those customers had already verified the software. Other things that they said that were extremely misleading was that they have been involved in pain management, and that their software package was ready to go for a pain practice. Other things that they said that I found ...

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