Hope Int'l Hospice, Inc. v. Net Health Sys.
| Decision Date | 09 March 2023 |
| Docket Number | 2:22-cv-00656-DBB-DBP |
| Parties | HOPE INTERNATIONAL HOSPICE, INC. Plaintiff, v. NET HEALTH SYSTEMS, INC., Defendant. |
| Court | U.S. District Court — District of Utah |
Defendant Net Health Systems, Inc.'s (“Net Health”) moves to dismiss Plaintiff Hope International Hospice Inc.'s (“Hope International”) Complaint[1] under Rule 12(b)(6) of the Federal Rules of Civil Procedure.[2] Having considered the briefing and relevant law, the court finds that oral argument is not necessary to resolve the matter.[3] For the reasons below, the court grants Net Health's motion.
BACKGROUND[4]
Hope International provides hospice services.[5] Net Health offers cloud-based software to post-acute care providers such as Hope International.[6] The two parties entered into a Subscription Agreement (the “Agreement”).[7] Under the Agreement, Net Health's duties included billing, collecting payments from patients' insurers processing and submitting claims to insurers, negotiating reimbursement rates, and managing the claims process through billing, adjudication, and collections.[8] Hope International agreed in turn to license Net Health's software and use it to submit reimbursement requests for their insurance claims.[9]
The Agreement contained the following provision as to Net Health's liability:
[Hope International] agrees [Net Health] shall not be liable for any special, incidental, indirect, punitive, or consequential damages or for the loss of profit, revenue, or data arising out of the subject matter of this agreement, and that [Hope International]'s only remedy shall be a refund of fees paid not to exceed a period of ninety (90) days. [Net Health] shall not be liable for unauthorized access to or alteration, theft, or destruction of [Hope International]'s data files, programs, procedures or information through accident, fraudulent means or devices, or any other method.[10]
Either party could terminate the Agreement after giving five days' notice if “the other party default[ed] on any of its obligations” and the party did not correct the default within sixty days.[11]
Hope International alleges that starting in 2017, Net Heath began submitting inadequate reimbursements and failing to collect on invoices.[12] It contends it asked Net Health to correct its mistakes, but Net Health took no steps to fix the issues between 2019 and 2021.[13] Hope International asserts Net Health's gross negligence caused at least $1,933,469.18 in lost profits.[14]
After unsuccessful mediation, Hope International filed its Complaint on October 12, 2022.[15] It asserted six causes of action: breach of contract, breach of the covenant of good faith and fair dealing, gross negligence, negligent misrepresentation, promissory estoppel, and unfair business practices.[16] On October 31, 2022, Net Health filed a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6).[17] Hope International submitted an opposition on December 12, 2022.[18] Net Health replied on December 27, 2022.[19]
“[T]o withstand a Rule 12(b)(6) motion to dismiss, a complaint must contain enough allegations of fact, taken as true, ‘to state a claim to relief that is plausible on its face.'”[20] “[T]he court first eliminates conclusory allegations, mere ‘labels and conclusions,' and any ‘formulaic recitation of the elements of a cause of action.'”[21] “The court then accepts as true all well-pled factual allegations and considers ‘whether they plausibly give rise to an entitlement to relief.'”[22]The court “views all reasonable inferences in favor of the nonmoving party . . . and liberally construe[s] the pleadings.”[23]
Net Health seeks dismissal of all six claims for relief. Hope International stipulates to dismissal of the unfair business practices claim.[24] The court thus addresses the other five.[25]
Net Health contends the economic loss rule bars Hope International's gross negligence and negligent misrepresentation claims. “[T]he economic loss rule ‘marks the fundamental boundary between contract law, which protects expectancy interests created through agreement between the parties, and tort law, which protects individuals and their property from physical harm by imposing a duty of reasonable care.'”[26] It “has two complementary yet distinct applications.”[27] The first application occurs when the parties have no contract. In that case, the rule “bars recovery of economic losses in negligence actions unless the plaintiff can show physical damage to other property or bodily injury.”[28] Should a contract exist, and “a conflict arises between parties . . . regarding the subject matter of that contract, the contractual relationship controls, and parties are not permitted to assert actions in tort.”[29]
Net Health argues Hope International alleges a breach of contractual duties. As such, it asserts Hope International cannot recover on tort actions.[30] For its part, Hope International contends the tort claims center on matters outside the Agreement's scope.[31] Since Hope International concedes the Agreement was a valid contract,[32] Hope International must “point to separate duties-one in contract and one in tort[.]”[33]
A. Hope International Has Not Shown any Independent Duty to Support its Gross Negligence Claim.
For its gross negligence claim, Hope International cites two purportedly independent duties. First, it alleges a duty to “implement protocols commonly practiced in the healthcare billing and collection industry, including verifying the accuracy of the claims submitted for the Services, and procedures to address and dispute any rejection of such claims.”[34] Second, it alleges a duty to refrain from having “utter indifference to addressing errors and omissions despite being notified of such errors.”[35]
The Agreement contemplated these alleged duties. Net Health agreed to “negotiat[e] with third party payers for rates of reimbursement, provide all billing and collection services, . . . submi[t] . . . claims whether hard copy or electronic to third party payers, [and] . . . follow[] . . . claims through billing, adjudication, and collections.”[36] Net Health also handled “the billing and collection services for [Hope International]'s facility and/or agency.”[37] The first purported duty-to implement protocols, verify claims, and address claim rejection-is encompassed by the contractual duty to provide billing and collection services, submit claims, and track claims. Hope International cites no authority that the alleged duty would exist at all outside of the contract.
As to the second purported duty, Hope International again has pleaded no independent duty owed by Net Health.[38] Hope International argues a breach arose from a duty to “adopt and implement protocols commonly practiced in the healthcare billing and collection industry.”[39] But the Agreement outlined Net Health's charge to work with third-party payers and to supervise claims throughout billing, adjudication, and collection. These duties reasonably include the methods and processes necessary to do so. And, again, Hope International cites no authority recognizing this duty as existing independent of a contractual obligation.
B. Hope International Has Not Shown a Separate Duty to Support its Negligent Misrepresentation Claim.
Net Health also contends the economic loss rule bars Hope International's negligent misrepresentation claim because no duty exists outside the Agreement.[40] Alternatively, it contends Hope International has not stated a necessary element for the claim: present misrepresentation as to an existing fact. Hope International responds that its claim rests upon a separate duty. It also argues the Complaint alleges a present intent to misrepresent facts.[41]
“Utah courts apply the economic loss rule to negligent misrepresentation claims.”[42] A plaintiff may “assert a claim for negligent misrepresentation if it can establish that [the defendant] owed it an independent duty of care.”[43] Thus, the economic loss rule bars recovery if the negligent misrepresentation claim implicates a duty overlapping with one set forth in the Agreement.[44] Hope International alleges that after it confronted Net Health about its failures, Net Health represented it would cure the defects and resubmit the denied claims.[45] Yet Net Health's representations were not separate promises.[46] The Agreement foresaw such duties. Net Health agreed to provide “all billing and collection services, the submission of claims . . ., [and to] follow[] claims through billing, adjudication, and collections.”[47] These duties reasonably included the need to cure and resubmit claims as needed. Consequently, Net Health's representations were affirmations that it would comply with its duties pursuant to the Agreement.
In conclusion, Hope International identifies no independent duty outside the Agreement.
It merely alleges that gross negligence stemmed from Net Health's “failure to comply with [its] contractual duties under the [Agreement].”[48] That is not enough. The economic loss rule bars the torts claims because they are not based on duties separate from the contract. As a result, it is not necessary to determine whether Hope International plausibly alleges a “false representation concerning a presently existing fact[.]”[49] The court dismisses without prejudice the gross negligence and negligent misrepresentation claims.
The parties concur the Agreement was “a valid and enforceable contract.”[50] Net Health argues, however Hope International's only...
To continue reading
Request your trial