Hosp. Computer Systems v. Staten Island Hosp.

• Decision Date: 01 April 1992
• Docket Number: Civ. A. No. 89-2305.
• Citation: 788 F. Supp. 1351
• Parties: HOSPITAL COMPUTER SYSTEMS, INC., Plaintiff, v. The STATEN ISLAND HOSPITAL, Defendant.
• Court: U.S. District Court — District of New Jersey

788 F. Supp. 1351

HOSPITAL COMPUTER SYSTEMS, INC., Plaintiff, v. The STATEN ISLAND HOSPITAL, Defendant.

Civ. A. No. 89-2305.

United States District Court, D. New Jersey.

April 1, 1992.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Joseph R. McDonough, Ribis, Graham & Curtin, Morristown, N.J., Barry R. Ostrager, Brian G. Snover, Nina J. Spiegel, Jennifer L. Klein, Simpson, Thacher & Bartlett, New York City, for plaintiff.

James B. Daniels, Friedman Siegelbaum, Roseland, N.J., for defendant.

WOLIN, District Judge.

This action arises from a contract entered into between Hospital Computer Systems, Inc. ("HCS") and Staten Island Hospital ("SIH") on September 26, 1985 ("the Agreement"). Under the Agreement, HCS agreed for a fee to provide SIH with computer software development and management services to create for SIH a custom computerized billing and accounting software system. HCS filed the complaint in this action in 1989, alleging that SIH breached the Agreement. SIH has asserted six counterclaims, three of which sound in breach of warranty and three of which sound in tort. Before the Court is HSC's motion for summary judgment as to all of those counterclaims.¹ For the reasons that follow, HCS's motion will be granted as to the tort counterclaims and granted in part and denied in part as to the breach of contract counterclaims.

BACKGROUND

Sometime during the period 1982-83, SIH hired a computer consultant, Libra Health Technologies, Inc. ("Libra"), to assist in SIH's search for a computerized patient accounting and billing system to replace its existing computer system. Libra helped SIH to create a "request for proposals" that was distributed to a number of computer system vendors to solicit bids for a new computer system.

After all bids had been received, SIH narrowed its consideration to three vendors, one of which was HCS. In a report dated November 30, 1983, Libra advised SIH that, of the three vendors under consideration, HCS's was least suited to the needs of SIH. SIH attempted, but failed, to negotiate and execute a contract with one of the other two vendors.

Two years later, in 1985, SIH again contacted HCS. During negotiations, HCS represented to SIH that its system could meet the reporting requirements of New York state regulators and health care insurers, and could be customized to meet SIH's other needs. Ultimately, the parties entered into the Agreement on September 26, 1985. Under the Agreement, in consideration of services to be provided by HCS to develop and implement the system, SIH was to pay in excess of $20,000 per month as a "management fee".

On January 1, 1986, SIH "went live" with the HCS system. The system, which processed and stored data offsite through telecommunications lines, had many problems which HCS continually endeavored to correct. Over the next eighteen months, SIH paid in full the monthly management fee due under the contract. Apparently, the system continued to suffer from numerous defects during this entire period. Weekly meetings were held between SIH and HCS to discuss the ongoing problems. Problems with the system were compounded by changes in New York regulatory requirements imposed on SIH, which had to be incorporated into the HCS system on an ongoing basis. Not satisfied with the system's or HCS's performance, SIH hired an independent computer consultant, L.H. Titterton, Inc. ("Titterton") in late 1986 or early 1987 to evaluate the HCS system. After it completed a study of the system, Titterton concluded that the system's problems could not be fully remedied.

A luncheon meeting between SIH and HCS was arranged for May 22, 1987 by SIH's senior vice president Edward Messier. That meeting was attended by Messier, Gerald Ferlisi (SIH's vice president of finance), Lewis Titterton, and Joseph Fahey (HCS's president). At the meeting, the parties discussed: (1) SIH's dissatisfaction with the performance of the HCS system; (2) SIH's decision to merge with Richmond Memorial Hospital and its consequent need to consolidate the two hospitals' computer systems; (3) SIH's decision to try to obtain another computer system rather than to continue trying to make the HCS system work properly; (4) SIH's desire that SIH and HCS attempt to part ways amicably and that HCS assist in the transition to a new system; and (5) SIH's offer to consider a proposal by HCS for a "wind-down fee".²

Messier confirmed the contents of the meeting discussions in a letter to Fahey dated June 2, 1987. Part of that letter stated:

Because of various reasons associated with our current and past relations with HCS and our dislike of Richmond Memorial's system, we have decided to wipe the slate clean and try another vendorized financial system.

While I have not been personally involved with the HCS implementation over the last 18 months, the lack of accurate and timely responsiveness to our needs, as well as an attitude of noncooperation with our personnel have been routine reports at my internal management sessions. The loss of revenues and additional costs to the Hospital have been major and significant. Without repeating all my verbalization at our luncheon, suffice to say we would like to accomplish a reasonable and orderly transition from HCS to whatever our new system would be. As you have indicated at our recent meeting, given our basic decision you also subscribe to this same approach toward a planned HCS withdrawal. I am also aware that working at The Staten Island Hospital has been difficult for HCS due to our LAN approach to hospital data processing, as well as our ever-changing New York State requirements placed upon the hospital. It is not the intent of the hospital that HCS should be asked to absorb significant financial losses as a result of the consolidation process and our new system needs. Without making a specific commitment, I would appreciate your letting me know what kind and how much of a financial burden our contract has been to HCS.

Our preliminary plans call for a replacement of the general ledger system and certain billing and accounting systems at the Staten Island division by year end 1987. The remainder of the HCS systems will be phased out over 1988. This timetable is subject to modification and may result in most transitions of billing occurring in 1988. We need to plan these activities with you. HCS should continue to maintain and complete installation of any applications in process. No new applications will be started.

I know that this decision comes to HCS suddenly but the problems of to sic your organization implementing HCS programs at the Staten Island Hospital must be well known to your staff. Your amicable and controlled reaction to our decision is reflective of the character of yourself and your company. I'm grateful that we will part company in this environment.

Mr. Titterton will be in contact with you to work out more specific work plans and timetables....

(Exhibit A, Fahey Affidavit).

In response to discussions at the meeting and to Messier's letter, Fahey wrote a letter to Messier dated June 11, 1987 in which he stated

We have received your letter of June 2, 1987. As you know, our contract with the Staten Island Hospital has a five year term which commenced on the initial implementation date, January 1, 1986. Hospital Computer Systems has complied with its obligations under the contract, and we fully expect The Staten Island Hospital to comply with its obligations. However, we would be pleased to discuss with you some type of prepayment arrangement in the event you wish HCS to release the data to your new consultant.

(Exhibit B, Fahey Affidavit). In a letter to Lewis Titterton dated July 2, 1987, Joseph Manzi, vice president of HCS, wrote

HCS is willing to provide the following relief to Staten Island Hospital if it chooses to stop using the software services prior to the expiration of our contract:

Monthly Fee — Reduction of $2,500. monthly beginning with the cutover to a new system. The balance of the fee will be due monthly through the expiration of the contract.

Consultation Fee — HCS offers to assist in conversion with meeting time not to exceed 50 hours for a total of a $50,000. one time fee. Time spent in excess of 50 hours would be charged at $100. per hour.

(Exhibit C, Fahey Affidavit).

SIH did not respond to either the June 11 or July 2 letter. Instead, it continued to make payment in full each month under the contract for the next eighteen months. Unbeknown to HCS, during those eighteen months, SIH sought out, procured, and implemented a new computer system from Travenol Healthcare Information Services ("the Baxter system").

When the Baxter system became operational on February 1, 1989, SIH terminated its use of the HCS system, without prior notice to HCS, by disconnecting the telecommunications access line between the hospital and HCS's offsite data processing equipment. SIH also suspended all further payments of the monthly management fee and offered to return to HCS equipment located on site at the hospital. HCS commenced this breach of contract action in May 1989.

DISCUSSION

A. Summary Judgment Standard

Summary judgment shall be granted if "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c); see Hersh v. Allen Products Co., 789 F.2d 230, 232 (3d Cir. 1986). In making this determination, a court must draw all reasonable inferences in favor of the non-movant. Meyer v. Riegel Prods. Corp., 720 F.2d 303, 307 n. 2 (3d Cir.1983), cert. dismissed, 465 U.S. 1091, 104 S.Ct. 2144, 79 L.Ed.2d 910 (1984). Whether a fact is "material" is determined by the substantive law defining the claims. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986); United States v. 225 Cartons, ...