Premier Med. Sys. v. Neurologica Corp.
| Decision Date | 28 February 2022 |
| Docket Number | 1:21-cv-1337-GHW |
| Parties | PREMIER MEDICAL SYSTEMS, LLC, Plaintiff, v. NEUROLOGICA CORP., Defendant. |
| Court | U.S. District Court — Southern District of New York |
Plaintiff Premier Medical Systems, LLC (“Plaintiff” or “Premier”) markets, sells, and distributes Samsung ultrasound systems in the United States as sales representative for Defendant NeuroLogica Corp. (“NeuroLogica” or “Defendant”). Pursuant to a sales representative and dealership agreement (the “SRA”) governing the parties' relationship, Plaintiff facilitates the return and replacement of malfunctioning ultrasound probes that are covered by warranty. In 2020, Defendant implemented a new policy that required Plaintiff to make a preliminary determination as to the cause of damage to a probe, and also began billing Plaintiff-instead of the customer-for replacement probes that Defendant determined had been damaged by the customer.
Plaintiff alleges that Defendant's new policy breached the SRA, and also brings other claims related to Defendant's conduct subsequent to the imposition of that policy. Defendant moved to dismiss. While Plaintiff has not successfully pleaded all of its claims, the relevant provisions of the parties' agreement are ambiguous. As a result, the breach of contract claim cannot be dismissed, and Defendant's motion to dismiss is granted in part and denied in part.
Plaintiff is a sales representative for Defendant NeuroLogica Corporation. Am. Compl., Dkt. No. 26 (“AC”) ¶ 1. Defendant holds the rights to market, sell, and distribute Samsung ultrasound systems in the United States. Id. Plaintiff primarily serves as Defendant's agent, “facilitating sales of products directly between Samsung and its customers, for which Premier receives a sales commission as compensation.” Id. ¶ 2.
The parties' relationship is governed by a sales representative and dealership agreement, dated January 1, 2016 (the “SRA”). See AC Ex. 1. Pursuant to that agreement, Plaintiff is “the exclusive sales representative and dealer of certain specified Samsung ultrasound products to women's health providers in a thirteen-state territory.” AC ¶ 19. In addition, Plaintiff provides “certain dealer labor services to end users during the term of Samsung's 24-month original warranty.” Id. ¶ 21. Plaintiff can also sell separate service contracts covering the products after the conclusion of that original warranty period. Id. ¶ 22.
“[U]nder long-established practice, ” when a customer reports that a product has malfunctioned, “Premier and its technicians quickly inspect the product either virtually or in person.” Id. ¶ 24. Because Plaintiff “cannot fix a broken probe, ” Plaintiff then orders a replacement part, which, Plaintiff asserts, “Samsung must provide at its own expense” (although it retains the right to ultimately invoice the customer for the replacement part). Id. According to Plaintiff, the parties have maintained this practice “for the past ten years.” Id. ¶ 25.
On August 25, 2020, Defendant “unilaterally purported to change the parties' longstanding practices under the SRA concerning the replacement of malfunctioning ultrasound probes during the warranty period” (the “Probe Replacement Policy”). Id. ¶ 28. Specifically, Defendant began requiring that its sales representatives, including Plaintiff, make a preliminary determination as to whether an ultrasound probe had malfunctioned due to customer-caused damage. Id. ¶ 29. Making that determination “can be difficult, ” because, among other reasons, many replacement probes are refurbished and do not start off in perfect condition. Id. And, in the ten previous years, Defendant had at no point “trained Premier to perform this new task, nor provided it with the special diagnostic tools Samsung itself uses to make this determination.” Id.
Under the Probe Replacement Policy, Plaintiff “would be required to quickly order the customer a new probe” so that the customer's medical practice would not be interrupted. Id. ¶ 30. Afterward, Defendant “would conduct its own more rigorous test of the probe . . . using probe evaluation tools unavailable to Premier.” Id. If Defendant determined that the probe had malfunctioned because of customer-caused damage, Defendant would invoice Plaintiff, and not the customer, for the replacement. Id..
According to Plaintiff, it has “never been required to make any determination concerning probes, let alone a determination of customer-caused damage, and the parties have never allocated to Premier the cost of replacement parts, including probes, during the warranty period.” Id. ¶ 38. But since October 2020, Defendant has billed Plaintiff over $175, 000 to replace probes that Defendant determined had malfunctioned because customers damaged them. Id. ¶ 39.
Plaintiff objected to Probe Replacement Policy. Id. ¶ 38. Allegedly in response, Defendant started to require that Plaintiff make an onsite visit to the customer complaining of a malfunction, even though Plaintiff had historically assessed complaints over the phone or virtually. Id. ¶ 41. Defendant also began requiring that Premier issue a written “condition report with images” to provide its opinion on whether any damage was caused by a customer. Id. For these on-site evaluation services, Plaintiff issued Defendant an invoice for $285, 000. Id. ¶ 43. Defendant refused to pay that invoice. Id.
Defendant also refused to pay Plaintiffs invoice in the amount of $13, 050 for addressing other product issues (the “Product Issues Invoice”), including making installation visits to customers because of software defects and product shipment errors. Id. ¶ 44. Plaintiff also invoiced Defendant $2, 278.33 for a commission payment because another dealer sold one of Samsung's products to a customer in Premier's exclusive territory (the “HM70 Probe Invoice”). Id. ¶ 45. Defendant has not paid that invoice. Id.
Allegedly in response to Plaintiffs “refusal to accede to the unlawful Probe Replacement Policy, ” Defendant “has made false and defamatory statements about Premier to its customers.” Id. ¶ 46. In the only such email identified by Plaintiff, Defendant's national ultrasound service manager Thomas Leinart emailed Premier's customer, Jean Murphy, of “Northwell Health, ” and stated that Plaintiff “has a responsibility to visit your site and evaluate your probes for warranty replacement” and that Plaintiff had been “uncooperative in their duties to respond to [Northwell's] service needs.” Id. ¶ 47. As a result, Plaintiff claims that it has suffered “substantial reputational injury and loss of business opportunities.” ¶ 50.
In addition, Defendant has “changed its position” on extended warranties and price reduction approvals that had historically been provided to Plaintiffs customers. For instance, in January 2021, Main Line Fertility-a “notable fertility account”-requested three ultrasound units at a cost of $75, 000. Id. ¶ 52. Plaintiff had typically offered Main Line Fertility a three-year warranty instead of a two-year warranty. Id. Defendant refused to permit Plaintiff to provide the extra year of service. Id. ¶ 53. Defendant has since rejected similar deals with other clients. Id. ¶ 54.
Plaintiff also alleges that Defendant “has refused to allow Premier to purchase Samsung out-of-warranty parts on credit, ” id. ¶ 66; that Defendant has purported to require Premier to pay for out-of-warranty parts within only fifteen days in contravention of long-standing practice, id. ¶ 69; and that Defendant has imposed a “new 20% restocking fee to returned parts” that is not required by the SRA, id. ¶ 70.
Id. ¶ 57. In exchange, Defendant “agreed to take over Premier's responsibility for providing clinical applications support for demonstration and training of non-premium products.” Id. ¶ 58. Plaintiff avers that it “let go” of its clinical applications training and support team in reliance on that modification. Id. ¶ 59. It also hired an additional administrator and other employees. Id.
According to Plaintiff, for the following three years, Samsung “took over clinical applications support for demonstrations and training of non-premium products at no cost to Premier.” Id. However, Defendant has changed course and now “purports to bill Premier $1, 500 a day for providing clinical applications support of demonstrations and training for non-premium products.” Id. ¶ 61.
Because of the 2017 Modification, Plaintiff terminated Mary Hellsund and Moriah Hoover, who were members of its clinical applications support...
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