Sparrow Systems, Inc. v. Private Diagnostic Clinic, PLLC

• Decision Date: 24 December 2014
• Docket Number: 14 CVS 1025
• Citation: 2014 NCBC 69
• Court: Superior Court of North Carolina
• Parties: SPARROW SYSTEMS, INC., Plaintiff, v. PRIVATE DIAGNOSTIC CLINIC, PLLC, Defendant.

2014 NCBC 69

SPARROW SYSTEMS, INC., Plaintiff, v. PRIVATE DIAGNOSTIC CLINIC, PLLC, Defendant.

No. 14 CVS 1025

Superior Court of North Carolina, Mecklenburg

December 24, 2014

Cooper & Kirk, PLLC, by Nicole Jo Moss, and McAngus, Goudelock & Courie, PLLC, by John T. Jeffries and Jeffrey B. Kuykendal, for Plaintiff Sparrow Systems, Inc.

Moore & Van Allen, PLLC, by John A. Zaloom and Drew K. Kifner, for Defendant Private Diagnostic Clinic, PLLC.

ORDER AND OPINION

Bledsoe, Judge.

{1} THIS MATTER is before the Court upon Defendant's Motion to Dismiss and for Attorneys' Fees (hereinafter demarcated as "Motion to Dismiss" and "Motion for Attorneys' Fees") in the above-captioned case.

{2} The Court, having considered the Motions, affidavits and supporting briefs, as well as the arguments of counsel at the September 19, 2014 hearing in this matter, hereby GRANTS in part and DENIES in part Defendant's Motion to Dismiss and DENIES Defendant's Motion for Attorneys' Fees.

I. BACKGROUND

{3} The Court recites herein the allegations set forth in Plaintiff's Complaint that are relevant for purposes of resolving the present Motions.^[1]

{4} Plaintiff is a North Carolina corporation with its principal place of business in Charlotte. (Compl. ¶ 14.)

{5} Diana Clontz founded Plaintiff in 1998 in order "to develop and market medical records software." (Id. ¶ 16.)

{6} Plaintiff's primary software product, known as "Sparrow Systems, " is comprised of three components: "(1) carefully constructed patient intake forms; (2) a document scanning and text recognition platform; and (3) a database designed by [Plaintiff]." (Id.)

{7} Defendant, Duke University Medical Center's Private Diagnostic Clinic, PLLC (hereinafter, "Defendant" or "Duke"), maintains its principal place of business at Duke University Medical Center ("DUMC") in Durham. (Id. ¶ 15.) Defendant's members both practice medicine at DUMC and serve as faculty at Duke University School of Medicine. (Id.)

{8} Plaintiff attracted its largest client – Defendant – in late 1999, when Defendant contacted Plaintiff to request a free trial of Sparrow Systems. (Id. ¶ 20.)

{9} The six-month trial period was a success, and Defendant thereafter informed Plaintiff of its decision to implement Sparrow Systems for continued use by members of its Orthopedics group ("Orthopedics"). (Id. ¶ 21.)

{10} Plaintiff accordingly sent its standard licensing contract ("the Contract") to Defendant to consummate the agreement. Specifically, Plaintiff transmitted the Contract via email to Roman Perun, an information technology employee of Defendant assigned to implement Sparrow Systems. (Id.)

{11} At Defendant's request, Plaintiff began setting up Sparrow Systems for use by several of Defendant's orthopedic surgeons. (Id.)

{12} Defendant's six-month free trial period of Sparrow Systems had extended to twenty months by the time Mr. Perun provided Plaintiff with Defendant's revised version of the Contract on August 15, 2002. (Id.)

{13} Ms. Clontz immediately signed the Contract in her capacity as Plaintiff's President and returned it to Mr. Perun, indicating that she had accepted all of Defendant's revisions. (Id. ¶ 22.) Mr. Perun responded that he would forward the Contract to the appropriate persons at Duke. (Id. ¶ 23.)

{14} Plaintiff never received an executed copy of the Contract signed by Defendant. (Id. ¶ 26.)

{15} Notwithstanding the absence of a signed agreement, Defendant and Plaintiff began performing consistent with the terms of the Contract. Defendant paid Plaintiff licensing fees, as provided for under the Contract, of $500 per month for each medical provider that was using Sparrow Systems, and Plaintiff provided technical support and software updates to Sparrow Systems, as was also provided for under the Contract. (Id. ¶¶ 24-26.)

{16} In January 2004, Ms. Clontz met with several individuals from Defendant's Urology group ("Urology") to discuss Urology's possible implementation and use of Sparrow Systems. (Id. ¶ 32.) Prior to the meeting, Ms. Clontz was asked to demonstrate Sparrow Systems to Dr. Leon Sun, a database developer working with Urology, and to download some of Plaintiff's proprietary forms onto Dr. Sun's computer. (Id.) Ms. Clontz was reluctant to share Plaintiff's intellectual property, but agreed to do so based on Urology's representations that it was serious about licensing Sparrow Systems and based on her belief that Plaintiff's intellectual property was protected by the Contract, which expressly prohibited Defendant from, inter alia, appropriating, adapting, copying, or reverse engineering Sparrow Systems. (Id. ¶ 34, Ex. A, p. 1.)

{17} Following the meeting, Urology indicated that it was "impressed" with Sparrow Systems, but did not want to pay for it. (Id. ¶ 35.)

{18} Ms. Clontz, having revealed Plaintiff's proprietary information to Dr. Sun and Urology, articulated to two of Defendant's physicians, Dr. James Nunley and Dr. Williamson Richardson, her concern that Defendant might attempt to appropriate, adapt, copy, or reverse engineer Sparrow Systems in contravention of Defendant's promises under the Contract. (Id. ¶ 36.) Dr. Richardson assured Ms. Clontz that Defendant would adhere to the terms of the Contract; however, he also warned Ms. Clontz against "rocking the boat, " asserting that Defendant would be able to "outlawyer" Plaintiff should any dispute arise between them. (Id.) Ms. Clontz declined to press the matter further for fear of jeopardizing Plaintiff's relationship with its largest client. (Id.)

{19} At or about this time, Dr. Richardson requested that Plaintiff exempt Defendant's general practitioners from the $500 monthly fee described under the Contract. (Id. ¶ 46.) Plaintiff acquiesced only after Dr. Richardson allegedly threatened to terminate Defendant's contract with Plaintiff if Plaintiff did not accept this condition. (Id.)

{20} Several years later, in 2008, Dr. Richardson requested that Plaintiff provide Defendant with Plaintiff's "data dictionary" – which Plaintiff describes as "essentially a road map to Sparrow Systems" and "one of the keys to [Plaintiff's] intellectual property and proprietary information" – for purposes of performing a "quality control" test on Sparrow Systems. (Id. ¶ 40.) Dr. Richardson allegedly threatened again to cancel Defendant's contract with Plaintiff if Plaintiff did not comply. (Id.) Plaintiff, seeking to maintain its relationship with Defendant and believing that the Contract would protect its intellectual property, provided its data dictionary to Defendant as requested. (Id.)

{21} In 2012, Dr. Richardson notified Plaintiff that Defendant again needed to perform a "quality control" check on Sparrow Systems. (Id. ¶ 41.) This time, Dr. Richardson directed Plaintiff to install Sparrow Systems on the computer of Dr. Robin Queen, a researcher at Duke, and also demanded that Plaintiff disclose to Defendant additional proprietary information, such as Plaintiff's scoring calculations for various patient outcome instruments. (Id.) Plaintiff complied with Dr. Richardson's demands because Plaintiff was "eager to prove its product's worth" and because, again, Plaintiff believed that its intellectual property was adequately protected by the Contract. (Id.)

{22} In late 2012, Plaintiff discovered that a Duke employee "had been sitting at the Sparrow Systems workstation in Orthopedics to 'learn' Sparrow Systems so that she [could] figure out how to perform the same functions on Urology's database." (Id. ¶ 37.) Ms. Clontz investigated and was able to ascertain that Urology had built a database that was "strikingly similar" to Sparrow Systems; she noted that Urology's database even employed the same unique Teleform software that Ms. Clontz had demonstrated to Dr. Sun years earlier. (Id. ¶ 38.)

{23} Plaintiff also discovered, around this time, that Defendant had failed to notify Plaintiff of – and thus had neglected to pay for – all of Defendant's physicians, other medical providers, and support staff (collectively, "medical providers") that were using or had used Sparrow Systems. (Id. ¶ 46.) Plaintiff contends that Defendant's failure to notify Plaintiff of all new medical providers' use of Sparrow Systems violated the Contract's requirement that Defendant "provide [Plaintiff] with (30) days advance written notice" if Defendant's "number of [medical] Providers increases." (Id. Ex. A, p. 8.)

{24} In January 2013, Dr. Richardson informed Ms. Clontz that Dr. Queen – the researcher on whose computer Plaintiff had installed Sparrow Systems just months earlier – was in the process of creating a new medical records system for Defendant that would replace Sparrow Systems. (Id. ¶ 43.) When Ms. Clontz reminded Dr. Richardson of the Contract's prohibition against Defendant's appropriating, copying, adapting, or reverse engineering Plaintiff's intellectual property, Dr. Richardson allegedly responded that Plaintiff's data was not proprietary and that, even if Defendant was attempting to appropriate Plaintiff's intellectual property, Defendant's "pockets were much deeper than" Plaintiff's and Defendant would be able to "outlawyer" Plaintiff if Plaintiff sought to enforce the Contract. (Id. ¶ 44.)

{25} A couple of months later, in March 2013, Defendant provided Plaintiff with written notice that it sought to terminate its use of Sparrow Systems. (Id. ¶ 48.) Plaintiff refused to accept Defendant's purported notice of cancellation, however, citing a provision in the Contract that required Defendant to tender written notice of cancellation ninety (90) days prior to expiration of the then-current contractual period, which ended March 30, 2013. Thus, because Defendant had failed to provide ninety (90) days advance written notice – i.e., by January 1, 2013 – Plaintiff advised Defendant that the Contract, by its terms, automatically renewed for an additional one-year period. (Id. ¶ 49.) Defendant has refused to pay, and contends that...