Trinity Med. Servs., L.L.C. v. Merge Healthcare Solutions, Inc.

• Decision Date: 07 August 2018
• Docket Number: CIVIL ACTION NO. 17-592-JWD-EWD
• Parties: TRINITY MEDICAL SERVICES, L.L.C., ET AL. v. MERGE HEALTHCARE SOLUTIONS, INC.
• Court: U.S. District Court — Middle District of Louisiana

TRINITY MEDICAL SERVICES, L.L.C., ET AL. v. MERGE HEALTHCARE SOLUTIONS, INC.

CIVIL ACTION NO. 17-592-JWD-EWD

UNITED STATES DISTRICT COURT MIDDLE DISTRICT OF LOUISIANA

August 7, 2018

RULING AND ORDER

This matter comes before the Court on Defendant Merge's Motion to Dismiss Pursuant to Fed. R. Civ. P. 12(b)(6) (Doc. 6) filed by Defendant Merge Healthcare Solutions, Inc. ("Merge" or "Defendant"). Plaintiffs Trinity Medical Services, L.L.C. ("Trinity"), Performance Labs, LLC ("Performance"), and Prestige Worldwide Leasing, LLC ("Prestige") (collectively, "Plaintiffs") oppose the motion. (Doc. 8.) Defendant has filed a reply. (Doc. 9.) Oral argument is not necessary. The Court has carefully considered the law, facts in the record, and arguments and submissions of the parties and is prepared to rule. For the following reasons, the Defendant's motion is granted in part and denied in part.

I. Relevant Factual Background¹

This suit arises out of an alleged software defect in an operating system sold and installed by Defendant. Trinity, Performance, and Prestige all performed toxicology testing services and related services in Louisiana. (Doc. 1-2 at 24.) Trinity operated a clinical laboratory in Mandeville, Louisiana, which specialized in clinical medication monitoring through toxicology testing. Performance is owned by Trinity and provided medication monitoring for patients usingtoxicology testing. (Doc. 1-2 at 25.) Trinity also owned Prestige, which provided employee leasing services and laboratory management services to clinical and toxicology laboratories located in Louisiana and Mississippi. (Doc. 1-2 at 25.)

The toxicology testing performed at these laboratories involved collecting biological samples from medical patients and testing those samples for chemicals, drugs, and toxins, which could affect those patients' medical treatment options. (Doc. 1-2 at 26.) Since patient outcomes are highly regulated by both industry regulations as well as federal and state laws and regulations, (Doc. 1-2 at 27), toxicology laboratories are concerned with using programs and operating systems that will meet the requirements to protect patient safety and data security. (Doc. 1-2 at 29.)

Merge is a developer and manufacturer of clinical laboratory software systems, including the Merge LIS^TM software at issue in this case. (Doc. 1-2 at 24.) Plaintiffs allege that they expressly communicated to Merge that they required operating software that met the industry and legal requirements, which Merge allegedly confirmed its LIS^TM software would provide. (Doc. 1-2 at 29.) Plaintiffs claim that Merge's representations about the software's reliability and security substantially influenced their decision to select Merge as their new operating platform provider. (Doc. 1-2 at 29-30.) Therefore, in January 2016, Plaintiffs contracted with Merge to purchase the LIS^TM software, which was to be installed at all of Plaintiffs' toxicology laboratories in April 2016. (Doc. 1-2 at 30.)

However, prior to contracting with Plaintiffs, Merge allegedly became aware of a "software design" defect around March 2015. (Doc. 1-2 at 30-31.) Plaintiffs claim that the defect resulted in the LIS^TM software creating "duplicate container numbers . . . for patients." (Id.) The Plaintiffs assert that the software created duplicate records for a single toxicology test, whicheventually could result in the software deleting both entries in error. (Doc. 1-2 at 31.) Plaintiffs claim that this compromised laboratory reliability and testing accuracy because it increased the risk that the testing laboratory would fail to perform the requested toxicology test. (Id.) Plaintiffs allege that Merge never informed them of the software issue, either prior to installing the LIS^TM software or after installation, even though Merge recalled the software. (Id.)

In April 2016, Merge installed its Merge LIS^TM software in Plaintiffs' toxicology laboratories in both Louisiana and Mississippi. (Doc. 1-2 at 32.) Plaintiffs began using the LIS^TM software when it went "live" in late May 2016. (Id.) Plaintiffs allege that they "immediately" noticed defects in the software, including the duplicate container defects along with others, which made the software incompatible with meeting the law and regulatory requirements. (Doc. 1-2 at 32-33.)

Plaintiffs include a list of several alleged defects in the LISTM software including (but not limited to): "lack of audit tracking defect," "user manual defect," "illegible comments defect," "incorrect sample date defect," "no rejected samples defect," "re-preparation sample limbo defect," "no disabled users defect," "rejected report defect," and "back-dating defect." (Doc. 1-2 at 33.) Generally, Plaintiffs contend that these defects have the same effect as the duplicate container issue, in that the defects compromise patient safety and data security. In addition, Plaintiffs note that Merge failed to meet industry standards regarding security protocols, resulting in a security defect that "would allow a party to access the user's system and take, corrupt, or destroy the information contained in a customer's database." (Id.) As to this last issue, Plaintiffs claim that Merge could easily resolve this security defect in a short amount of time, but that Merge failed to correct the purported flaw. (Doc 1-2 at 33-34.)

Plaintiffs indicate that they notified Merge upon their discovery of the software defects,which Merge was either "incapable of or unwilling" to resolve. (Doc. 1-2 at 34.) As a result, Plaintiffs claim they acted in good faith and at their expense to create software "work-arounds" that would make the LIS^TM software compatible with laws and regulations. (Id.) Purportedly, the software defects and the subsequent "work-arounds" proved to be such a financial and labor-intensive expense that Plaintiffs were unable to return their laboratories to full capacity. (Doc. 1-2 at 35.) Plaintiffs claim that they were eventually "forced" to close their Louisiana laboratories and lost their management contracts for the Mississippi contracts due to the financial issues they faced as a result of the Merge LIS^TM software defects. (Id.)

Additionally, Plaintiffs contend that Merge was unable or unwilling to remedy the software defects or collaborate with Plaintiffs to find a solution. (Doc. 1-2 at 36.) Plaintiffs assert that they additionally warned Merge of the risk that the software defects posed to patient safety, but that Merge failed to correct the software issues or inform other Merge LIS^TM software users of the deficiencies. (Id.)

II. Rule 12(b)(6) Standard

In Johnson v. City of Shelby, Miss., 135 S. Ct. 346 (2014), the Supreme Court explained "Federal pleading rules call for a 'short and plain statement of the claim showing that the pleader is entitled to relief,' Fed. R. Civ. P. 8(a)(2); they do not countenance dismissal of a complaint for imperfect statement of the legal theory supporting the claim asserted." 135 S. Ct. at 346-47 (citation omitted).

Interpreting Rule 8(a) of the Federal Rules of Civil Procedure, the Fifth Circuit has explained:

The complaint (1) on its face (2) must contain enough factual matter (taken as true) (3) to raise a reasonable hope or expectation (4) that discovery will reveal relevant evidence of each element of a claim. "Asking for [such] plausible grounds to infer [the element of a claim] does not impose a probability requirement at the pleadingstage; it simply calls for enough fact to raise a reasonable expectation that discovery will reveal [that the elements of the claim existed]."

Lormand v. U.S. Unwired, Inc., 565 F.3d 228, 257 (5th Cir. 2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 556, 127 S. Ct. 1955, 1965 (2007)).

Applying the above case law, the Western District of Louisiana has stated:

Therefore, while the court is not to give the "assumption of truth" to conclusions, factual allegations remain so entitled. Once those factual allegations are identified, drawing on the court's judicial experience and common sense, the analysis is whether those facts, which need not be detailed or specific, allow "the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." [Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S. Ct. 1937, 1949 (2009)]; Twombly, 55[0] U.S. at 556. This analysis is not substantively different from that set forth in Lormand, supra, nor does this jurisprudence foreclose the option that discovery must be undertaken in order to raise relevant information to support an element of the claim. The standard, under the specific language of Fed. R. Civ. P. 8(a)(2), remains that the defendant be given adequate notice of the claim and the grounds upon which it is based. The standard is met by the "reasonable inference" the court must make that, with or without discovery, the facts set forth a plausible claim for relief under a particular theory of law provided that there is a "reasonable expectation" that "discovery will reveal relevant evidence of each element of the claim." Lormand, 565 F.3d at 257; Twombly, 55[0] U.S. at 556.

Diamond Servs. Corp. v. Oceanografia, S.A. De C.V., No. 10-00177, 2011 WL 938785, at *3 (W.D. La. Feb. 9, 2011) (citation omitted).

The Fifth Circuit further explained that all well-pleaded facts are taken as true and viewed in the light most favorable to the plaintiff. Thompson v. City of Waco, Tex., 764 F.3d 500, 502-03 (5th Cir. 2014). The task of the Court is not to decide if the plaintiff will eventually be successful, but to determine if a "legally cognizable claim" has been asserted." Id. at 503.

III. Discussion

A. Summary of Ruling

There are three issues raised by the Defendant's motion. First, Merge argues that Plaintiffs fail to plead fraud with particularity pursuant to Federal Rule of Civil Procedure 9(b), Fifth Circuit,and Louisiana jurisprudence. Second, Merge argues that Plaintiffs' Louisiana Unfair Trade Practices Act ("LUPTA") claims are...