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declining to consider documents attached to a response to a motion to dismiss
Summary of this case from Adr1assist, LLC v. Lima One Capital, LLCOpinion
CIVIL ACTION FILE NO. 3:19-cv-167-TCB
2020-12-16
PULMONARY ASSOCIATES OF CHARLESTON PLLC, Neurosurgical Specialists of West County, Inc., Medlock Pediatrics, P.C., and C.R. Magness, M.D., Plaintiffs, v. GREENWAY HEALTH, LLC and Greenway Health, Inc., Defendants.
Brett Andrew Ialacci, Badham & Buck, LLC, Birmingham, AL, C. Cooper Knowles, The Law Office of C. Cooper Knowles, LLC, Sandy Springs, GA, Gabriel A. Panek, Pro Hac Vice, John T. Nicolaou, Jonathan D. Selbin, Pro Hac Vice, Lieff, Cabraser, Heimann & Bernstein, LLP, New York, NY, James C. Bradley, Michael J. Brickman, Pro Hac Vice, Nina Fields Britt, Pro Hac Vice, Richardson, Patrick, Westbrook & Brickman, LLC, Mt. Pleasant, SC, Mark P. Chalos, Lieff Cabraser Heimann & Bernstein LLP, Nashville, TN, Timothy C. Bailey, Bailey Javins & Carter LC, Charleston, WV, for Plaintiff Pulmonary Associates of Charleston PLLC. Brett Andrew Ialacci, Badham & Buck, LLC, Birmingham, AL, Gabriel A. Panek, Pro Hac Vice, John T. Nicolaou, Jonathan D. Selbin, Pro Hac Vice, Lieff, Cabraser, Heimann & Bernstein, LLP, New York, NY, James Marvin Feagle, Skaar and Feagle, Tucker, GA, Justin Tharpe Holcombe, Kris Kelly Skaar, Skaar & Feagle, LLP, Woodstock, GA, Mark P. Chalos, Lieff Cabraser Heimann & Bernstein LLP, Nashville, TN, James C. Bradley, Richardson, Patrick, Westbrook & Brickman, LLC, Mt. Pleasant, SC, for Plaintiffs Neurological Specialists of West County, Inc., Medlock Pediatrics, P.C., Magness, C.R., M.D. Adam P. Schwartz, Pro Hac Vice, David Matthew Allen, Erin J. Hoyle, Joseph W. Swanson, Carlton Fields, PA, Tampa, FL, Christopher B. Freeman, Carlton Fields, Atlanta, GA, for Defendants.
Brett Andrew Ialacci, Badham & Buck, LLC, Birmingham, AL, C. Cooper Knowles, The Law Office of C. Cooper Knowles, LLC, Sandy Springs, GA, Gabriel A. Panek, Pro Hac Vice, John T. Nicolaou, Jonathan D. Selbin, Pro Hac Vice, Lieff, Cabraser, Heimann & Bernstein, LLP, New York, NY, James C. Bradley, Michael J. Brickman, Pro Hac Vice, Nina Fields Britt, Pro Hac Vice, Richardson, Patrick, Westbrook & Brickman, LLC, Mt. Pleasant, SC, Mark P. Chalos, Lieff Cabraser Heimann & Bernstein LLP, Nashville, TN, Timothy C. Bailey, Bailey Javins & Carter LC, Charleston, WV, for Plaintiff Pulmonary Associates of Charleston PLLC.
Brett Andrew Ialacci, Badham & Buck, LLC, Birmingham, AL, Gabriel A. Panek, Pro Hac Vice, John T. Nicolaou, Jonathan D. Selbin, Pro Hac Vice, Lieff, Cabraser, Heimann & Bernstein, LLP, New York, NY, James Marvin Feagle, Skaar and Feagle, Tucker, GA, Justin Tharpe Holcombe, Kris Kelly Skaar, Skaar & Feagle, LLP, Woodstock, GA, Mark P. Chalos, Lieff Cabraser Heimann & Bernstein LLP, Nashville, TN, James C. Bradley, Richardson, Patrick, Westbrook & Brickman, LLC, Mt. Pleasant, SC, for Plaintiffs Neurological Specialists of West County, Inc., Medlock Pediatrics, P.C., Magness, C.R., M.D.
Adam P. Schwartz, Pro Hac Vice, David Matthew Allen, Erin J. Hoyle, Joseph W. Swanson, Carlton Fields, PA, Tampa, FL, Christopher B. Freeman, Carlton Fields, Atlanta, GA, for Defendants.
ORDER
Timothy C. Batten, Sr., United States District Judge This case comes before the Court on the motion [65] to dismiss the second amended complaint by Defendants Greenway Health, LLC and Greenway Health, Inc. (collectively, "Greenway").
I. Background
This case involves a contract dispute between four medical providers and a software development company. In 2000, Greenway developed software called Prime Suite, which coordinates health care services for patients through electronic health records (EHR) technology.
In 2010, the Centers for Medicare and Medicaid Services ("CMS") set forth initial benchmarks for EHR technology. Providers who demonstrated that their EHR vendor complied with the meaningful use ("MU") criteria would receive an incentive payment that year.
Greenway soon began marketing its EHR technology, Prime Suite, as compliant with CMS's MU requirements. Later that year, Plaintiff Medlock began using Prime Suite. Plaintiff NSWC followed one year later.
In 2012, CMS heightened its MU criteria. Greenway subsequently announced that Prime Suite was compliant with this iteration of CMS requirements as well. In 2017, Plaintiffs Pulmonary and Dr. Magness contracted with Greenway to use Prime Suite.
Until 2018, Plaintiffs used Prime Suite to attest to their meaningful use of certified EHR technology. Accordingly, they received incentive payments from CMS.
In September 2018, Greenway disclosed to its customers that Prime Suite failed to meet two MU metrics related to the "patient portal" feature in Prime Suite. A similar disclosure followed in October. In both disclosures, Greenway represented that it would remediate any errors by November 2018.
In December 2018, Greenway informed consumers that it was "actively remediating these issues" and making "significant progress addressing issues, improving the quality of the solution and demonstrating progress to the certifying body." [55] ¶¶ 107, 110.
In February 2019, Greenway announced that it had agreed to settle claims brought by the United States Department of Justice ("DOJ") related to the reporting features in Prime Suite.
In May 2019, Greenway communicated to its customers that it was "continu[ing] to work through the issues" with Prime Suite, but that it had "discovered additional issues" that it could not immediately remediate. In August 2019, it disclosed that Prime Suite contained errors preventing its users from attesting to meaningful use in 2018.
Now, Greenway admits that Prime Suite still lacks the requisite features to comply with CMS requirements for certifying meaningful use. On November 25, 2019 Plaintiffs filed this suit. After Plaintiffs amended [15] their complaint on January 14, 2020, Defendants moved [21] to dismiss it.
On June 29, the Court granted [50] the motion to dismiss as to counts 1–3 for fraud but denied it as to counts 4–6 seeking damages for breaches of contract. The order also granted Plaintiffs leave to file an amended complaint, which they did [55] on July 13.
Now, Defendants have moved to dismiss the second amended complaint for failure to state a claim.
II. Legal Standard
To survive a 12(b)(6) motion, a plaintiff must plead "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly , 550 U.S. 544, 547, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ; see also Chandler v. Sec'y of Fla. Dep't of Transp. , 695 F.3d 1194, 1199 (11th Cir. 2012). The Supreme Court has explained this standard as follows:
A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. The plausibility standard is not akin to a "probability requirement," but it asks for more than a sheer possibility that a defendant has acted unlawfully.
Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (internal citation omitted); Resnick v. AvMed, Inc. , 693 F.3d 1317, 1325 (11th Cir. 2012).
Thus, a claim will survive a motion to dismiss only if the factual allegations in the complaint are "enough to raise a right to relief above the speculative level," and "a formulaic recitation of the elements of a cause of action will not do." Twombly , 550 U.S. at 555, 127 S.Ct. 1955. While all well-pleaded facts must be accepted as true and construed in the light most favorable to the plaintiff, Powell v. Thomas , 643 F.3d 1300, 1302 (11th Cir. 2011), the Court need not accept as true plaintiff's legal conclusions, including those couched as factual allegations, Iqbal , 556 U.S. at 678, 129 S.Ct. 1937.
III. Discussion
A. Counts Five and Six for Breach of Documentation and Service Warranties
Greenway argues that counts five and six should be dismissed for two reasons.
Greenway relies on Brooks v. Branch Banking & Trust Co. , 107 F. Supp. 3d 1290, 1295 (N.D. Ga. 2015), a case which found that any breach must be "material," for the elements of a breach of contract claim in Georgia. In response to Greenway's reliance on Brooks , Plaintiffs point to numerous decisions by Georgia courts before and after Brooks that have not required materiality as an element of a breach. Plaintiffs also argue that even if materiality were required, they expressly pled that the alleged breaches were material. In its reply, Greenway clarifies that it is not arguing that dismissal is appropriate based on failure to allege materiality. Thus, the Court need not address this argument. However, even if materiality were required, Plaintiffs' allegations of materiality are sufficient to withstand dismissal. See [55] ¶¶ 77–82.
First, Greenway contends that the parties contractually agreed to a repair or replacement provision that required Plaintiffs to notify Greenway of any software deficiencies and allow it the opportunity to cure before filing suit. It argues that Plaintiffs failed to allege that they complied with the contractual notice provision.
Second, Greenway urges that even if Plaintiffs had sufficiently alleged that they gave notice, they are barred from seeking their claimed damages by the parties' contractual limitations on available remedies. 1. Notice of Plaintiffs' Claims
Before Greenway can be deemed to have breached the express warranties in counts five and six, Plaintiffs must have provided it with notice of the defect so that it might have a reasonable opportunity to cure. McDonald v. Mazda Motors of Am., Inc. , 269 Ga.App. 62, 603 S.E.2d 456, 460 (2004). It is only upon Greenway's refusal or failure to remedy the defect that it can be held liable for breach of an express warranty. See id.
Greenway argues that Plaintiffs did not notify it that they construed the defects as a breach of warranty. Accordingly, it contends that its opportunity to cure the defects was not triggered, and therefore that it cannot be held liable for breach.
Plaintiffs first respond that notice is an affirmative defense and that they need not tailor their allegations to address affirmative defenses at the pleading stage. They also argue that they gave sufficient notice, that Greenway suffered no prejudice from any purported failure to give notice, and that any additional notice would have been futile.
Under Georgia law, Plaintiffs need not "alleged the satisfaction of conditions precedent to state a breach of contract claim, even if the right to recover depends on performance of the conditions precedent." Reserve, LLC v. Flagstar Bank, FSB , No. 1:09-cv-3078-TCB, 2011 WL 13176330, at *4 (N.D. Ga. Apr. 26, 2011) (citing Brogdon v. Nat'l Healthcare Corp. , 103 F. Supp. 2d 1322, 1335 (N.D. Ga. 2000) ); see also Crawford & Co. v. Cognizant Tech. Sols. U.S. Corp. , No. 1:19-cv-674-SDG, (N.D. Ga. Mar. 27, 2020) (same). Instead, Federal Rule of Civil Procedure 9(c) provides that "in pleading conditions precedent, it suffices to allege generally that conditions precedent have occurred or been performed." See also Ralls Corp. v. Huerfano River Wind, LLC , 27 F. Supp. 3d 1303, 1324 (N.D. Ga. 2014) (concluding that the plaintiff satisfied Rule 9(c) by "alleging generally that all conditions precedent have been satisfied or waived").
Here, Plaintiffs aver that Dr. Magness requested compensation from Greenway for its failure to provide software that met the parties' contractually agreed-upon specifications. See [55] ¶ 190. This satisfies the low standard for pleading notice for this Plaintiff. See Martinelli Ginetto SpA v. Sample Dyeing Serv., Inc. , No. 4:09-cv-46-HLM, 2010 WL 11505451, at *12 (N.D. Ga. Jan. 12, 2010) (pointing out that "a party need only give notice that the transaction is troublesome and must be monitored" (citing Oden & Sims Used Cars v. Thurman , 165 Ga.App. 500, 301 S.E.2d 673, 673 (1983) )); see also Camden , 2011 WL 13176330, at *4 (finding that the plaintiff met its pleading burden where it averred that it "furnished ‘all information and documentation required for the issuance of a final disbursement’ ").
However, the remaining Plaintiffs fail to meet their light burden of pleading—even generally—satisfaction of the notice requirement. Instead, Plaintiffs attach to their response to the motion to dismiss a declaration of counsel purporting to show that they repeatedly notified Greenway that it was in breach.
An attachment to a motion to dismiss may be considered as part of a 12(b)(6) motion if its authenticity is undisputed and it is central to the plaintiff's claims. See Day v. Taylor , 400 F.3d 1272, 1276 (11th Cir. 2005). However, Plaintiffs do not cite any authority—nor is the Court aware of any—to suggest that attachments included in a response to such a motion may properly be considered. Disregarding such attachments is especially appropriate where, as here, the substance of the attachment is not referenced in the complaint. Instead, the proper mechanism for Plaintiffs would have been to seek leave to amend their complaint.
Accordingly, the Court will not consider Plaintiffs' declaration of counsel in determining whether they have met their pleading burden. However, dismissal for failure to allege satisfaction of the notice requirement is nonetheless inappropriate.
Georgia courts have found that "service of a complaint satisfies the notice requirement if no prejudice to the defendant results." See Dermatology Specialists of Augusta, Inc. v. Daikin Applied Ams. Inc. , cv 116-058, 2019 WL 97831, at *3 (S.D. Ga. Jan. 3, 2019) (citing Hudson v. Gaines , 199 Ga.App. 70, 403 S.E.2d 852, 854 (1991), and Wal-Mart Stores, Inc. v. Wheeler , 262 Ga.App. 607, 586 S.E.2d 83, 85 (2003) ).
While Greenway may argue that service via the complaint is unreasonable under the circumstances, the issue of reasonableness of notice is a question of fact more appropriately considered at the summary judgment stage or at trial. See Royal Typewriter Co. v. Xerographic Supplies Corp. , 719 F.2d 1092, 1102 (11th Cir. 1983) ("The question of whether a defendant suffers prejudice by notice through a complaint ... is also more properly decided on summary judgment or at trial."); see also Dermatology , 2019 WL 97831, at *3 ("The question of whether a defendant suffers prejudice by notice through a complaint or delayed notice is also more properly decided on summary judgment or at trial (citing Terrill v. Electrolux Home Prods., Inc. , 753 F. Supp. 2d 1272, 1287 n.8 (S.D. Ga. 2010) )). At the pleading stage, dismissal is not warranted because Plaintiffs satisfied the notice requirement through service of the second amended complaint.
Even if service of the second amended complaint did not suffice as notice triggering an opportunity to cure, Greenway admits that it had opportunities to cure the defects and that it seized upon those opportunities. See [55] ¶¶ 104, 122, 113.
The purpose of the notice requirement is "to give the seller an opportunity to inspect the product and minimize damages." Paws Holdings, LLC v. Daikin Applied Ams. Inc. , cv 116-058, 2018 WL 475013, at *5 (S.D. Ga. Jan. 18, 2018) (citing Car Transp. Brokerage Co. v. Blue Bird Body Co. , 322 F. App'x 891, 897–98 (11th Cir. 2009) ). Here, the purpose of the notice requirement was satisfied when Greenway attempted to cure the defects. And courts do not "require [plaintiffs] to do a futile and useless thing." BDI Distrib., Inc. v. Beaver Comput. Corp. , 232 Ga.App. 316, 501 S.E.2d 839, 841 (1998) (refusing to "require a party to whistle in the wind"). Accordingly, the Court will not dismiss counts five and six for failure to provide notice.
2. Damages
Separately, Greenway argues that counts five and six are due to be dismissed because Plaintiffs' claims seeking damages are speculative and because the documentation and services warranties restrict their available remedies to either repair/replacement of Prime Suite or a refund of its purchase price.
Plaintiffs respond that (1) they sufficiently plead an injury that entitles them to damages, and (2) their alleged damages are not barred by the warranty provisions because the limited remedies fail of their essential purpose.
Addressing first the speculative nature of their claimed damages, Plaintiffs aver that they are entitled to damages for injuries incurred as a result of Prime Suite's diminished value. See [55] ¶ 126–28. To support their claims seeking damages based on diminished value, they present facts showing that EHRs certified as compliant with MU requirements are valued at more than ten times the cost of an uncertified EHR. See id. at ¶ 126.
Plaintiffs' amended allegations estimate their damages to a reasonable degree of certainty. See Pendley Quality Trailer Supply, Inc. v. B&F Plastics, Inc. , 260 Ga.App. 125, 578 S.E.2d 915, 919 (2003) (noting that "the ability to estimate damages to a reasonable certainty is all that is required and mere difficulty in fixing the exact amount will not be an obstacle to the award" (citing McCannon v. McCannon , 231 Ga.App. 601, 499 S.E.2d 684, 686 (1998) )); see also Hawthorne Indus., Inc. v. Balfour Maclaine Int'l, Ltd. , 676 F.2d 1385, 1387–88 (11th Cir. 1982) (noting that reasonable certainty is all that is required). Accordingly, dismissal on this basis is not warranted.
Greenway also argues that the damages claimed in counts five and six are barred by the repair, replace, or refund provisions applicable to the documentation and service warranties. Plaintiffs urge that these limited remedy provisions fail of their essential purpose.
Under O.C.G.A. § 11-2-719, parties to a contract subject to the Uniform Commercial Code ("UCC") may agree to substitute limited remedies in place of those provided for by the UCC. However, "where an apparently fair and reasonable clause because of circumstances fails in its purpose or operates to deprive either party of the substantial value of the bargain, it must give way to the general remedy provision of" the UCC. Id. cmt. n.1.
Whether a remedy fails of its essential purpose is generally a question of fact for summary judgment or at trial. See, e.g., Altamonte Pediatric Assocs., P.A. v. Greenway Health, LLC , No. 8:20-cv-604-T-33JSS, 2020 WL 5350303, at *7 (M.D. Fla. Sept. 4, 2020) ; TYR Tactical, LLC v. Protective Prods. Enters., LLC , No. 15-cv-61741-BLOOM/Valle, 2015 WL 13655803, at *5 (S.D. Fla. Dec. 10, 2015) (declining to decide on a motion to dismiss whether a limitation of liability provision barred certain damages); Demorato v. Carver Boat Corp. , 304 F. App'x 100, 102 (3d Cir. 2008) (same).
Thus, Plaintiffs need only plead that the limited remedies fail of their essential purpose to survive a motion to dismiss.
Regarding the limited repair or replace warranty provision, Plaintiffs allege—in considerable detail—numerous failed efforts by Greenway to repair the errors in Prime Suite. This is sufficient at the pleading stage to show a failure of the repair-or-replace warranty's essential purpose. See Bailey v. Monaco Coach Corp. , 350 F. Supp. 2d 1036, 1043 (N.D. Ga. 2004) (considering an analogous limited warranty provision under Florida law and concluding that "[a] repair-or-replace warranty fails of its essential purpose if the warrantor does not successfully repair defects within a reasonable time or within a reasonable number of attempts" (citing Typographical Serv., Inc. v. Itek Corp. , 721 F.2d 1317, 1320 (11th Cir. 1983) )).
Regarding the limited refund provision, Plaintiffs aver that Dr. Magness sought compensation from Greenway but it refused. See [55] ¶ 190. This allegation is sufficiently pled such that dismissal is not warranted as to this Plaintiff. See Tri-State Consumer Ins. Co. v. LexisNexis Risk Sols. Inc. , 823 F. Supp. 2d 1306, 1325 (N.D. Ga. 2011) (denying a motion to dismiss where the plaintiff pled that the defendant refused to pay the limited refund remedy).
The remaining Plaintiffs do not allege that they requested and were denied refunds. However, they do plead that the errors in Prime Suite constituted undetectable latent defects. See, e.g. , [55] ¶ 211 (alleging that the defects were undetectable because "Plaintiffs lack the expertise and information necessary to audit Prime Suite themselves").
Instead, Plaintiffs rely once again on the declaration of counsel attached to their response for the motion to dismiss to show that they requested refunds. However, for the reasons already expounded upon by the Court, such evidence is not properly considered in a response to a motion to dismiss.
Courts are split as to the impact of a latent defect upon a limited refund provision.
Plaintiffs urge the Court to align itself with those decisions finding that a latent defect may "cause a remedy's essential purpose to fail when the limited remedy provides for a refund of the purchase price." Scott v. Honeywell Int'l Inc. , No. 14-cv-157-PAB-MJW, 2015 WL 1517527, at *7 (D. Colo. Mar. 30, 2015) (relying on Advanced Tubular Prods., Inc. v. Solar Atmospheres, Inc. , 149 F. App'x 81, 85 (3d Cir. 2005) ); see also Marr Enters., Inc. v. Lewis Refrigeration Co. , 556 F.2d 951, 955 (9th Cir. 1977) ; PDC Labs., Inc. v. Hach Co. , No. 09-1110, 2009 WL 2605270, at *12 (C.D. Ill. Aug. 24, 2009) ("[W]hen a contract limits a remedy to return of the purchase price, the limited remedy fails of its essential purpose ‘when goods have latent defects which are not discoverable upon receipt and reasonable inspection.’ ") (internal citations omitted); Petri Paint Co. v. OMG Ams., Inc. , 595 F. Supp. 2d 416, 423–25 (D.N.J. 2008) ; Majors v. Kalo Labs., Inc. , 407 F. Supp. 20, 22–23 (M.D. Ala. 1975) (concluding that where an alleged defect in a product is latent and the manufacturer knew of the product's questionable effectiveness, limiting available remedies to recovery of the purchase price would cause the remedy to fail in its essential purpose).
Greenway, on the other hand, relies on Brown v. Louisiana-Pacific Corp. , 820 F.3d 339, 351 (8th Cir. 2016), to argue that a latent defect does not cause an exclusive contractual remedy to fail of its essential purpose. See also Wis. Power & Light Co. v. Westinghouse Elec. Corp. , 830 F.2d 1405, 1412–13 (7th Cir. 1987) (finding that the limited remedy did not fail of its essential purpose despite presence of a latent defect because "the warranty provisions ... operated just as intended, allocating the risk of loss between the parties both before and after the warranty expired"); Arkwright-Boston Mfrs. Mut. Ins. Co. v. Westinghouse Elec. Corp. , 844 F.2d 1174, 1179–80 (5th Cir. 1988) (concluding that "[i]n a contract between two sophisticated corporations, a time limitation on an express warranty is simply a matter of allocating risks").
While the Court declines to adopt either position as a default rule, the alleged facts here align far more closely with those cases in which courts have found that the existence of a latent defect caused a limited refund to fail of its essential purpose because the latent defect was "only discovered after the defective product was either integrated into something else or was otherwise put to use in a way that rendered it non-returnable." BAE Sys. Info. & Elec. Sys. Integration, Inc. v. SpaceKey Components, Inc. , No. 10-cv-370-LM, 2013 WL 149656, at *4 (D.N.H. Jan. 11, 2013) (citing Leprino v. Intermountain Brick Co. , 759 P.2d 835, 836 (Colo. App. 1988), and Viking Yacht Co. v. Composites One LLC , No. 05-538(JEI), 2007 WL 2746713, at *6 (D.N.J. Sept. 18, 2007) ); see also Prairie River Home Care, Inc. v. Procura, LLC , No. 17-5121 (JRT/HB), 2019 WL 3021253, at 8 * (D. Minn. July 10, 2019) (concluding that a latent software defect caused a limited refund remedy to fail where the software defect was only discoverable after considerable time and money was spent incorporating the software into a computer system and where the defendant repeatedly assured the plaintiff that the software problems would be fixed).
These courts have reasoned that where a latent defect is present in a product that is later embedded into an existing good, the limited refund warranty fails because the refund would not "ensure that [the plaintiff] received the substantive value of his bargain." White v. Microsoft Corp. , 454 F. Supp. 2d 1118, 1128 (S.D. Ala. 2006).
Similarly, here, Plaintiffs allege that a refund would not compensate for the lost value of their bargain because providers integrated Prime Suite into their existing patient portal systems. They estimate that each provider has lost or would lose approximately $10,000 in revenue were they to switch EHR programs. See [55] ¶ 121.
Under the circumstances, Plaintiffs sufficiently state a claim for damages because the existence of a latent defect may cause the limited refund remedy to fail of its essential purpose. See In re Rust-Oleum Restore Mktg., Sales Practices & Prods. Liab. Litig. , 155 F. Supp. 3d 772, 789–90 (N.D. Ill. 2016) (finding that because the plaintiff had "supplie[d] ‘enough fact[s] to raise a reasonable expectation that discovery will reveal evidence’ supporting the allegations of a latent defect," dismissal was inappropriate).
As a final matter, although Plaintiffs sufficiently plead that the limited remedies fail in their essential purpose, "Georgia courts have routinely recognized that a breach or failure of a limited warranty does not negate clauses excluding specific types of damages." Row Equip., Inc. v. Terex USA, LLC , No. 5:16-cv-60, 2019 WL 6698142, at *3 (S.D.).
In other words, even if the limited warranties fail of their essential purpose, Plaintiffs may nevertheless be barred from claiming certain damages. See Hightower v. Gen. Motors Corp. , 175 Ga.App. 112, 332 S.E.2d 336, 338–39 (1985) ("The defeat of a limited warranty to repair or replace, of course, does not simultaneously invalidate other limitations of damages contained in the new car warranty ...."); Atlanta Specialty Food Distribs., Inc. v. Watkins Leasing, Inc. , No. C81-1341A, 1982 WL 139732, at *3 (N.D. Ga. 1982) ("Where an exclusive remedy fails of its essential purpose it may be ignored but other clauses in the contract which limit remedies may be left to stand or fail independently of the stricken clause.").
Here, Greenway argues that Plaintiffs substituted direct damages for their limited remedies and either waived or substituted cover damages.
Plaintiffs respond that the damages waivers applicable to the documentation and service warranties do not include direct or cover damages. They urge that they neither waived nor substituted recovery for these damages.
Greenway does not refute Plaintiffs' contention that they did not waive their ability to seek direct damages. Instead, it contends only that Plaintiffs substituted direct damages through the limited remedy provisions. However, as this Court has already concluded the limited remedies may fail in their essential purpose, Plaintiffs are not barred as a matter of law from claiming direct damages.
Regarding cover damages, Greenway urges that Plaintiffs either waived cover damages through the waiver provisions or substituted cover damages through the limited remedies. As noted above, because the limited remedies may fail in their essential purpose, the Court will not dismiss claims seeking cover damages based upon the claimed substitution. However, Greenway's argument regarding waiver of cover damages requires further consideration.
Plaintiffs argue that the language of the damages waivers does not explicitly bar cover damages, and that in absence of express language proscribing these types of damages, they are not prohibited. They also urge that even if they were deemed to have waived cover damages, they can nevertheless recover them under the circumstances because Greenway was grossly negligent in carrying out its contractual duties.
Addressing first the language of the waiver provisions, the damages waivers applicable to Pulmonary and Dr. Magness bar "indirect, special, incidental, exemplary punitive, treble or consequential damages." [55-3] at 7, § 6.3; [55-5] at 6, § 6.3. Those applicable to NSWC and Medlock bar "any lost profits or revenues, loss of data or opportunities, costs of procurement of substitute goods or services, or for any other special, consequential, incidental, punitive, or indirect damages." [55-1] at 4–5, § 9.1; [55-2] at 4–5, § 9.1.
Greenway contends that the damages waivers applicable to Pulmonary and Dr. Magness encompass cover damages because their contracts also included a general provision limiting Greenway's liability to "the fees paid by [Plaintiffs] for the software or professional service ... less, in the case of software, an amount equal to the fees paid by [Plaintiffs] for the software multiplied by a fraction" based upon the number of months that passed since the software's original date of effectiveness. See [55-3] at 7, § 6.2; [55-5] at 6, § 6.2.
However, had the parties intended to exclude recovery for cover damages in the general limitation on liability provision, they could have said so explicitly. The Court will not read a prohibition on certain types of damages into the parties' generalized limitation of liability. See Interactive Commc'ns Int'l, Inc. v. SpaFinder, Inc. , No. 08-cv-02330, 2008 WL 11336371, at *2 (N.D. Ga. Oct. 21, 2008) (declining to read a general limitation of liability clause as prohibiting the recovery of all monetary damages because "if that had been the intention of the parties, they could have said so in one sentence"). Accordingly, dismissal of Pulmonary and Dr. Magness's claims seeking cover damages is not warranted.
The damages waiver for NSWC and Medlock, on the other hand, is different. It bars recovery for the "procurement of substitute goods or services." [55-1] at 4–5, § 9.1; [55-2] at 4–5, § 9.1.
Greenway argues that because cover is a term of art referring to the purchase of substitute goods, NSWC and Medlock explicitly waived cover damages.
In this limited respect, the Court agrees with Greenway: cover refers to the purchase of substitute goods. See Nyquist v. Randall , 819 F.2d 1014, 1019 (11th Cir. 1987) (noting that " ‘cover’ is a very specific term" referring to the purchase of substitutes); see also Chatlos Sys., Inc. v. Nat'l Cash Reg. Corp. , 479 F. Supp. 738, 746 n.6 (D.N.J. 1979) (pointing out that " ‘[c]over’ is the term used in the Uniform Commercial Code to describe the purchase of replacement goods by a buyer where the original goods received do not conform to the contract"). By agreeing to waive damages for the cost of procuring substitute goods or services, NSWC and Medlock waived cover damages.
However, Plaintiffs also argue that Greenway's gross negligence prevents enforcement of the damages waiver.
In Georgia, "the law does not favor a party's attempt to exonerate itself for willful acts or gross negligence." U.S. Nitrogen, LLC v. Weatherly, Inc. , 343 F. Supp. 3d 1354, 1361 (N.D. Ga. 2018) ; see also Holmes v. Clear Channel Outdoor, Inc. , 284 Ga.App. 474, 644 S.E.2d 311, 314 (2007) (finding that an exculpatory clause is void as against public policy if it purports to relieve liability for gross negligence or willful or wanton conduct (citing Neighborhood Assistance Corp., etc. v. Dixon , 265 Ga.App. 255, 593 S.E.2d 717, 719 (2004) )); Wade v. Watson , 527 F. Supp. 1049, 1052 (N.D. Ga. 1981) (finding that a defendant cannot exculpate himself from liability for gross negligence), aff'd , 731 F.2d 890, 890 (11th Cir. 1984).
"A jury question is presented ... when reasonable men could disagree as to whether the facts alleged constitute gross negligence." Harris v. Nat'l Evaluation Sys., Inc. , 719 F. Supp. 1081, 1084 (N.D. Ga. 1989) (internal citations omitted); see also McFann v. Sky Warriors , 268 Ga.App. 750, 603 S.E.2d 7, 14 (2004) (concluding that where there was a question of fact regarding the defendant's gross negligence, dismissal was inappropriate because the exculpatory provision may be against public policy) (citing Colonial Props. Realty v. Lowder Constr. Co. , 256 Ga.App. 106, 567 S.E.2d 389, 394 (2002) ).
Where Plaintiffs allege gross negligence and "there is room for a difference of opinion" as to whether Greenway's conduct constituted gross negligence, "the right to draw the inference is within the exclusive province of the jury." McFann , 603 S.E.2d at 14. Thus, dismissal of NSWC and Medlock's claims seeking cover damages is not warranted because there is a question of fact regarding the enforceability of the damages waiver.
Accordingly, Greenway's motion to dismiss will be denied as to counts five and six.
B. Count Four for Breach of the Meaningful Use Warranty
Greenway also seeks to dismiss count four, a claim brought solely by NSWC for breach of the MU warranty.
Greenway argues that count four is due to be dismissed because NSWC limited its available remedies to compensation for lost government incentive payments and fails to allege that it lost any government incentive payments.
Plaintiffs respond that the agreed-upon remedy is not exclusive and that NSWC may seek to recover damages other than lost incentive payments.
The MU warranty states,
In addition, should Client fail to receive any Incentive Payments, and such failure is caused solely by the PrimeSuite Software's failure to comply with the Certification Criteria, Greenway shall compensate Client in an amount equal to the Incentive Payments ....
[55-1] at 13, § 14.
Plaintiffs point to inclusion of the "in addition" language as showing that the limited remedy is not exclusive, especially given the language in the documentation and service warranties, which make clear that they provide the "sole and exclusive remedy" or "exclusive remedy." See, e.g. , [55-1] at 4, § 8; [55-3] at 24, § 4. Plaintiffs argue that use of the word "solely" does not suggest that the limited remedy is exclusive, but rather that Greenway will compensate for lost incentive payments only where Prime Suite is the sole cause of such a loss.
In reply, Greenway does not argue that the language of the MU guarantee should be read as creating an exclusive remedy. Instead, it points to the general limitation of liability provision in the addendum to the parties' contract, which states that Greenway's aggregate liability cannot "exceed the amount paid by [NSWC] to Greenway." [55-1] at 13, § 6.
However, Georgia courts are reluctant to construe remedies as exclusive and generally do so only where the "magic words ‘exclusive’ or ‘sole’ remedy" are used, and the language of the agreement specifies that the "remedies provided were to be exclusive of any other remedy." See Advanced Bodycare Sols., LLC v. Thione Int'l, Inc. , 615 F.3d 1352, 1363 (11th Cir. 2010).
Because Greenway cannot point to any clear exclusivity language, it has not shown that as a matter of law NSWC is barred from seeking damages other than government incentive payments for breach of the MU guarantee. Accordingly, the Court will deny Greenway's motion to dismiss count four.
C. Tolling of the Statute of Limitations
As a final matter, Greenway argues that Plaintiffs' tolling allegations fail to extend the limitations periods and that their breach of warranty claims are due to be dismissed on statute of limitations grounds.
Georgia law provides that
[a] breach of warranty occurs when tender of delivery is made, except that where a warranty explicitly extends to future performance of the goods and discovery of the breach must await the time of such performance the action accrues when the breach is or should have been discovered.
Greenway contends that the documentation and service warranties, as well as the MU guarantee, do not promise future performance and thus do not fall within the ambit of contract claims that are subject to the discovery rule.
Plaintiffs, on the other hand, point out that a claim "may be dismissed on the basis of a statute-of-limitations defense only if it appears beyond a doubt that Plaintiffs can prove no set of facts that toll the statute." Lindley v. City of Birmingham , 515 F. App'x 813, 815 (11th Cir. 2013). They argue that they meet this low threshold by pleading that their contractual warranties promise future performance of Prime Suite.
Georgia courts construe the future performance exception narrowly and toll the statute of limitations where "a warranty explicitly sets out a future time period during which the seller warrants the product." Morris v. Weyerhaeuser Co. , No. 5:03-cv-34, 2005 WL 8157074, at *3 (S.D. Ga. Nov. 30, 2005) (citing Econ. Hous. Co. v. Cont'l Forest Prods., Inc. , 805 F.2d 319, 321 (8th Cir. 1986) ), reconsidered on other grounds , No. 5:03-cv-34, 2006 WL 8435968, at *1 (S.D. Ga. Mar. 31, 2006). Where the warranty provides for future performance, the statute of limitations begins running when the breach is or should have been discovered. See id.
A promise that a product will be "free from noticeable disease" is a promise that the product will be free from defects at the time of delivery, not a warranty of future performance that tolls the statute of limitations. See id. at *4. On the other hand, a warranty that a product will "work satisfactorily ‘at all times’ " explicitly contemplates future performance and does toll the limitations period. Id.
Here, the documentation warranty provides for a ninety-day "subscription services warranty period" in which "the hosted Greenway Software will operate in all material respects in conformity with the functional specifications described in the Documentation." See [55-3] at 26, § 4.1.
The service warranty ensures that Greenway will provide "professional and workmanlike" services when "furnish[ing] to Client and install[ing] Releases that are issued by Greenway during the term" of the agreement. See [55-1] at 4, § 6.2; id. at 8, § 7.
Finally, the MU guaranty provides that, "during the term of the Agreement, ... the PrimeSuite software shall comply with all applicable certification criteria." [55-1] at 14, § 10.
Because these assurances go "to durability and [ar]e of a prospective or continuing nature," they warrant future performance. Voth v. Chrysler Motor Corp. , 218 Kan. 644, 545 P.2d 371, 376 (Kan. 1976) (distinguishing a warranty to "give satisfactory service at all times" from one that promises to " ‘make modifications, alterations, or repairs to the component parts of the equipment’ when necessary") (internal quotation omitted); see also Jesmer v. Retail Magic , 55 A.D.3d 171, 184, 863 N.Y.S.2d 737 (2008) (finding that promises to provide "Extended Installation" services and employ both a "knowledgeable support desk ... 24 hours a day" and a "dedicated team eager to ... provide a product that meets your unique requirements" were express warranties of future performance).
Moreover, the warranties at issue here set forth a specific time period—the term of the agreement—during which Greenway will remain liable for Prime Suite's performance. See, e.g. , [55-1] at 14, § 10 (ensuring Prime Suite's compliance with the MU criteria "during the term of the Agreement").
Courts have distinguished future performance warranties based upon their reference to performance for a set period of time. Compare Standard All. Indus. v. Black Clawson Co. , 587 F.2d 813, 820 (6th Cir. 1979), with Jones & Laughlin Steel Corp. v. Johns-Manville Sales Corp. , 626 F.2d 280, 290–92 (3d Cir. 1980) (finding no future performance warranty where the seller, in its sales literature, boasted that it "can cite many asbestos roofs that, today, are still performing satisfactorily after more than forty (40) years").
Because Plaintiffs plausibly allege that the warranties contemplate future performance, discovery of the alleged breach must await such future performance and the statute of limitations does not begin to run until Plaintiffs did or should have discovered the breach of the warranties. O.C.G.A. § 11-2-725(2) ; In re Atlas Roofing Corp. Chalet Shingle Prods. Liab. Litig. , No. 1:13-md-2195-TWT, 2018 WL 2765961, at *14 (N.D. Ga. June 8, 2018).
And although Greenway disclosed some errors in September 2018, Plaintiffs allege that the statute of limitations did not begin to run until December 2018, when Greenway disclosed the vast majority of the errors in Prime Suite. They argue that they had no reason to investigate following the September disclosure because (1) Greenway reassured them that they were correcting any errors and committed to divulging the results of its third-party audit, and (2) Plaintiffs lacked the expertise to investigate themselves.
Plaintiffs' well-pled allegations create an issue of fact regarding Plaintiffs' awareness of the defects in Prime Suite.
After all, discovery of some defects does not indicate that a plaintiff had notice of widespread product failure. See R.W. Murray Co. v. Shatterproof Glass Corp. , 758 F.2d 266, 274 (8th Cir. 1985) (concluding that "discovery of a relatively few defective panels did not require a finding that plaintiffs should have discovered the extensive nature of the panel failures"). And where a defendant sends emails to a plaintiff alerting it to errors but also "provide[s] reassurances" that it would "resolve the issue," there is an issue of fact regarding the plaintiff's awareness of any defects that precludes dismissal. See FieldTurf USA Inc. v. TenCate Thiolon Middle E. , 945 F. Supp. 2d 1379, 1397 (N.D. Ga. 2013). This is especially true where the plaintiff lacks the "specialized skill or knowledge" necessary to uncover defects. Bomar v. Pierce Quality Homes, L.L.C. , No. A-00-880, 2001 WL 1468794, at *4 (Neb. Ct. App. Nov. 20, 2001) (pointing out that "although ... it is not necessary that the plaintiff have knowledge of the exact nature or source of the problem," the plaintiff must at least have "knowledge that the problem existed").
Because there is an issue of fact as to whether Plaintiffs' breach of contract claims were tolled, dismissal on statute-of-limitations grounds is not warranted.
IV. Conclusion
For the foregoing reasons, Greenway's motion to dismiss is denied.
IT IS SO ORDERED this 16th day of December, 2020.