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Yorktowne Urology, P.C. v. Neuisys

August 23, 2010


The opinion of the court was delivered by: William W. Caldwell United States District Judge


I. Introduction

Plaintiff, Yorktowne Urology, P.C., a Pennsylvania medical practice providing urological services, bought a scanner from defendant, Neuisys, LCC, a North Carolina company. The scanner was to be used to diagnose kidney, ureter and bladder disorders by making so-called KUBS scans (for kidney, ureter, bladder).

Plaintiff filed suit in state court, alleging that the scanner failed to produce scans of the quality necessary for medical diagnoses. Moreover, for usable scans to be created the scanner had to be adjusted to produce radiation that was unsafe for patients. In other words, Plaintiff claims that the machine failed to do what it was supposed to do. Plaintiff also alleges that Defendant improperly charged it separately for the software to operate the scanner.

Plaintiff presents seven causes of action: (1) in Count I, a fraudulent inducement claim, alleging that Defendant knowingly made false representations to induce Plaintiff to purchase the scanner; (2) in Count II, a claim for promissory and equitable estoppel; (3) in Count III, a claim for breach of contract, asserting that Defendant refused to recognize Plaintiff's rejection of the scanner or, in the alternative, its revocation of the contract; (4) in Count IV, a claim for breach of express warranty, invoking the Pennsylvania Uniform Commercial Code; (5) in Count V, a claim for a breach of the implied warranty of merchantability under the Pennsylvania Uniform Commercial Code; (6) in Count VI, a claim for strict liability under the Restatement (Second) of Torts § 402A; and (7) in Count VII, a claim for a breach of the duty of good faith and fair dealing.

Invoking our diversity jurisdiction, see 28 U.S.C. § 1332(a), Defendant removed the action here. We are considering its motion to dismiss the complaint under Fed. R. Civ. P. 12(b)(6), asserting that none of Plaintiff's claims are valid. On a motion to dismiss, "[w]e 'accept all factual allegations as true, construe the complaint in the light most favorable to the plaintiff, and determine whether, under any reasonable reading of the complaint, the plaintiff may be entitled to relief.'" Byers v. Intuit, Inc., 600 F.3d 286, 291 (3d Cir. 2010)(quoted case omitted).

II. Discussion

A. The Fraudulent Inducement Claim Is Not

Barred by Pennsylvania's Gist of the Action Doctrine Or By the Integration Clause In Count I, Plaintiff alleges Defendant fraudulently induced it into purchasing the scanner by the following misrepresentations: (1) "CT technologists qualified to operate the Scanner were readily available when in fact they were not available at all"; (2) Defendant "could supply and refer a qualified CT technologist when the Scanner was delivered and installed when in fact it had no one available and Yorktowne Urology was forced to advertise for a qualified CT technologist"; "[f]ailing to disclose that the Scanner was unsafe and was reasonably (sic) dangerous to patients in ordinary use"; "[f]ailing to disclose that, in order to obtain diagnostic quality images, Yorktowne Urology would have to expose patients to illegal, dangerous and excessive levels of radiation"; "[f]ailing to disclose that the defective and dangerous condition of the Scanner was so severe that Neuisys had replaced a similar scanner at another location where the same type of Scanner had been installed"; "[f]ailing to disclose that the KUBS software installed on the Scanner was not FDA approved"; "[f]ailing to disclose that Plaintiff would be charged an additional $55,000 to perform KUBS scans when the software was approved"; and "[r]epresenting that the Scanner was fully operational, properly calibrated and ready for use when it was delivered and installed when it was not in fact fully operational, properly calibrated or ready for use." (Doc. 1-4, Compl. ¶ 79(a)-(h)).

Defendant moves to dismiss this claim on two grounds. First, if Pennsylvania law applies, it is barred by the gist of the action doctrine and by the agreement's integration clause. Second, if North Carolina law applies, it is barred by the integration clause.

We have reviewed the parties' arguments and cases cited in support, and we disagree with Defendant for the following reasons. In a diversity case, a federal court applies the law of the state where it sits, including the state's choice-of-law rules. J.C. Penney Life Ins. Co. v. Pilosi, 393 F.3d 356, 360 (3d Cir. 2004). We therefore apply Pennsylvania law.

In applying that law, we note that, generally, Pennsylvania will enforce choice-of-law provisions in contracts. Gay v. CreditInform, 511 F.3d 369, 389 (3d Cir. 2007). In the instant case, the parties agreed that their contract would "be governed by the laws of the State of North Carolina." (Doc. 1-5, Agreement ¶ 19, CM/ECF p. 5).*fn1

Under Pennsylvania law, the parties' contractual choice of the law that governs their agreement also governs a claim that a party was fraudulently induced to make the contract. See In re Allegheny Int'l, Inc., 954 F.2d 167,178 (3d Cir. 1992)(citing Smith v. Commonwealth Nat'l Bank, 384 Pa. Super. 65, 69, 557 A.2d 775, 777 (1989)); De Lage Landen Fin. Servs., Inc. v. CardService Int'l, Inc., 2001 WL 799870, at *2 (E.D. Pa.). Hence, we apply North Carolina law to the fraudulent inducement claim.*fn2

As noted, Defendant argues the claim is invalid under North Carolina law because of the agreement's integration clause.*fn3 However, in North Carolina, an integration clause is no defense to a claim that a party was induced to enter the contract by fraud. Am. Laundry Mach. Co. v. Skinner, 34 S.E.2d 190, 192-93 (N.C. 1945) (recognizing a claim for fraud in the inducement even though the contract contained an integration clause, reasoning that fraud "vitiates the contract"); Godfrey v. Res-Care, Inc., 598 S.E.2d 396, 402-03 (N.C. Ct. App. 2004)(parol evidence rule did not bar evidence proving that a written contract containing an integration clause was procured by fraud); S. Carolina Elec. & Gas Co. v. Westinghouse Elect. Corp., 826 F. Supp. 1549, 1555 (D.S.C. 1993)("North Carolina law recognizes that the rebuttable presumption created by a merger or integration clause, a clause which expresses that a contract is the totality of the parties, agreement, can be overcome upon a showing of fraud").

Plaintiff can thus proceed on its claim of fraud in the inducement in CountI.*fn4

B. Plaintiff Fails to State a Claim for Promissory or Equitable Estoppel

In Count II, Plaintiff makes claims for promissory and equitable estoppel. It alleges that it relied on Defendant's representations in accepting delivery of the scanner in August 2008 and by entering into, and beginning to make payments on, the "financing lease."*fn5 The representations concerned "the availability of CT technologists and service engineers and the readiness of the Scanner for use...." (Doc. 1-4, Compl. ΒΆ 88, CM/ECF p. 17). As relief, Plaintiff seeks damages in the amount of payments made to the financing company and the charges incurred when Plaintiff terminated the lease agreement. Plaintiff also "requests a determination that [Defendant] be ...

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