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Moore Eye Care, P.C. v. Softcare Solutions Inc.

United States District Court, E.D. Pennsylvania

September 1, 2017

MOORE EYE CARE, P.C., ET AL., Plaintiffs,


          STENGEL, C.J.


         In this case, plaintiffs Moore Eye Care, P.C. and Eye Services, MSO (collectively, “Moore Eye”) filed suit against SoftCare Solutions, Inc. (“SoftCare”), QHR Technologies, Inc. (“QHR”), William Dagher, and Medical Transcription Billing, Corp. (“MTBC”) for breach of contract and fraud. Moore Eye settled with SoftCare, QHR, and Dagher, leaving only its breach of contract claims against MTBC. MTBC filed cross-claims for indemnification against SoftCare and counter-claims for breach of contract, quantum meruit, unjust enrichment, and fraud against Moore Eye.[1] SoftCare filed counter-claims against MTBC.

         There are currently two outstanding motions filed by cross-claimant MTBC in its suit against cross-defendant SoftCare. The first is a motion to amend its cross-claims to include a claim for fraud (Doc. No. 50) and the second is a motion for leave to file an answer to SoftCare's counterclaims and withdraw MTBC's admissions (Doc. No. 55).[2]


         Moore Eye provides medical and surgical services to patients in the specialty of ophthalmology. In August 2012, Moore Eye contracted with William Dagher, the president of i-Plexus Solutions, Inc., to handle Moore Eye's medical insurance billing. This contract took effect on January 1, 2013. i-Plexus grossly mishandled Moore Eye's medical insurance billing, placing Moore Eye on the verge of financial collapse.

         In early 2014, Moore Eye was contacted by QHR, who informed Moore Eye that Dagher had been terminated but QHR would continue performing i-Plexus's contract. QHR also grossly mishandled Moore Eye's billing, causing Moore Eye to lose the ability to collect on many of its medical claims.

         Due to i-Plexus and QHR's mishandling of Moore Eye's medical billing needs, Moore Eye refused to pay its monthly fees to i-Plexus and QHR. QHR told Moore Eye that it would write off the entirety of the outstanding balances otherwise due from Moore Eye to QHR through the end of 2014 as a good faith gesture. However, instead of writing off the Moore Eye receivable, QHR secretly sold it to MTBC without notice to Moore Eye.

         In its negotiations with MTBC, QHR and its subsidiary, SoftCare, represented to MTBC that the relationship with Moore Eye was strong and free of controversy, that Moore Eye was satisfied with the services provided by SoftCare and QHR, that the Moore Eye receivable was valid and collectable, that the only reason for the delay in payment by Moore Eye to QHR was a lack of focus to collect the same and limited effort would be required to cause Moore Eye to bring the account to date, and that SoftCare had not breached its contract with Moore Eye.

         On July 10, 2015, QHR, via SoftCare, sold the Moore Eye receivable to MTBC. The Asset Purchase Agreement signed by the parties expressly disclaims any representations or warranties relating to the purchased assets other than set forth in the agreement and states that the purchased assets were being purchased and sold “as is, where is”.[4]

         On July 14, 2015, MTBC notified Moore Eye that it had acquired i-Plexus from QHR and would be assuming responsibility for the medical billing contract. MTBC then issued bills to Moore Eye for services rendered dating back to 2013, despite QHR having informed Moore Eye that those amounts had been written off.

         On August 11, 2015, MTBC informed Moore Eye that it was terminating all services effective August 14, 2015. Its unilateral termination of services caused further injury to Moore Eye, as Moore Eye did not have the information it needed to take over the billing process.

         On August 14, 2015, Moore Eye filed a Complaint in the Pennsylvania Court of Common Pleas, Delaware County. Defendants removed the action to the Eastern District of Pennsylvania on September 23, 2015. On October 29, 2015, MTBC filed an Answer to the Complaint, as well as Counterclaims against Moore Eye and Cross-Claims against SoftCare. Moore Eye filed an answer to MTBC's Counterclaims on February 29, 2016. Judge Dalzell stayed SoftCare's obligation to respond to MTBC's Cross-Claims pending finalization of settlement discussions. On March 23, 2016, Moore Eye settled with QHR, SoftCare, and William Dagher. On April 20, 2016, SoftCare filed a motion to dismiss MTBC's Cross-Claims. Judge Dalzell denied this motion on July 11, 2016.

         Beginning June 30, 2016, MTBC was without in-house litigation counsel, although MTBC continued to be represented by local counsel, whose primary purpose was to serve as pro hac vice sponsor for MTBC's in-house counsel.[5] A Rule 16 conference was held on July 20, 2016, and was attended by MTBC's local counsel, Jonathan Huerta (“Huerta”). Huerta informed Judge Dalzell that he was not lead counsel and that MTBC was currently without in-house litigation counsel. Judge Dalzell issued an order allowing MTBC to file a motion for leave to amend its cross-claims by September 1, 2016. He also referred the case to Judge Hart for settlement proceedings.

         On July 25, 2016, SoftCare filed an Answer to MTBC's Cross-Claims and asserted Counterclaims against MTBC. Huerta forwarded the documents to MTBC's senior corporate counsel, Shruti Patel (“Patel”). MTBC did not file an Answer to SoftCare's Counterclaims. On August 8, 2016, SoftCare served its request for admissions and interrogatories. MTBC did not respond to the request before September 7, 2016, and so the matters were admitted under Rule 36(a)(3) of the Federal Rules of Civil Procedure.

         On August 29, Huerta informed Patel that the deadline to file a motion to amend was approaching. Patel requested that Huerta prepare a Motion to Amend on behalf of MTBC, even though it was outside the scope of Huerta's role as pro hac vice sponsor. Huerta agreed and filed the motion to amend MTBC's cross-claims on September 1, 2016 (Doc. No. 50). On September 6, 2016, MTBC hired new in-house litigation counsel, Melissa Paget (“Paget”). Her application to be admitted pro hac vice was filed on September 12, 2016, and approved on September 8, 2016. On September 30, 2016, MTBC filed a motion for leave to file an answer to SoftCare's Counterclaims and to withdraw its admissions (Doc. No. 55).

         On October 5, 2016, the parties appeared before Judge Hart for a settlement conference. In the conference, both Moore Eye and SoftCare expressed a desire to settle, but MTBC told Judge Hart that it was not willing to accept any settlement where it had to pay money to another party. The parties were unable to reach an agreement. On November 10, Judge Dalzell ordered the parties to submit supplemental briefing regarding choice-of-law for MTBC's motion to amend its cross-claims. Both parties submitted these briefs on November 23, 2016. The motions are fully briefed and ripe for disposition.


         MTBC has moved to amend its cross-claims against SoftCare. The core of MTBC's amendments to its cross-claims is an additional claim for fraud in the inducement. MTBC asserts that SoftCare made false representations to MTBC about the health of the assets, namely the Moore Eye receivable, which induced MTBC to sign the contract. SoftCare opposes MTBC's motion, arguing that the motion should fail that the amendment is futile because it fails to state a claim under Rules 9(b) and 12(b)(6) of the Federal Rules of Civil Procedure.

         A. Legal Standard - Motion to Amend

         When deciding a motion for leave to amend a pleading under Rule 15(a)(2) of the Federal Rules of Civil Procedure, a court should “freely give leave when justice so requires.” A court may exercise its discretion to deny a Rule 15(a) motion when 1) the moving party has demonstrated undue delay, bad faith or dilatory motives, 2) the amendment is futile, or 3) the amendment would prejudice the other party. United States ex rel. Customs Fraud Investigations, LLC v. Victaulic Co., 839 F.3d 242, 249 (3d Cir. 2016) (internal citation omitted).

         An amendment is futile if the complaint, as amended, fails to state a claim upon which relief can be granted. Travelers Indem. Co. v. Dammann & Co., Inc., 594 F.3d 238, 243 (3d Cir. 2010). In assessing futility, a court applies the same standard of legal sufficiency as applies under Rule 12(b)(6) of the Federal Rules of Civil Procedure. Id. To survive a motion to dismiss under Rule 12(b)(6), the complaint must contain sufficient factual matter, accepted as true, to state a facially plausible claim to relief. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009); Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007). A claim is plausible “when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678.

         The Third Circuit has laid out a two-part test to apply when considering a motion to dismiss under Fed.R.Civ.P. 12(b)(6):

First, the factual and legal elements of a claim should be separated. The District Court must accept all of the complaint's well-pleaded facts as true, but may disregard any legal conclusions. Second, a District Court must then determine whether the facts alleged in the complaint are sufficient to show that the plaintiff has a ‘plausible claim for relief.'

Fowler v. UPMC Shadyside, 578 F.3d 203, 210-11 (3d Cir. 2009) (internal citations omitted).

         Because the Amended Cross-Claims asserts a claim for fraud, it is also futile if it fails to conform to Federal Rule of Civil Procedure 9(b), which requires that parties plead fraud with particularity. Under Rule 9(b), a plaintiff alleging fraud must “state the circumstances of the alleged fraud with sufficient particularity to place the defendant on notice of the ‘precise misconduct with which it is charged.'” Frederico v. Home Depot, 507 F.3d 188, 200 (3d Cir. 2007) (citing Lum v. Bank of America, 361 F.3d 217, 223-24 (3d Cir. 2004)). To satisfy this standard, the plaintiff must plead the date, time and place of the alleged fraud, allege who made a misrepresentation to whom and the general content of the misrepresentation, or otherwise inject precision or some measure of substantiation into a fraud allegation. Id.; Higgins v. Frank Bonin Funeral Parlor, 629 Fed.Appx. 168, 172 (3d Cir. 2015) (citing Lum, 361 F.3d at 223-24). In applying Rule 9(b), a district court must keep in mind “the general simplicity and flexibility contemplated by the rules” and should not focus “exclusively on the particularity language”. Christidis v. First Pennsylvania Mortgage Trust, 717 F.2d 96, 100 (3d Cir. 1983). The purpose of Rule 9(b) is “to place the defendants on notice of the precise misconduct with which they are charged, and to safeguard defendants against spurious charges of immoral and fraudulent behavior.” Seville Indus. Mach. Corp. v. Southmost Mach. Corp., 742 F.2d 786, 791 (3d Cir. 1984).

         B. Motion to Amend Analysis

         1. Whether MTBC has Met the Heightened Pleading Requirement of Rule 9(b)

         SoftCare argues that MTBC's motion should be denied because MTBC has failed to plead fraud with particularity as required by Rule 9(b) of the Federal Rules of Civil Procedure. Specifically, SoftCare argues that MTBC has failed to provide a date or time for any of the alleged representations and does not specify which individuals ...

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