Fung-Schwartz v. Cerner Corp.

JENNIFER FUNG-SCHWARTZ, MD, et al., Plaintiff, v. CERNER CORPORATION, et al., Defendant.

17-CV-233 (VSB)

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

September 13, 2019

OPINION & ORDER

Appearances:

Elizabeth Shieldkret

Elizabeth Shieldkret, Attorney at Law

Forrest Hills, NY

Counsel for Plaintiffs

John Michael Lyons

Shook, Hardy & Bacon, LLP

Philadelphia, PA

Counsel for Defendants

VERNON S. BRODERICK, United States District Judge:

Plaintiffs, Jennifer Fung-Schwartz, DPM, LLC (the "Practice") and Jennifer Fung-Schwartz, D.P.M., ("Fung-Schwartz," and together with the Practice, "Plaintiffs"), bring this action against Defendants Cerner Corporation ("Cerner Corp.") and Cerner Healthcare Solutions, Inc. ("Cerner Solutions" and, collectively, "Cerner") asserting multiple claims stemming from certain contracts Fung-Schwartz and/or the Practice executed with Cerner. Before me is Defendants' partial motion to dismiss under Federal Rules of Civil Procedure 9(b) and 12(b)(6) for failure to plead with particularity and failure to state a claim. For the reasons stated herein, Defendants' motion is GRANTED IN PART and DENIED IN PART.

I. Background¹

Fung-Schwartz, a board-certified podiatrist, entered into a contract with Cerner Physician Practice, Inc., in March 2006 for the provision of electronic medical records ("EMR") services (the "2006 Agreement"). (SAC ¶¶ 16-17; id. Ex. 1.)² Fung-Schwartz entered into an additional contract with Cerner Solutions in 2014 to provide "revenue cycle management" ("RCM"), including billing and insurance services (the "2014 Agreement"), and around the same time also entered a new agreement with Cerner Solutions for the continued provision of EMR services. (Id. ¶¶ 25-27; id. Exs. 2-3.) Defendant Cerner Corporation directs the day to day activities of Cerner Solutions, including managing contracts and providing e-billing and customer service and support. (Id. ¶¶ 6-9.)

Prior to entering into the 2014 Agreement, Cerner Solutions made several representations to Fung-Schwartz about its services, including that: (1) it would provide "[w]ell trained and experienced revenue cycle and billing professionals," (SAC ¶ 28; id. Ex. 3 at 3); (2) it aligned itself with industry standards and guidelines to "provide. . .a high level of compliance with applicable laws and regulations," (Id. ¶ 29; id. Ex. 3 at 3); (3) it would "[r]eview, scrub and process claims (primary, secondary, tertiary) daily," (Id. ¶ 30; id. Ex. 3 at 4); (4) it would "[g]enerate and mail patient statements in the Client's name and according to a standard statement cycle," (Id. ¶ 31; id. Ex. 3 at 5); and (5) it would "manage[] calls for all Cerner Revenue Cycle Ambulatory Services Clients. . . " (Id. ¶ 32). In addition, "prior to contracting with [Fung-Schwartz], Cerner Solutions represented that it was capable of handling [Fung-Schwartz's] billing and timely obtaining re-imbursement for her services from private insurersand government industry programs." (See id. ¶ 35.) However, Plaintiffs allege, at the time Cerner Solutions entered into the contract with Fung-Schwartz, "Cerner knew that it had problems with its system for processing claims and obtaining reimbursements from insurers, particularly for Medicare claims, that it had no plans to fix the problems and that it would not be able to provide her with the high level of compliance that it promised before she chose Cerner as her RCM provider." (Id. ¶ 40.) In addition, Cerner "had no plan to provide well trained and experienced revenue cycle and billing professional[s]" and "had no[] plan to improve training, hire more experienced personnel or otherwise address its issue of inexperienced and poorly trained personnel. . ." (Id. ¶¶ 70, 72.)

Despite and in contrast to its representations, Cerner improperly processed billing and insurance claims, including by submitting duplicate and late claims and writing off charges without consulting Fung-Schwartz. (Id. ¶¶ 40-52, 55.) This decreased revenues for the Practice and affected patients. (Id. ¶¶ 43, 50, 55-68.) Fung-Schwartz repeatedly contacted Cerner Solutions, including Cerner customer support and Plaintiffs' designated account representative, in an attempt to resolve the issues with Defendants' performance. (Id. ¶ 74.) Nevertheless, Cerner never resolved the issues or fixed the problems, despite making representations that it would do so. (Id. ¶¶ 73-74.) Fung-Schwartz claims that she terminated the RCM services associated with the 2014 Agreement, effective June 1, 2016. (Id. ¶ 83.)

The last payment Fung-Schwartz admits making to Cerner Solutions was tendered in April 2016, although she continues to use the EMR services. (Id. ¶¶ 87, 89.) In September 2016 Cerner Corp., claiming to be doing business as Cerner Physician Practice, Inc., initiated efforts to collect more than $100,000 it claimed was owed under the 2014 Agreement. (Id. ¶ 91.) After additional discussions between the parties, during which Fung-Schwartz offered to settle for$10,000, Cerner terminated Fung-Schwartz's EMR services on October 13, 2016, including Plaintiffs' ability to access existing electronic records. (Id. ¶ 95.) Without access to their patients' records, Plaintiffs were unable to contact patients, schedule appointments, enter lab results, prescribe medications, or otherwise treat patients. (Id. ¶¶ 96.)

Cerner has offered to export the text portion of Plaintiffs' medical records to another EMR system. (Id. ¶ 100.) However, Fung-Schwartz also stored drawings she had made of patients' feet to indicate their condition in the EMR system. (Id. ¶ 99.) Plaintiffs assert that upon information and belief, "Cerner does not have a method for exporting the drawings." (Id. ¶ 100.)

II. Procedural History

Plaintiffs filed their complaint on January 11, 2017. (Doc. 1.) On May 31, 2017, Defendants filed a motion to dismiss the complaint. (Doc. 17.) On June 15, 2017, Plaintiffs filed their amended complaint. (Doc. 18.) On August 18, 2017, Defendants filed a motion to dismiss the amended complaint. (Docs. 38, 39.) On September 9, 2017, Plaintiffs filed their brief in opposition, (Doc. 43), and on September 15, 2017, Defendants filed a reply, (Doc. 44).

On July 6, 2017, Plaintiffs filed a motion for preliminary injunction to prohibit Defendants from denying Plaintiffs access to their patients' medical records. (Docs. 23-28.) On July 25, 2017, Defendants filed an opposition to the motion for preliminary injunction, (Doc. 34), and on August 2, 2017, Plaintiffs filed a reply, (Doc. 35). On August 4, 2017, I held a hearing on the preliminary injunction motion and denied Plaintiffs' application. (Doc. 36.) On August 31, 2017, Plaintiffs appealed my denial, (Doc. 42), and on June 13, 2018, the Second Circuit vacated and remanded the decision for further proceedings because it was "unable to discern the intended effect of [my] various written and oral pronouncements regarding Plaintiffs-Appellants' motion for preliminary and permanent injunctive relief," (Doc. 45). On June 7, 2019, I issued an order denying Plaintiffs' motion for a preliminary injunction, (Doc. 62), which Plaintiffs have since appealed, (Doc. 63). That appeal remains pending.

On September 13, 2018, I issued an Opinion and Order granting Defendants' motion to dismiss with respect to Counts 1-8, 10, 12, and 14-16, and denying the motion with respect to Counts 9, 11, 13, and 18. (Doc. 49.)

Plaintiffs then sought leave to amend their complaint on September 27, 2018. (Doc. 51). Because Defendants did not oppose, I granted the requested leave on October 4, 2018. (Doc. 52). On October 26, 2018, Plaintiffs filed a Second Amended Complaint and Jury Demand, ("Second Amended Complaint"; Doc. 53), which was rejected as overdue. Plaintiffs re-filed their Second Amended Complaint on December 7, 2018, seeking to reassert four of the previously dismissed counts and to add two new counts. (Doc. 54.) Defendants then filed a motion to dismiss Counts 4, 6, 15, 16 and 19 of the Second Amended Complaint. (Docs. 57, 58.) Plaintiffs filed their brief in opposition to Defendants' motion on January 11, 2019, (Doc. 60), and Defendants filed their reply on January 18, 2019, (Doc. 61).

III. Legal Standard

To survive a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), "a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A claim will have "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." Id. This standard demands "more than a sheer possibility that a defendant has acted unlawfully." Id. "Plausibility . . . depends on a host of considerations:the full factual picture presented by the complaint, the particular cause of action and its elements, and the existence of alternative explanations so obvious that they render plaintiff's inferences unreasonable." L-7 Designs, Inc. v. Old Navy, LLC, 647 F.3d 419, 430 (2d Cir. 2011).

In considering a motion to dismiss, a court must accept as true all well-pleaded facts alleged in the complaint and must draw all reasonable inferences in the plaintiff's favor. Kassner, 496 F.3d at 237. A complaint need not make "detailed factual allegations," but it must contain more than mere "labels and conclusions" or "a formulaic recitation of the elements of a cause of action." Iqbal, 556 U.S. at 678 (internal quotation marks omitted). Although all allegations contained in the complaint are assumed to be true, this tenet is "inapplicable to legal conclusions." Id. A complaint is "deemed to include any written instrument attached to it as an exhibit or any statements or documents incorporated in it by reference." Chambers v. Time Warner, Inc., 282 F.3d 147, 152 (2d Cir. 2002) (quoting Int'l Audiotext...