MedShift, LLC v. Charles W. Morgan Pelle, LLC

584 F.Supp.3d 112

MEDSHIFT, LLC, Plaintiff,

v.CHARLES W. MORGAN PELLE, LLC, Defendants.

3:20-cv-00434-RJC-DSC

United States District Court, W.D. North Carolina, Charlotte Division.

Signed February 8, 2022

Satie Rachael Munn, Trey Lindley, Lindley Law, PLLC, Charlotte, NC, for Plaintiff.

Mathew Everett Flatow, SeiferFlatow, PLLC, Charlotte, NC, for Defendants.

Order

Robert J. Conrad, Jr., United States District Judge THIS MATTER is before the Court on Defendants’ motion for summary judgment ("Defendants’ Motion") (Doc. No. 18) and Plaintiff's partial motion for summary judgment ("Plaintiff's Motion") (Doc. No. 20). For the reasons stated herein, the Defendants’ Motion is GRANTED IN PART and DENIED IN PART and the Plaintiff's Motion is GRANTED IN PART and DENIED IN PART .

I. BACKGROUND

A. Factual Background

1. The Parties and Device

Defendant Pelle, LLC ("Pelle") is a small medical spa located in Manchester, New Hampshire. (Doc. No. 19-1 ¶ 4). Pelle offers medical grade aesthetic procedures performed under the supervision of a medically licensed professional. (Id. ; Doc. No. 22 ¶ 5). Defendant Charles W. Morgan is the owner of Pelle ("Morgan") (Pelle and Morgan together, the "Defendants") (Doc. No. 19-1 ¶ 14).

MedShift, LLC is a company that, at least in part, assists with financing medical equipment and marketing for medical spas ("MedShift" or "Plaintiff").¹ (Doc. No. 20-1 ¶ 6). MedShift does not develop or manufacture medical devices. (Doc. No. 20-2 at 41:2-11). MedShift is not involved in obtaining FDA approval for any medical devices. (Id. ). Rather, in certain instances, after manufacturers market medical devices to potential clients, the manufacturer contacts MedShift to provide financing to the client for the medical device. (Id. at 21:1-22:16).

Lumenis is the manufacturer of the AcuPulse Laser System (the "AcuPulse"), and FemTouch attachment which connects to the AcuPulse to facilitate gynecological uses of the AcuPulse, including vaginal rejuvenation (together with the AcuPulse, the "Device"). (Doc. No. 20-1 ¶ 10; Doc. No. 19-1 ¶ 7). Generally, under MedShift's arrangement with Lumenis, after Lumenis engages with clients about the Device and confirms a sale of the Device, Lumenis contacts MedShift in instances where the client needs alternative financing, such as making monthly payments rather than payment in full upfront. (Doc. No. 20-2 at 21:13-23; Doc. No. 25-3 ¶¶ 9-11). When clients obtain financing through MedShift, MedShift purchases the Device from Lumenis at a discounted rate and delivers it to the customer in exchange for payments from the client for the Device. (Doc. No. 25-3 ¶¶ 11-16).

2. The Agreement

On May 30, 2017, Pelle representatives contacted Lumenis about purchasing the Device. (Doc. No. 19-1 ¶ 7). Lumenis in turn engaged MedShift to assist with financing Pelle's purchase of the Device for $130,000. (Doc. No. 19-1 ¶¶ 8-12; Doc. No. 19-3 at 64). Later that day, Pelle and MedShift representatives discussed entering into a potential agreement for the Device and marketing support specifically related to vaginal rejuvenation. (Doc. No. 19-1 ¶¶ 9-12). Defendants assert vaginal rejuvenation was Pelle's only interest in and purpose for purchasing the Device and that Pelle's representatives informed MedShift employees of its sole purpose before entering into the Agreement. (Doc. No. 19-1 ¶¶ 9-12).

On May 31, 2017, MedShift and Pelle entered into an End User Subscription Agreement (the "Agreement"). (Doc. No. 1-1 at 11-17). Under the terms of the Agreement, MedShift agreed to:

(1) Deliver and install the Device, with "supporting documentation, analytics data, software, Operative Analytics, and training;"

(2) Provide the MedShift Operative Analytics Platform which included treatment data, patient feedback, software allowing the Device to communicate with cloud computing infrastructure, and information storage; and

(3) Provide marketing services, including listing on vConfidence.com website and inclusion in other online campaigns for vaginal health, listing on Manufacturers provider website, and inbound call center services for internet-based leads from vConfidence and other MedShift campaigns.

(Id. at 16). In exchange, Pelle agreed to make monthly payments in the amount of $2,495 "within fifteen (15) days of the invoice date." (Id. at 17). The Agreement was in force for a fixed term of five years, after which Pelle had the right to purchase the Device for $975. (Id. at 11). Morgan signed the Agreement as Guarantor for Pelle. (Id. at 15).

Of relevance to this matter, Section 2 of the Agreement provides:

"Use of the Products; Restrictions; Remedies; Adverse Patient Event Notification. ... (d) [Pelle] agrees and warrants that (i) [Pelle] and each Authorized User will use the Products only for their intended and approved uses and in accordance with all Manufacturer and MedShift documentation, and any updates, revisions, and technical bulletins related thereto."

(Id. at 11).

Pursuant to the Section 5 of the Agreement, either party was entitled to terminate the Agreement for "cause." Specifically, the Agreement provides:

(a) Termination for Cause. If either party breaches any provision of this Agreement, then the non-breaching party may give written notice to the breaching party that, if the default is not cured within thirty (30) calendar days after receipt of such notice, this Agreement will automatically terminate. If the non-breaching party gives such notice and such breach is not cured during such thirty (30) calendar day period, then this Agreement shall automatically terminate at the end of such thirty (30) calendar day period.

(Id. ). Additionally, under the Agreement, either party could terminate the Agreement without cause with 60 days’ notice. (Id. at 12). If Pelle terminated the Agreement without cause before the end of the five year term of the Agreement, it:

must pay the termination fee equal to the sum of the remaining and then outstanding monthly subscription fees. If [Pelle] does not pay the amount due to MedShift within fifteen (15) days of the due date [Pelle] agrees to pay all costs, including but without limitation, any court costs, collection agency fees, and reasonable attorneys’ fees paid by MedShift to collect the Termination Fee.

(Id. ). After termination, MedShift had the right to take possession of the Device. (Id. ).

3. Performance of the Agreement

After entering into the Agreement, MedShift purchased the Device directly from Lumenis for $69,900, after which Lumenis had no financial interest in the Agreement. (Doc. No. 19-3 at 67:10-17; Doc. No. 19-3 at 34:18-22). MedShift delivered the Device to Pelle's office. (Doc. No. 19-1 ¶¶ 15-17). Pelle also received from MedShift marketing materials and brochures related to promoting vaginal rejuvenation and "talk tack to help Pelle's staff discuss the vaginal rejuvenation procedure." (Doc. No. 19-1 ¶ 14). Certain of Pelle's employees received training on how to use the Device from Lumenis. (Doc. No. 20 ¶¶ 34-42; Doc. No. 24 ¶ 26).

The parties dispute whether Pelle made full and timely payments pursuant to the Agreement. According to MedShift, it began invoicing Pelle on June 30, 2017, and each month thereafter between June and September 2017, but Pelle did not make its first payment under the Agreement until October 2, 2017. (Doc. No. 21 at 5; Doc. No. 20-1 ¶¶ 43-52). MedShift asserts Pelle was in breach and did not cure its initial breach in payments under the Agreement. (Id. ). On the other hand, according to Defendants, Pelle received its first invoice from MedShift on October 2, 2017, made payment the same day, and Defendants were never informed Pelle was in breach. (Doc. No. 23-1 ¶¶ 7-17). Defendants also point to deposition testimony from MedShift's CFO, who stated that in August 2018 Pelle's account was not delinquent. (Doc. No. 19-4 at 54:22-55:8). The parties do agree that Pelle's last payment made under the Agreement was on July 24, 2018. (Doc. No. 20-1 ¶ 55; Doc. No. 24 ¶ 35).

4. The FDA Statement – July 2018

On July 30, 2018, the FDA issued a statement regarding a "growing number of manufacturers marketing ‘vaginal rejuvenation’ devices to women and claiming these procedures will treat [certain] conditions and symptoms ... [using] lasers and other energy-based devices to destroy or reshape vaginal tissue." (Doc. No. 20-1 at 72). It warned that the "products have serious risks and don't have adequate evidence to support their use for these purposes. We are deeply concerned women are being harmed" (the "FDA Statement"). (Id. ). The FDA Statement noted that the devices were approved for treatment of certain specific serious conditions, but "the safety and effectiveness of these devices hasn't been evaluated or confirmed by the FDA for ‘vaginal rejuvenation.’ " (Id. ). It warned "women and their healthcare providers that the FDA has serious concerns about the use of these devices to treat gynecological conditions beyond those for which the devices have been approved or cleared." (Doc. No. 20-1 at 72-73). It listed seven manufacturers that the FDA contacted regarding "inappropriate marketing of their devices for ‘vaginal rejuvenation,’ " none of which were Lumenis, the manufacturer of the relevant Device. (Id. ).

Lindsay Andronaco, Pelle's medical director ("Andronaco"), began researching the FDA Statement and learned that the Device was not FDA approved for vaginal rejuvenation. (Doc. No. 22 ¶¶ 10-13). She decided she would no longer oversee Pelle's use of the Device based on the FDA Statement and other research she completed, for the safety of its clients. (Doc. No. 19-1 ¶ 18; Doc. No. 22 ¶¶ 10-14). Andronaco claims she has not permitted the use of the Device at Pelle since July 30, 2018. (Id. ¶ 21).

5. Pelle's Termination Letter – August 2018

On August 28, 2018, Pelle, through counsel, sent a letter to MedShift stating that pursuant to Section 5 of the Agreement, the "correspondence shall constitute a Notice of Default and Termination for...