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Pain Center of Se Indiana LLC v. Origin Healthcare Solutions LLC

United States Court of Appeals, Seventh Circuit

June 20, 2018

Pain Center of SE Indiana LLC, The Pain Medicine and Rehabilitation Center P.C., and Anthony Alexander, M.D., Plaintiffs-Appellants,
Origin Healthcare Solutions LLC, SSIMED LLC, Origin Holdings, Inc., John Does (1-50) inclusive, and John Does (1-100) inclusive, Defendants-Appellees.

          Argued September 6, 2017

          Appeal from the United States District Court for the Southern District of Indiana, Indianapolis Division. No. 1:13-cv-00133-RLY-DKL - Richard L. Young, Judge.

          Before Wood, Chief Judge, and Rovner and Sykes, Circuit Judges.

          Sykes, Circuit Judge.

         In June 2003 Pain Center of SE Indiana contracted with a company called SSIMED LLC for medical-billing software and related services. In June 2006 the parties entered into a second contract, this time for records-management software and related services. Almost seven years later-in January 2013-Pain Center sued SSIMED raising multiple claims for relief, including breach of contract, breach of warranty, breach of the implied duty of good faith, and four tort claims, all arising out of alleged shortcomings in SSIMED's software and services.

         The district judge found the entire suit untimely and entered summary judgment for SSIMED. We affirm on all but the claims for breach of contract. The judge applied the four-year statute of limitations under Indiana's Uniform Commercial Code ("UCC"), holding that the two agreements are mixed contracts for goods and services, but the goods (i.e., the software) predominate. We disagree. Under Indiana's "predominant thrust" test for mixed contracts, the agreements in question fall on the "services" side of the line, so the UCC does not apply. The breach-of-contract claims are subject to Indiana's ten-year statute of limitations for written contracts and are timely. The suit may go forward only on those claims.

         I. Background

         The plaintiffs are Pain Center of SE Indiana LLC, a clinic serving patients who suffer from chronic pain; its founder and sole member, Dr. Anthony Alexander; and its corporate successor, The Pain Medicine and Rehabilitation Center P.C. We refer to the plaintiffs collectively as "Pain Center." The defendants are SSIMED LLC; Origin Healthcare Solutions LLC, the corporation that acquired SSIMED LLC in 2005; and Origin Holdings, Inc., its indirect parent corporation. We refer to them collectively as "SSIMED." The suit also names 150 John Does as defendants, but as we explain later, these nominal placeholders can be disregarded.

         SSIMED provides billing services to healthcare providers through proprietary billing and records-management software. Its software line includes Practice Manager, a billing program that functions as a platform for submitting claims to SSIMED for transmission to insurers, and EMRge, a records-management software that works in conjunction with Practice Manager. On June 18, 2003, Pain Center entered into an agreement with SSIMED to purchase the Practice Manager software and related services, including ongoing billing services, IT support and electronic claim-submission services, and five days of initial training in how to use the software.

         Filing claims using SSIMED's billing system involves several steps. First, at the end of each day, the healthcare provider enters into the Practice Manager program the relevant claim information for all reimbursable healthcare services performed that day. The software then transmits the daily closing files to SSIMED in a zip file, and SSIMED generates claim files from the daily closing information and sends claims to insurers for payment.

         Claim processing can fail at any step of this process. Certain data-entry errors by the healthcare provider may prevent successful transmission of daily closing files to SSIMED. Other errors would not impede transmission to the insurer but can result in nonpayment of the claim. The healthcare provider can track the status of its claims using a software tool called the Client Center. Claims with errors at any step of the process remain in the Client Center until corrected and resubmitted.

         Dr. Alexander testified in deposition that Pain Center experienced problems with Practice Manager "[a]lmost from the beginning." More specifically, Dr. Alexander noticed "[p]roblems with accuracy in the amounts that were sent, " "[p]roblems with dates missing, " and "entire transmissions that had been resent [and then were] missing." Dr. Alexander confronted SSIMED about these problems in 2003, and SSIMED told him that the insurers were to blame for any unpaid claims. Dr. Alexander testified that Pain Center followed up with health insurers "on numerous occasions, " but the insurers reported that they never received the claims. Soon after implementing Practice Manager, Dr. Alexander noticed that Pain Center was "losing money like crazy." But he insists that he did not realize until much later that SSIMED's software and services were to blame for his cashflow problems.

         Despite these concerns, Pain Center entered into a second contract with SSIMED on June 28, 2006-this time for a software program called EMRge that worked in conjunction with Practice Manager to facilitate patient records management and billing reimbursement. Like the first contract, this one included the software, five days of initial training in its use, ongoing billing services, and IT support. Dr. Alexander thought that implementing EMRge would resolve the payment losses his clinic was suffering. But just as with Practice Manager, he experienced problems with EMRge "[a]lmost from the beginning."

         In October 2011 Pain Center hired Demetria Hilton Pierce, a billing specialist, and she immediately noticed that some of Pain Center's claims were going unpaid. Pierce asked SSIMED about the unpaid claims. SSIMED directed her to log in to the Client Center. When she did so, she discovered that the Client Center had not been opened in about 18 months. Thousands of unpaid claims had piled up in the meantime. For many of these claims, the deadline for submission to the insurer had passed. Pain Center made an effort to recover payment, but the insurers refused to pay the stale claims. Dr. Alexander maintains this was the first time he learned of the Client Center and how it functioned.

         On January 24, 2013, Pain Center filed suit against SSIMED alleging that its Practice Manager and EMRge software and related billing services caused these losses. As relevant here, the complaint raised several contract-based claims (breach of contract, breach of warranty, and breach of the implied duty of good faith and fair dealing) and four tort claims (tortious interference with business relations, fraud, fraud in the inducement, and fraudulent misrepresentation).

         On cross-motions for summary judgment, the judge concluded that the statute of limitations for each claim had long since expired. The judge ruled that all of Pain Center's claims accrued soon after the execution of the two agreements in 2003 and 2006, respectively, because Dr. Alexander admitted that he was aware of problems with SSIMED's billing system "[a]lmost from the beginning." Under Indiana law, fraud claims are subject to a six-year statute of limitations, so this accrual ruling meant that all three fraud-based claims were time-barred. The tortious-interference claim was likewise untimely under the applicable two-year limitations period. The judge also concluded that all of the contract-based claims are governed by the UCC because the agreements in question were predominantly for the sale of goods-that is, the software. ...

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