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Western Dermatology Consultants, P.C. v. Vitalworks, Inc.

Supreme Court of Connecticut

August 16, 2016

WESTERN DERMATOLOGY CONSULTANTS, P.C.
v.
VITALWORKS, INC., ET AL.

          Argued September 10, 2015

          Linda L. Morkan, with whom, on the brief, were Phyllis S. Lynn, pro hac vice, and Bradford S. Babbitt, for the appellant (plaintiff).

          Kimberly A. Knox, with whom were Dana M. Hrelic and, on the brief, Wesley W. Horton and Edward T. Krumeich, for the appellee (named defendant).

          Steven R. Smart, for the appellee (defendant Cerner Physician Associates, Inc.).

          Palmer, Zarella, Eveleigh, McDonald and Vertefeuille, Js.

          OPINION

          PALMER, J.

         In this certified appeal, the plaintiff, Western Dermatology Consultants, P.C., claims that the Appellate Court improperly reversed the judgment of the trial court, which found that the defendants, VitalWorks, Inc. (VitalWorks), [1] and Cerner Physician Associates, Inc. (Cerner), had violated the Connecticut Unfair Trade Practices Act (CUTPA), General Statutes § 42-110a et seq., [2] by making misrepresentations in connection with the sale of certain practice management and electronic medical records software to the plaintiff. The plaintiff contends that the Appellate Court incorrectly concluded that, under applicable choice of law principles, the law of New Mexico, rather than CUTPA, governs the plaintiff’s unfair trade practices claim. We conclude that the Appellate Court correctly determined that that claim is governed by New Mexico law. Contrary to the determination of the Appellate Court, however, we conclude that the case must be remanded for a new trial so that New Mexico law can be applied to the plaintiff’s unfair trade practices claim.[3]

         The following facts, as found by the trial court, and procedural history are relevant to our resolution of this appeal. The plaintiff is a dermatological clinic with two offices located in Albuquerque, New Mexico. Vital-Works is a Delaware corporation that, at all times relevant to this appeal, had its corporate headquarters in Ridgefield, Connecticut, and was engaged in the marketing and selling of software designed to assist physicians in efficiently managing patient appointments, billing, and medical records. VitalWorks’ software development and technical support facility is located in Alabama. Cerner is a Delaware corporation with its principal place of business in Missouri. In January, 2005, Cerner purchased VitalWorks’ Alabama operations and continued to market, service, and develop the software thereafter.

         In March, 2003, the plaintiff’s representative attended a medical conference in San Francisco, California, where VitalWorks was demonstrating its software. At the time, the plaintiff did not contemplate the purchase of new software because it was satisfied with older software that it had been using in its practice since 1997. At the conference, however, Tim Holman, a VitalWorks’ salesperson, and Terri Cannady, a representative from the company that marketed the older software, informed the plaintiff’s representative that the plaintiff would need to replace the older software because it was going to be phased out and would no longer be supported. As a replacement for the older software, the plaintiff was offered VitalWorks’ software. Holman told the plaintiff that VitalWorks’ software was ‘‘user-friendly’’ and would increase the plaintiff’s efficiency and save it money by streamlining the preparation of medical notes and billing statements. Specifically, Holman represented that the new software would allow the plaintiff’s receptionist to confirm a patient’s information upon the patient’s arrival and create a note that, with ‘‘[a] click [of] a button, ’’ would be sent to the physician, who would fill it out while examining the patient, thereby creating a billing statement with the required diagnostic codes and necessary prescriptions.

         In September, 2003, Holman traveled to one of the plaintiff’s Albuquerque offices to conduct a follow-up demonstration. Following that demonstration, Holman sent the plaintiff a letter stating that, on the basis of the plaintiff’s then existing monthly transcription expense of $2500, [4] the plaintiff would realize ‘‘a return on investment in two years’’ were it to purchase the new software. Holman also informed the plaintiff that, by purchasing the new software prior to the end of 2003, it would avoid a 15 percent price increase.

         Having been told that the older software no longer would be supported and that a price increase for the new software was imminent, the plaintiff agreed to purchase the new software for $44, 170.30, which included software training by VitalWorks employees. On December 19, 2003, the plaintiff signed a standard form contract produced by VitalWorks’ Connecticut headquarters. The choice of law provision of the contract provided that ‘‘[the] [a]greement shall be construed and interpreted in accordance with the laws of the [s]tate of Connecticut and any dispute shall be resolved in a forum located in the [s]tate of Connecticut.’’

         As soon as the new software was installed, the plaintiff began experiencing technical difficulties while attempting to use it. Contrary to the representations made by Holman, the plaintiff’s physicians and staff found the software neither fast nor user-friendly. The plaintiff experienced a wide variety of problems with the software, including (1) loss of access to the system while attempting to schedule appointments, (2) the need to change passwords on multiple occasions, (3) claims not closing when payments were posted, thereby requiring the plaintiff to manually enter secondary billing statements, (4) uninitiated user log offs, (5) disappearing toolbar buttons, (6) inaccurate patient ledgers, and (7) blank screens that required a complete reboot of the system. In addition to these fundamental software flaws, the physicians were not able to use the system while seeing patients because the software did not have preinstalled dermatological terminology and did not allow users to indicate the number and size of lesions and biopsies, the name or dosage of prescribed medication, or whether the patient had been informed about the potential risks and benefits of medication. As a result of these defects, creating medical notes with the new software took far longer than it did to create those notes manually.

         When the plaintiff complained to VitalWorks about the new software’s poor performance, VitalWorks denied that the problems were software related and recommended additional training for the plaintiff’s employees. Despite that training, however, the plaintiff’s problems persisted because, in fact, they were primarily software related. Indeed, the plaintiff never was able to bill a patient, generate a prescription or complete a real time checkout using the software, and, as a consequence, the plaintiff ultimately abandoned it in May, 2005. The plaintiff commenced the present action against the defendants in August, 2006.

         In its second amended complaint, the plaintiff alleged six counts: (1) breach of contract; (2) breach of warranty; (3) fraud; (4) negligent misrepresentation; (5) unjust enrichment; and (6) a violation of CUTPA.[5] Following a bench trial, the court concluded that the plaintiff had proven its case against VitalWorks on the breach of contract, breach of warranty, negligent misrepresentation, and CUTPA counts.[6] The court also found in favor of the plaintiff on its CUTPA claim against Cerner, concluding that Cerner was liable under CUTPA pursuant to the continuity of enterprise exception to the successor in interest doctrine. The court further concluded that, following the acquisition of VitalWorks’ Alabama operations, Cerner itself had violated CUTPA by engaging in unfair trade practices while being involved in trade or commerce that was intimately associated with Connecticut.[7] Thereafter, the defendants filed motions to reargue and for articulation, and the plaintiff filed motions for costs, attorney’s fees, prejudgment interest, and punitive damages.[8]

         In its motion to reargue, VitalWorks asserted, among other things, that the trial court improperly had failed to subject the plaintiff’s unfair trade practices claim to a choice of law analysis and, instead, appeared to have ‘‘automatically’’ assumed that Connecticut law applied to that claim. VitalWorks further argued that, under a choice of law analysis, it was clear that New Mexico rather than Connecticut law should govern the plaintiff’s claim because New Mexico had the most significant contacts with the occurrence and the parties. In its memorandum of decision on VitalWorks’ motion to reargue, the trial court noted that it had applied Connecticut choice of law principles to the facts and determined that Connecticut was the state that had the most significant relationship to the occurrence and the parties involved. The trial court explained that, in evaluating the choice of law issue, it had utilized the principles set forth in §§ 6 (2) and 145 (1) of the Restatement (Second) of Conflict of Laws. See 1 Restatement (Second), Conflict of Laws § 6 (2), p. 10 (1971); 1 id., § 145 (1), p. 414. In a subsequent memorandum of decision on VitalWorks’ motion for articulation, the trial court further explained that ‘‘the strongest and most predictable contact’’ in the present case was Connecticut because ‘‘Ridgefield, Connecticut was the corporate headquarters for VitalWorks. Corporate responsibility for product development, marketing, sale and delivery of a functioning product is most strongly connected to Connecticut. The sales agreement was drafted in Connecticut by VitalWorks. . . . Among the terms [of that agreement] . . . was a standardize[d] choice of law/forum provision [that] required that Connecticut law apply to contract interpretation and required [Connecticut] to be the locus of dispute resolution.’’

         In addition to its choice of law argument, VitalWorks contended that, even if Connecticut law did apply to the plaintiff’s unfair trade practices claim, VitalWorks’ conduct, as alleged by the plaintiff, did not fall within the purview of CUTPA because VitalWorks had not engaged in any trade or commerce in Connecticut. The trial court rejected this argument, noting that the facts that it found supported the conclusion that the actions that gave rise to the plaintiff’s claims ‘‘occurred in Connecticut or were the result of [VitalWorks’] corporate [decision] to market and sell software systems [that] it knew had not been fully developed and [that] would not operate as represented to [the plaintiff].’’ Specifically, the trial court explained that ‘‘[t]he contract in question qualified as trade or commerce within the state of Connecticut . . . . It [was] the genesis of the relationship between [the] plaintiff and VitalWorks . . . .’’ (Internal quotation marks omitted.)

         On appeal to the Appellate Court, VitalWorks and Cerner both claimed, inter alia, that the trial court incorrectly had determined that Connecticut law governed the plaintiff’s unfair trade practices claim. See Western Dermatology Consultants, P.C. v.VitalWorks, Inc., 146 Conn.App. 169, 197, 78 A.3d 167 (2013). The defendants further argued that, even if Connecticut law applies to that claim, the trial court incorrectly concluded that the plaintiff ...


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