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Health v. Medtronic Sofamor Danek USA

December 21, 2006

KALEIDA HEALTH, PLAINTIFF,
v.
MEDTRONIC SOFAMOR DANEK USA, INC., DEFENDANT.



The opinion of the court was delivered by: John T. Curtin United States District Judge

This action was commenced on August 31, 2005 in New York State Supreme Court, Erie County, and was removed to this court on September 22, 2005 by notice of removal pursuant to 28 U.S.C. §§ 1441 and 1446, based on diversity of citizenship of the parties. Plaintiff Kaleida Health ("Kaleida") seeks damages against defendant Medtronic Sofamor Danek USA, Inc. ("Medtronic") totaling $1.8 million based on causes of action for breach of contract, unjust enrichment, and fraud resulting from Medtronic's alleged improper billing practices. Medtronic has moved to dismiss the complaint pursuant to Rules 12(b)(6) and 9(b) of the Federal Rules of Civil Procedure (Item 12). Oral argument of the motion was heard by the court on November 9, 2006.

For the following reasons, Medtronic's motion to dismiss is granted in part and denied in part.

BACKGROUND

Kaleida is a network of hospitals and related health care facilities located throughout Western New York. Medtronic manufactures and markets medical devices and products for distribution worldwide (Complaint, ¶¶ 1-3).*fn1

As alleged in the complaint, beginning in October 1999 Kaleida and Medtronic engaged in a "purchase order-invoice" business relationship whereby Kaleida issued purchase orders to Medtronic for delivery of medical products, and Medtronic issued corresponding invoices to Kaleida pursuant to an agreed-upon price list. Kaleida claims that Medtronic operated under a strict "credit hold" policy which forced Kaleida to pay disputed invoices or charges prior to delivery in order to ensure uninterrupted provision of medical services and seek credit or reimbursement later. As part of an audit covering the one-year period from March 2001 through April 2002, Kaleida discovered a number of discrepancies in Medtronic invoices that Kaleida had already paid in full, resulting in overcharges of approximately $1.2 million (id. at ¶¶ 4-8).

According to the complaint, Medtronic acknowledged the invoice discrepancies and credited or wrote off over $1 million in charges to Kaleida. Medtronic also terminated the employment of two of the representatives in charge of the Kaleida account. Kaleida alleges that Medtronic has refused to provide credit memoranda or other documentation for the writeoffs and has otherwise failed to provide information necessary for Kaleida to complete its audit (id. at ¶¶ 9-16).

In its first cause of action, Kaleida claims that Medtronic's improper billing practices resulted in a breach of Medtronic's ongoing contractual obligations to Kaleida, as well as a breach of the duty of good faith and fair dealing under the Uniform Commercial Code ("U.C.C.") (id. at ¶¶ 17-22). In its second cause of action, Kaleida claims that Medtronic has been unjustly enriched by the overcharges resulting from Medtronic's deceptive billing practices (id. at ¶¶ 23-25). In its third cause of action, Kaleida alleges that Medtronic's billing practices constituted a scheme to defraud Kaleida (id. at ¶¶ 26-35).

Medtronic moves to dismiss the complaint in its entirety based on the following arguments:

1. Kaleida's contract claim arising from invoices issued before August 31, 2001 is barred as untimely under the U.C.C.'s four-year statute of limitations.

2. Kaleida's contract claim with respect to invoices issued after August 31, 2001 fails to state a claim upon which relief can be granted.

3. The unjust enrichment claim is precluded by the alleged existence of a contract between the parties.

4. Failure to allege facts to support a fraud claim independent of the breach of contract claim.

Each of these contentions is addressed in turn below.

DISCUSSION

I. Motion to Dismiss Contract/Quasi-Contract ...


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