Western Dermatology v. Vital Works, Inc. (2012)

MEMORANDUM OF DECISION RE MOTION FOR ARTICULATION HORTON SHIELDS & KNOX, P.C.

INTRODUCTION—STANDARD FOR ARTICULATION BY TRIAL COURT

Pursuant to Practice Book Section 66–5, subsequent to filing an appeal in this case, appellate counsel for defendant VitalWorks has filed a Motion for Articulation asserting that previous decisions by the trial court required articulation in order to be framed for appeal.   Both defendants VitalWorks and Cerner have also filed Motions for Articulation including an Amended Motion for Articulation by VitalWorks, dated February 8, 2010 which raise issues separate from those presented by appellate counsel.  “An articulation is appropriate where the trial court's decision contains some ambiguity or deficiency reasonably susceptible of clarification.”  Alliance Partners, Inc. v. Oxford Health Plans, Inc., 263 Conn. 191, 819 A.2d 227 (2003).  “An articulation may be necessary where the trial court fails completely to state any basis for its decision ․ or where the basis, although stated, is unclear.”  (Citations omitted.)  State v. Wilson, 199 Conn. 417, 434, 513 A.2d 620 (1986).   The purpose of an articulation is to “dispel any ․ ambiguity by clarifying the factual and legal basis upon which the trial court rendered its decision, thereby sharpening the issues on appeal.”  (Internal quotation omitted.)   Alliance Partners, Inc., supra, 204.   It is well established that “a trial court may not alter its initial findings by way of a further articulation ․” (Citation omitted.)  Eichman v. J & J Building Co., 216 Conn. 443, 458, 582 A.2d 182 (1990);  see also Fantasia v. Milford Fastening Systems, 86 Conn.App. 270, 284, 860 A.2d 779 (2004) (“[a]n articulation is not an opportunity for a trial court to substitute a new decision [or] to change the reasoning or basis of a prior decision” [internal quotation marks omitted] ), cert. denied, 272 Conn. 919, 866 A.2d 1286 (2005).   In responding to all three Motions for Articulation the court has relied upon the record and its findings as stated in the Memorandum of Decision dated September 1, 2009.   These factional findings were based on the trial record which includes voluminous exhibits, testimony of witnesses for both plaintiff and the defendants and in court demonstration of the defectively designed software programs by defendant's witness James Kasper, the VitalWorks and later Cerner employee who developed the subject software programs.

I. MOTION FOR ARTICULATION—HORTON SHIELDS & KNOX, P.C.

Appellate counsel for VitalWorks presented the following seven questions for articulation.

1. What were the court's factual findings and legal conclusions as to VitalWorks' special defenses of mutual or unilateral mistake, failure by the plaintiff to mitigate damages, and breach of contract by the plaintiff?

Defendant VitalWorks failed to sustain its burden of proof with respect to any of the asserted special defenses.   There was a complete lack of evidence to support any finding by the court in support of defenses of mutual or unilateral mistake, failure by plaintiff to mitigate damages, and breach of contract by plaintiff.   It was abundantly clear from the evidence at trial that the reason WDC was unable to operate the subject software was due to the fact that VitalWorks sold software which it knew that it had not fully developed and tested.   The following summary of the court's factual findings, while not inclusive, provides the basis for the conclusion that plaintiff neither breached the contract nor made any mistake.   Defendant did not offer any evidence as to how plaintiff could have mitigated its damages.   Plaintiff's continued efforts to operate the software, multiple calls, preparation of Kelly's list, recruiting a computer technology knowledgeable relative of one of the WDC physicians, Barry Pintzow, to confer with VitalWorks, inter alia, indicate plaintiff did everything it could to solve the software problems.   The basis for this finding is demonstrated by the facts from the court's September 1, 2009 Memorandum of Decision excerpted below:

a) “[After receipt of Kelley's list] Vital Works indicated that the majority of their problems were training issues and attempted to address these significant problems by telephone and continued to blame WDC employees although the problems were primarily software related ․ Email communications contemporaneous with events indicate that Vital Works programmers and quality assurance departments were aware of persistent and significant software problems in the interface between EMR and PM in 2004 and 2005.”   MOD pg. 20.

b) “The doctors were not able to use the EMR system while seeing patients as Vital Works had represented because in addition to fundamental program flaws, the software did not use dermatology terminology as Vital Works had represented.   In addition, the EMR software did not allow users to identify the number and size of lesions and biopsies, the name of the medication being prescribed, the dosage being prescribed and that the patient was informed regarding the risks and benefits of the prescribed medication, all necessary to provide proper medical care and avoid malpractice an insurance fraud claims.”   MOD pg. 21.

c) During his demonstration of the system in court, it took Jim Kasper over 10 minutes to push information from the EMR to the PM systems.   MOD pg. 22.

d) It was abundantly clear from the evidence and testimony at trial that neither WDC nor the defendants were ever able to effectively operate the system as described by others and represented in Vital Works promotional and instructional literature.   MOD pg. 37.

e) Although Vital Works does not identify the actual cause of the problems WDC experienced [in case # 2269812], it does indicate that it is not a hardware problem and that it appears that Vital Works, now Cerner employees, attempted to install two different software updates, 5.1 and 5.2, on January 17, 2005, a full month after WDC reported this problem.   In any business situation, this response is unacceptable.   MOD pg. 45.

f) This court finds the plaintiff has established that the software that VitalWorks sold to the plaintiff was riddled with programming bugs rendering it inoperable as represented and advertised, that the software was not properly tested or maintained by the relevant industry standards, and should not have been marketed or sold in its then-present state.   Although VitalWorks induced the plaintiff to purchase the new software based on the claim that software would no longer be supported, service was not terminated on the properly functioning software [Kiron] for a full five years after the purchase date.   Finally, both defendants' conduct with respect to failing to produce QA (quality assurance) records essential to understanding the development of the subject software is inexcusable.   MOD pg. 60.

g) It is also clear from the facts that court found that VitalWorks and successor Cerner perpetuated the false representations while fully aware of the systems' utter failed [sic] to operate as warranted and WDC's lack of expertise.   February 23, 2010 Memorandum pg. 9. According to a VitalWorks' internal memorandum, as late as November 15, 2004, VitalWorks still had not managed to install its system so that it would operate as represented by [salesman[ Holman and in its literature.  “There is an issue with the interface between PM and EMR Dev (development) has been working ․” (Def. Exh. 22, pg.   50 MOD).

h) In this case, VitalWorks' conduct toward WDC from fall 2003 through spring 2005 was rife with repeated misrepresentations, concealment and false claims which, viewed in the light most favorable to the plaintiff, constitute sufficiently aggravating circumstances to support a CUTPA claim.   MOD pg. 59.

i) Finally, rather than independently investigate and attempt to address plaintiff's complaint of inoperability of the software programs after acquiring VitalWorks' medical software business January 2, 2005 Cerner continued VitalWorks' corporate policy of belittling and blaming plaintiff.   See MOD pg. 55.

In addition to the above evidence, the court also considered the uncontroverted testimony of Dr. Steven Kursh and confirmed by testimony of defendants' own employees that the subject software programs were “beta” or otherwise immature versions with unresolved “bugs” which prevented user operability.

2. What were the trial court's factual findings and legal conclusions with regard to the contract provisions limitation of liability and remedies?

The contract between VitalWorks and Western Dermatology is a contract for the sale of goods governed by Article 2 of the UCC. C.f. Latham & Associates, Inc. v. William Raveis Real Estate, Inc., 218 Conn. 297 (1991).   Buyer's damages are authorized by C.G.S. 42c–2–714.

Section 9 of the Purchase Agreement—Warranty sets forth the terms of warranties, 9.1 and warranty limitations 9.2.   This section disclaims “any express or implied warranties to customer, with respect to the software, the documentation, the hardware, or any services provided hereunder regarding this agreement.   Without limiting the foregoing, any implied merchantability, infringement and fitness for a particular purpose are expressly excluded and disclaimed.

Pages 7 through 12 of the MOD set forth the factual and legal conclusions of the court regarding breach of contract by Vital Works.   Although defendants refused to accept responsibility for the nonfunctional software programs and blamed plaintiff, they did not present any facts to support application of the contractual provisions of limitation of liability and limited contract remedies.   The failure to deliver functioning software coupled with both defendants' own evidence that they were aware of the software function problems as developmental rather than user based precluded reliance on the contractual limited warranty and remedies.

Notwithstanding the sweeping warranty disclaimer in paragraph 9.2 of the purchase agreement, the subject contract required VitalWorks to sell software products which met industry standards and performed as represented by seller.   The subject products did not meet even minimum performance or quality standards.   Defendant Vital Works cannot use contractual limitation of liability and remedies as a shield for refusing to assure the software's fundamental functionality prior to placing it on the market and thereafter refusing to acknowledge and address the buyer's complaints of nonoperability of the systems.   This conduct was even more egregious based on the court's findings that both defendants were aware of the problems while they persisted in blaming plaintiff and its employees.   It was largely defendants' own evidence which provided the facts that overwhelmingly support the conclusion that the defendants were liable.

3. The trial court concluded that the conduct causing the Plaintiff's injuries occurred in Connecticut, Alabama, and New Mexico.  Please articulate the factual findings and evidentiary basis for the conduct which the court found to have occurred in each respective state.

Here again, the court repeats findings and conclusions which appear on the September 1, 2009 memorandum of decision:

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 Vital Works.   The subject sales agreement was not a negotiated contract.   Rather, it was a form document whose essential terms and conditions were stipulated by VitalWorks.   Among the terms which VitalWorks stipulated was a standardized choice of law/forum provision which required that Connecticut law apply to contract interpretation and required to be the locus of dispute resolution.   Connecticut is one of several states where defendants' wrongful conduct occurred.   As defendants note, in addition to its corporate headquarters in Ridgefield Connecticut, VitalWorks had a software development facility in Alabama.   Plaintiff was located in New Mexico.   Cerner represents that it is a Delaware corporation with a principal place of business in Missouri.   The court considered and balanced all of these factors and found that the strongest and most predictable contact was Connecticut.   VitalWorks' choice of law requirement in the purchase agreement reinforced this conclusion.

4. What was the trial court's factual findings and legal reasoning, MOD 2/23/10, p. 3, in deciding not to follow lexi loci delicti in this case because it would produce an arbitrary or irrational result?

VitalWorks cannot establish and conduct business in this state without subjecting itself to Connecticut law.   By its terms CUTPA applies to acts committed in Connecticut.  C.G.S. § 42–110a(4) defines trade or commerce as the advertising, the sale or rent a lease, or the distribution of any services or property, tangible or intangible, real, personal, or mixed in this state and is broad enough to encompass the subject commercial transaction.   The facts found by the court support the conclusion that the acts which gave rise to plaintiff's claims occurred in Connecticut or were the result of corporate decisions to market and sell software systems which it knew had not been fully developed and which would not operate as represented to buyers.

New Mexico is the place where plaintiff suffered injury when it attempted to use the defective product.   However, plaintiff's claim arose due to corporate policy and practice initiated by VitalWorks and continued by Cerner, i.e., failure to ensure that the subject software performed as represented prior to marketing and sale and the subsequent failure by both VitalWorks and Cerner to acknowledge and remedy the problems in their software programs.  “To focus on any [particular] state in the chain of defendants' actions and exclude Connecticut would fail to hold the central corporate decision makers VitalWorks and its successor, Cerner, responsible for the core conduct of entering into a contract to provide a product which they knew from the time it was aggressively marketed to plaintiff and continued to know was completely nonfunctional.”—pgs 4–5.   February 23, 2010 Memorandum Re Motion to Reargue/February 24th Corrected memo of Decision.   There is ample evidence in the court's written decisions to support a finding that the place of the wrongful conduct was Connecticut.   Simply stated, defendants cannot be permitted to pick and choose which portions of Connecticut law are applicable.   See USGI, Inc. v. Michele Limited Partnership et al., No. B–88–229, 1990 U.S.Dist. Lexis 19067 at *10 (D.Conn. January 25, 1990) (Cabranes, J.).

With respect to choice of law analysis, an argument can be made for application of significant contacts and lex loci delicti choice of law theories.   However, this case is at its core an unfair trade practice case, involving multiple corporate parties in a multi-state commercial transaction not a common-law tort action to which lex loci delicti would readily apply.   This court found that the conduct which caused the injury was a frank and unacceptable lack of product development at the core product functioning level, aggressively marketed by central corporate decision makers Vital Works and its successor Cerner who further persisted in blaming plaintiff when they were fully aware that they had soft software programs which did not function as represented.   The location of the party responsible for the wrongful, tortious conduct toward plaintiff is Connecticut.   The nature of the subject computer software is such that it may be used anywhere in the world and its product development does not occur in a single location.   Applying Connecticut law to all of plaintiff's claims which are inextricably connected to a common nucleus, i.e., conduct by VitalWorks, then by Cerner with respect to the PM Intuition and EMR software programs provides for the most consistent, rational and fair application of law to the facts of this case.

Defendants have phrased the issue of applicability of CUTPA as whether CUTPA is sufficiently broad to extend to conduct occurring wholly outside of Connecticut that affects persons wholly outside of Connecticut.   Defendants misstate the issue.   The court found that the conduct in this case occurred in Connecticut as well as other states.   Furthermore, the more accurate statement of the law is that, while a CUTPA violation need not necessarily occur in Connecticut, it must be tied to a form of trade or commerce intimately associated with the state.   Titan Sports, Inc. v. Turner Broad.   Sys., Inc., 981 F.Sup. 132, 140 (D.Conn.1997);  Uniroyal Chem. Co. v. Drexel Chem. Co., 931 F.Sup. 132, 140 (D.Conn.1996).   This court found that the Software License, Hardware Purchase, Services and Support Agreement between VitalWorks and WDC's satisfies the statutory standard of C.G.S. § 42–110g.   As stated above, the subject agreement provides, “This Agreement shall be construed and interpreted in accordance with the laws of the state of Connecticut and any dispute shall be resolved in a forum located in the state of Connecticut.”

This was not a negotiated agreement with respect to choice of law or the forum for dispute resolution as well as many other material contract terms such as limitation of liability for nonperformance, warranty, damages, etc.   VitalWorks drafted the agreement stipulating that the law of the state of Connecticut as the law applicable to its construction and interpretation and Connecticut as the forum for dispute resolution.   The purpose of such clauses are to provide the drafter with the advantage of a local forum and predictable familiar law.   This is true regardless of the state in which purchasers of its software and related products are located because as noted repeatedly by the court in its decisions, VitalWorks paragraph 1.6 of the sales agreement contained choice of law provisions which stipulated applicability of Connecticut law and Connecticut as the forum for dispute resolution.   Courts have applied CUTPA in breach of contract cases where a purchaser is a Connecticut corporation.

O'Connor v. O'Connor, 201 Conn. 632, 519 A.2d 13 (1986) stands for the principle that courts should not apply lex loci delicti where it would produce arbitrary or irrational results.   For the purposes of the lex loci delicti analysis, fraud and negligent misrepresentation occur where the misrepresentation is made, not where the effect is felt.  Bailey Employment Systems, Inc. v. Hahn, 655 F.2d 473 (2d Cir.1981);  Commonwealth Fuel Company v. McNeil, 103 Conn. 390, 130 A. 794 (1925).   The Connecticut Supreme Court in O'Connor emphasized that it was not abandoning lex loci delicti for all purposes or in all its manifestations.  “Recently, however, we have recognized that these are circumstances in which strict application of the lex loci delicti rule frustrates the legitimate expectations of the parties and undermines the policies of this state.   In such circumstances, we have refused to apply the doctrine.”   Rather, the court held that the Restatement Second's guidelines should be incorporated into Connecticut law “as the governing principles for those cases in which application of the doctrine of lex loci would produce an arbitrary, irrational result.”  Id. at 637.   See also, Gibson v. Fullin, 172 Conn. 407, 411, 374 A.2d 1061 (1977) cited therein.   Following the O'Connor court's analysis, the court in Emhart Industries, Inc. v. Duracell, International, Inc., 665 F.Sup. 549, 567–68 (D.Tenn.1987) (involving a contract between Connecticut and Illinois companies transferring land in three states) ruled that Connecticut law will govern the fraud, negligent misrepresentation and Connecticut Unfair Trade Practices Act claims.

Applying Restatement (Second) of Conflict of Laws § 187, the Emhart court conducted a most significant contact analysis and found under facts similar to those in this case, i.e., the agreement, negotiated and executed in Connecticut, contained a choice of law provision virtually identical to the provision in the VitalWorks agreement, the facts underlying Emhart's fraud and negligent misrepresentation claims were most significantly related to Connecticut.   The negotiations giving rise to the contract occurred principally in Connecticut.   The contract was executed in Connecticut.   The parties have bound themselves to Connecticut law for the purposes of contract interpretation.   Some of the key misrepresentations are contained within the contract.   Under the Restatement Second, Connecticut law would govern the fraud and misrepresentation claims.  “Emhart's claim of CUTPA violation relies on elements of deceit similar to those in the fraud and misrepresentation claims.   Logically, this indicates that the same analysis under both lex loci delicti and Restatement Second applies to the CUTPA claim as does to the deceit claims.”  Id., 568.

The court applied choice of law analysis in this case consistent with that of the court in Emhart.   Of the various states which are factually mentioned, in particular, New Mexico and Alabama, none has any greater basis as lex loci deliciti than Connecticut.   Vital Works' insistence on Connecticut law to determine issues arising out of the transaction doesn't prevent the court from applying Connecticut law to matters of contract interpretation, claims of fraud, breach of warranty and misrepresentation as well as tort-based unfair trade practice claims.   Doing so is beneficial from the standpoint of consistency of legal analysis and reliance on precedent where, as in this case, the above causes of action are alleged in CUTPA case.

5. Did the court find that the defendant VitalWorks engaged in the conduct of any trade or commerce under CUTPA?  If so, what was the factual and evidentiary basis of such finding?

Yes. The contract in question qualified as trade or commerce within the state of Connecticut as defined by C.G.S. § 110a(4).   See articulation to question 4. It is the genesis of the relationship between plaintiff and VitalWorks, which relationship Cerner continued.   This court has concluded based on the evidence that Connecticut's Unfair Trade Practice statute applies in this case with multiple state contacts.   The plaintiff in this case seeks relief under Connecticut General Statute 42–110g the Connecticut Unfair Trade Practice Act CUTPA.   This state has a strong interest as expressed by both the legislature and courts to protect consumers and provide remedies for the injuries caused as a result of unfair business and trade practices.

The conduct which the court found constituted the unfair trade practices in this case arose out of the contract for the sale of the computer software programs and hardware by VitalWorks, Inc. whose principal place of business is Ridgefield, Connecticut.   The contract drafted by VitalWorks, Inc. stipulated that it to be interpreted under Connecticut law and that any litigation regarding the contract must occur in Connecticut.   This court found that VitalWorks breached the contract and the implied warranty of merchantability and negligently misrepresented the software programs which it sold.   The conduct of the VitalWorks, Inc. employees which continued with the same employees in the same positions following acquisition by Cerner was inextricably related to the marketing and sale of the software programs.   The same conduct which constituted the breach of contract, breach of warranties and negligent misrepresentation continued and exacerbated so egregiously as to be actionable pursuant to C.G.S. § 42–110b.   The aggravating factors of defendants' behavior in this case were exacerbated by their insistence that plaintiffs' problems with the beta version to their failure to deliver on the contract.   In other words, in addition to the contract and common-law claims, the court found that the defendant's unfair conduct fell within at least the penumbra of some common-law, statutory, or other established concept of unfairness and or was immoral, unethical, oppressive, or unscrupulous resulting in substantial injury.   This factual determination is previously stated in the September 1, 2009 Memorandum of Decision.

As drafted by plaintiff in its second amended complaint, the factual allegations of each succeeding count included the allegations of the preceding count.   Count VI incorporates all of the foregoing allegations and adds those allegations required to state a claim under C.G.S. § 42–110b.   Commercial sale of software programs and supporting hardware to consuming purchaser such as the plaintiff constitutes trade or commerce under CUTPA.   This finding is consistent with the facts as found by the court in the Memorandum of Decision dated September 1, 2009.   To the extent not previously articulated both in the court's previous rulings in the case and elsewhere in this memorandum of articulation, the court confirms that it found VitalWorks engaged in trade or commerce under CUTPA and refers to its previous findings in the memorandum of decision.

6. What was the factual and evidentiary basis for the court's finding that Connecticut was the state where the parties' relationship initiated and was centered?

(a) In general, the articulation to this question has previously been addressed in the findings by the court in its September 1, 2009 decision, for instance, VitalWorks' contractual stipulation as to locus of litigation and applicable law and the response to question 4 above.

(b) See above articulation in response to question 5.

In addition, as previously stated, VitalWorks required that the sales agreement which it drafted be interpreted according to the law of the State of Connecticut and that dispute resolution occur in Connecticut.   Although plaintiff alleged several grounds for recovery in its complaint, VitalWorks' form purchase agreement between plaintiff and VitalWorks forms the fundamental basis for the relationship between the parties.   In this case, the corporate defendant dictated the locus of litigation and the law which the court must apply in the event of litigation.   The wrongful conduct which caused injury to the plaintiff was the responsibility of both the Connecticut corporation VitalWorks and its successor Cerner.

7. What was the factual and legal basis for excluding the testimony of James Kasper and Randy Brown concerning the functionality of the software and the problems that were caused by user error?

This request for articulation appears to relate to evidentiary rulings by the court.   Because the court was not provided a transcript and defendant has not identified any specific ruling it is not possible to respond other than to note that the record reflects that the defendants were allowed ample opportunity to provide testimony regarding the functionality of the software and the problems that allegedly were caused by user error.   Far from proving defendants' points, this testimony, from defendants' own witnesses was perhaps the strongest proof in support of plaintiff's claims.   During a court attempted demonstration of the EMR and PM Intuition systems by James Kasper, the VitalWorks software design engineer employed by Vital Works and later by Cerner in the same capacity, Mr. Kasper was neither able to demonstrate nor explain how the software programs individually operated and interfaced.   As stated previously, defendants did not present any evidence to support their claim that the problems which plaintiff experienced were caused by user error despite being afforded ample opportunity to do so.   See September 1, 2009 Memorandum of Decision.   The court did not exclude testimony by Messrs.   Kasper and Brown which it found to be relevant and otherwise admissible under the rules of evidence.   Rather, it weighed Mr. Kasper's testimony including his complete inability to explain or operate the system he designed, his failure to address the operational problems the plaintiff experienced despite acknowledging that the software programs had not been fully tested prior to sale.   Any further analysis of the court's evidentiary rulings requires review of the transcript which the court believes is not within the scope of this motion for articulation.

BY THE COURT

SOMMER, J.

Sommer, Mary E., J.