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CareOne Management, LLC v. Navisite, Inc.

Superior Court of Massachusetts, Suffolk, Business Litigation Session

April 24, 2017

CareOne Management, LLC et al.
Navisite, Inc

          Filed April 25, 2017


          Kenneth W. Salinger, Justice

         These consolidated lawsuits arise from the agreement by Navisite, Inc., to develop and provide information technology services to CareOne Management, LLC and its affiliate Partners Pharmacy Services, LLC. Navisite first contracted to provide an array of computerized services to CareOne. Several months later Navisite contracted to provide a much more limited set of information technology services to Partners. After difficulties and disputes regarding implementation of its contract with CareOne, Navisite threatened to and then did terminate both contracts.

         CareOne and Partners asserted various claims against Navisite, which in turn sued CareOne. (Navisite also sued Partners, but Judge Sanders dismissed those claims.) Navisite and CareOne both move for summary judgment; Navisite does so on all claims while CareOne's motion is limited to Navisite's claims against it.

         The Court concludes that CareOne is entitled to summary judgment on the claims asserted against it by Navisite, and that Navisite is entitled to summary judgment on all claims asserted against it by CareOne and Partners. Final judgment will enter declaring the rights of the parties, with respect to the issues in controversy that CareOne and Partners identified in their claim for declaratory judgment, and dismissing all other claims with prejudice.

         1. Background

         1.1. Undisputed Material Facts

         The following are undisputed facts, as demonstrated in the evidentiary materials submitted by the parties or reasonable inferences that one could draw from those facts. The Court " must . . . draw all reasonable inferences" from the evidence presented " in favor of the nonmoving party, " as a jury or judicial fact finder would be free to do at trial. Godfrey v. Globe Newspaper Co., Inc., 457 Mass. 113, 119, 928 N.E.2d 327 (2010). It has done so.

         CareOne manages dozens of nursing homes. Partners operates commercial pharmacies that serve patients at more than 500 nursing homes, including those run by CareOne. These two companies are separate legal entities, though both were founded and are run by the same person.

         CareOne retained Navisite in September 2012 to develop, implement, host, and operate new computing services to be used at all of CareOne's nursing facilities. The system design was to include " virtual desktops" through which CareOne employees could access programs, applications, and data that Navisite would host on servers located at its facilities. It also included other computer services that would be implemented and hosted by Navisite. Navisite agreed that it would transition CareOne from its current IT vendor and begin providing the agreed-upon services using Navisite's servers no later than January 1, 2013. The parties also agreed that CareOne would pay Navisite certain upfront fees, but that the majority of the fees were to be billed and paid on a monthly basis for each component service after CareOne accepted delivery of that service. CareOne paid Navisite roughly $580, 000 in upfront charges upon signing of the parties' contract.

         The contract between CareOne and Navisite consists of a number of interrelated documents that were executed at the same time. These parties executed a Master Statement of Work (" SOW") that described many of the services that Navisite agreed to provide through a " Third-Party Provider." They also executed a " Master Services Agreement" (" MSA"). The SOW provided that it " is governed by and incorporates by reference, the terms and conditions of the" MSA. And these parties executed three detailed " Schedules" providing that Navisite would provide CareOne with managed hosting services, managed messaging services, and cloud-enabled desktop as a service. These Schedules state that they are incorporated into and part of the MSA. Finally, at the same time these parties executed two sales orders in which CareOne agreed to pay certain one-time and monthly fees for the managed hosting services. The sales orders state that they are subject to the terms of the MSA.

         In November 2012 and December 2012 CareOne and Navisite executed three more sales orders for email services and for the migration of CareOne's existing email and SharePoint systems to Navisite's servers. These sales orders all state that they are subject to the terms of the MSA.

         Separately, in November 2012 Partners and Navisite executed a sales order for a Citrix production environment. This sales order originally designated CareOne as the purchaser, but it was revised by hand to change the purchaser to Partners. This sales order contains the same language as the others stating that it is subject to the terms and conditions of the MSA between CareOne and Navisite. Partners admits, in the statement of facts regarding Partners' claims, that by executing this sales order Partners " consented to the standard terms and conditions in the Navisite/CareOne Master Services Agreement . . . as they pertained to Partners . . . as the 'Customer.' "

         Navisite's work for Partners went fine. Navisite delivered the implemented the promised services. Partners paid all required up-front fees and was paying all the agreed-upon monthly fees.

         In contrast, Navisite's work for CareOne went poorly. The SOW between these parties provided that Navisite was to begin hosting and providing CareOne's computer services no later than January 1, 2013. That did not happen. Implementation of the promised services was repeatedly delayed. Who caused or was responsible for the delays is in dispute. Navisite blames CareOne and vice versa.

         On January 31, 2013--one month after the due date--Navisite sent an email asking CareOne to accept four of the promised systems. CareOne responded immediately, stating it " cannot accept this environment in its current state" because the computer systems were purportedly incomplete, had not been fully tested, and could not be used by CareOne. As a result CareOne refused to pay Navisite's first monthly invoice for January 2013.

         Navisite never sent CareOne any other notice stating that any part of the project was complete and ready for acceptance by CareOne. In April, June, and August 2013 Navisite made available test versions of many but not all of the services it had contracted to provide. CareOne informed Navisite that it had discovered material problems with all of them. CareOne never accepted any of those services and never used them for any purpose other than acceptance testing.

         After CareOne refused to pay the January 2013 invoice rejected the first four services, the parties had further discussions about what it would take for Navisite to finish implementing the project. CareOne and Navisite negotiated the only amendment to their contract, which they executed on February 28, 2013. The amendment was called Amendment Number One to the MSA.

         The Amendment provided as follows. CareOne agreed to pay Navisite's first monthly invoice, for the month of January 2013, by March 31, 2013. In turn, Navisite agreed that CareOne would receive a credit of twice that amount that would be applied against CareOne's monthly invoices in months 34, 35, and 36 of the MSA's term. Navisite also agreed to deliver an Active Directory Synchronization solution to CareOne by March 3, 2013. The Amendment stated that all terms and conditions of the MSA remained in effect except as otherwise provided in the Amendment.

         CareOne paid Navisite's monthly invoice for January 2013 as agreed in Amendment Number One; that payment was in the amount of $365, 169.30. CareOne also paid Navisite's invoices for February, March, and April 2013; the payments for those three invoices totaled just over $2 million, [1] which means that CareOne paid some $2.4 million to Navisite for these four monthly invoices. Thus, including the roughly $580, 000 in upfront payments made when the contract was first executed, CareOne has paid Navisite almost $3 million.

         Navisite submitted invoices for later months, but CareOne did not pay them. Navisite was aware that CareOne refused to pay and was disputing the invoices issued after April 2013 because CareOne had still not received or accepted the services that CareOne was billing for.[2]

         In November 2013 CareOne informed Navisite that it intended to terminate their Agreement for non-performance and sought to negotiate an orderly transition. Navisite responded five days later by demanding $2.2 million as payment for its monthly invoices for April through September 2013. Navisite said that if it did not receive payment of that amount within five days it would terminate all services it was providing to Partners.

         After Partners successfully migrated its services from Navisite to another provider, Navisite finally terminated the contract and stopped providing any services to CareOne or Partners on January 24, 2014.

         1.2. Relevant Contract Terms

         The Court must construe the parties' written contracts. Neither side appears to claim that any of the relevant contract documents is ambiguous. " If a contract . . . is unambiguous, its interpretation is a question of law that is appropriate for a judge to decide on summary judgment." Seaco Ins. Co. v. Barbosa, 435 Mass. 772, 779, 761 N.E.2d 946 (2002). " Whether a contract is ambiguous is also a question of law." Eigerman v. Putnam Investments, Inc., 450 Mass. 281, 287, 877 N.E.2d 1258 (2007). The Court concludes that the contract documents are unambiguous.

         1.2.1. The Original Contract Documents

         The parties agreed to allocate the risk of non-performance by Navisite in several ways that are relevant to the pending claims and counterclaims. This allocation of risk is reflected in terms of the MSA that was executed by CareOne and Navisite and accepted by Partners when it executed its sales order.

         Navisite agreed to bear much of the risk that it may not be able to deliver systems acceptable to CareOne, by agreeing to accept most of its compensation in the form of monthly recurring payments that would not be due for any service until it was accepted. The contract provides (in MSA § § 3.1 and 3.3) that Navisite was not entitled to invoice, and CareOne had no obligation to pay, monthly recurring fees for any service provided by Navisite until after CareOne had accepted that particular service. Navisite was required to send CareOne a " Completion Notice" as to each service once it had been fully implemented and was ready for use by CareOne. CareOne would then have ten days to test the service to determine whether it conformed to the agreed-upon specifications. If CareOne notified Navisite that the service did not conform to the specifications, then Navisite would have to use commercially reasonable efforts to fix the problem and submit a new Completion Notice when the service was ready for use. CareOne only had to begin paying the monthly charge for a service if it accepted the service after having received a Completion Notice, or if was deemed to have done so because it did not respond to a Completion Notice within ten days or used the service for purposes other than acceptance testing after receiving a Completion Notice.

         CareOne and Partners, in turn, agreed to bear most of the remaining risk that Navisite might breach its contractual obligations. The MSA placed clear limits on CareOne's and Partners' remedies and Navisite's liability for any breach of contract.

         The contract limits the remedies available to CareOne and Partners for any breach of contract by Navisite. As relevant here, § 6.4 of the MSA provides that if Navisite were to breach the contract then CareOne's or Partners' " sole and exclusive remedy, and Navisite's sole and exclusive liability, " would be as follows: (1) CareOne or Partners could give Navisite notice of the breach, which would trigger a contractual obligation by Navisite to work diligently to cure the breach at its expense; (2) CareOne or Partners could obtain a credit against monthly recurring fees for any services affected by the breach of contract; or (3) CareOne or Partners could terminate the contract for any uncured material breach, which would cut off any further obligations by CareOne and Partners to make any payments or doing anything else under the contract.[3] The right to terminate the contract for an uncured material breach by the other side is spelled out in MSA § 7.4, which provides that a party could only terminate for an uncured material breach after giving the other side written notice of the claimed breach and at least thirty days to cure the breach.

         The contract further limits Navisite's potential liabilities in several ways. Section 6.3 bars any claim that Navisite breached any kind of implied warranty, by specifying that Navisite did not make and expressly disclaimed any implied warranty of any kind. And § 9.1 provides that neither Navisite, CareOne, nor Partners shall be liable " for any indirect, consequential incidental, special or punitive damages--including, without limitation, loss of use, interruption of business, loss of data or loss of profits--arising out of, or in any way connected with" the parties' contract.

         In addition, the parties agreed to an allocation of the risk that CareOne or Partners might commit a material breach of the contract. Section 7.4 specifies that the failure by CareOne or Partners to pay amounts owed when due would be a material breach, and that Navisite could terminate the contract if CareOne or Partners failed to make payment after being asked or failed to cure any other material breach. This section also contains an acceleration clause providing that if Navisite were to terminate a schedule or the whole contract because of an uncured material breach by CareOne or Partners, then the Customer (CareOne or Partners) would have to pay all monthly fees that would have been due through the end of the contract term. The same right to accelerated payment of all monies owed under the contract would also apply if CareOne or Partners terminated the contract in a manner not expressly permitted (e.g., if it terminated for a non-material breach by Navisite or terminated without giving Navisite thirty days to cure any material breach). Navisite has the right (per MSA § 3.2) to be reimbursed for any fees and costs it incurs to collect amounts owed to it under the contrary.

         The parties also agreed in MSA 10.14 that neither side would waive any right under the contract by failing to enforce any provision of it, and that contractual waivers would only be effective if made in writing.

         1.2.2. ...

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