Prairie River Home Care, Inc. v. Procura, LLC

Background

Prairie River Home Care, Inc., a Medicare-certified home health care provider, purchased Procura’s agency-management software under a Master Software License and Support Agreement dated September 30, 2015. Prairie River alleged that Procura made false or misleading statements during demonstrations and sales meetings about the software’s billing, documentation, financial-management, and other capabilities. Prairie River also alleged that Procura represented that a January or February 2016 launch was feasible, but the software did not go live until June 1, 2016.

After implementation, Prairie River alleged that the software did not function as described, including failures affecting billing and documentation. Prairie River alleged that Procura did not adequately correct the problems, causing more than $800,000 in out-of-pocket expenses and other losses. Prairie River abandoned the software in March 2017.

Procura moved under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint states a legally sufficient claim. The court treated the complaint’s factual allegations as true for purposes of the motion but required enough facts to make the claims plausible.

Fraudulent Inducement

The court denied Procura’s motion as to fraudulent inducement. Under Illinois law, fraudulent inducement requires a false material statement, the defendant’s knowledge or belief that it was false, an intent to induce action, reasonable reliance, and resulting damages.

The court held that Prairie River pleaded fraud with the particularity required by Federal Rule of Civil Procedure 9(b). The complaint identified alleged statements about the software’s capabilities, Procura’s other customers, the availability of Salo’s tools, the software’s ability to serve Prairie River’s business, and the expected launch date. The court concluded that the allegations supplied sufficient detail about who made the statements, what was said, and when and how the statements were made.

The court also held that Prairie River could pursue both fraudulent inducement and breach of contract because the fraud claim concerned alleged statements that induced Prairie River to enter the agreement, rather than merely a failure to perform contractual promises. Although some allegations were inconsistent about whether Procura knew the software was deficient, the court held that the Federal Rules allow parties to plead alternative, inconsistent theories. At the pleading stage, the court further held that some alleged statements concerned existing facts—not merely future events or opinions—and were sufficient to support the claim.

Contract and Warranty Claims

The court concluded that the agreement was a sale of goods subject to Article 2 of the Uniform Commercial Code because Prairie River received a perpetual software license, the software was customized, and the agreement’s installation, training, and support services were incidental to the software sale.

The court denied the motion as to breach of contract. Prairie River alleged that it paid Procura for the software and support, that the software did not conform to the agreement, that Procura failed to provide adequate technical support, and that Prairie River suffered damages.

The court also denied the motion as to the express-warranty claim. The agreement’s on-premise warranty applied to Prairie River’s purchase and warranted that the software would function substantially in accordance with its documentation during a 90-day period beginning on the agreement’s effective date. Prairie River admittedly notified Procura of the problems after that period, but alleged that the 90-day notification requirement was unconscionable because the software was not installed until after the period had ended. The court held that Prairie River had stated a claim that the requirement was unconscionable, leaving that factual issue for a later stage.

The court granted the motion to dismiss to the extent Prairie River sought to assert a breach of the implied warranty of merchantability. The complaint and briefing referred only to an express warranty, and the agreement included an “as is” disclaimer. The claim was dismissed without prejudice.

Rescission and Consequential Damages

The court granted the motion as to rescission. Prairie River alleged that both parties mistakenly believed the software could substantially meet applicable regulatory requirements and Prairie River’s business needs. The court held that these allegations described the software’s performance or quality, not a mutual misunderstanding about a particular term of the agreement, and therefore did not state a rescission claim. The claim was dismissed without prejudice.

The court also granted the motion as to consequential, indirect, and incidental damages. The agreement disclaimed those damages. Prairie River argued that Procura’s alleged willful misconduct made the disclaimer unenforceable, but the court found no applicable Illinois authority supporting that argument. The court further held that Prairie River had not pleaded that the damages disclaimer itself was unconscionable. The consequential-damages claim was dismissed without prejudice.

Order

Judge Tunheim ordered that Procura’s motion to dismiss the amended complaint was GRANTED in part and DENIED in part. The fraudulent-inducement, breach-of-contract, and express-warranty claims survived the motion. Prairie River’s claims for breach of the implied warranty of merchantability, rescission, and consequential damages were each DISMISSED without prejudice.