Academy Orthotic & Prosthetic Associates IPA, Inc. v. Fitango Health, Inc.

Background

Acadacare entered into a May 2017 contract with Fitango to develop and license a digital medical-management platform. The contract required Fitango to develop and test claims-processing software and train Acadacare personnel. It required Acadacare to pay $30,000 during development, a $4,000 monthly licensing fee, and an additional fee for claims exceeding 10,000. The contract stated that Fitango retained ownership of the platform and related intellectual-property rights. It also described the agreement as lasting five years while allowing either party to end it with 90 days’ notice.

Acadacare believed the platform did not meet the contract’s specifications and experienced technical problems. It later contacted smartData about developing another platform and gave smartData login access to the Fitango platform, although the complaint alleged that smartData could not view the underlying code. Fitango sent cease-and-desist letters asserting that Plaintiffs were using or building on Fitango’s platform and infringing Fitango’s copyrights. Fitango also sent statements to VillageCare and GTT about Acadacare’s security assessment and copyright issues. Christina Vorvis allegedly told a McKesson Medical manager that Academy was “about to go under” and “defunct,” and urged McKesson Medical to work directly with Fitango.

Plaintiffs alleged that smartData paused its work, VillageCare did not proceed with a contract, GTT’s negotiations reached a standstill, and the McKesson Medical partnership did not go forward. Plaintiffs also alleged that Fitango issued invoices using a $1-per-claim rate rather than the contract’s stated pricing, threatened to terminate access to the platform, and received payments made under protest. Plaintiffs filed an amended complaint adding contract and implied-duty claims about the billing.

Legal standard

Defendants moved under Rule 12(b)(6), which asks whether a complaint states enough plausible facts to support a legal claim. On that motion, the court accepted the complaint’s factual allegations as true and drew reasonable inferences for Plaintiffs.

Defamation and interference claims

The court rejected the defamation and related tortious-interference claims based on Fitango’s statements that Plaintiffs infringed Fitango’s copyrights. Under New York law, statements made by a lawyer for a client about reasonably anticipated litigation may be privileged when made in good faith. The court concluded that the May 23, 2019 email exchange gave Defendants a reasonable basis to believe that Acadacare had hired smartData to develop a new platform using the Fitango platform as a building block. Plaintiffs’ response did not refute that understanding. The court therefore held that the infringement-related statements were privileged. The related tortious-interference claims also failed because Plaintiffs relied on the alleged defamatory character of those statements as the basis for improper conduct.

The court allowed the defamation claim concerning the security assessment to continue. The complaint quoted two statements from Fitango’s letters and described another similar statement allegedly made by a Fitango employee at Dov Biran’s direction. The court held that these allegations gave Defendants sufficient notice under the federal pleading rules. It also held that a jury could find that calling the assessment “misleading” questioned Plaintiffs’ honesty, professional conduct, or performance of their duties.

The court also allowed the defamation claim concerning Vorvis’s statements about Academy’s solvency to continue. A jury could find that saying Academy was “about to go under” and “defunct” amounted to a charge of insolvency or an absolute denial of the business’s existence.

For tortious interference, the court held that Plaintiffs adequately alleged injury regarding VillageCare and McKesson Medical. VillageCare identified the deficient security assessment as the reason it did not issue a contract. The allegations also supported an inference that Vorvis’s statements to McKesson Medical caused the stalled negotiations. Plaintiffs did not adequately connect the security-assessment statements to the standstill in GTT’s negotiations, which the complaint attributed to the copyright dispute and potential litigation. The interference claims concerning VillageCare and McKesson Medical could proceed; the claim concerning GTT could not.

Contract and implied-duty claims

The court rejected Plaintiffs’ first set of contract and implied-covenant claims, which were based on Fitango’s assertions that Plaintiffs infringed its copyrights. The court held that these claims were preempted by Section 301 of the Copyright Act because they depended on the same question—whether Fitango’s copyright existed and covered Plaintiffs’ conduct—as the copyright dispute itself. Calling the theories contract claims did not avoid preemption.

The court allowed Plaintiffs’ contract claims based on Fitango’s failure to provide the agreed software and services and on Fitango’s billing to continue. Plaintiffs identified specific contract provisions concerning the required platform functions and compensation. The court also noted that Plaintiffs paid the disputed invoices while reserving their rights and asserting that the amounts were not owed.

The court allowed the implied-covenant claim concerning Fitango’s invoices to continue. The May 2017 contract stated a five-year term and specified how invoices would be calculated. The court held that Plaintiffs plausibly alleged that Fitango’s higher invoices and threats to terminate access undermined the expected benefits of the agreement.

The court dismissed the implied-covenant claim alleging that Fitango interfered with Plaintiffs’ efforts to seek another software source. That claim depended on the scope of Fitango’s copyrights and whether Fitango had a good-faith basis for its cease-and-desist letters. Because the court had found that basis, the claim could not proceed.

Declaratory relief

The court allowed Plaintiffs’ request for a declaration about copyright infringement to proceed. Defendants argued that the claim was not ready for decision because smartData’s program had not been published. The court disagreed, finding that the parties’ dispute was sufficiently defined by Fitango’s repeated cease-and-desist letters, its view of mockups of smartData’s proposed platform, and its position that the proposed platform would infringe if published. The court also found that Plaintiffs faced hardship because business partners had stopped working with or investing in them while the copyright dispute remained unresolved.

Disposition

In Academy Orthotic & Prosthetic Associates IPA, Inc. v. Fitango Health, Inc., Judge J. Paul Oetken granted in part and denied in part Defendants’ motion to dismiss the amended complaint at Docket Number 22. The court rejected the infringement-related defamation and interference theories, the first contract and implied-covenant claims, the interference claim concerning GTT, and the implied-covenant claim concerning efforts to find another platform. It allowed the other identified defamation, interference, contract, billing, and declaratory-relief claims to continue. The court denied the motions at Docket Numbers 17 and 30 as moot, directed Defendants to answer the surviving claims within 14 days, and closed the listed motions.