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Molina Information Systems, LLC v. Unisys Corporation

United States District Court, D. Delaware

September 2, 2014

MOLINA INFORMATION SYSTEMS, LLC, Plaintiff,
v.
UNISYS CORPORATION, Defendant.

A. Thompson Bayliss, Esq., ABRAMS & BAYLISS LLP, Wilmington, DE; James N. Kramer, Esq. (argued), ORRICK, HERRINGTON & SUTCLIFFE LLP, San Francisco, CA; Justin Bagdady, Esq. (argued), ORRICK, HERRINGTON & SUTCLIFFE LLP, San Francisco, CA. Attorneys for Plaintiff Molina Information Systems, LLC.

Philip Trainer, Jr., Esq., ASHBY & GEDDES, Wilmington, DE; Stephen R. Neuwirth, Esq., (argued), QUINN EMANUEL URQUHART & SULLIVAN, LLP, New York, NY. Attorneys for Defendant Unisys Corporation.

MEMORANDUM OPINION

RICHARD G. ANDREWS, District Judge.

Before the Court is Defendant Unisys Corporation's Motion to Dismiss the Second Amended Complaint (D.I. 39) filed on October 30, 2013. The motion is fully briefed (D.I. 40, 41 & 42) and the Court had the benefit of oral argument on June 27, 2014. (D.I. 46). For the reasons that follow, the Court will grant the Defendant's motion to dismiss Count IL The remainder of the motion is denied.

I. BACKGROUND

This dispute between plaintiff Molina Information Systems, LLC ("Molina") and defendant Unisys Corporation arises out of an asset purchase agreement. Molina, a California corporation, "provides design, development, implementation, and business process outsourcing solutions to state governments for their Medicaid information systems." (D.I. 36 ¶¶ 16). Unisys is an information systems company that designs, builds, and manages information systems and is incorporated under the laws of Delaware. ( Id. ¶ 17). Unisys's Health Information Management ("HIM") division, the unit at the center of the case, develops complex Medicaid Management Information Systems ("MMIS") that allow state governments to manage their Medicaid programs. ( Id. ¶ 1).

Molina Healthcare, Inc.[1] entered into the Asset Purchase Agreement ("APA") with Unisys on January 18, 2010, which transferred Unisys's HIM division to Molina. ( Id. ¶¶ 2-4). Included in the HIM division were contracts with six states for MMIS services. (D.I. 40, pp. 3-4). The Idaho MMIS was one of the major contracts included in the deal, and Unisys represented that it would be ready for operation by June 1, 2010. (D.I. 36 ¶ 2). Molina alleges that prior to the June 1, 2010 "go-live" date, "key management personnel" at Unisys "knew or recklessly disregarded" that the Idaho MMIS would be unable to meet Idaho's implementation standards on time because the program was in complete disarray. ( Id. ¶¶ 3-4). Despite its knowledge of the issues with the Idaho MMIS, Unisys sent Molina updates representing that the Idaho MMIS would be ready for on-time delivery as planned and actively blocked Molina from obtaining information by instructing its employees to limit the flow of information to Molina. ( Id. ¶¶ 3-6).

Molina closed the transaction on April 30, 2010, in part based on Unisys's false representations that: no material adverse effect had occurred, Unisys was not in breach of any material agreement, and Unisys had not received any notice of material service or performance problems with any products or services being sold to Molina. ( Id. ¶ 7).

The Idaho MMIS commenced operations on schedule but did not function as intended. According to Molina, the malfunctions associated with the Idaho MMIS resulted in costly Medicaid enrollment delays and caused inaccurate communications to health care providers, which severely disrupted Idaho's Medicaid program in the process. ( Id. ¶ 9). Molina claims it incurred substantial costs in correcting the numerous urgent problems caused by the faulty Idaho MMIS and suffered severe reputational harm. ( Id. ¶ 11).

Molina asserts four counts against Unisys in its Second Amended Complaint ("SAC"): common law fraud, negligent misrepresentation, breach of contract, and an action seeking declaratory relief.[2] Unisys has moved to dismiss the Complaint in its entirety for failure to state a claim upon which relief can be granted. (D.I. 39). Each count will be addressed in order.

II. LEGAL ST AND ARD

When reviewing a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6), the Court must accept the Complaint's factual allegations as true. See Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555-56 (2007). Rule 8(a) requires "a short and plain statement of the claim showing that the pleader is entitled to relief." Id. at 555. The factual allegations do not have to be detailed, but they must provide more than labels, conclusions, or a "formulaic recitation" of the claim elements. Id. ("Factual allegations must be enough to raise a right to relief above the speculative level... on the assumption that all the allegations in the complaint are true (even if doubtful in fact)."). Moreover, there must be sufficient factual matter to state a facially plausible claim to relief. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). The facial plausibility standard is satisfied when the complaint's factual content "allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. ("Where a complaint pleads facts that are merely consistent with a defendant's liability, it stops short of the line between possibility and plausibility of entitlement to relief." (internal quotation marks omitted)).

III. DISCUSSION

A. Common Law Fraud (Count I)

To state a claim for common law fraud, Molina must plead facts supporting an inference that: "(1) the defendant falsely represented or omitted facts that the defendant had a duty to disclose; (2) the defendant knew or believed that the representation was false or made the representation with a reckless indifference to the truth; (3) the defendant intended to induce the plaintiff to act or refrain from acting; (4) the plaintiff acted in justifiable reliance on the representation; and (5) the plaintiff was injured by its reliance." See Abry Partners V, L.P. v. F & W Acquisition LLC, 891 A.2d 1032, 1050 (Del. Ch. 2006). Molina asserts two bases for its common law fraud claim against Unisys in the SAC. First, Molina alleges Unisys knowingly made false statements in the APA and the Officer's Certificate. (D.I. 36 ¶ 118). Second, Molina contends that Unisys provided knowingly false and misleading reports during the due diligence period prior to Closing. ( Id. ¶ 119). Unisys counters that Molina's fraud claim must be dismissed because the SAC fails to plausibly plead corporate ...


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