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Kainos Evolve, Inc. v. InTouch Technologies, Inc.

Court of Chancery of Delaware

December 31, 2019

KAINOS EVOLVE, INC, Plaintiff and Counterclaim Defendant,
v.
INTOUCH TECHNOLOGIES, INC., Defendant and Counterclaim Plaintiff.

          ORDER DENYING COUNTERCLAIM DEFENDANT'S MOTION TO DISMISS

         WHEREAS:[1]

         A. InTouch Technologies, Inc. is a provider of technology and related services that enable doctors and hospitals to provide telemedicine services to their patients using virtual care platforms with live audio, instant messages, email, and live video.

         B. Kainos Evolve Inc. provides digital services and cloud-based platforms in the healthcare industry.

         C. Starting in 2015 and early 2016, Kainos represented to InTouch that it had existing software that could serve as a platform for InTouch's clinical applications (the "Platform"). The Platform allegedly would allow InTouch and its customers to more easily reconfigure and adapt InTouch's telemedicine technology to meet particular requirements of hospitals and their clinical workflows without additional programming.

         D. On March 1, 2016, the parties entered into a License and Partner Agreement (the "Agreement") under which Kainos licensed its Platform to InTouch for a five-year term for $3.2 million.

         E. On November 30, 2017, InTouch provided written notice to Kainos of its intent to terminate the Agreement. InTouch alleges that Kainos materially breached the Agreement because the Platform and associated tools (i) did not operate substantially in accordance with the description of the Platform and (ii) were not timely delivered. InTouch had paid Kainos $693, 750 under the Agreement.

         F. On October 2, 2018, Kainos filed its initial complaint, which it amended on May 6, 2019. Kainos seeks to recover approximately $2.5 million, reflecting the remaining balance due under the Agreement.

         G. On May 22, 2019, InTouch filed its Third Amended Answer and Counterclaims, which asserts three claims against Kainos (the "Counterclaim"). Count I asserts that Kainos breached the Agreement by failing to deliver, maintain and/or support the clinical software applications that were contemplated to run on the Platform. Count II asserts that Kainos fraudulently induced InTouch to enter into the Agreement. Count III seeks reformation of the Agreement.

         H. On May 19, 2019, Kainos moved to dismiss Count I in part and Count II in its entirety under Court of Chancery Rules 12(b)(6) and 9(b).

         NOW THEREFORE, the court having considered the parties' submissions, IT IS HEREBY ORDERED, this 31st day of December, 2019, as follows:

         1. The standards governing a motion to dismiss under Court of Chancery Rule 12(b)(6) for failure to state a claim for relief are well-settled:

(i) all well-pleaded factual allegations are accepted as true; (ii) even vague allegations are "well-pleaded" if they give the opposing party notice of the claim; (iii) the Court must draw all reasonable inferences in favor of the non-moving party; and ([iv]) dismissal is inappropriate unless the "plaintiff would not be entitled to recover under any reasonably conceivable set of circumstances susceptible of proof."[2]

         2. Liability Limitations. Kainos contends that any claims for damages in Counts I and II that exceed the liability limitations set forth in Sections 17.2, 17.3, 19.1, and/or 19.2 of the Agreement should be dismissed. The court DENIES this aspect of Kainos' motion to dismiss.

         3. Sections 17.2 and 17.3 purport to limit InTouch's remedies if Kainos terminates the Agreement or the "Platform Service" pursuant to those provisions. Kainos alleges, however, that InTouch "repudiated" the Agreement and caused it to terminate.[3] At a minimum, there is a factual dispute over who terminated the Agreement that precludes applying any remedy limitations in Sections 17.2 and 17.3 at this stage of the case.

         4. Section 19.1 provides, in relevant part, that "[t]o the maximum extent permitted by law, [each party's] aggregate liability arising out of or related to this Agreement [shall not] exceed the amounts actually paid."[4] Section 19.2 provides, in relevant part, that "[t]o the maximum extent permitted by law, [neither party shall] be liable to anyone for any indirect, punitive, special, exemplary, incidental, consequential or other damages of any type or kind."[5]

         5. The public policy against fraud may prevent application of the liability limitations in Sections 19.1 and 19.2 with respect to Count II.[6] More generally, in recognition of the fact that it is preferable for the court to have a factual record before ruling out available remedies, particularly when issues of public policy may be implicated, Delaware courts have held that "the enforceability of liability limitations should not be decided on the pleadings or on summary judgment."[7] The court sees no reason to depart here from this approach of declining to decide the enforceability of liability limitation provisions on the pleadings.[8]

         6. Count II. In Count II, InTouch alleges that Kainos made fraudulent representations that fall into two categories: (i) extra-contractual representations Kainos made before entering into the Agreement and (ii) representations Kainos made in Section 17.2 of the Agreement itself.[9] Apart from seeking relief under the liability limitations in the Agreement, Kainos advances four other arguments in support of its motion to dismiss Count II, two of which apply to the first category of alleged misrepresentations, the third applies to the second category, and the fourth challenges InTouch's request for rescission. For the reasons discussed below, the court DENIES each of these aspects of Kainos' motion to dismiss.

         7. First, Kainos asserts that InTouch's fraud claim concerning Section 17.2 of the Agreement should be dismissed on the theory that it is duplicative of InTouch's claim for breach of Section 17.2 in Count I. Kainos does not challenge InTouch's extra-contractual statements as duplicative-it only challenges as duplicative statements made in Section 17.2 of the Agreement.[10]

         8. Kainos contends that a fraud claim alleged contemporaneously with a breach of contract claim may survive only if the fraud claim is based on conduct that is separate and distinct from the conduct constituting the breach.[11] Even if one assumes for the sake of argument that InTouch's contract claim for breach of Section 17.2 and its fraud claim based on statements made in Section 17.2 involved the same conduct, it is quite possible that the measure of damages for the fraud claim would be different given the public policy against fraud.[12] For this reason alone, it would be premature to dismiss the fraud claim insofar as it is based on Section 17.2.

         9. Second, Kainos argues that the court should dismiss the "allegations of fraud in Count II for alleged misrepresentations made prior to the parties entering the Agreement . . . because Sections 17.4 and 32 of the Agreement . . . bar any reliance on oral and extra-contractual representations made prior to the Agreement."[13] The court disagrees.

         10. In considering the precedents on which Kainos primarily relies, this court has summarized the ...


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