good morning ladies and gentlemen before we start this morning i simply want to announce for the record that we are also here with judge ilana grosvenor who is appearing remotely you will see her on the little monitor on the stand and judge sykes and i can see her from where we are so just take a minute sometimes the transmissions aren't quite as quick as we would like you ok she has a question to ask so we will now proceed to the first case for this morning which is pain center against origen health care first they have to show that the contract or the transactions that issue involved the sale of woods in order to do their story have to show that the software licenses at issue were not customized to meet point of specific that they need to show that the software licenses under the relevant law were not customized to meet the specific needs of the plaintiffs and in this case they relied entirely upon reference to a footnote citation from joy decker a sales representative who reason i ask a question about predominant thrust is if customisation is one factor in ascertaining predominant threats that's one thing if is your you seem to be saying it's a it's a first step that needs to be passed i don't see a lot of evidence in this record but maybe you can point me to sound ok of customisations seems like it's a off the shelf management tool that can be used by any medical practice ok and with respect to the predominant thrust pain center argued that believe both parties conceded the it came into play if there was a mix contract involved but with respect to the custom plaintiffs presented testimony that the software license was specifically practice manager was designed to meet the point of specific billing needs and there was reference to that testimony so you think mixed contract isn't enough i mean i could imagine  contract that has standard software plus services i can imagine next contract that has customized software plus services aren't they either way and next contract i would agree if the plaintiffs clearly argued that there were deficient services and there were suing on behalf of though you know based on that but simon didn't even address it in this court's precedent is that when you fail to move on that grounds in your opening brief that argument is same represented they cited to say that emerge was more customizable then practice manager so it was clear that it was customizable in addition we show that the services did predominate although we argued that we didn't have the burden of persuasion on that issue and so it was unnecessary but we argue that the software licenses could not be so even sold without the support services that were ongoing for the duration of the nine year period these parties were in contract together as well as plaintiff started the six representatives was that sime it was to provide services to make sure that the claims well after sound that it will simon's responsibility actually to make that final transmission to the insurance company right so i would soon that would have been one of your primary points right can you talk to me a little bit about this client center and the evidence that would show how pain centers employees who are trained for it how it actually revealed or didn't reveal problems sure the testimony in this case showed that there were deficiencies in the clients are such that there may be claims that show up on the clients and they may be shot claims that weren't shown on the client center and that's the first week of training that you got on the the first software package the project manager software were the pain center people trained to use client center were told about it or in any way know the pain center believe the way that the training worked there was about a three or four day training period on the very last day i believe their representative amy here in and testified that claims were submitted and that there were no errors and so one of the key points in this case was that there were errors there were uncorrected in the client's inner but she testified she didn't train on it because she didn't see any errors in so plaintiff's expert articulated that it's an impossibility to train on the clients and on those circumstances because the insurance carriers don't even respond for certain number of days after that that training would have ended and so one of the key functionalities the plaintiff should have been trained on they were not which is the basis for one of the contractual theories that we've articulated and thomas who is problem is that me i guess if if never told about client center and never trained on it then i can see that you might have an argument that there's no reason you would have known to dig into it but you did have an employee as harmon who eventually figures out how to use it right she said that she didn't use it there were points where she said she did use it but beyond that point in going back to the u c see the claims musician is that even if the u c c were to apply that the claims that  pli there's no basis in law to suggest that that proves that those claims should be time are but there's only one purchase well to purchase and i want one per product and if you're thinking of that is good so it's not like you kept repurchasing the product i can certainly see the services are rendered over time but that's not the u c c theory i mean you bought you bought project manager in two thousand and three bought the emerging two thousand and six and those are the only two purchases right those were the only two purchases but it's also of course at least let's assume goods even if we assume that their goods plaintiffs all sorts  these were software licenses which meant that they were constantly updated and modified they were dynamic in nature so the software license that you may have purchased in two thousand and three was constantly updated and modified in such a way it was not the same existing package throughout the relevant time period do you we have evidence in the record that shows modifications to the license i believe i don't believe that there was a contest on that point but i'd i would have to think think on that for a second to be honest which now are you saying that there was a new software that deferred in some material respect during his four years see if we assume that a four year software and training the course the problem were any place as two thousand and three for practice not cure and then two thousand and six for you know emerge i guess r g e yes that great emerge and that's my that's my it's ok so so the way the software license the purpose of the license was to allow the claims to be submitted in a zip file to sign it in some sign may have had a continuing on going duty to take those claims that were in the zip file submitted to the insurance carrier plaintiffs articulated that after receiving these claims there's no argument they didn't receive the claims plaintiffs arguments that the claims were not being submitted properly to the insurance carriers in so throughout the relevant time period they had claims that they were in receipt of that they continue continuously fail to submit to the insurance carriers so we have basically two theories your theory is that you get them to sign maverick but then somehow they get that they don't go on whereas eyes understand their theory to be that they get to sign it simon transmits to the insurance company but the insurance company won't process it because you know there's a mistake in coding or there's a mistake in the birthday or there was some show that that there were all the claims were never submitted and he also showed that of the claims that were submitted there were claims that were not corrected a process and that saddam it based on all the parties uncontested representations fail to notify plaintiffs of those in so plaintiffs articulated there is for breach of those contractual services throughout the relevant time period and one lesson was i'm necessary that they did notified by putting in the client center and your theories that that's not enough notification i just want to make sure i know what people are arguing yes and that there is flawed as well because the client that the claims that were supposed to been on the in the clients in and first of all they never produced that information in the summer judge so we have no evidence that this was ever produced as pure speculation that in every system second of all their own representatives who would have undoubtedly had access to this information plus more on the backend apparently they weren't aware of information that that that plane was going to utilize because they actively misrepresented it misrepresented the claims were properly submitted which is why plaintiffs also articulate claims for fraudulent misrepresent pace taishan unfortunately concealment because they actively misrepresent misrepresented the status of the claims where they were and whether they were properly process well we also have to act to alexander's testimony in the that the problems with this claims billing system are more readily apparent from the very beginning immediately after the initial software licensing agreement was entered into and two thousand and three and then when the merge licensing agreement was executed in two thousand and six and so your client is admitting as the thirty six representative of the plaintiff that he was aware of the problems with this system and it was on at the very least constructive notice of a contract breach that these systems weren't living up to their billing of a contract breach and a potential fraudulent ind t and the fact that you know he didn't perhaps know the full extent of it or the reasons for it doesn't have any effect on the claim accrual determination if he was aware that they weren't living up to their billing the claim accru so you need that ten year statute of limitations to cover and here while i would first argue that if it was true that he was just simply trying to figure out the extent of damage claims would accrue at that point however the testimony the question that he was axed was when he experience some of these issues he testified in the beginning and when he said when he said in the beginning he was testifying as to transactions that were not  simply needed to be rescinded that does not provide notice that he was harmed by any losses number one number two he also didn't testify on it that's not a statute of limitations principle you don't have to know the full extent of the harm you just have to know that you've got a claim for breach of contract or a claim for fraud that the product and services are not living up to their billing but and that you know the defendant misrepresented how well they would perform and with his admission that he was aware that this software and companion services weren't performing seems to me to trigger the statute of limitations and then your fallback argument is that the ten year statute applies and that gets us back into the predominant thrust test but up first argument that there's no nothing in the record that shows that he was paid and that he actually discussed this with decker i guess she's known as king at that time who admitted there were problems and encouraged kalu is that there needs to be knowledge of the injury before the court in the interim before the court was not simply having resubmit a claim that may have not been received the day of when you question whether or not it was received the issue is whether or not the claims were lost in that there were losses and so there wasn't a single claim by a single insurer for single amount that he was aware of that was lost as a result of having to simply resubmit the claim he had to resubmit the claim so in other words he knew that he transmitted the claims to simon and there were times when his staff questioned whether or not claims received and if they said no they re sent but there's also abundant testimony in the record that shows that none of his billing staff mellencamp nor of any losses that could be attributed to sun there was testimony from his former medical providers that said that he was not aware and at minimum this creates a fact question as to what his level of knowledge was but we would argue that based on all of the record evidence there's only really one reason why inferences that could be drawn which is they had no knowledge whatsoever that simon was losing claims they knew they had to submit claims occasionally and this circuit is also saying that injury does not start claims of cruel so even if in the beginning at some unknown date in time in two thousand and three he came to question whether or not there was a claimed loss that would not stop start the claim to cool for any point continuing to say that we've processed your process your process your claims correctly and that we would notify you if your claims apart permanently permanently lost or needed to be corrected when this did not occur or that he had knowledge or anybody in his practice had knowledge that the claims losses caused him to suffer injury specially when there was a roughly thirty from a thirty day to one year window when claims could be presented to insurance carriers that should have been granted on the basis that there was no contest factually that they feel thousand claims to the insurance there was no contest that they filled the truck trying on chief functionalities that the software was materially similar that there were promises that these claims and i mean that the software services and the software licenses would assure against claims losses and losses and that plaintiffs were damaged in amou fifteen million dollars as evidence by mark anderson's expert report in addition to other losses so for that reason we would we would argue not a claim to talk about right thank you mr cra this seems to me under a predominant frost idea a contract that i'll just say at the very least has a very significant services component to it you have assignment employee testifying that a client even with this kind of contract i know that the two kinds but even with this kind can't transmit the claims directly to the insurance provider and there's even a charge in the contract a monthly charge for the services which after about three years exceeds the initial price for the license so it seems that a summary judgement stage there are some significant facts in the record that would point toward services and indeed not services for the payment of money but the general services that yield the ten we believe the district court properly found the predominant thrust was the provision of software why do you say that when the software isn't doing anything until the claim is submitted and your submitting the claim well that the software is doing a lot before that claim that's the bet it but just for the sake of doing it no if the purpose of the software is to facilitate payment and payment doesn't happen until you submit the claim the insurance company doesn't know somebody went to pain center that's correct and at that final step there is the transmission to the insurance company however as part of the overall use of the software there is data entry at the client leveled i pain center or pain whatever it's being sent in i don't think we have any disagreement about what happened so i think it's a question of what's critical right and i think again there's a why did you have clients just submit who didn't have to full service type of contract the technical reasons i'm not sure i can speak to i mean i think there was some gateway between side of the insurance companies that the clients were using a service it is part part of what was purchased as a service however coming back to the predominant purpose but again the that they use you know the use of the software is really except for the transmission step controlled by the client it's contained at the client's office writes the client does that in writing which stands to reason given what we're talking about here it's a billing system but the contract basically says you use our soft we'll license you to use our software and will submit your claims for you so it's plainly a mixed contract for a good plus services and the question is what's the predominant thrust is this a billing system morse the billing services are the predominant purpose of the contract or is it really mostly just the sale of the software or the licensing of the software and the district court didn't even address this the district court made a mistake and applied the six year statute or said that the only default if the u c c doesn't apply would be the six year statute of limitations and didn't address the predominant thrust test at all because he thought that under either of the four years u c c statute of limitations or the six year the claims would be time barred but if it's the ten year statute of limitations which applies to written contracts sixty statute plainly does not apply here as a matter of law then then these claims are timely even assuming the earliest possible accrual date two thousand and three right after the contract was signed when dr alexander was aware that the system wasn't performing and in two thousand and six after the merge program was licensed and failed to perform as promised so we do need to your identify what the predominant thrust of the contract is here is and the district court did not engage in that analysis and can i just put one sort of footnote to that and also we need i think some sense of the extent to which that decision is driven by facts which might be disputed or on the other side the extent to that that that decision is simply a question of law that the district court was going to decide or that we could decide this it seems to me there may be a lot of facts going into what's the predominant c limitation period applies why would plaintiffs not be entitled to damages that were sustained during the last four years of the use of the software i mean  modification and then judge drovers certainly so the factual record that was developed in the district court does show that the predominant purpose of this contract was for the provision of this standardized software rather than services like why do you say that i say that because there were there were two options for clients there were clients who essentially bought billing services from simon had and that means they simply gave them information to sign med and simon w responsible for getting that information in the appropriate form making sure the forms are all filled out correctly following up with the insurance companies etc here the only service simon provided to pain center was really this final automated step really done by the software where the claims are transmitted carry out a lot more use and you could look at it i could certainly i'll give you that one is a services contract in the other is a software contract that you could also look at is one of those inexpensive services contract and the other has much more of a do it yourself element to it and yet it's still a services contract because sign med is taking the only step that they care about step that gets them their money you know that's the point of keeping these billing systems and going to the insurance companies sure i would answered two reasons it's still a contract for the provision of software predominately again  the transmission is really done by the software it's not you know a it's not a hand process it's not a customized process where the employees assign matter really actively engaged in that how does it work and can you explain to me in more detail so they send i don't know how they transmitted let's assume by some sort is e mail or something i don't know whether it's an upload to a cloud but they transmit the file with claims and how does it get received and how does what's the process of of unzipping it and figuring out which insurance companies to send things to i believe what we indicated in the record was that they their sime ed has some kind of automated notification and then it runs through this process to determine you know the software runs that process to determine if there are any errors you know incorrect in anything that obviously prevent the transmission to the client if there isn't the the pain center or the other other systems clients are responsible for correcting that if not it's then transmitted to the to the insurance companies through some security channel that sign it has  a problem perhaps but but again in terms of checking the forms and the transmission i mean it's you know i mean it's it's a computerized process going over the internet through some connection the insurance company and i before reaching insurers i'm trying to understand how this software worked and also to determine i'm trying to determine whether the monthly fee was because simon a processing of claim you see my problem i understand your honor and the monthly fee covered a number of things including telephone support so for example when there was called the helpdesk it did cover the transmission of these files but that is about two hundred fifty dollars a month believe that's correct yes and that transmission did occur through the practice manager system albeit on the server hosted by simon i'd rather that on the client computer at the pain center i mean you can see that that would be a great service to a small medical practice like pain center not to have to deal with some large number of insurance companies but to just send one consolidated syal to a service provider who can then fan them out as need be it is but the ultimate responsibility for following up with the insurance providers and for correcting any errors in the insurance claims remains with the client in this case pain center but that was one of the issues here because one of the disputes that i picked up trying to work my way through this was a dispute about the number one sign mids duty to notify a client that there was a problem in transmission what methodology sime it uses to notify whether everybody was on the same page about that whether you just dump it into this client center you know limbo or whether web that there's actually some real notification it seems that the record strikes me as very messy  harman who was the bill and specials for i think two thousand through two thousand and eleven testified that she used the client center extensively and that she understood it was the pain senator sponsibility to correct errors to follow up with insurance companies as she put it you know we were responsible for working those clients but her testimony is vague about when she came to achieve this competence whether it's before or after two thousand and seven need seems to they were sort of left on their own to to figure this out and she clearly didn't understand it fully because the number of claims that sign med didn't follow through on is tremendous this company eventually goes to a different provider and their financial picture h transformed i believe miss harmon did understand really throughout the functionality miss pearce who came to pain center in two thousand and twelve testified she was not initially aware of the client center it functionality but when she called sign bad and they explained her work she indicated that there was approximately an eighteen month back log of claims apparently from the time that ms harmon left the time as pierce began working at pain medicine rehabilitation center ms harmon testifies so she can't recall if she's making these changes to bounced submissions before to think it's inception so i'm not sure that you can pull it all the way back to three she she may not recall but i see it really the client center is kind of the heart of the error correction process and when it's not used as in two thousand and twelve there is an enormous backlog of claims and disharmony never indicated as ms pierce did that there that this large backlog had developed and now the client center too is what somebody referred to as technology lasagna i don't know that that refers specifically to the clients and i think it's talking about the various layers of so this would and i as i recall that expression was used by jennifer burke who was a software analyst and troubleshooter worked at the help us for a while as well and i think she was referring to just the various layers that are involved in a program like this and i think you know again she's looking at it from the programming and analysis standpoint rather than the the user standpoint so i think that just serves to establish that what pain center and other small medical practices are buying from your company is i t services not just a box with software in  it and that the services are what their bargaining for the software is the platform for the billing services that you're providing and that makes sense in this context a small medical practice wouldn't want to maintain a large  to do this they responsible for the billing inputs and other words getting the medical coding right for the insurance company and then fixing it if it's wrong but you're responsible for everything else right i think that a i'm sorry what side is responsible for was maintaining and upgraded the software so in the same way that troubleshooting i t glitches right so in the same way when you buy training exactly microsoft you know windows or microsoft office you know there are periodic updates there's a helpdesk you know you can you can ask for that service as well and you know it's constant there's a constant back and updating of that software and they're buying much more than that from you this is not like analogous a consumer purchase of windows it's just not despite the periodic updates and potential to buy a service contract they're buying your t expertise to get the bill submitted to the insurance companies so they don't have to do it directly but the i t expertise is really the software it that's what provides the conduit to the insurance companies and the ip expertise is exercised through maintain and supported that software but it's not it's not the same level of service you would have if you replaced your billing department w billing inputs and outputs and collections right i mean that's the full service that's client service package this is this is a systems client package but they're still buying services from you let's assume that we can conclude that unlike the district court this is a mixed contract for goods and services and that services predominate you're no longer maintaining that the six year statute of limitations lies  not time barred because if the earliest possible accrual date from your standpoint would be soon after the initial licensing agreement was entered into in two thousand and three and soon after the emerge licensing agreement was entered into in two thousand and six if the ten year statute applies then the lawsuit filed january two thousand and thirteen would be timely under the ten years that we have a number of tort claims fraud fraudulent inducements purchase interference with contract and those are subject to the fraud claim six year statutes and then the other two are claims to your statutes correct so the viability or timeliness of those depends  on the continuing wrong doctrine i think the continuing wrong doctrine or the or the discovery rule we think it's clear that there is that does not fall into the continuing wrong doctrine i mean there the alleged problem here is you know inadequate software and misrepresentations about the software but the doctor's o testimony reveals that he knew in two thousand and three that even though there were problems with practice manager you know he was very vocal about those with simon for example that the tortious interference claim he he contends he called so i bet in two thousand five to complain about his inability to purchase an m r i because he wasn't getting his claims paid and said i need to get my claims paid he even said that you know after the first full quarter use of the software he you know the the accounts receivable had dropped so much that or the big counts actually paid had dropped so much that he was not able to get a bank loan and he said all the sudden i'm losing money like crazy so he clearly knew despite whatever he contend have represented to him that are two guilty parties potentially right the insurance companies and simon and so has he supposed to sort out when they're both pointing fingers at each other well i think because he actually investigated with both you know if they have not received submissions then i think it's pretty clear where the the problem is if that was the problem and i see my time is up your honor but we would ask that it's all right  excuse me i think maybe judge over as well or question for you go the court used the monthly costs for services in assessing whether the goods or practice manager by a rather large margin which a cure should the court have use the monthly service charge or the total service cost over the life of the contract we believe the district or properly use the monthly service charge showing that there was a relatively modest provision of services in the course of any money as compared with the license of the actual software product and seems like a different thing so it you'd have to amortize the cost of the license then over the full life expected life of the license which would pull that number way down it would be no basis to bring a lawsuit for the specific elements necessary for tort claim and so none of the tort claims accrue based on the evidence presented and then lastly we like to say that dr alexander did testify that he had to re submit claims but there was no knowledge that he had lost money that could be attributed to sign made in his disk or pointed out there were multiple players in this faction scenario and there was just no advisement and before we move on to the second case i understand we need to adjust the cameras a little bit so we will do that and then move on no no markets thank you