Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_13-cv-02160/USCOURTS-azd-2_13-cv-02160-0/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1441 Petition for Removal- Breach of Contract

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WO 

IN THE UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF ARIZONA 

SMMHC Inc., d/b/a Mountain Health & 

Wellness, 

Plaintiff, 

v. 

Aprima Medical Software, Inc., 

Defendant.

No. CV-13-02160-PHX-NVW

ORDER 

 Before the Court is Defendant Aprima Medical Software, Inc.’s Motion to Abate, 

or in the Alternative, Motion to Dismiss or Transfer (Doc. 9), the Response (Doc. 14), 

and the Reply (Doc. 15). The Motion also seeks to compel arbitration of Plaintiff’s 

claims. For the following reasons, the Motion (Doc. 9) will be denied, except that the 

parties will be required to submit their disputes in this action to arbitration in accordance 

with the terms of their agreement. 

I. FACTS 

In December 2010, Plaintiff SMMHC, Inc., d/b/a Mountain Health & Wellness 

entered into a Software License Agreement (“License Agreement”) with Aprima Medical 

Software, Inc., to license Aprima’s Patient Relationship Manager (“PRM”) software for 

Mountain Health’s behavioral healthcare services. Although the Patient Relationship 

Manager was primarily used by general medicine providers, the parties believed the 

program could also be useful for a behavioral health provider. The License Agreement 

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provided for installation, training, and maintenance of software that streamlined patient 

management by performing functions related to “charting, coding, billing and 

documentation.” (Doc. 9, Exh. A-1 at p. 1). The arbitration clause contained within the 

License Agreement provides, “Any controversy or claim arising out of or relating to the 

contract, or breach thereof, shall be finally settled by binding arbitration administered by 

the American Arbitration Administration . . . .” 

 On June 17, 2011, the parties entered into a new agreement, the Final 

Development Agreement (“Development Agreement”), wherein Aprima contracted to 

work with Mountain Health to develop enhancements to its “PRM2011” software product 

that would serve the needs of behavioral health practices. (Doc. 9, Exh. A-3 at p. 1). 

Mountain Health wanted the software enhancements to generate the specific records, 

reports, coding, billing, and receivables required for Mountain Heath to be reimbursed by 

its third party payers. Mountain Health continued licensing the Patient Relationship 

Manager software under the License Agreement after the Development Agreement was 

executed. 

 The Development Agreement provided that Mountain Health would pay $250,000 

during the development period and an additional $50,000 upon acceptance of the product. 

(Doc. 9, Exh. A-3 at p. 1). Aprima would maintain ownership of the final work product 

but, for a period of five years from the date of acceptance, Aprima would pay Mountain 

Health “a 25% commission on any net software license fees generated from future 

behavioral health customers sold and installed in Arizona and 12.5% commission for net 

software licenses fees generated from future behavioral health customers elsewhere in the 

United States.” (Doc. 9, Exh. A-3 at p. 2). The Development Agreement does not 

contain an arbitration clause and does not mention, refer to, or in any way incorporate the 

terms of the License Agreement. 

 Over the next two years, the parties’ working relationship unraveled. On July 1, 

2013, Mountain Health mailed a demand letter and draft complaint to Aprima. The 

demand and draft complaint asserted claims for breach of contract under the 

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Development Agreement (but none under the License Agreement), and under the Texas 

Deceptive Trade Practices Act. A consumer seeking damages under the Deceptive Trade 

Practices Act must give written notice sixty days in advance of filing suit. Tex. Bus. & 

Com. Code Ann. § 17.505. The notice must include the nature of the complaint and 

projected damages. Id. 

 Aprima’s counsel responded by requesting a time to discuss the dispute in August 

2013. Because Mountain Health’s counsel was on vacation, a call could not be set until 

September 4, 2013. In that call, Aprima offered to draft a position statement outlining its 

understanding of the facts surrounding the dispute. The parties then set another call for 

September 17, 2013, to discuss Aprima’s position. Aprima sent its position statement to 

Mountain Health on September 9, 2013. 

 The second call took place as agreed at 11:00 a.m., September 17, 2013. 

Mountain Health disagreed with Aprima’s position statement but presented Aprima with 

a proposed settlement amount. Aprima’s counsel said he did not believe the company 

could or would settle for the proposed amount but advised Mountain Health that he 

would present the demand, since up to that point in time, Aprima had not considered any 

specific amount. The meeting ended, and a few hours later Aprima filed with the 

American Arbitration Association in Dallas, Texas, a demand for arbitration of claims 

under the License Agreement, though Mountain Health had made no claims under the 

License Agreement. At the same time, it also filed a complaint in the United States 

District Court for the Northern District of Texas to compel arbitration of Mountain 

Health’s claims under the Development Agreement or, in the alternative, for declaratory 

judgment that Aprima has no liability on those claims. Aprima contends that the 

arbitration provision in the License Agreement encompasses the claims under the later 

Development Agreement. 

 The next day, September 18, Aprima notified Mountain Health that it rejected the 

settlement offer and had already filed suit the day before. Mountain Health then filed this 

action on its claims under the Development Agreement that same day, September 18, 

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2013, one day after Aprima had filed its Texas case. Mountain Health unsuccessfully 

challenged personal jurisdiction in the Northern District of Texas. Aprima’s Motion 

seeks to abate or dismiss Mountain Health’s action in this Court, or in the alternative, to 

transfer it to the Northern District of Texas. (Doc. 9.) Aprima also moves to compel 

arbitration of Mountain Health’s claims under the Development Agreement, the claims 

asserted in this action. 

II. MOTION TO TRANSFER VENUE UNDER 28 U.S.C. § 1404 

Aprima argues this case should be transferred to the Northern District of Texas. 

The federal venue statute provides, “For the convenience of parties and witnesses, in the 

interest of justice, a district court may transfer any civil action to any other district or 

division where it might have been brought. . . .” 28 U.S.C. § 1404(a). On a motion to 

transfer venue, “a court must balance the preference accorded plaintiff’s choice of forum 

with the burden of litigating in an inconvenient forum. The defendant must make a 

strong showing of inconvenience to warrant upsetting the plaintiff’s choice of forum.” 

Decker Coal Co. v. Commonwealth Edison Co., 805 F.2d 834, 843 (9th Cir. 1986). 

Private factors are considered, such as “‘relative ease of access to sources of proof; 

availability of compulsory process for attendance of unwilling, and the cost of obtaining 

attendance of willing, witnesses; . . . and all other practical problems that make trial of a 

case easy, expeditious and inexpensive.’” Id. (quoting Gulf Oil Corp. v. Gilbert, 

330 U.S. 501, 508 (1947) (discussing forum non conveniens)). Public factors are also 

weighed, such as “‘the administrative difficulties flowing from court congestion; the local 

interest in having localized controversies decided at home; the interest in having the trial 

of a diversity case in a forum that is at home with the law that must govern the action; the 

avoidance of unnecessary problems in conflict of laws, or in the application of foreign 

law; and the unfairness of burdening citizens in an unrelated forum with jury duty.’” Id. 

(quoting Piper Aircraft v. Reyno, 454 U.S. 235, 241 n.6 (1981)). 

 Aprima argues that because it is based in Texas, manages only a small sales force 

in Arizona, and has many of its key witnesses in Texas, the balance of convenience 

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weighs heavily in its favor. These factors do not sharply favor Aprima, or favor it at all. 

Mountain Health is an Arizona corporation that does business only in Arizona. All of its 

witnesses reside in Arizona, and some of Aprima’s witnesses are in Arizona. Mountain 

Health’s only connection with Texas is the software it commissioned from Aprima and a 

trip made by some employees to be trained by Aprima. The contract was to write 

software specifically for Mountain Health’s use in Arizona. If breached, it was breached 

in Arizona. These private factors favor Mountain Health, not Aprima. 

 The public considerations do not favor Aprima. Statistical averages of case times 

in the District of Arizona and the Northern District of Texas do not differ significantly 

and are less important than data for the specific division of each court. Litigation in this 

Court will not delay anyone. The undersigned judge concludes 89.5% of civil cases 

within twelve months of filing. Arizona’s interest in adjudicating claims against persons 

doing business with Arizona residents in Arizona is stronger, not weaker, than Texas’s 

interest in providing a local forum against out-of-state customers. The parties could have 

contracted for an exclusive venue but did not. The Development Contract has a Texas 

choice of law provision, but there is no suggestion that relevant Texas contract law 

differs from Arizona law or contract law generally or that any difference would present 

any difficulty. Weighing the factors, it is clear that a transfer to Texas would not reduce 

inconvenience, but shift it and to some extent increase it. Aprima falls far short of 

overcoming Mountain Health’s choice of forum. Indeed, the balance of considerations 

strongly favors resolution of this dispute in Arizona. Aprima’s Motion to transfer this 

action to the Northern District of Texas will be denied. 

 III. MOTION TO ABATE 

 Aprima also argues this action should be abated in favor of the action it filed in the 

Northern District of Texas because it filed its action first. Mountain Health counters that 

Aprima only filed first by bad faith means and Arizona is the more appropriate forum in 

any event. Both cases involve the same parties and the same claims. 

/ / / 

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 When cases involving the same parties and issues are filed in different federal 

courts, the “first to file” rule gives the second district court the “discretion to transfer, 

stay, or dismiss the second case in the interest of efficiency and judicial economy.” 

Cedars-Sinai Med. Center v. Shalala, 125 F.3d 765, 769 (9th Cir. 1997). The first to file 

rule “is not a rigid or inflexible rule to be mechanically applied, but rather is to be applied 

with a view to the dictates of sound judicial administration.” Id. Bad faith or forum 

shopping strips the first-filed case of its usual priority. Alltrade, Inc. v. Uniweld Prods., 

Inc., 946 F.2d 622, 628 (9th Cir. 1991). 

 Aprima got a one-day jump on Mountain Health’s Arizona action only by 

requesting negotiation for two and a half months after receiving Mountain Health’s draft 

complaint. Aprima’s bad faith is apparent in filing suit before ending the negotiation it 

requested. Aprima’s contention that, though Mountain Health had to wait 60 days to sue 

under the Texas Deceptive Trade Practices Act, Aprima could sue any time, does not 

override its disingenuous act of not disclosing its plan to sue first while engaging in 

negotiations. Mountain Health could have sued immediately on its Development 

Agreement claims and amended 60 days later to add the Deceptive Trade Practices Act 

claims. Aprima’s contention also breaks faith with the purpose of the Deceptive Trade 

Practices Act’s notice period to discourage litigation and encourage settlement. It is not 

an opportunity to forum shop before the plaintiff can file suit. Richardson v. Foster & 

Sear, L.L.P., 257 S.W.3d 782, 784 (Tex. App. 2008). By the time Mountain Health 

presented its settlement offer, the Deceptive Trade Practices Act’s 60 day notice period 

had run. But Aprima continued to engage in settlement talks and asked for time to 

respond to the settlement offer, when it only wanted time to drive to court. If Aprima had 

substituted candor for disingenuousness, Mountain Health’s complaint of July 1, 2013, 

could have been filed any time in the preceding two and a half months and would have 

been filed first. 

/ / / 

/ / / 

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 The rule of thumb of first to file carries little weight when one party beats another 

by filing in bad faith or for forum shopping. See, e.g., Inherent.com v. MartindaleHubbell, 420 F. Supp. 2d 1093, 1099-1100 (N.D. Ca. 2006) (holding the first to file rule 

did not apply when the defendant had preemptively filed suit in another jurisdiction 

instead of responding to the plaintiff’s settlement offer). Moreover, the reasons discussed 

for not transferring venue also count against the request to abate. Arizona is the more 

appropriate forum for this case, and Aprima’s motion to abate will be denied. 

IV. MOTION TO COMPEL ARBITRATION 

Aprima further moves to compel arbitration of the claims in this case under the 

Federal Arbitration Act. (It also calls this dismissal for improper venue pursuant to 

Federal Rule of Civil Procedure 12(b)(3), but venue is plainly proper here. 

28 U.S.C. § 1391(b)(2)). Though Mountain Health has asserted no claims under the 

License Agreement, Aprima commenced arbitration in Texas on the License Agreement. 

That arbitration proceeding is not involved in this motion to compel arbitration. Here, 

Aprima asserts that the License Agreement and Development Agreement are so 

interrelated that the binding arbitration clause contained in the License Agreement covers 

disputes arising out of the Development Agreement. Mountain Health counters that the 

Development Agreement contains no arbitration clause, and the parties are not required 

to arbitrate any disputes arising out of it. 

Aprima argues the License Agreement’s arbitration clause is broad enough to 

reach the Development Agreement because it covers “[a]ny controversy or claim arising 

out of or relating to” the License Agreement. (Doc. 9, Exh. A-1 at 5, ¶ 21). Although 

arbitration is favored by federal law, the parties must agree to it. AT&T Tech., Inc. v. 

Comm’n. Workers, 475 U.S. 643, 648 (1986); see 9 U.S.C. § 3. “Determining whether 

the parties agreed to arbitrate the dispute in question involves two considerations: 

(1) whether a valid agreement to arbitrate between the parties exists; and (2) whether the 

dispute in question falls within the scope of the arbitration agreement.” Pennzoil 

Exploration & Prod. Co. v. Ramco Energy Ltd., 139 F.3d 1061, 1065 (5th Cir. 1998). 

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The question of whether parties agreed to arbitrate a matter is decided by applying the 

relevant state law principles that govern the interpretation of contracts. First Options of 

Chi., Inc. v. Kaplan, 514 U.S. 938, 944 (1995). 

Mountain Health admits the License Agreement’s arbitration clause is valid and 

applies to disputes over the License Agreement. It only challenges whether disputes 

arising under the Development Agreement fall within its scope. Arbitration clauses 

encompassing disputes “arising out of or relating to” a contract are considered broad. See 

Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 397-98 (1967) (holding 

that a clause requiring arbitration of “[a]ny controversy or claim arising out of or relating 

to this Agreement” was “broad”). They generally “embrace all disputes between the 

parties having a significant relationship to the contract regardless of the label attached to 

the dispute.” Pennzoil Exploration & Prod. Co., 139 F.3d at 1067. Close scrutiny of the 

content and context of both contracts is needed to determine whether disputes that “arise 

out of or relate to” one contract covers disputes under a separate and later contract. The 

following factors suggest an arbitration clause in one contract also governs another 

contract: 

 If “the legal claim underlying the dispute could not be maintained without 

reference to the contract” containing the arbitration clause. Tittle v. Enron Corp., 463 

F.3d 410, 422 (5th Cir. 2006). 

 If both contracts “cover the same subject matter and are integrally related.” 

David L. Threlkeld & Co., Inc. v. Metallgesellschaft Ltd. (London), 923 F.2d 245, 252 

(2d Cir. 1991) (finding that an agreement to value forward contracts arose out of or 

related to an agreement to purchase and sell forward contracts and was subject to the 

purchase and sell agreement’s arbitration clause). 

 If the contract with the arbitration clause explicitly supersedes all prior agreements 

in an ongoing relationship between parties. See Pennzoil Exploration & Prod. Co., 

139 F.3d at 1067-69 (5th Cir. 1998) (holding that an earlier agreement was subject to 

arbitration under a later-executed agreement’s arbitration clause because the later 

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agreement, although not addressing the exact issues of the earlier agreement, expressly 

superseded all prior arrangements between the parties) 

 If the two contracts are simultaneously executed. See Kirby Highland Lakes 

Surgery Ctr., L.L.P. v. Kirby, 183 S.W.3d 891, 894 (Tex. App. 2006) (holding that the 

parties must arbitrate a dispute over a Purchase and Sale Agreement when the parties’ 

“Partnership Agreement contains a broad arbitration clause extending to disputes ‘related 

to’ that agreement; that agreement and the Purchase and Sale Agreement were executed 

at the same time as parts of a single transaction; and the Partnership Agreement was 

essential to the overall transaction”). 

 If one contract anticipates the execution of the other. See Personal Sec. & Safety 

Sys. Inc. v. Motorola, Inc, 297 F.3d 388, 393 (5th Cir. 2002) (finding that although two 

agreements governed different facets of the parties’ relationship, because they 

represented key elements of the parties’ relationship and each contract anticipated the 

execution of the other, one contract was subject to arbitration under the other contract’s 

arbitration clause). 

 If the relationship between the contracts is “clear and direct.” Pervel Indus., Inc. 

v. T M Wallcovering, Inc., 871 F.2d 7, 9 (2d Cir. 1989) (holding that when a contract for 

purchase and sale of item led to an exclusive distribution contract, the “relationship 

between the contract of purchase and the exclusive distributorship which it created [was] 

clear and direct,” meaning the arbitration clause in the purchase and sale contract also 

applied to disputes under the distributorship contract). 

 In contrast, the following factors suggest a dispute over a separate contract does 

not “arise out of or relate to” a different contract with an arbitration clause: 

 If the suit could be maintained without reference to the contract containing the 

arbitration clause. See Dr. Kenneth Ford v. NYLCare Health Plans of Gulf Coast, Inc., 

141 F.3d 243, 251-52 (5th Cir. 1998) (holding a physician was not required to arbitrate a 

false advertising suit against his health maintenance organization when none of the 

elements of the false advertising suit depended on the agreement between them). 

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 If both contracts relate to the same general line of business, but it is clear that the 

contract without the arbitration clause is separate and distinct from the first. See Necchi 

S.p.A. v. Necchi Sewing Machine Sales Corp., 348 F.2d 693, 698 (2d Cir. 1965) 383 U.S. 

909 (1966) (finding that an earlier licensing agreement remained “distinct and separate” 

from the subsequent distribution contract containing an arbitration clause). 

 If the parties assume roles so distinct in each contract that the claims asserted 

against a party in a role assumed under one contract do not bear a significant relationship 

to the role assumed in the other contract. Wachovia Bank, Nat. Ass’n v. Schmidt, 445 

F.3d 762, 767-78 (4th Cir. 2006) (holding that a dispute arising from a financial 

advisement agreement with a bank was not related to a loan agreement with the same 

bank, even though the loan money was invested by the financial adviser). 

Some of the factors cut against compelled arbitration in this case. The purpose of 

the License Agreement was to provide Mountain Health with ready-made software to 

streamline “charting, coding, billing and documentation” in its behavioral health practice. 

(Doc. 9, Exh. A-1 at 1). After using the software for a period of time, Mountain Health 

concluded that, in its current state, the software could not handle all of Mountain Health’s 

billing and documenting needs. Aprima knew of no product on the market that could 

meet Mountain Health’s exact needs, so it was decided the parties would work together to 

develop add-ons that would allow the software to better serve behavioral health 

practitioners. To that end, the parties entered into the Development Agreement to jointly 

develop “enhancements” to the software. 

In the Development Agreement the parties took on a new relationship with 

obligations distinct from those imposed by the License Agreement. Under the License 

Agreement, Aprima was to provide stock software, along with the attendant training and 

technical support. Under the Development Agreement, Aprima was required to develop 

new pieces of the software, work with Mountain Health to perfect them, and eventually 

share the profits from the sale of the new behavioral software package. In this action, 

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Mountain Health is suing Aprima for failing to uphold its obligations as a developer, 

obligations which were separate and distinct from Aprima’s obligations as a licensor. 

The Development Agreement, however, is closely related to the License 

Agreement. It contemplates developing add-ons to the software licensed under that 

Agreement and arises out of the same general relationship between the parties. It states 

that Mountain Health “will serve as a release candidate for the version of Aprima that 

includes Behavioral Health . . . .” (Id. at 2). The enhancements created under the 

Development Agreement could not have been used without a license to Aprima’s basic 

medical records software, making it impossible for Mountain Health to work on the 

enhancements without operating under the License Agreement. 

The Development Agreement also lacks the typical clauses of a stand-alone 

contract. It is only two pages and covers only the type of enhancements, development 

schedule, amount to be paid, and royalties on future sales. (Doc. 9, Exh. A-3). A natural 

reading of the short agreement is that it was meant to supplement the License Agreement. 

This favors granting arbitration. See David L. Threlkeld & Co., Inc., 923 F.2d at 252 

(holding that an arbitration clause in one contract encompasses a subsequently executed 

contract when the contracts “cover the same subject matter and are integrally related”). 

Moreover, Mountain Health’s Complaint alleges that “Aprima falsely represented 

to [Mountain Health] that Aprima’s medical software, with its behavioral health 

enhancements, would meet [Mountain Health]’s contract requirements in accordance 

with the attachments to the Development Agreement.” (Doc. 1, ¶ 39). Mountain 

Health’s goal in entering into the Development Agreement was to develop a product that, 

when combined with the License Agreement software, would meet its business goals. 

The two contracts are related. Although the case presents a close question, the factors tip 

toward the conclusion that the parties’ dispute over the Development Agreement “arises 

out of or relates to” the License Agreement. In determining whether a dispute must be 

arbitrated, “due regard must be given to the federal policy favoring arbitration, and 

ambiguities as to the scope of the arbitration clause itself resolved in favor of arbitration.” 

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Volt Info. Sciences, Inc. v. Bd. of Trustees of Leland Stanford Junior Univ., 489 U.S. 468, 

475-76 (1989). 

B. Final Appealable Order 

Since this is a close question, the Court will give the parties an immediate right to 

appeal by entering a final judgment compelling arbitration and dismissing this action 

without prejudice. 9 U.S.C. § 16(a)(3) (permitting an appeal from “a final decision with 

respect to an arbitration”); see Green Tree Financial Corp.-Ala. v. Randolph, 531 U.S. 

79, 86-89 (2000) (holding that an order directing arbitration and dismissing all claims 

was a “final decision with respect to an arbitration within the meaning of 

9 U.S.C. § 16(a)(3), and an appeal may be taken”). 

IT IS THEREFORE ORDERED that Defendant Aprima Medical Software, Inc.’s 

Motion to Abate, or in the Alternative, Motion to Dismiss or Transfer (Doc. 9) is denied, 

except that the parties will be required to arbitrate their dispute. 

IT IS FURTHER ORDERED that the Clerk shall enter judgment (1) ordering 

Defendant Aprima Medical Software, Inc., and Plaintiff SMMHC, Inc., d/b/a Mountain 

Health & Wellness to arbitrate the disputes raised in this action in accordance with the 

terms of the License Agreement (Doc. 9, Exh. A-1 at 5, ¶ 21), and (2) dismissing this 

action without prejudice. The Clerk shall terminate this case. 

 Dated this 14th day of March, 2014. 

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