IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

PHYSICIANS HEALTHSOURCE, INC., 

an Ohio corporation, individually and as 

the representative of a class of similarlysituated persons,

Plaintiff,

v.

ALLSCRIPTS HEALTHCARE 

SOLUTIONS, INC. and ALLSCRIPTS 

HEALTHCARE, LLC

Defendants.

)

)

)

)

)

)

)

)

)

)

)

)

)

)

No. 12-cv-03233

Magistrate Judge Cole

DEFENDANTS’ MOTION FOR LEAVE TO AMEND ITS ANSWER AND ADD 

COUNTERCLAIMS AND MEMORANDUM IN SUPPORT

I. INTRODUCTION

Defendants ALLSCRIPTS HEALTHCARE SOLUTIONS, INC. and ALLSCRIPTS 

HEALTHCARE, LLC (collectively, “Allscripts”), pursuant to Federal Rule of Civil Procedure 

15(a), respectfully moves this Court for leave to file the attached Proposed Second Amended 

Answer to the First Amended Complaint (“SAA”) to add newly discovered counterclaims and 

allege additional affirmative defenses.1

By this lawsuit, Plaintiff Physicians Healthsource, Inc. (“Plaintiff” or “PHI”) claims that 

Allscripts sent faxes to PHI without PHI’s prior express consent or permission purportedly in 

violation of the Telephone Consumer Protection Act. See generally First Am. Compl. (Dkt. No. 

78). PHI, however, has downplayed and/or concealed important, material facts that wholly 

 1 Allscripts’ Proposed Second Amended Answer and certain exhibits thereto are being filed in 

redacted form and under seal, respectively, concurrently herewith for the reasons set forth in 

Allscripts’ Motion for Leave to File Under Seal, also filed contemporaneously. 
2

undermine PHI’s claim. For example, PHI never disclosed to the Court that PHI and Allscripts 

and its predecessors had a longstanding business relationship beginning no later than 2001, or 

that PHI routinely asked Allscripts to fax to it information related to practice management 

(including without limitation pricing and availability of office supplies, hardware, paper and the 

like). To the contrary, and throughout this litigation, PHI has implied – if not overtly stated –

that any faxes PHI may have received from Allscripts literally arrived out of the blue. Id. 

Unfortunately, and perhaps even more troublesome, PHI appears also to have withheld 

documents and information from Allscripts specifically requested in discovery concerning the 

parties’ business relationship. PHI was a customer of Allscripts and its predecessors, first 

licensing practice management software and supporting documentation in 2001. In document 

requests Allscripts served in this lawsuit, Allscripts asked PHI for “all ... contracts, subcontracts, 

[and] agreements . . . related to Allscripts.” In its response to this request, PHI indicated it 

produced the requested documents. But on May 6, 2015, Allscripts learned for the first time that 

PHI improperly sublicensed to a third party the software and supporting documentation that it 

had licensed from Allscripts. PHI did so in direct violation of clear contractual provisions in its 

Master Agreement granting PHI a license to use the Software that prohibited such sublicensing. 

Indeed, though secret, PHI’s unlawful sublicense was in writing.

PHI never produced in this lawsuit any copies of the “contracts, subcontracts, [or] 

agreements” evidencing the sublicensing. To the contrary, Allscripts only learned of the 

unlawful sublicense as a result of taking discovery from a third party who testified to its 

existence and produced the agreement reflecting the improper sublicense and the third party’s 

improper access, use and reproduction of the Software and supporting documentation onto her 

computers and the computers of her business.
3

Based on these wrongful actions, Allscripts now seeks leave to amend its answer to add 

additional affirmative defenses and appropriate counterclaims. 

II. BACKGROUND

A. Relevant Procedural History

Plaintiff filed its original Complaint on May 1, 2012. See Dkt. No. 1. On December 10, 

2013, Plaintiff filed its First Amended Complaint. See Dkt. No. 78. Allscripts then timely filed 

its Answer to the First Amended Complaint on January 13, 2014. See Dkt. No. 80. On May 9, 

2014, Allscripts filed its Amended Answer to the First Amended Complaint, which included 

seven affirmative defenses. See Dkt. No. 98.

The Court’s original scheduling order set fact discovery to be completed by March 28, 

2014. See Dkt. No. 72. Thereafter, upon Plaintiff’s oral motion, the Court extended the fact 

discovery deadline to December 31, 2014. See Dkt. No. 97. On November 3, 2014, the Court 

entered a revised scheduling order, establishing March 31, 2015 as the new fact discovery 

deadline. See Dkt. No. 113. Most recently, on March 3, 2015, the Court granted Plaintiff’s 

unopposed Motion to extend the fact discovery deadline to June 1, 2015. See Dkt. No. 125. The 

parties have since requested the Court further extend the discovery deadline so that they may 

complete the discovery that yet is required to be done. See Dkt. No. 130. 

B. Allscripts Only Recently Discovers PHI’s Wrongful Conduct

In July 2001, Plaintiff entered into a Medic Purchase Agreement (“MPA”) with Medic 

Computer Systems, LLC (“Medic”), a predecessor entity of Allscripts, pursuant to which Medic 

granted PHI a personal, nonexclusive, and nontransferable license to use a Medic proprietary 

application software designed to be used in connection with PHI’s medical billing (the 

“Software”) and supporting documentation. See Ex. A to SAA. In connection with the MPA, 
4

PHI and Medic entered into a Master Agreement that, among other provisions, specifically 

provided that PHI shall not permit any third party to use the Software or grant a sublicense for 

the use of the Software. See id. at ALLSCRIPTS022250. The Master Agreement similarly 

provided that the Software was to be used only for PHI’s internal business needs, and is only 

licensed on a single central processing unit to be used at PHI’s offices. See id. Violation of 

these provisions entitled Medic to terminate this Agreement and the Software license granted 

thereunder, in addition to and not in lieu of any other remedies available to Medic. Id. at

ALLSCRIPTS022253.2 

Subsequent agreements entered into between Plaintiff and Medic’s successors, including 

Misys Healthcare Systems, LLC (“Misys”) and Allscripts, including during the proposed Class 

Period, expressly incorporated the terms of the Master Agreement, and similarly prohibited the 

sublicensing of the Software to a third party. 

On October 9, 2013, before filing its Answer and Amended Answer, Allscripts served its 

First Set of Requests for Production to Plaintiff. Among its requests, Allscripts requested that 

Plaintiff “[p]roduce all documents including contracts, subcontracts, agreements, business cards, 

emails, correspondence, note or memoranda of oral communications, invoices, and receipts, 

related to Allscripts.” Plaintiff responded, “[s]ee documents produced,” but produced no 

documents evidencing any sublicensing of the Software to a third party (though such documents 

plainly exist). 

On March 26, 2015, Allscripts issued a subpoena for documents and testimony to Ms.

Gearline Monhollen, Plaintiff’s former office manager, whose job responsibilities included 

 2 The Master Agreement further provides that, in the event any action or proceeding is brought in 

connection with this Agreement, the prevailing party shall be entitled to recovers its costs and 

reasonable attorneys’ fees. See Ex. A to SAA at ALLSCRIPTS022254.
5

medical billing and collection, and thus regularly communicated with Allscripts regarding her 

use of the Software and other matters. In addition, Allscripts simultaneously issued a subpoena 

for documents and testimony to Doctors Revenue Management Services, LLC (“DRMS”), a 

medical billing and collection company Ms. Monhollen formed in 2008 after she left PHI. 

On May 6, 2015, the day before her scheduled deposition, Ms. Monhollen produced, 

through her attorney, previously-unproduced documents that evidence PHI improperly 

sublicensed the Software to DRMS in early 2008. In particular, pursuant to a “January 2008 

Lease Agreement” entered into between Plaintiff and DRMS, Plaintiff improperly sublicensed 

the Software and supporting documentation to DRMS for DRMS to use in connection with its 

billing and collection services. See Ex. D to SAA at Monhollen0000016. The Lease Agreement 

expressly provided that DRMS was to not utilize hardware at PHI’s office to access the 

Software, but instead was to access the Software using a remote connection, exactly the opposite

of what the Master Agreement required. See id. at Monhollen0000017. Other documents 

produced by Ms. Monhollen demonstrate that DRMS remotely used the Software to perform 

medical and collection services for PHI and other clients throughout 2008 and 2009. 

Ms. Monhollen’s deposition testimony on May 7, 2015 confirmed the same. Specifically, 

Ms. Monhollen testified that when she left Plaintiff’s office in late 2007 and formed DRMS, 

Plaintiff “offer[ed]” her the Software for her to use in connection with her new business. See Ex. 

B to SAA at 38:22-39:3. PHI apparently offered the Software and supporting documentation to 

Ms. Monhollen as consolation / severance due to PHI suddenly eliminating Ms. Monhollen’s 

position so that Dr. Elwert’s wife, Chris Elwert, could assume Ms. Monhollen’s duties at PHI 

(after Ms. Monhollen trained her). See id. at 38:22-38:25 (“They did offer me, Physicians 

Healthsource did offer me the Misys software. So he wasn’t like hanging me out to dry.”) The 
6

use of the Software and supporting documentation by DRMS, however, remained unknown to 

Allscripts and was expressly forbidden by the contract between Allscripts and PHI.3 

DRMS / Ms. Monhollen’s use of the Software and supporting documentation during this 

time period remained unknown to Allscripts until Allscripts deposed Ms. Monhollen. Indeed, 

the billing agreement between DRMS and PHI specifically provided that PHI would continue to 

pay all invoices generated by the Software for all billing and operational expenses, ostensibly to 

conceal from Allscripts the improper licensing agreement. See Ex. E to SAA at 

Monhollen000002. Because PHI continued to pay all invoices generated by DRMS’s use of the 

Software, Allscripts was unaware (and could not possibly have been aware) that PHI had in fact 

sublicensed the Software and supporting documentation to DRMS. 

DRMS continued to use the Software through late 2009, at which point (and much to Ms. 

Monhollen’s dismay) Plaintiff terminated its billing agreement with DRMS pursuant to a 

December 14, 2009 Agreement between Plaintiff and DRMS – another document that was 

produced in this litigation for the first time by Ms. Monhollen on May 6. See Ex. B to SAA at 

30:11-31:15. Of note, in a provision entitled “Transfer of Misys Software,” the December 2009 

Agreement makes clear that although Ms. Monhollen and DRMS were using, remotely accessing 

and partially or completely reproducing the Software and supporting documentation onto their 

computers, Plaintiff had at no point obtained Allscripts’ consent to sublicense or assign the 

Software either to Monhollen or to DRMS. See Ex. H to SAA at Monhollen000007. 

Prior to Ms. Monhollen’s May 6 production of documents and May 7 deposition 

testimony, Allscripts had no knowledge of Plaintiff’s improper sublicensing of the Software and 

 3 Moreover, it appears that Ms. Monhollen may not have known or understood that the Master 

Agreement expressly forbade sublicensing the Software and supporting documentation, she not 

having been a party to that agreement. In light of the circumstances, Allscripts has no intention 

of filing a claim against Ms. Monhollen. She, like Allscripts, has been wronged by PHI.
7

supporting documentation to a third party. Shortly after learning of this information, Allscripts 

advised Plaintiff of its intention to immediately request leave to amend its answer to assert 

appropriate counterclaims. Plaintiff did not consent. Accordingly, based on these newly 

discovered facts, Allscripts now seeks leave of court to amend its answer to add counterclaims. 

III. ARGUMENT

Under Federal Rule of Civil Procedure 15(a), granting leave to amend an answer is 

within the Court’s discretion and should be freely given “when justice so requires.” Fed. R. Civ. 

P. 15(a). Further, leave to amend will not be denied in the absence of a good reason, such as 

undue delay, repeated failure to cure deficiencies by prior amendments, bad faith on the part of 

the movant, undue prejudice to the opposing party, or futility of amendment. See Forman v. 

Davis, 371 U.S. 178, 182 (1962). 

None of the limited circumstances that would defeat the liberal policy of amendment 

under Rule 15 is present here. To begin, Allscripts has not acted in bad faith or engaged in 

undue delay in seeking to amend its answer to assert counterclaims. As explained above, prior to 

Ms. Monhollen’s May 6, 2015 production of documents and May 7, 2015 deposition testimony, 

Allscripts had no knowledge of Plaintiff’s sublicensing the Software and supporting 

documentation to Monhollen, DRMS or any other third party. As soon as Allscripts’ learned of 

this information, it diligently reviewed and analyzed the newly-produced documents against the 

relevant contractual provisions in the Master Agreement. Allscripts shortly thereafter scheduled 

a meet and confer with Plaintiff’s counsel on the instant motion, and within days after Plaintiff 

informed Allscripts it would not consent to the motion, Allscripts filed this motion. Allscripts, 

accordingly, has engaged in no undue delay at any step in this process. See, e.g., Bower v. Jones, 

978 F.2d 1004, 1010 (7th Cir. 1992) (finding no undue delay where party did not have access to 
8

documents supporting new claim until late in discovery); Lerman v. Turner, No. 10 C 2169, 

2012 WL 1409526, at *2 (N.D. Ill. Apr. 23, 2012) (finding no undue delay or improper motive 

and granting defendants leave to assert counterclaim and affirmative defense; “Moreover, ‘delay 

on its own is usually not reason enough for a court to deny a motion to amend’, and in recent 

months, defendants have moved promptly to identify and investigate their claims.”) (citing and 

quoting Soltys v. Costello, 520 F.3d 737, 743 (7th Cir. 2008)). 

Nor would Plaintiff be unduly prejudiced if Allscripts is allowed to amend its pleadings. 

As an initial matter, the parties are in agreement that a brief extension of the fact discovery 

deadline is necessary, irrespective of Allscripts’ additional affirmative defenses and recentlydiscovered counterclaims.4

 In addition, Allscripts anticipates that any additional discovery 

related to its amended pleading would be minimal, if not entirely coextensive to discovery 

already expected to occur. The parties have already taken the deposition of Ms. Monhollen, and 

to the extent any additional deposition testimony on the counterclaims is necessary, it would 

likely come from Doctors John Ruch and Jeffrey Elwert, whom Allscripts already intended to 

depose as soon as Plaintiff properly supplements its discovery.5 And Plaintiff has yet to depose 

Allscripts and certain other fact witnesses. Thus, Allscripts’ amendment of its pleading would 

have little, if any, effect on the discovery schedule, and believes the schedule proposed by the 

parties allows sufficient time to do whatever additional discovery the parties may believe is 

 4 Contemporaneous to this motion, the parties have filed a Joint Motion to Modify Scheduling 

Order, requesting a brief extension of the fact discovery deadline to September 1, 2015. See Dkt. 

No. 130. Allscripts believes this new schedule provides sufficient time to complete discovery on 

all claims, affirmative defenses and counterclaims.

5 Allscripts has met and conferred with Plaintiff to attempt to narrow the issues in dispute with 

respect to the deficiencies in PHI’s discovery responses with mixed success, and, therefore, 

Allscripts anticipates filing a motion to compel in the near term so that the Court can help the 

parties resolve the remaining disputes. 
9

necessary. See Lerman, 2012 WL 1409526 at *3 (“Although defendants’ motion to amend 

comes at the close of fact discovery, a court will generally grant leave to amend, even if 

discovery is substantially completed, if the discovery has adequately covered the subject matter 

of the amendment.”) (internal citation and quotation omitted). 

Moreover, any contention by Plaintiff of undue prejudice is completely undermined by 

the fact that, while Allscripts only recently discovered this information, it has been known to 

Plaintiff for many years – years before Plaintiff filed this lawsuit. As the party who wrongfully 

sublicensed the Software and supporting documentation to a third party, Plaintiff was in unique 

possession of this information, including the documents recently produced by Ms. Monhollen. 

Indeed, as noted above, in October 2013, before filing its Answer and Amended Answer, 

Allscripts requested that Plaintiff produce all documents, including contracts, subcontracts, and 

agreements related to Allscripts. Plaintiff simply responded, “[s]ee documents produced,” but 

did not produce the January 2008 Lease Agreement – or any other document that would have 

indicated that Plaintiff had breached the Master Agreement and violated Allscripts’ copyright. 

Thus, it is Allscripts who would be prejudiced by the denial of its motion for leave to amend 

because it has only recently discovered these facts due to PHI’s having failed to disclose them, 

and such an outcome would essentially reward PHI for concealing critical facts for its own 

advantage.6

 

Lastly, in no sense would Allscripts’ proposed amendments be futile, because each 

proposed counterclaim is well-supported by facts giving rise to very plausible claims of 

entitlement to relief. As discussed above, the Master Agreement specifically prohibits PHI from 

 6 Given the facts supporting Allscripts’ counterclaims only recently became known to Allscripts, 

Plaintiff could not credibly assert that amendment would be improper because of any purported 

“repeated failure to cure deficiencies” on Allscripts’ part. See Bower, 978 F.2d at 1010.
10

allowing any third party to use the Software or supporting documentation or granting a 

sublicense for the use of the Software. Yet, as demonstrated by the above and the exhibits 

attached to Allscripts’ Proposed Second Amended Answer,7 Plaintiff plainly allowed Ms. 

Monhollen and DRMS to remotely access, use, and partially or completely reproduce the 

Software and supporting documentation onto their computers. At no point did Plaintiff obtain 

Allscripts’ consent to do so; in fact, rather than disclose this information to Allscripts in the 

course of discovery as it was required to do, Plaintiff actively concealed this information, 

including by continuing to pay all invoices generated by Ms. Monhollen’s / DRMS’s improper 

remote use, access and reproduction of the Software and supporting documentation. 

IV. CONCLUSION

For the reasons discussed above, Allscripts respectfully requests that this Court grant 

Allscripts leave to file a Second Amended Answer to the First Amended Complaint, attached 

hereto as Ex. 1, that includes additional affirmative defenses and counterclaims against PHI. 

Allscripts respectfully requests such other, further relief this Court deems appropriate. 

Dated: May 29, 2015 Respectfully submitted,

By: /s/ Liva M. Kiser

SIDLEY AUSTIN LLP

Livia M. Kiser

lkiser@sidley.com

Lawrence P. Fogel

lawrence.fogel@sidley.com

Andrew J. Chinsky

 7 Ms. Monhollen has asked that the information she provided to Allscripts be treated as 

confidential business information and, therefore, the information has been designated 

confidential pursuant to the Agreed Confidentiality Order and is filed under seal in accordance 

with her request.
11

achinsky@sidley.com

One South Dearborn

Chicago, Illinois 60603

(t): (312) 853-7247

(f): (312) 853-7036

Counsel for Allscripts Healthcare Solutions, 

Inc. and Allscripts Healthcare LLC 
12

CERTIFICATE OF SERVICE

I, Andrew J. Chinsky, hereby certify that on May 29, 2015, I caused a copy of the 

foregoing to be electronically filed with the Clerk of the United States District Court for the 

Northern District of Illinois, using the CM/ECF system, which will send notification of such 

filing to all attorneys of record. 

/s/ Andrew J. Chinsky 

 Andrew J. Chinsky