Labib Riachi v. Prometheus Group ( 2020 )

NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
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No. 19-2768
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LABIB RIACHI,
Appellant
v.
THE PROMETHEUS GROUP; JANE DOES 1-4; JOHN DOES 1-4;
FIRST CHOICE FOR CONTINENCE, INC.
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Appeal from the United States District Court
for the District of New Jersey
(D.C. Civil Action No. 2-17-cv-00811)
District Judge: Honorable Susan D. Wigenton
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Submitted Under Third Circuit L.A.R. 34.1(a)
May 26, 2020
Before: AMBRO, HARDIMAN, and RESTREPO, Circuit Judges
(Opinion filed: July 9, 2020)
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OPINION*
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AMBRO, Circuit Judge
Appellant Labib Riachi sued two companies that provided his medical practice
with equipment and training, Appellees The Prometheus Group (“Prometheus”) and First
Choice for Continence, Inc. (“First Choice”), alleging they improperly trained him and
his staff. He asserted claims for, among other things, breach of contract, fraud,
negligence, and unjust enrichment. The District Court dismissed under Federal Rule of
Civil Procedure 12(b)(6) all claims except the breach-of-contract claim against
Prometheus. Then, following discovery, the Court granted Prometheus summary
judgment on that claim. Riachi appeals both the dismissal and the summary judgment.
We affirm.
I. Factual and Procedural Background
Riachi, a urogynecologist, operated a medical practice “focus[ing] primarily on
treating women who suffer from . . . pelvic floor disorders, such as stress urinary or fecal
incontinence.” App. 212. In 2005, he began purchasing from Prometheus therapy
equipment for use in his practice. At the same time, Prometheus agreed that a third party,
First Choice, would train Riachi and his staff how to treat patients with the equipment as
well as how to bill Medicare for this treatment. Riachi purchased additional equipment
*
This disposition is not an opinion of the full Court and pursuant to I.O.P. 5.7 does not
constitute binding precedent.
2
from Prometheus in 2006, 2008, and 2009. Following each of these purchases, First
Choice made its training available to Riachi for a six-month period.
Riachi discovered in 2010 that he was under investigation for making false
Medicare claims. The investigation culminated in 2016, when the federal Government
brought an action against Riachi under the False Claims Act, 31 U.S.C. §§ 3729–33. The
Government alleged, among other things, that Riachi had billed Medicare for treatment
that his unqualified staff—not he—had performed. Riachi settled the suit, agreeing to
repay the Government $5.25 million.
In February 2017, Riachi brought this suit against Prometheus, alleging that it had
wrongly advised him that he need not “personally perform or directly supervise” his
practice’s performance of therapeutic services using the equipment he had purchased.
App. 15 ¶ 19. He asserted claims for breach of contract, breach of the implied covenant
of good faith and fair dealing, violation of New Jersey’s Consumer Fraud Act, common-
law fraud, negligent misrepresentation, negligence, and unjust enrichment. Prometheus
moved to dismiss for failure to state a claim, and the District Court granted that motion as
to every claim except the breach-of-contract one.
During discovery on this remaining claim, Riachi amended his complaint to add
First Choice as a defendant, asserting claims against it for common-law fraud, negligent
misrepresentation, and negligence. The crux of the claims against First Choice was the
same as those he had asserted against Prometheus—that it improperly trained him and his
staff. First Choice moved to dismiss these claims and the District Court granted the
motion.
3
Thereafter, the parties completed discovery and Prometheus moved for summary
judgment on Riachi’s remaining breach-of-contract claim. The Court granted the motion,
concluding that the claim was barred by the statute of limitations. Riachi appeals the
dismissal of his claims against Prometheus and First Choice, as well as the summary
judgment in favor of Prometheus on the remaining claim.1
II. Dismissal of Claims Under Rule 12(b)(6)
We begin with the District Court’s dismissal of claims under Federal Rule of Civil
Procedure 12(b)(6), which we review de novo. Phillips v. Cty. of Allegheny, 515 F.3d
224, 230 (3d Cir. 2008). Dismissal under Rule 12(b)(6) is appropriate where, accepting
all the complaint’s well-pleaded factual allegations as true, the court cannot “draw the
reasonable inference that the defendant is liable for the misconduct alleged.” Fowler v.
UPMC Shadyside, 578 F.3d 203, 210 (3d Cir. 2009) (quoting Ashcroft v. Iqbal, 556 U.S.
662, 678 (2009)).
As noted, the District Court dismissed Riachi’s claims for: (A) breach of the
implied covenant of good faith and fair dealing; (B) fraud and misrepresentation
(including common-law fraud, fraud under the New Jersey Consumer Fraud Act, and
negligent misrepresentation); (C) negligence; and (D) unjust enrichment. We address
each of these in turn.
1
The District Court had jurisdiction under 28 U.S.C. § 1332. We have jurisdiction under
28 U.S.C. § 1291.
4
A. Breach of the Implied Covenant of Good Faith and Fair Dealing
The District Court concluded that Riachi’s claim against Prometheus for breach of
the implied covenant of good faith and fair dealing fails for lack of allegations that
Prometheus “acted with bad faith or motive.” Riachi v. Prometheus Grp., No. 17-cv-811,
2017 WL 2438838, at *2 (D.N.J. June 6, 2017). We agree. To make out a claim for
breach of the covenant, “[a] plaintiff must . . . prove the defendant’s bad motive or
intention.” Iliadis v. Wal-Mart Stores, Inc., 922 A.2d 710, 722 (N.J. 2007) (quoting
Brunswick Hills Racquet Club, Inc. v. Route 18 Shopping Ctr. Assocs., 864 A.2d 387, 396
(N.J. 2005)). Riachi does not argue that he sufficiently alleged bad faith or motive, but
rather argues that he need not do so, citing Sons of Thunder, Inc. v. Borden, Inc., 690
A.2d 575, 585 (N.J. 1997). But Sons of Thunder, decided a decade before Iladis, is not to
the contrary. Rather, it holds that “although a party’s motive in terminating a contract is
irrelevant as it relates to the alleged violation of [the contract’s] express termination
clause,” motive is relevant as to a party’s breach of the “implied obligation of good faith
and fair dealing in its performance of the contract.” Sons of Thunder, Inc., 690 A.2d at
586 (emphasis added). Accordingly, the District Court correctly dismissed this claim.
B. Fraud and Misrepresentation
The District Court concluded that Riachi’s claims against both Prometheus and
First Choice for common-law fraud, fraud in violation of the New Jersey Consumer
Fraud Act, and negligent misrepresentation fail for lack of allegations meeting the
heightened pleading standard for fraud claims under Federal Rule of Civil Procedure
9(b). It provides that a plaintiff must allege “with particularity the circumstances
5
constituting fraud or mistake.” Fed. R. Civ. P. 9(b) (emphasis added). “To satisfy this
standard, the plaintiff must plead or allege the date, time and place of the alleged fraud or
otherwise inject precision or some measure of substantiation into a fraud allegation.”
Frederico v. Home Depot, 507 F.3d 188, 200 (3d Cir. 2007). A plaintiff must also
“identify the speaker of allegedly fraudulent statements.” Klein v. Gen. Nutrition Cos.,
186 F.3d 338, 345 (3d Cir. 1999).
Riachi’s Amended Complaint does not meet this standard. It sets out the content
of the allegedly false representations: “that [Riachi] did not have to personally perform or
directly supervise [physical therapy] services while he was out of his office.” App. 220
¶ 42. But Riachi only vaguely alleges who made these representations and when they
were made. He claims that the “false and fraudulent advice was given to [him] and his
staff at each training session from 2005 to 2012,” and that between these training sessions
“First Choice also provided telephone training and advice on an as needed basis.” App.
218 ¶ 36. Riachi adds that “[t]he individuals . . . who made the false representations were
Debra Folkerts, Karen Finstrom McPhee, Carl Newman[,] and Jeanine Reed.” App. 219
¶ 37. But Riachi does not identify which of these four individuals made which of these
representations during which training sessions over the seven-year period from 2005 to
2012.
Rule 9(b) is not satisfied where a plaintiff, as Riachi has done here, merely lumps
the who, what, when, and where together. See, e.g., Mills v. Polar Molecular Corp., 12
F.3d 1170, 1175 (2d Cir. 1993) (“Rule 9(b) is not satisfied where the complaint vaguely
attributes the alleged fraudulent statements to ‘defendants.’”) (citation omitted); Sears v.
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Likens, 912 F.2d 889, 893 (7th Cir. 1990) (holding that Rule 9(b) was not satisfied where
“the complaint lump[ed] all the defendants together and d[id] not specify who was
involved in what activity”). Accordingly, the District Court properly dismissed Riachi’s
fraud claims.
C. Negligence
The District Court held that Riachi’s negligence claims against Prometheus and
First Choice are barred by the economic loss doctrine.2 This doctrine “defines the
boundary between the overlapping theories of tort law and contract law by barring the
recovery of purely economic loss in tort.” Dean v. Barrett Homes, Inc., 968 A.2d 192,
202 (N.J. Super. Ct. App. Div. 2009) (quoting R. Joseph Barton, Note, Drowning in a Sea
of Contract: Application of the Economic Loss Rule to Fraud and Negligent
Misrepresentation Claims, 41 Wm. & Mary L. Rev. 1789, 1789 (2000)), rev’d on other
grounds, 8 A.3d 766 (N.J. 2010). Thus, under the doctrine, a plaintiff may not assert a
negligence claim for a purely economic loss he suffered as a result of the defendant’s
deficient performance of its contractual duties. See Spring Motors Distribs. v. Ford
Motor Co., 489 A.2d 660, 672–74 (N.J. 1985).
We agree with the District Court that this doctrine bars Riachi’s negligence
claims. He alleges economic harm—the repayment he was required to make under his
settlement with the Government—resulting from the allegedly deficient training his
2
The Court also concluded that the negligence claim against First Choice fails for lack of
a duty owed. We need not reach the issue because we affirm the dismissal of this claim
under the economic loss doctrine.
7
practice received pursuant to the contract with Prometheus. Accordingly, the District
Court properly dismissed Riachi’s negligence claims.
D. Unjust Enrichment
The District Court also concluded that the existence of a contract between Riachi
and Prometheus barred Riachi’s unjust enrichment claim. We agree. A plaintiff may not
maintain an action for unjust enrichment based on deficient performance of a contract,
the validity of which is undisputed. See Winslow v. Corporate Express, Inc., 834 A.2d
1037, 1046 (N.J. Super Ct. App. Div. 2003) (holding that “there [was] no basis . . . for
[the] plaintiff to pursue a quasi-contractual claim for unjust enrichment” where he had a
contract with the defendant). Because Prometheus did not dispute the existence of a valid
contract, the District Court properly dismissed Riachi’s unjust enrichment claim.
III. Summary Judgment
We next consider the District Court’s grant of summary judgment for Prometheus
on Riachi’s breach-of-contract claim. Our review of the Court’s summary judgment is
also de novo. Elsmere Park Club, L.P. v. Town of Elsmere, 542 F.3d 412, 416 (3d Cir.
2008). “Summary judgment is appropriate if there is no genuine issue as to any material
fact and the party making the motion is entitled to judgment as a matter of law.” Id.(citation and internal quotation marks omitted).
The District Court concluded that Riachi’s breach-of-contract claim is governed
by Article 2 of the Uniform Commercial Code (“Article 2”) and is thus barred by Article
2’s four-year statute of limitations, see N.J. Stat. Ann. § 12A:2-725(1). Riachi argues
that Article 2 does not apply, and that his breach-of-contract claim is thus timely under
8
New Jersey’s six-year statute of limitations for breach-of-contract claims, see N.J. Stat.
Ann. § 2A:14-1.
Article 2 applies to contracts for the sale of “goods,” N.J. Stat. Ann. § 12A:2-102,
not to contracts for services.3 But “[w]hen a contract is for [both] goods and services, a
court must determine which aspect of the contract, the goods or the services,
predominates.” Paramount Aviation Corp. v. Agusta, 288 F.3d 67, 72 (3d Cir. 2002)
(citing Integrity Material Handling Sys., Inc. v. Deluxe Corp., 722 A.2d 552, 555 (N.J.
1999)). “To make this determination, courts look to the language and circumstances
surrounding the contract, the relationship between the goods and services, the
compensation structure[,] and the intrinsic worth of the goods provided.” Integrity
Material Handling Sys., 722 A.2d at 555. And “[a]lthough this determination is a factual
issue,” id., summary judgment is appropriate where the record reveals no genuine
dispute, see Paramount Aviation Corp., 288 F.3d at 72 (denying summary judgment on
the issue of predominance where the record revealed “at least a material dispute of fact”).
Here the District Court correctly granted summary judgment for Prometheus, as
the record permits only one reasonable conclusion—that, in the contract between Riachi
and Prometheus, the sale of goods (medical equipment) predominated over the provision
of services (training in the use of that equipment). As the District Court explained, the
undisputed record demonstrates that: (1) “for each [equipment] purchase of $11,000.00,
3
Riachi argues that Article 2 applies only to the sale of goods between merchants. But
he cites no authority supporting that proposition, and New Jersey courts routinely apply
Article 2 to purchases by consumers. See, e.g., Docteroff v. Barra Corp. of Am., Inc., 659
A.2d 948, 949, 952 (N.J. Super. Ct. App. Div. 1995) (applying Article 2 to homeowners’
purchase of roofing materials).
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[Riachi] purchased only $3,500.00 in . . . training services”; and (2) the training was
“provided by a third party,” First Choice, not by the party with whom Riachi contracted,
Prometheus. App. 5.
Riachi does not dispute these facts establishing that the sale of equipment was the
predominant purpose of the contract. Instead, he points to his own declaration attesting
that, because the equipment was “completely new in the field,” the training services were
“the most important component of the contract.” App. 973 ¶ 2. But one party’s
subjective view of the importance of services provided—made after the formation of the
contract and in the course of litigation—cannot alone create a genuine issue of fact as to
whether goods or services were the predominant purpose of the contract. Cf. Gulf Oil
Corp. v. Comm’r of Internal Rev., 914 F.2d 396, 407 (3d Cir. 1990) (“The subjective
meaning attached by either party to a form of words is not controlling on the scope of the
agreement between the parties . . . .”) (citation omitted). Here the objective
manifestations of the parties’ intent—specifically, the relative value placed on the goods
and services, and the use of a third party to provide the services—indicate that the
contract was predominantly one for goods. Thus the District Court properly concluded as
a matter of law that UCC Article 2 and its four-year statute of limitations apply.
Riachi also argues that, even if the four-year bar applies, his claim is timely
because it did not accrue until he discovered that he had suffered damages—in 2016,
when he was forced to settle with the Government. But Article 2 provides that a claim
accrues when the “breach occurs, regardless of the [plaintiff]’s lack of knowledge of the
breach.” N.J. Stat. Ann. § 12A2-725(2). Thus, the District Court properly concluded that
10
Riachi’s claim accrued, at the latest, in 2010—when First Choice was last obligated to
provide training. And Riachi did not file this suit until 2017, well outside that four-year
period.4
* * * * *
For the reasons set out above, we affirm the District Court’s judgment.
4
As the District Court noted, Riachi filed a previous suit against Prometheus in 2016, but
it too is outside the four-year period.
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