Case 2:15-cv-01840-KOB Document 163 Filed 09/10/18 Page 1 of...

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF ALABAMA

SOUTHERN DIVISION

CENTRAL ALABAMA

DIAGNOSTICS, LLC,

Plaintiff/Counterclaim Defendant,

v.

TOSHIBA AMERICA MEDICAL

SYSTEMS, INC.,

Defendant/Counterclaim Plaintiff

)

)

)

)

)

)

)

)

)

)

)

)

)

CIVIL ACTION

NUMBER:

2:15–cv–01840–KOB

______________________________________________________________________________

PRETRIAL ORDER

______________________________________________________________________________

The court held a pretrial conference in the above case on June 12, 2018, wherein the

following proceedings were held and action taken:

1. Appearances. Appearing at the conference were:

On behalf of Plaintiff/Counterclaim Defendant Central Alabama Diagnostics, LLC:

Edward S. Sledge, IV and Mary Ann Couch

On behalf of Defendant/Counterclaim Plaintiff Toshiba America Medical Systems, Inc.:

Brannon J. Buck, Brett Andrew Ialacci, and Christopher B. Driver

2. Jurisdiction and Venue. Subject matter jurisdiction exists under 28 U.S.C. § 1332

by reason of the amounts in controversy and the admitted diversity of citizenship. The parties do

not contest personal jurisdiction.

3. Parties and trial counsel. The parties before the court are correctly named as set

out below and the designated trial counsel for the parties are as set out below.

Parties Trial Counsel

Plaintiff/Counterclaim

Defendant

Central Alabama

Diagnostics, LLC (“Central

Alabama Diagnostics”)

Bradley Arant Boult Cummings

LLP

Edward S. Sledge, IV

James W. Gewin

Matthew H. Lembke

FILED 2018 Sep-10 PM 01:53U.S. DISTRICT COURT

N.D. OF ALABAMA

Case 2:15-cv-01840-KOB Document 163 Filed 09/10/18 Page 1 of 17

2

Mary Ann Couch

Zachary A. Madonia

Defendant/Counterclaim

Plaintiff

Toshiba America Medical

Systems, Inc. (“Toshiba”)

Badham & Buck, LLC

Brannon J. Buck

Brett Andrew Ialacci

Christopher B. Driver

4. Pleadings. The following pleadings have been allowed: Central Alabama

Diagnostics’ Complaint (as amended, Docs. 101, 102); Toshiba’s Answer and Counterclaim (Doc.

95); Central Alabama Diagnostics’ Answer to Toshiba’s Counterclaim (Doc. 100); Toshiba’s

Third Party Complaint Against Rodney Fountain (Doc. 51); Rodney Fountain’s Answer to Third

Party Complaint (Doc. 64). After a settlement between Toshiba and Rodney Fountain, the court

dismissed Toshiba’s Third Party Complaint with prejudice. (Doc. 98).

5. Statement of the Case.

a. Agreed Summary.

This case concerns the negotiation, sale, and delivery of a magnetic resonance imaging

system (“MRI system”) sold by Toshiba and purchased by Central Alabama Diagnostics. An MRI

system is a large, sophisticated piece of medical equipment used to take internal pictures of the

human body. Central Alabama Diagnostics planned to install the Toshiba MRI system at its new

facility in Prattville to treat patients in central Alabama.

Central Alabama Diagnostics contends that Toshiba fraudulently induced it into purchasing

a mostly new MRI system (with a new magnet) and suppressed the material fact that it could not

deliver that mostly new MRI system. Instead Toshiba delivered a used MRI system (with a used

magnet). Central Alabama Diagnostics also contends that Toshiba could not—and did not—

provide a mostly new MRI system (with a new magnet), in breach of a contract between Toshiba

and Central Alabama Diagnostics.

Toshiba contends that it delivered what it promised to Central Alabama Diagnostics.

Toshiba also contends that Central Alabama Diagnostics breached the contract by refusing to

accept and pay for the MRI system.

b. Stipulated Facts.

1) Background.

1. Plaintiff Central Alabama Diagnostics, LLC (“Central

Alabama Diagnostics”) is a diagnostic imaging center located in Prattville,

Alabama (the “Center”).


3

2. Matthew Lemak is a member and the sole manager of

Central Alabama Diagnostics. Matthew Lemak holds an M.B.A. from the

Wharton School of Business at the University of Pennsylvania.

3. Defendant Toshiba America Medical Systems, Inc.

(“Toshiba”) is a corporation based in Tustin, California that sells diagnostic

devices known as Magnetic Resonance Imaging (“MRI”) equipment. This

equipment permits doctors to image the internal portions of the human

body. A primary component of the MRI system is a magnet weighing

approximately 10,000 pounds, which uses electricity to create a magnetic

field for imaging.

4. At all relevant times, Toshiba was a subsidiary of Toshiba

Medical Systems Corporation, based in Japan (“Toshiba-Japan”), its parent

company.

5. At all relevant times, Toshiba-Japan made new equipment

for sale by Toshiba to customers in the United States.

6. Central Alabama Diagnostics hired and trained employees

and contracted with third parties, such as architects and engineers, for the

design and construction of a facility to accommodate the Toshiba MRI

system.

7. Additionally, Matthew Lemak retained MedWorks Imaging,

LLC (“MedWorks”) as a purchasing agent to, among other things, procure

imaging equipment for to–be–formed diagnostic centers, including the

Center in Prattville.

8. MedWorks was owned and operated by Wendell Gibson.

Gibson is an expert and has previously been involved in the negotiation and

procurement of medical imaging equipment, including MRI systems.

Gibson has negotiated hundreds of contracts.

9. Gibson hired Randall Spradlin as an employee of

MedWorks. Spradlin has spent much of his career in the medical imaging

equipment business. From 2000 through 2014 Spradlin formed and

operated two different companies, Medical Imaging Systems and

Medovation, which developed, owned, and managed imaging facilities.

10. Jeff Trotman served as Chief Technology Officer of The

Lemak Group of Companies, LLC (a separate entity affiliated by common

ownership with Central Alabama Diagnostics).

11. Rodney Fountain is a former Toshiba employee (Toshiba’s

former Account Executive); his responsibilities included developing new


4

prospects and maintaining contact with customers to sell Toshiba’s products

within a defined sales territory, which included Central Alabama

Diagnostics.

12. Toshiba sued Fountain in this litigation as a third-party

defendant.

13. Les Friend is a former Toshiba employee (Toshiba’s former

Vice President of the Strategic Business Group); his responsibilities

included supervising and directing sales staff efforts, including Rodney

Fountain.

14. Michael Roberts acted as Toshiba’s Zone Business Manager

for the South Zone (a geographical territory that included the Center in

Prattville) until June 1, 2015, when he became Toshiba’s Zone Business

Manager for the Mid-South Zone (a different geographical territory that did

not include the Center in Prattville); he specializes in Toshiba MRI

equipment and applications.

15. Nancy Gillen is a former Toshiba employee (Toshiba’s

former Vice President of Marketing); her responsibilities included directing

business units, communications, and marketing services teams to

accomplish corporate objectives.

16. Steve Metildi acted as Toshiba’s Director of Business

Operations; his responsibilities included directing preparation of all sales

quotations and customer orders, as well as selecting bid responses for the

sales force.

17. Suresh Narayan acted as Toshiba’s Senior Manager of

Strategic Development; his responsibilities included assisting managers to

position, price, and promote high value offerings, and to develop high

customer loyalty and improved price/value performance.

18. Tom Przybycien acted as Toshiba’s Zone Business Manager

for the Gulf South Zone (the geographical territory that, as of June 1, 2015,

included the Center in Prattville); he specializes in Toshiba MRI equipment

and applications.

19. John Serovich acted as Toshiba’s Manager for Zone Sales

for the Gulf South Zone (the geographical territory that, as of June 1, 2015,

included the Center in Prattville) from April 1, 2015, to April 1, 2016; his

responsibilities included supervising Toshiba MRI sales activity and

personnel.


5

20. Chris Arnold acted as Toshiba’s MRI Material Planner; his

responsibilities included reviewing sales orders to match customer orders

with product availability, configuration, compatibility, and accuracy.

21. Larry VanDenburg acted as Toshiba’s Director of Sales

Logistics Management; his responsibilities included managing, forecasting,

and maintaining Toshiba’s product inventory levels to support customer

demands, and overseeing corporate inventory controls, logistics, and

reporting functions.

22. Nader Rad acted as Toshiba’s General Counsel and Vice

President.

2) Negotiations for the Purchase of a Toshiba MRI System.

23. In November 2014, MedWorks began negotiations with

Toshiba about the purchase of MRI systems for multiple to–be–formed

diagnostic centers.

24. Toshiba-Japan supplied to Toshiba new magnets for

Toshiba’s MRI systems.

25. Toshiba sells new, refurbished, and used MRI systems and

maintains a refurbishing facility at its headquarters in Tustin, California.

26. A “new” MRI system is one that has never been leased or

owned by any prior customer at the time of purchase. A “used” MRI system

is one that has been leased or owned by one or more prior customers at the

time of purchase.

27. On December 2, 2014, Toshiba executives, including

Fountain, Friend, and Roberts, met with MedWorks at the Radiological

Society of North America Convention (“RSNA”) in Chicago, Illinois to

discuss the purchase of a Toshiba MRI system.

28. The RSNA Convention is a large gathering where salesmen

meet with customers and potential customers to see if customer needs can

be matched, and sold, with available products.

29. Toshiba’s Nancy Gillen was also present at RSNA.

30. The negotiations between MedWorks and Toshiba lasted

over four months. During that time, Toshiba presented MedWorks with

numerous proposals for both new and refurbished MRI systems.


6

31. In mid-to-late December 2014, Toshibas executives were

communicating about competing offers for MedWorks’ business from GE

Healthcare.

3) Central Alabama Diagnostics’ Execution of the Quotation for

the Purchase of a Toshiba MRI System.

32. On February 27, 2015, Rodney Fountain of Toshiba

provided MedWorks with a Quotation for an “Assurance Vantage Titan

1.5T 16 Channel MRI System.” The Quotation states: “This quotation is for

a refurbished Vantage Titan 1.5 MR system. This system may include

refurbished RF coils, positioning devices, table pads as detailed in the

system configuration.” The Quotation stated a price of $800,000.

33. The Quotation specified Central Alabama Diagnostics as the

recipient.

34. On or about March 4, 2015, Gibson of MedWorks discussed

and reviewed the Quotation with Lemak of Central Alabama Diagnostics.

35. Lemak had Bruce Gordon, a Birmingham business lawyer,

review the Quotation before signing it. Neither MedWorks nor Lemak

requested any revisions to the Quotation.

36. On March 16, 2015, Lemak signed the Quotation on behalf

of Central Alabama Diagnostics, and on that same date Central Alabama

Diagnostics sent a signed copy to Toshiba.

4) Toshiba’s Acceptance of Central Alabama Diagnostics’ Offer to

Purchase the Toshiba MRI System.

37. On May 27, 2015, Toshiba “booked” the Quotation, thereby

creating, according to Toshiba’s procedures, a valid and binding contract.

5) Delivery and Installation of the Toshiba MRI System.

38. Toshiba delivered an MRI system, consisting of multiple

components, to Central Alabama Diagnostics over several weeks in August

and September 2015.

39. The MRI system that Toshiba delivered to Central Alabama

Diagnostics was first delivered to a different Toshiba customer, Cooper

Health System in Camden, New Jersey, in 2012. Cooper Health System

returned the MRI system to Toshiba on May 5, 2015.


7

40. During the installation of the Toshiba MRI system, Fountain

resigned from his employment with Toshiba and accepted a job as a sales

representative with GE Healthcare.

6) Dispute About the Used MRI System.

41. On September 28, 2015, MedWorks met with Toshiba’s

Justin Helms (Account Executive who replaced Fountain), John Serovich,

Tom Przybycien, and Michael Roberts at MedWorks’ office in

Birmingham, Alabama to discuss Central Alabama Diagnostics’ misgivings

and concerns about the MRI system that Toshiba delivered to Central

Alabama Diagnostics.

42. Based on its concerns and misgivings, Central Alabama

Diagnostics, on September 29, 2015, requested that Toshiba stop installing

the MRI system.

43. On October 9, 2015, Central Alabama Diagnostics formally

rejected the MRI system delivered by Toshiba.

44. Central Alabama Diagnostics requested that Toshiba accept

the return of the MRI system. Toshiba refused to accept the system despite

Central Alabama Diagnostics’ requests that Toshiba do so.

45. Central Alabama Diagnostics paid the expenses required to

de-install, transport, store, and maintain the rejected MRI system, from

November 2015 to June 2018.

46. Central Alabama Diagnostics did not pay Toshiba for the

MRI system that Toshiba delivered.

47. Central Alabama Diagnostics purchased a new GE

Healthcare MRI system to replace the rejected Toshiba MRI system, and

paid for renovations and alterations to its facility to accommodate the

replacement installation.

48. GE Healthcare installed the replacement MRI system on

January 12, 2016.

c. Contested Issues of Fact.1

1) Agreed Issues of Fact.

1 Because of the number of witnesses and documents involved in this case, this section sets forth

a high-level summary of the contested issues of fact and is not an exhaustive, detailed list of all

factual disputes in the case.


8

1. Whether Toshiba breached the Contract.

2. Whether Central Alabama Diagnostics suffered compensatory

damages (including, but not limited to, attorneys’ fees and costs)

as a result of Toshiba’s breach of the Contract, and if so, the

amount of compensatory damages.

3. Whether the attorneys’ fees, costs, and expert fees claimed as

damages by Central Alabama Diagnostics are reasonable.

4. Whether Central Alabama Diagnostics is entitled to punitive

damages because of Toshiba’s alleged fraudulent inducement by

suppression, and if so, the amount of punitive damages.

5. Whether Central Alabama Diagnostics breached the Contract.

6. Whether Toshiba suffered compensatory damages (including,

but not limited to, attorneys’ fees and costs) as a result of Central

Alabama Diagnostic’s breach of the Contract, and if so, the

amount of compensatory damages.

7. Whether the attorneys’ fees and costs claimed by Toshiba are

reasonable.

2) Central Alabama Diagnostics’ Proposed Issues of Fact.

1. Whether Toshiba is liable for fraud in the inducement by

suppression of the material fact that despite its prior

representations, Toshiba could not deliver a mostly-new MRI

system to Central Alabama Diagnostics.

2. Whether Toshiba had a duty to disclose that it did not have any

new MRI systems (possibly with refurbished coils, positioning

devices, or table pads) at the time it booked Central Alabama

Diagnostics’ order.

3. Whether Toshiba had a duty to disclose that its representations

about the meaning of “refurbished” had changed and were no

longer true.

4. Whether Toshiba breached its duty to disclose that it did not

have any new MRI systems (possibly with refurbished coils,

positioning devices, or table pads) at the time it booked Central

Alabama Diagnostics’ order.


9

5. Whether Toshiba breached its duty to disclose that its

representations about the meaning of “refurbished” had changed

and were no longer true.

6. Whether because of Toshiba’s fraudulent suppression of

material facts, Central Alabama Diagnostics was induced to act

to its detriment by entering into a contract for a new Toshiba

MRI system (possibly with refurbished coils, positioning

devices, or table pads).

7. Whether the Contract’s Limitation of Liability Clause fails of its

essential purpose and is therefore unenforceable.

8. Whether Toshiba is liable for fraud in the inducement by

suppression and therefore the Contract’s Limitation of Liability

Clause is unenforceable.

9. Whether Toshiba failed to act in good faith and therefore the

Contract’s Limitation of Liability Clause is unenforceable

10. Whether Toshiba materially breached the Contract and therefore

cannot rely upon any Contract remedies contained therein.

3) Toshiba’s Proposed Issues of Fact.

1. Whether Central Alabama Diagnostics has proven facts

sufficient to establish that Toshiba had a duty to disclose that

“refurbished,” as used in the written agreement, did not mean

new.

2. Whether Central Alabama Diagnostics has proven facts

sufficient to establish that Toshiba had a duty to disclose that

Toshiba did not intend to ship a new MRI to Central Alabama

Diagnostics.

3. Whether Toshiba failed to disclose or concealed that

“refurbished,” as used in the written agreement, did not mean

new.

4. Whether Toshiba failed to disclose or concealed that Toshiba did

not intend to ship a new MRI to Central Alabama Diagnostics.

5. Whether Central Alabama Diagnostics reasonably relied on oral

statements made by representatives of Toshiba.

6. Whether Toshiba willfully concealed information with an intent

to deceive Central Alabama Diagnostics.


10

7. The meaning of the phrase in the Contract: “This quotation is for

a refurbished Vantage Titan 1.5 MR system. This system may

include refurbished RF coils, positioning devices, table pads as

detailed in the system configuration.”

8. Whether the Limitation of Liability Clause in the Contract is

enforceable and precludes Central Alabama Diagnostics from

recovering any monetary damages or whether it fails of its

essential purpose.

d. Agreed Applicable Propositions of Law.

1) To establish Toshiba’s fraud-in-the-inducement by suppression,2

Central Alabama Diagnostics must prove the following elements by a

preponderance of the evidence: (1) Toshiba had a duty to disclose material facts to

Central Alabama Diagnostics relating to the purchase of an MRI system; (2)

Toshiba failed to disclose or concealed material facts relating to the purchase of an

MRI system; (3) Toshiba induced Central Alabama Diagnostics to act in

committing to the purchase of an MRI system; and (4) Central Alabama

Diagnostics reasonably acted to its injury in agreeing to purchase the MRI system

from Toshiba. See CNH America, LLC v. Ligon Capital, LLC, 160 So. 3d 1195,

1201 (Ala. 2013); A.P.J.I §§ 18.05, 18.06, 18.08, 18.10.3

2 It is Central Alabama Diagnostics’ position that intent is not an element of a claim for fraud-in-

the-inducement by suppression. See, e.g., Intercorp, Inc. v. Pennzoil Co., 877 F.2d 1524, 1535

(11th Cir. 1989) (“Section 6-5-102 does not require proof of intent to deceive. The breach of an

obligation to disclose is sufficient to trigger liability for fraudulent suppression.”); Doc. 134 at 7

(“The elements of fraud by suppression are: ‘(1) the defendant had a duty to disclose an existing

material fact; (2) the defendant concealed or suppressed that material fact; (3) the defendant’s

suppression induced the plaintiff to act or refrain from acting; and (4) the plaintiff suffered actual

damage as a proximate result.’”). As Your Honor stated at the summary judgment hearing on

December 11, 2017, “I don’t see that intent to deceive is an element in the basic requirements to

establish a claim for fraud-in-the inducement or suppression.” But Central Alabama Diagnostics

acknowledges that an intentional concealment could give rise to an award of punitive damages and

that evidence of intent is certainly relevant to the issues in dispute. See, e.g., A.P.J.I § 11.03

(“Malice is the intentional doing of a wrongful act without just cause or excuse, either (1) with an

intent to injure the person or property of another person or entity, or (2) under circumstances that

the law will imply an evil intent.”).

3 In addition to these agreed-upon elements of fraud-in-the-inducement by suppression, Toshiba

contends that the law requires proof in this case that Toshiba willfully intended to deceive Central

Alabama Diagnostics. See Soniat v. Johnson-Rast & Hays, 626 So. 2d 1256, 1259 (Ala. 1993)

(“[A] defendant who has no duty to disclose arising from his relationship with the plaintiff or the

special circumstances of the transaction may nevertheless be liable for fraudulent concealment if


11

2) To establish breach of contract, the party asserting the claim must

prove the following elements by a preponderance of the evidence: (1) the existence

of a valid and binding contract; (2) the party asserting the claim has met and

performed, or is excused from performing, its obligations under the contract, (3) the

other party has not performed its obligations under the contract, and (4) resulting

damages. See S. Med. Health Sys., Inc. v. Vaughn, 669 So. 2d 98, 99 (Ala. 1995);

A.P.J.I §§ 10.00-10.05, 10.13-10.14, 10.25, 10.36-10.37, 10.49.

3) If Toshiba is liable for fraud, Central Alabama Diagnostics is

entitled to a rescission of the Contract as an alternative to recovery on its claim for

breach of contract. See Steger v. Everett Bus Sales, 495 So. 2d 608, 609 (Ala.

1986).

4) The parties’ claims for attorneys’ fees, costs, and expert fees,

pursuant to the Contract, will be determined by the jury. Hill v. Premier Builders,

56 So. 3d 669, 675–76 (Ala. Civ. App. 2010).

5) The parties must prove that their requested attorney’s fees are

reasonable. “Alabama law reads into every agreement allowing for the recovery of

attorney’s fees a reasonableness limitation.” Willow Lake Residential Ass’n, Inc.

v. Juliano, 80 So. 3d 226, 241 (Ala. 2010).

6) To establish Toshiba is liable for punitive damages, Central

Alabama Diagnostics must prove, by clear and convincing evidence, that Toshiba

consciously or deliberately acted toward Central Alabama Diagnostics with

oppression, fraud, wantonness, or malice. See A.P.J.I § 11.03.

7) For purposes of the imposition of punitive damages, fraud means an

intentional misrepresentation, deceit, or concealment of an important fact the

concealing party had a duty to disclose, which was gross, oppressive, or malicious

and committed by the defendant with the intention of depriving a person or entity

of property or legal rights or otherwise causing injury. See A.P.J.I § 11.03.

8) For purposes of the imposition of punitive damages, oppression

means causing a party to undergo cruel and unjust hardship in knowing disregard

of that party’s rights. See A.P.J.I § 11.03.

9) For purposes of the imposition of punitive damages, wantonness

means conduct that is carried on with a reckless or conscious disregard of the rights

or safety of others. See A.P.J.I § 11.03.

10) For purposes of the imposition of punitive damages, malice means

the intentional doing of a wrongful act without just cause or excuse, either (1) with

he knowingly takes action to conceal a material fact with the intent to deceive or mislead the

plaintiff.”) (emphasis added).


12

an intent to injure the person or property of another person or entity, or (2) under

circumstances that the law will imply an evil intent. See A.P.J.I § 11.03.

11) If you find that any employee of Toshiba was responsible for Central

Alabama Diagnostics’ harm, and that punitive damages should be awarded for

his/her/their wrongful conduct, you can award punitive damages against Toshiba

if you are reasonably satisfied by the evidence that: (1) Toshiba either knew or

should have known that its employee(s) was/were unfit but Toshiba hired or

continued to employ him/her/them with a disregard for the rights or safety of

others or Toshiba used its employee(s)’ services without proper instruction and

with a disregard for the rights or safety of others; or (2) Toshiba approved the its

employee(s)’ wrongful conduct before it happened; or (3) Toshiba approved its

employee(s)’ wrongful conduct after it happened; or (4) the employee(s)’ acts

were intended to or did benefit Toshiba. See Ala. Code § 6-11-27; A.P.J.I. § 11.42.

e. Plaintiff/Counterclaim Defendant’s Position.

This case centers upon the sale (by Toshiba) and the purchase (by Central Alabama

Diagnostics) of a large, sophisticated piece of medical equipment, called a magnetic resonance

imaging system (“MRI system”), that is used to take internal pictures of the human body. The

magnet is the most important component of the MRI system, akin to the system’s “heart.” Central

Alabama Diagnostics retained a third-party architect and construction company to build a facility

in Prattville, Alabama to meet Toshiba’s site specific installation drawings and requirements for

installation of the MRI system. Central Alabama Diagnostics’ new state-of-the-art facility was

scheduled to open in October 2015 to treat patients in central Alabama.

After months of negotiations, Toshiba induced Central Alabama Diagnostics into signing

a Quotation for the purchase of a new Toshiba MRI system with a few minor refurbished parts

(limited to the coils, the table pads, and the positioning devices). The purchase price for the system

was $800,000. Toshiba internally reclassified the new MRI system as “refurbished” to achieve a

lower price point and to comply with its group purchasing organization and government contracts.

Toshiba repeatedly represented that the MRI system would be called “refurbished” only because

it might contain a few minor refurbished parts; all other major component parts of the MRI system,

including the all-important magnet, were to be new. Although Toshiba presented multiple

proposals for MRI systems to Central Alabama Diagnostics’ purchasing agent, MedWorks, this

Quotation was the only proposal Toshiba submitted to Central Alabama Diagnostics. At all times

during the negotiations, Central Alabama Diagnostics made clear that it was interested only in new

MRI systems. In reliance on Toshiba’s representations, Central Alabama Diagnostics signed the

Quotation for the system. Toshiba accepted Central Alabama Diagnostics’ offer and booked the

Quotation and, by its own procedures, created a binding contract.

Central Alabama Diagnostics contends that (1) Toshiba’s representatives explained “that

‘refurbished’ as used in the Contract meant new (with a new magnet, new electronics, a new

operator’s console, and new component parts)”; (2) Central Alabama Diagnostics entered into the

Contract because of Toshiba’s explanation and representations that “refurbished” in this context

meant “new” as to the essential component of the system, the magnet; (3) prior to the completion

of the transaction, Toshiba discovered that it could not provide a new system; and (4) Toshiba


13

failed to disclose to Central Alabama Diagnostics that it could not comply with the representations

of its sales executive about a new magnet and that this material fact had changed. Although

Toshiba had a duty to inform Central Alabama Diagnostics, Toshiba concealed the fact that

Toshiba intended to (and did) deliver a used 2012 MRI system, with a used magnet, outdated

computer software, and a prior customer’s protected health information (“PHI”), and which the

prior customer had returned because of performance problems.

In particular, Toshiba concealed from Central Alabama Diagnostics that Toshiba had sold

all of its new magnets, and that “refurbished” no longer meant a new MRI system that might

include a few minor refurbished parts (limited to the coils, the table pads, and the positioning

devices) but would now be redefined by Toshiba management (after the Contract was booked) to

include a used magnet. That concealment was driven by a profit analysis of the costs of compliance

with its commitment for a new magnet versus the potential profit from a decision to send a used

returned magnet to Central Alabama Diagnostics. Despite its duty to do so, Toshiba never

informed Central Alabama Diagnostics that it did not have a system to fulfill the order and had

decided to deliver to Central Alabama Diagnostics a used 2012 MRI system returned to Toshiba

by a prior customer. Rather than deliver the new MRI system it had promised, Toshiba delivered

a used 2012 MRI system with a used magnet, performance problems, outdated computer software,

and PHI from the prior customer.

In September 2015, Central Alabama Diagnostics promptly raised its misgivings and

concerns about the used MRI system to Toshiba. During that meeting, Toshiba confirmed Central

Alabama Diagnostics’ understanding that Toshiba had promised to deliver a new MRI system.

Nonetheless, Toshiba represented that it would provide the used MRI system’s past service history,

per Central Alabama Diagnostics’ request, but later reneged on that promise. Toshiba also

repeatedly denied that the used MRI system was embedded with a prior customer’s PHI in an effort

to mislead Central Alabama Diagnostics and to cover up its unauthorized breach of confidential

patient health information in violation of the Health Insurance Portability and Accountability Act

(“HIPAA”). Yet Toshiba’s national installer and corporate representative later confirmed that

Toshiba delivered PHI of its prior customer to Central Alabama Diagnostics’ facility, contrary to

Toshiba’s standard procedures.

Central Alabama Diagnostics promptly rejected the used MRI system and requested that

Toshiba remove it, but Toshiba categorically refused. As a result, Central Alabama Diagnostics

was forced to incur damages to de-install, transport, store, and maintain the rejected Toshiba MRI

system, purchase a new MRI system at a higher price, and pay for renovations to its facility to

accommodate the replacement system. Toshiba’s conduct also delayed the opening date of Central

Alabama Diagnostics’ facility, for which Central Alabama Diagnostics lost revenue, and forced

Central Alabama Diagnostics to incur substantial attorneys’ fees, costs, and expert fees in this

approximately three-year civil action. It was not until June 14, 2018, nearly three years after

Central Alabama Diagnostics initially rejected the used MRI system, that Toshiba finally

repossessed the system. An inspection of the rejected MRI system mere days before Toshiba’s

repossession further confirmed that the prior customer’s PHI was embedded on the MRI system’s

computer hard drive. Toshiba objected to and declined an invitation to participate in this

inspection.


14

The Contract provides that “[i]n the event of any legal proceeding involving any party to

this Agreement against the other relating to the subject matter of this Agreement, the prevailing

party in such proceeding will be entitled to recover attorney’s fees, expert fees, and court costs

against the non-prevailing party.” Central Alabama Diagnostics has incurred substantial attorneys’

fees and costs and expert fees in its efforts to hold Toshiba accountable for its fraudulent conduct

and breach of the Contract. These fees are reasonable in light of Toshiba’s fraud and the length,

complexity, and manner in which the litigation has proceeded.

Central Alabama Diagnostics should be awarded a judgment that Toshiba intentionally and

fraudulently suppressed material information and induced Central Alabama Diagnostics into

signing the Quotation and breached the Contract, resulting in compensatory and punitive damages

in favor of Central Alabama Diagnostics. In the event the jury determines there was no valid and

binding Contract, Central Alabama Diagnostics seeks a judgment for rescission of the Contract as

an alternative to its claim for breach of contract.

Central Alabama Diagnostics denies that it is liable on Toshiba’s counterclaim for breach

of contract.

f. Defendant/Counterclaim Plaintiff’s Position.

After months of negotiations between Toshiba and MedWorks which included proposals

to sell numerous imaging systems, including both new and refurbished, MedWorks and Central

Alabama Diagnostics ultimately elected to sign a contract to purchase a “refurbished” MRI system.

Central Alabama Diagnostics could not have reasonably or legitimately believed that it was buying

a new MRI system when the contract it signed specifically called for a “refurbished MRI system.”

This fact is especially true because Central Alabama Diagnostics not only had medical equipment

purchasing experts (MedWorks) advising it on the contract, but it also had the contract reviewed

by a business lawyer before signing. At no point did Central Alabama Diagnostics, its lawyer, or

MedWorks ask that the contract be revised, that the term “refurbished” be changed to “new,” or

that the term “refurbished” be expressly defined in the contract.

In addition to specifically describing the MRI system in the contract as “refurbished,” the

Toshiba employee who selected the equipment to be shipped to Central Alabama Diagnostics,

instructed the sales representative, Rodney Fountain, to inform MedWorks and Central Alabama

Diagnostics that it would be installing a refurbished MRI system that had been used at Cooper

University Hospital and that would include a used magnet and other used components. Therefore,

Toshiba was in no way trying to conceal its intent to deliver a refurbished system in accordance

with the terms of the contract.

On September 28, 2015, while installation of the MRI system was ongoing, MedWorks

met with Toshiba representatives for the first time to express their concerns about the fact that the

MRI system was not new. The very next day, MedWorks kicked the Toshiba installation team out

of the facility and refused to allow the installation to be completed. The day following, September

30, MedWorks signed a quotation for Central Alabama Diagnostics to purchase an MRI system

from GE Healthcare to replace the Toshiba system. Central Alabama Diagnostics never paid

Toshiba for the MRI system or the installation work that was performed.


15

Central Alabama Diagnostics’ contentions about private health information (PHI) being

left on the MRI system by Toshiba are misguided. First, MedWorks observed the PHI on an

external back-up drive. MedWorks did not have authority or permission from Toshiba to access

the back-up drive, as installation had not been completed. Furthermore, if Central Alabama

Diagnostics had allowed Toshiba to complete the installation of the system, the back-up drive

would have been removed from the facility and Toshiba would have erased all PHI off the system’s

hard drive. Therefore, if Central Alabama Diagnostics had allowed Toshiba to complete the

installation, there would have been no PHI remaining on the system. Furthermore, Central

Alabama Diagnostics rejected the MRI System because it was not new. Toshiba has never denied

that it delivered a used, refurbished system. Whether or not the MRI System had PHI on it when

Central Alabama Diagnostics rejected it and ordered Toshiba personnel to leave the premises is

irrelevant to any claim or defense in the case and is simply an attempt by Central Alabama

Diagnostics to inspire prejudice against Toshiba.

Central Alabama Diagnostics breached its contract with Toshiba by (1) refusing to allow

Toshiba to complete the installation of the MRI system, (2) rejecting the refurbished MRI system

even though the contract called for a “refurbished system, (3) refusing to pay Toshiba the contract

price, and (4) failing to honor its contractual obligation to purchase a service agreement from

Toshiba. Toshiba should receive a judgment on its claim against Central Alabama Diagnostics for

breach of contract and an award of compensatory damages, including interest, attorneys’ fees, and

costs.

In addition, Toshiba should be awarded a judgment in its favor on all of the claims brought

by Central Alabama Diagnostics. Toshiba performed its obligations under the contract by

delivering and installing a refurbished MRI system that met and exceeded the specifications of the

contract. Furthermore, Central Alabama Diagnostics could not have reasonably relied on prior

discussions about receiving a new MRI system when it executed a contract calling for a refurbished

system. In addition, Toshiba had no intent to deceive Central Alabama Diagnostics, as proven by

the emails sent by Toshiba’s Material Planner in charge of filling the order which included detailed

information about the MRI system, including the fact that it had a used magnet and other used

components.

Even if Central Alabama Diagnostics were able to establish that Toshiba breached the

contract or failed to disclose information, it cannot recover any damages from Toshiba. Central

Alabama Diagnostics contractually agreed to limit any liability relating to the purchase of the MRI

system to the amount paid to Toshiba, and it never paid any money to Toshiba.

Finally, Toshiba contends that certain categories of Central Alabama Diagnostics’ damages

are unsupported by law. Alabama law requires that a claim for attorneys’ fees under a fee shifting

provision in a contract can only be for reasonable attorneys’ fees. Central Alabama Diagnostics’

fees, which are nearly three times Toshiba’s attorneys’ fees, are not reasonable. Alabama law

further provides that attorneys’ fees cannot be awarded for unsuccessful claims. The court has

already dismissed two of the five claims asserted by Central Alabama Diagnostics in its Third


16

Amended Complaint and other claims were previously abandoned by Central Alabama

Diagnostics.

6. Discovery and other pretrial procedures.

a. Primary fact discovery in this case was completed by December 30, 2016.

The court extended the deadline to take depositions of witnesses who will

testify as to the amount and reasonableness of attorneys’ fees and costs until

approximately 30 days prior to trial. (See Doc. 97).

b. The Standard Pretrial Procedures specified on Exhibit A hereto are adopted

as part of this Order.

c. Pending motions: Defendant’s Motion in Limine #1 (Doc. 144).

d. Motions in limine shall be filed by November 5, 2018, and shall be

accompanied by supporting memoranda. The parties shall file their

oppositions to any motions in limine that are filed by November 12, 2018.

e. The January 20, 2017, deadline for filing any dispositive motions has passed

and all motions have been ruled upon.

f. The final pretrial conference is scheduled to take place on Friday,

November 16, 2018, at 1:30 PM.

7. Trial. At least five business days prior to trial, the parties shall present to the court

any special questions or topics for voir dire examination of the jury venire, and, to

the extent the same can be anticipated, any requests for instructions to the jury

(including extracts of any statutes on which instructions are requested). (See

specific requirements for Jury Instructions in Exhibit A.) By the date set for trial,

the parties shall file and serve any requested special verdict forms or interrogatories

for submission to the jury. These submissions should be served on opposing

counsel and emailed in WordPerfect format to chambers

([email protected]).

8. Advisory for Limiting Personal Information in Transcripts and Exhibits. The

judiciary’s privacy policy restricts the publication of certain personal data in

documents filed with the court. The policy requires limiting Social Security

financial account numbers to the last four digits, using only initials for the names

of minor children, and limiting dates of birth to the year. However, if such

information is elicited during testimony or other court proceedings, it will become

available to the public when the official transcript is filed at the courthouse unless,

and until, it is redacted. The better practice is for you to avoid introducing this

information into the record in the first place. Please take this into account when

questioning witnesses, presenting documents, or making other statements in court.

If a restricted item is mentioned in court, you may ask to have it stricken from the


mailto:[email protected]

17

record or partially redacted to conform to the privacy policy, or the court may do

so on its own motion.

Documents that include PHI (including documents reflecting PHI of patients of

Toshiba’s prior customer, which is an issue in this litigation), should be filed under

seal in accordance with Federal Rule of Civil Procedure 5.2, the Northern District

of Alabama Civil Administrative Procedures Manual, and the court’s

confidentiality orders (Docs. 23, 27, 66).

9. This case is set for jury trial in Birmingham, Alabama, to begin on December 3,

2018. Counsel reasonably anticipate the case should take approximately 5-7

business days to try.

DONE AND ORDERED this 10th day of September, 2018, that the above provisions be binding

on all parties unless modified by further order or for good cause shown.

DONE and ORDERED this 10th day of September, 2018.

____________________________________

KARON OWEN BOWDRE

CHIEF UNITED STATES DISTRICT JUDGE


Date post:	06-Aug-2020
Category:	Documents
Upload:	others
View:	1 times
Download:	0 times