Healthcare I.Q., LLC v. Tsai Chung Chao

118 A.D.3d 98, 986 N.Y.S.2d 42

This text of 118 A.D.3d 98 (Healthcare I.Q., LLC v. Tsai Chung Chao) is published on Counsel Stack Legal Research, covering Appellate Division of the Supreme Court of the State of New York primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Healthcare I.Q., LLC v. Tsai Chung Chao, 118 A.D.3d 98, 986 N.Y.S.2d 42 (N.Y. Ct. App. 2014).

Opinion

OPINION OF THE COURT

Gische, J.

This breach of contract action arises from a Practice Management and Licensing Agreement between the parties dated February 6, 2007. Plaintiff Healthcare I.Q. (HCIQ), a health care services company, agreed to provide Dr. Tsai Chung Chao, M.D. and his medical practice (collectively Dr. Chao) with coding, billing, collection and other services aimed at improving the efficiency of Dr. Chao’s office operations. The agreement, which provides for the licensing of HCIQ’s office management program software to Dr. Chao, and was initially for a 36 month term commencing February 1, 2007, includes a “HIPAA Business Association Addendum” providing that all the information entrusted to HCIQ is regulated by the Federal Health Insurance Portability and Accountability Act of 1996 (45 CFR 164.501). It further provides that upon termination of the agreement, the “Business Associate [HCIQ] shall return or destroy all Protected Health Information received from Covered Entity [Dr. Chao], or created or received by the Business Associate on behalf of Covered Entity.” The agreement’s “Termination” identifies Dr. Chao’s “unauthorized use” of the program as a qualifying, terminating event.

All of the records generated, prepared and maintained by Dr. Chao and his staff, including patients’ confidential records and files, were scanned and uploaded into the program on an ongoing basis and were used by HCIQ in coding, tabulating, reviewing and analyzing Dr. Chao’s billables, reimbursements, and billing procedures. Under the agreement, HCIQ was responsible for “the Practice Staff, management and supervision of the medical billing, coding, collection of reimbursable insurance dollars, adherence to documentation guidelines, compliance issues, business issues, and for overall management of the medical facility.” The program, which was to be installed on Dr. Chao’s computers, is proprietary to HCIQ and is not available to the general community. HCIQ charged Dr. Chao a basic retainer fee [101]*101of $14,000 per month for its program and services. Although Dr. Chao was also subject to a per use fee when accessing the records and files scanned or uploaded to the program, there was a $15,000 cap on the monthly retainer fee. The cap remained effective for the “term of this Agreement.”

In addition to the termination provisions, the agreement contained a “License” clause restricting Dr. Chao’s use of the program in the following manner:

“HCIQ grants the Practice a limited, non-exclusive, non-transferrable, non-assignable license to incorporate the Program(s) provided by HCIQ into licensee’s desktop or network information system, as the case may be, for the term of this Agreement, subject to any early termination of this Agreement. Thereafter, this Agreement shall be automatically renewed for additional eighteen (18) month periods unless either party by written notice notifies the other at least ninety days before the end of any eighteen (18) month renewal period that it intends to terminate the services provided for hereunder, and such notification shall be effective one hundred and eighty (180) days thereafter.”

Dr. Chao paid the monthly retainer throughout the initial 36 month term of the agreement from February 2007 to January 2010. He also made a $15,000 payment to HCIQ in February 2010. According to HCIQ, Dr. Chao and its principal informally discussed whether Dr. Chao would be renewing the agreement for an additional term and Dr. Chao said that he would renew it, a statement which Dr. Chao denies. It is undisputed that HCIQ did not provide Dr. Chao with any written notice that the agreement would be automatically renewed for another 18 month term, nor did Dr. Chao notify HCIQ in writing that he did not intend to renew the agreement at that time.

After February 2010, Dr. Chao and his staff continued to use the program to access patient records, although he stopped making payments to HCIQ. According to Dr. Chao, he had no choice but to use the program to access patient records and other files which had been scanned and uploaded. Dr. Chao and his staff last used the program in June 2010, at which time HCIQ commenced this action.

Although neither party provided written notice regarding the renewal or non-renewal of the agreement after the initial term ended, each side takes the position that it was under no obliga[102]*102tion to do so. Dr. Chao relies on the requirements in General Obligations Law § 5-903 and HCIQ relies on the automatic renewal provision of the agreement. The only written notice regarding the agreement was made by Dr. Chao on October 18, 2012, at which time he notified HCIQ that he was terminating the agreement effective March 2010, “consistent with my verbal termination of the agreement in early 2010.” He sent the notice only after this action was commenced. HCIQ maintains that Dr. Chao never terminated the agreement, which automatically renewed twice for two consecutive 18 month terms, and that Dr. Chao owes $525,000.

The parties’ dispute centers on whether the agreement is a contract for “service ... to or for . . . personal property”

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Bluebook (online)
118 A.D.3d 98, 986 N.Y.S.2d 42, Counsel Stack Legal Research, https://law.counselstack.com/opinion/healthcare-iq-llc-v-tsai-chung-chao-nyappdiv-2014.