Labib Riachi v. Prometheus Group

• Court: Court of Appeals for the Third Circuit
• Decided: July 9, 2020
• Docket: 19-2768
• Status: Unpublished

Opinion

NOT PRECEDENTIAL

UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT ________________

No. 19-2768 ________________

LABIB RIACHI,

Appellant

v.

THE PROMETHEUS GROUP; JANE DOES 1-4; JOHN DOES 1-4; FIRST CHOICE FOR CONTINENCE, INC.

________________

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 ________________

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) ________________

OPINION* ________________

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.

6 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). 9 [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. 11