Ariba, Inc. v. Omnicare, Inc

Case Name:   Ariba, Inc. v. Omnicare, Inc.

 

Case No.:       1-12-CV-228800

 

Factual and Procedural Background

 

Complaint

 

On March 30, 2012, plaintiff Ariba, Inc. (“Ariba”) and defendant Omnicare, Inc. (“Omnicare”) entered into a Subscription Agreement and incorporated Ariba Order Form (collectively, “Agreement”) relating to automation of Omnicare’s accounts payable functions through the use of Ariba’s software and services.  (Complaint, ¶¶21 – 22.)  In return for payment and other consideration, Ariba licensed to Omnicare the use of certain Ariba software services (“Solutions”) and provided other “Consulting Services.”  (Complaint, ¶23.)  Omnicare agreed to pay fees which were non-cancelable and non-refundable within 30 days of invoice.  (Complaint, ¶24.)  The Agreement was fully integrated and stated no further modification could be made without mutual written consent. (Complaint, ¶¶36 – 37.)

 

Nearly two months after the parties entered into the Agreement, on or about May 23, 2012, Omnicare demanded Ariba enter into a separate contract entitled Business Associate Agreement (“BAA”) requiring Ariba to comply with the requirements of Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) so as to safeguard personal health information that may be supplied.  (Complaint, ¶¶3 and 40.)  Ariba refused to sign the proposed BAA because its system could not handle such information.  (Complaint, ¶41.)  The Agreement prohibited delivery by an Ariba customer of such personal health information.  (Complaint, ¶42.) Ariba explained that it would not have entered into an agreement which required HIPAA compliance.  (Complaint, ¶44.)

 

On or about June 29, 2012, Omincare sent Ariba a “Notice of Termination of Agreement” stating Omnicare was required to conform to privacy-related regulations under HIPAA. (Complaint, ¶45.)  Omnicare admitted that it was not until after execution of the Agreement that Omnicare became aware that “Registered Users may have the ability to submit protected health information directly to the production site on the Ariba Network.”  (Complaint, ¶48.)  Upon realization of this possibility, Omnicare proposed the BAA to Ariba.  (Complaint, ¶49.) Omnicare further stated that because Ariba refused to enter into the BAA, Omnicare deemed Ariba to be in breach of the Agreement.  (Complaint, ¶50.)  Omnicare provided Ariba 30 days to cure; otherwise Omnicare would treat the Agreement as terminated.  (Id.)  Omnicare directed all work by Ariba to cease until breach had been cured.  (Complaint, ¶52.)

 

On July 5, 2012, Ariba sent Omnicare invoices for fees and expenses due under the Agreement.  (Complaint, ¶53.)  Omnicare refused to pay Ariba.  (Complaint, ¶¶54 and 56.)

 

On July 19, 2012, Ariba commenced this action by filing a complaint against Omnicare which asserted causes of action for (1) breach of contract; and (2) breach of implied covenant of good faith and fair dealing.

 

On September 4, 2012, Omnicare filed its answer to Ariba’s complaint and also filed a cross-complaint against Ariba.

 

Cross-Complaint

 

Omnicare is a healthcare services company operating two primary businesses: (1) long-term care; and (2) specialty care.  (Cross-Complaint, ¶1.)  Omnicare’s long-term care group provides pharmaceuticals and related services to long-term care facilities and chronic care facilities.  (Id.)  Omnicare’s specialty care group provides services for the biopharmaceutical industry and end-of-life pharmaceutical care management for hospice agencies.  (Id.)  Due to the nature of its business, Omnicare regularly comes into possession of and transmits patient confidential and protected health information (“PHI”).  (Cross-Complaint, ¶2.)  As such, Omnicare is subject to federal regulations governing the use and disclosure of PHI.  (Id.)

 

In 2011, Omnicare processed nearly half a million paper invoices and had over 60,000 vendors.  (Cross-Complaint, ¶3.)  Omnicare began exploring ways to automate its billing procedures to improve its accounts payable efficiency.  (Id.)  Ariba claimed to be a leader in providing business commerce solutions.  (Cross-Complaint, ¶¶4 – 6.)  In March 2012, Omnicare entered into a contract with Ariba to purchase certain Ariba invoicing products and consulting services for the purpose of digitizing Omnicare’s paper-intensive accounts payable process. (Cross-Complaint, ¶7.)

 

Omnicare is considered a “Covered Entity” pursuant to HIPAA regulations and is required by federal law to obtain assurances from its “Business Associates” that the Business Associate will appropriately safeguard PHI they receive or create on behalf of Omnicare.  (Cross-Complaint, ¶¶8 – 9.)  Ariba is a “Business Associate” as defined by HIPAA.  (Id.) Omnicare sought assurances from Ariba by proposing the BAA, but Ariba refused to enter into the BAA.  (Id.)  Ariba’s refusal to protect PHI and enter into the BAA prevents Ariba from fulfilling its obligations under the Agreement and constitutes a material breach of the Agreement. (Cross-Complaint, ¶11.)  Had Omnicare known that Ariba would refuse to protect PHI and refuse to enter into the BAA, Omnicare would not have entered into the Agreement.  (Cross-Complaint, ¶13.)  Due to the parties’ mutual mistake, the Agreement should be rescinded.  (Id.)

 

Omnicare’s cross-complaint asserts causes of action against Ariba for: (1) breach of contract; (2) breach of the implied covenant of good faith and fair dealing; and (3) rescission.  On October 4, 2012, Ariba filed an answer to Omnicare’s cross-complaint.

 

On July 17, 2014, Ariba filed a motion for summary adjudication of its breach of contract cause of action, Omnicare’s affirmative defenses of mutual mistake and illegality, and Omnicare’s cross-complaint.  The same day, Omnicare filed a motion for summary judgment/ adjudication of Ariba’s complaint and a separate motion for summary judgment/adjudication of its own cross-complaint.

 

Discussion

 

 

I.  Motion for Summary Judgment or [sic] in the Alternative, Summary Adjudication by Plaintiff/Cross-defendant Ariba, Inc.

 

As a preliminary matter, section 12.7 of the Agreement states, in relevant part, “This SA [Subscription Agreement] shall be deemed to have been made in, and shall be construed pursuant to the laws of the State of Delaware and the federal U.S. laws applicable therein, excluding its conflict of law provisions.  The parties hereby specifically exclude from application to this SA [Subscription Agreement] the United Nations Convention on Contracts for the International Sale of Goods.”

 

“[C]hoice of law provisions in contracts between commercial entities should be enforced, so long as there is a reasonable basis for the parties’ choice of law and the application of the chosen law would not violate public policy. [Citation.]”  (Applera Corp. v. MP Biomedicals, LLC (2009) 173 Cal.App.4th 769, 789 – 790.)  Both Ariba and Omnicare rely on Delaware law.

 

  1. Ariba’s motion for summary adjudication of the first cause of action for breach of contract in its complaint is DENIED.

 

“Where plaintiff seeks summary judgment, the burden is to produce admissible evidence on each element of a ‘cause of action’ entitling him or her to judgment.”  (Weil & Brown, et al., CAL. PRAC. GUIDE: CIV. PRO. BEFORE TRIAL (The Rutter Group 2014) ¶10:233, p. 10-102 citing Code Civ. Proc., §437c, subd. (p)(1); S.B.C.C., Inc. v. St. Paul Fire & Marine Ins. Co. (2010) 186 Cal.App.4th 383, 388 (SBCC).)  “If the plaintiff meets this burden, it is up to the defendant ‘to show that a triable issue of one or more material facts exists as to that cause of action or a defense thereto.’ [Citation.]”  (SBCC, supra, 186 Cal.App.4th at p. 388.)

 

In the first portion of its motion, Plaintiff Ariba seeks summary adjudication of its first cause of action for breach of contract.  Under Delaware law, a breach of contract requires, “first, the existence of the contract, whether express or implied; second, the breach of an obligation imposed by that contract; and third, the resultant damage to the plaintiff.”  (VLIW Tech., LLC v. Hewlett-Packard Co., 840 A.2d 606, 612 (Del. 2003).)

 

  1. Existence of the Contract

 

Ariba proffers evidence that it entered into a binding contract with Omnicare.  Ariba and Omnicare signed a Subscription Agreement incorporating an Ariba Order Form on March 30, 2012.  (See Separate Statement of Undisputed Material Facts and Supporting Evidence in Support of Ariba, Inc.’s Motion for Summary Judgment or, in the Alternative, Summary Adjudication (“Ariba’s UMF”), Issue No. 1, Fact No. 4.)  Together, the Subscription Agreement and the Ariba Order Form are referred to as the Agreement.  (Ariba’s UMF, Issue No. 1, Fact No. 6.) Omnicare’s vice-president, Jon Borman, signed the Agreement on behalf of Omnicare with the authority and intent to bind Omnicare.  (Ariba’s UMF, Issue No. 1, Fact No. 5.)

Six Omincare executives signed a document stating they reviewed and approved the Agreement. (Ariba’s UMF, Issue No. 1, Fact No. 11.)  These facts are not disputed by Omnicare.

 

  1. Breach

 

Pursuant to the Agreement, Omnicare agreed to purchase certain Ariba business commerce products and consulting services over a period of five years in exchange for fixed payments of approximately $2.6 million (plus certain transaction-related fees).  (Ariba’s UMF, Issue No. 1, Fact No. 8 and Issue No. 6, Fact No. 77.)  According to Ariba, the Agreement does not require Ariba to enter into any subsequent agreements (such as the BAA), does not require Ariba to accept sensitive and protected data into its systems, and does not require Ariba to make its products or services compliant with HIPAA.  Ariba points out that the Agreement was fully integrated and did not allow for modification without mutual written consent.  (Ariba’s UMF, Issue No. 2, Fact Nos. 13 – 14.)  Section 11.1 of the Agreement specifically states, “As between the parties, Customer is responsible for the entry, completeness, and accuracy of data it enters in the Solution (‘Solution Data’), as well as determining the suitability of the Solution for Customer’s business and complying with any regulations, laws, or conventions applicable to Customer’s data.” (Emphasis added.)  (Ariba’s UMF, Issue No. 2, Fact No. 15.)  Nothing in the Agreement requires Ariba to allow PHI or to sign any further agreement regarding compliance with HIPAA.  (Ariba’s UMF, Issue No. 2, Fact Nos. 17 – 20 and Issue No. 3, Fact Nos. 43 – 44.)  Before the Agreement was executed, Omnicare never asked about HIPAA compliance or whether Ariba’s systems could process PHI.  (Ariba’s UMF, Issue No. 2, Fact Nos. 21 – 24 and 27.)  Before executing the Agreement, Omnicare did not know that some of the invoices that would be automated included PHI and did not expect Ariba to know.  (Ariba’s UMF, Issue No. 2, Fact Nos. 25 – 26.)  In negotiating the Agreement, Omnicare did not follow its own procedures regarding HIPAA compliance.  (Ariba’s UMF, Issue No. 2, Fact Nos. 28 – 30 and 32 – 33.)

 

On May 8, 2012, Ariba and Omnicare had a kickoff meeting at which point Omnicare first realized, within two minutes, that certain invoices it sought to automate included PHI.  (Ariba’s UMF, Issue No. 2, Fact Nos. 34 – 37.)  After coming to this realization, several Omnicare employees questioned whether the proper due diligence had been conducted.  (Ariba’s UMF, Issue No. 2, Fact No. 38.)  A large portion of the invoices Omnicare sought to automate do not contain PHI and Ariba tendered performance of its products and services.  (Ariba’s UMF, Issue No. 3, Fact Nos. 39 – 42 and 45 – 46.)

 

On May 23, 2012, Omnicare sent Ariba the BAA requiring Ariba’s compliance with HIPAA, imposing other obligations upon Ariba, and overriding provisions of the Agreement. (Ariba’s UMF, Issue No. 4, Fact Nos. 47 – 50.)  Omnicare did not offer Ariba any consideration for signing the BAA.  (Ariba’s UMF, Issue No. 4, Fact No. 52.)  Ariba declined to sign the BAA. (Ariba’s UMF, Issue No. 4, Fact No. 53.)  On June 29, 2012, Omnicare sent Ariba a “Notice of Termination of Agreement,” acknowledging that Omnicare learned of the PHI issue only after execution of the Agreement. (Ariba’s UMF, Issue No. 4, Fact No. 54 – 55.)  The letter notice goes on to state that, as a result of Ariba’s refusal to execute the BAA, “Omnicare does not believe that Ariba will be able to deliver a production site that will allow Omnicare to satisfy [HIPAA] and deems this failure to be a material breach” of the Agreement. (Ariba’s UMF, Issue No. 4, Fact No. 57.)  The notice states that if Ariba does not cure the breach within 30 days, the Agreement will terminate. The notice ends by stating that all work by Ariba pursuant to the Agreement shall immediately cease and no further costs, fees or expenses shall accrue unless the breach is cured. (Ariba’s UMF, Issue No. 4, Fact No. 58.)

 

The Agreement requires Omnicare to pay fees in the amounts and time set forth therein, that fees are “non-cancelable and non-refundable,” and that Omnicare will pay each invoice within 30 days.  (Ariba’s UMF, Issue No. 4, Fact Nos. 59 – 61.)  On or about June 30, 2012, Ariba sent Omnicare invoices for fees and expenses due. (Ariba’s UMF, Issue No. 4, Fact No. 62.)  On July 5, 2012, Omnicare notified Ariba that it refused to pay the invoiced amount and all payments are on hold until a settlement is reached. (Ariba’s UMF, Issue No. 4, Fact No. 63.)

 

  1. Resulting Damage

 

Pursuant to the Agreement, Ariba expected to receive $2,580,927 in fixed fee payments from Omnicare.  (Ariba’s UMF, Issue No. 6, Fact No. 83.)  Ariba expected profits from those fixed fee payments in an amount of $1,101,821.  (Id.)  Ariba acknowledges Omnicare has paid $135,414.75 of the fixed fee.  (Ariba’s UMF, Issue No. 5, Fact No. 82.)  In addition to the fixed fees, Ariba would have been entitled to “Gain Share” fees and SMP fees which Ariba calculates from data provided by Omnicare and historical experience with other customers to be approximately $2.1 million and $550,000, respectively.  (Ariba’s UMF, Issue No. 6, Fact Nos. 84 – 90.)

 

 

  1. Triable Issues

 

Ariba has met its initial burden of producing admissible evidence on each element of a breach of contract cause of action entitling it to judgment. The burden then shifts to Omnicare to show that a triable issue of one or more material facts exists as to that cause of action. Omnicare does not take issue with the existence of the Agreement, but argues (1) Ariba breached, thereby excusing Omnicare’s performance; and (2) Ariba has not adequately established its damages.

 

  1. Breach

 

“A party is excused from performance under a contract when the other party materially breaches that contract. [Citation.]  ‘The question whether the breach is of sufficient importance to justify non-performance by the non-breaching party is one of degree and is determined by “weighing the consequences in the light of the actual custom of men in the performance of contracts similar to the one that is involved in the specific case.” ’ [Citation.]  A ‘material breach’ is explained as a failure to do something that is so fundamental to a contract that the failure to perform that obligation defeats the essential purpose of the contract or makes it impossible for the other party to perform under the contract.  In other words, for a breach of contract to be material, it must ‘go to the root’ or ‘essence’ of the agreement between the parties, or be ‘one which touches the fundamental purpose of the contract and defeats the object of the parties in entering into the contract.’ [Citation.]”  (Preferred Inv. Servs. v. T&H Bail Bonds, Inc., 2013 Del. Ch. LEXIS 190 (Del. Ch. July 24, 2013) at *37; see also DeMarie v. Neff, 2005 Del. Ch. LEXIS 5 (Del. Ch. Jan. 12, 2005) at *15—“a material breach excuses performance of a contract.”)

 

In opposition, Omnicare argues that it is Ariba who breached the Agreement, thereby excusing Omnicare from performance, including payment.  Omnicare contends that Ariba had a contractual obligation to process 100% of Omnicare’s invoices, not simply those invoices which did not contain PHI. Omnicare does not pointto any specific provision of the Agreement, but instead relies on promises Ariba during the negotiation of the Agreement that it could process 100% of Omnicare’s invoices.  (See Omnicare’s Undisputed Facts and Genuine Issues of Material Fact in Opposition to Ariba’s Motion for Summary Adjudication (“Omnicare’s Additional Facts”), Fact Nos. 7 – 10.)  Omnicare does not dispute the fact that the Agreement is a fully integrated document.  (Ariba’s UMF, Issue No. 2, Fact No. 13.)  Omnicare admitted in discovery that no part of the Agreement is ambiguous.  (See Exhibit S to the Declaration of Jessica Mussallem in Support of Plaintiff’s Motion for Summary Judgment, etc., at p. 16.)  “The parol evidence rule bars the admission of evidence extrinsic to an unambiguous, integrated written contract for the purpose of varying or contradicting the terms of that contract.” (Galantino v. Baffone, 46 A.3d 1076, 1081 (Del. 2012).)  Thus, Omnicare must be able to point to some written provision of the Agreement (as opposed to any extrinsic oral promises) that Ariba materially breached in order to be excused from performance.

 

Omnicare argues that Ariba’s promise to automate 100% of Omnicare’s invoices is, in fact, incorporated into the Agreement.  Ariba points to the very first page of the Ariba Order Form.  In a section entitled “Subscriptions Purchased,” Omnicare purchased five different Solutions including, “Invoice Automation,” “Invoice Professional,” and “Invoice Conversion Services.”  For each of those Solutions, the Order Form sets forth “Usage Limits” of 1,000,000 documents, 2,000,000 invoices, and 521,769 documents, respectively. (Omnicare’s Additional Facts, Fact No. 87.)  According to Omnicare, these usage limits were derived directly from Ariba’s promise to automate 100% of the 359,455 invoices that Omnicare’s accounts payable department processed in 2011.  (Omnicare’s Additional Facts, Fact Nos. 89 – 90.)  Omnicare also points to other provisions in the Agreement to support its position that Ariba had a contractual obligation to automate 100% of Omnicare’s invoices, including invoices with PHI. At Exhibit D of the Ariba Order Form, it states, “Once the Invoice Conversion Service is live, Ariba’s third party ICS provider (“Provider”) will collect and process all paper based invoices (i) delivered to the invoice processing facility sent by either the supplier or Customer or (ii) from Customer’s designated post office box, as applicable.”  (Omnicare’s Additional Facts, Fact No. 92.)

 

Even if the Agreement required Ariba to process and automate 100% of Omnicare’s invoices, including invoices with PHI, Omnicare has not demonstrated how Ariba breached that obligation.

 

Omnicare cites the testimony of Joe Fox, Ariba’s vice-president of Business Network Strategy.  (Omnicare’s Additional Facts, Fact No. 46.)  According to Fox, there are two categories of materials that a company purchases, direct and indirect materials. (Id.)  In the healthcare industry, direct spend is also referred to as “med surge.”  (Omnicare’s Additional Facts, Fact No. 47.)  The med surge category is where the potential for PHI exists.  (Omnicare’s Additional Facts, Fact No. 48.)

 

According to Omnicare, Fox testified that Ariba does not and cannot handle direct spend (med surge) and can only handle indirect spend.  (Omnicare’s Additional Facts, Fact Nos. 49 – 50.)  However, it is unclear from Fox’s testimony whether it is impossible for Ariba to process invoices related to direct spend/ med surge or whether doing so would result in non-compliance with HIPAA. Consequently, the evidence does not establish a breach of the Agreement here.

 

Omnicare has not established a breach by Ariba, i.e., that Ariba did not perform or even that it could not perform.  Instead, Omnicare’s evidence suggests Ariba could perform, but that doing so would result in a violation of HIPAA.  The evidence appears to be that Ariba never had the opportunity to perform.  Once Omnicare realized some invoices contained PHI on May 8, 2012, Omnicare sought the BAA on May 23, 2012.  When Ariba refused to execute the BAA, Omnicare sent the notice of termination on June 29, 2012.  Omnicare effectively repudiated the Agreement by conditioning its continued performance on Ariba’s agreement to the BAA.  “Under Delaware law, repudiation is an outright refusal by a party to perform a contract or its conditions entitling ‘the other contracting party to treat the contract as rescinded.’  A statement not to perform unless terms different from the original contract are met also constitutes a repudiation.” (CitiSteel USA, Inc. v. Connell Ltd. Pshp., Luria Bros. Div., 758 A.2d 928, 931 (Del. 2000).)

 

  1. Damages

 

“To satisfy the [element of damages], a plaintiff must show both the existence of damages provable to a reasonable certainty, and that the damages flowed from the defendant’s violation of contract.”  (Preferred Inv. Servs. v. T&H Bail Bonds, Inc., 2013 Del. Ch. LEXIS 190 (Del. Ch. July 24, 2013) at *34.)

 

Omnicare raises a triable issue with the amount that it has already paid to Ariba.  Ariba acknowledges a payment of $135,414.75 from Omnicare.  In opposition, Omnicare proffers evidence that it has paid an additional $4,737.94.  (Omnicare’s Additional Facts, Fact No. 100.)

 

In footnote 15, Ariba asks the court to bifurcate the question of damages. Ariba’s notice of motion does not include a request for bifurcation. “The court cannot grant different relief, or relief on different grounds, than stated in the notice of motion.” (Weil & Brown, et al., CAL. PRAC. GUIDE: CIV. PRO. BEFORE TRIAL (The Rutter Group 2014) ¶9:38, p. 9(I)-24 citing People v. American Sur. Ins. Co. (1999) 75 Cal.App.4th 719, 726; Luri v. Greenwald (2003) 107 Cal.App.4th 1119, 1124; see also Cal. Rules of Court, rule 3.1110, subd. (a).)  In any event: “As damages are an element of a breach of contract cause of action [citation], a plaintiff cannot obtain judgment on a breach of contract cause of action in an amount of damages to be determined later.” (Paramount Petroleum Corp. v. Superior Court (2014) 227 Cal.App.4th 226, 241.)  Because issues of the calculation of damages apparently remain to be determined, it is not appropriate to grant summary judgment for appellant at this time.  (Weil & Brown, Cal. Practice Guide: Civil Procedure Before Trial (The Rutter Group 1996) P 10:40.1, p. 10-17 [summary judgment or adjudication improper where amount of damages raises factual issue].)

 

Accordingly, Plaintiff Ariba, Inc.’s motion for summary adjudication of the first cause of action in its complaint for breach of contract is DENIED. A triable issue of material fact exists with regard to the amount of damages. (See Separate Statement of Undisputed Material Facts and Supporting Evidence in Support of Ariba, Inc.’s Motion for Summary Judgment or, in the Alternative, Summary Adjudication (“Ariba’s UMF”), Issue No. 6, Fact No. 82; see Omnicare’s Undisputed Facts and Genuine Issues of Material Fact in Opposition to Ariba’s Motion for Summary Adjudication (“Omnicare’s Additional Facts”), Fact Nos. 99 – 100.)  Plaintiff Ariba, Inc.’s request for bifurcation is DENIED.

 

  1. Ariba’s motion for summary adjudication of Omnicare’s affirmative defenses based on mutual mistake and illegality is GRANTED, in part, and DENIED, in part.

 

In the second portion of its motion, Ariba seeks summary adjudication of two of Omnicare’s affirmative defenses: mutual mistake and illegality.  “When a plaintiff moves for summary adjudication on an affirmative defense, the court shall grant the motion ‘only if it completely disposes’ of the defense. (Code Civ. Proc., § 437c, subd. (f)(1), italics added.)  The plaintiff bears the initial burden to show there is no triable issue of material fact as to the defense and that he or she is entitled to judgment on the defense as a matter of law.  In so doing, the plaintiff must negate an essential element of the defense, or establish the defendant does not possess and cannot reasonably obtain evidence needed to support the defense. [Citations.]” (See’s Candy Shops, Inc. v. Superior Court (2012) 210 Cal.App.4th 889, 899 – 900.)

 

  1. Mutual Mistake

 

“To establish a mutual mistake of fact, the plaintiff must show by clear and convincing evidence that (1) both parties were mistaken as to a basic assumption, (2) the mistake materially affects the agreed-upon exchange of performances, and (3) the party adversely affected did not assume the risk of the mistake.  Under principles of contract law, a contract is voidable, inter alia, on the grounds of mutual mistake existing at the time of contract formation.  But the mutual mistake ‘must relate to a past or present fact material to the contract and not to an opinion respecting future conditions as a result of present facts.’ ” (Hicks v. Sparks, 89 A.3d 476 (Del. 2014) at *5; citations omitted.)

 

In its cross-complaint, Omnicare frames the mutual mistake as follows: “Omnicare never would have entered into the Agreement if it had known that Ariba would refuse to execute a HIPAA-compliant BAA for the protection of PHI.”  (Cross-Complaint, ¶58.)  “Ariba has admitted in its Complaint that it never would have entered into an agreement that required HIPAA compliance.”  (Cross-Complaint, ¶59.)  “[B]ased upon the mutual mistake of the parties, Omincare may rescind the Agreement.”  (Cross-Complaint, ¶61.)

 

Omnicare’s answer frames the mistake in the same way.  As its fourteenth affirmative defense, Omnicare alleged: “Because Omnicare would not have entered into the agreement alleged in the Complaint if it had known that Ariba would refuse to comply with the requirements of the Health Insurance Portability and Accountability Act of 1996, Pub. L. No. 104-191 (“HIPAA”) and its implementing regulations, and because Ariba has admitted in its complaint that it would not have entered into an agreement that mandated HIPAA compliance, the parties were mutually mistaken as to an important fact that was not discovered despite Omnicare’s reasonably diligent efforts to do so before entering into the agreement, and the parties’ agreement is therefore void.”

 

Ariba argues that the mistake does not involve a past or present material fact, but instead relates to an opinion concerning future conditions, i.e., at the time the parties entered into the Agreement, Ariba would [in the future] execute a BAA.  In opposition, Omnicare states that the mistake relates to the then-present belief by both parties that Ariba could automate 100% of Omnicare’s invoices (including invoices containing PHI.)  Even this restatement contemplates a future event.

 

However, Omnicare may not restate its pleadings in opposition to summary adjudication.  “The pleadings serve as the ‘outer measure of materiality’ in a summary judgment motion, and the motion may not be granted or denied on issues not raised by the pleadings.” (Weil & Brown, et al., CAL. PRAC. GUIDE: CIV. PRO. BEFORE TRIAL (The Rutter Group 2014) ¶10:51.1, p. 10-22 citing Government Employees Ins. Co. v. Superior Court (2000) 79 Cal.App.4th 95, 98—“A defendant moving for summary judgment need address only the issues raised by the complaint; the plaintiff cannot bring up new, unpleaded issues in his or her opposing papers.”)

 

Accordingly, Plaintiff Ariba, Inc.’s motion for summary adjudication of defendant Omnicare, Inc.’s fourteenth affirmative defense is GRANTED.  Plaintiff has met its burden of showing that Omnicare, Inc. cannot establish mutual mistake as an affirmative defense.  “To establish a mutual mistake of fact, the plaintiff must show by clear and convincing evidence that (1) both parties were mistaken as to a basic assumption, (2) the mistake materially affects the agreed-upon exchange of performances, and (3) the party adversely affected did not assume the risk of the mistake.  Under principles of contract law, a contract is voidable, inter alia, on the grounds of mutual mistake existing at the time of contract formation.  But the mutual mistake ‘must relate to a past or present fact material to the contract and not to an opinion respecting future conditions as a result of present facts.’ ”  (Hicks v. Sparks, 89 A.3d 476 (Del. 2014) at *5; citations omitted; emphasis added.)  The alleged mistake relates to an opinion respecting future conditions as a result of present facts: i.e., whether “Ariba would refuse to comply with the requirements of the Health Insurance Portability and Accountability Act of 1996, Pub. L. No. 104-191 (“HIPAA”) and its implementing regulations.”

 

  1. Illegality

 

As its fifteenth affirmative defense, Omnicare alleges: “In light of Ariba’s refusal to enter into a HIPAA-compliant contract for the protection of certain health information, it would be contrary to public policy to enforce the agreement alleged in the Complaint.  If the parties continued their contractual relationship, both would be in violation of their obligations under federal law.”

 

In moving for summary adjudication, Ariba looks, instead, to an allegation made by Omnicare in its cross-complaint. According to Ariba, paragraph 28 of Omnicare’s cross-complaint alleges that the Agreement is illegal: “By virtue of the activities and services Ariba was supposed to provide under the Agreement, including, inter alia, consulting services and processing and billing activities that could contain PHI, Ariba qualified as Omnicare’s Business Associate for purposes of HIPAA. Accordingly, Ariba was subject to the HIPAA Regulations governing the safeguarding of PHI.”

 

Ariba contends that Omnicare’s illegality defense fails because it is based on the incorrect premise that the parties agreed PHI would be included in the scope of the Agreement. Ariba then goes on to proffer evidence that the parties did not agree to include PHI.

 

Ariba has not met its initial burden with regard to disposing of this affirmative defense.  It is Ariba’s initial burden to negate an essential element of the defense, or establish the defendant does not possess and cannot reasonably obtain evidence needed to support the defense. Ariba has not set forth the elements for the defense of illegality, and addresses allegations set forth in the cross-complaint rather than the answer which alleges unenforceability of the Agreement on grounds of public policy. Ariba has not met its initial burden with regard to this defense.

 

Accordingly, Plaintiff Ariba, Inc.’s motion for summary adjudication of Defendant Omnicare, Inc.’s fifteenth affirmative defense is DENIED.  Plaintiff has not met its initial burden of showing that Omnicare, Inc. cannot establish illegality as an affirmative defense.

 

  1. Ariba’s motion for summary judgment/adjudication of Omnicare’s cross-complaint is GRANTED.

 

In the third portion of its motion, Ariba seeks summary judgment/adjudication of Omnicare’s cross-complaint asserting causes of action for (1) breach of contract; (2) breach of implied covenant of good faith and fair dealing; and (3) rescission.  Ariba is not entitled to summary judgment because Ariba does not address the third cause of action for rescission at all. Even if Ariba’s argument could be construed to incorporate its arguments concerning mutual mistake and illegality (which form the basis of Omnicare’s claim for rescission), the argument fails for the reason discussed above.

 

Accordingly, Cross-defendant Ariba, Inc.’s motion for summary judgment of Omnicare, Inc.’s cross-complaint is DENIED.  Cross-defendant Ariba, Inc.’s alternative motion for summary adjudication of the third cause of action in Omnicare, Inc.’s cross-complaint for rescission should be DENIED.  Cross-defendant Ariba, Inc. has not met its initial burden of showing that cross-complainant Omnicare, Inc. cannot establish one or more elements of its cause of action for rescission.

 

  1. Breach of Contract

 

Ariba’s argument focuses instead on summary adjudication of the first and second cross-claims.  In the cross-complaint, Omnicare alleges two breaches: “Ariba’s refusal to enter into a HIPAA-compliant BAA means that Ariba is unable to deliver a production site that meets Omnicare’s business needs and specifications.  This failure constitutes a material breach of the Agreement.”  (Cross-Complaint, ¶44.)  “Ariba’s refusal to enter into a HIPAA-compliant BAA also means that Ariba is unable to deliver a production site that will allow Omnicare to satisfy its obligations under HIPAA and the HIPAA regulations.  This likewise constitutes a material breach of the Agreement.”  (Cross-Complaint, ¶44.)

 

Under Delaware law, a breach of contract requires, “first, the existence of the contract, whether express or implied; second, the breach of an obligation imposed by that contract; and third, the resultant damage to the plaintiff.” (VLIW Tech., LLC v. Hewlett-Packard Co., 840 A.2d 606, 612 (Del. 2003).)  Ariba’s argues that the Agreement does not contain a provision which requires Ariba to enter into a HIPAA-compliant BAA or is there any provision requiring Ariba to allow PHI.  Ariba proffers evidence to that effect.  (See Ariba’s UMF, Issue No. 2, Fact Nos. 17 – )   In other words, there can be no breach of a contractual obligation which does not exist.

 

Omnicare cannot point to a specific provision in the Agreement requiring Ariba to enter into a BAA.  However, Omnicare again argues that Ariba’s obligation to enter into a BAA is incorporated into the Agreement by virtue of the provisions obligating Ariba to automate 100% of Omnicare’s invoices.  The order form set forth usage limits which Omnicare contends is derived from Ariba’s pre-Agreement promises to automate 100% of Omnicare’s invoices. Ascribing a plain and ordinary meaning to usage limit would suggest Ariba has no duty to process more than the established limit (without more), as opposed to creating an obligation upon Ariba to process all Omnicare invoices.  Additionally, Omnicare’s interpretation requires the court to consider evidence extrinsic to the Agreement (explaining why the usage limits equate to 100% of Omnicare’s invoices).  Omnicare admitted that the Agreement is not ambiguous (See Exhibit S to the Declaration of Jessica Mussallem in Support of Plaintiff’s Motion for Summary Judgment, etc., at p. 16), so the court would look only to the language of the Agreement itself. “Delaware courts … look to extrinsic evidence for the common understanding of ambiguous language whether in a statute, a rule or a contractual provision.” (Airgas, Inc. v. Air Prods. & Chems., Inc., 8 A.3d 1182, 1190 (Del. 2010).)]  (See also GMG Capital Invs., LLC v. Athenian Venture Partners I, L.P., 36 A.3d 776, 780 (Del. 2012)—The Court will interpret clear and unambiguous terms according to their ordinary meaning. “Contract terms themselves will be controlling when they establish the parties’ common meaning so that a reasonable person in the position of either party would have no expectations inconsistent with the contract language.”  “A contract is not rendered ambiguous simply because the parties do not agree upon its proper construction.” Rather, an ambiguity exists “[w]hen the provisions in controversy are fairly susceptible of different interpretations or may have two or more different meanings.”  Where a contract is ambiguous, “the interpreting court must look beyond the language of the contract to ascertain the parties’ intentions.”)   In any case, as discussed earlier, even if such an obligation existed, Omnicare does not demonstrate Ariba’s breach because Omnicare repudiated before Ariba ever had the opportunity to perform.

 

Accordingly, Cross-defendant Ariba, Inc.’s alternative motion for summary adjudication of the first cause of action in Omnicare, Inc.’s cross-complaint for breach of contract is GRANTED.  Cross-defendant Ariba, Inc. has met its initial burden of showing that cross-complainant Omnicare, Inc. cannot establish one or more elements of its cause of action for breach of contract.  More specifically, cross-defendant Ariba, Inc. has established that it had no contractual obligation to enter into a HIPAA-compliant BAA (Business Associate Agreement). (See Ariba’s UMF, Issue No. 2, Fact Nos. 17 – 20.)  Cross-complainant Omnicare, Inc. fails to present any admissible evidence in opposition which would show that a triable issue of one or more material facts exists.  (See Code Civ. Proc., §437c, subd. (p)(2).)

 

  1. Breach of Implied Covenant

 

Omnicare’s second cause of action alleges, in relevant part: “The implied covenant of good faith and fair dealing required Ariba to take all necessary steps to fulfill its obligation under the Agreement, including its obligation to provide Omnicare with a production site that met Omnicare’s business needs and specifications.”  (Cross-Complaint, ¶52.)  “Ariba has breached the covenant of good faith and fair dealing owed to Omnicare by, among other things, willfully and intentionally refusing to comply with its obligation to safeguard PHI, willfully and intentionally attempting to prevent Omnicare from complying with its obligation to safeguard PHI, refusing to take the steps necessary to provide Omnicare with a production site that met Omnicare’s business needs and specifications, asserting unreasonable and improper positions as stated above, and by engaging in the other wrongful acts herein described.”  (Cross-Complaint, ¶53.)

 

The implied covenant of good faith and fair dealing is the doctrine by which Delaware law cautiously supplies terms to fill gaps in the express provisions of a specific agreement. Despite the appearance in its name of the terms “good faith” and “fair dealing,” the covenant does not establish a free-floating requirement that a party act in some morally commendable sense.  (Gerber v. Enter. Prods. Holdings, LLC (Del. 2013) 67 A.3d 400, 418, clarified on other grounds, Winshall v. Viacom Int’l Inc. (Del. 2013) 76 A.3d 808, 815.)  Nor does satisfying the implied covenant necessarily require that a party have acted in subjective good faith. (ASB Allegiance Real Estate Fund v. Scion Breckenridge Managing Member, LLC (Del. Ch. 2012) 50 A.3d 434, 442, 444  (observing that “[t]here are references in Delaware case law to the implied covenant turning on the breaching party having a culpable mental state” but finding that “[t]he elements of an implied covenant claim remain those of a breach of contract claim” and that “[p]roving a breach of contract claim does not depend on the breaching party’s mental state”), rev’d on other grounds, Scion Breckenridge Managing Member, LLC v. ASB Allegiance Real Estate Fund, et al. (Del. 2013) 68 A.3d 665.)  The concept of “fair dealing” similarly refers to “a commitment to deal ‘fairly’ in the sense of consistently with the terms of the parties’ agreement and its purpose.” (Gerber, 67 A.3d at 419.)  The parameters of both concepts turn not on a court’s beliefs about what was morally or equitably appropriate under the circumstances, but rather “on the contract itself and what the parties would have agreed upon had the issue arisen when they were bargaining originally.”  (Id.)

 

When presented with an implied covenant claim, a court first must engage in the process of contract construction to determine whether there is a gap that needs to be filled. (See Mohsen Manesh, Express Contract Terms and the Implied Contractual Covenant of Delaware Law, 38 Del. J. Corp. L. 1, 19 (2013).)  During this phase, the court decides whether the language of the contract expressly covers a particular issue, in which case the implied covenant will not apply, or whether the contract is silent on the subject, revealing a gap that the implied covenant might fill.  (Id.)  A court must determine whether a gap exists because “[t]he implied covenant will not infer language that contradicts a clear exercise of an express contractual right.”  (Nemec v. Shrader (Del. 2010) 991 A.2d 1120, 1127.)  “[B]ecause the implied covenant is, by definition, implied, and because it protects the spirit of the agreement rather than the form, it cannot be invoked where the contract itself expressly covers the subject at issue.”  Fisk Ventures, LLC v. Segal, 2008 Del. Ch. LEXIS 158, 2008 WL 1961156, at *10 (Del. Ch. May 7, 2008).  “[I]mplied covenant analysis will only be applied when the contract is truly silent with respect to the matter at hand . . . .”  (Allied Capital Corp. v. GC-Sun Hldgs., L.P. (Del. Ch. 2006) 910 A.2d 1020, 1032.)

 

If a contractual gap exists, then the court must determine whether the implied covenant should be used to supply a term to fill the gap. Not all gaps should be filled.

 

The most obvious reason a term would not appear in the parties’ express agreement is that the parties simply rejected that term ex ante when they articulated their contractual rights and obligations. Perhaps, for example, the parties . . . considered the term, and perhaps [after] some give-and-take dickering, the parties agreed the term should not be made part of their agreement. They thus rejected the term by purposefully omitting the term.

 

(Manesh, supra, at 28 (footnote omitted).) Under those circumstances, the implied covenant should not be used to fill the gap with the omitted term.  To do so would grant parties “contractual protections that they failed to secure for themselves at the bargaining table.”  (Aspen Advisors LLC v. United Artists Theatre Co. (Del. Ch.) 843 A.2d 697, 707, aff’d, 861 A.2d 1251 (Del. 2004).)  A court must not use the implied covenant to “rewrite [a] contract” that a party “now believes to have been a bad deal.”  (Nemec, 991 A.2d at 1126.)  “Parties have a right to enter into good and bad contracts, the law enforces both.” (Id.)

 

But a contractual gap may exist for other reasons.  The Delaware Supreme Court has provided guidance in this area by admonishing against a free-wheeling approach to filling in gaps using the implied covenant.  Invoking the doctrine is a “cautious enterprise.”  (Nemec, 991 A.2d at 1125.)  Implying contract terms is an “occasional necessity . . . to ensure [that] parties’ reasonable expectations are fulfilled.”  (Dunlap v. State Farm Fire & Cas. Co. (Del. 2005) 878 A.2d 434, 442 (internal quotation marks omitted).)  Its use should be “rare and fact-intensive, turning on issues of compelling fairness.” (Cincinnati SMSA Ltd. P’ship v. Cincinnati Bell Cellular Sys. Co. (Del. 1998) 708 A.2d 989, 992.)

 

Assuming a gap exists and the court determines that it should be filled, the court must determine how to fill it.  At this stage, a reviewing court does not simply introduce its own notions of what would be fair or reasonable under the circumstances.  “The implied covenant seeks to enforce the parties’ contractual bargain by implying only those terms that the parties would have agreed to during their original negotiations if they had thought to address them.”  (Gerber, 67 A.3d at 418.)  To supply an implicit term, the court “looks to the past” and asks “what the parties would have agreed to themselves had they considered the issue in their original bargaining positions at the time of contracting.” (Id.)  The court seeks to determine “whether it is clear from what was expressly agreed upon that the parties who negotiated the express terms of the contract would have agreed to proscribe the act later complained of as a breach of the implied covenant of good faith—had they thought to negotiate with respect to that matter.”  (Id.)  “Terms are to be implied in a contract not because they are reasonable but because they are necessarily involved in the contractual relationship so that the parties must have intended them . . . .”  (Cincinnati SMSA Ltd. P’ship v. Cincinnati Bell Cellular Sys. Co. (Del. 1998) 1997 Del. Ch. LEXIS 109, 1997 WL 525873, at *5 (Del. Ch. Aug. 13, 1997), aff’d, 708 A.2d 989.)

 

Under these general principles, “the elements of an implied covenant claim remain those of a breach of contract claim.”  Ariba argues that, contrary to Omnicare’s allegations, there is no covenant in the Agreement to “provide Omnicare with a production site that met Omnicare’s business needs and specifications” or to “execute a BAA” nor can such a covenant be implied from the Agreement.  According to Ariba, the Agreement only expressly obligated Ariba to provide access to its software products and provide consulting services in connection therewith.  (Ariba’s UMF, Issue No. 2, Fact No. 12.)

 

Ariba argues that the terms Omnicare seek to have implied are not terms to which Ariba would have agreed.  “The implied covenant seeks to enforce the parties’ contractual bargain by implying only those terms that the parties would have agreed to during their original negotiations if they had thought to address them.”  Ariba argues: “Omnicare can show no implied term that Ariba would have agreed to had the parties negotiated for it.”  (Ariba’s Points & Authorities, p. 24, lines 8 – 9.)  Ariba has not its burden by showing, as discussed above, that the terms Omnicare seeks to have implied are not terms to which Ariba would have agreed.  Cross-complainant Omnicare has failed to raise a triable issue of fact that Ariba would have agreed to the implied terms.

 

Accordingly, Cross-defendant Ariba, Inc.’s alternative motion for summary adjudication of the second cause of action in Omnicare, Inc.’s cross-complaint for breach of implied covenant of good faith and fair dealing is GRANTED.

 

  1. Omnicare’s motion for summary judgment/adjudication of Ariba’s complaint is GRANTED, in part, and DENIED, in part.

 

  1. Breach of Contract

 

According to the allegations of Ariba’s complaint, Omnicare breached the Agreement “by, among other things: (a) failing to remit payments due to Ariba under the Agreement; (b) failing to permit Ariba to provide the Solutions and Consulting Services specified by the Agreement; and (c) failing to discharge its obligations to cooperate with Ariba to allow Ariba to provide the Solutions and Consulting Services as required by Section 3 of the Subscription Agreement and Exhibits A-E to the Order Form.”  (Complaint, ¶65.)

 

In moving for summary adjudication of this first cause of action, Omnicare makes the same arguments it made in opposing Ariba’s motion for summary adjudication.  Specifically, Omnicare contends it did not breach the Agreement because it was excused from performing after Ariba initially breached.  “A party is excused from performance under a contract when the other party materially breaches that contract.”  (Preferred Inv. Servs. v. T&H Bail Bonds, Inc., 2013 Del. Ch. LEXIS 190 (Del. Ch. July 24, 2013) at *37; see also DeMarie v. Neff, 2005 Del. Ch. LEXIS 5 (Del. Ch. Jan. 12, 2005) at *15—“a material breach excuses performance of a contract.”)

 

According to Omnicare, Ariba had a contractual obligation to automate and process 100% of Omnicare’s invoices including those with PHI.  Omnicare makes one additional argument in this motion that it did not previously make.  Omnicare points to section 11.1 of the Subscription Agreement which states, in relevant part: “As between the parties, [Omnicare] is responsible for the entry, completeness, and accuracy of its data it enters into the Solution (“Solution Data”), as well as determining the suitability of the Solution for [Omnicare’s] business and complying with any regulations, laws, or conventions applicable to [Omnicare’s] data.”  In addition, Omnicare contends that Ariba agreed to conform to Omincare’s business rules, although Omnicare does not cite to the specific provision of the Agreement which sets forth this obligation.  Omnicare goes on to argue that Ariba’s refusal to enter into the BAA amounted to a material breach because it prevented Ariba from fulfilling its obligation to automate and process 100% of Omnicare’s invoices and prevents Omnicare from fulfilling its obligation to comply with HIPAA.

 

However, as discussed earlier, Omnicare does not provide the evidentiary support to establish a breach by Ariba. Omnicare does not provide any evidence establishing Ariba’s refusal to process/automate data that included PHI (repudiation).  Nor does Omnicare establish Ariba’s contractual obligation to enter into a BAA. On the contrary, the contract language cited by Omnicare expressly states that it is Omnicare’s, and not Ariba’s, contractual obligation to comply with “any regulations, laws, or conventions applicable to [Omnicare’s] data.”

 

Omnicare has not met its initial burden of demonstrating its own excuse for nonperformance under the Agreement. Accordingly, Defendant Omnicare, Inc.’s motion for summary judgment of Ariba, Inc.’s complaint is DENIED.  Defendant Omnicare, Inc.’s alternative motion for summary adjudication of the first cause of action in Ariba, Inc.’s complaint for breach of contract should be DENIED.  Defendant Omnicare, Inc. has not met its initial burden of showing that plaintiff Ariba, Inc. cannot establish one or more elements of its cause of action for breach of contract.

 

 

  1. Breach of Implied Covenant of Good Faith and Fair Dealing

 

According to the relevant allegations of the second cause of action, “Omnicare wrongfully purported to terminate the Agreement on the basis that Ariba would not enter into such a subsequent contract [BAA], despite its awareness that no provision of the Agreement requires Ariba to do so and that Ariba has not materially breached the Agreement.”  (Complaint, ¶68.)  “Omnicare has breached the covenant of good faith and fair dealing and has deprived Ariba of the benefit of its bargain by refusing to perform under the Agreement and by wrongfully purporting to terminate the Agreement.”  (Complaint, ¶69.)

 

Ariba has essentially alleged that, pursuant to the express terms of the Agreement, Omnicare wrongfully repudiated the Agreement.  “A party who is the victim of a wrongful repudiation is ordinarily entitled to damages for breach of contract because, in the absence of repudiation, the party would have performed under the contract and would have received the benefits of its bargain.”  (Frontier Oil Corp. v. Holly Corp., 2005 Del. Ch. LEXIS 57, 119-120 (Del. Ch. Apr. 29, 2005).)

 

“[W]here the subject at issue is expressly covered by the contract, or where the contract is intentionally silent as to that subject, the implied duty to perform in good faith does not come into play.”  (Dave Greytak Enters., Inc. v. Mazda Motors of Am., Inc., 622 A.2d 14, 23 (Del. Ch. 1992).)   Essentially, Omnicare’s argument is a challenge to the pleading itself. “A defendant’s motion for summary judgment or summary adjudication ‘necessarily includes a test of the sufficiency of the complaint’ and its legal effect is the same as a demurrer or motion for judgment on the pleadings.” (Weil & Brown, CAL. PRAC. GUIDE: CIV. PRO. BEFORE TRIAL (The Rutter Group 2014) ¶10:52, p. 10-25 citing American Airlines, Inc. v. County of San Mateo (1996) 12 Cal.4th 1110, 1118.)  Since the alleged breach is governed by the express terms of the agreement, the implied covenant of good faith and fair dealing does not come into play.

 

Accordingly, Defendant Omnicare, Inc.’s alternative motion for summary adjudication of the second cause of action in Ariba, Inc.’s complaint for breach of implied covenant should be GRANTED.

 

  1. Limitation of Damages

 

Finally, Omnicare seeks summary adjudication “as to the limitation of damages, if any, recoverable by Ariba.”  This is an improper request for summary adjudication.  “A party may move for summary adjudication as to one or more causes of action within an action, one or more affirmative defenses, one or more claims for damages, or one or more issues of duty, if that party contends that the cause of action has no merit or that there is no affirmative defense thereto, or that there is no merit to an affirmative defense as to any cause of action, or both, or that there is no merit to a claim for damages, as specified in Section 3294 of the Civil Code, or that one or more defendants either owed or did not owe a duty to the plaintiff or plaintiffs. A motion for summary adjudication shall be granted only if it completely disposes of a cause of action, an affirmative defense, a claim for damages, or an issue of duty.”  (Code Civ. Proc., §437c, subd. (f)(1); emphasis added.)

 

The language of the summary adjudication statute suggests a claim for damages may be summarily adjudicated only if it pertains to punitive damages.  This is so because of the reference to the punitive damages statute, Civil Code section 3294.   To read it otherwise would render the reference to Civil Code section 3294 superfluous.  The practice guide authors limit this type of summary adjudication to a claim for punitive damages. (Weil & Brown, CAL. PRAC. GUIDE: CIV. PRO. BEFORE TRIAL (The Rutter Group 2010) ¶¶10:41 – 10:43, pp. 10-11 to 10-17 citing Catalano v. Superior Court (2000) 82 Cal.App.4th 91 (Catalano).)  In Catalano, the court reiterated the policy behind summary adjudication motions and stated, “The purpose of the enactment of Code of Civil Procedure section 437c, subdivision (f) was to stop the practice of piecemeal adjudication of facts that did not completely dispose of a substantive area.”  (Catalano, supra, 82 Cal.App.4th at p. 97.)

 

Accordingly, Defendant Omnicare, Inc.’s alternative motion for summary adjudication as to the limitation of damages recoverable by Ariba, Inc. be DENIED. Only a claim for punitive damages can be summarily adjudicated. (See Code Civ. Proc., §437c, subd. (f)(1) and Catalano v. Superior Court (2000) 82 Cal.App.4th 91.)

 

  1. Omnicare’s motion for summary judgment/ adjudication of Omnicare’s cross-complaint should be DENIED.

 

  1. Breach of Contract

 

In light of the ruling above to grant Ariba’s motion for summary adjudication of the first cause of action in Omnicare’s cross-complaint, cross-complainant Omnicare, Inc.’s motion for summary judgment of its cross-complaint is DENIED.  Cross-complainant Omnicare, Inc.’s alternative motion for summary adjudication of the first cause of action in its cross-complaint for breach of contract is DENIED.

 

  1. Breach of Implied Covenant of Good Faith and Fair Dealing

 

“Under Delaware law, an implied covenant of good faith and fair dealing inheres in every contract. The implied covenant ‘requires a party in a contractual relationship to refrain from arbitrary or unreasonable conduct which has the effect of preventing the other party to the contract from receiving the fruits of the bargain.’ A party is liable for breaching the covenant when its conduct ‘frustrates the overarching purpose of the contract by taking advantage of [its] position to control implementation of the agreement’s terms.’ [¶] The court must be mindful that the implied covenant of good faith and fair dealing should not be applied to give plaintiffs contractual protections that ‘they failed to secure for themselves at the bargaining table.’ In other words, the implied covenant is not a license to rewrite contractual language just because the plaintiff failed to negotiate for protections that, in hindsight, would have made the contract a better deal. Rather, a party may only invoke the protections of the covenant when it is clear from the underlying contract that ‘the contracting parties would have agreed to proscribe the act later complained of . . . had they thought to negotiate with respect to that matter.’” (Winshall, 55 A.3d at 636-637; emphasis added.)

 

Omnicare’s argument appears to be that the term which ought to be implied into the Agreement is Ariba’s obligation to automate 100% of Omnicare invoices including those which contain PHI.  However, based on the record evidence, it is doubtful that the parties would have reached any agreement with regard to the treatment of PHI had they thought to negotiate this earlier.  Thus, Omnicare cannot invoke the breach of implied covenant to impose an obligation upon Ariba (full automation including PHI) when it is clear Ariba would not have agreed to such a term.

 

Accordingly, cross-complainant Omnicare, Inc.’s alternative motion for summary adjudication of the second cause of action in its cross-complaint for breach of implied covenant of good faith and fair dealing is DENIED.  Cross-complainant Omnicare, Inc. has not met its initial burden of proving each element of the cause of action entitling Omnicare, Inc. to judgment on that cause of action. (Code Civ. Proc., §437c, subd. (p)(1).)

 

  1. Rescission

 

Omnicare also seeks summary adjudication of its third cause of action for rescission by arguing that it has established mutual mistake. For the same reasons discussed above in connection with Ariba, Inc.’s motion for summary adjudication of Omnicare, Inc. fourteenth affirmative defense, cross-complainant Omnicare, Inc.’s alternative motion for summary adjudication of the third cause of action in its cross-complaint for rescission is DENIED.

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