A developer of healthcare software was denied damages for breach of contract. The court found that the developer had failed to take advantage of a substitute opportunity when its customer ceased paying on its consulting agreement and transferred its obligations to a successor company. Rather than contracting with the successor company, the owner of the software developer formed an entirely separate company to administer the new consulting arrangement. The court rejected this convenient manuever as a failure to mitigate damages, finding that the new arrangement would have completely offset the developer’s losses.
Orawin is a software technology consulting company, owned and operated by a single person. In 2002, the company developed software for SeniorDent, Inc., a dental management company that focuses on providing dental care to nursing home residents. In 2013, the two companies entered into a Consulting Services Agreement which required Orawin to maintain the software’s dental and vision operating systems and provide modifications determined by SeniorDent. SeniorDent agreed to pay Orawin a monthly retainer upon receipt of invoices.
SeniorDent later attempted to merge with Healthcare Delivered, LLC (“HCD”). HCD and Orawin entered into an amended consulting agreement, transferring all rights and obligations from SeniorDent to HCD. Two months later, the merger of SeniorDent and HCD fell apart, and HCD distributed SeniorDent to a holding company owned by the original owners of SeniorDent (“F&R”). HCD then transferred all of its rights to SeniorDent to the holding company. The owner of Orawin later sought payment for consulting services from HCD, and was told that the F&R was responsible for paying his invoice. The owner of Orawin later formed a new company, O&O, to provide services to the newly reorganized SeniorDent. SeniorDent paid O&O its standard fee beginning in December 2015 and has continued to pay every month since.
Orawin later sued HCD in federal court, claiming breach of contract and seeking payment for a month of consulting services that it alleged HCD failed to pay. The district court granted summary judgment to Orawin on the first three elements of its breach of contract claim, but it could not determine whether Orawin had failed to mitigate its damages. After supplemental briefing, the court found that Orawin had failed to mitigate any damages suffered as a result of HCD’s breach, and, as a result, wasn’t entitled to relief. The court found that Orawin could have avoided suffering damages merely by arranging for payment from SeniorDent, rather than forming an entirely new company. The court rejected Orawin’s claims that the different versions of DentalSoft that it supported for HCD and SeniorDent obviated any requirement to mitigate its damages by contract with SeniorDent through Orawin, rather than O&O. The court found that the substitute opportunity with SeniorDent would have offset Orawin’s losses from the HCD agreement, and Orawin’s failure to take advantage of the opportunity reduced its damages to zero.
You can view the full opinion here.
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