A North Carolina judge has confirmed an arbitration award of more than $9.7 million to Etransmedia Technology, a health information technology services provider and a former value-added reseller of Allscripts Healthcare Solutions' MyWay health IT systems. The decision caps a 19-month legal battle against Chicago-based Allscripts that alleged breach of contract and violation of a North Carolina business practice law.
The arbitrators' award, which included treble damages, supported Etransmedia's allegations in the dispute that Allscripts breached provisions of its contract, interfered with Etransmedia's sales efforts and basically “stuck” the Troy, N.Y.-based value-added reseller with 684 prepaid software licenses and another 300 licenses that Etransmedia had agreed to purchase from Allscripts but had not fully paid for.
These were among 1,378 licenses Etransmedia purchased from Allscripts over a period of years. They came after Allscripts' acquisition of the MyWay product line as part of its October 2008 merger with Misys Health Solutions and before the announcement on Oct. 5, 2012, that Allscripts planned to phase out MyWay.
When Allscripts announced it would not continue to develop MyWay it “immediately rendered Etransmedia's unsold inventory of MyWay licenses impossible to market,” the arbitrators' award said.
Allscripts, in a statement, said, “While we respectfully disagree with the panel's award, we look forward to putting this matter behind us. The new management team at Allscripts is committed to strengthening and expanding relationships with our partners and to supporting our suite of products and services to help transform and improve the healthcare experience.”
The decision of the three-member arbitration panel in August and its award from September was confirmed Oct. 27 by Superior Court Judge Robert Hobgood in Raleigh. He also denied a request by Allscripts that the judgment and award be sealed.
The bulk of the arbitrators' award stems from Etransmedia's claim of breach of contract for the unsold licenses at $3,865 each, which entitled Etransmedia to recover $2,967,961 in actual damages, which were trebled to $8.9 million. Interest and other claims pushed the total settlement amount to just over $9.7 million.
The arbitrators denied Etransmedia's claim for fraud against Allscripts, due to lack of evidence, but did support its claim of negligent misrepresentation, but found no grounds for any additional damages. It also found Allscripts engaged in unfair and deceptive practices under North Carolina law, saying “Allscripts assured Etransmedia of its support for the Costco program” when in fact, “Allscripts' sales team undertook steps that deliberately sabotaged Etransmedia's efforts to sell the licenses it had prepurchased at Allscripts' behest.”
In so doing, “Allscripts left Etransmedia stuck with 984 MyWay licenses which it could not sell when Allscripts made its Oct. 5, 2012 announcement,” the award said.
The software, a combined EHR and practice management system for small physician office practices, came into Allscripts' hands through multiple acquisitions of products first developed by a Carrolton, Texas, company known as iMedica, then Aprima, which sold rights to the software code to Misys Healthcare Systems in 2007.
The product was eventually renamed MyWay after the 2008 merger of Misys with Allscripts to form Allscripts-Misys Health Solutions.
In 2010, Allscripts' acquired Eclipsys (chiefly for its inpatient EHR), but the deal left Allscripts with five EHRs targeting the ambulatory-care market. On Oct. 5, 2012, Allscripts announced it was dropping support for MyWay and offering its customers a free conversion to another Allscripts EHR.
In that roughly four-year period between Allscripts' acquisition of MyWay and its decision to drop it, Allscripts represented to Etransmedia it would not “pull the plug on MyWay … and leave them … with no (meaningful use) path,” according to e-mail correspondence between the companies cited in the arbitrators' 13-page award.
Allscripts' “aggressive” MyWay sales effort “really pushed (Etransmedia) to the limits of their comfort level and cash flow,” according to another e-mail in November 2009 from an Allscripts executive, cited in the arbitrators' award.
Etransmedia's purchases of licenses for which it had yet to find ready buyers “would enable Allscripts to make its quarterly projections and positively impact Allscripts' financial statements,” the arbitrators' award said.
“One of the things the panel found was they used this to enhance their revenues, although that was not the main focus of our claim,” said Vikram Agrawal, Etransmedia's president and CEO. “That is for their shareholders to follow up on.”
Legal fees remain at issue, but “we have not been informed of any appeal,” said Thomas Fallati, one of three attorneys with Tabner, Ryan and Keniry, an Albany, N.Y., law firm, representing Etransmedia.
Before affairs between the two companies went south over MyWay licenses, Etransmedia had several other financial arrangements with Allscripts, according to Agrawal, including development work on its software.
In addition to millions of dollars spent on licenses, Etransmedia lost at least half of its 450 to 500 MyWay clients due to the dispute, Agrawal said.
“We tried our best to work out a settlement,” said Agrawal. “Their whole approach was, 'Hey, we're Allscripts. Too bad. It was your mistake.' I'm a business person. I come from an entrepreneurial background. I don't think that's how business is done.”
The companies submitted the dispute to arbitration in August 2013.
Follow Joseph Conn on Twitter: @MHJConn
