## Facts

- Prairie River Home Care, Inc., a Minnesota home-healthcare provider, contracted in 2015 for a license to Procura, LLC’s home-healthcare management software.
- The license agreement included: (a) an express performance warranty that the software would be substantially functional within 90 days; (b) an exclusive remedy limiting Prairie River to a refund of license fees paid in the 12 months before notice of a dispute; (c) an exclusion of consequential damages; and (d) a conspicuous disclaimer of implied warranties, including merchantability.
- Procura delivered a database in November 2015; Prairie River alleged the software never functioned properly on its systems.
- Prairie River alleged Procura knew of significant defects, concealed them, and made misleading assurances to induce Prairie River to sign by a short deadline.
- Prairie River did not appreciate the full extent of the defects until after the software was integrated and repair/update efforts failed; it later abandoned the software more than 12 months after making payments, making the refund remedy largely ineffective.
- Prairie River also retained Salo Solutions, Inc. for implementation and training; Procura and Salo had a separate referrals-related agreement.
- Prairie River’s Second Amended Complaint asserted against Procura: breach of contract, breach of express warranty, breach of implied warranty of merchantability, fraudulent inducement, and violations of the Illinois Consumer Fraud and Deceptive Business Practices Act; Prairie River sought, among other relief, consequential damages.
- Procura moved to dismiss (in part) Prairie River’s claims for consequential damages, the implied-warranty count, and the Illinois consumer-fraud count; Procura also filed a third-party complaint against Salo for breach of contract and indemnification, and Salo moved to dismiss.

## Issues

1. Whether Prairie River plausibly alleged, at the pleading stage, that the contract’s limited refund remedy failed of its essential purpose and/or that the consequential-damages exclusion was unconscionable, such that consequential damages could not be barred on a motion to dismiss.
2. Whether the contract’s disclaimer of the implied warranty of merchantability was valid and barred Prairie River’s implied-warranty claim.
3. Whether the Illinois Consumer Fraud and Deceptive Business Practices Act applied where the alleged misconduct and injury were centered in Minnesota rather than occurring “primarily and substantially” in Illinois.
4. Whether Procura plausibly stated third-party claims against Salo for breach of contract and indemnification.

## Decision

- Procura’s motion to dismiss Prairie River’s consequential-damages request was denied; Prairie River plausibly alleged facts supporting invalidation of the remedy limitation and consequential-damages exclusion (including failure of essential purpose and unconscionability).
- Procura’s motion to dismiss the implied warranty of merchantability claim was granted because the agreement contained a valid, conspicuous disclaimer of that implied warranty.
- Procura’s motion to dismiss the Illinois consumer-fraud claim was granted because the alleged conduct did not occur primarily and substantially in Illinois.
- Salo’s motion to dismiss Procura’s third-party complaint was granted because Procura did not plead a plausible breach-of-contract theory or a contractually supported right to indemnification.

## Legal Principles

- At the pleading stage, allegations that a buyer never received a functioning product and that an exclusive refund remedy became effectively worthless may plausibly support a claim that the limited remedy failed of its essential purpose, precluding dismissal based solely on contractual remedy limits.
- Contractual exclusions of consequential damages may be challenged as unconscionable based on pleaded facts; enforceability may require factual development beyond a motion to dismiss.
- A conspicuous disclaimer of the implied warranty of merchantability is generally enforceable absent well-pleaded facts that specifically invalidate the disclaimer.
- The Illinois Consumer Fraud and Deceptive Business Practices Act applies only when the alleged misconduct occurred “primarily and substantially” in Illinois; a dispute centered on out-of-state conduct and injury falls outside the statute’s reach.
- Third-party breach and indemnification claims must be tied to plausible allegations of contractual duty and to contractual language supporting indemnification; generalized liability-shifting theories are insufficient.

## Conclusion

The court permitted Prairie River to pursue consequential damages despite contractual limitations because the complaint plausibly alleged failure of the exclusive remedy and potential unconscionability, but it dismissed the implied-warranty claim based on an enforceable disclaimer, dismissed the Illinois consumer-fraud claim for lack of Illinois-centered conduct, and dismissed Procura’s third-party claims against Salo for inadequate pleading and contractual support.


Prairie River Home Care, Inc. v. Procura, LLC, No. 17-5121 (JRT/HB), 2019 WL 3021253 (D. Minn. July 10, 2019)