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Ridley v. Bayhealth Medical Center, Inc.

Superior Court of Delaware

March 20, 2018

MARY BETH RIDLEY, on behalf of herself and all others similarly situated, Plaintiff,
v.
BAYHEALTH MEDICAL CENTER, INC., d/b/a MILFORD MEMORIAL HOSPITAL and KENT GENERAL HOSPITAL, Defendant.

          Date Submitted: February 8, 2018

         On Defendant Bayhealth Medical Center Inc. 's Motion to Dismiss the Complaint and Strike Class Allegations: GRANTED in part, DENIED in part, and DEFERRED in part.

          Kelley M. Huff, Esquire (argued), Attorney for Plaintiff.

          John S. Spadaro, Esquire, John Sheehan Spadaro, LLC, Attorney for Plaintiff.

          Colleen D. Shields, Esquire (argued) and Alexandra D. Rogin, Esquire, Eckert Seamans Cherin & Melliott, LLC, Attorneys for Defendant.

          OPINION

          JAN R. JURDEN, PRESIDENT JUDGE

          I. INTRODUCTION

         This putative class action stems from a request for copies of medical records.[1]Plaintiff, Mary Beth Ridley ("Ridley"), is suing because the Defendant allegedly overcharged her for copies of her medical records, falsely represented she had to pay per-page rates for paper copies to obtain them, and concealed the material fact that Ridley is entitled to her medical records in electronic format. Ridley asserts claims for consumer fraud, breach of contract, violation of 24 Del. C. § 1761 (the Delaware Medical Practice Act), declaratory judgment, attorneys' fees, and punitive damages, ; She also seeks class certification. Now before the Court is Defendant Bayhealth Medical Center, Inc.'s ("Bayhealth") Motion to Dismiss the Complaint and Strike Class Allegations. For the reasons that follow, Bayhealth's Motion is GRANTED in part, DENIED in part, and DEFERRED in part.

         II. FACTS

         Bayhealth is a Delaware corporation and healthcare provider as defined under 18 Del. C. § 6801(5) and does business as Milford Memorial Hospital and Kent General Hospital.[2] In March 2017, Ridley, a former patient of Bayhealth, sent two letters to Bayhealth requesting her medical records. One letter requested her medical records from Milford Memorial Hospital from May 1, 2016 to March 10, 2017 ("Milford Letter").[3] The Milford Letter stated, "[p]lease provide the records in electronic form on CD in the Adobe Acrobat PDF format, " and it directed Bayhealth to send the CD to Ridley's attorney.[4] Bayhealth sent Ridley's attorney the Milford records and an invoice dated March 30, 2017 for $193.75 for 425 paper pages of medical records.[5]

         Ridley's second letter requested her medical records from Kent General Hospital from May 1, 2016 to March 10, 2017 ("Kent General Letter"). Like the Milford Letter, the Kent General Letter stated, "[p]lease provide the records in electronic form on CD in the Adobe Acrobat PDF format, " and it directed Bayhealth to send the CD to her attorney.[6] Bayhealth sent Ridley's attorney the Kent General records and an invoice dated March 30, 2017 for $41.00 for 35 paper pages of medical records.[7]

         Ridley's Complaint alleges she paid the sums claimed due "in reliance on the representation of Bayhealth that she was required to pay the sums demanded in order to obtain access to her medical records."[8]

         III. PARTIES' CONTENTIONS

         Ridley asserts multiple claims against Bayhealth. First, she alleges Bayhealth violated 6 Del. C. § 2513, the Delaware Consumer Fraud Act ("DCFA").[9] According to Ridley's Complaint, Bayhealth intended Ridley and class members to rely on misrepresentations and concealments "so that they would believe they needed to pay more money for paper copies of their medical records, which they did."[10] Second, she alleges that Bayhealth's conduct constitutes a violation of 24 Del. C. § 1761, the Delaware Medical Practice Act, because the fees for Ridley's medical records exceeded the limits provided in a regulatory fee schedule.[11] Third, Ridley alleges that Bayhealth's excessive charges and wrongful refusal to produce medical records in electronic format constitute a breach of contract.[12] Along with requests for monetary damages (including punitives) and attorneys' fees, [13] Ridley seeks a declaratory judgment that Bayhealth violated federal and state laws in connection with its charges and the manner in which it provides patients with copies of their medical records.[14] Ridley also seeks class certification.[15]

         Bayhealth moves to dismiss on several grounds. First, Bayhealth argues that Ridley lacks standing to assert the claims alleged in the Complaint because Bayhealth never charged Ridley for the medical records at issue, and the Complaint fails to state that Ridley was obligated to pay for the records.[16] Second, Bayhealth contends that Ridley's DCFA claim must be dismissed because furnishing medical records is not the type of transaction the DCFA was intended govern.[17] Third, Bayhealth argues that Ridley fails to state a claim for violation of 24 Del. C. § 1761, the Delaware Medical Practice Act, because this statute does not apply to hospitals, and even if it does, Ridley has failed to sufficiently plead a violation.[18] Fourth, Bayhealth maintains that Ridley's breach of contract claim must be dismissed because there is no allegation in the Complaint that a contract existed between Bayhealth and Ridley, or that a breach of contract caused injury to Ridley. Fifth, Bayhealth argues that Ridley fails to state a claim for breach of the implied covenant of good faith and fair dealing because Ridley has not alleged a specific implied contractual obligation or how a violation of such obligation denied Ridley the fruits of the contract.[19] Sixth, Bayhealth contends that Ridley's claim for declaratory judgment must be dismissed because there is no private right cause of action under the Health Insurance Portability and Accountability Act ("HIPAA"), money damages are more appropriate, and other claims already alleged adequately address the damages Ridley seeks.[20] Seventh, Bayhealth argues Ridley's claim for punitive damages must be dismissed because Ridley fails to state a claim for violation of the DCFA or a claim entitling her to punitive damages.[21] Eighth, Bayhealth maintains Ridley fails to allege any viable claim that would entitle her to attorneys' fees. Finally, Bayhealth asserts that the Complaint fails to satisfy the requirements for class certification pursuant to Delaware Superior Court Civil Rule 23(a).[22]

         IV. STANDARD OF REVIEW

         On a motion to dismiss for failure to state a claim upon which relief can be granted, [23] the Court must read the complaint generously, accept all well-pled allegations contained therein as true, and draw all reasonable inferences in a light most favorable to the non-moving party.[24] A complaint is well-pled if it puts the opposing party on notice of the claim being brought against it.[25] "Dismissal is inappropriate unless the 'plaintiff would not be entitled to recover under any reasonably conceivable set of circumstances susceptible of proof.'"[26] Allegations that are merely conclusory and lacking factual basis will not survive a motion to dismiss.[27]

         When a complaint includes claims of fraud, the Court must also take into account Delaware Superior Court Civil Rule 9(b), which requires the plaintiff to plead allegations of actual fraud with particularity.[28] "Rule 9(b) does not require an exhaustive cataloguing of facts but on sufficient factual specificity to provide assurance that the plaintiff has investigated...the alleged fraud and reasonably believes that a wrong has occurred."[29]

          V. DISCUSSION

         A. Standing

         Because it is jurisdictional, the Court first considers Bayhealth's argument that Ridley lacks standing.[30] The term "standing" refers to the right of a party to invoke the jurisdiction of a court to enforce a claim or to redress a grievance.[31] To have standing to bring an action in Delaware, a plaintiff must establish: (1) an injury-in-fact, to a legally protected interest, that is concrete and particularized, actual or imminent, and not conjectural or hypothetical; (2) a causal connection between the injury and the defendant's conduct; and (3) the claim is redressable by a favorable decision.[32]

         Bayhealth points out that the Complaint alleges it sent Ridley's medical records and invoices for those records to Ridley's attorney. The Complaint does not allege that the invoices were addressed to Ridley by care of her attorney.[33] Thus, according to Bayhealth, Ridley never suffered an injury-in-fact because she was never charged for the allegedly overpriced copies and, therefore, lacks standing.[34]

         In support of this argument, Bayhealth relies on Spiro v. HealthPort Techs., LLC, [35] where defendants in a putative class action successfully argued a similar challenge in a case also involving alleged overcharges for medical records.[36] In Spiro, plaintiffs' counsel requested plaintiffs' medical records from the defendant hospitals and their billing agent, which allegedly charged inflated rates for producing the records.[37] The defendants in Spiro asserted a standing challenge, arguing that plaintiffs had failed to plead a cognizable injury-in-fact because the plaintiffs' counsel, not the plaintiffs, was charged for (and paid for) copies of the plaintiffs' medical records.[38] In response, the Spiro plaintiffs argued that each plaintiff later reimbursed plaintiffs' counsel for the costs of the copies after the case settled. According to the Spiro plaintiffs, because the cost was passed along to them, each suffered an out-of-pocket monetary loss, and it was irrelevant that their counsel fronted the payments for them. The Spiro court held that because the plaintiffs did not allege in their complaint that they were obligated to pay the copying costs that their counsel incurred, the plaintiffs' decision to reimburse their counsel after the fact "was a volitional act - an act of grace, "[39] and "any legal right to challenge defendants' ostensible overcharging would belong exclusively to [plaintiffs' counsel], who suffered an injury caused by defendants' overcharging."[40] The Spiro court noted that the analysis would have been different had plaintiffs been obligated to reimburse their counsel at the time he incurred the copying expenses.[41] Had that fact been pled, the liability to repay their counsel for the copying costs would have given plaintiffs standing because they, not their counsel, would have suffered an injury-in-fact (a legal duty to pay these excessive costs) traceable to the defendants responsible for the charges.[42]

         Unlike the complaint in Spiro, Ridley alleges she paid the copying costs charged by Bayhealth, "in reliance on Bayhealth's representation that she was required to pay the sums demanded in order to obtain access to her medical records."[43] The facts, as pled, establish that Ridley was obligated to pay for the records in order to obtain them, [44] and she paid those charges. Unlike the plaintiffs in Spiro, Ridley alleged facts establishing an injury-in-fact and a chain of causation unbroken by an independent volitional, discretionary act.[45] Bayhealth's Motion to Dismiss based on lack of standing is therefore DENIED.

         B. Delaware Consumer Fraud Act

         The DCFA states, in pertinent part:

The act, use or employment by any person of any deception, fraud, false pretense, false promise, misrepresentation, or the concealment, suppression, or omission of any material fact with intent that others rely upon such concealment, suppression or omission, in connection with the sale, lease or advertisement of any merchandise, whether or not any person has in fact been misled, deceived or damaged thereby, is an unlawful practice.[46]

         To prove a claim under the DCFA, the consumer must establish that the merchant made a false statement with the knowledge that the statement was untrue, or the merchant negligently made a misrepresentation.[47] To plead a cause of action for damages under the DCFA, Ridley must allege that: (1) Bayhealth engaged in conduct that violated the statute; (2) Ridley was a "victim" of the unlawful conduct; and (3) there exists a causal relationship between Bayhealth's conduct and Ridley's ascertainable loss.[48]

         According to Bayhealth, no Delaware court has applied the DCFA in a case like this one.[49] Bayhealth suggests that the DCFA may not be applicable here "because furnishing medical records to patients at cost is not a traditional relationship between a consumer and a business enterprise as contemplated by the DCFA's purpose..."[50] Assuming arguendo that the DCFA is applicable, Ridley's DCFA claim cannot survive a motion to dismiss because the alleged conduct giving rise to the fraud and the breach of contract is the same.[51] Without alleged separate and distinct conduct, where a defendant is bound by a contract with a plaintiff, the defendant will not be liable in tort for failure to comply with the contract.[52] Ridley does not contest that her fraud claim is based entirely on breach of contract, [53] but argues that "[w]hatever holdings there may be on the subject of combining breach of contract with common law fraud, this Court...has upheld the simultaneous pleading of contract claims and CFA claims... "[54] The cases Ridley relies upon in support of this argument, however, are inapposite because they turn on something other than the separate and distinct conduct rule governing concurrent fraud and contract claims. In fact, none of the cases cited by Ridley analyze the separate and distinct conduct rule.[55]

         Another reason Ridley's fraud claim does not survive is that a plaintiff who alleges fraud and breach of contract must prove that the damages pled under each cause of action are distinct.[56] Fraud damages allegations cannot simply "rehash" damages that were allegedly caused by a claimed breach of contract.[57] Failure to plead separate damages is an independent ground for dismissal, [58] and Ridley's damages claims for the alleged consumer fraud and breach of contract are virtually identical.[59]

         Because Ridley's Complaint fails "to separate the damages incurred by any fraudulent conduct from those incurred by any breach of contract, "[60] and the conduct giving rise to the alleged fraud and the breach is the same, Bayhealth's Motion to Dismiss the DCFA claim is GRANTED.

         C. 24 Del. C. § 1761, The Delaware Medical Practice Act

         Ridley alleges that Bayhealth violated 24 Del. C. § 1761, the Delaware Medical Practice Act, when it charged more than its actual costs for copying medical records.[61] 24 Del. C. § 1761 (d) provides that patients have the right to obtain copies of their medical records according to a payment schedule established by the Board of Medical Licensure and Discipline. Bayhealth argues that § 1761 does not apply to hospitals.[62] 24 Del. C. § 1761(e) states:

This section does not apply to a person certified to practice medicine who has seen or treated a patient on referral from another person certified to practice medicine and who has provided a copy of the record of the diagnosis and/or treatment to the other person, or to a hospital or an agency which has provided treatment for the patient.[63]

         The express language of the statute is clear, and Ridley did not respond to Bayhealth's argument on this point in her Answering Brief.[64] Bayhealth's Motion to Dismiss Ridley's claim that Bayhealth violated 24 Del. C. § 1761 is GRANTED,

         D. Breach of Contract

         Ridley alleges in her Complaint that: (1) the relationship between her (and the classes) and Bayhealth "is contractual in nature;"[65] (2) "Bayhealth's imposition of excessive and unlawful charges for the disclosure of patients' medical records, and its wrongful refusal to produce such records in electronic format as required by law, are in breach of its contractual duties (including without limitation the duties of good faith and fair dealing) to Plaintiff and the classes;"[66] and (3) "[a]s a direct result of Bayhealth's breaches of contract (as described herein), Plaintiff and the classes have suffered injury as heretofore alleged."[67]

         In order to survive a motion to dismiss for failure to state a breach of contract claim, a plaintiff must allege: (1) the existence of a contract, whether express or implied; (2) the breach of an obligation imposed by that contract; and (3) the resultant damage to the plaintiff[68] Moreover, to recover damages, a plaintiff alleging breach of contract must demonstrate that he substantially complied with all provisions of the contract.[69]

         Bayhealth maintains that the facts as pled do not give rise to an inference that it owed a contractual duty to Ridley.[70]

         Existence of a Contract

         An implied-in-fact contract is legally equivalent to an express contract; the only difference between the two is the proof by which the contract is established.[71]"An express agreement is arrived at by words, while an implied agreement is arrived at by acts."[72] To determine the existence of an implied-in-fact contract, the inquiry focuses on whether the parties have "indicated their assent to the contract."[73] In other words, to prevail on a theory of implied-in-fact contract, a plaintiff must establish that the parties, through their actions, demonstrated a "meeting of the minds" on all essential terms of the contract.[74]

          The Complaint alleges Ridley ordered her medical records in electronic format and then "paid the sums claimed due by Bayhealth."[75] Bayhealth concedes it received payment for its production of Ridley's medical records.[76] Mutual assent is demonstrated by Ridley's letters, Bayhealth's delivery of the copies to Ridley's attorney (as instructed in the letters), and Ridley's payment for her medical records, which Bayhealth accepted.

         Bayhealth cites to Shah v. Am. Sols., Inc., [77] arguing any contractual relationship arising from the invoices is between Ridley's counsel and Bayhealth.[78]Based on the facts as pled, the Court disagrees, and the facts in Shah are inapposite. Ridley placed an order with Bayhealth for her medical records, [79] instructed Bayhealth as to the format in which her records should be produced, [80] directed Bayhealth to send her medical records to her attorney, [81] and Ridley paid the bill.[82]In response to Ridley's letters, Bayhealth produced the medical records, sent them along with the invoices to Ridley's attorney, and accepted payment for the records.[83] These allegations support a reasonable inference that an implied-in-fact contract exists between Ridley and Bayhealth.[84]

         Breach/Damages

         Bayhealth argues that even if an implied-in-fact contractual relationship exists, Ridley suffered no loss as a result of a breach of that contract.[85] Ridley relies on provisions of the HITECH Act[86] to allege a specific implied contractual obligation[87] (acquiring her electronic medical records at cost) that she was denied as a result of Bayhealth's breach.[88] It is reasonable to infer from the allegations that Ridley reasonably expected to be charged actual costs for her medical records and to receive them in the electronic format she requested, consistent with the federal law governing Bayhealth's handling of patient medical records. On a motion to dismiss, dismissal is only appropriate if it is "reasonably certain that the plaintiff could not prove any set of facts that would entitle... [her] to relief."[89] Accepting all well-alleged allegations as true, and drawing every factual inference in favor of the plaintiff, the Court finds Ridley has sufficiently pled a breach and damages caused by that breach.[90]

         Breach of the Implied Covenant of Good Faith and Fair Dealing

         Although not explicitly pled, Ridley includes in her breach of contract claim a breach of the covenant of good faith and fair dealing.[91] Bayhealth argues that Ridley's "vague reference" to breach of the implied covenant fails under Delaware law, and Delaware courts "routinely dismiss" such claims before allowing the case to proceed to discovery.[92] Ridley counters that a "fairly pleaded claim of good faith/bad faith raises essentially a question of fact which generally cannot be resolved on the pleadings or without first granting an adequate opportunity for discovery."[93]

         The implied covenant of good faith and fair dealing inheres in every contract and requires a party in a contractual relationship to refrain from arbitrary and unreasonable conduct which has the effect of preventing the other party to the contract from receiving the fruits of the bargain.[94] An implied covenant claim seeks to enforce the parties' contractual bargain by implying only those terms that the parties would have agreed to had those terms been considered before execution of the transaction.[95] In other words, rather than constituting a free floating duty imposed on a contracting party, the implied covenant can only be used to ensure the parties' reasonable expectations are fulfilled.[96] "To state a claim for breach of the implied covenant of good faith and fair dealing, the Plaintiff[] must identify a specific implied contractual obligation, "[97] and "allege how the violation of that obligation denied the plaintiff the fruits of the contract."[98]

         If the jury believes the terms of the implied-in-fact contract were not sufficient to justify finding a breach of the contract, it could still find the alleged overcharging and refusal to produce the copies in the requested electronic format was a breach of the implied covenant.[99] At this stage, it is too early to rule out the possibility that the implied covenant might apply.[100] Bayhealth's Motion to Dismiss Ridley's breach of contract claim is therefore DENIED.

         E. Declaratory Judgment

         Ridley seeks a declaratory judgment that Bayhealth acted in violation of the HITECH Act and applicable state law in connection with its charges for, and manner of producing, patient records.[101] Bayhealth argues Ridley's claim for declaratory judgment must be dismissed because there is no private right cause of action under HIPAA.[102] Bayhealth maintains that Ridley failed to address its argument in her Answering Brief and, therefore, does not contest it.[103]

         The Court is statutorily authorized to consider an action for declaratory judgment, [104] provided that an "actual controversy" exists between the parties.[105] For an "actual controversy" to exist, the following prerequisites must be satisfied: (1) It must be a controversy involving the rights or other legal relations of the party seeking declaratory relief; (2) it must be a controversy in which the claim of right or other legal interest is asserted against one who has an interest in contesting the claim; (3) the controversy must be between parties whose interests are real and adverse; and (4) the issue involved in the controversy must be ripe for judicial determination.[106] The Court has discretion to decline to adjudicate a declaratory judgment action unless the underlying controversy has "matured to a point where judicial action is appropriate."[107]

          The controversy has not matured to a point where the Court finds judicial action is appropriate. Therefore, Bayhealth's Motion to Dismiss Ridley's claim for declaratory judgment is GRANTED.

         F. Punitive Damages

         In her Prayer for Relief, Ridley seeks punitive damages for Bayhealth's "willful and wanton conduct."[108] In response, Bayhealth argues that Ridley "asserts no allegations of intentional misconduct outside the context of her unsupported fraud claim, and punitive damages are generally not available in breach of contract actions."[109]

         Ridley's breach of contract claim is the only claim to survive Bayhealth's Motion to Dismiss. The Complaint does not sufficiently plead a claim sounding in tort. Nor, does the Complaint plead "particularly reprehensible" conduct.[110]Punitive damages are "reserved for defendants who exhibit an 'I don't care attitude' or willful or wanton disregard for the rights of others."[111] The facts pled in Ridley's Complaint do not raise an inference of "evil motive" or "reckless indifference" to the rights of others.[112] Punitive damages are not recoverable for breach of contract unless the conduct also amounts independently to a tort.[113] Bayhealth's Motion to Dismiss Ridley's punitive damages claim is therefore GRANTED,

         G. Attorneys' Fees

         Ridley also seeks attorneys' fees.[114] Delaware follows the "American Rule, " whereby a prevailing party is generally expected to pay its own attorneys' fees and costs.[115] Typically, Delaware courts will only find exceptions to the American Rule where a fee-shifting statute or contractual agreement for fees applies.[116] No such statute applies here, and Ridley's Complaint does not allege a contractual agreement for attorneys' fees. While the Court has recognized limited equitable exceptions to the American Rule, [117] on the facts ...


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