Court Opinion

ID: 170748
Source: CourtListenerOpinion
Date Created: 2010-08-14 18:13:51+00
Date Added: 2024-06-11T17:25:09.046893
License: Public Domain

FILED
                                                               United States Court of Appeals
                                                                       Tenth Circuit

                                                                      May 23, 2008
                   UNITED STATES COURT OF APPEALS Elisabeth A. Shumaker
                                                                       Clerk of Court
                                TENTH CIRCUIT

 MILDRED SPIRES, as next of kin and
 Administrator of the Estate of
 JOSEPH SPIRES, deceased plaintiff,
 THERESA A. ADAMS, as
 Administrator of the Estate of LEON
 E. ADAMS, deceased plaintiff,                          No. 06-3281
 individually and on behalf of all others                (D. of Kan.)
 similarly situated,                             (D.C. No. 06-CV-2137-JTM)

              Plaintiffs-Appellants,

 v.

 HOSPITAL CORPORATION OF
 AMERICA,

              Defendant-Appellee.

                           ORDER AND JUDGMENT *

Before HENRY, Chief Judge, O’BRIEN, and TYMKOVICH, Circuit Judges.

      This class action involves consumer protection and tort claims against

Hospital Corporation of America (HCA). Plaintiffs contend HCA provided

      *
         This order and judgment is not binding precedent except under the
doctrines of law of the case, res judicata and collateral estoppel. It may be cited,
however, for its persuasive value consistent with Fed. R. App. P. 32.1 and 10th
Cir. R. 32.1.
inadequate medical and nursing staffing levels through its subsidiary hospitals,

endangering patients at these facilities.

      The district court dismissed the complaint for failure to state a claim upon

which relief can be granted. Having jurisdiction under 28 U.S.C. § 1291, we

AFFIRM in part, REVERSE in part, and REMAND for further proceedings.

                                   I. Background

      The named Plaintiffs represent the estates of deceased next of kin, as well

as a putative class of similarly situated patients admitted into hospitals affiliated

with HCA. They complain that HCA injured them and other class members by

maintaining inadequate numbers of nurses at its hospitals as a cost-savings

strategy. According to their complaint, HCA developed a computer software

program, implemented by its subsidiary hospitals, that caused the hospitals to

provide inadequate levels of medical staff.

      Plaintiffs brought this class action based on diversity jurisdiction under the

Class Action Fairness Act of 2005. 29 U.S.C. § 1332(d). The complaint alleged

violations of the Kansas Consumer Protection Act (KCPA), negligence, and

unjust enrichment.

      The district court dismissed the complaint in its entirety. It concluded the

claim based on medical staffing could not be bought under the KCPA. The

district court reasoned that staffing levels are determined according to medical

judgment, and consequently could only be challenged as medical malpractice

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claims under state law. The court also dismissed Plaintiffs’ other tort and unjust

enrichment claims for failure to show that HCA violated any duty owing to

Plaintiffs or benefitted from wrongful conduct.

                                  II. Discussion

      We review a district court’s dismissal under Rule 12(b)(6) de novo and take

as true “all well-pleaded facts, as distinguished from conclusory allegations, and

view those facts in the light most favorable to the nonmoving party.” Maher v.

Durango Metals, Inc., 144 F.3d 1302, 1304 (10th Cir. 1998). In the Rule 12(b)(6)

context, we “look for plausibility in th[e] complaint.” Alvarado v. KOB-TV,

L.L.C., 493 F.3d 1210, 1215 (10th Cir. 2007) (quoting Bell Atl. Corp. v. Twombly,

127 S. Ct. 1955, 1970 (2007)).

      Because this case arises under our diversity jurisdiction, Kansas law

applies. Erie R.R. v. Tompkins, 304 U.S. 64 (1938). “The obligation of

responsible appellate review and the principles of a cooperative judicial

federalism underlying Erie require that courts of appeals review the state-law

determinations of district courts de novo.” Salve Regina Coll. v. Russell, 499

U.S. 225, 239 (1991).

      A. Kansas Consumer Protection Act Claim

      The district court dismissed the KCPA claim because it concluded that

medical services are not covered by the Act. The KCPA prohibits a supplier from

engaging “in any unconscionable act or practice in connection with a consumer

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transaction.” Kan. Stat. Ann. § 50-627. As a general matter, the district court

was correct that state consumer protection statutes do not supply a cause of action

for a medical malpractice claim. See, e.g., Janusauskas v. Fichman, 826 A.2d

1066, 1075–76 (Conn. 2003); Quimby v. Fine, 724 P.2d 403, 405–06 (Wash. Ct.

App. 1986). In part relying on these authorities, the district court concluded the

KCPA likewise did not support medical malpractice claims.

      That interpretation of the Kansas law, however, turned out to be incorrect.

In an opinion that came out after the district court’s decision, the Kansas Supreme

Court concluded that claims for medical malpractice can be asserted under the

KCPA. In Williamson v. Amrani, 152 P.3d 60, 65 (Kan. 2007) (citations omitted),

the court held,

      The plain language of the KCPA is broad enough to encompass the
      providing of medical care and treatment of services within a
      physician-patient relationship. A physician is, in the ordinary course
      of business, a seller or supplier of services. A patient is a consumer
      of those services for personal, family, or business purposes. The sale
      of those services is a consumer transaction. Nothing in the KCPA
      explicitly excludes physicians or other professionals from the scope
      of its coverage.

The Williamson court acknowledged that other jurisdictions excluded consumer

protection claims relating “to the actual competence of the medical practitioner”

but explained that the KCPA differs from other statutes because it contains no

language restricting its application to “trade or commerce.” Id. at 68, 69 (internal

citation omitted). The absence of this language left no reason to distinguish

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between “professional conduct in the actual practice of medicine and the

entrepreneurial or business aspects of the medical profession.” Id. at 69. Thus,

medical malpractice claims may be asserted under the KCPA, assuming the other

elements of a consumer protection claim are met.

      Based on Williamson, the district court’s decision dismissing the complaint

was premature. We therefore reverse and remand the KCPA claim for further

proceedings. 1

      B. Tort Claims

      The district court also dismissed two state common law claims based on the

same allegations. We agree with the dismissal of the unjust enrichment claim but

remand the negligence claim for further proceedings.

      1. Negligence

      Plaintiffs contend HCA, a parent corporation, can be held liable for the

actions of subsidiary hospitals because HCA developed a software system to be

used by subsidiary hospitals to influence staffing levels. Plaintiffs argue they do

      1
         Notably, the Kansas legislature subsequently amended the KCPA to
specifically exclude health care providers from coverage, effectively reversing the
Williamson decision. See 2007 Kan. Sess. Laws, ch. 194 § 1(b) (“The Kansas
consumer protection act does not allow for a private cause of action or remedy
against a licensed health care provider for causes of action for personal injury or
death resulting, or alleged to have resulted, from medical negligence.”). Because
the parties concede there is no indication that the amendment was to be given
retroactive effect, we do not consider it. See Bastible v. Weyerhaeuser Co., 437
F.3d 999, 1006–07 (10th Cir. 2006).

                                        -5-
not seek damages based merely on HCA’s ownership of the subsidiary hospitals,

but rather for direct liability based on HCA’s negligence in establishing staffing

policies. The software system, Plaintiffs allege, was designed to increase profits,

but caused hospitals to operate at lower staff levels, which in turn caused

Plaintiffs’ medical care to deteriorate. Under this negligence theory, HCA would

be liable for its own acts or omissions, not vicariously for the acts or omissions of

its subsidiaries.

       Under Kansas negligence tort law, Plaintiffs must establish “(1) the

existence of a duty; (2) an act or omission in breach of that duty; (3) proximate

cause; and (4) an injury.” Fieser v. Kan. Bd. of Healing Arts, 130 P.3d 555, 557

(Kan. 2006). Ordinarily, a parent corporation will not be responsible for the

negligence of an independent subsidiary. But Kansas law allows the rule to be

abrogated where a parent corporation negligently undertakes a duty owing

directly to third parties. See Restatement (Second) of Torts § 324A (1965);

Schmeck v. Shawnee, 651 P.2d 585, 597 (Kan. 1982) (“[T]he principles embodied

in § 324A have long been recognized by this court.”); see generally Gooch v.

Bethel A.M.E. Church, 792 P.2d 993, 998 (Kan. 1990) (collecting cases where

Kansas has applied section 324A).

       Under this exception, a parent corporation can be liable where the parent

corporation participates in, or directs the subsidiary in, negligent conduct causing

injury. A parent company is not liable merely because of the parent-subsidiary

                                         -6-
relationship, but rather must assume the duty of the subsidiary to a third party by

some affirmative undertaking. See Luckett v. Bethlehem Steel Corp., 618 F.2d

1373, 1382–83 (10th Cir. 1980) (applying section 324A).

      The district court dismissed Plaintiffs’ negligence claim, recognizing it as

an attempt to assert independent negligence on the part of HCA, but finding that

Plaintiffs could not justify piercing the corporate veil. The district court appears

to rest its dismissal of Plaintiffs’ negligence claim solely on the lack of support

for veil-piercing. R., App. D, at 9 (citing Amoco Chem. Corp. v. Bach, 567 P.2d

1337 (Kan. 1977) (stating that veil-piercing is to be exercised reluctantly and

cautiously)). However, claims predicated on independent liability under section

324A do not require traditional veil-piercing because the parent has undertaken a

duty owed by the subsidiary to a third party and is liable based on its own actions.

See, e.g., Luckett, 618 F.2d at 1379 (considering section 324A tort claim

separately from veil-piercing claim).

      As currently postured, the contours of Plaintiffs’ negligence claim and the

scope of any duty owed by HCA to patients in the subsidiary hospitals is unclear.

Since the district court has yet to address these questions in depth, we remand the

issue for further consideration by the court. At this stage of the proceedings, we

express no opinion on the ultimate success of Plaintiffs’ complaint under Kansas

law. While the hospitals themselves, not HCA, owe the duty to patients for

medical care, we are unsure of Plaintiffs’ contention that HCA has affirmatively

                                          -7-
undertaken a duty of care by developing and implementing a software program.

If Plaintiffs do not allege a level of control beyond the ordinary involvement of a

parent corporation in the affairs of its subsidiaries, it is doubtful Kansas law

would support the claim.

       Accordingly, we remand the negligence claim for further consideration by

the district court.

       2. Unjust Enrichment

       Plaintiffs also alleged a claim for unjust enrichment. Under Kansas law,

the elements of an unjust enrichment claim are (1) plaintiff conferred a benefit on

defendant; (2) defendant knew and received a benefit; and (3) defendant retained

the benefit under circumstances that make it unjust. Haz-Mat Response, Inc. v.

Certified Waste Servs. Ltd., 910 P.2d 839, 847 (Kan. 1996).

       The district court dismissed the claim because Plaintiffs failed to allege that

deceased family members had actually conferred a benefit on HCA, and that the

unjust enrichment for acts constituting medical malpractice are displaced by

Kansas’s medical malpractice regime. We agree. Plaintiffs have pointed to

nothing in Kansas law that supports an indirect unjust enrichment claim against

HCA for payments made to subsidiary hospitals. 2

       2
         Although we were unable to find any Kansas cases discussing unjust
enrichment against parent corporations in the context of veil-piercing, other
jurisdictions have rejected this type of claim in the absence of veil-piercing. See,
                                                                        (continued...)

                                          -8-
       Accordingly, Plaintiffs’ unjust enrichment claim was properly dismissed.

       C. Declaratory and Injunctive Relief

       In light of our reversal of the KCPA and negligence claims, Plaintiffs are

entitled to renew their claims for declaratory and injunctive relief on remand. We

express no opinion as to the legal sufficiency of these arguments under Kansas

law.

                                 III. Conclusion

       The district court’s order is REVERSED as to the KCPA claim and the

negligence claim and REMANDED for further proceedings consistent with this

order and judgment. We AFFIRM the dismissal of the unjust enrichment claim.

                                       Entered for the Court,

                                       Timothy M. Tymkovich
                                       Circuit Judge

       2
       (...continued)
e.g., United States v. Dean Van Lines, 531 F.2d 289, 291 (5th Cir. 1976).

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