Court Opinion

ID: 7805507
Source: CourtListenerOpinion
Date Created: 2022-09-01 00:00:17.806707+00
Date Added: 2024-06-11T16:30:01.780238
License: Public Domain

Case: 20-60991         Document: 00516454978               Page: 1      Date Filed: 08/31/2022

               United States Court of Appeals
                    for the Fifth Circuit                                   United States Court of Appeals
                                                                                     Fifth Circuit

                                                                                   FILED
                                                                             August 31, 2022
                                         No. 20-60991                         Lyle W. Cayce
                                                                                   Clerk

   Kimberly Henley, on behalf of herself and all others similarly situated,

                                                                       Plaintiff—Appellant,

                                              versus

   Biloxi H.M.A., L.L.C., a Mississippi Limited Liability Company, doing
   business as Merit Health Biloxi,

                                                                      Defendant—Appellee.

                     Appeal from the United States District Court
                       for the Southern District of Mississippi
                                Case No. 1:19-CV-544

   Before King, Dennis, and Ho,1 Circuit Judges.
   James L. Dennis, Circuit Judge:
           This is an appeal from a district court’s grant of a Rule 12(b)(6)
   motion to dismiss for failure to state a claim. Plaintiff-appellant, Kimberly

           1
             Judge Ho concurs in Sections I and II. He would certify the question addressed
   in Section III to the Mississippi Supreme Court for consideration. See, e.g., JCB, Inc. v. The
   Horsburgh & Scott Co., 941 F.3d 144, 145 (5th Cir. 2019).
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                                         No. 20-60991

   Henly (“Henly”2), sought a declaratory judgment that defendant-appellee
   Biloxi H.M.A., L.L.C., doing business as Merit Health Biloxi (“Merit
   Health”), a hospital, has a duty to disclose that it charges a “facility fee,”
   also referred to as a “surcharge,” to all emergency room patients who receive
   care at its facility. The district court, making an Erie guess informed by the
   Mississippi Supreme Court’s references to, and partial application of, the
   Restatement (Second) of Torts § 551, determined that Merit Health did not
   have a duty to disclose because the surcharge was not a “fact basic to the
   transaction,” see § 551(2)(e) and comment j., and it therefore granted the
   motion to dismiss.          For the following reasons, we REVERSE and
   REMAND for further proceedings.
                                               I.
                                               A.
           Henly’s complaint included the following factual allegations: Merit
   Health charges every emergency room patient that visits one of its facilities
   in Mississippi a surcharge set at one of five levels. For example, according to
   the complaint, the 2019 surcharge levels at Merit Health’s Biloxi location
   were:       (1) Basic—$589.32; (2) Limited—$1,323.39; (3) Intermediate—
   $1,840.01; (4) Extensive—$2,377.89; and (5) Major—$3,567.89. These
   surcharges are not based on the individual services or treatments that a
   patient receives; rather, Merit Health includes a surcharge in the bill of every
   patient that is seen at the emergency room of its facility, in addition to the
   line-item charges for specific services provided. Merit Health does not
   inform patients prior to treatment, either verbally or through signage, of the
   existence or amounts of the surcharges. These facts are alleged in the

           2
            The official case caption misspells the plaintiff’s name as “Henley,” while the
   complaint uses the correct spelling “Henly.” In this opinion, we follow the latter spelling.

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   complaint and therefore are controlling at this motion to dismiss stage of the
   proceedings.
           Henly sought emergency care at Merit Health’s Biloxi location on
   May 19, 2018. She alleges she received no notice or warning, either verbally
   or through signage, regarding surcharges. She was subsequently billed a
   gross amount (before discounts) of $17,752.47, which included a $2,201.75
   surcharge. Merit Health then applied a 65% self-pay discount to Henly’s bill,
   reducing the total to $6,213.36, including a discounted surcharge of $770.61.
   The surcharge appeared on the itemized billing statement as “ER DEPT
   EXTENSIV,” but the billing statement did not identify the charge as a
   surcharge or explain that the charge was a surcharge added on top of line-
   item charges for specific treatments.3 According to the complaint, Henly was
   “shocked” when she found out she had been charged a surcharge on top of
   the amounts billed for specific treatments and services she had been
   provided. She avers she would have sought treatment elsewhere if she had
   been informed about the surcharge prior to receiving treatment. At the time
   the complaint was filed, Henly had paid more than $1,500 of her bill, but
   continued to receive statements from Merit Health for the outstanding
   balance.
           According to the complaint, patients like Henly are not aware that the
   surcharge will be added to their bills and that Merit Health knows that
   patients are unaware of the surcharge. Merit Health “represent[s] [itself] as
   a caring community-based organization,” and “[u]nlike a normal arms-
   length transaction between a buyer and a seller, a patient seeking medical
   services” at Merit Health “places a great degree of trust and confidence on

           3
            We note that the surcharge constituted nearly 12.5% of the total billed amount.
   Put another way, the addition of the surcharge increased the amount billed by 14%.

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   the good intention of the hospital to treat him or her fairly and with
   compassion.” Henly avers that, if known prior to treatment, the existence of
   the surcharge would be a substantial factor in a patient’s decision about
   where to receive treatment.
                                          B.
          Henly brought a putative class action lawsuit against Merit Health
   pursuant to 28 U.S.C. § 2201 seeking a declaratory judgment that the
   hospital had a duty under Mississippi state law to disclose the surcharge to
   patients prior to treatment. However, the district court did not rule on the
   class action certification and the parties have not briefed it on appeal.
          Merit Health moved to dismiss under Rule 12(b)(6) for failure to state
   a claim. The district court granted the motion and dismissed Henly’s
   complaint with prejudice, holding that the complaint did not sufficiently
   allege that the surcharge was a “fact basic to the transaction” as per
   Restatement (Second) of Torts § 551(2)(e) and comment j. that would trigger
   a duty to disclose under Mississippi law. Henly appealed.
                                          II.
          We review a dismissal pursuant to a Rule 12(b)(6) motion for failure
   to state a claim de novo, accepting all well-pleaded factual allegations as true.
   Alexander v. Verizon Wireless Servs., L.L.C., 875 F.3d 243, 249 (5th Cir.
   2017). “To survive a motion to dismiss, a complaint must contain sufficient
   factual matter, accepted as true, to state a claim to relief that is plausible on
   its face. A claim has facial plausibility when the plaintiff pleads factual
   content that allows the court to draw the reasonable inference that the
   defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S.
   662, 678 (2009) (citations and quotations omitted).

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          In diversity cases, “federal courts must apply state substantive law.”
   In re Katrina Canal Breaches Litig., 495 F.3d 191, 206 (5th Cir. 2007) (citing
   Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78 (1938)). “To determine state law,
   federal courts sitting in diversity look to the final decisions of the state’s
   highest court.” Am. Int’l Specialty Lines Ins. Co. v. Canal Indem. Co., 352 F.3d
   254, 260 (5th Cir. 2003) (citation omitted). “In the absence of a final
   decision by the state’s highest court on the issue at hand, it is the duty of the
   federal court to determine, in its best judgment, how the highest court of the
   state would resolve the issue if presented with the same case.” Id. “We
   consider Mississippi Supreme Court cases that, while not deciding the issue,
   provide guidance as to how the Mississippi Supreme Court would decide the
   question before us.” Keen v. Miller Env’t Grp., Inc., 702 F.3d 239, 244 (5th
   Cir. 2012) (quoting Gilbane Bldg. Co. v. Admiral Ins. Co., 664 F.3d 589, 594
   (5th Cir. 2011)) (cleaned up).
                                           III.
           According to the Mississippi Supreme Court, “[i]n order to be liable
   for nondisclosure, a party must have had a legal duty to communicate a
   known material fact.” Mabus v. St. James Episcopal Church, 13 So. 3d 260,
   265 (Miss. 2009). “Thus, nondisclosure in itself, even if fraudulent, does
   not give rise to a legal claim. The party must have concealed something that
   he or she was legally required to disclose.” Id.
          The Mississippi Supreme Court has “long recognized the principle
   that a party is liable for its silence where its silence ‘relate[s] to material fact
   or matter known to the party and . . . it is [the party’s] legal duty to
   communicate to the other contracting party.’” Daniels v. Crocker, 235 So. 3d
   1, 14 (Miss. 2017) (quoting Guastella v. Wardell, 198 So. 2d 227, 230 (Miss.
   1967). “The duty to disclose is based upon a theory of fraud that recognizes
   that the failure of a party to a business transaction to speak may amount to

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   the suppression of a material fact which should have been disclosed and is, in
   effect, fraud.” Holman v. Howard Wilson Chrysler Jeep, Inc., 972 So. 2d 564,
   568 (Miss. 2008) (citing Welsh v. Mounger, 883 So. 2d 46, 49 (Miss. 2004)).
             The question in this case is whether a duty to disclose arises under
   Mississippi law on the facts alleged in Henly’s complaint. We agree with the
   district court’s assessment that there is no final authority from the
   Mississippi Supreme Court conclusively deciding the issue of whether a duty
   to disclose exists under the circumstances presented by this case. Thus, we
   must rely on the Mississippi Supreme Court’s decisions to provide guidance
   as we determine how it would resolve the issue. Am. Int’l Specialty Lines Ins.
   Co., 352 F.3d at 260; Keen, 702 F.3d at 244.
             In Holman v. Howard Wilson Chrysler Jeep, Incorporated, two
   customers seeking to buy a new car were actually sold a demonstrator model
   that had been damaged in a wreck and repaired for a sum of $2,190.38 prior
   to the sale. 972 So. 2d at 567–569. The purchase price of the car was $33,685.
   Id. at 568. Citing to the Restatement (Second) of Torts § 551(2)(b), (d), and
   (e), along with other Mississippi precedents, the Mississippi Supreme Court
   reversed a grant of summary judgment to the dealership, holding that the
   dealership might have owed a duty to disclose the repaired damage to the
   customers. Id. at 568–69. The Court found that genuine issues of material
   fact existed regarding whether the dealership owed a duty to disclose,
   including disputes as to whether “knowledge of the damage would be
   material to [the customer’s] purchase of the automobile” and whether
   language in the dealership’s purchase contract provided adequate notice. Id.
   at 569.
             In Green Realty Management Corporation v. Mississippi Transportation
   Commission, the Mississippi Transportation Commission (MTC) purchased
   two pieces of undeveloped land from Green Realty as part of a road-widening

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   project. 4 So. 3d 347, 348–49 (Miss. 2009). Only after construction began
   did Green Realty learn that the project would increase the flow of surface
   water onto its adjacent property. Id. The trial court granted summary
   judgment for the MTC, reasoning that the agency had no duty to disclose the
   water flow issue, but rather that Green Realty had a duty to investigate the
   public records, where drawings of the project were on file. Id. at 349–50. The
   Mississippi Supreme Court reversed, holding that “whether the drawings
   were on file is immaterial if the agency withheld material facts” and therefore
   made a “fraudulent misrepresentation.” Id. “If the state agency knew it
   would divert water flow, which would cause damage to property . . . and
   remained silent as to this fact, the agency suppressed material facts. Given
   that scenario, a material misrepresentation by silence was visited upon
   Green.” Id. at 351.
          In analyzing the duty to disclose, Green Realty cited the Restatement
   (Second) of Torts § 551, as well as Mississippi case law and the American
   Jurisprudence 2d on Fraud and Deceit. Green Realty, 4 So. 3d at 350 (citing
   Guastella, 198 So.2d at 230–31; Holman, 972 So. 2d at 568; Am. Jur. 2d
   Fraud and Deceit § 258; Restatement (Second) of Torts
   § 551(2)(b)).
          The Restatement (Second) of Torts § 551(1) describes a general
   theory of liability for nondisclosure:
          One who fails to disclose to another a fact that he knows may
          justifiably induce the other to act or refrain from acting in a
          business transaction is subject to the same liability to the other
          as though he had represented the nonexistence of the matter
          that he has failed to disclose, if, but only if, he is under a duty
          to the other to exercise reasonable care to disclose the matter
          in question.

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   Restatement (Second) of Torts § 551(1); see also Mabus, 13 So. 3d
   at 265 (“In order to be liable for nondisclosure, a party must have had a legal
   duty to communicate a known material fact.”).
          Section 551(2) has five subsections—(a) through (e)—that describe
   five different situations in which a duty to disclose arises:
          (2) One party to a business transaction is under a duty to
          exercise reasonable care to disclose to the other before the
          transaction is consummated,
          (a) matters known to him that the other is entitled to know
          because of a fiduciary or other similar relation of trust and
          confidence between them; and
          (b) matters known to him that he knows to be necessary to
          prevent his partial or ambiguous statement of the facts from
          being misleading; and
          (c) subsequently acquired information that he knows will make
          untrue or misleading a previous representation that when made
          was true or believed to be so; and
          (d) the falsity of a representation not made with the expectation
          that it would be acted upon, if he subsequently learns that the
          other is about to act in reliance upon it in a transaction with
          him; and
          (e) facts basic to the transaction, if he knows that the other is
          about to enter into it under a mistake as to them, and that the
          other, because of the relationship between them, the customs
          of the trade or other objective circumstances, would reasonably
          expect a disclosure of those facts.
   Restatement (Second) of Torts § 551(2).
          The Mississippi Supreme Court first referred to, and partially applied,
   a then-draft version of § 551 in Guastella v. Wardell, 198 So. 2d at 230, and
   has cited the current version of § 551 numerous times since. See Daniels, 235
   So. 3d at 14–15; Green Realty, 4 So. 3d at 350; Holman, 972 So. 2d at 568–69;

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   Welsh, 883 So. 2d at 49–50. Therefore, we conclude that the Mississippi
   Supreme Court’s common law duty to disclose jurisprudence has been
   influenced by and derived from several sources, including but not limited to
   the Restatement (Second) of Torts § 551.
          The Mississippi Supreme Court’s duty-to-disclose decisions also
   include consideration of other common law sources—for example, American
   Jurisprudence 2d on Fraud and Deceit, see Green Realty, 4 So. 3d at 350.
   Thus, the Mississippi Supreme Court’s duty-to-disclose jurisprudence is not
   limited to the Restatement (Second) of Torts § 551’s formulation of the duty,
   nor synonymous with the language of § 551.                 Rather, Mississippi
   jurisprudence includes references to and partial applications of ideas from
   the Restatement (Second) of Torts § 551, but not to the exclusion of other
   precedents and tort principles; in other words, we do not believe the
   Mississippi Supreme Court intends to treat § 551 as if it were a statute so as
   to be bound by its every jot and tittle, and this applies especially to the “fact
   basic to the transaction” language in § 551(2)(e) comment j. relied upon by
   the district court.
          From Guastella, Holman, and Green Realty emerge three requirements
   for a duty to disclose to arise under Mississippi law: (1) a material fact;
   (2) one party’s knowledge that the other is under a mistake as to the fact, and
   (3) the other party’s reasonable expectation that it would be disclosed. See
   Guastella, 198 So. 2d at 230; Holman, 972 So. 2d at 568–69; Green Realty, 4
   So. 3d at 350–51.       These requirements are also consistent with the
   Restatement (Second) of Torts § 551.
          Applying the foregoing legal precepts, we think that the Mississippi
   Supreme Court would hold that Henly has sufficiently alleged facts that
   Merit Health had a duty to exercise reasonable care to disclose the surcharge.
   First, Henly alleged that the surcharge was a material fact. According to the

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   complaint, knowledge of the surcharge prior to treatment “would be a
   substantial factor in a patient’s . . . decision to remain at the hospital and
   proceed with treatment.” Henly alleged that she was “shocked” to learn
   that her bill included a surcharge of $2,201.75 ($770.61 after discounts) and
   “would have left and sought less expensive treatment elsewhere” if she had
   been informed of the surcharge beforehand. Second, Henly alleged that
   Merit Health was aware that patients like her were unaware of the surcharge,
   but nonetheless failed to disclose it. Third, Henly alleged that she had a
   reasonable expectation of disclosure because Merit Health holds itself out to
   be a “caring community-based organization” and patients like her expected
   Merit Health to disclose the surcharge based on the confidence and trust that
   they placed in the hospital.
          In reaching its contrary ruling, the district court focused on the
   Restatement (Second) of Torts § 551(2)(e). The court considered each
   section of § 551(2), and determined that Henly had not pleaded sufficient
   facts to allege a duty to disclose arising under subsections (a)-(d). Then, the
   district court considered subsection (e) and its “facts basic to the
   transaction” language as described in comment j. In doing so, the district
   court mistakenly applied the comments to the Restatement to determine
   whether Henly had alleged a “basic” fact, instead of considering whether she
   had alleged a “material” fact.
          According to § 551(2)(e) comment j.: “[a] basic fact is a fact that is
   assumed by the parties as a basis for the transaction itself. It is a fact that goes
   to the basis, or essence, of the transaction, and is an important part of the
   substance of what is bargained for or dealt with.” The comment also
   distinguishes the narrower category of “basic” facts from “material” facts:
   “Other facts may serve as important and persuasive inducements to enter
   into the transaction, but not go to its essence. These facts may be material,
   but they are not basic.” Relying solely on comment j, the district court ruled

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   that the surcharge was not “a fact basic to the transaction” because the
   “basis for the transaction . . . was [Henly’s] need or desire for emergency
   medical treatment.” The district court concluded that Henly’s allegation
   that she would have sought treatment elsewhere had she known of the
   surcharge established that the surcharge was a “material” fact, but not one
   “basic” to the transaction.4
           We disagree with the district court’s Erie guess for two reasons. First,
   we think that the Mississippi Supreme Court would not rely on § 551(2)(e)
   comment j. in the manner that the district court did, applying its text and its
   comments like a statute, because none of the Mississippi Supreme Court
   cases apply § 551 or its comments as if they were strictly binding to the
   exclusion of all other elements of that Court’s jurisprudence. Second, the
   distinction in comment j between “material” and “basic” facts, relied upon
   by the district court, is not found in the Mississippi duty-to-disclose caselaw.
           The Mississippi Supreme Court’s Guastella decision, which first cited
   to a then-draft version of § 551, used the words “basic” and “material”
   interchangeably. 198 So. 2d at 230 (stating that “liability for nondisclosure
   [] must relate to material fact[s],” referring to “knowledge of these material

           4
              The district court also found Henly’s complaint deficient because it did not allege
   affirmative concealment of the surcharge “nor . . . account for the fact that the existence
   and amount of the surcharge was accessible to [Henly] on Merit Health’s online
   chargemaster through the exercise of reasonable diligence.” We think the district court
   fell into error in concluding—at the pleading stage, without evidence in the record—that
   Henly could have ascertained the existence and amount of the surcharge by looking at Merit
   Health’s online “chargemaster,” i.e. its master price list, when the complaint did not
   include any allegations concerning the chargemaster or its accessibility. Henly asserts in
   her briefing to this court that the price list was not available online at the time she sought
   treatment, and that even if it had been available online, the information is not in a format
   reasonably usable by consumers. We take no position on this and other factual issues as
   they must be resolved in the district court to which we must remand the case for further
   proceedings.

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   facts” and “suppression of material facts,” and in the next paragraph
   referring to the same as “a fact basic to the transaction”). Similar to
   Guastella, the two Mississippi cases that cite the current version of
   § 551(2)(e)—one from the Mississippi Supreme Court and one from an
   appellate court—do not apply the “facts basic to the transaction” language
   from comment j or distinguish “basic” from “material” facts. Instead, both
   cases referred only to a duty to disclose “material” facts. See Holman, 972
   So. 2d at 568–69 (referring to “suppression of a material fact” and whether
   “knowledge of [a fact] would be material”); Saucier v. Peoples Bank of Biloxi,
   150 So. 3d 719, 734 (Miss. Ct. App. 2014) (referring to a “duty to disclose
   material information” and “suppression of a material fact”). The broader
   Mississippi jurisprudence on negligent and fraudulent misrepresentation, of
   which the duty to disclose is one component, similarly refers only to
   “representations[s] or “omission[s]” that are “material or significant,” see
   e.g., Shogyo Int’l Corp. v. First Nat’l Bank, 475 So. 2d 425, 427 (Miss. 1985),
   or to the “materiality” of “a representation,” see, e.g. Rankin v. Brokman,
   502 So. 2d 644, 646 (Miss. 1987).
          Merit Health argues that a duty to disclose would only arise on the
   facts alleged in Henly’s complaint if the lack of disclosure were “so extreme
   and unfair, as to amount to a form of swindling, in which the plaintiff is led
   by appearance into a bargain that is a trap.” We do not think this is an
   accurate statement of Mississippi law. First, in making this argument, Merit
   Health (as did the district court) treats the Restatement and its comments
   like a statute, which the Mississippi Supreme Court has not done. Second,
   the Mississippi duty-to-disclose jurisprudence does not consider the extent
   to which the nondisclosure negatively impacted the other’s benefit of the
   bargain in deciding whether a duty to disclose exists. For example, in
   Holman, the Court did not consider what loss-in-value had been suffered by

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   the purchasers, nor was the extent of flooding relevant to the holding in Green
   Realty.
             Merit Health also raises policy-based arguments against requiring
   disclosure, suggesting that a disclosure duty would be impractical and would
   lack any limiting principle. But these arguments ignore the limits already
   contained in Mississippi’s duty-to-disclose jurisprudence, namely, that the
   duty to disclose only arises when material facts are concerned and when the
   other party has a reasonable expectation of disclosure.        Further, these
   arguments ignore that the duty that arises is a “duty to exercise reasonable
   care to disclose,” not a strict-disclosure regime, as Merit Health fears. See
   Holman, 972 So. 2d at 568; Green Realty, 4 So. 3d at 350.
                                        IV.
             For these reasons, we REVERSE the district court’s grant of Merit
   Health’s motion to dismiss and REMAND for further proceedings
   consistent with this opinion.

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