McCracken et al v. Verisma Systems, Inc. et al
Filing
35
DECISION AND ORDER deferring ruling on 21 Motion to Dismiss for Failure to State a Claim; granting 21 Motion to Dismiss for Lack of Jurisdiction; deferring ruling on 22 Motion to Dismiss for Failure to State a Claim - all consistent with this Decision and Order. Signed by Hon. Michael A. Telesca on 5/18/15. (JMC)
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF NEW YORK
________________________________________
ANN McCRACKEN, JOAN FERRELL,
SARAH STILSON, KEVIN McCLOSKEY,
CHRISTOPHER TRAPATSOS, and
KIMBERLY BAILEY, as individuals
and as representatives of the classes,
Plaintiffs,
14-CV-6248T
DECISION
and ORDER
v.
VERISMA SYSTEMS, INC., STRONG MEMORIAL
HOSPITAL, HIGHLAND HOSPITAL, and
UNIVERSITY OF ROCHESTER,
Defendants.
________________________________________
INTRODUCTION
Ann McCracken (“McCracken”), Joan Ferrell (“Ferrell”), Sarah
Stilson (“Stilson”), Kevin McCloskey (“McCloskey”), Christopher
Trapatsos
(“Trapatsos”),
(collectively,
and
“Plaintiffs”),
Kimberly
bring
this
Bailey
action
(“Bailey”)
on
behalf
of
themselves and others against Verisma Systems, Inc. (“Verisma”),
Strong
Memorial
(“Highland”),
and
Hospital
the
(“Strong”),
University
of
Highland
Rochester
Hospital
(“U
of
R”)
(collectively, “Defendants”), claiming that Defendants charged
inflated prices for medical records in violation of New York State
law.
Verisma contracts with Strong, Highland and the U of R
(collectively, the “Healthcare Defendants”) to provide medical
records to patients of those entities. Plaintiffs, all of whom are
patients
who
received
medical
-1-
treatment
at
the
Healthcare
Defendants, claim that Defendants charged them excessively for
copies of their medical records, in violation of New York Public
Health Law (“NYPHL”) § 18. Plaintiffs also assert causes of action
for unjust enrichment and for a deceptive trade practices under New
York General Business Law (“NYGBL”) § 349.
FACTUAL BACKGROUND
The following factual summary is based on the allegations in
the Amended Complaint, which are deemed to be true for purposes of
deciding Defendants’ motions to dismiss.
Verisma is a private
corporation that contracts with doctors and hospitals nationwide to
provide medical records to patients, or other authorized entities,
who request such records. Verisma entered into contracts with the
Healthcare
Defendants
to
provide
copies
of
medical
records
generated by the Healthcare Defendants to patients who requested
those
records.
Plaintiffs
allege
that
Verisma
obtained
these
contracts by offering financial and other types of incentives to
the
Healthcare
Defendants.
According
to
Plaintiffs,
these
incentives, which Plaintiffs characterize as “kickbacks”, are a
central component of Verisma’s marketing strategy. Plaintiffs cite
to information publicly available on Verisma’s website and thirdparty websites on which Verisma maintains a business profile. See,
e.g., Amended Complaint (“Am. Compl.”) (Dkt #4) ¶ 27 & Exhibit
(“Ex.”) 4 (quoting website Indeed.com which states that Verisma
helps health care providers “capture available revenue in their
Release of Information processes”).
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All Plaintiffs reside in the Greater Rochester area and,
through their attorneys, requested copies of their medical records
from the Healthcare Defendants. Upon receiving a request for
records from a Plaintiff, the Healthcare Defendants forwarded the
request to Verisma, which fulfilled the request for records and
sent an invoice to Plaintiffs’ attorneys. Sometimes, rather than
actually send Plaintiffs hard copies of the requested records,
Verisma simply made the records available to Plaintiffs via an
online portal.
Regardless
of
how
the copies
of
records
were
provided (in paper form or electronically), Verisma charged $0.75
per page without regard to, and without disclosing, the actual
costs of producing copies of the records. Each Plaintiff paid the
amount charged by Verisma through their counsel. Plaintiffs allege
that the cost to produce each medical record was substantially less
than $0.75 per page and that the amounts charged were inflated as
a result of Defendants’ alleged “kickback scheme.”
PROCEDURAL STATUS
Verisma has moved to dismiss the Amended Complaint pursuant to
Federal Rule of Civil Procedure 12(b)(6) (“Rule 12(b)(6)”) on the
basis that Plaintiffs have failed to state a claim upon which
relief can be granted. According to Verisma, Plaintiffs have failed
to establish any actual injury since the charges Verisma imposed on
them for copies of medical records are expressly deemed reasonable
under New York law. The Healthcare Defendants have moved to dismiss
the Amended Complaint pursuant to Federal Rule of Civil Procedure
12(b)(1) (“Rule 12(b)(1)”) on the ground that Plaintiffs lack
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constitutional standing, and pursuant to Rule 12(b)(6) for failure
to state claims for unjust enrichment and for violations of NYPHL
§ 18 and NYGBL § 349.
RULE 12(b)(1) STANDARD
“A case is properly dismissed for lack of subject matter
jurisdiction . . . when the district court lacks the statutory or
constitutional power to adjudicate it.” Makarova v. United States,
201 F.3d 110, 113 (2d Cir. 2000) (citing FED. R. CIV. P. 12(b)(1)).
The party seeking to establish jurisdiction bears the burden of
“showing by a preponderance of the evidence that [it] exists.”
Lunney v. United States, 319 F.3d 550, 554 (2d Cir. 2003) (citation
omitted).
In
resolving
subject
matter
jurisdiction
under
Rule 12(b)(1), a district court may refer to evidence outside the
pleadings. Id. (citing Kamen v. American Telephone & Telegraph Co.,
791 F.2d 1006, 1011 (2d Cir. 1986) (“[W]hen . . . subject matter
jurisdiction is challenged under Rule 12(b)(1), evidentiary matter
may be presented by affidavit or otherwise.”) (citation omitted)).
DISCUSSION
I.
Standing and the Rule 12(b)(1) Motion by the Healthcare
Defendants
A.
General Legal Principles
Because standing is jurisdictional, the Court first considers
the Healthcare Defendants’ motion pursuant to FRCP 12(b)(1) to
dismiss based
on
Plaintiffs’ lack
of
standing
to
bring
this
lawsuit. See Rhulen Agency, Inc. v. Alabama Ins. Guar. Ass’n, 896
F.2d 674, 678 (2d Cir. 1990) (stating that when a party moves for
dismissal
both
for
failure
to state
-4-
a
claim
and
lack
of
jurisdiction,
“the
court
should
consider
the
Rule
(12)(b)(1)
challenge first since if it must dismiss the complaint for lack of
subject
matter
jurisdiction,
the
accompanying
defenses
and
objections become moot and do not need to be determined”).
The standing requirements of Article III, Section 2 of the
United States Constitution “are not mere pleadings requirements but
rather [are] an indispensable part of the plaintiff’s case.” Lujan
v. Defenders of Wildlife, 504 U.S. 555, 561 (1992) (citations
omitted). To establish standing, a plaintiff must show
(1) it has suffered an ‘injury in fact’ that is (a)
concrete and particularized and (b) actual or imminent,
not conjectural or hypothetical; (2) the injury is fairly
traceable to the challenged action of the defendant; and
3) it is likely, as opposed to merely speculative, that
the injury will be redressed by a favorable decision.
Friends of the Earth Inc. v. Laidlaw Environmental Servs. (TOC),
Inc., 528 U.S. 167, 180-81 (2000). The Healthcare Defendants argue
that Plaintiffs have failed to sufficiently allege “injury-in-fact”
and
causation,
but
they
do
not
challenge
the
redressability
requirement.
B. Injury-In-Fact
With respect to the “injury-in-fact” requirement, “[e]ven a
small financial loss is an injury for purposes of Article III
standing.” Natural Res. Def. Council, Inc. v. United States Food &
Drug Admin., 710 F.3d 71, 85 (2d Cir. 2013). The Healthcare
Defendants argue that Plaintiffs have failed to plead that they
incurred a financial loss due to the purported overcharges for
their medical records, because Plaintiffs allege only that their
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attorneys paid Verisma for the requested copies; Plaintiffs do not
allege that they personally paid Verisma for the records or that
they reimbursed
their
attorneys for
the
amounts
paid
by
the
attorneys to Verisma. See Healthcare Defendants’ Memorandum of Law
in Support of Motion to Dismiss (“Healthcare Defs’ Mem.”) (Dkt #214) at 6. Plaintiffs, in their opposition brief, assert that they
are not required to “plead the obvious”, i.e., that their legal
services agreement with their attorneys dictates that they must
reimburse the attorneys for all costs, including those associated
with obtaining copies of their medical records. See Plaintiffs’
Opposition Memorandum of Law (“Pls’ Opp.”) (Dkt #) at 18.
However,
as
the
Second
Circuit
has
repeatedly
observed,
“jurisdiction must be shown affirmatively, and that showing is not
made by drawing from the pleadings inferences favorable to the
party asserting it.” Shipping Fin. Servs. Corp. v. Drakos, 140 F.3d
129, 131 (2d Cir. 1998) (citing Norton v. Larney, 266 U.S. 511,
515-16 (1925)); see also J.S. ex rel. N.S. v. Attica Cent. Schs.,
386 F.3d 107, 110 (2d Cir. 2004) (stating that in resolving
jurisdiction, the court must accept as true all factual allegations
in
the
complaint
complaint
(citation
“but
favorable
omitted).
[is]
to
As
[the
the
not
to
party
draw
inferences
asserting
parties
from
the
jurisdiction].”)
seeking
to
establish
jurisdiction, Plaintiffs bear the burden of proof, see Lunney, 319
F.3d at 554,
and thus may be required to “plead the obvious.”
Two district court cases from this Circuit have recently
considered, in essentially identical factual circumstances, the
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sufficiency of a plaintiff’s allegations of injury-in-fact. See
Spiro v. Healthport Technologies, LLC, No. 14 CIV. 2921 PAE, __ F.
Supp.2d ___, 2014 WL 4277608, at *5 (S.D.N.Y. Aug. 29, 2014)
(Englemayer, J.); accord Carter v. Healthport Technologies, LLC,
No. 14-CV-6275-FPG, 2015 WL 1508851, at * (W.D.N.Y. 31, 2015)
(Geraci, C.J.). As discussed further below, review of these cases
supports this Court’s conclusion that Plaintiffs are required to
“plead
the
obvious,”
should
they
wish
to
proceed
with
this
litigation.
In Spiro, as in the present case, the plaintiffs were clients
of a law firm prosecuting personal injury causes of action on their
behalf. In connection with these lawsuits, the law firm made
requests for the plaintiffs’ medical records to the defendant
hospitals and their billing agent, who allegedly charged inflated
rates for producing the records. The plaintiffs in Spiro brought
suit against the hospitals and the billing agent to recover for
unjust enrichment and violations of NYGBL § 349 and NYPHL § 18. The
defendants
asserted
a
standing
challenge,
arguing
that
the
plaintiffs had failed to plead a cognizable injury-in-fact because
it was the plaintiffs’ law firm, and not plaintiffs themselves,
which was charged, and which paid, for the copies of the medical
records at issue. Spiro, 2014 WL 4277608, at *4.
In Spiro, the district court found the complaint insufficient
even though the plaintiffs also alleged that each plaintiff later
reimbursed the law firm for the cost of the copies, after the
lawsuit in question settled. 2014 WL 4277608, at *4. Because the
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copying costs were passed along to the client, the plaintiffs in
Spiro argued that they each suffered an out-of-pocket monetary
loss, and it was irrelevant that the law firm advanced the payments
for them. The district court in Spiro disagreed, explaining that
the complaint did not plead that any plaintiff was obligated to
reimburse the law firm for the copying costs he or she incurred;
instead, on the facts as pled, the decision by the plaintiffs to
reimburse their lawyers after the fact, for the copying costs they
had paid, “was a volitional act—an act of grace.” Spiro, 2014 WL
42776087, at *5.
The district court in Spiro found that on the
facts alleged, absent any allegation that the plaintiffs had an
obligation to their attorney for reimbursement, any legal right to
challenge the overcharging would belong exclusively to the law
firm, as it was the law firm alone that suffered an injury caused
by the defendants’ overcharging. Id. On the facts alleged in the
complaint,
the
plaintiffs’
later
decision
to
reimburse
their
lawyers, and the law firm’s decision to accept such reimbursement,
were “independent, volitional, discretionary acts, breaking the
chain of causation necessary to establish Article III standing.”
Id. (citing Lujan, 504 U.S. at 560-61)).
Here,
the
Amended
Complaint
does
not
even
contain
an
allegation that Plaintiffs actually reimbursed their attorneys for
the costs of the medical records, much less that they had any legal
obligation to reimburse their attorney for their monetary outlay at
the time they ordered the copies. Plaintiffs state that these
allegations are unnecessary and urge that their allegation that
-8-
they paid for their medical records “through . . . counsel” are
sufficient. The Court disagrees. The plaintiffs’ complaint in Spiro
contained
allegations
that
were
essentially
the
same
as
the
allegations set forth by Plaintiffs here,1 e.g., that “Plaintiff,
through his attorneys, . . . paid said $74.00 bill . . . .” Spiro,
2014 WL 4277608, at *14 n. 4 (citations to record omitted).
Observing that it was undisputed that the law firm, in fact, paid
these bills, the district court in Spiro found that the plaintiffs’
complaint did “not explain what is meant by the statement that
plaintiffs thereby paid these bills.” 2014 WL 4277608, at *14 n. 4.
The
district
court
declined
to
“treat
this
conclusory
and
elliptical statement as equivalent to a concrete factual allegation
that the legal duty to pay these bills, or to reimburse [the law
firm] for doing so, fell upon plaintiffs as of the time that [law
firm] incurred the charge.” Id. Likewise, Plaintiffs’ Amended
Complaint here fails to explain what is meant by the rather
“conclusory and elliptical statement” that the copying costs were
“paid through counsel.” The Court cannot find any basis on which to
distinguish Spiro from the present case; indeed, the pleadings in
1
For instance, Plaintiff McCracken alleges in the Amended Complaint that she
“requested medical records from Highland through her counsel”; that “Verisma,
acting on behalf of Highland, sent an Invoice for Medical Record Request. The
invoice indicated that McCracken would be charged $198.75 for 265 pages of
medical records ($0.75 per page)”; that she “paid the $198.75 for her medical
records through her counsel in order to obtain copies of the requested medical
records”; and that the “fee charged to, and paid by, McCracken, exceeded the cost
to produce these records, and included a built-in kickback from Verisma to UR and
Highland.” Am. Compl. ¶¶ 34-36, 39. The other Plaintiffs’ claims are couched in
similar language. See id. ¶¶ 43, 46 (Ferrell); ¶ 50 (Stilson); ¶¶ 55, 57
(McCloskey); ¶¶ 62, 63 (Trapatsos); ¶¶ 69, 70 (Bailey).
-9-
Spiro contained more detail on the issue of injury-in-fact but
still were insufficient to carry the plaintiffs’ burden.
All of Plaintiffs’ causes of action hinge upon their claim
that Verisma, acting in collusion with the Healthcare Defendants,
overcharged Plaintiffs’ attorneys for copies of Plaintiffs’ medical
records. Because the Amended Complaint does not contain sufficient
facts establishing, by a preponderance of the evidence, that
Plaintiffs have suffered an injury-in-fact,2 the Court must find
that standing is lacking. See Spiro, 2014 WL 4277608, at *4-*5.
In keeping with the district court’s decision in Spiro, the
Court elects
to
permit
Plaintiffs
here
to amend
the
Amended
Complaint to add facts relating to the terms of engagement3 between
Plaintiff and their attorneys, if those terms reflect that, at the
time the attorneys incurred the copying expense, Plaintiffs would
reimburse the attorneys for the costs they incurred in the course
of
representing
Plaintiffs
in
their
lawsuits.
The
Court
anticipates that a newly amended complaint “would recite the date
and specific relevant terms of the engagement between the plaintiff
2
In Spiro, the analysis would have been different if the plaintiffs had been
obligated, at the time their attorney incurred the copying expenses, to reimburse
the attorney for expenses incurred in connection with representing them. Spiro,
2014 WL 4277608, at *5. As the district court in Spiro explained, if the
plaintiffs owed a duty of reimbursement to their attorney (be it absolute or
conditional), then the records provider’s charge to the attorney and the
attorney’s payment of that charge would have give rise to a liability (or a
contingent liability) on the plaintiffs’ part. Id. (citations omitted).
3
In New York State, an attorney is required to “provide to the client a
written letter of engagement before commencing the representation, or within a
reasonable time thereafter[.]” N.Y. COMP. CODES R. & REGS. tit. 22, § 1215.1. The
engagement letter must explain the scope of the legal services to be provided;
and the “attorney’s fees to be charged, expenses and billing practices.” Id.
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and the [law] firm and attach the engagement letter between the
plaintiff and the firm.” Spiro, 2014 WL 4227608, at *6.
C.
Causation
The Healthcare Defendants further contend that Plaintiffs lack
standing
because
Plaintiffs
do
not
allege
that
Healthcare
Defendants “directly overcharged them or collected . . . fees.”
Dkt #21-4 at 4. Instead, the Healthcare Defendants note, Plaintiffs
“allege that Verisma sent invoices to their counsel for charges for
processing the [records] requests, received the payment from their
counsel, and provided the records. . . .” Id. at 5. Thus, the
Healthcare Defendants argue, Plaintiffs did not plead that any
conduct on
the
part
contributed
to
their
of
the Healthcare
purported
Defendants
financial
injury.”
“caused
Id.
or
Stated
another way, the Healthcare Defendants argue that even assuming
pecuniary injuries were suffered by Plaintiffs, such injuries are
not “fairly traceable” to any acts or omissions by Healthcare
Defendants.
It
bears
noting
that
the
“fairly
traceable”
requirement
imposes a “lesser burden” than the showing required for proximate
cause. Rothstein v. UBS AG, 708 F.3d 82, 92 (2d Cir. 2013).
Plaintiffs point out they allege that the Hospital Defendants
contracted with Verisma to respond to requests for medical records,
and
that
Verisma
Defendants]”
when
was
it
“acting
sent
on
behalf
invoices
for
of
[the
the costs
Healthcare
of
copying
Plaintiffs’ medical records. See Am. Compl. ¶¶ 35, 42, 49, 56, 63,
70. Plaintiffs thus have alleged that
-11-
Verisma was acting as the
Healthcare Defendants’ agent, and that any injury they suffered was
“fairly traceable” to the Healthcare Defendants, by virtue of the
alleged agency relationship. See Spiro, 2014 WL 4277608, at *14
n. 7 (rejecting hospitals’ challenge to standing on the grounds
that any injury suffered by plaintiffs was caused, not by them, but
by Healthport, the company that responded to requests for records
and
billed
for
copying
records;
the
complaint
alleged
that
“Healthport was the hospitals’ agent for the purpose of responding
to patients’ requests for medical records held by the hospitals”)
(citation to record omitted; citing, inter alia, Amusement Indus.,
Inc. v. Stern, 693 F. Supp.2d 327, 344 (S.D.N.Y. 2010) (Under New
York law, “the principal will be liable to third parties for the
acts of its agent that were within the scope of the agent's actual
or
apparent
authority.”).
Plaintiffs
also
allege
that
the
Healthcare Defendants participated directly with Verisma in a
scheme to turn a profit in connection with supplying copies of
medical records to patients. The Supreme Court has noted that for
standing purposes, a plaintiff’s burden of alleging that an injury
is “fairly traceable” to a defendant’s conduct is “relatively
modest”.
Bennett v. Spear, 520 U.S. 154, 169 (1997). The Court
finds that, at this early stage in the proceedings, Plaintiffs have
met their modest burden on the element of causation.
CONCLUSION
For the reasons set forth above, the Healthcare Defendants’
Rule 12(b)(1) to dismiss is granted to the extent that the Court
dismisses, without prejudice, the Amended Complaint for lack of
-12-
subject matter jurisdiction, with leave to replead in accordance
with the Court’s instructions, supra. The Court defers ruling on
the Healthcare Defendants’ Rule 12(b)(6) motion and Verisma’s
Rule 12(b)(6) until after such time that Plaintiffs file a Second
Amended Complaint as directed, supra, in this Decision and Order.
Plaintiffs’
Second
Amended
Complaint
is
to
be
filed
thirty
(30) days from the date of entry of this Decision and Order.
SO ORDERED.
S/Michael A. Telesca
HON. MICHAEL A. TELESCA
United States District Judge
Dated:
Rochester, New York
May 18, 2015
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