KIMBERLY HENLEY, on behalf of herself and all others similarly situated v. BILOXI H.M.A., L.L.C., a Mississippi Limited Liability Company, doing business as MERIT HEALTH BILOXI
No. 20-60991
United States Court of Appeals for the Fifth Circuit
August 31, 2022
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.
This is an appeal from a district court‘s grant of a
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 surchargе 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 Heаlth 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 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, eithеr verbally or through signage, regarding surcharges. She was subsequently billed a gross amount (before discounts) of $17,752.47, which included a
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 cоmmunity-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 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 fаctor in a patient‘s decision about where to receive treatment.
B.
Henly brought a putative class action lawsuit against Merit Health pursuant to
Merit Health moved to dismiss under
II.
We review a dismissal pursuant to a
In diversity cases, “federal courts must apply statе 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
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 hе 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 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 thе 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 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.
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 faсt.“).
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 bеtween 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 thоse facts.
RESTATEMENT (SECOND) OF TORTS § 551(2).
The Mississippi Supreme Court first referred to, and partially applied, a then-draft
The Mississippi Supreme Court‘s duty-tо-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 applicаtions 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 Hеnly 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 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 reasоnable 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 considerеd 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
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 Cоurt 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 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 aрpearance 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 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.