Corizon, Inc. v. Wexford Health Sources, Inc.
| Decision Date | 04 March 2013 |
| Docket Number | No. 4:10 CV 2430 DDN,4:10 CV 2430 DDN |
| Parties | CORIZON, INC., Plaintiff, v. WEXFORD HEALTH SOURCES, INC., Defendant. |
| Court | U.S. District Court — Eastern District of Missouri |
This action is before the court on the motion of defendant Wexford Health Sources, Inc. to strike plaintiff Corizon, Inc.'s prayer for punitive damages (Doc. 71) and on the motion of plaintiff Corizon, Inc. to compel production of information and documents. (Doc. 67.) The court heard oral arguments on January 15, 2013.
On December 23, 2010, plaintiff Corizon, Inc. commenced this action against defendant Wexford Health Sources, Inc. On June 12, 2012, plaintiff filed its fourth amended complaint. (Doc. 62.) Both parties are in the business of providing healthcare services for correctional facilities and often compete with one another over such contracts. (Id. at ¶ 19, Doc. 93, at ¶ 19.)
According to the fourth amended complaint, the following occurred. On November 12, 2010, defendant directed its public relations firm CHT Group to create the website http://www.cmsdoesnotcare.com (Website). (Doc. 62, at ¶¶ 6-7.) Defendant dictated the content of the Website, which included information relating to the bidding process for contracts to provide healthcare services for correctional facilities. (Id. at ¶¶ 9-10.) Defendant also included numerous false statements on the Website, many of which purported to be from a "CMS insider" who criticized plaintiff's business practices and ethics. (Id. at ¶ 12.) Plaintiff alleges two claims against defendant: (1) false advertising and unfair competition under 15 U.S.C. § 1125(a); and (2) common law unfair competition. (Id. at ¶ 1.) Plaintiff seeks compensatory damages for corrective advertising costs, attorneys' fees, and investigative fees spent to identify the creator of the Website; an awardof defendant's profits, defendant's unjust enrichment from its conduct, injunctive relief, and punitive damages. (Id. at 6.)
Defendant invokes Federal Rule of Civil Procedure 12(f) to have the court strike plaintiff's prayer for punitive damages, arguing that the Lanham Act does not allow recovery of punitive damages. Defendant further argues that Maryland law applies to the common law unfair competition claim, and that plaintiff does not seek compensatory damages necessary under Maryland law to support an award of punitive damages. Additionally, defendant asserts it would be prejudiced by plaintiff's request for punitive damages. (Doc. 71.)
Plaintiff responds that defendant's motion is untimely and that, because Missouri law applies, punitive damages are recoverable in this action. Plaintiff also contends that the relief sought includes compensatory damages and thus a claim for punitive damages can stand even under Maryland law. Finally, plaintiff argues its punitive damages claim would not prejudice defendant. (Doc. 79.)
The relief defendant seeks by this motion is properly considered as challenging the legal sufficiency of plaintiff's complaint to support a claim for punitive damages. This is more properly considered under the aegis of Rule 12(b)(6), to determine whether plaintiff has stated a claim for such relief.
A motion to dismiss under Rule 12(b)(6) challenges the legal sufficiency of the complaint. See Carton v. General Motor Acceptance Corp., 611 F.3d 451, 454 (8th Cir 2010); Young v. City of St. Charles, 244 F.3d 623, 627 (8th Cir. 2001). To survive a motion to dismiss, the complaint must include "enough facts to state a claim to relief that is plausible on its face." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007). To meet the plausibility standard, the complaint must contain "more than labels and conclusions." Id. at 555. Rather, the complaint must contain "factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009).
Before considering whether plaintiff sufficiently states a claim for punitive damages for the common law unfair competition claim, the court must first determine which state law supplies the rule of decision in this case. Defendant argues that Maryland lawcontrols the common law unfair competition claim. Plaintiff responds that Missouri provides the applicable law.
A federal court must look at the forum state's choice of law rules when hearing a case under diversity jurisdiction. Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487, 496 (1941); Nesladek v. Ford Motor Co., 46 F.3d 734, 736 (8th Cir. 1995). Missouri state courts apply Missouri law to procedural issues and the substantive law of whatever state applies. Hansen v. Sears, Roebuck & Co., 574 F.Supp. 641, 643 (E.D.Mo. 1983) (citing Kennedy v. Dixon, 439 S.W.2d 173, 180 (Mo. banc 1969)). Missouri courts also use Missouri law to distinguish between procedural and substantive issues. Id. For choice of law purposes, punitive damages under Missouri law are substantive. Reis v. Peabody Coal Co., 997 S.W.2d 49, 70-71 (Mo. Ct. App. 1999).
For determinations regarding the appropriate choice of law on substantive issues, Missouri has adopted the conflict of laws analysis as set forth by the Restatement (Second) on Conflict of Laws, § 145 (1971). Hansen, 574 F.Supp. at 643. The Restatement's "most significant relationship" test provides factors for courts to consider when identifying the state with the most significant relationship: (1) the place where the injury occurred; (2) the place where the conduct occurred that caused such injury; (3) the parties' domicile, residence, nationality, state of incorporation, and place of business; and (4) the state where the parties' relationship is centered, if such a relationship exists. Restatement (Second) of Conflict of Laws § 145(2) (1971). "Where two states have significant contacts and legitimate state interests in the choice of law, we must apply the law of the state whose interest would be more impaired if its policy were subordinated to the policy of the other state." Gilmore v. Attebery, 899 S.W.2d 164, 167 (Mo. Ct. App. 1995).
Because Missouri has expressly adopted the conflict analysis of the Restatement, the court finds its comments particularly instructive. Kennedy v. Dixon, 439 S.W.2d 173, 184 (Mo. 1969) (). Further, Missouri courts commonly look to the Restatement commentary to resolve conflict of law issues. See e.g., Accurso v. Amco Ins. Co., 295 S.W.3d 548, 553 (Mo. Ct. App. 2009); Rheem Mfg. Co. v. Progressive Wholesale Supply Co., 28 S.W.3d 333, 344 (Mo. Ct. App. 2000); Superior Equip. Co., Inc. v. Maryland Cas. Co., 986 S.W.2d 477, 481 (Mo. Ct. App. 1998).
Regarding the first factor, the Restatement elaborates on the difficulty of identifying the place of injury in unfair competition cases. Succinctly, the injury is the loss of business, but the effect of the loss is normally most severe at plaintiffs' headquarters orprincipal place of business. Restatement (Second) of Conflict of Laws § 145 cmt. f. Because of this ambiguity, the Restatement instructs that the place of injury is less significant in unfair competition cases. Id. Nevertheless, in similarly difficult cases, courts have "focused on the plaintiff's location as the place where an economic injury occurs because it is where the economic impact is felt." Am. Guarantee & Liab. Ins. Co. v. U.S. Fid. & Guar. Co., 668 F.3d 991, 997 (8th Cir. 2012) (bad faith failure-to-settle-claim); Birnstill v. Home Sav. of Am., 907 F.2d 795, 797 (8th Cir.1990) (). The parties do not dispute that Missouri is plaintiff's principal place of business and state of incorporation. (Doc. 62 at ¶ 3.) Thus, the first factor weighs in favor of Missouri law.
The Restatement advises that in unfair competition cases, the principle location of the conduct causing the injury, the second factor, should usually be given the greatest weight. Id. However, no showing of the location of conduct has been made. (See Doc. 62; Doc. 72 at 8.)
The third factor concerns the location of the parties. The Restatement provides specific guidance regarding this factor in cases when publication of a matter in several states injures a plaintiff's reputation or causes financial injury, stating that:
Determination of the state of the applicable law is more difficult when the defamer's act or acts of communication are done in a state other than that of the plaintiff's domicil and when the matter complained of is published in the state of the plaintiff's domicil and in one or more other states to which the plaintiff has a substantial relationship. In this last situation, the local law of the state of the plaintiff's domicil will be applied unless, with respect to the particular issue, one of the other states has a more significant relationship to the occurrence and the parties.
Restatement (Second) of Conflict of Laws § 150 cmt. f. Although the commentary refers to defamation, the Restatement section on injurious falsehood incorporates the defamation section. Restatement (Second) of Conflict of Laws § 151. Plaintiff's unfair competition claim is sufficiently analogous to those torts for purposes of this choice of law analysis. Here, Missouri is plaintiff's principal place of business and state of incorporation. (Doc. 62 at ¶ 3.) The record contains no indication that defendant's acts took place in Missouri. Defendant published the Website, which made it available for viewing in Missouri and all other states. (Id. at ¶ 6.) Thus, the third factors weighs in favor of Missouri law.
Finally, the fourth factor for consideration, the location where the parties' relationship is centered, must be...
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