CourtUnited States District Courts. 8th Circuit. United States District Court (Eastern District of Missouri)
Citation678 F. Supp.2d 927
Docket NumberCase No. 4:08CV01424 ERW.
Decision Date21 December 2009

Mary Carter Martin, The Lowenbaum Partnership, LLC, Clayton, MO, Robert W. Stewart, Lowenbaum Partnership, L.L.C., St. Louis, MO, for Plaintiff.

Michael P. Downey, Gino P. Gusmano, Hinshaw and Culbertson, LLP, Richard Andrew Barry, III, Law Offices of Rick Barry, P.C., Benjamin T. Aranda, Aranda Law Firm, P.L., St. Louis, MO, for Defendants.


E. RICHARD WEBBERM, District Judge.

This matter comes before the Court on Plaintiff's First Motion for Summary Judgment (Count I—Breach of Contract, Defendant Freedom) doc. # 162, Plaintiff's Second Motion for Summary Judgment (Count III—Conversion, All Defendants) doc. #164, Plaintiff's Third Motion for Summary Judgment (Count V—Mandatory Injunction, All Defendants) doc. #166, Defendants' First Motion for Partial Summary Judgment Regarding Nonrecoverability of Attorney Fees doc. #219, Defendants' Second Motion for Partial Summary Judgment on Count III for Conversion doc. #228, Defendants' Third Motion for Partial Summary Judgment Regarding Nonrecoverability of Damages Arising from Mismanagement doc. #231, Defendants' Fourth Motion for Partial Summary Judgment Regarding Nonrecoverability of Punitive Damages doc. # 234, and Defendants' Fifth Motion for Partial Summary Judgment on Rescission (Count II) doc. #237.


Plaintiff Monarch Fire Protection District of St. Louis County, Missouri ("Plaintiff") is an incorporated fire protection district governed by a board of directors. Plaintiff is a party to a collective bargaining agreement with The Professional Firefighters of Eastern Missouri, Local 2665 of the International Association of Firefighters ("Local 2665"), which acts as exclusive bargaining agent for firefighters, paramedics, dispatchers, and support personnel employed by Plaintiff. In 2002, Plaintiff instituted a self-funded group health plan ("the Plan") for its employees and certain other participants, including its board of directors. Under the terms of the Health Insurance Portability and Accountability Act of 1996 ("HIPAA"), the Plan is subject to privacy rules restricting the sharing of Protected Health Information ("PHI")—in general terms, individually-identifiable information created or received by a health care plan or provider.2 In instituting the Plan, Plaintiff elected to become a hybrid entity under HIPAA, meaning that only Plaintiff's health care component—i.e., the Plan—is required to comply with these regulations.3

In January 2007, Local 2665's Pension, Health, and Welfare Committee ("the Committee") asked Plaintiff to permit it to perform an independent audit of the Plan.4 After receiving Plaintiff's permission, the Committee contacted Defendant Karen Indellicati ("Indellicati") in order to have her company, Independent Insurance Auditing Services ("IIAS"), perform the audit. The Committee related its concerns about benefit abuse to Indellicati, and informed her that it was concerned that Plaintiff's board had permitted one specific individual to use the Plan for procedures that should not have been covered. Shortly thereafter, Indellicati sold IIAS to Freedom Consulting & Auditing Services, Inc. ("Freedom"), owned by Defendant Brett Turner ("Turner"). Indellicati continued to work for Freedom, however, and Freedom operated under the IIAS name throughout the audit process.

In order to share PHI with third parties, such as auditors, HIPAA requires health care plans and providers to enter into business associate agreements, contracts obligating the third parties to abide by HIPAA's restrictions on PHI disclosures.5 In May 2007, Plaintiff, the Plan, and Freedom finalized a business associate agreement ("the BAA"), with Turner and Indellicati signing on behalf of Freedom. Local 2665 also took part in the BAA negotiations, represented by attorney Andrew Haynes ("Haynes"). Following the execution of the agreement, Freedom received PHI related to covered individuals' use of the Plan, such as claim documents medical bills, medical records, and reports of paid claims, which Freedom then used to perform its audit. This documentation consisted of copies of Plan documents and reports generated from information that remained with the Plan administrator.

In the course of carrying out the audit, Indellicati determined that the final product would consist of two separate documents: a Public Audit Report, with aggregate data and no unique identifiers, and a Privileged Supplement containing PHI— specifically, discussions of the medical claims of specific individuals and the actions of Plaintiff's board of directors in approving or denying those claims, accompanied by the relevant medical records as exhibits. Prior to finalizing these reports, Indellicati compiled an advance draft of the Privileged Supplement, which she shared with Haynes and Rick Barry ("Barry"), also an attorney for Local 2665. At some point during the audit process—it is not clear when—Haynes and Freedom entered into an attorney-client relationship, while Barry continued to act solely on behalf of Local 2665. Indellicati had repeated discussions with Barry and Haynes about the contents of the Supplement and ultimately finalized it in October 2007, and again delivered copies to both of them. Barry has since refused Plaintiff's demands that he return the Privileged Supplement and its exhibits.

Prior to delivering the Public Report and the Privileged Supplement to Plaintiff's board of directors, Barry shared the contents of these documents with local, state, and federal law enforcement. St. Louis County law enforcement took authority over the matter, and in December 2007, a grand jury issued a subpoena to be served on Freedom, seeking production of the complete audit and all supporting documentation. Pursuant to the BAA, Freedom notified Plaintiff about the subpoena on January 23, 2008, and on January 28th Freedom turned over the requested documents. In a letter dated March 14, 2008, Plaintiff requested Freedom to return all of the Plan materials it had received in the course of performing the audit. Haynes, acting at this point as attorney for Freedom, advised Turner and Indellicati not to do so due to the ongoing criminal investigation. Plaintiff then terminated the BAA in May 2008, alleging in a letter that Freedom had breached the agreement, and again requesting the return of all PHI.

The St. Louis County investigation did not ultimately lead to any criminal charges, and as a result, in June 2008 the St. Louis County prosecutor authorized Freedom to return the audit materials to Plaintiff. Freedom, however, did not actually return any documents until December 2008, after Plaintiff filed the present lawsuit. At that point, Freedom returned four boxes of documents, and subsequently delivered several compact disks and additional copies of PHI documentation in response to discovery requests in this litigation. Freedom contends that it has returned all of the paper documentation to Plaintiff not incorporated into its work papers for the audit, but it admits that it has retained the Privileged Supplement and exhibits for purposes of its defense in this lawsuit. For the same reason, Freedom also admits that Indellicati and Turner have retained certain emails and possibly other electronic files containing PHI. Although Freedom acknowledges that some of its employees had access to the relevant PHI during the audit, it contends that it has since confirmed that any PHI those employees may have retained has since been returned to Freedom or destroyed.

Plaintiff filed this suit in July 2008, alleging that Freedom, Indellicati, and Turner improperly disclosed PHI from the audit to third parties, specifically Barry and Haynes. Plaintiff asserts claims against Freedom for breach of contract, or in the alternative, for rescission of the BAA, and against all Defendants for conversion, replevin, and for a mandatory injunction requiring Defendants to return to Plaintiff all PHI documents they received in the course of performing the Plan audit. Plaintiff seeks to recover as damages the attorneys' fees incurred in responding to the Privileged Supplement and in providing legal representation for its directors in connection with the St. Louis County criminal investigation, as well as its attorneys' fees from this litigation.


Pursuant to Federal Rule of Civil Procedure 56(c), a court may grant a motion for summary judgment only if all of the information before the court shows that "there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed. R.Civ.P. 56(c); see Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Material facts are those "that might affect the outcome of the suit under the governing law," and a genuine material fact is one "such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). If the non-moving party has failed to "make a showing sufficient to establish the existence of an element essential to that party's case,... there can be `no genuine issue as to any material fact,' since a complete failure of proof concerning an essential element of the non-moving party's case necessarily renders all other facts immaterial." Celotex, 477 U.S. at 322-23, 106 S.Ct. 2548.

The initial burden of proof in a motion for summary judgment is placed on the moving party to establish "the non-existence of any genuine issue of fact that is material to a judgment in his favor." City of Mt. Pleasant, Iowa v. Associated Elec. Co-op., Inc., 838 F.2d 268, 273 (8th Cir. 1988). Once...

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