Palmisano v. Allina Health

• Decision Date: 16 June 1999
• Docket Number: No. 98-3619,98-3619
• Citation: 190 F.3d 881
• Parties: (8th Cir. 1999) Richard T. Palmisano, II, Plaintiff - Appellant, v. Allina Health Systems, Inc., Defendant - Appellee. Submitted:
• Court: U.S. Court of Appeals — Eighth Circuit

Page 881

190 F.3d 881 (8th Cir. 1999)

Richard T. Palmisano, II, Plaintiff - Appellant, v. Allina Health Systems, Inc., Defendant - Appellee.

No. 98-3619

United States Court of Appeals FOR THE EIGHTH CIRCUIT

Submitted: June 16, 1999

Filed: September 10, 1999

Rehearing and Rehearing En Banc

Denied Oct. 15, 1999.

Appeal from the United States District Court for the District of Minnesota. [Copyrighted Material Omitted]

[Copyrighted Material Omitted] Before LOKEN and MAGILL, Circuit Judges, and JONES, ^* District Judge.

LOKEN, Circuit Judge.

In 1994, Allina Health Systems, Inc. ("Allina"), conducted a three month investigation and concluded that serious billing improprieties had taken place at the Minneapolis Psychiatric Institute ("MPI"), a wholly owned Allina subsidiary, and that Richard Palmisano, Vice-President of Allina's Behavioral Health Services division and a director of MPI, knew or should have known of the improprieties. Palmisano was forced to resign. He commenced this action in state court, asserting claims for defamation and breach of contract. The court granted summary judgment in favor of Allina but permitted Palmisano to amend his complaint to add a claim for severance benefits under the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. 1001 et seq. Allina then removed the case to federal court. After trial, the district court ¹ dismissed Palmisano's ERISA claim and denied his motion to reopen the state court's summary judgment rulings. Palmisano appeals the state court's grant of summary judgment on his defamation claim and the district court's dismissal of his ERISA claim. We affirm.

I. The Defamation Claim

Allina is a nonprofit health care corporation. At the time in question, Palmisano had some responsibility for financial management of MPI. An Allina staff attorney conducted the internal investigation and completed his final report on the day Palmisano was forced to resign. Anticipating media inquiries, Allina prepared a public statement explaining that it had conducted an investigation into MPI billing practices, that the results had been turned over to federal prosecutors, and that Allina had taken steps to prevent future problems. General Counsel Mark Mishek then met with reporters who had learned of Palmisano's termination from other sources. Mishek departed from the prepared statement by identifying Palmisano by name and position and describing the action taken against him. Mishek also noted that "a substantial sum" was involved, adding that "federal criminal charges are possible." The story received substantial coverage by a local television station and several local newspapers. Each identified Palmisano as having been terminated and mentioned that the federal government was investigating possible Medicare and Medicaid billing fraud at Allina

In granting summary judgment dismissing Palmisano's defamation claim, the state court concluded that Allina's public statements were reasonably susceptible of a defamatory meaning -- Palmisano was involved in billing fraud -- but were protected by a qualified privilege. After removal, such state court orders remain in effect but "federal rather than state law governs the future course of proceedings." Granny Goose Foods, Inc. v. Brotherhood of Teamsters, 415 U.S. 423, 437 (1974). The district court entered final judgment based upon the state court's ruling, declining Palmisano's invitation to revisit the summary judgment issue. On appeal, we review the grant of summary judgment de novo to determine whether there are genuine issues of material fact precluding summary judgment. See FED. R. CIV. P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). We apply federal summary judgment standards, though Minnesota's are virtually identical. See Minn. R. Civ. P. 56.03.

Minnesota law recognizes a qualified privilege protecting an employer against liability for a defamatory statement made about an employee. To qualify, the statement must be made on a proper occasion and for a proper purpose, and be based upon reasonable or probable grounds for believing in its validity, even if it later proves to be false. These are questions of law for the court. See Lewis v. Equitable Life Assurance Soc'y, 389 N.W.2d 876, 889-90 (Minn. 1986).² If the employer proves that it is entitled to this privilege, the employee may still prevail if he proves that the employer abused the privilege by acting with actual malice. See Stuempges v. Parke, Davis & Co., 297 N.W.2d 252, 257-58 (Minn. 1980).

Palmisano first argues that the qualified privilege does not extend to a private employer's statements to the media about an employee or a former employee. But he cites no case drawing this distinction, and the Supreme Court of Minnesota has not limited the qualified privilege to particular types of communications or audiences.³ The privilege turns on whether an employer's statements are made on a proper occasion and for a legitimate purpose. The fact that statements were made to the media will of course be relevant to that inquiry, but we agree with the trial court that such statements may be entitled to the qualified privilege. Here, for example, the MPI billing improprieties included overbilling patients for psychological testing services, potentially in violation of Medicare-Medicaid billing rules. The state court concluded that Allina responded to media inquiries on a subject of obvious public interest, and that Allina had a proper occasion and purpose to speak out because:

Medicare/Medicaid payments constitute a significant percentage of Allina's gross revenues. . . . Allina's thousands of employees and hundreds of thousands of enrollees had an important interest in being accurately informed as to the status of a federal investigation that could place Allina's Medicare/Medicaid revenues at risk.

The summary judgment record fully supports these conclusions.

Palmisano next argues there are genuine issues of material fact as to whether Allina's public statements were based on reasonable or probable cause. The Supreme Court of Minnesota has only decided this issue as a matter of law in cases where the employer investigated before making the allegedly defamatory statement and "the results of the investigations provided sufficient evidence of probable cause." Wirig v. Kinney Shoe Corp., 461 N.W.2d 374, 380 (Minn. 1990). Here, in concluding that Allina had reasonable grounds to believe its statements about Palmisano were accurate, the state court noted that during a "three month internal investigation over two dozen Allina employees were interviewed and the billing records and production reports for [several MPI providers] were analyzed." The staff attorney's written report concluded that Palmisano inadequately responded to allegations of improper billing. Palmisano argues that Allina lacked reasonable cause because the investigator had a motive to find a "scapegoat" such as Palmisano to avoid being blamed himself for not discovering the billing improprieties. But this contention was not made to the state court and is pure speculation. It is undisputed that Allina conducted a thorough investigation and then made statements to the press that were supported by the results of that investigation. On this summary judgment record, the trial court properly concluded that Allina had reasonable or probable cause as a matter of law.

Because Allina is entitled to the qualified privilege as a matter of law, the burden shifts to Palmisano to prove that Allina abused the privilege by acting out of actual malice. To demonstrate malice, he must show the statement was made from "ill will and improper motives, or causelessly and wantonly for the purpose of injuring the plaintiff." McKenzie v. William J. Burns Int'l Detective Agency Inc., 183 N.W. 516, 517 (Minn. 1921). Actual malice is a jury question. See Frankson v. Design Space Int'l, 394 N.W.2d 140, 144 (Minn. 1986). Palmisano argues the state court erred in granting summary judgment because he presented sufficient evidence that Allina acted "causelessly and wantonly for the purpose of injuring," namely, evidence that Mishek unnecessarily deviated from his prepared public statement and provided Palmisano's name and title to the press, thereby linking him to a possible federal criminal investigation.

The state court noted that the press had already identified Palmisano, and that Mishek in talking with reporters accurately described Palmisano's position and the action taken against him. "Under the circumstances," the court concluded, "the [] methods of dissemination were not excessive. Indeed, necessity dictated that these or similar methods be used -- first to adequately respond to repeated media inquiries and then again to respond to the inflammatory media reports and articles." After a thorough review of the record, we agree with the state court's conclusions and accordingly hold that summary judgment was properly granted dismissing Palmisano's defamation claim.

II. The ERISA Severance Claim

In March 1994, when Palmisano was working for an Allina predecessor named HealthSpan Health Systems Corporation, HealthSpan provided him a personalized copy of its Executive Benefit Plan Book (the "Plan Book"), a looseleaf compilation describing HealthSpan's various employee benefit plans and programs. The "Other Benefits" section of the Plan Book included a single page entitled "Other Executive Benefits" which contained the following entry:

EXECUTIVE BENEFITS

Severance

Amount of benefit. In the event of involuntary termination without cause you will continue to receive your salary and Executive Benefits for a period of 18 months.

See the enclosed description for further details.

Tax status. The value of these benefits is added to your W-2 as taxable income.

The Plan Book's Glossary stated: "Executive benefits are provided only to a select group of executives and do not allow for individual choice." It is...