Shepherd v. Costco Wholesale Corp.

• Decision Date: 08 March 2021
• Docket Number: No. CV-19-0144-PR,CV-19-0144-PR
• Citation: 482 P.3d 390,250 Ariz. 511
• Parties: Greg SHEPHERD, Plaintiff/Appellant, v. COSTCO WHOLESALE CORPORATION, Defendant/Appellee.
• Court: Arizona Supreme Court

250 Ariz. 511

482 P.3d 390

Greg SHEPHERD, Plaintiff/Appellant,

v.COSTCO WHOLESALE CORPORATION, Defendant/Appellee.

No. CV-19-0144-PR

Supreme Court of Arizona.

Filed March 8, 2021

Joshua W. Carden (argued), Joshua Carden Law Firm, P.C., Scottsdale, Attorney for Greg Shepherd

Karen C. Stafford (argued), Cassandra V. Meyer, The Cavanagh Law Firm, P.A., Phoenix, Attorneys for Costco Wholesale Corporation

JUSTICE MONTGOMERY authored the opinion of the Court, in which CHIEF JUSTICE BRUTINEL, VICE CHIEF JUSTICE TIMMER and JUSTICES BOLICK and LOPEZ joined.^*

JUSTICE MONTGOMERY, opinion of the Court:

¶1 We are called upon in this case to determine what a plaintiff must allege for a claim of negligent disclosure of medical information to withstand a motion to dismiss based on the immunity provided by A.R.S. § 12-2296, and the extent to which the Health Insurance Portability and Accountability Act ("HIPAA") may be relied on for a claim of negligence.

¶2 Section 12-2296 affords healthcare providers immunity from liability for damages if they acted in good faith when disclosing medical information pursuant to applicable law. While acting in good faith is presumed, the presumption may be rebutted by clear and convincing evidence. We hold that a plaintiff does not have to allege bad faith or rebut the good faith presumption in his complaint when asserting a claim of negligent disclosure of medical information. We also hold that HIPAA may inform the standard of care in a negligence claim.

I. Background

¶3 Greg Shepherd visited his physician for a check-up and a refill of his usual prescription.¹ He also received a sample of an erectile dysfunction ("E.D.") medication.

Thereafter, Shepherd went to Costco Pharmacy ("Costco") to pick up his regular prescription and was notified that a full prescription of the E.D. medication was ready, too. Shepherd said that he did not want the E.D. prescription and instructed the Costco employee to cancel it. The employee acknowledged the request.

¶4 Shepherd called Costco the next month to check on his regular prescription refill. An employee told him that the regular and E.D. prescriptions were ready. Shepherd again stated that he did not want the E.D. prescription and, again, his request was acknowledged.

¶5 Shepherd called back the next day, asking if his ex-wife, with whom he was exploring possible reconciliation, could pick up his regular prescription. The employee stated she could and that it was ready. The employee did not tell Shepherd, though, that the E.D. prescription was still available for pick up, as well.

¶6 When Shepherd's ex-wife went to Costco, the employee gave her both prescriptions. However, she did not accept the E.D. prescription, and the two joked about it. Upon returning to Shepherd, she told him she knew about the E.D. medication and no longer wanted to be with him, ending any reconciliation effort. She later told Shepherd's children and friends about the E.D. medication.

¶7 Shepherd complained to Costco headquarters about the disclosure of the E.D. prescription and received a written response acknowledging a violation of HIPAA and Costco's privacy policy. Shepherd then sued Costco, alleging negligence, breach of fiduciary duty, fraud, negligent misrepresentation, intentional infliction of emotional distress, intrusion upon seclusion, and public disclosure of private facts based on Costco's "public disclosure of an embarrassing medication that [he] twice rejected." Shepherd further alleged that had he known Costco failed to cancel the E.D. prescription, he would not have sent his ex-wife to pick up his regular prescription.

¶8 Costco moved to dismiss Shepherd's complaint pursuant to Arizona Rule of Civil Procedure 12(b)(6), asserting that § 12-2296 provided immunity from all his claims and that the claims were also precluded by HIPAA. The trial court granted the motion and dismissed the entire complaint with prejudice, finding that Costco was entitled to immunity from suit under § 12-2296, that the claims were preempted by HIPAA, and that Shepherd failed to allege sufficient facts to support his claims.

¶9 The court of appeals affirmed the dismissal of all Shepherd's claims, except his claim for negligent disclosure of medical information. Shepherd v. Costco Wholesale Corp. , 246 Ariz. 470, 479 ¶ 38, 441 P.3d 989, 998 (App. 2019). With respect to this claim, the court referenced Shepherd's allegations of trying to cancel the prescription, Costco's acknowledgment of at least one of the requests, and the exchange between the Costco employee and Shepherd's ex-wife to conclude that Shepherd "may be able to prove some set of facts showing Costco did not act in good faith." Id. at 478 ¶ 31, 441 P.3d at 997. The court also held that HIPAA did not preclude his negligence claim for wrongful disclosure of medical information and that HIPAA's requirements may inform the standard of care in a negligence action. Id. at ¶ 34.

¶10 We accepted review of Costco's petition to consider the extent to which the provisions of § 12-2296 provide immunity from a claim of negligent disclosure of medical information and whether HIPAA can inform the standard of care in a negligence claim, which are issues of first impression and statewide importance. We have jurisdiction under article 6, section 5(3) of the Arizona Constitution.

II. Discussion

¶11 We review de novo the dismissal of a complaint pursuant to Rule 12(b)(6), Conklin v. Medtronic, Inc. , 245 Ariz. 501, 504 ¶ 7, 431 P.3d 571, 574 (2018), as well as issues of statutory interpretation, Nicaise v. Sundaram , 245 Ariz. 566, 567 ¶ 6, 432 P.3d 925, 926 (2019).

¶12 Costco argues that Shepherd's negligence claim should be dismissed as a matter of law given the qualified immunity provided by § 12-2296 and because HIPAA does not permit a private right of action. We address each argument in turn.

A. Qualified Immunity

¶13 Costco's main argument is that Shepherd's complaint fails to plead facts establishing bad faith by Costco. Therefore, he has failed to rebut the good faith presumption in § 12-2296, leaving Costco immune from his claim of negligence and requiring dismissal as a matter of law.

¶14 We note at the outset that a complaint need not set forth every fact that may be associated with a claim. Anserv Ins. Servs., Inc. v. Albrecht , 192 Ariz. 48, 49 ¶ 5, 960 P.2d 1159, 1160 (1998). Instead, "Arizona follows a notice pleading standard, the purpose of which is to ‘give the opponent fair notice of the nature and basis of the claim and indicate generally the type of litigation involved.’ " Cullen , 218 Ariz. at 419 ¶ 6, 189 P.3d at 346 (2008) (quoting Mackey v. Spangler , 81 Ariz. 113, 115, 301 P.2d 1026 (1956) ); Ariz. R. Civ. P. 8(a)(2) (requiring a plaintiff to set forth "a short and plain statement of the claim showing that the pleader is entitled to relief").

¶15 We next note that Costco raised the immunity afforded by § 12-2296 as an affirmative defense in a motion to dismiss. See Ariz. R. Civ. P. 12(b)(6) ; Chamberlain v. Mathis , 151 Ariz. 551, 554, 729 P.2d 905, 908 (1986) (noting that immunity is an affirmative defense which can be raised in a motion to dismiss). But because "[a] complaint need not anticipate an affirmative defense," Shepherd was not required to specifically address § 12-2296 in his complaint. Keck v. Kelley , 16 Ariz. App. 163, 166, 492 P.2d 412 (1972) (citing Bohmfalk v. Vaughan , 89 Ariz. 33, 39–40, 357 P.2d 617 (1960) ); see also Foremost-McKesson Corp. v. Allied Chem. Co. , 140 Ariz. 108, 112, 680 P.2d 818, 822 (App. 1983) ("A plaintiff in a negligence action cannot be required to affirmatively plead and prove the negative of an affirmative defense, e.g., that it was not contributorily negligent." (citing Merit Ins. Co. v. Colao , 603 F.2d 654, 659 (7th Cir. 1979) )). Therefore, given the minimal requirements of Arizona's notice pleading standard and the lack of any requirement to address an affirmative defense, it is clear that Shepherd's complaint was not deficient due to a failure to allege bad faith on the part of Costco or to rebut the good faith presumption of § 12-2296. It was therefore error for the trial court to grant the motion to dismiss on this basis.

¶16 Our conclusion does not mean that the qualified immunity under § 12-2296 may never be successfully raised in a motion to dismiss. To raise an affirmative defense in a motion to dismiss, though, the facts to establish the defense must appear in the complaint. Chamberlain , 151 Ariz. at 554, 729 P.2d at 908 (confirming that "[d]efendant properly raised the immunity defense in his motion to dismiss because its factual framework was established in plaintiffs’ complaint"); Sierra Madre Dev., Inc. v. Via Entrada Townhouses Ass'n , 20 Ariz. App. 550, 552, 514 P.2d 503 (1973) ("Affirmative defenses, such as privilege, may be raised and determined on a motion to dismiss where the facts constituting the defense appear ... on the face of the complaint or counterclaim." (citations omitted)). Yet, rather than establishing the affirmative defense under § 12-2296, Shepherd's complaint contains allegations from which he "may be able to prove some set of facts showing Costco did not act in good faith." Shepherd , 246 Ariz. at 478 ¶ 31, 441 P.3d at 997. Shepherd's pleadings thus establish that dismissal of his claim was error.

¶17 Finally, we observe that some amount of discovery may need to occur in most cases to permit a plaintiff to develop clear and convincing evidence to rebut the good faith presumption as the statute explicitly permits. Regardless, we express no opinion as to the actual merits of Shepherd's claim or whether Costco may successfully reassert the immunity afforded by § 12-2296 in a motion for summary judgment following remand.

B. Good Faith

¶18 Because what constitutes good faith pursuant to § 12-2296 will arise on remand and the parties have briefed the issue, we proceed to define the term. Big D Const. Corp. v. Court of Appeals , 163 Ariz. 560, 563, 789 P.2d...