Smith v. RecordQuest, LLC, 19-2084

• Decision Date: 26 February 2021
• Docket Number: No. 19-2084,19-2084
• Citation: 989 F.3d 513
• Parties: Daphne SMITH, Plaintiff-Appellant, v. RECORDQUEST, LLC, Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

989 F.3d 513

Daphne SMITH, Plaintiff-Appellant,

v.RECORDQUEST, LLC, Defendant-Appellee.

No. 19-2084

United States Court of Appeals, Seventh Circuit.

Argued January 13, 2021

Decided February 26, 2021

Rehearing Denied March 17, 2021

Scott C. Borison, Attorney, Borison Firm LLC, San Mateo, CA, Robert J. Welcenbach, Attorney, Welcenbach Law Offices, Milwaukee, WI for Plaintiff - Appellant.

Mark Mao, Attorney, Boies Schiller Flexner LLP, San Francisco, CA, Timothy Allen Butler, Attorney, Troutman Pepper Hamilton Sanders LLP, Ronald I. Raether, Jr., Attorney, Troutman Pepper Hamilton Sanders LLP, Irvine, CA, Daniel Robert Waltz, Attorney, Troutman Pepper Hamilton Sanders LLP, for Chicago, IL, for Defendant - Appellee.

Before Flaum, Brennan, and Scudder, Circuit Judges.

Brennan, Circuit Judge.

Federal courts defer to state courts on state-law issues, but not without reservation. In this case, Daphne Smith claimed RecordQuest, LLC charged excessive fees when satisfying her request for health records. So Smith sued, alleging violation of Wisconsin's health records statute and unjust enrichment. The district court dismissed Smith's claims. Soon after, the Wisconsin Court of Appeals decided a case in which it expressly disagreed with the district court's analysis of Smith's statutory claim.

Although we have our own views on the proper interpretation of Wisconsin's health records statute, we defer to the decision of the Wisconsin Court of Appeals in these circumstances. We reverse the district court's judgment on Smith's statutory claim but affirm on different grounds the district court's judgment on Smith's unjust enrichment claim.

I. Background

Daphne Smith suffered an injury from a car accident in May 2014 and retained an attorney to represent her for a personal injury action.¹ As part of that representation, Smith authorized her attorney to obtain her health care information. The attorney requested Smith's medical records from Milwaukee Health Services, Inc. ("MHS"), on three different occasions between September 2014 and March 2015. But health care records company RecordQuest, LLC, not MHS, answered these requests and charged Smith's attorney (who paid on her behalf) two different fees—a $20.96 handling fee and a $8.26 certification fee—each time.

Smith later brought a class action in state court, which RecordQuest removed to federal court. Smith alleged these charged fees contravened the permissible fee schedule set out in Wis. Stat. § 146.83(3f)(b) for health care records requests and resulted in the unjust enrichment of RecordQuest. RecordQuest moved to dismiss under Federal Rule of Civil Procedure 12(b)(6).

The district court, primarily by applying agency principles, dismissed both of Smith's claims. Smith v. RecordQuest, LLC , 380 F. Supp. 3d 838 (E.D. Wis. 2019). On Smith's statutory claim, the district court observed that § 146.83(3f)(b) imposes a duty upon only "health care providers." Id. at 842. RecordQuest is not a "health care provider" but is the agent of a health care provider, MHS. Id. For the district court, "no principle of agency law holds that a principal's liability is imputed to the agent when the agent performs the act that results in the principal's liability." Id. at 843. So the district court did not hold RecordQuest liable under § 146.83(3f)(b). Id. at 842–44. Even so, the district court concluded that this reasoning did not affect the liability of a principal like MHS, leaving no remedial gap for a plaintiff like Smith. Id. at 842, 844.

The district court also rejected Smith's reliance on Wis. Stat. §§ 146.84(1)(b) and 990.001(9). That § 146.84(1)(b) and (bm) provide a cause of action against "[a]ny person ... who violates § 146.82 or 146.83" did not change that the statutory duty, and therefore the liability, always lies with the principal and not the agent. Id. at 844. Moreover, § 990.001(9) —"[i]f a statute requires an act to be done which may legally be done by an agent, such requirement includes all such acts when done by an authorized agent"—simply means that "the agent's acts are the principal's acts[,]" so an agent may fulfill a principal's statutory duty. Id. at 843–44. The district court also noted that its holding would be no different than if Smith sued an MHS billing clerk (who, like RecordQuest, is not a health care provider). Id. at 844.

Smith's unjust enrichment claim failed for the same reasons. The district court held that any excessive fees—or, unjust benefit—that Smith allegedly conferred to RecordQuest belonged to MHS as RecordQuest's principal. Id. at 845. Even if RecordQuest kept the excessive fees, it would be MHS who conferred the benefit to RecordQuest because "under its agency agreement with MHS, the fee was RecordQuest's compensation for rendering records-retrieval services to MHS." Id. Additionally, no inequity would result from allowing RecordQuest to keep the excessive fees as Smith could always sue MHS directly, according to the district court. Id.

Two other conclusions by the district court merit mention. That court declined to consider RecordQuest's argument that the statute of limitations barred Smith's statutory and unjust enrichment claims. Id. at 841. And it did not sua sponte grant Smith leave to amend her complaint because she had not contended she could cure the legal defects in her claims. Id. at 845–46.

II. Discussion

We consider (A) whether RecordQuest can, as an agent of MHS, be liable for excessive fees under § 146.83(3f)(b) ; (B) whether alleged violations of that statute form the basis for an unjust enrichment claim against RecordQuest; and (C) if Smith's claims are time barred.

"Our review of a district court's grant of a motion to dismiss for failure to state a claim is de novo , and we may affirm on any basis in the record." UWM Student Ass'n v. Lovell , 888 F.3d 854, 859 (7th Cir. 2018).

A. Excessive Fees under Wis. Stat. § 146.83(3f)(b)

Wisconsin law contains detailed statutory provisions governing health care records, which require that "if a person requests copies of a patient's health care records, provides informed consent, and pays the applicable fees ..., the health care provider shall provide the person making the request copies of the requested records." Wis. Stat. § 146.83(3f)(a). This duty applies to twenty-six different classes of medical professionals listed in Wis. Stat. § 146.81(1). In addition, § 146.83(3f)(b) sets forth a fee schedule and prohibits health care providers from charging more than what is listed as permissible.

Under these statutes, liability arises for "[a]ny person ... who violates § 146.82 or 146.83" either willfully or negligently. Wis. Stat. § 146.84(1)(b), (bm). As for damages, willful and negligent violations vary only in degree. Compare Wis. Stat. § 146.84(1)(b) (providing that willful violations result in "actual damages to that person, exemplary damages of not more than $25,000 and costs and reasonable actual attorney fees"), with Wis. Stat. § 146.84(1)(bm) (providing that negligent violations result in "actual damages to that person, exemplary damages of not more than $1,000 and costs and reasonable actual attorney fees").

Wisconsin law also codifies certain interpretive canons and rules. See Wis. Stat. § 990.001 ("In construing Wisconsin laws the following rules shall be observed unless construction in accordance with a rule would produce a result inconsistent with the manifest intent of the legislature ...."). One such rule, entitled "Acts by agents," states: "If a statute requires an act to be done which may legally be done by an agent, such requirement includes all such acts when done by an authorized agent." Wis. Stat. § 990.001(9).

Smith's statutory excessive fees claim requires us to interpret these Wisconsin health care records statutes. When we sit in diversity and interpret state law, we must exercise care and caution, because "[w]hen interpreting state law, a federal court's task is to determine how the state's highest court would rule." Rodas v. Seidlin , 656 F.3d 610, 626 (7th Cir. 2011). "In the absence of guiding decisions by the state's highest court, we consult and follow the decisions of intermediate appellate courts unless there is a convincing reason to predict the state's highest court would disagree." ADT Sec. Servs., Inc. v. Lisle-Woodridge Fire Prot. Dist. , 672 F.3d 492, 498 (7th Cir. 2012). So while a state supreme court's rule would control, a state appellate court's decision can provide controlling guidance as well. See In re Zimmer, NexGen Knee Implant Prod. Liab. Litig. , 884 F.3d 746, 751 (7th Cir. 2018). At bottom, "we must interpret the law as we think Wisconsin's courts would." Winebow, Inc. v. Capitol-Husting Co. Inc. , 867 F.3d 862, 868 (7th Cir. 2017), certified question answered and remanded , 2018 WI 60, 381 Wis. 2d 732, 914 N.W.2d 631.

The Wisconsin Supreme Court has not addressed liability for health care records companies or third parties under § 146.83(3f)(b), but the Wisconsin Court of Appeals has done so. In Townsend v. ChartSwap, LLC , that appeals court expressly disagreed with the district court's analysis in this case. 2020 WI App 79, ¶¶ 11–12, 395 Wis.2d 229, 952 N.W.2d 831 (App. 2020) (citing and distinguishing the district court decision in Smith , 380 F. Supp. 3d at 844 ), petition for cert. filed , 2019AP2034 (Dec. 16, 2020). To the appeals court, the district court's decision "not only undermines the underlying purpose of WIS. STAT. § 146.83(3f)(b), which is to protect patients from being charged excessive fees for access to information ..., but it also misinterprets WIS. STAT. § 990.001(9) because the statute does not specifically deal with the imputation of liability." Id. at 835. The appeals court concluded that "agents of health care providers have no greater power to charge fees in excess of those permitted by § 146.83(3f)(b) than the providers themselves." Id. Fearing a gap in the remedial scheme, the appeals court held that ChartSwap, a health care...