Webb v. Smart Document Solutions, LLC

• Decision Date: 27 August 2007
• Docket Number: No. 05-56282.,05-56282.
• Citation: 499 F.3d 1078
• Parties: Kirk WEBB, individually and as class representative; Mann & Cook, a legal partnership, for itself and as class representative, Plaintiffs-Appellants, v. SMART DOCUMENT SOLUTIONS, LLC, Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

499 F.3d 1078

Kirk WEBB, individually and as class representative; Mann & Cook, a legal partnership, for itself and as class representative, Plaintiffs-Appellants, v. SMART DOCUMENT SOLUTIONS, LLC, Defendant-Appellee.

No. 05-56282.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted May 10, 2007.

Filed August 27, 2007.

Barrett S. Litt and Paul J. Estuar, Litt, Estuar, Harrison, Miller & Kitson, LLP, Los Angeles, CA, for plaintiffs-appellants.

Martin D. Bern, Munger, Tolles & Olson, LLP, San Francisco, CA, for defendant-appellee.

Appeal from the United States District Court for the Central District of California; Manuel L. Real, District Judge, Presiding. D.C. No. CV-05-03373-R.

Before: ANDREW J. KLEINFELD and RICHARD A. PAEZ, Circuit Judges, and WILLIAM HART,^* Senior Judge.

PAEZ, Circuit Judge:

The regulations promulgated by the Department of Health and Human Services ("DHHS") to implement the Health Insurance Portability and Accountability Act of 1996 ("HIPAA"), Pub.L. 104-191, 110 Stat. 1936 (codified as amended in scattered sections of 42 U.S.C.), provide for an individual's broad access to his own health records. Under HIPAA, an individual has the right to obtain copies of his medical records for a reasonable, cost-based fee, while third parties who seek the same records may be charged at a higher rate. See 45 C.F.R. § 164.524(c)(4). In this case, Kirk Webb's lawyers—the law firm of Mann & Cook — requested Webb's records on his behalf from his treating hospital. That hospital in turn passed the request on to Smart Document Systems ("Smart"), which charged Mann & Cook at the higher rate. Because Mann & Cook bills their clients for the cost of obtaining medical records, Webb and Mann & Cook (collectively, "Plaintiffs") sued Smart for unfair competition under California Business and Professions Code section 17200 ("Section 17200"), asserting that the lower, cost-based fee should apply.

In a matter of first impression for the federal courts, we must determine whether the term "individual" in the DHHS regulations implementing HIPAA encompassed Mann & Cook when it acted as Webb's agent, thereby qualifying the law firm to obtain medical records at the lower rate. Although nothing in the regulations prevents a law firm from drafting or mailing the request for records on behalf of its clients, or from directing that the records be sent to its office, we hold nonetheless that the HIPAA regulations require the reduced rate only when the individual himself requests the records.¹ Thus, we affirm the district court's dismissal of Plaintiffs' case for failure to state a claim for relief.

Before turning to the merits of Plaintiffs' claims, we also consider sua sponte whether the district court had jurisdiction over this case. Because HIPAA provides for no private right of action, Plaintiffs originally filed this case in the California Superior Court, invoking a California unfair competition statute to seek redress of the alleged HIPAA violations. Defendant removed the case to federal court. Although under certain circumstances concerns about federal question jurisdiction will preclude federal courts from hearing a case where there is no federal private right of action, we conclude that the district court correctly assumed diversity jurisdiction here.

I. OVERVIEW

Webb and Mann & Cook filed a class action in California Superior Court. According to the allegations in their complaint, which we "presume[ ] to be true" when reviewing a district court's dismissal pursuant to Federal Rule of Civil Procedure 12(b)(6), Holcombe v. Hosmer, 477 F.3d 1094, 1097 (9th Cir.2007), the following facts formed the basis of the lawsuit:

Smart is the "world's largest health document processor." It contracts with numerous health care providers and facilities for the "exclusive" right to copy and provide patients' records. When a provider contracts with Smart, patients have "no other means to obtain copies of [their] medical records except through Smart"; Smart "does not notify the patient that it will be accessing and viewing the patient's health care records in advance," nor does it "obtain the patient's consent to do so." Upon receiving a request, "Smart then accesses and copies the patient's health care records through an agent who maintains copying equipment on the health care provider's premises, sends the health care records to the patient or representative, and sends a bill for the copies of the health care records to the patient or his agent."

In exchange for this exclusive right, "Smart provides free copies and other benefits and services of value to health care providers." Smart makes a profit in spite of the HIPAA provision allowing patients to obtain their records at a cost-based fee in part by "charg[ing] more for providing copies of health care records to patients who request their records through their agents, such as their personal injury lawyers, than to patients who are not represented by attorneys."

Plaintiffs encountered Smart when Webb hired Mann & Cook to represent him in his civil rights claim for excessive force and, in furtherance of that litigation, Mann & Cook ordered copies of Webb's medical records. For that service, Smart charged Mann & Cook $.35 cents per page, in addition to more than $65 in various additional fees, including a "Base Fee," a "Basic Fee," and a "Retrieval Fee." Mann & Cook have a contingent fee arrangement with Webb, so it "advanced the cost of the health care records for its client to Smart, and charged him with repayment of the advance to be paid at the time of the resolution of the case." Because Webb is thus ultimately responsible for Smart's charges, the Plaintiffs alleged that Smart violated the HIPAA fee limitations by charging him—through his agent, Mann & Cook—more than a reasonable, cost-based fee.

HIPAA itself provides no private right of action. Accordingly, Plaintiffs brought suit in state court invoking a California unfair competition law that makes violations of other state and federal laws independently actionable. See Cal. Bus. & Prof.Code §§ 17200-210 (West 2005). Smart removed the case to federal court on the basis of diversity of citizenship in class actions, see 28 U.S.C. §§ 1332(d), 1453,² and filed a motion to dismiss for failure to state a claim, see Fed.R.Civ.P. 12(b)(6). It argued that Plaintiffs had not stated a claim under Section 17200 because they had not adequately alleged a violation of any law. Specifically, Smart argued that Plaintiffs' allegations did not constitute a HIPAA violation because the HIPAA fee limitations apply only to individual patients who request records on their own behalf, and not to attorneys who act as agents of their clients. The district court granted Smart's motion. Plaintiffs timely appealed.

II. STANDARD OF REVIEW

We review de novo dismissals under Rule 12(b)(6), taking all allegations in the complaint as true. Holcombe, 477 F.3d at 1097.

III. DISCUSSION

A. Jurisdiction Over the Section 17200 Claim

This case presents an unusual situation. Generally, when we consider state law claims asserted in federal court after a diversity-based removal, we apply state substantive law, pursuant to Erie Railroad Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). See, e.g., Kohlrautz v. Oilmen Participation Corp., 441 F.3d 827, 830-31 (9th Cir.2006); Conestoga Servs. Corp. v. Executive Risk Indem., Inc., 312 F.3d 976, 980-81 (9th Cir. 2002). Here, by contrast, the focus of our attention is directed at the proper interpretation of the regulations implementing a federal statute—HIPAA. This seems particularly incongruous because HIPAA itself does not provide for a private right of action, see 65 Fed.Reg. 82601 (Dec. 28, 2000) ("Under HIPAA, individuals do not have a right to court action."), so the federal courts would seldom have occasion to undertake such an analysis.

In fact, however, it is California law that directs, in this class action diversity case, that we examine federal law. Plaintiffs' California cause of action, Section 17200, is a broad statute designed to remedy violations of other laws, both state and federal. See People ex rel. Bill Lockyer v. Fremont Life Ins. Co., 104 Cal.App.4th 508, 128 Cal.Rptr.2d 463, 469 (2002) ("[V]irtually any state, federal, or local law can serve as the predicate for" a Section 17200 claim) (emphasis added). Section 17200 "establishes [and creates a private right of action to remedy] three varieties of unfair competition": the unlawful, the unfair, and the fraudulent. Id. (internal quotation marks omitted). Plaintiffs' claim is "based on" the allegedly unlawful and unfair conduct of Smart in violating HIPAA. Charging higher fees to lawyers thus must violate a law — here, the HIPAA regulations—in order for Plaintiffs to state a claim for relief under Section 17200's "unlawful" prong.³

Similarly, if we determine that the agency responsible for implementing HIPAA intended to permit Smart's conduct, it cannot be "unfair" under Section 17200. The California Supreme Court has held that if the allegedly unfair conduct is that which "the Legislature has permitted . . . or considered . . . and concluded no action should lie, courts may not over-ride that determination . . . [and] use the general unfair competition law to assault that [safe] harbor." Cel-Tech Commc'ns, Inc. v. Los Angeles Cellular Tel. Co., 20 Cal.4th 163, 83 Cal.Rptr.2d 548, 973 P.2d 527, 541 (1999). To withstand a motion to dismiss under Rule 12(b)(6) and state a claim under Section 17200, therefore, Plaintiffs must demonstrate that, in charging Mann & Cook a higher fee, Smart violated the HIPAA regulations.⁴

In some cases, federal jurisdictional requirements may preclude federal courts from entertaining a state law claim based on a violation of a federal statute.⁵ "[A] complaint alleging a violation of a federal statute as an element of a state cause of action, when Congress has determined that...