Mobile Diagnostic Imaging, Inc. v. Racheal L. Hooten f/k/a Racheal L. Jones , 2016 Minn. App. LEXIS 88 ( 2016 )

STATE OF MINNESOTA
IN COURT OF APPEALS
A16-0241
Mobile Diagnostic Imaging, Inc.,
Appellant,
vs.
Racheal L. Hooten f/k/a Racheal L. Jones, et al.,
Respondents.
Filed December 19, 2016
Affirmed in part, reversed in part, and remanded
Stauber, Judge
Hennepin County District Court
File No. 27-CV-14-7349
William R. Skolnick, Andrew H. Bardwell, Skolnick & Joyce, P.A., Minneapolis,
Minnesota (for appellant)
Randall Tigue, Randall Tigue Law Office, P.A., Fridley, Minnesota (for respondents)
Considered and decided by Jesson, Presiding Judge; Stauber, Judge; and Reyes,
Judge.
SYLLABUS
1. The procedural requirements of Minnesota’s anti-SLAPP statute, Minn.
Stat. § 554.02 (2014), violate the non-moving party’s constitutional right to a jury trial by
requiring a court to make a pretrial factual determination that the non-moving party has
produced clear and convincing evidence to support his claim.
2. Minn. Stat. § 148.103, subd. 1 (2014), provides immunity for the act of
reporting a licensee’s or a potential licensee’s misconduct to the Minnesota Board of
Chiropractic Examiners, but this immunity does not apply to the act of disclosing this
same information to others.
3. A person pursuing a private attorney-general claim under Minn. Stat.
§§ 325F.69, subd. 1; 8.31, subds. 1, 3a (2014), must demonstrate that the cause of action
benefits the public.
OPINION
STAUBER, Judge
Appellant challenges the district court’s order dismissing its claims as barred by
the anti-SLAPP statute, Minn. Stat. §§ 554.01-.05 (2014), and Minn. Stat. § 148.103,
subd. 1, which provides immunity to persons filing complaints with the Minnesota Board
of Chiropractic Examiners. By notice of related appeal, respondent challenges the
dismissal of its claim under the Minnesota Consumer Fraud Act, Minn. Stat. § 325F.69
(2014). We affirm in part, reverse in part, and remand to the district court for further
proceedings.
FACTS
Appellant Mobile Diagnostic Imaging, Inc. (MDI) provided mobile magnetic-
resonance-imaging (MRI) services to chiropractors until October 2013. MDI is wholly
owned by Michael Appleman, who is not a licensed chiropractor. Respondent Stand-Up
MidAmerica MRI, P.A. (SUMA) also provides MRI services. It is owned by respondent
Wayne Dahl, a licensed chiropractor. MDI and SUMA competed for patient referrals
from chiropractors. Respondent Rachael Hooten was formerly employed by MDI as a
clinic manager, but was later hired by SUMA for the same position.
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MDI entered into contracts with chiropractors to provide MRI services at or near
individual offices. MDI used “lease agreements,” which ostensibly paid a chiropractor
for use of space in a parking lot, office supplies, telephone services, internet connections,
and employee services. MDI employed technicians to operate the MRI machines and
contracted with radiologists to review and interpret the MRI scans.
Dahl had been opposed to MDI’s business practices since 2003. Appleman had
approached Dahl in 2003 and offered to pay him $200 for every patient Dahl referred for
an MRI. Dahl rejected this offer as unethical. Dahl opened SUMA the next year and
when chiropractors continued to use MDI, Dahl concluded that they were receiving
“kickbacks” from MDI. Dahl posted a copy of a sample MDI lease agreement on his
website, and described it as illegal. In 2008, Dahl complained to the Minnesota Attorney
General’s Office about MDI, but the attorney general did not initiate charges. In 2010,
Dahl spoke to several chiropractors, seeking to discourage them from using MDI’s
services.
In 2011, Hooten entered into a one-year employment contract with MDI; the
contract included confidentiality and non-compete provisions. In November 2011,
Hooten resigned from the position, stating that she had accepted another job. Hooten did
not disclose that her new job was with SUMA. When Hooten left MDI, she took her
personnel file, including all the original documents, and copies of MDI’s lease
agreements, customer lists, contact lists, policies, and procedural manuals. Hooten also
may have taken copies of information and research about MDI’s competitors, including
SUMA.
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Hooten told Dahl that she wanted to leave MDI because she thought it was “an
unethical and possibly illegal operation.” Hooten provided Dahl with copies of the
materials she had taken from MDI’s files. Dahl believed that these documents confirmed
his suspicion that MDI was paying kickbacks for referrals, and he filed a series of
anonymous ethics complaints with the Minnesota Board of Chiropractic Examiners,
alleging that 11 chiropractors were acting unethically by contracting with MDI. At a
deposition taken in conjunction with a subsequent administrative disciplinary action,
Dahl admitted that Hooten had removed the confidential materials from MDI’s files and
provided them to him. Dahl also stated that he gave the confidential information to
Illinois Farmers Insurance Company, Allstate Mutual Automobile Insurance Company,
and the Stempel & Doty law firm, which represents insurance companies.
As a result of the information provided by Dahl, the chiropractic board entered
into corrective actions with four of the 11 chiropractors reported. The Stempel law firm,
on behalf of Illinois Farmers and other insurers, initiated an action in federal court against
MDI and 46 chiropractors, alleging that MDI paid the chiropractors kickbacks for
unnecessary MRIs. All of these claims were dismissed under Fed. R. Civ. P. 12(b)(6)
(failure to state a claim upon which relief can be granted) by the federal district court in
2014; the federal district court concluded that both the federal claims and various state
claims were without basis. Illinois Farmers Ins. Co. v. Mobile Diagnostic Imaging, Inc.,
No. 13-CV-2820 (D. Minn. Aug. 19, 2014).
In April 2014, MDI sued respondents, alleging misappropriation of trade secrets,
tortious interference with contract, unfair competition, unjust enrichment, conversion,
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civil theft, breach of contract and breach of duties as to Hooten, and civil conspiracy.
Respondents filed an answer and a counterclaim alleging violation of the Minnesota
Consumer Fraud Statute, corporate practice of medicine, and immunity from suit under
Minn. Stat. § 554.03. MDI moved for dismissal under Minn. R. Civ. P. 12.02(e) and
9.02. Respondents moved for dismissal under the anti-SLAPP statute and Minn. Stat.
§ 148.103, subd. 1.
Quoting Leiendecker v. Asian Women United of Minnesota, 848 N.W.2d 224, 231
(Minn. 2014), the district court stated that it was required to dismiss a claim under the
anti-SLAPP statute, “‘even in the face of genuine issues material fact, if the responding
party has failed to carry its burden of persuasion that the moving party is not immune by
clear and convincing evidence.’” The district court determined that respondents were
entitled to immunity under sections 554.03 and 148.103, subdivision 1, and dismissed
MDI’s claims to the extent that they implicated Dahl’s reports to the chiropractic board or
the federal litigation brought by the insurance companies. The district court dismissed
with prejudice the interference-with-contractual-relationships, unfair-competition, and
civil-conspiracy claims. The district court did not dismiss the claims for violation of the
Minnesota Trade Secret Act, unjust enrichment, conversion, civil theft, breach of
contract, and breach of duties to “the extent [MDI] can establish facts distinct from the
immune conduct and damages,” but dismissed any part of those claims that touched on
immune conduct. The district court dismissed respondent SUMA’s counterclaims,
reasoning that it had not demonstrated a public benefit and MDI was not engaged in the
corporate practice of medicine.
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MDI requested reconsideration, arguing that the district court had not addressed its
argument that the anti-SLAPP statute was unconstitutional, but the district court made no
apparent response. The parties then entered into a stipulation in which they agreed that
MDI’s complaint and the respondents’ counterclaims would be dismissed with prejudice
in order to facilitate an appeal. MDI filed a notice of appeal and of a constitutional
challenge on February 11, 2016, and respondents filed a notice of related appeal as to
their consumer-fraud counter claim on February 25, 2016.
ISSUES
I. Does Minn. Stat. § 554.02 violate the non-moving party’s constitutional
right to a jury trial by requiring the district court to find facts before trial to determine
whether the moving party is entitled to immunity?
II. Is a person reporting alleged misconduct under Minn. Stat. §§ 148.102,
subd. 2 (2014); .103, subd. 1, entitled to unlimited immunity?
III. Must a person pursuing a private attorney-general claim under Minn. Stat.
§ 325F.69 demonstrate a public benefit?
ANALYSIS
I.
MDI argues that the Minnesota anti-SLAPP statutory procedure deprives a
responding party of the constitutional right to a jury trial. The Minnesota Constitution
states, “The right of trial by jury shall remain inviolate, and shall extend to all cases at
law without regard to the amount in controversy.” Minn. Const. art. I, § 4; see U.S.
Const. amend. VII (“[T]he right of trial by jury shall be preserved, and no fact tried by a
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jury, shall be otherwise re-examined in any Court of the United States, than according to
the rules of the common law.”). “A party is . . . constitutionally entitled to a trial by jury
if a party raising that same theory for relief at the time the Minnesota Constitution was
adopted also would have been entitled to a jury trial.” Schmitz v. U.S. Steel Corp., 852
N.W.2d 669, 673 (Minn. 2014). “The jury-trial right does not protect the existence of any
particular common-law cause of action, but it does ensure that in a common-law suit tried
by a jury, a judge’s determination will not prevent the jury from resolving genuine issues
of material fact.” Nexus v. Swift, 785 N.W.2d 771, 780 (Minn. App. 2010) (citation
omitted), abrogated on other grounds by Leiendecker, 848 N.W.2d at 230-32.
The legislature enacted the anti-SLAPP statute “to protect citizens and
organizations from civil lawsuits for exercising their rights of public participation in
government.” Middle-Snake-Tamarac Rivers Watershed Dist. v. Stengrim, 784 N.W.2d
834, 839 (Minn. 2010) (quotation omitted). A party to a lawsuit may raise an affirmative
defense under the statute by asserting that a claim “materially relates to an act of the
moving party that involves public participation” and asking for immunity for acts that
constitute public participation. Id. (quotation omitted). Under the statute, the party
opposing the anti-SLAPP motion must produce clear and convincing evidence that the
lawsuit is not intended to affect public participation. Id.Previously, this court analyzed anti-SLAPP motions by applying the standards for
a judgment on the pleadings. See Marchant Inv. & Mgmt. Co. v. St. Anthony W.
Neighborhood Org., Inc., 694 N.W.2d 92, 95 (Minn. App. 2005) (applying a judgment-
on-the-pleadings standard), abrogated by Leiendecker, 848 N.W.2d at 230-232; see also
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Nexus, 785 N.W.2d at 781-82 (applying summary-judgment standard). See also
Leiendecker v. Asian Women United of Minnesota, 834 N.W.2d 741, 749-50 (Minn. App.
2013) (applying judgment-on-the-pleadings standard), reversed, 848 N.W.2d 224 (Minn.
2014). But in Leiendecker, the supreme court abrogated the Marchant and Nexus
decisions based on their use of these standards. 848 N.W.2d at 231-32. Instead, the
supreme court concluded that, under the unambiguous language of the statute, the party
opposing an anti-SLAPP motion has the burdens of proof, production, and persuasion,
and must produce evidence in order to defeat the motion. Id. at 231. Furthermore, a
court must dismiss an action if the opposing party fails to carry its burden of persuasion,
even if there are genuine issues of material fact outstanding. Id. This requires the district
court to weigh evidence and decide facts in order to determine whether a party has
provided clear, convincing, and persuasive evidence to oppose the anti-SLAPP motion.
Id. at 232-33.
The supreme court noted the issue of whether a party is deprived of a
constitutional right to a jury trial when a pre-trial determination that requires weighing of
evidence and factfinding must be made under the anti-SLAPP statute. Id. at 232. But the
court declined “to address the constitutionality of the anti-SLAPP statutes in light of
Article I, Section 4 of the Minnesota Constitution, and accordingly express[ed] no
opinion on the subject” because the appellants had not raised the issue below or in the
petition for review. Id. at 232. 1 Unlike the Leiendecker appellants, MDI squarely raised
1
Following the supreme court’s remand to the court of appeals, this court held that the
parties moving for anti-SLAPP immunity made a threshold showing that the claims
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the issue of whether it has been deprived of its constitutional right to a jury trial both
before the district court and in this appeal.
Even as Leiendecker abrogated Nexus as to the proper standard of review for an
anti-SLAPP case, the supreme court commented, “Despite misinterpreting the anti-
SLAPP statutes, Nexus identified a potential legal issue implicated by the unique
procedural framework of the anti-SLAPP statutes” . . . whether “requiring the district
court to make [pre-trial] findings . . . violated Article I, Section 4 of the Minnesota
Constitution.” Leiendecker, 848 N.W.2d at 231-32.
The Washington Supreme Court considered this issue in Davis v. Cox, 351 P.3d
862 (Wash. 2015). Washington’s anti-SLAPP statute is nearly identical to Minnesota’s
statute, and requires a court to decide “whether the party bringing the claim can prove by
clear and convincing evidence a probability of prevailing on the claim.” Id. at 864(quotation omitted). The Washington Supreme Court concluded that the statute
established “a preliminary procedure for factual adjudication of claims without a trial,
[without using] a summary judgment procedure.” Id. at 867. The court contrasted
asserted against them related to acts involving public participation. Leiendecker v. Asian
Women United of Minnesota, A12-1978, 2014 WL 7011061, at *3 (Minn. App. Dec. 15,
2014), review denied (Minn. Feb. 25, 2015). This court remanded the matter to the
district court to determine whether the moving parties met their burden of showing by
clear and convincing evidence that the opposing parties were not entitled to immunity
under the standard articulated by the supreme court. Id. at *1. On remand, the district
court held that Minn. Stat. § 554.02 (setting forth the anti-SLAPP procedure) is
unconstitutional. Leiendecker v. Asian Women United of Minnesota, No. 27-CV-12-
7021, 2015 WL 9704951 (Minn. Dist. Ct. Feb. 25, 2016). This decision is on appeal
before the supreme court. Leiendecker v. Asian Women United, No. A16-0360 (Minn.
May 31, 2016) (order granting accelerated review).
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Washington’s anti-SLAPP statute with that of California, and concluded that California
law directed a court to consider the “probability that a plaintiff will prevail on a claim”
rather than “requiring the plaintiff to establish by clear and convincing evidence a
probability of prevailing on the claim.” Id. at 869 (emphasis omitted). The court also
considered similar statutes in Louisiana and Washington D.C., and concluded that those
laws employed a summary-judgment standard. Id. at 870. But the Washington Supreme
Court determined that Minnesota’s statute, as interpreted by Leiendecker, most closely
resembled Washington’s law. Id. at 870-871. The Washington Supreme Court stated
that because “[s]uch a procedure invades the jury’s essential role of deciding debatable
questions of fact,” the Washington anti-SLAPP law violates the right of trial by jury and
is unconstitutional. Id. at 874. The Washington Supreme Court followed this reasoning
in Akrie v. Grant, 355 P.3d 1087, 1088 (Wash. 2015), reversing a lower court decision
granting an anti-SLAPP motion.
Given the strict statutory interpretation in Leiendecker, 848 N.W.2d at 231-32,
which this court is bound to follow, Minnesota’s anti-SLAPP statute cannot be applied in
a manner consistent with the constitutional right to a jury trial. Under the Leiendecker
standard, a court is required to ignore genuine issues of material fact and to step into the
jury’s role of deciding disputed facts and weighing evidence. We therefore conclude that
the statute is unconstitutional on its face. We reverse the district court’s order insofar as
it grants immunity based on the anti-SLAPP statute, and remand this matter to the district
court. On remand, the district court is directed to consider the effect of the parties’
stipulation of December 2, 2015, on further proceedings.
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II.
MDI also challenges the district court’s decision that Dahl is immune from
liability under Minn. Stat. § 148.103, subd. 1, for submitting information to the
chiropractic board and that Hooten is immune from liability for giving Dahl the
information he used to file complaints with the board. Statutory construction is a
question of law reviewed de novo by an appellate court. Lee v. Lee, 775 N.W.2d 631,
637 (Minn. 2009).
Minn. Stat. § 148.102, subd. 2, states that a licensed chiropractor “shall report to
the board personal knowledge of any conduct” that he “reasonably believes constitutes
grounds for disciplinary action under section 148.10.” Minn. Stat. § 148.10, subd. 1(a)
(2014), sets forth the grounds for revoking, suspending, limiting, restricting, qualifying,
or refusing to grant a license to practice chiropractic, and applies to licensed chiropractors
or persons seeking a license. Id. “Any person, health care facility, business, or
organization is immune from civil liability or criminal prosecution for submitting a report
to the board under section 148.102 or for otherwise reporting to the board violations or
alleged violations of section 148.10.” Minn. Stat. § 148.103, subd. 1 (2014). Reports
made to the board are private. Id. The district court described this immunity as “broad”
and “not limited.”
Accordingly, under the statute, Dahl would be immune from liability for making a
report to the board of conduct that he reasonably believed constitutes grounds for
disciplinary action. Likewise, Hooten would have the same immunity by virtue of Minn.
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Stat. § 148.103, subd. 1, for providing Dahl with the information he used in making a
report to the board. The statute does not limit immunity to reports made in good faith.
“If the meaning of a statute is unambiguous, [an appellate court] interpret[s] the
statute’s text according to its plain language.” Brua v. Minn. Joint Underwriting Ass’n,
778 N.W.2d 294, 300 (Minn. 2010). And, in general, we narrowly construe statutory
grants of immunity “in derogation of a common law right.” See J.E.B. v. Danks, 785
N.W.2d 741, 752 (Minn. 2010) (discussing immunity under Minn. Stat. § 626.556, subd.
4, for good faith reports of child abuse).
MDI alleged that the reports to the chiropractic board were made for anti-
competitive purposes rather than for disciplinary action. The grant of immunity under
section 148.103, subdivision 1, is not limited in any way: a person making a report to the
board, even with an ulterior purpose or in bad faith, enjoys immunity from civil and
criminal prosecution for the act of making the report.
The district court concluded that “[t]he taking of information unrelated to the
documentation of the alleged unethical conduct and Board Reports and actions unrelated
to the Board reports are not subject to the statutory immunity created by Minn. Stat.
§ 148.03.” While we agree with the district court that the act of making a report to the
board, regardless of purpose, is subject to immunity, we cannot agree that a person who
then discloses the same reports to other persons or entities enjoys immunity for that
conduct. Reports made to the board are private, a fact that confirms our conclusion that
the act of reporting, even for an unworthy purpose, is immune from liability. But if a
person compromises the private nature of the report by distributing it to others not
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associated with the board, he or she does not enjoy immunity from liability for those
actions.
We therefore affirm the district court’s decision that a person is immune from civil
liability or criminal prosecution for the act of making a report to the board regardless of
the person’s motivation, but reverse insofar as the district court determined that the
immunity extends to subsequent disclosures of the same reports to others, such as to the
insurance companies or their counsel.
III.
SUMA argues that the district court erred in dismissing its counterclaim under the
Consumer Fraud Act, Minn. Stat. §§ 325F.69, subd. 1; 8.31, subd. 3a. The district court
dismissed this claim under Minn. R. Civ. P. 12.02(e), for failure to state a claim upon
which relief can be granted.
Minn. Stat. § 325F.69, subd. 1, states that “[t]he act, use, or employment by any
person of any fraud, false pretense, false promise, misrepresentation, misleading
statement or deceptive practice, with the intent that others rely thereon in connection with
the sale of any merchandise, whether or not any person has in fact been misled, deceived,
or damaged thereby, is enjoinable as provided in section 325F.70.” Generally, the
attorney general or a county attorney enforces such claims by bringing a civil action.
Minn. Stat. § 325F.70, subd. 1 (2014). But Minn. Stat. § 8.31, subds. 1, 3a (2014),
permits “any person injured by a violation of [the consumer fraud act to] bring a civil
action and recover damages, together with costs and disbursements.” In order to use this
“private attorney general” statute, however, a claimant must demonstrate that the cause of
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action benefits the public. Ly v. Nystrom, 615 N.W.2d 302, 314 (Minn. 2000). An action
that is limited to harm caused to the person prosecuting the claim does not advance state
interests and has no public benefit. Id.Under Minn. R. Civ. P. 12.02(e), a court reviews a complaint de novo to determine
whether the facts alleged in the complaint, or, in this case, the counterclaim, set forth a
legally sufficient claim for relief. Hebert v. City of Fifty Lakes, 744 N.W.2d 226, 229
(Minn. 2008) The court must accept the facts alleged in the complaint as true and
construe all reasonable inferences in favor of the nonmoving party. Id.SUMA alleged in its consumer-fraud counterclaim that MDI’s fraudulent practices
induced chiropractors to select MDI, rather than SUMA, and that SUMA lost money
because of it. But SUMA does not allege that consumers of MRI services would be
harmed by MDI’s actions.
Relying on Kinetic Co. v. Medtronic, Inc., 672 F. Supp. 2d 933 (D. Minn. 2009),
SUMA argues that pleading of a public benefit requirement is not “onerous,” and that its
reference to chiropractors receiving illegal kickback payments was sufficient to show a
public benefit. Kinetic involved a claim by a self-insured employer who paid for the
implantation of a Medtronic cardiac defibrillator in one of its employees. Id. at 939. The
Medtronic device failed and a new device had to be implanted; although Medtronic did
not charge for the new defibrillator, it did not cover the employee’s surgical costs, which
were paid by the employer. Id. at 938-39. Kinetic sued on its behalf and on behalf of
others, alleging that Medtronic had continued to offer the defective defibrillators after
learning of the defect, with 87,000 implants occurring after that time. Id. at 946. This
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concealment imposed a burden on third-party payers like Kinetic, who attempt to predict
their costs, but were unable to do so because of Medtronic’s fraudulent concealment. Id.The court concluded that Kinetic’s “effort to place this cost where . . . it ought to be
borne may well provide a public benefit.” Id.SUMA argues that “numerous chiropractors were deceived into violating federal
and state anti-kickback laws by virtue of [MDI’s] wrongful conduct.” But this is not
analogous to Kinetic; other chiropractors, like Dahl, should be able to recognize an illegal
offer. Nor does SUMA allege that the ultimate consumer, the patients who had MRIs at
MDI, suffered harm because of the scheme. The sole damage alleged is that SUMA lost
business to a competitor. This is not a public benefit and is not sufficient to state a claim
upon which relief can be granted under the consumer fraud statute.
SUMA argues that the district court erred by determining that it was not a
consumer under the consumer-fraud statute because it was a sophisticated competitor to
MDI. Citing Group Health Plan, Inc. v. Philip Morris, Inc., 621 N.W.2d 2 (Minn. 2001),
SUMA asserts that other decisions of the Minnesota Supreme Court make clear that
standing under the act is not limited to purchasers or consumers. But the district court
“decline[d] to read a standing requirement precluding claims by competitive businesses,
where no limitation is imposed by statute.” Instead, the district court stated that it “will
look to SUMA’s claims and the relief sought to determine whether it has properly
asserted a public interest to pursue the MCFA claims under the private AG statute.” The
district court concluded that SUMA is a “sophisticated competitor,” but the consumer of
MDI’s services were patients and that SUMA’s counterclaim failed to provide a public
15
benefit to those consumers. The district court did not err by dismissing SUMA’s
counterclaim.
DECISION
The procedural provisions of Minn. Stat. § 554.02 deprive the non-moving party
of the right to a jury trial by requiring a court to make pretrial factual findings to
determine whether the moving party is immune from liability. The statute, therefore, is
unconstitutional. Minn. Stat. §§ 148.102, subd. 2, .103, subd. 1, extends immunity to a
person reporting misconduct of licensed chiropractors or those seeking a license to the
board of chiropractic, but a person is not immune from civil or criminal liability for
disclosing the same information to others. Finally, a party making a private attorney-
general claim under Minn. Stat. §§ 325F.69; 8.31, subds. 1, 3a, must demonstrate a public
benefit in order to sustain a cause of action.
Affirmed in part, reversed in part, and remanded.
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