Fairview Health Services v. Armed Forces Office of the Royal Embassy of Saudi…

Background

Fairview Health Services, doing business as University of Minnesota Medical Center, treated two Saudi children in 2017. The Armed Forces Office of the Royal Embassy of Saudi Arabia was responsible for arranging and paying for the care. Fairview and the Armed Forces Office worked through intermediaries, including Minnesota International Medicine (MIM) and Medical Cost Advocate, Inc. (MCA).

MCA negotiated sixteen Preferred Rate Agreements covering fourteen invoices. The agreements identified Fairview as the party agreeing to accept payment. The Armed Forces Office nevertheless mailed sixteen checks totaling more than $1.3 million to Fairview, with MIM listed as the payee. Fairview forwarded the checks to MIM, and the funds were later transferred out of MIM’s account.

The Armed Forces Office asserted two counterclaims against Fairview: breach of contract and breach of the implied covenant of good faith and fair dealing. It also asserted claims against third parties, including unjust enrichment and conversion claims against Sherif Saad, and breach-of-contract, breach-of-fiduciary-duty, and contribution claims against MCA. Fairview separately moved to strike an affirmative defense asserting comparative fault.

Legal standard

The court applied Rule 12(b)(6), which allows dismissal when a pleading does not state a legally sufficient claim. At this stage, the court accepts well-pleaded factual allegations as true and draws reasonable inferences for the party asserting the claim, but it does not accept legal conclusions without supporting facts.

Claims against Fairview

The court granted Fairview’s motion to dismiss Claims 1 and 2 and ordered that both claims be dismissed with prejudice.

For the breach-of-contract claim, the Armed Forces Office alleged that Fairview breached the Preferred Rate Agreements by failing to report that the checks named MIM as payee, failing to prevent delivery of the checks to MIM, and failing to treat the debt as paid after the checks were forwarded. The court determined that the agreements did not plausibly impose those duties. The sentence advising the parties to contact an MCA representative with questions did not create the alleged reporting duty. The later delivery instructions were not part of the agreements and were not followed by the Armed Forces Office. The agreement to accept a flat rate did not require Fairview to accept checks payable to MIM or another entity.

The court also dismissed the claim alleging breach of the implied covenant of good faith and fair dealing. Under Minnesota law, that covenant prevents a party from unjustifiably hindering the other party’s performance and generally requires facts showing bad faith. The court found that the Armed Forces Office did not plausibly allege that Fairview acted with a bad-faith motive when it forwarded checks made payable to MIM.

Claims against Saad

The court denied Saad’s motion to dismiss. The Armed Forces Office’s unjust-enrichment and conversion claims against Saad therefore remain pending.

For unjust enrichment, the court found plausible allegations that Saad knew about the transactions, held leadership roles at MIM and GMS, knew the checks were not intended for those entities, communicated with the Armed Forces Office about the payment, and told the Armed Forces Office that the hospital had received the checks. These allegations were sufficient at the pleading stage to support the claim that Saad knowingly received something of value to which he was not entitled.

The court also found the conversion claim adequately pleaded. Conversion is the wrongful interference with another person’s property. The court concluded that the Armed Forces Office plausibly alleged Saad’s personal involvement in receiving or helping retain the funds. It rejected Saad’s argument that checks could not support conversion because they were intangible, explaining that physical checks are items that can be seen and touched and can represent intangible rights in a document.

Claims against MCA

The court granted MCA’s motion in part and denied it in part. Claim 7, the breach-of-fiduciary-duty claim, was dismissed with prejudice. The motion was denied in all other respects, so the breach-of-contract and contribution claims survived.

The contract claim alleges that MCA negotiated a higher payment for one invoice even though it was engaged to obtain lower prices. The Armed Forces Office alleged that the invoice was originally $216,971.50 but that it paid $258,154.76 after MCA’s negotiation. The court found the claim plausible. It declined to hold at the pleading stage that the agreement’s release and indemnity provisions barred the claim, noting that such provisions are disfavored under Minnesota law and that their enforceability usually depends on factual questions. The court also found it plausible that obtaining a higher rate fell outside the services MCA agreed to perform.

The contribution claim also survived because contribution may apply when two parties share liability for the same injury, and the Armed Forces Office’s contract claim against MCA remained pending. The court noted that the contribution claim had been dismissed in the earlier round of this case because no other claim against MCA had survived.

The fiduciary-duty claim was dismissed because, although the Armed Forces Office plausibly alleged that MCA acted as its agent and owed it fiduciary duties, the alleged damages were not plausibly connected to the asserted breaches. For example, the alleged loss of $1.3 million occurred before MCA shared confidential emails, and the Armed Forces Office did not plausibly connect that disclosure to the fees it paid MCA to search for the checks. The court also found it implausible that the Armed Forces Office suffered damages from allegedly confusing payment instructions when it did not follow those instructions.

Affirmative defense

The court granted Fairview’s motion to strike Affirmative Defense G. That defense stated that Fairview’s claims were barred in whole or in part by its own comparative fault.

The court explained that Minnesota’s comparative-fault statute generally does not apply to contract claims. It rejected the Armed Forces Office’s argument that the alleged losses were consequential damages for which comparative fault might apply. The court concluded that the lost checks, stolen funds, and costs of searching for the checks were not damages the parties could reasonably have contemplated when they made the contracts. The defense was therefore insufficient as a matter of law and was stricken.

Order

The opinion notes that no party moved to dismiss the breach-of-implied-contract claim against MIM and GMS.