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

Background

Fairview Health Services, doing business as the University of Minnesota Medical Center, treated two children from June 2018 through December 2019. The children’s father was a current or former member of the Saudi Arabia armed forces. Fairview alleged that the treatment generated more than $1,301,272.85 in negotiated charges.

Fairview alleged that Medical Cost Advocate, Inc., acting as the Armed Forces Office’s agent, negotiated several “Preferred Rate Agreements” with Fairview in 2019. The agreements identified discounted amounts to be paid and stated that Medical Cost Advocate was acting on behalf of the Armed Forces Office. Fairview instructed Medical Cost Advocate that checks should be sent to Fairview’s address and made payable to Fairview, but the checks were instead made payable to “Minnesota Medicine.” Fairview alleged that it received no payment for the services.

Fairview sued for breach of contract, quantum meruit—a claim seeking reasonable payment for benefits provided—and breach of the implied covenant of good faith and fair dealing.

Arguments for dismissal

The Armed Forces Office moved to dismiss under three rules and theories. First, it argued under Rule 12(b)(1) that the Foreign Sovereign Immunities Act (FSIA) deprived the court of subject-matter jurisdiction. Second, it argued under Rule 12(b)(6) that Fairview had not plausibly alleged contractual or equitable claims. Third, it argued under Rule 12(b)(7) and Federal Rule of Civil Procedure 19 that Medical Cost Advocate and Minnesota International Medicine were required parties.

Foreign-sovereign immunity

The court held that the FSIA’s commercial-activity exception could apply. The FSIA generally protects foreign states from suit in United States courts, but the protection does not extend to a lawsuit based on commercial activity carried on in the United States. The court focused on the nature of the conduct, rather than the government’s purpose. It concluded that negotiating contracts and paying medical bills are activities in which private parties also engage, even if the payments were connected to a government healthcare program.

The court also rejected the argument that the Armed Forces Office’s use of intermediaries prevented the exception from applying. The Preferred Rate Agreements identified Medical Cost Advocate as the Armed Forces Office’s agent, and the Armed Forces Office did not dispute that agency relationship. At the motion-to-dismiss stage, Fairview plausibly alleged that its agreements with Medical Cost Advocate were contracts with the Armed Forces Office.

Fairview’s claims

The court concluded that Fairview plausibly alleged a breach-of-contract claim. The agreements identified the parties, the payment recipient, and the amount due, and both sides signed them. The agreements stated that the amount was due to the facility, which was generally defined as Fairview. The checks submitted with the motion were payable to Minnesota Medicine rather than Fairview. The court also found that the meaning of the agreements’ promise that Fairview would not sue “with regards to this bill” could not be resolved on a motion to dismiss because Fairview offered a reasonable interpretation that the promise applied to the original billed amount, not the negotiated amount.

The court allowed Fairview to pursue quantum meruit in the alternative to its contract claim. Fairview plausibly alleged that it provided services and had not received reasonable compensation. The court also allowed the implied-covenant claim to proceed because the Armed Forces Office’s argument for dismissing that claim depended on dismissal of the contract claim, which the court declined to do.

Required parties

The court rejected the Rule 19 argument. Medical Cost Advocate signed the agreements only as the disclosed agent of the Armed Forces Office and therefore was not a party to the contracts. Its absence did not prevent the court from providing complete relief between Fairview and the Armed Forces Office.

The court described whether Minnesota International Medicine was required as a closer question but concluded that it was not. Minnesota International Medicine was not a signatory to the agreements, and the possibility that the Armed Forces Office might later seek recovery from it did not require its presence in this lawsuit. The court also noted that the Armed Forces Office did not seek an order adding either organization and had not shown why either one could not be joined.

Disposition

The court denied the Armed Forces Office’s Motion to Dismiss [ECF No. 24].