In Re: Sears Holdings Corporation

Background

Brian Coke Ng, proceeding without a lawyer, appealed an April 9, 2020 order by the Bankruptcy Court for the Southern District of New York. That order dismissed his complaint against PDX, Inc. and National Health Information Network, Inc. Ng had also named Kmart in his complaint, but the district-court appeal concerned only the order dismissing his claims against PDX and National Health Information Network.

Ng alleged that pharmacy software used in connection with Kmart pharmacies produced inaccurate or altered drug-information sheets and medical records. He alleged that the information caused emotional and physical symptoms and prevented him from submitting workers’ compensation claims. His complaint asserted three claims: intentional infliction of emotional distress, product liability, and negligence.

The appellees first moved to dismiss for lack of personal jurisdiction. The Bankruptcy Court denied that motion without prejudice. After the appellees failed to file a responsive pleading, the Clerk entered default against them. The Bankruptcy Court later allowed the appellees to file a second motion to dismiss for failure to state a claim, relieved them from the entry of default, and dismissed the complaint. The Bankruptcy Court later denied two requests by Ng to reconsider its rulings.

Issues on appeal

Ng argued that the Bankruptcy Court erred by:

Default

The district court reviewed the decision to set aside the entry of default for abuse of discretion. Under the applicable rule, a court may set aside an entry of default for good cause, considering whether the default was willful, whether setting it aside would prejudice the other side, and whether the defaulting party presented a potentially valid defense.

The district court concluded that the Bankruptcy Court correctly applied that standard. The Bankruptcy Court found that the appellees had presented a potentially valid defense through their motion to dismiss and that Ng was not prejudiced because he was able to address the motion’s merits and had not sought a default judgment. The district court also upheld the Bankruptcy Court’s decisions to allow a second motion to dismiss and to hold the April 9 hearing rather than postpone it.

Failure to state a claim

The district court reviewed the dismissal for failure to state a claim without deference to the Bankruptcy Court’s legal conclusions. It accepted the complaint’s factual allegations as true, drew reasonable inferences for Ng, and read his pro se complaint liberally. The court nevertheless held that a complaint must allege enough facts to make a claim plausible, rather than relying on labels or conclusions.

Intentional infliction of emotional distress. Under New York law, this claim requires extreme and outrageous conduct, the required intent or disregard of a substantial probability of causing severe emotional distress, a causal connection, and severe emotional distress. The court held that the alleged inaccurate drug warnings and medical records did not amount to conduct beyond all possible bounds of decency. It therefore concluded that this claim was properly dismissed.

Product liability. Ng alleged that the appellees’ product had a design defect. The court explained that a design-defect claim requires allegations that the product posed a substantial likelihood of harm, that a safer design was feasible, and that the defective design substantially caused the injury. The court found that Ng alleged a design defect only conclusorily. He did not identify a particular design problem or explain specifically how the product should have been designed differently. The court therefore concluded that the product-liability claim was properly dismissed.

Negligence. A negligence claim requires a legal duty, breach, proximate causation, and damages. Ng alleged that the appellees had duties under the Health Insurance Portability and Accountability Act, a federal health-information privacy law, to safeguard his protected health information. The court explained that this law protects against the unwarranted disclosure of health records and information. It held that the injuries Ng alleged—seeing inaccurate warnings and inaccurate copies of his own medical records, experiencing physical and emotional symptoms, and deciding not to submit workers’ compensation claims—were not the types of harms typically associated with the law’s protected risks. The court therefore concluded that the negligence claim was properly dismissed.

Alleged attorney conflict

Ng argued that the appellees’ lawyer had a conflict because she helped him connect to the court hearing and later stated that her firm was no longer providing him legal help. The district court explained that an attorney-client relationship depends on the client’s reasonable belief that the lawyer was being consulted for legal advice and the client’s intent to seek that advice.

The court concluded that Ng’s allegations described technical help and guidance, not legal representation. It also noted that Ng did not claim he believed the lawyer represented him and instead stated that he had not given her permission to provide legal help. The court therefore denied Ng’s request for relief based on the alleged conflict. The court expressly took no position on whether a genuine conflict would be a valid basis for relief.

Disposition

The district court affirmed the Bankruptcy Court’s order insofar as it granted the appellees relief from the Clerk’s entry of default and dismissed the complaint for failure to state a claim. It denied Ng’s request for relief based on the alleged attorney conflict. The Clerk was directed to close the case and mail a copy of the opinion and order to Ng.