[¶ 1.] Sherry Nygaard, Robert Dosch, and Brett and Debra Burgher (Patients) commenced these class actions against Sioux Valley Hospitals and Health System, Avera Health, and Rapid City Regional Hospital, Inc. (Hospitals).
The Parties and Issues
Nygaard v. Sioux Valley
[¶ 2.] Because the cases were dismissed for failure to state a claim, we restate the facts pleaded in the complaints. Sioux Valley is a non-profit corporation with its principle place of business in Sioux Falls, South Dakota. Sioux Valley described itself "as an integrated network of nearly 300 physicians and more than 150 healthcare facilities." Nygaard alleged that Sioux Valley held itself out: as striving "to provide the highest value of health care services through a combination of high quality and cost effective care"; as being "dedicated to providing quality care for patients of all ages, regardless of race, creed, their circumstances, or their ability to pay for such services"; as providing "care for the elderly and poor through the Medicare and Medicaid programs at agreed upon rates, which are substantially lower than the normally charged rates"; and as providing "charity care to patients who have demonstrated an inability to pay for medical services." Nygaard also alleged that Sioux Valley received state and federal tax exemptions, and as a nonprofit charitable organization, was required to provide services regardless of ability to pay.
[¶ 3.] In May 2003, Nygaard underwent surgery at Sioux Valley's Vermillion Campus Hospital. She also received other related treatment at Sioux Valley's facilities. Upon admission, Nygaard alleged that she was required to sign a standardized contract agreeing to pay, in full, unspecified and undiscounted charges for medical care. She also alleged that the
Dosch v. Avera
[¶ 4.] Avera is also a non-profit corporation with its principal place of business in Sioux Falls. Avera held itself out as a health ministry of the Benedictine and Presentation Sisters "serving the people of eastern South Dakota and surrounding states with hospitals, nursing homes, clinics and other health services at more than 100 locations." Avera's "Health Mission" stated that it "provide[s] a quality, cost effective health ministry, which reflects Gospel values." Dosch alleged that Avera publicly stated that it was "guided by gospel values of . . . hospitality and stewardship" and "compassion . . . especially for the poor. . . ." Dosch also alleged that Avera received state and federal tax exemptions, and as a nonprofit charitable organization, was required to provide services regardless of ability to pay.
[¶ 5.] In May 1993, Dosch was treated for a broken hip at Avera St. Luke's in Aberdeen, South Dakota. Upon admission, Dosch alleges that he was required to sign an agreement to pay the unspecified, undiscounted, pre-set charges described by Nygaard. Dosch was billed in excess of $30,000. He set up a payment plan, paying $200 per month, but the payments were offset by interest and fees.
Burghers v. Rapid City Regional Hospital
[¶ 6.] Rapid City Regional Hospital (RCRH) is a non-profit charitable organization with its principle place of business in Rapid City, South Dakota. Burghers alleged that RCRH publicly represented itself: as "striving to continually exceed the expectations of every patient and customer in regard to service, effort and professional standards, demonstrating honest, positive and ethical behavior and communication in dealing with our patients, customers and employees"; as "providing quality services at the lowest possible cost"; and as "provid[ing] quality medical health care regardless of race, creed, sex, national origin, handicap, age, or ability to pay[.]" Burghers also alleged that RCRH received state and federal tax exemptions, and as a nonprofit charitable organization, was required to provide services regardless of ability to pay.
[¶ 7.] Brett and Debra Burgher, and their son, Nathan, all received medical care at RCRH. Before receiving treatment, they were also required to sign an agreement to pay the unspecified, undiscounted, pre-set charges described by Nygaard.
[¶ 8.] The following issues have been preserved
Standard of Review
[¶ 9.] "A motion to dismiss under SDCL 15-6-12(b) tests the legal sufficiency of the pleading, not the facts which support it. For purposes of the pleading, the court must treat as true all facts properly pled in the complaint and resolve all doubts in favor of the pleader." Guthmiller v. Deloitte & Touche, LLP, 2005 SD 77, ¶ 4, 699 N.W.2d 493, 496. "[T]hese `motions are viewed with disfavor and seldom prevail.'" Elkjer v. City of Rapid City, 2005 SD 45, ¶ 6, 695 N.W.2d 235, 238 (quoting Fenske Media Corp. v. Banta Corp., 2004 SD 23, ¶ 7, 676 N.W.2d 390, 392-393 (citations omitted)). However, "facts `well pled' and not mere conclusions may be accepted as true." Janklow v. Viking Press, 378 N.W.2d 875, 877 (S.D. 1985). A 12(b)(5) motion "does not admit conclusions of the pleader either of fact or law." Akron Savings Bank v. Charlson, 83 S.D. 251, 253, 158 N.W.2d 523, 524 (1968). Therefore, "[w]hile the court must accept allegations of fact as true when considering a motion to dismiss, the court is free to ignore legal conclusions, unsupported conclusions, unwarranted inferences and sweeping legal conclusions cast in the form of factual allegations." Wiles v. Capitol Indemnity Corp., 280 F.3d 868, 870 (8th Cir.2002). We review the circuit court's ruling de novo, with no deference to its determination. Elkjer, 2005 SD 45 at ¶ 6, 695 N.W.2d at 238.
1) Contract Theories
[¶ 10.] The circuit court that dismissed Nygaard's and Dosch's breach of contract theories viewed the essence of their claims as contentions that the Hospitals breached the contracts by not charging Patients the reduced rate that insured and Medicare/Medicaid patients received. The circuit court's view was based on the complaints' numerous references to being charged the "full, undiscounted cost" rather than the discounted rates Hospitals charged insured and Medicare/Medicaid patients. Therefore, when dismissing, the circuit court explained that recognizing such a claim would put the court in the role of a policy maker and "usurp the traditional role of the Legislature" in regulating hospitals. The circuit court in Burghers' case reached essentially the same conclusion.
[¶ 11.] Patients, however, emphatically contend that none of their theories seek entitlement to the discounted rates charged to insured and Medicare/Medicaid patients. They contend that their references to discounted rates were merely pleaded as an illustration that the Hospitals' charges were unreasonable. Thus, on appeal, Patients "clarify" that they are not claiming entitlement to the discounted prices charged to others. Instead, they first contend that the Hospitals breached the contracts by charging more than an implied, commercially reasonable rate.
(a) Implied Price Term
[¶ 12.] Because there were no price terms itemized in the agreements, Patients pleaded that "[i]mputed in these contracts is the express and/or implied contractual obligation by [Hospitals] that [they] would charge Plaintiff[s] and the Class no more than the fair and reasonable charge for such medical care." However, we conclude that this theory fails to state a claim because the price terms were controlled by language in the contracts. The complaints all allege that the Hospitals required the Patients to sign contracts agreeing "to pay, in full, unspecified and undiscounted charges for medical care, which charges [were] pre-set by [the Hospitals]. . . ." (Emphasis added.) Because, as we explain below, pre-set price charges were pleaded, the price terms were fixed and determinable, and because the contracts spoke to the issue of price, the law does not permit imputation of different, implied price terms for what patients later claimed were the reasonable values of the services provided.
[¶ 13.] "[I]n order to ascertain the terms and conditions of a contract, we examine the contract as a whole and give words their `plain and ordinary meaning.'" Canyon Lake Park, L.L.C., v. Loftus Dental, P.C., 2005 SD 82, ¶ 17, 700 N.W.2d 729, 734 (quoting Gloe v. Union Ins. Co., 2005 SD 30, ¶ 29, 694 N.W.2d 252, 260). Although the price of each hospital service was not listed in the contract itself, "[w]ords [that] fix an ascertainable fact or event, by which the term of a contract  can be determined, make the contract definite and certain in that particular." Kuhfeld v. Kuhfeld, 292 N.W.2d 312, 315 (S.D. 1980). See also Restatement (Second) of Contracts 33(2) (1981) (stating: "The terms of a contract are reasonably certain if they provide a basis for determining the existence of a breach and for giving an appropriate remedy.").
[¶ 14.] Here, the word "pre-set" is the operative language of the contracts regarding price. The prefix "pre-" is defined as "[e]arlier; before; prior to." The American Heritage College Dictionary, 1075 (3d 1997). "Set" is defined as "[t]o fix at a given amount." Id. at 1247. Therefore, under the ordinary meaning of the language "pre-set charges," the contract prices were fixed at a given amount prior to the execution of the contracts. And obviously, prices that are previously fixed at a given amount are determinable.
[¶ 15.] Therefore, according to the pleadings, the price terms were fixed and determinable from the language of the contracts. For that reason, the contracts were not silent or open concerning price and we cannot impute commercially reasonable
[¶ 16.] We acknowledge that the pleadings do not reference the disclosure statutes or "chargemaster" lists
[¶ 17.] That is precisely what occurred in this case. Patients pleaded that the price terms were pre-set. Therefore, the prices were fixed and determinable, and the pre-set price terms precluded imputation of different, implied terms.
(b) Covenant of Good Faith and Fair Dealing
[¶ 18.] Patients argue that the Hospitals breached the covenant of good faith and fair dealing by charging prices that did not relate to the cost of the services and were unreasonable and unexpected based on the Hospitals' representations. The circuit courts dismissed this theory reasoning that the breach of the duty of good faith and fair dealing did not give rise to a separate cause of action.
[¶ 19.] In Farm Credit Servs. of Am. v. Dougan, 2005 SD 94, 704 N.W.2d 24, we considered when a cause of action arises for breach of the implied covenant of good faith and fair dealing. We held that "South Dakota does not recognize an independent [tort] for breach of the implied covenant of good faith and fair dealing." Id. at ¶ 6, 704 N.W.2d at 27 (citing Garrett v. BankWest, Inc., 459 N.W.2d 833, 842 (S.D.1990); McKie v. Huntley, 2000 SD 160, ¶ 10, 620 N.W.2d 599, 602). Consequently, to the extent Patients' complaints sought recovery for the independent tort of breach of the covenant of good faith and fair dealing, we affirm the circuit courts' dismissals.
[¶ 20.] However, we must also consider the claim of breach of the implied covenant of good faith and fair dealing to the extent that it was a part of the parties' agreements. This Court has previously recognized that "`[e]very contract contains an implied covenant of good faith and fair dealing [that] prohibits either contracting party from preventing or injuring the other party's right to receive the agreed benefits of the contract.'" Id. at ¶ 8, 704 N.W.2d at 28 (quoting Garrett, 459 N.W.2d at 841). The concept of good faith and fair dealing is also recognized in the analogous provision of SDCL 57A-1-203 (UCC § 1-203): "Every contract or duty within this
[¶ 21.] This duty of good faith permits an aggrieved party to bring a breach of contract action when the other party:
Garrett, 459 N.W.2d at 841 (citations omitted). The meaning of the covenant varies with the context of the contract. Ultimately, the duty "emphasizes faithfulness to an agreed common purpose and consistency with the justified expectations of the other party." Id. (citing Restatement (Second) of Contracts § 205, cmt a (1981)).
[¶ 22.] However, the duty of good faith and fair dealing "is not a limitless duty or obligation." Id. "The implied obligation `must arise from the language used or it must be indispensable to effectuate the intention of the parties.'" Id. (quoting Sessions, Inc. v. Morton, 491 F.2d 854, 857 (9th Cir.1974)). We also recognized a limitation when the language of a contract addresses the issue.
Farm Credit Services, 2005 SD 94 at ¶ 9, 704 N.W.2d at 28 (citations omitted). Therefore, we explained that "[i]f the express language of a contract addresses an issue, then there is no need to construe intent or supply implied terms" under the implied covenant. Id. at ¶ 10 (citations omitted).
[¶ 23.] In the instant cases the express language of the contracts addressed the price issue. As previously explained, although the price of every hospital service was not itemized in the contracts, the pleadings allege that the charges were pre-set. And because these pre-set charges were fixed and determinable, these contracts addressed the issue of price and there is no basis to supply different price terms. A different implied price term would impermissibly stand at odds with and modify the pre-set price term. Id. at ¶ 9. Because we further observe that there is no allegation that Hospitals limited Patients' access to, or charged something other than, the pre-set charges referred to in the pleadings, Patients' breach of the contractual covenant of good faith and fair dealing theory failed to state a claim.
(c) Enforcement of an Adhesion Contract
[¶ 24.] Patients pleaded that the Hospitals did not provide an opportunity for negotiating the agreements and that there was greatly disparate and wholly unequal bargaining power. They further pleaded that such standardized contracts are contracts of adhesion that are unconscionable and contrary to public policy. See generally Citibank (S.D.), N.A. v. Hauff, 2003 SD 99, ¶ 20, 668 N.W.2d 528, 534-535 (describing construction of a contract of adhesion); Mobile Electronic Service, Inc., v. FirsTel, Inc., 2002 SD 87, ¶¶ 7-9, 649 N.W.2d 603, 605-606 (finding a contract unconscionable and unenforceable).
[¶ 25.] In determining whether a contract is an unenforceable contract of adhesion, this Court looks not only at the bargaining power between the parties but also at the specific terms of the agreement. Scotland Vet Supply v. ABA Recovery Service, Inc., 1998 SD 103, ¶ 13, 583 N.W.2d 834,
[¶ 26.] Patients' complaints pleaded both procedural and substantive unconscionability. They allege that they were forced to sign the standardized agreements before they could receive medical care and that there was unequal bargaining power. Their complaints also allege that the contracts required them to pay pre-set charges that were determined at the sole discretion of the Hospitals.
[¶ 27.] Patients sought two types of relief. They alleged that the Hospitals' use of an adhesion contract caused them economic injury and damages. They also alleged that the contracts were unenforceable.
[¶ 28.] To the extent that Patients claimed entitlement to economic damages simply because they entered into a contract of adhesion, the complaints failed to state a claim upon which relief can be granted. Counsel acknowledged at oral argument that the nature of an adhesion claim does not give rise to an independent cause of action for damages.
[¶ 29.] But even aside from this acknowledgement, and assuming that the contract was an unconscionable contract of adhesion, Patients have no right to recover damages simply because they entered into an unconscionable contract. As the Eleventh Circuit Court of Appeals noted:
Cowin Equip. Co., Inc., v. General Motors Corp., 734 F.2d 1581, 1582 (11th Cir.1984) (emphasis in original) (quoting Bennett v. Behring Corp., 466 F.Supp. 689, 700 (S.D.Fla.1979)). Other "cases [that] have addressed the issue have consistently rejected the theory that damages may be collected for an unconscionable contract provision, citing the language of [UCC] § 2-302 and its common law precursor. . . ." Id. "The doctrine of unconscionability is to be used as a shield, not a sword, and may not be used as a basis for affirmative recovery." Super Glue Corp., v. Avis Rent A Car Sys., Inc., 132 A.D.2d 604, 606, 517 N.Y.S.2d 764 (N.Y.App.Div.1987). "Under both the UCC and common law, a court is empowered to do no more than refuse enforcement of the unconscionable contract or clause." Id. (citations omitted). This Court has also noted that the doctrine is a defensive mechanism that enables parties to escape their obligations under contracts contravening public policy. Bartron v. Codington County, 68 S.D. 309, 323, 2 N.W.2d 337, 344 (1942) (quoting Baltimore and Ohio Southwestern Railway
[¶ 30.] Patients have not, however, directed us to any case permitting an affirmative claim for damages simply because someone may have entered into a one-sided agreement. Therefore, we affirm the circuit courts' dismissal of Patients' affirmative adhesion contract claims that are being used as a sword to recover damages only because Patients entered into the contracts. We also affirm the dismissal of any defensive claims because in these cases there are no pleadings indicating that Hospitals are suing for enforcement of the contracts.
2) Trade Practices Act
[¶ 31.] The circuit courts dismissed this theory, noting that the complaints did not identify the specific section of the Act that was violated and the complaints did not sufficiently plead fraud. Both courts also concluded that the claims under the Act were simply premised on differential pricing.
[¶ 32.] Patients' complaints pleaded three types of alleged violations of the Trade Practices Act: (1) that the Hospitals falsely held themselves out to the public as providing cost-effective health care regardless of ability to pay;
[¶ 33.] Patients correctly point out that SDCL 37-24-6(1) makes these violations actionable "regardless of whether any person has in fact been mislead, deceived, or damaged thereby. . . ." However, that statute is the criminal proscription. Patients' civil actions are governed
Provision of Care Regardless of Ability to Pay
[¶ 34.] Patients first alleged that Hospitals misrepresented their willingness to provide care regardless of ability to pay. Therefore, under the causation element of their civil remedy, Patients' complaint must have left sufficient room to prove the fact that they were denied health care because of their inability to pay. However, this causal proof is not possible under the pleadings. The complaints affirmatively allege that Patients actually received medical care despite their inability to pay. Therefore, according to the pleadings, the Hospitals' representations regarding the provision of care were not misrepresentations, and this type of allegation fails to state a claim under the Act.
[¶ 35.] Patients' second claim alleges a failure to charge discounted pricing similar to that provided for insured and Medicare/Medicaid patients. Patients pleaded:
[¶ 36.] This claim fails to state a claim for two reasons. First, this pleading does not allege prohibited conduct under Act; i.e., deceptive practices, fraud, false pretenses, false promises or misrepresentations to conceal, suppress, or omit
[¶ 37.] Second, even if we were to assume that this pleading could state a deceptive pricing claim under the Act, it is
Patients' Beliefs Concerning Post-Care Charges
[¶ 38.] Patients finally allege that they "believed that Defendant[s] would make good faith efforts to determine a person's ability to pay following evaluation or treatment and would not bill or charge those . . . who were unable to pay. Thus [they] believed that free care or reduced cost care would be provided . . . based upon [their] ability to pay. . . ." (Emphasis added.) However, these conclusory statements of belief are not sufficient to survive a motion to dismiss.
[¶ 39.] To survive a motion to dismiss, a plaintiff "must allege causation with sufficient particularity such that we can determine whether the factual basis for its claim, if proven, could support an inference of proximate cause." First Nationwide Bank v. Gelt Funding Corp., 27 F.3d 763, 770 (2dCir.1994). "`[C]onclusory allegations or legal conclusions masquerading as factual conclusions will not suffice to prevent a motion to dismiss.'" 2 James Moore, Moore's Federal Practice, § 12.34(1)(b) (3rd ed 2006) (quoting Campbell v. San Antonio 43 F.3d 973, 975 (5th Cir.1995)). "While facts must be accepted as alleged, this does not automatically extend to bald assertions, subjective characterizations, or legal conclusions. The plaintiff need not include evidentiary detail, but must allege a factual predicate concrete enough to warrant further proceedings." Id. (quoting DM Research v. College of American Pathologists, 170 F.3d 53, 55-56 (1st Cir.1999) (citations omitted)).
[¶ 40.] In this case, Patients have only pleaded subjective characterizations of belief and legal conclusions of proximate cause that are untethered to any factual predicate that could constitute causation. In fact, Patients' subjective beliefs are totally at odds with their pleadings. Patients did not plead that the Hospitals made any representations involving post-care determinations of ability to pay. Furthermore, Patients' alleged damages could not have arisen as a result of such beliefs because they did not plead that it was their beliefs that caused them to select these Hospitals in lieu of other healthcare providers. Rather than alleging that they sought care at these facilities because they believed they would receive post-treatment reduction of charges, they specifically alleged that they entered into contracts that required them to pay the full, undiscounted prices that were pre-set by the Hospitals. Therefore, Patients' subjective and conclusory allegations of belief and proximate cause failed to state a claim of causation.
[¶ 42.] Affirmed.
[¶ 43.] GILBERTSON, Chief Justice, and KONENKAMP, and MEIERHENRY, Justices, and MACY, Circuit Court Judge, concur.
[¶ 44.] MACY, Circuit Court Judge, for SABERS, Justice, disqualified.
But Patients then continued:
Based on this latter argument and the pleadings, we understand the circuit court's view of Patients' claim. We also observe that one need go no further than examining the Patients' proposed class to understand the circuit court's view. The proposed class included all uninsured patients who had paid (and persons or entities that had paid on behalf of such patients) "an amount for medical care in excess of the amount charged to Defendant[s'] Medicare, Medicaid, or other insured patients." We finally observe that Burghers failed to respond to RCRH's argument that Burghers did not present their clarified position to the circuit court in that case.
Nevertheless, in the interests of judicial economy, we choose to address the "clarified" claim.
A: It is.
Q: And, that the adhesion claim is essentially defensive in nature, in that, it only prevents the enforcement of unconscionable terms, it's not a sword by which there's some cause of action for . . . damages, necessarily
A. Right, for bad faith.
A. What it does is it prevents them from enforcing the term of the contract that says they get to set the price. . . .