Circuit or Chancery?

August 27, 2018 § 4 Comments

The State of Mississippi filed suit in chancery court against a number of pharmacies for fraud and deceptive trade practices in connection with Medicaid reimbursements. The complaint sought the following relief:

(1) an order enjoining the Defendants from continuing the fraudulent, deceptive and/or unfair acts or practices complained of herein, and requiring correcting measures;
(2) an award of compensatory damages to the State in such amount as is
proved at trial;
(3) an award of actual damages;
(4) an award of all civil penalties provided for by statute;
(5) an award of punitive damages;
(6) an accounting of all profits or gains derived in whole or in part by the Defendants through their fraudulent, unfair and/or deceptive acts or practices complained of herein;
(7) a constructive trust of the moneys illegally and impermissibly obtained from the Defendants’ scheme;
(8) an order imposing a constructive trust on and/or requiring disgorgement by the Defendants of all profits and gains earned in whole or in part through the fraudulent, unfair and/or deceptive acts or practices complained of herein;
(9) an award of attorney fees, costs, and prejudgment interest; and
(10) such other and further relief as the Court may deem appropriate and just.

Defendants responded asking that the matter be transferred to circuit court because of the claims for money damages, and because they wanted to protect their right to a jury trial. The State objected.

The chancellor agreed with the defendants

In his order, the chancellor found that, although the State prayed for some equitable relief, the claims primarily involved recovery of actual and punitive damages. In deference to the Mississippi Constitution’s right to a trial by jury, the judge ruled that, when claims are connected to a contractual relationship or are otherwise involve a question of law, the questions of both law and equity are more appropriately presented in
circuit court. The judge held that the main relief sought was legal, and ordered that the case be transferred to circuit court. The State appealed.

In State of Mississippi v. Walgreen Co., et al., the MSSC affirmed. Justice Beam wrote the August 8, 2018, opinion for a unanimous court. The court first addressed and rejected the State’s argument that an injunction sought under MCA § 75-24-9 must be brought in chancery court. It then went on to deal with the transfer from the equity court to the law court. This is the portion of the opinion addressing chancery vs. circuit jurisdiction:

¶29. We recognize the importance of the State’s request for remedies, including an accounting and a constructive trust, which typically require the chancellor’s equitable review, and we certainly do not intend to devalue that importance here. But an application of the State’s equitable claims is not enough to limit jurisdiction to the chancery court; not even through the application of Section 75-24-9. We have held that chancery courts maintain “the discretion to award legal and even punitive damages as long as” their jurisdiction has attached. Southern Leisure Homes, Inc. v. Hardin, 742 So. 2d 1088, 1090 (Miss. 1999). Though, in matters like the one before us today, “it is more appropriate for a circuit court to
hear equity claims than it is for a chancery court to hear actions at law since circuit courts have general jurisdiction but chancery courts enjoy only limited jurisdiction.” McDonald’s Corp. v. Robinson Indus., Inc., 592 So. 2d 927, 934 (Miss. 1991); see also Hardin, 742 So. 2d at 1090; Union Nat’l Life Ins. Co. v. Crosby, 870 So. 2d 1175, 1182 (Miss. 2004).

¶30. We reiterated this position in Era Franchise Systems, Inc. v. Mathis, 931 So. 2d 1278 (Miss. 2006). There, we noted that “equitable claims are more appropriately brought before a circuit court when they are connected to a contractual relationship or other claims tied to questions of law.” Mathis, 931 So. 2d at 1283 (citing Copiah Med. Assocs. v. Mississippi Baptist Health Sys., 898 So. 2d 656, 661 (Miss. 2005); Crosby, 870 So. 2d at 1175; RE/Max Real Estate Partners v. Lindsley, 840 So. 2d 709 (Miss. 2003)). In Mathis, Venit Mathis filed a complaint against multiple defendants alleging various claims, framed as a derivative action on behalf of REP–an organization in which he alleged to have a fifty-percent stake. Like the State in the matter before us, Mathis pleaded several causes of action and prayed for both legal and equitable relief. After the chancery court determined that it would be best to bifurcate the action, leaving the equitable claims in chancery court and transferring the legal claims to the circuit court, the defendants appealed. This Court reviewed the matter and determined that the chancellor had committed reversible error. Mathis, 931 So. 2d at 1283-1284. Following our holding in Crosby (stating that where a complaint seeks both actual and punitive damages, the “remedy is clearly legal rather than equitable in nature,” Crosby, 870 So. 2d at 1179), we determined that the circuit court’s general jurisdiction is better suited to try a case when doubt exists as to whether the claims are equitable or legal. Mathis, 931 So. 2d at 1282 (citing Burnette v. Hartford Underwriters Ins. Co., 770 So. 2d 948, 952 (Miss. 2000)). Finding that Mathis’s action revolved around issues stemming from contractual obligations not met by the defendants, we reversed the chancellor’s decision denying the defendant’s motion to transfer the matter to the circuit court. Id. at 1283.

¶31. Similarly, in the often-cited Crosby case, the plaintiffs brought an action to recover against the defendants for several common-law and statutory claims arising out of sale of insurance policies and allegedly exorbitant premiums. Crosby, 870 So. 2d 1175 (Miss. 2004). Although the plaintiffs requested a constructive trust, an accounting, and injunctive relief, the defendants claimed that the complaint sounded in tort and contract law–not equity–and requested the case be transferred to circuit court. Reviewing the matter on interlocutory appeal, this Court reversed the chancellor’s denial of the defendant’s motion to transfer, and determined that “each and every one of Crosby’s claims, even the equitable claims of unjust enrichment and constructive trust, arise from the sale and alleged breach of an insurance contract.” Id. at 1182. We noted that an argument alleging otherwise ignores the fact that, unless there was a contractual relationship between Union National and Crosby, she would have no claims arising from the sales, administration and service of the insurance policy. . . .The alleged mismanagement and misappropriation of premium money concerns Crosby’s contractual duty to pay for the insurance policy and Union National to provide her coverage. Id.

¶32. This analysis is directly applicable to the State’s claims against the pharmacies. While it is true that the State’s complaint does not plead the facts necessary to establish a breach-of-contract cause of action, we must look to “the substance, and not the form” of the claims in our resolution of a matter. Copiah Med. Assocs., 898 So. 2d at 661. With the State’s single theory of wrongdoing arising from the defendant’s obligations under the Medicaid provider agreements, the State’s decision to omit a breach-of-contract claim in no way affects the complaint’s substance: the claims asserted and the relief requested present legal arguments and legal remedies. Moreover, much like Crosby and Mathis, the heart of the complaint concerns a provider agreement (a contract), its terms, and the parties who failed to abide by the arrangement. While the equitable issues pleaded are relevant and not to be ignored, the legal issues which flowed from the pharmacies’ alleged inflated reimbursement requests predominate the State’s claims and requests for relief. As a result, jurisdiction properly lies in the circuit court.

¶33. Putting aside the State’s requests for restitution, accountings, constructive trusts, and injunctions, the complaint prays for millions of dollars in actual and punitive damages based on the defendants’ alleged unwillingness to comply with the signed provider agreements. Whether the State disagrees that the basis of these complaints sounds in contract is of no moment. Rather, as most of the claims are legal in nature, the circuit court is the appropriate forum to rule on the matter.

¶34. This decision in no way strips the Attorney General of his constitutional authority to pursue an injunction. Rather, it allows the State fully and fairly to pursue all claims against the defendants, while providing the defendants with an opportunity to have those issues presented to a jury.
The State, therefore, should fully and ably proceed with its complaint in circuit court.

I could quibble all day with the “general jurisdiction” vs. “limited jurisdiction” fiction and how it is so unhelpful to this discussion, but I’ll pass and submit to the principle that if the matter is an action for damages, it should go to circuit.

Having said that … <HERESY ALERT> … my question is, “Why, Mississippi, do we continue to put ourselves through this contortion when we could resolve it easily by merging our law and equity courts into one system?” I know that’s heretical, coming especially from a chancellor, but merger of law and equity has worked handsomely in almost all of the other United States for as many as 150 years without jurisprudential armageddon.

In a merged system, we would not have tug-of-wars between circuit and chancery. As many claims for relief as one has could be joined in a single action to be addressed by the court as appropriate.

Some say that would sacrifice the expertise in minor’s issues, probate, and family law that has been accumulated in chancery over the centuries. That is a somewhat valid concern, but I don’t see that the quality of judicial decisions in merged states is significantly less than Mississippi’s. Also, in some jurisdictions where number of judges and caseload are adequate, judges specialize in certain areas such as family law and criminal law, allowing development of expertise.

Some do not want to sacrifice the jobs of sitting chancellors in a merger, but I don’t think that merger would result in the loss of a single judge slot.  We would still have the same number of cases to be handled, requiring at least as many judges as we have now.

Others say, “If it ain’t broke …” etc. To that I concede that it ain’t necessarily broke … but is it functioning as efficiently, justly, and equitably as it can and should?

We ought always be ready and willing to discuss and debate the best ways to fashion our court system.

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