Douglas Spencer v. Annett Holdings, Inc. , 757 F.3d 790 ( 2014 )

United States Court of Appeals
For the Eighth Circuit
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No. 12-4048
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Douglas Spencer,
lllllllllllllllllllll Plaintiff - Appellant,
v.
Annett Holdings, Inc.,
lllllllllllllllllllll Defendant - Appellee.
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No. 13-1133
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Douglas Spencer,
lllllllllllllllllllll Plaintiff - Appellee,
v.
Annett Holdings, Inc.,
lllllllllllllllllllll Defendant - Appellant.
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Appeal from United States District Court
for the Southern District of Iowa - Des Moines
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Submitted: November 19, 2013
Filed: July 8, 2014
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Before WOLLMAN, COLLOTON, and GRUENDER, Circuit Judges.
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COLLOTON, Circuit Judge.
Douglas Spencer, a former employee of Annett Holdings, Inc., sued Annett,
claiming that the company acted in bad faith when it failed to provide medical care
and refused to pay him healing-period benefits. Annett counterclaimed for fraud,
alleging that Spencer falsely claimed that his injury was work-related when it resulted
from a fall at his home. On cross-motions for summary judgment, the district court1
concluded that neither party had presented a submissible case for trial and dismissed
the action. We affirm.
I.
Spencer was a trucker for Annett in January 2007 when he reported to Annett
that he suffered a work-related knee injury after slipping off the back of his flatbed
trailer. Spencer claimed a work injury that would be compensable under Iowa’s
workers’ compensation laws, so Annett was “obliged to furnish reasonable services
and supplies to treat” Spencer, and Annett had “the right to choose the care” that it
was obliged to provide. Iowa Code § 85.27(4). In other words, Annett had the right
to determine which physicians and other professionals would provide Spencer’s care.
See Petrillo v. Lumbermens Mut. Cas. Co., 378 F.3d 767, 769 (8th Cir. 2004).
Annett authorized Spencer to see a physician near his home in Tennessee. The
physician told Annett that Spencer should be placed on light duty work, and Annett
offered Spencer that type of work in Des Moines. Spencer accepted the offer and
1
The Honorable Robert W. Pratt, United States District Judge for the Southern
District of Iowa.
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assumed light duty work for about a week. Annett then authorized Spencer to see a
new physician in Des Moines, and the new physician concluded that Spencer could
resume his normal duties.
Spencer returned to full duty. After about two months, without seeking
approval from Annett for any further care, he visited his family doctor for treatment
of knee pain. The family doctor ordered an MRI examination. Spencer, again
without Annett’s approval, attended another appointment with an orthopaedic
surgeon. The surgeon diagnosed Spencer with a meniscus tear in his knee and opined
that surgery was necessary. The surgeon also provided Spencer with a “work status”
form that said Spencer required knee surgery and should perform no work “until
further notice.”
Apparently without notifying Annett that he desired surgery or providing the
company with the “work status” form, Spencer retained an attorney in Tennessee.
The attorney notified Annett that Spencer was electing to proceed under the laws of
Tennessee, which—according to Spencer’s lawyer—meant that Spencer could make
his own health care arrangements (including surgery), and then seek reimbursement
from Annett. On May 8, 2007, Annett responded that Iowa law governed Spencer’s
care, because Spencer had signed an agreement to that effect, and noted that Iowa law
permits an employer to direct an employee’s care if the employer is paying for the
care. Annett requested that Spencer return to Des Moines for an independent medical
examination by the Iowa physician whom Spencer had seen previously, so that
physician could determine whether surgery was necessary.
Spencer refused to attend the examination in Des Moines, and his attorney told
Annett that Spencer would postpone the surgery while Spencer sought an order from
the Tennessee Department of Labor that Tennessee was the appropriate forum for
Spencer’s claim. The Tennessee agency, however, decided in June 2007 that Iowa
was the proper venue for Spencer’s workers’ compensation claim. Over a month
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later, Spencer’s newly retained Iowa attorney contacted Annett, seeking copies of its
records relating to Spencer. Then, in a letter about two weeks after that, on August
9, Spencer’s Iowa attorney requested that Annett authorize knee surgery. Annett
responded a week later, asking for “some additional time to investigate the need for
surgery.”
Under Iowa law, an employee who is dissatisfied with the reasonableness of
care proffered by an employer who accepts liability for the work injury may petition
the Iowa workers’ compensation commissioner for an order that permits the employee
to obtain care that the employer declines to authorize. See Iowa Code § 85.27(4).
Spencer filed two different petitions for alternate care with the commissioner before
September 19, seeking a ruling that Annett was required to authorize surgery. Annett
ultimately offered to authorize surgery if Spencer would “represent that the only
known injury to his left knee” was the claimed injury in January, and Spencer so
represented. Spencer’s surgeon performed authorized knee surgery on October 5.
After the surgery, in November 2007, Spencer filed a workers’ compensation
arbitration petition, seeking to require Annett to provide medical care for injuries to
his left foot and hands and further treatment for his knee. Annett questioned whether
these injuries were related to the initial injury from January 2007. Spencer also
requested healing-period benefits from Annett for the period before his surgery.
Spencer and Annett eventually reached a settlement agreement, with Annett admitting
liability for Spencer’s knee injury and agreeing to pay healing-period benefits and all
medical bills related to the knee injury.
In July 2009, however, Spencer filed an action in Iowa state court against
Annett, alleging that the company had denied him medical care and delayed payment
of benefits in bad faith. The next month, Annett received a phone call from a
neighbor and friend of Spencer’s wife. The neighbor claimed that Spencer was not
injured in a fall off his truck while working for Annett, as Spencer had represented,
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but rather had slipped while attending to personal business inside a workshop at his
home. According to the neighbor, Spencer and his wife had bragged that they were
getting Annett to pay for his knee surgery. Over seven months later, Annett’s
attorney took a recorded statement from the neighbor. Another seven months after
that, in October 2010, the neighbor signed and notarized the transcript of her recorded
statement for Annett, two months after she failed to respond to a subpoena in August
2010.
In the meantime, in early 2010, Spencer’s surgeon retired and recommended
another doctor to him. Annett refused to authorize and pay for Spencer to see the
recommended doctor and sent him to a different physician. In May 2010, Spencer
filed a petition for alternate medical care with the Iowa workers’ compensation
commissioner, seeking an authorization that would require Annett to pay for his care
by the recommended doctor. Annett responded to the claim in June 2010. The
commission denied Spencer’s petition, and the Iowa courts upheld the denial on
judicial review that concluded in 2012.
In September 2010, Annett filed counterclaims in Spencer’s July 2009 Iowa
state court action, in which Spencer had alleged bad-faith denial of medical care and
delay of payments. Annett brought counterclaims for fraudulent misrepresentation
and unjust enrichment against Spencer based on the information it had learned from
Spencer’s neighbor. In the months that followed, Annett refused to authorize any
more medical treatment for Spencer, claiming that he had not suffered a work injury.
In July 2011, Spencer voluntarily dismissed his state court action. He brought this
federal action against Annett in December 2011, based on diversity jurisdiction,
alleging essentially the same state-law claims that were alleged in the previous state
court action. Annett again counterclaimed.
The district court granted summary judgment for Annett on all of Spencer’s
claims. The court determined that it could not consider the claim for bad-faith failure
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to provide medical care, because Spencer had not exhausted his administrative
remedies as required by Iowa law. The district court ruled alternatively that even if
the claim were available, all of Spencer’s bad-faith claims failed because Annett had
a reasonable basis to deny Spencer’s claims. On Annett’s counterclaims, the court
ruled that by participating in Spencer’s June 2010 petition for alternate medical care,
Annett admitted liability for Spencer’s injury and that Spencer was entitled to
summary judgment based on the doctrine of judicial estoppel.
Spencer appeals the dismissal of his claims for bad-faith failure to provide
medical care and to pay healing-period benefits; Annett cross-appeals the dismissal
of its counterclaim. We review the district court’s grant of summary judgment de
novo, viewing the record in the light most favorable to the nonmoving party and
drawing all reasonable inferences in that party’s favor. Anderson v. Liberty Lobby,
Inc., 477 U.S. 242, 255 (1986). Spencer’s state-law claims in this diversity action are
governed by the substantive law of Iowa. Kramer v. Cash Link Sys., 715 F.3d 1082,
1086 (8th Cir. 2013).
II.
A.
Under Iowa workers’ compensation law, an employer who accepts liability for
the work injury of an employee “has the right to choose the care” of the employee.
Iowa Code § 85.27(4). “[A]n employee who is dissatisfied with the reasonableness
of care proffered may petition the industrial commissioner for relief.” Kloster v.
Hormel Foods Corp., 612 N.W.2d 772, 775 (Iowa 2000). The petition process
permits the employee to seek an order from the commissioner that requires the
employer to pay for alternate medical care preferred by the employee.
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Spencer argues that the district court erred by determining that he must exhaust
administrative remedies before seeking judicial review of his claim that Annett denied
medical care in bad faith. Under Iowa law, however, the “rights and remedies” under
the workers’ compensation statutes are “the exclusive and only rights and remedies
of the employee . . . [a]gainst the employee’s employer.” Iowa Code § 85.20(1). This
exclusivity provision applies to “[c]laims of dissatisfaction with care,” and includes
claims “where an employee was denied medical care for a period of time.” Good v.
Tyson Foods, Inc., 756 N.W.2d 42, 45-46 (Iowa Ct. App. 2008).
In this case, Annett provided Spencer’s initial care in January 2007, agreed in
May 2007 that it would authorize surgery if the doctor in Des Moines made the
appropriate determination, and eventually did authorize surgery in September 2007.
Spencer claims that Annett acted in bad faith when it refused to authorize surgery
between June and September 2007. But this is merely a claim of “dissatisfaction with
care,” based on Annett’s delay in authorizing surgery. The district court correctly
ruled that Iowa law required Spencer to exhaust this claim through the exclusive
administrative process. Kloster, 612 N.W.2d at 774-75; Good, 756 N.W.2d at 45-46.
Spencer argues that exhaustion should be excused, because Annett would have
denied liability for the injury. When an employer denies liability for an injury, it does
not have a duty to provide medical care until its liability has been determined. While
liability is disputed, the employee may not file petitions for alternate care. R.R.
Donnelly & Sons v. Barnett, 670 N.W.2d 190, 196-97 (Iowa 2003). Spencer says the
commissioner inevitably would have dismissed his claim of dissatisfaction with care
because Annett’s liability would have been unsettled. We reject this contention,
because Spencer did not make a sufficient showing of futility. Spencer filed alternate
care petitions in August and September 2007, and he does not claim that Annett
denied liability then. The record is insufficient to presume that Annett would have
denied liability if Spencer had exhausted his claim of dissatisfaction with care
through the administrative process.
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Spencer also argues that his claim is not really about dissatisfaction with care
based on delay, but a total denial of medical care. He contends that the Iowa courts
have recognized a bad-faith claim against an employer for a total denial of care, and
that such a claim need not be exhausted with the commissioner. Spencer cites no
Iowa authority, however, that recognizes a bad-faith claim against an employer for
failure to provide medical care. The best he can do is direct us to authorities that
recognize claims against insurers or self-insured employers for failure to pay benefits.
See, e.g., McIlravy v. N. River Ins. Co., 653 N.W.2d 323, 328-39 (Iowa 2002); Boylan
v. Am. Motorists Ins. Co., 489 N.W.2d 742, 744 (Iowa 1992). This court’s previous
observation on this point remains a correct statement of Iowa law: “‘Up to now, all
of the appellate decisions in [Iowa] considering bad faith torts in the worker’s [sic]
compensation context have involved a bad faith failure to pay benefits.’” Petrillo,
378 F.3d at 770 n.3 (quoting Thielen v. Aetna Cas. & Surety Co., No. 00-1075, 2003
WL 118204, at *3 (Iowa Ct. App. Jan. 15, 2003)) (alterations in original). The
district court correctly ruled that Spencer was required to exhaust his claim with the
commissioner.
B.
Drawing on a different line of Iowa cases, Spencer contends that he presented
a submissible claim against Annett for bad-faith refusal to pay healing-period
benefits, as opposed to denial of medical care. See Rodda v. Vermeer Mfg., 734
N.W.2d 480, 483 (Iowa 2007). To show bad faith, Spencer must prove that the
employer had no “reasonable excuse” for delaying or denying benefits. Gibson v. ITT
Hartford Ins. Co., 621 N.W.2d 388, 397 (Iowa 2001). So long as the employee’s
claim is “fairly debatable,” the employer has a reasonable basis to delay or deny, and
an employee cannot establish bad faith. Id.; see also Bellville v. Farm Bureau Mut.
Ins. Co., 702 N.W.2d 468, 473 (Iowa 2005).
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Spencer argues that Annett acted in bad faith when it refused to pay healing-
period benefits from April to October 2007, while Spencer was awaiting surgery on
his knee. Annett refused to pay benefits because Spencer would not submit to an
examination by Annett’s chosen physician in Des Moines, and Iowa law authorizes
a suspension of benefits if an employee refuses to comply with a reasonable request
for an examination. Iowa Code § 85.39. Spencer acknowledges that an employer has
a right to request an employee to submit for examination “at some reasonable time
and place and as often as reasonably requested,” id., but argues that Annett had no
right to suspend benefits, because it was unreasonable for the company to ask him to
travel over 700 miles from Tennessee to Iowa.
The Iowa Supreme Court has opined about unreasonable distances in different
contexts. The court ruled that where an employer was required to provide medical
care to an employee, it was an “undue inconvenience” under Iowa Code § 85.27 to
require travel of more than 100 miles from Trenton, Missouri to Des Moines for care
by a treating physician. Trade Prof’ls, Inc. v. Shriver, 661 N.W.2d 119, 124 (Iowa
2003). The court also upheld a determination that work offered 387 miles from an
employee’s home was not “suitable work,” so the employee’s rejection of the offer
did not disqualify him from receiving disability or healing-period benefits under Iowa
Code § 85.33(3). Neal v. Annett Holdings, Inc., 814 N.W.2d 512, 525 (Iowa 2012).
But Spencer identifies no authority under Iowa Code § 85.39 where an Iowa court has
considered the reasonableness of the distance to an independent medical examination.
The Iowa Workers’ Compensation Commission has explained that while travel to
treating physicians is limited, the commission “does not limit travel when an
employer exercises its right to an independent examination unless long trips would
be hazardous to the health of an injured worker.” Sweisberger v.
Employer/Defendant, 1995 WL 17018248, at *4 (Iowa Workers’ Comp. Comm’n
May 5, 1995). Spencer cites no Iowa authority to the contrary.
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Given the state of the law, Annett had a reasonable basis to believe that it could
request Spencer to undergo an examination by the company’s chosen physician in
Des Moines. Spencer’s refusal to submit to the examination made the propriety of
the company’s denial of healing-period benefits at least fairly debatable. The district
court thus properly granted summary judgment for Annett on Spencer’s claim of bad-
faith failure to pay benefits.
III.
Annett cross-appeals the district court’s grant of partial summary judgment for
Spencer on Annett’s counterclaim for fraud. The district court ruled that Annett was
judicially estopped from proceeding against Spencer, because Annett had admitted
liability in the proceedings on Spencer’s June 2010 alternate care petition. Annett
concedes it admitted liability for the injury in the June 2010 proceeding because of
the parties’ settlement agreement. Annett argues that the district court erred in
applying judicial estoppel, however, because it did not give enough weight to
changed circumstances during the course of the litigation, and because it applied state
law rather than federal law. We review a district court’s application of judicial
estoppel for abuse of discretion.
Our precedent calls for the application of state law elements of judicial estoppel
in diversity cases. Monterey Dev. Corp. v. Lawyer’s Title Ins. Corp., 4 F.3d 605,
608-09 (8th Cir. 1993). Under Iowa law, judicial estoppel “prohibits a party who has
successfully and unequivocally asserted a position in one proceeding from asserting
an inconsistent position in a subsequent proceeding.” Winnebago Indus., Inc. v.
Haverly, 727 N.W.2d 567, 573 (Iowa 2006) (internal quotation omitted). In Haverly,
an Iowa case analogous to this one, an employer admitted liability in an earlier
proceeding on the employee’s petition for alternate care and then directed the
employee’s medical care. Id. at 575. The Iowa court determined that once the
employer had admitted liability, it could not later dispute liability for benefits. Id.
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The court noted, however, that “[t]here might, in some cases, be a significant change
in the facts after the admission of liability that could justify a change of position by
the employer.” Id.
Annett is in the same position as the employer in Haverly. The company
admitted liability for Spencer’s injury during its participation in the June 2010
petition proceeding, but now disputes its liability in this litigation. Annett, however,
invokes Haverly’s possible exception for a “significant change in the facts” that could
justify a change in litigating position. The company points to information from
Spencer’s neighbor that Spencer fabricated the claim of a work-related injury.
Annett’s reliance on the neighbor is unavailing, because the company heard
from the neighbor in August 2009, and took her recorded statement in March 2010,
but continued to admit liability for Spencer’s injury through June 2010. Annett says
the “significant change in the facts” came later, in October 2010, when the neighbor
signed a notarized statement on which the company could rely. But that assertion is
belied by the company’s change in its litigating position in September 2010—without
a notarized statement—to file counterclaims in Spencer’s state-court action. Annett
had no more information in September 2010 when it alleged fraud by Spencer than
it possessed in June 2010 when it admitted liability for Spencer’s injury in response
to a petition for alternate care. The company simply changed its position without a
“significant change in the facts.” There was no abuse of discretion in applying
judicial estoppel.
On the question of which law to apply, the district court was bound by circuit
precedent to apply Iowa law, but we do not think federal law would lead to a different
result in any event. Under federal law, judicial estoppel applies when a
party—having taken one litigating position and successfully persuaded a court to
adopt that position—would derive an unfair advantage or impose an unfair detriment
on the opposing party by taking a contrary position in new litigation. New Hampshire
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v. Maine, 532 U.S. 742, 750-51 (2001). These considerations are substantially
identical to factors that the district court considered under Iowa law, so the choice of
state law rather than federal law was immaterial.
* * *
For the foregoing reasons, the judgment of the district court is affirmed.
Annett’s motion to strike portions of Spencer’s supplemental appendix is denied as
moot because the challenged materials are irrelevant to our disposition of the appeal.
See Murff v. Prof’l Med. Ins. Co., 97 F.3d 289, 290 n.1 (8th Cir. 1996).
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