Frisco Med. Ctr., L.L.P. v. Bledsoe — Nov. 2015 (Summary)

HIPAA BREACH

Frisco Med. Ctr., L.L.P. v. Bledsoe
Case No. 4:12-CV-37/4:15CV105 (E.D. Tex. Nov. 30, 2015)

The United States District Court for the Eastern District of Texas granted summary judgment in favor of a hospital that sued its former Chief Operating Officer (“COO”) and her husband, the former Information Systems Administrator, claiming that the couple breached their fiduciary duties, breached their contracts with the hospital, and violated several federal, privacy and computer usage laws when they downloaded hospital files in the weeks and months leading up to their departure from the organization.

The hospital became aware of the downloads because the COO told the Human Resources Manager, after tendering her resignation, that she “knew where too many bodies were buried” – leading the hospital to conduct a security investigation. The report showed that in the prior months, the COO and her husband downloaded a slew of hospital documents into the cloud and onto their personal electronic devices, including protected health information, trade secrets, and peer review privileged documents.

Within months of completing its investigation, the hospital filed suit against the former COO and her husband. Less than a month prior to trial, the couple filed for bankruptcy – causing the hospital’s lawsuit to be put on hold. In turn, the hospital filed a second lawsuit, seeking to have the hospital’s claims against the COO and Information Systems Administrator, along with all attorneys’ fees and costs, declared non-dischargeable in bankruptcy on the basis that they fall within the exception in the bankruptcy code that excepts from discharge debts “for fraud or defalcation while acting in a fiduciary capacity.”

As the litigation continued, the two lawsuits were merged and the hospital filed for summary judgment on all claims. In the present opinion, the court grants summary judgment for the hospital – not only finding the COO and Information Systems Administrator liable for the underlying claims of breach of contract, breach of fiduciary duty, and violation of federal law, but also finding that the damages chargeable against them are not dischargeable in bankruptcy. Notably, the court held that the damages include over $1 million in attorneys’ fees and over $218,000 in forensic investigation costs.