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Nichols v. Healthsouth Corp.

SUPREME COURT OF ALABAMA
Mar 22, 2019
1151071 (Ala. Mar. 22, 2019)

Opinion

1151071

03-22-2019

Steven R. Nichols et al. v. HealthSouth Corporation


Notice: This opinion is subject to formal revision before publication in the advance sheets of Southern Reporter . Readers are requested to notify the Reporter of Decisions, Alabama Appellate Courts, 300 Dexter Avenue, Montgomery, Alabama 36104-3741 ((334) 229-0649), of any typographical or other errors, in order that corrections may be made before the opinion is printed in Southern Reporter . Appeal from Jefferson Circuit Court
(CV-03-2023)

On Application for Rehearing

MENDHEIM, Justice.

APPLICATION OVERRULED. NO OPINION.

Parker, C.J., and Wise, Bryan, Sellers, and Stewart, JJ., concur.

Bolin and Shaw, JJ., dissent.

Mitchell, J., recuses himself. BOLIN, Justice (dissenting).

I believe that the application for rehearing should be granted. Accordingly, I respectfully dissent.

As is the posture with Justice Shaw, I also did not participate in the original opinion in this matter, it being decided by a division of the Court on which I did not sit. I do join Justice Shaw's special writing, agreeing that the application for rehearing should be granted, the opinion on original submission withdrawn, and the trial court's judgment affirmed. SHAW, Justice (dissenting).

I did not participate in the original decision in this case because it was decided by a division of the Court on which I did not sit. In considering the application for rehearing and the arguments presented in it, I believe that the application should be granted, the main opinion on original submission withdrawn, and the trial court's judgment affirmed. I thus respectfully dissent.

Several members of the Court who participated in the original decision are no longer in office; thus, the application for rehearing must be considered by other Justices, including myself. --------

The issue on rehearing, as it was on original submission, is whether an amendment to a complaint is sufficiently related to the original complaint for the purposes of the relation-back doctrine found in Rule 15(c), Ala. R. Civ. P. The decision in McCollough v. Warfield, 523 So. 2d 374 (Ala. 1988), notes a distinction between amendments that "'aver new facts or a new cause of action,'" 523 So. 2d at 357 (quoting Cooper v. Thomas, 456 So. 2d 280, 283 (Ala. 1984)), which are generally not allowed unless those amendments are based on facts in the original complaint as to which defendants have notice, and amendments that are "'merely a more definite statement, or refinement, of a cause of action set out in the original complaint,'" which are allowed to relate back to the original complaint. 523 So. 2d at 375 (quoting Cooper, 456 So. 2d at 283). According to the main opinion on original submission, the amendment here was merely a more definitive statement or refinement of the gravamen of this fraud case and thus related back. I disagree; I do not believe that the amendment in this case is merely a refinement.

It is clear that, when parties allege fraud, they generally can amend the complaint to allege further facts regarding that fraudulent conduct, and that amendment would relate back. The main opinion relies on Rodopoulos v. Sam Piki Enterprises, Inc., 570 So. 2d 661 (Ala. 1990), where an amendment to a complaint in a fraud case did just this. In that case, the original complaint alleged that the defendants had misrepresented to the plaintiffs that a franchise restaurant the plaintiffs purchased could be expected to gross $12,000 a week, that it needed to gross $7,000 a week to break even, and that it would be "no problem" for the restaurant to gross that amount. 570 So. 2d at 663. The plaintiffs later amended the complaint to allege that the restaurants the defendants operated grossed only between $4,000 and $5,000 a week. 570 So. 2d at 664. The amendment was challenged, and this Court held that it was merely a refinement or more definitive statement of "the fraud cause of action." 570 So. 2d at 665.

It appears to me that the new facts alleged in the amendment in Rodopoulos simply disclosed further facts about the exact misrepresentation alleged in the original complaint: it was misrepresented to the plaintiffs that they could expect $12,000 in weekly income and that earning a minimum of $7,000 a week would be "no problem," but the defendants knew that this was not going to happen. These were not entirely new misrepresentations; in fact, they were not misrepresentations at all. Instead, the new facts illustrated what the defendants in that case knew when they made the misrepresentations alleged in the original complaint.

The amendment in the instant case seems much different. It alleged (1) misrepresentations with new content (assurances that the company was "doing great" and "making money" and that anything to the contrary was based on rumors to which the plaintiffs should not listen, which contrasted with the allegation in the original complaint that the defendants had overstated earnings); (2) misrepresentations in new forms or mediums (private oral misrepresentations, which contrasted with publicly released financial statements); (3) misrepresentations by new persons (Richard Scrushy and "executives" making direct oral misrepresentations, which contrasted with written statements released by HealthSouth Corporation), and (4) new targets of the misrepresentations (the individual plaintiffs themselves, which contrasted with the public generally). Further, to conform with new caselaw, the amendment, filed nearly 12 years after the original complaint, converted the case from an unviable derivative action to a permissible direct action.

The original fraudulent conduct was not refined or more definitively stated by the amendment. Unlike in Rodopoulos, the amendment here did not add new information about what was already alleged. Instead, it established an entirely new factual scenario and what the parties were respectively required to litigate. If we view the original cause of action very generally--a fraud case regarding the financial health of the corporation--then, to an extent, the amendment is simply subtracting allegations relating to misrepresentations and adding others. But a complaint that alleged fraud so generally would not comply with the specificity requirements of Rule 9(b), Ala. R. Civ. P. ("In all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity.").

The purpose of Rule 9(b) is to give fair notice to the defendants of what conduct they must be prepared to defend against. DGB, LLC v. Hinds, 55 So. 3d 218, 230 (Ala. 2010), and Winn-Dixie Montgomery, Inc. v. Henderson, 371 So. 2d 899, 901 (Ala. 1979). What was alleged in the original complaint in this case, and what HealthSouth Corporation had notice of, was a specific factual scenario: public statements geared toward the public generally that were acted upon by HealthSouth Corporation shareholders. Now, the lawsuit, as amended, is factually entirely different: different misrepresentations, expressed in a different form, and geared toward different targets. The defendants here were not on notice of this entirely different conduct; the notice provided to them nearly 12 years earlier in the original complaint is gone.

The decision in Knox v. Cuna Mutual Insurance Society, 282 Ala. 606, 613, 213 So. 2d 667, 673 (1968), discusses when an amendment to a complaint alleges a new cause of action:

"A new cause of action is not set up by amendment where the same substantial facts are pleaded merely in a different form, so that a recovery on either count of the complaint would bar a recovery on the other. As long as the plaintiff adheres to the contract or the injury originally declared upon, an alteration of the modes in which the defendant has broken the contract or caused the injury is not an introduction of a new cause of action. The test is whether the proposed amendment is a different matter, another subject of controversy, or the same matter more fully or differently laid to meet the possible scope of the testimony."
(Emphasis added.)

It can be reasonably argued that, under Knox, the fraudulent conduct alleged in the amendment is "in a different form," that the plaintiffs are adhering to the original injury, that they are altering the "modes" of the fraud, and that the same matter is being "differently laid." But Knox was not a fraud case, and the pleading requirements of Rule 9(b) were not applicable there to restrict its analysis. If we hold that, when a complaint alleges fraud, it can be refined or more definitively stated by alleging completely new allegations of what occurred, as long as it can be still be labeled a fraud action and relates to the same injury, then we will nullify the particularity requirements of Rule 9(b) and the fair notice it requires.

Bolin, J., concurs. MITCHELL, Justice (statement of recusal).

The law firm at which I was a shareholder before I became an Associate Justice on this Court represented a person or persons in connection with this case while I was an attorney there. I therefore recuse myself.


Summaries of

Nichols v. Healthsouth Corp.

SUPREME COURT OF ALABAMA
Mar 22, 2019
1151071 (Ala. Mar. 22, 2019)
Case details for

Nichols v. Healthsouth Corp.

Case Details

Full title:Steven R. Nichols et al. v. HealthSouth Corporation

Court:SUPREME COURT OF ALABAMA

Date published: Mar 22, 2019

Citations

1151071 (Ala. Mar. 22, 2019)