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Shepherd v. Costco Wholesale Corp. - 4/30/2019

Arizona Court of Appeals Division One holds that HIPAA does not preempt a state-law claim for negligent disclosure of healthcare information, but federal requirements may inform the standard of care for such claims.


A customer twice asked Costco to cancel his prescription for erectile dysfunction (E.D.) medication. Despite his requests, Costco again filled the E.D. prescription.  When the customer’s ex-wife picked up his medications (with his authorization), she and the Costco pharmacist allegedly joked about the nature of the medication.

The customer sued Costco, alleging various tort claims related to its disclosure of his health information.  Costco moved to dismiss, claiming qualified immunity under A.R.S. § 12-2296, HIPAA preemption, and failure to state a claim under Rule 12(b)(6).  The trial court granted Costco’s motion; the customer appealed.

Division One of the Court of Appeals affirmed in part, but reversed the dismissal of the customer’s negligence and punitive damages claims. 

First, the Court found that the customer sufficiently alleged that Costco breached its duty of care by failing to honor his repeated cancellation requests and joking with his ex-wife about the medication.  Although the Court agreed that Costco was entitled to qualified immunity under A.R.S. § 12-2296, it concluded that the customer adequately alleged Costco did not act in good faith. 

Second, the Court concluded that HIPAA does not preempt state-law claims for negligent disclosure of healthcare information, but held that HIPAA’s requirements may inform the standard of care for these claims.  Finally, the Court concluded that the customer had sufficiently alleged that Costco’s conduct supported a punitive damages claim.  It awarded the customer costs on appeal.

Judge Thompson concurred in part, but disagreed that the allegations supported a punitive damages claim and disagreed with the cost award on appeal. 

Presiding Judge Perkins wrote for the Court, joined by Judge Winthrop.  Judge Thompson concurred in part and dissented in part.  

Posted by: Hayleigh S. Crawford

Posted On: 5/29/2019