Drs. Steuer & Latham v. Nat. Med. Enterprises

• Decision Date: 31 August 1987
• Docket Number: Civ. A. No. 87-454-3.
• Citation: 672 F. Supp. 1489
• Court: U.S. District Court — District of South Carolina
• Parties: DRS. STEUER AND LATHAM, P.A., Rudolph R. Steuer, Jr., M.D. and Harry S. Latham, M.D., Plaintiffs, v. NATIONAL MEDICAL ENTERPRISES, INC. and NME Hospitals, Inc., Defendants.

672 F. Supp. 1489

DRS. STEUER AND LATHAM, P.A., Rudolph R. Steuer, Jr., M.D. and Harry S. Latham, M.D., Plaintiffs, v. NATIONAL MEDICAL ENTERPRISES, INC. and NME Hospitals, Inc., Defendants.

Civ. A. No. 87-454-3.

United States District Court, D. South Carolina, Spartanburg Division.

August 31, 1987.

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John F. Beach and H. Fulton Ross, Jr., Ross & Beach, Gaffney, S.C., and Daryl G. Hawkins and A. Camden Lewis, Lewis, Babcock, Pleicones and Hawkins, Columbia, S.C., for plaintiffs.

Gary E. Clary, Hall, Daniel, Winter and Clary, Gaffney, S.C., and Robert Fabrikant, McKenna, Conner & Cuneo, Washington, D.C., for defendants.

ORDER

GEORGE ROSS ANDERSON, Jr., District Judge.

This matter comes before the Court on defendants' motion for summary judgment on all Counts. The underlying lawsuit raises antitrust and other challenges to a July 1985 contract between Cherokee Memorial Hospital ("CMH") and Dr. Mijanovich (the "Mijanovich Contract") whereby Dr. Mijanovich became the exclusive pathology provider at CMH. The inception of the Mijanovich Contract brought to an end the plaintiffs' longstanding position as the sole pathology providers at CMH. Plaintiffs contend that in entering into and in implementing the Mijanovich Contract defendants have: engaged in a combination and conspiracy to unreasonably restrain trade, an illegal tying arrangement and an illegal boycott in violation of Section 1 of the Sherman Antitrust Act, 15 U.S.C. § 1, (Counts I, IIA, IIB and III); monopolized and/or attempted to or combined or conspired to monopolize trade in violation of Section 2 of the Sherman Antitrust Act, 15 U.S.C. § 2, (Count IV); unlawfully deprived plaintiffs of their right to practice medicine in violation of 42 U.S.C. § 1983 (Count V); committed tortious interference with contract and tortious interference with prospective economic advantage (Count VI); violated the antitrust laws of the State of South Carolina, S.C.Code Ann. §§ 39-3-10; 39-3-130; 39-3-140, (Count VII); engaged in unfair methods of competition and unfair or deceptive acts or trade practices in violation of S.C.Code Ann. § 39-5-20 and the Federal Trade Commission Act, 15 U.S.C. § 45, (Count VIII); and committed breach of contract (Counts IX and X). Following the close of discovery, and after receiving substantial briefs and hearing oral argument from counsel for both parties, the Court has, for the reasons which follow, decided to grant defendants' Motion for Summary Judgment.

I. FINDINGS OF FACT

1. Plaintiffs, Rudolph R. Steuer, Jr., M.D. ("Dr. Steuer") and Harry S. Latham, M.D. ("Dr. Latham"), are physicians engaged in the practice of pathology through a professional association called Drs. Steuer and Latham, P.A. (the "PA") (collectively referred to as "plaintiffs"). Amended Complaint ¶ 5.

2. National Medical Enterprises, Inc. ("NME") is a national health care corporation engaged in the hospital business through its subsidiary, N.M.E. Hospitals, Inc. ("NME Hospitals") (collectively referred to as "defendants").

3. CMH is a 162 bed acute care hospital located in Gaffney, South Carolina. Tidikis Dep. Tr. at 47.¹

4. The Hospital building and grounds are owned by Cherokee County ("County"), a political subdivision of the State of South Carolina.

5. On January 3, 1984 the County and defendants entered into a General Agreement ("General Agreement"), (H-443 thru -459), whereby defendants agreed, inter alia, to construct and operate a new hospital in Gaffney to replace CMH, to lease, manage and operate CMH until such time as the new hospital was constructed, and to purchase the working capital, assets and personal properties used in connection with operating CMH.

6. Paragraph 7 of the General Agreement provided, inter alia, for the establishment of a Local Governing Board to be appointed by defendants, and for defendants to "regularly consult such board for advice with respect to any of the various policy issues and matters which both affect the community, and concern the operation of CMH and the new hospital and the services to be rendered by defendants thereunder.... However, defendants will have final authority and responsibility for all decisions relating to the management and operation of CMH and the new hospital."

7. After the General Agreement was executed, defendants assumed from the County full operational and managerial responsibility for CMH. Moran Dep. Tr. at 50; Medley Dep. Tr. at 53; D. Queen Dep. Tr. at 27-28.

8. CMH was a declining hospital prior to defendants obtaining control thereof, and defendants took "constructive action" after obtaining control of CMH. Latham Dep. Tr. at 186-187.

9. On February 3, 1984, the County and the defendants entered into a Lease Agreement ("Lease Agreement") (H-460 thru -490) to effectuate the General Agreement.

10. Section 3.1 of the Lease Agreement provides:

LESSEE defendants acknowledges that, in addition to employees and contract physicians, the Hospital is served by a medical staff. LESSEE agrees to accept, on Commencement Date, all members of the medical staff in good standing on that date with the same privileges at Hospital, and to continue such privileges until their normal expiration date, provided they remain in good professional standing in accordance with medical staff rules, regulations and bylaws. It is the intent of the parties that the Hospital will have an open staff except for those departments traditionally served by contract physicians.

11. Section 8.1 of the Lease Agreement provides, in pertinent part:

LESSEE agrees to offer continued employment, at no reduction in salary or benefits, to all Hospital employees who are and remain in good standing and who desire to continue their employment with LESSEE.

12. Exhibit "B" to the Lease Agreement set out a "Schedule of Material Contracts to which the County, or Hospital is a party or by which any of them is bound or will be bound as of the Commencement Date of the Lease Agreement and which affect or relate to the Leased Properties or the operation of the Hospital to the best of both parties' knowledge." Section 7.1 of Lease Agreement. H-471, H-518 thru -520. This schedule of Material Contracts lists, inter alia, "A pathology agreement with Harry S. Latham, M.D., dated July 1, 1983, terminating on a month to month basis." Item No. 15. H-518 thru -520.

13. Prior to defendants' assuming control of CMH, the County viewed plaintiffs as having contracted with the Hospital, not the County. D. Queen Dep. Tr. at 26.

14. Prior to February 1984 CMH had been operated under the auspices of the County. Moran Dep. Tr. at 48; Medley Dep. Tr. at 7-10; Tidikis Dep. Tr. at 15-16.

15. There is no evidence in the record that defendants share with the County any profits or losses from the operation of CMH.

16. In March 1962, CMH entered into a Contract for Pathology Services with Dr. Steuer (the "Steuer Agreement"). TM-172 thru -173. The Steuer Agreement provided, inter alia,

1. The pathologist assumes the obligation as the Director of the Department in CMH.

* * * * * *

3. The pathologist will assume the responsibility for the conduct of the Department of Pathology and will devote such time as is necessary to provide proper and adequate service.

* * * * * *

5. The professional income of the pathologist shall be determined by the following arrangement: the rate of compensation shall be 40% of gross billings for out-patients and in-patients of each case, certified charity excluded. Pathological fees will be collected by CMH in the name of the hospital. Financial settlement will be made between CMH and the pathologist on the calendar month of the first day of the succeeding month....

6. The pathologist shall have the right to set all laboratory and pathology fees.

* * * * * *

8. This agreement shall be for one year and shall be deemed to be automatically renewed unless terminated in writing by either party at least 120 days prior to the annual renewal date."

17. The Steuer Agreement was, in essence, renewed by the parties through August 1979, when it was amended to reflect the fact that (in 1976) Dr. Latham had joined Dr. Steuer in supplying pathology services at CMH and in managing CMH's Pathology Department. TM-104 thru -108.²

18. The 1979 Amendment stated, in pertinent part that:

1. The Pathologist shall provide for the proper functioning of all phases of the Pathology Department's activities.

* * * * * *

3. The Pathologist shall operate and conduct the Department of Pathology at Cherokee County Memorial Hospital ... providing fully the professional needs of CMH in a manner satisfactory to CMH.

19. The 1979 Amendment also stated that the Pathologist "is at all times acting and performing as an independent contractor" (¶ 6),³ reduced compensation from 30% to 25% of "gross monthly Clinical and Anatomical Pathology Charges," (¶ 7) and provided that the contract had a one year term "and shall be automatically renewed" unless written notice of termination shall be delivered within 120 days prior to the expiration of the agreement.

20. After the 1979 Amendment, the Steuer Agreement was further amended in 1981 to add Dr. Latham as a signatory (hereinafter the Steuer Agreement shall be denominated the "Steuer/Latham Agreement"), and to reduce the compensation rate to 19% of adjusted gross monthly Clinical and Anatomical Pathology charges. (TM-109-110)⁴

21. With the Steuer/Latham Agreement set to expire on July 31, 1984, CMH and plaintiffs extended that Agreement "so that said Agreement will expire on sixty (60) days written notice to either party by the other party," effective August 1, 1984. (TM-100-101.) (The "1984 Addendum").

22. On May 10, 1985, pursuant to the 1984 Addendum, CMH gave plaintiffs written notice that the Steuer/Latham Agreement would terminate within 60 days of plaintiffs' receipt of the notice. (TM-75.)

23. The non-renewal of the Steuer/Latham Agreement was communicated to p...