Amato v. Upmc

• Decision Date: 21 April 2005
• Docket Number: Civ. A. No. 04-1025.
• Parties: Gary AMATO, Brock Massey, Scott Smith and Ricky Davis On Behalf of Themselves and All Others Similarly Situated, Plaintiffs, v. UPMC, a Pennsylvania non-profit corporation, UPMC Presbyterian Shadyside, a Pennsylvania non-profit corporation, UPMC Southside, a Pennsylvania non-profit corporation, UPMC St. Margaret, a Pennsylvania non-profit corporation, UPMC Emergency Medicine, a Pennsylvania non-profit corporation and UPMC Braddock, a Pennsylvania non-profit corporation, Defendants.
• Court: U.S. District Court — Western District of Pennsylvania

Page 752

371 F.Supp.2d 752

Gary AMATO, Brock Massey, Scott Smith and Ricky Davis On Behalf of Themselves and All Others Similarly Situated, Plaintiffs, v. UPMC, a Pennsylvania non-profit corporation, UPMC Presbyterian Shadyside, a Pennsylvania non-profit corporation, UPMC Southside, a Pennsylvania non-profit corporation, UPMC St. Margaret, a Pennsylvania non-profit corporation, UPMC Emergency Medicine, a Pennsylvania non-profit corporation and UPMC Braddock, a Pennsylvania non-profit corporation, Defendants.

Civ. A. No. 04-1025.

United States District Court, W.D. Pennsylvania.

April 21, 2005.

Jeffrey L. Suher, Monroeville, PA, for Plaintiffs.

Bryan D. Kocher, Jones, Day Reavis & Pogue, Pittsburgh, PA, for Defendants.

MEMORANDUM ORDER

CERCONE, District Judge.

AND NOW, this 21st day of April, 2005, after de novo review of the record and upon due consideration of the magistrate judge's report and recommendation filed on November 23, 2004, plaintiffs' objections thereto, and defendants' opposition to those objections and notices of supplemental authorities, IT IS ORDERED that defendants' motion to dismiss (Doc. No. 6) be, and the same hereby is, granted. Plaintiffs' federal claims are dismissed for failure to state a claim upon which relief can be granted and the court declines to exercise supplemental jurisdiction over the remaining state law claims. The report and recommendation is adopted as the opinion of the court.

As aptly demonstrated by a review of the decisions reflected in defendants' notices of supplemental authorities, plaintiffs' objections have been soundly rejected as being without merit. And after consideration of the grounds advanced in support of plaintiffs' objections and review of the other courts' reasoning in rejecting the federal claims in plaintiffs' complaint, we must agree. The clerk shall close this case.

REPORT AND RECOMMENDATION

MITCHELL, United States Magistrate Judge.

I. Recommendation:

It is respectfully recommended that the defendants' motion to dismiss the complaint (Docket No. 6) be granted.

II. Report:

Presently before the Court is the defendants' motion to dismiss the complaint for failure to state a viable claim.

The plaintiffs, Gary Amato, Brock Massey, Scott Smith and Ricky Davis, have filed a purported a class action complaint against defendants UPMC, UPMC Presbyterian Shadyside, UPMC Southside, UPMC St. Margaret, UPMC Emergency Medicine, and UPMC Braddock (collectively, "UPMC"), which are Pennsylvania non-profit corporations. The plaintiffs are individuals residing in Pennsylvania, who do not have health insurance and are ineligible for public aid. They complain that UPMC breached its obligations as a charitable, tax-exempt entity, because prior to receiving medical treatment at UPMC, they were required to sign a guaranty of payment, after which they were charged the "full sticker price" for their medical care, which they are unable to pay.

The plaintiffs contend that UPMC is a registered charitable entity under section 501(c)(3) of the Tax Code, 26 U.S.C. § 501(c)(3), as well as under state and local law, for which it has received tax exemptions from the United States, the Commonwealth of Pennsylvania and local governmental bodies; that in exchange for receiving its tax exemptions, UPMC entered into express or implied contracts with the United States, the Commonwealth of Pennsylvania, and local government bodies to provide affordable medical care to all patients, including its uninsured patients; and that despite receiving favorable tax exemptions, UPMC breached its contracts in these ways: by failing to provide emergency room medical care to its uninsured patients without regard to their ability to pay for such care, by charging its uninsured patients medical care at grossly inflated rates above the actual cost of such services, and by instituting demeaning collection proceedings to collect payments from its uninsured patients for medical care they received.

The plaintiffs bring this action on behalf of themselves, and an alleged class consisting of: "all uninsured patients and healthcare consumers of UPMC from its date of incorporation to the present, who did not qualify for Medicare and/or Medicaid and who were charged an amount for medical care in excess of the amount charged to Defendants' Medicare patients, and/or were pursued for such debt through collection efforts and lawsuits." (Complaint at ¶ 32). The complaint purports to raise three federal law claims and seven supplemental state law claims, and the Court's jurisdiction is invoked pursuant to 28 U.S.C. §§ 1331 and 1367.

The federal law claims arise in connection with UPMC's status as a registered charitable entity under 26 U.S.C. § 501(c)(3), for which it is said to have breached its contract with the United States (Count One), breached a charitable trust to the plaintiffs (Count Four) and violated the Emergency Medical Treatment and Active Labor Act, 42 U.S.C. § 1395 (Count Six), by conditioning emergency medical care on the plaintiffs' ability to pay for it.

As to the plaintiffs' state law claims, several of them are premised on UPMC's alleged misconduct in charging the plaintiffs unreasonable costs for their medical care in breach of the parties' form contracts for admission and treatment (Count Two), such that UPMC is said to have breached its duty of good faith and fair dealing (Count Three) and been unjustly enriched (Count Seven). UPMC is also alleged to have violated the Pennsylvania Unfair Trade Practices and Consumer Protection Law, 73 P.S. §§ 201.1, et seq. (Count Five), by charging the plaintiffs unreasonably high costs for medical care and utilizing harassing collection efforts to secure payment for such costs. The plaintiffs also assert a claim for injunctive relief to enjoin UPMC from its alleged misconduct (Count Eight). They also contend the defendants acted in concert (with a non-party to this suit) to breach UPMC's aforesaid contracts (Count Nine) and aided and abetted the breach of such contracts (Count Ten).

UPMC has moved to dismiss the complaint for failure to state a viable claim. In reviewing a motion to dismiss, all well-pleaded allegations of the complaint must be accepted as true and viewed in a light most favorable to the non-movant. Estelle v. Gamble, 429 U.S. 97, 97 S.Ct. 285, 50 L.Ed.2d 251 (1976); Shaev v. Saper, 320 F.3d 373, 375 (3d Cir.2003). As discussed below, the plaintiffs' purported federal claims in Counts One. Four and Six should be dismissed for failure to state a claim upon which relief may be granted.

In Count One, the plaintiffs contend they are third party beneficiaries to an express or implied contract between UPMC and the United States Government, under which the Government granted UPMC tax exempt status under 26 U.S.C. § 501(c)(3), in exchange for UPMC agreeing to operate for charitable purposes and to provide mutually affordable medical care to uninsured patients without regard to its patients' ability to pay for such care. Claiming that UPMC breached its contract with the United States, the plaintiffs insist they did not receive the benefit of that agreement.

To the extent the plaintiffs rely on § 501(c) of the Tax Code to assert a breach of contract claim, Count One of the complaint fails. The United States Supreme Court has stated:

[A]bsent some clear indication that the legislature intends to bind itself contractually, the presumption is that a law is not intended to create private contractual or vested rights... This well established presumption is grounded in the elementary proposition that the principal function of a legislature is not to make contracts, but to make laws that establish the policy of the state.

National R.R. Passenger Corp. v. Atchison, Topeka & Santa Fe Railway Co., 470 U.S. 451, 466, 105 S.Ct. 1441, 84 L.Ed.2d 432 (1985). Here, the statute at issue, 26 U.S.C. § 501(c), contains no language indicating that Congress intended to create contract rights inuring to any citizen.

Rather, the statute merely identifies organizations which are exempt from federal income taxes. See, 26 U.S.C. §§ 501(a) and 501(c)(3). "The notion that the Federal Income Tax is contractual or otherwise consensual in nature is not only utterly without foundation but, ... has been repeatedly rejected by the courts." McLaughlin v. Comm'r of IRS, 832 F.2d 986, 987 (7th Cir.1987). Indeed, the Supreme Court has long denied attempts to characterize a tax exemption as a contract. See, Stanislaus County v. San Joaquin & King's River Canal & Irrigation Co., 192 U.S. 201, 210, 24 S.Ct. 241, 48 L.Ed. 406 (1904), where the Court opined: "[N]o presumption exists in favor of a contract by a State to exempt lands from taxation, and ... every reasonable doubt should be resolved against it." Accord, Jones v. Pepsi Cola Bottling Co., 822 F.Supp. 396, 404 (E.D.Mich.1993) ("The act of applying for and being granted a tax exemption... does not involve the formation of any contractual relationship.").

Even assuming, arguendo, that a contract existed between the United States and UPMC by virtue of UPMC's status as a tax exempt entity, the plaintiffs have not pled facts that would permit them to enforce such a contract against UPMC. The Restatement (Second) of Contracts § 313(2) offers guidance on this issue and provides:

§ 313 Government Contracts

(2) In particular, a promisor who contracts with a government or governmental agency to do an act for or render a service to the public is not subject to contractual liability to a member of the public for consequential damages resulting from performance or failure to perform unless

(a) the terms of the promise provide for such liability; or

(b) the promisee is subject to liability to the member of the public for the damages and a direct action against the promisor is consistent with the terms of the contract and with the policy of the law authorizing the contract and prescribing remedies for its breach.

Here...