Bruehl v. Duke Univ.

Decision Date18 April 2022
Docket Number1:21CV590
CourtU.S. District Court — Middle District of North Carolina


Plaintiff Matthew Bruehl, M.D.[1] alleges that he was an employee of Duke University, Duke University Medical School, Duke University Health System, Inc., (collectively Duke Defendants) and Private Diagnostic Clinic, PLLC (PDC). He has sued the Duke Defendants and the PDC for violating 26 U.S.C. § 7434 and the North Carolina Wage and Hour Act (“NCWHA”) for their failure to treat all of his earnings as W-2 wages. The PDC has moved to dismiss the action pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. [Doc. #37.] The Duke Defendants have moved to dismiss the action pursuant to Rules 12(b)(4), (b)(5) and (b)(6) of the Federal Rules of Civil Procedure.[2] [Doc. #39.] Both motions are granted in part as to Count I, and the Court declines to exercise supplemental jurisdiction over Count II.


For purposes of the Rule 12(b)(6) motions, the facts are construed in the light most favorable to Dr. Bruehl and all reasonable inferences are drawn in his favor. U.S. ex rel. Oberg v. Pa. Higher Educ. Assistance Agency, 745 F.3d 131, 136 (4th Cir. 2014). On May 22, 2018, Dr. Bruehl, a licensed physician, was offered “a faculty position in the Department of Pediatrics at Duke Health” anticipated to be effective September 10, 2018. (Letter from Ann M. Reed, MD to Matthew Bruehl, MD (May 22, 2018) (“Offer Letter”), Ex. A to Second Am. Compl. (“SAC”) [Doc. #36-1]; SAC ¶¶ 15-17 [Doc. #36].) According to the Offer Letter, he would “have an appointment as an Assistant Professor, Track IV (Clinician-Teacher) and would “be a member of the Private Diagnostic Clinic (‘PDC'), [the] faculty practice plan.” (See also SAC ¶ 18.) At no time did Dr. Bruehl ask to be a member of the PDC he was told that being a member of the PDC was a condition of his employment.” (Id. ¶ 31.)

Dr. Bruehl would perform “academic activities . . . in [his] capacity as a Duke University School of Medicine faculty member”, which would account for 10% of his time. (Offer Letter; SAC ¶ 20.) For the other 90% of his time, he would perform “clinical activities . . . as a member of the PDC”. (Offer Letter; SAC ¶ 21.) In turn, the entities were responsible for paying proportionate amounts of Dr. Bruehl's $160, 000 annual compensation; the “University” was to pay $20, 000, while the PDC was to pay $140, 000. (Offer Letter; SAC ¶¶ 22-23.) He was eligible for benefits offered by “Duke Health” and those “associated with PDC membership”, and the PDC would pay a $5, 000 relocation allowance. (Offer Letter; SAC ¶ 24.)

The Offer Letter informed Dr. Bruehl that he also “need[ed] to sign the PDC Operating Agreement and related documents” and concluded by saying, We are very excited about the prospect of having you join the PDC and the faculty . . . at Duke Health.” (See also SAC ¶ 25.) He accepted the offer on June 4, 2018. (Offer Letter; SAC ¶ 16.)

On September 6, 2018, Dr. Bruehl attended the “New Member Orientation Program” for the PDC conducted by its “Benefits Representative” during which he completed and signed various documents as a “Member”, including those specific to the PDC (such as “PDC Direct Deposit Form”) and at least one specific to the PDC and “Duke” (such as “PDC & Duke Faculty Benefits Summary”). (Private Diagnostic Clinic, PLLC New Member Orientation Program, Ex. B to SAC; SAC ¶¶ 26-29.) According to the completed orientation form, other documents were to be provided to Dr. Bruehl “on the PDC Intranet Site”, including the “PDC Operating Agreement” and the “Departing Physician Notification”, and it was his “responsibility to be familiar with each policy and/or agreement.” (See also SAC ¶¶ 30, 32.) There was no “Departing Physician Notification” among the policies on the intranet, although there was a policy entitled “Departing Member; Patient Care; Confidential Information; Medical Documentation”. (Id. ¶ 33.)

Dr. Bruehl's first day of work was September 10, 2018, at which time he was asked to and did sign a document entitled “The Private Diagnostic Clinic, PLLC at Duke University Medical Center Durham, North Carolina, Addendum to Company Agreement, Member” (“Member Addendum”). (Member Addendum, Ex. C to SAC (all caps removed); SAC ¶¶ 34, 35.) The Member Addendum stated that Dr. Bruehl, “a member of the faculty of Duke University, hereby acknowledges that (s)he has read the Private Diagnostic Clinic Professional Limited Liability Company Operating Agreement of January 1, 1997, and hereby accepts all of the provisions and conditions thereof and agrees to be bound by such provisions and conditions as a Member of the Private Diagnostic Clinic.” (See also SAC ¶ 36.) The Member Addendum was to “be attached as an addendum to [the PDC Operating] Agreement”, (Operating Agreement of the Private Diagnostics Clinic, PLLC, Effective September 11, 2015, Ex. D to SAC (all caps removed)), but it was not, (SAC ¶ 35).

The PDC Operating Agreement provided that a Member's earnings “shall be determined by discussion and agreement between” the Member and the PDC Physicians Department Chair and “may be” determined by factors such as teaching, length of service, research, contribution to medical literature, service to Duke Health clinics, overall contribution to the Medical Center, gross income produced, and administrative duties. (PDC Operating Agreement § 5.3; SAC ¶ 37.) Yet, [o]ther than” accepting the Offer Letter on June 4, 2018, Dr. Bruehl “never participated in any discussions of his earnings as a member of the PDC”; instead, his compensation for services to Duke University, Duke School of Medicine, Duke Health Services, Inc., and the PDC “was sent in his offer letter.” (SAC ¶ 38.) Per the PDC Operating Agreement, he was also to “have a monthly drawing account in an amount” upon which he and his Department Chair agreed, (PDC Operating Agreement § 5.4, SAC ¶ 37), but he “had no written agreement with his Department chair as to the contents of any drawing account with the PDC”, (SAC ¶ 39).

Dr. Bruehl “had no control over the income and capital of the PDC”, “no right to make additional or fewer withdrawals”, and “no real obligation to share losses”. (Id. ¶¶ 40, 41, 48.) He “shared no mutual proprietary interest in the net profits” and “was not required to invest in the PDC”. (Id. ¶¶ 41, 48; see also Id. ¶ 55 (alleging that his Schedule K-1s indicate he “had no ownership interest in the PDC”) (citing Schedule K-1 (Form 1065), Ex. G to SAC).) He “did not pay for [his] own marketing and advertising related to client solicitation” and was “not required to purchase or pay for the equipment and tools necessary to perform [his] job”. (SAC ¶¶ 61, 62.) He was “not free to solicit [his] own clients”, was “required to treat all patients assigned” to him by Duke University Health System, and Defendants set his work schedule. (Id. ¶¶ 58, 60, 63.) The PDC “required compliance with” employment policies and procedures set by the Duke Defendants. (Id. ¶ 64.) Dr. Bruehl “exercised no control over the responsibilities of the PDC in any significant manner outside of the performance of his teaching and clinical duties for” Duke University Health System. (Id. ¶ 59.) “On [his] information and belief in 2018 and 2019 [he] was one of over 1000 ‘members' of the PDC.” (Id. ¶ 49.)

“DU” (Duke University) and the PDC paid Dr. Bruehl “a regular fixed monthly wage” “pursuant to his offer letter”, and Defendants issued him both a W-2 and a K-1 in 2018 and 2019. (Id. ¶¶ 42, 81.) Benefits and taxes were deducted from his “Duke University/Health System” monthly gross pay. (Duke University/Health System Monthly Payroll Statement, Ex. E to SAC; SAC ¶ 42.) However, no taxes were deducted from his “regular fixed monthly wage” as a PDC “employee” or from “the occasional additional earnings payments” he received as a “member”. (SAC ¶¶ 43, 44; see also Private Diagnostic Clinic, PLLC Earnings Statement, Ex. F to SAC.) The only deductions were for “Profit Sharing”. (PDC Earnings Statements.)[3]

Dr. Bruehl's monthly payments from the PDC were treated as “K-1 wages” even though he “never came to any mutually negotiated agreement” to that effect and “never actively sought membership in the PDC”. (SAC ¶ 72; see also id. ¶ 73.)

[I]nstead”, he was “informed that [his] employment with Defendant Duke University (including the Duke University Health System and the Duke University Medical School) was conditioned upon being a member of the PDC.” (Id.; see also id. ¶ 77 (alleging that his Offer Letter and the PDC Operating Agreement “made it clear that [he] could not be a faculty member employee without being a PDC member” and that the “offer to provide clinical and teaching services” to Duke University “was dependent on [his] signing the PDC Operating Agreement”).)

Dr. Bruehl alleges that these circumstances show that the PDC is a “sham partnership for tax purposes” with the “sole purpose” of “limit[ing] the amount of employment taxes owed by Defendants [Duke University] and [Duke University Health System] for the clinical and teaching services” he rendered. (SAC ¶ 47; see also id. ¶¶ 55.) He claims that all Defendants “attempt[ed] to circumvent their responsibility as employers” by distinguishing “between services” that he provided “as a faculty employee of the [Duke Defendants] and [those that he provided] as a physician working for the PDC and the [Duke University Health System]. (Id. ¶ 75; see also id. ¶ 76.)

According to Dr. Bruehl, he was a ...

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