Ferguson v. Centura Health Corp.

• Decision Date: 29 December 2004
• Docket Number: No. CIV.A. 04-M-1285.,CIV.A. 04-M-1285.
• Citation: 358 F.Supp.2d 1014
• Parties: George Scott FERGUSON, on behalf of himself and all others similarly situated; Adrian Linares, on behalf of himself and all others similarly situated; Gary Stoeber, on behalf of himself and others similarly situated; Ginger Gentry, on behalf of herself and all others similarly situated; Plaintiffs, v. CENTURA HEALTH CORPORATION; Catholic Health Initiatives; Catholic Health Initiatives Colorado; Portercare Adventist Health System; and American Hospital Association, Defendants.
• Court: U.S. District Court — District of Colorado

358 F.Supp.2d 1014

George Scott FERGUSON, on behalf of himself and all others similarly situated; Adrian Linares, on behalf of himself and all others similarly situated; Gary Stoeber, on behalf of himself and others similarly situated; Ginger Gentry, on behalf of herself and all others similarly situated; Plaintiffs, v. CENTURA HEALTH CORPORATION; Catholic Health Initiatives; Catholic Health Initiatives Colorado; Portercare Adventist Health System; and American Hospital Association, Defendants.

No. CIV.A. 04-M-1285.

United States District Court, D. Colorado.

December 29, 2004.

William R. Gray, Purvis, Gray & Murphy, LLP, Boulder, CO, for Plaintiff.

Ty Cobb, Stuart M. Altman, Denver, CO, Andrew Ryan Shoemaker, Boulder, CO, for Defendant.

MEMORANDUM OPINION AND ORDER OF DISMISSAL

MATSCH, Senior District Judge.

The plaintiffs in their Second Amended Class Action Complaint seek to form a class of all persons who received any form of healthcare treatment at any hospitals and healthcare systems operated by the hospital defendants from June 18, 1994 through the date of commencement of class notice and who were uninsured at the time of treatment, for the purpose of obtaining an injunction requiring the hospital defendants to cease and desist from "charging the Plaintiffs and the Class the highest and full undiscounted cost of medical care; charging the Plaintiffs and the Class a higher amount for medical services than their uninsured patients for the same services; and utilizing aggressive, abusive, and harassing collection practices such as collection lawsuits, liens, and garnishments to collect outstanding grossly inflated medical debt from the Plaintiffs and the Class." Second Am. Compl. at ¶ 117. The plaintiffs also seek a prospective order requiring the hospital defendants "to provide mutually affordable medical care to the Plaintiffs and the Class; to charge the Plaintiffs and the Class no more for medical services than it [sic] charges their insured patients, and to cease their attempts to collect outstanding medical debt from the Plaintiffs and the Class until they have complied with a 180-day waiting period and attempted in good faith to settle such outstanding debt with the Plaintiffs and the Class through a graduated payment plan or other means." Id. at ¶ 118.

The legal premise underlying these broad claims for equitable relief is that each of the hospital defendants is a tax-exempt organization under 26 U.S.C. § 501(c)(3), requiring it to be organized and operated exclusively for charitable purposes with no part of its net earnings inuring to the benefit of any private shareholder or individual. The plaintiffs contend the granting of that exemption forms a contract enforceable by those who are intended beneficiaries. The plaintiffs also seek all economic, monetary, actual and compensatory damages "caused by the conduct of Defendants" and the imposition of a constructive trust on the hospital defendants' net assets and the revenues "in an amount sufficient to provide the Plaintiffs and the class mutually affordable remedial care." Second Am. Compl. at p. 36.

Because that premise is patently untenable, the defendants' motions to dismiss all claims dependent upon it are granted. There is no private right of action created by § 501(c)(3) of the Internal Revenue Code ("I.R.C."). In Boswell v. Skywest Airlines, Inc., 361 F.3d 1263 (10th Cir.2004), the Tenth Circuit Court of Appeals construed Supreme Court opinions to direct the inquiry into Congressional intent to create a private right of action by implication by examining the subject statute for "rights creating language" and language identifying "the class whose especial benefit the statute was enacted." Id. at 1267 (quoting Alexander v. Sandoval, 532 U.S. 275, 288, 121 S.Ct. 1511, 149 L.Ed.2d 517 (2001) and Cannon v. Univ. of Chicago, 441 U.S. 677, 688 n. 9, 99 S.Ct. 1946, 60 L.Ed.2d 560 (1979)). The court must also "consider the relation between the specific provision at issue and the related statutory scheme." Boswell, 361 F.3d at 1267.

Each of the named plaintiffs alleges the receipt of treatment and medical care at one of the defendant hospitals when he or she had no medical insurance and was charged at rates exceeding the actual costs of providing that treatment and care, resulting in each patient being in "an untenable financial position teetering on the brink of ruin." The allegations do not expressly state the reasons for the lack of insurance but it is assumed that the plaintiffs are unable to pay premiums. They all assert that they were entitled to some form of charity which the hospitals denied them in violation of the alleged statutory duty.

The text of § 501(c)(3) contains no rights-creating language indicating that Congress intended it to be enforced by uninsured patients or by members of the general public. The focus of both § 501(c)(3) and Treas. Reg. § 1.501(c)(3)-1 is the activities of entities seeking tax exemptions. "Statutes that focus on the person regulated rather than the individuals protected create `no implication of an intent to confer rights on a particular class of persons.'" Sandoval, 532 U.S. at 289, 121 S.Ct. 1511 (quoting California v. Sierra Club, 451 U.S. 287, 294, 101 S.Ct. 1775, 68 L.Ed.2d 101 (1981)).

The plaintiffs contend the definition of "charitable" provided in Treas. Reg. § 1.501(c)(3)-1 compels the conclusion that they are entitled to bring suit under § 501(c)(3). Regulatory language alone does not create a private right of action. See Sandoval, 532 U.S. at 291, 121 S.Ct. 1511. "[I]t is most certainly incorrect to say that language in a regulation can conjure up a private right of action that has not been authorized by Congress." Id.

The plaintiffs also rely on the following statement from the legislative history of the charitable exemption: "The exemption from taxation of money or property devoted to charitable and other purposes is based upon the theory that the government is compensated for the loss of revenue by its relief from financial burdens which would otherwise have to be met by appropriations from public funds, and by the benefits resulting from the promotion of the general welfare." (Pls.' Opp'n Br. at 10, citing H.R.Rep. No. 1860, 75th Cong., 3d Sess., 19 (1938), quoted in Bob Jones Univ. v. United States, 461 U.S. 574, 590, 103 S.Ct. 2017, 76 L.Ed.2d 157 (1983)). The quoted statement says nothing about any class for whose benefit the statute was enacted. In Orient v. Linus Pauling Inst. of Sci. & Med., 936 F.Supp. 704, 708 (D.Ariz.1996), the court concluded — upon a review of § 501(c)(3), Treasury regulations, and legislative history — that "Congress likely enacted the tax-exemption with the intent of benefitting those corporations wishing to pursue charitable and scientific ventures at the expense of pecuniary gain."

Taken in context, § 501(c)(3) cannot be construed to create an implied private action for enforcement. I.R.C. § 7801(a) states, "Except as otherwise expressly provided by law, the administration and enforcement of [the tax code] shall be performed by or under the supervision of the Secretary of the Treasury." I.R.C. § 7401 prohibits actions for the collection or recovery of taxes except those authorized by the Secretary of the Treasury and directed by the Attorney General. If an organization previously determined by the Internal Revenue Service to be exempt no longer meets the criteria for maintaining its exempt status, the IRS has the authority to revoke the exemption. See, e.g., Bob Jones Univ. v. Simon, 416 U.S. 725, 94 S.Ct. 2038, 40 L.Ed.2d 496 (1974), Treas. Reg. § 601.201(n). I.R.C. § 7428 permits declaratory judgment actions relating to the Secretary's determination of an organization's status and classification under § 510(c)(3), but such an action may be brought only by an organization whose qualification or classification is at issue. I.R.C. § 7428(b)(1). No provision of the Internal Revenue Code authorizes third parties (i.e., persons other than the taxpayer) to challenge determinations made under § 501(c)(3) or to seek declaratory or injunctive relief under that section. In contrast, other provisions of the tax code specifically authorize actions by third parties affected by tax collection activities or IRS proceedings. See, e.g., I.R.C. § 7426 (civil actions by persons other than taxpayers); see generally Title 26, chapter 76, subchapter B (proceedings by taxpayers and third parties). "[W]here Congress has otherwise enacted `a comprehensive legislative scheme, including an integrated system of procedures for enforcement,' there is a strong presumption that Congress deliberately did not create a private cause of action." Tax Analysts v. Internal Revenue Service, 214 F.3d 179, 186 (D.C.Cir.2000) (quoting Mass. Mut. Life Ins. Co. v. Russell, 473 U.S. 134, 147, 105 S.Ct. 3085, 87 L.Ed.2d 96 (1985)).

The plaintiffs argue the analogy of the Hill-Burton Act, 42 U.S.C. § 291 et seq., granting federal funds to the states for the purpose of assisting state programs for the construction and modernization of hospitals and other medical facilities. To participate in the Hill-Burton program, a state must submit a plan, and an applicant for federal funds, such as a hospital facility, must meet certain requirements, including giving assurances that it will provide "a reasonable volume of services to persons unable to pay therefor...." Id. § 291c(e)(2). In Euresti v. Stenner, 458 F.2d 1115, 1118-19 (10th Cir.1972), the United States Court of Appeals for the Tenth Circuit held that a private right of action exists under the Hill-Burton Act and so permitted indigent persons to bring suit against a hospital facility to enforce the facility's obligation to provide services to the indigent.

The plaintiffs' reliance on Euresti and the Hill-Burton Act is misplaced. The Hill-Burton Act is not within the comprehensive statutory structure of the Internal Revenue Code. The...