Healthone, Inc. v. Columbia Wesley Medical Center

Decision Date07 April 2000
Docket NumberNo. 97-1494-WEB.,97-1494-WEB.
Citation93 F.Supp.2d 1152
PartiesHEALTHONE, INC., Plaintiff, v. COLUMBIA WESLEY MEDICAL CENTER and Columbia/HCA Healthcare Corporation, Defendants.
CourtU.S. District Court — District of Kansas

Dennis L. Gillen, Depew and Gillen, L.L.C., Wichita, KS, Larry B. Spikes, Martin, Pringle, Oliver, Wallace & Swartz, L.L.P., Wichta, KS, Sheila M. Bossier, HealthOne, Inc., Jackson, MS, Thomas C. Gerity, Copeland, Cook, Taylor & Bush, Ridgeland, MS, for Plaintiff.

John H. Gibson, Judd A. Liebau, Boyer, Donaldson & Stewart, Wichita, KS, Gerald L. Green, Gilliland & Hayes, P.A., Hutchinson, KS, Mark R. Maloney, Gilliland & Hayes, P.A., Wichita, KS, George A. Shannon, Jr., Carlos Mattioli, Elizabeth D. Alvardo, Shannon, Martin Finklestein & Sayre, P.C., Houston, TX, for Defendants.

Memorandum and Order

WESLEY E. BROWN, Senior District Judge.

Plaintiff HealthOne, Inc., filed this action alleging that defendants Columbia Wesley Medical Center ("Wesley") and Columbia/HCA Healthcare Corporation ("Columbia/HCA") breached a contract with HealthOne and are liable for actual and punitive damages. Wesley has filed a counterclaim alleging that HealthOne breached the contract. The matter is now before the court on the defendants' motions for summary judgment (Docs.160, 164) and on defendant Wesley's motion for a determination of controlling law (Doc. 162). Although the parties have requested oral argument on the motions, the parties' briefs present the issues clearly and the court concludes that oral argument would not assist in deciding the issues presented. See D.Kan.R. 7.2.

I. Background.

The contract in question was entered into by HealthOne and Wesley on October 17, 1996. According to recitals in the contract, HealthOne is in the business of securing and collecting "third party liability claims" on behalf of hospitals and has designed copyrighted forms and procedures "to establish hospitals as priority creditors" with regard to third party claims. Wesley, according to the recitals, wanted to implement and utilize HealthOne's forms and techniques in the collection of third party liability claims. HealthOne agreed to provide Wesley "a systematic priority claims process for use in the collection of third party liability cases." The contract called for Wesley to include HealthOne's copyrighted language in Wesley's patient admission forms and for HealthOne to provide a representative to work with Wesley on potential third party liability cases. Wesley agreed to exclusively refer all third party liability cases to HealthOne. If HealthOne's investigation showed that a claim was not a third party liability case, it was to redirect the claim to Wesley patient representatives for the normal collection process and there would be no fee due to HealthOne. If a claim was found to a third party liability claim, however, HealthOne was to be paid a fee of 25% of its actual collections on the claim. The commission was payable at the end of each month based on actual collections posted during the month. The term of the contract was to be two years beginning November 1, 1996, but Wesley could terminate the contract at any time, with or without cause, upon 180 days' written notice.

II. Motion for Determination of Controlling Law.

The contract between HealthOne and Wesley contains a clause stating: "It is agreed that this Contract is entered into under the laws of the State of Mississippi, and any disputed portions of said Contract will be interpreted by and under the laws of the State of Mississippi." In a motion for determination of controlling law, Wesley argues that despite this provision "Kansas law applies because there is no language giving exclusive jurisdiction to the Mississippi Courts." Doc. 162 at 4. In support of its argument Wesley cites numerous cases discussing the effect of forum selection clauses. Such cases have nothing to do with determining which state's law governs a dispute, however; they concern the selection of the appropriate forum in which to bring a claim.

Plaintiff initially filed this action in state district court in Hinds County, Mississippi. The action was then removed to the U.S. District Court for the Southern District of Mississippi, which determined that venue in that district was improper; the court therefore transferred the action to this district pursuant to 28 U.S.C. § 1406(a). See Doc. 9 at 5.1 When a case is transferred because of improper venue, the choice-of-law rules of the state of the transferee court apply. See GBJ Corp. v. Eastern Ohio Paving Co., 139 F.3d 1080, 1084-85 (6th Cir.1998); Leader Nat'l. Ins. Co. v. Shaw, 901 F.Supp. 316, 320 (W.D.Okla.1995). Thus, Kansas' choice of law rules determine which state's substantive law governs the dispute.

"Federal courts in Kansas routinely enforce the parties' contractual choice-of-law provisions under Kansas choice-of-law rules." Altrutech, Inc. v. Hooper Holmes, Inc., 6 F.Supp.2d 1269, 1273 (D.Kan.1998). "Under Kansas law, the enforceability of a contractual choice-of-law provision turns on whether the forum selected bears a reasonable relation to the contract at issue." Id. (Citing Atchison Casting Corp. v. Dofasco, Inc., 889 F.Supp. 1445, 1455 (D.Kan.1995)). See also National Equipment Rental, Ltd. v. Taylor, 225 Kan. 58, 61, 587 P.2d 870, 873 (1978) (applying a contractual choice of law provision where the transaction at issue at least had "a reasonable relation" to the denominated state). In this case, a reasonable relation exists because HealthOne's corporate headquarters are in Mississippi, and payments under the contract were to be directed to HealthOne in Mississippi. Cf. Altrutech, 6 F.Supp.2d at 1273; Restatement (Second) Conflict of Laws, § 187, comment f. The court will therefore give effect to the choice of law provision in the parties' contract and will apply Mississippi law, with one caveat: as will be explained below, Mississippi law will not be applied insofar as the result would contravene fundamental public policy of the law of Kansas.

In tort cases, Kansas courts will not apply the law of another state if such application is contrary to the settled public policy of Kansas. See e.g. Hartford Accident & Indem. Co. v. American Red Ball Transit Co., 262 Kan. 570, 574, 938 P.2d 1281 (1997). The court finds no Kansas cases applying the same rule to a contractual choice of law provision, but concludes Kansas courts would likely follow the Restatement (Second) on Conflicts of Law § 187, under which a contractual choice of law will not be applied if application of the law of the chosen state would be contrary to a fundamental policy of Kansas where Kansas has a materially greater interest than the chosen state in the determination of the particular issue, and where Kansas law would apply in the absence of an effective choice of law by the parties. See Hartford Accident & Indem. Co. v. American Red Ball Transit Co., 262 Kan. 570, 575, 938 P.2d 1281, 1286 (1997); St. Francis Regional Med. Center, Inc. v. Critical Care, Inc., 997 F.Supp. 1413, 1436, n. 30 (D.Kan.1997) ("Both the Kansas Supreme Court and the Tenth Circuit Court of Appeals have looked to Restatement (Second) Conflict of Laws § 187 (1971) for guidance."). In this case Kansas has a materially greater interest in the determination of the issues presented, and its law would govern in the absence of an effective choice of law.

III. Defendant Wesley's Motion for Summary Judgment.
A. Facts.

For purposes of Wesley's motion for summary judgment, the court finds no genuine dispute as to the following facts (or to the facts set forth above in the Background section).

1. The contract required Wesley to use HealthOne's copyrighted assignment language in Wesley's patient admissions agreements.

2. The assignment language in the admission agreements included the following: "Debtor [the patient] absolutely assigns to the hospital all insurance benefits under which Debtor is an insured; whether hospital, medical, or liability insurance, and also absolutely assigns to the hospital the proceeds of any judgement or settlement of any claim against any third party and any and all other amounts which may be determined to be owed to Debtor in connection with any injury suffered by patient which gives rise to the debt incurred during this period of hospitalization. * * * I authorize and direct that all such payments and proceeds shall be made directly to the hospital under the terms of this assignment. To the extent that the hospital receives such proceeds and/or payments, this will be payment of the debt, but shall not relieve Debtor of the obligation to pay when and as due that portion of the debt not satisfied by such proceeds and/or payments. * * * If the hospital receives more money than the amount of the debt, the hospital may apply the difference to any unpaid bills of the Debtor to the hospital from any other period(s) of hospitalization and any attorneys' fees and expenses Debtor may owe under this agreement. If the debt has been paid in full, then the hospital will, within ninety days of the same, refund to the Debtor any overpayment." Wesley Att. B.

3. The assignment is the key to the HealthOne system. The assignment must be signed before the HealthOne system can work. HealthOne claims representatives could not pursue payment from payors absent the assignment.

4. In July of 1996, Matthew J. Glavin published an article in "Dispatch," a newsletter of the Virginia Chapter of the Healthcare Financial Management Association. Wesley Att. D. The article was entitled "The Healthcare Provider: A Priority Creditor." For his article, Glavin interviewed Burns McFarland, the president of HealthOne, Inc., regarding how HealthOne's system operated and how it would assist hospitals in the collection of their bills. The article contained the following statements:

Quite simply, healthcare providers have long suffered from non-payment for services...

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