Hlatky v. Steward Health Care Sys., LLC.

• Decision Date: 28 April 2020
• Docket Number: SJC-12688
• Parties: Lynn HLATKY v. STEWARD HEALTH CARE SYSTEM, LLC.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

484 Mass. 566

144 N.E.3d 229

Lynn HLATKY

v.STEWARD HEALTH CARE SYSTEM, LLC.

SJC-12688

Supreme Judicial Court of Massachusetts, Suffolk..

Argued September 9, 2019

Decided April 28, 2020

Kevin P. Martin (Brian T. Burgess, of the District of Columbia, also present) for the defendant.

Joseph L. Bierwirth (M. Patrick Moore, Jr., also present) for the plaintiff.

Ben Robbins & Martin J. Newhouse, for New England Law Foundation, amicus curiae, submitted a brief.

Present: Gants, C.J., Lenk, Gaziano, Lowy, Budd, & Cypher, JJ.

RESCRIPT

After a trial that was bifurcated on the issues of liability and damages, a jury in the Superior Court found that the defendant, Steward Health Care System, LLC (Steward), committed a breach of the express terms of its contract with the plaintiff, Lynn Hlatky, as well as the contract's implied covenant of good faith and fair dealing, when Steward withdrew its support for Hlatky's cancer

research laboratory, causing the laboratory to close its operations. The jury awarded Hlatky in excess of $22 million in damages for the breach. The trial judge denied Steward's motion for a judgment notwithstanding the verdict or, in the alternative, to amend the judgment. However, the judge conditionally ordered a new trial unless Hlatky agreed to remit all but $10.2 million of the damages awarded; this figure represented $200,000 incurred by Hlatky in out-of-pocket mitigation costs and $10 million that she testified was necessary to reestablish her laboratory. Hlatky accepted the remittitur while reserving her right to appeal.

Both sides appealed. Steward makes three principal claims. First, it argues that the judge erred as a matter of law in allowing Hlatky to recover damages for the cost of reestablishing her laboratory, where she did not personally own any of the laboratory's equipment or have any ownership interest in the Federal grants that the laboratory received to fund its operations. Second, Steward argues that, even if Hlatky could be awarded damages for the cost of reestablishing a laboratory, the judge abused her discretion in awarding Hlatky $10.2 million on remittitur because, in the absence of expert testimony or other competent evidence as to the cost of reestablishing the laboratory, the evidence was insufficient as a matter of law to support any award other than the out-of-pocket mitigation costs incurred by Hlatky in the amount of $200,000. Third, Steward claims that the judge erred in granting prejudgment interest from the date of the breach rather than the date that Hlatky filed her complaint. In her cross appeal, Hlatky argues that the judge abused her discretion in conditionally ordering a new trial and remitting the award of damages to $10.2 million.

Six Justices participated in this appeal.¹ The Justices unanimously agree that the trial evidence supported the finding that Steward, by withdrawing its promised support for the research laboratory, committed a breach of both the express terms of the contract and the implied covenant of good faith and fair dealing; that, in the unique circumstances of this case, the cost of reestablishing a cancer

research laboratory was a permissible element of the damages, as it would restore Hlatky to the position in which she would have been had Steward complied with its contractual obligations; that the judge did not abuse her discretion in conditionally ordering a new trial and a remittitur of all but $10.2 million of the award of damages; and that prejudgment interest should run on the award of damages from February 7, 2014, the date Hlatky commenced this action by filing her complaint. As to these aspects of the appeal, all Justices agree with the reasoning set forth in parts 1.a, 2, 3, and 4 of Chief Justice Gants's opinion, post.

The Justices are equally divided, however, as to one aspect of the award of damages. Three Justices -- Chief Justice Gants, joined by Justices Gaziano and Lowy -- are of the view that the amount of damages attributable to the cost of reestablishing Hlatky's laboratory ($10 million) should not go to Hlatky outright, but rather should be subject to a restriction that would ensure that this portion of the award (plus the prejudgment interest attributed to it) would be devoted solely to reestablishing a functioning cancer

laboratory or supporting comparable cancer research, and would not be used by Hlatky for other purposes. Post at 592-97, 143 N.E.3d at 250-54. Three other Justices -- Justice Lenk, joined by Justices Budd and Cypher -- would impose no such restriction, for the reasons set forth in Justice Lenk's concurring opinion, post at 569-92, 143 N.E.3d at 233-51. Because the court is equally divided on this point, the award of damages (after the remittitur) shall stand without any restriction.

Therefore, by a unanimous court, the judgment on liability is affirmed. The judge's order denying Steward's motion for judgment notwithstanding the verdict or, in the alternative, to amend the judgment, and her order conditionally granting a new trial unless Hlatky remitted all but $10.2 million of the award of damages, are also affirmed by a unanimous court. By an equally divided court, the award of damages outright to Hlatky without restriction is also affirmed. Finally, the judge's order concerning prejudgment interest is vacated, and, in its place, an order shall enter stating that the prejudgment interest runs from the date of the commencement of this action.

So ordered.

GANTS, C.J. (concurring in part and dissenting in part, with whom Gaziano and Lowy, JJ., join).

As explained in the foregoing opinion, I am joined by all of my colleagues on the quorum with respect to parts 1.a, 2, 3, and 4 of the "Discussion" section below. With respect to part 1.b, however, I write only for myself and for Justices Gaziano and Lowy.

Background. 1. Facts. The facts that the jury reasonably could have found from the evidence are as follows.

Lynn Hlatky is a cancer

researcher who received her Ph.D. in physics and biophysics from the University of California-Berkeley (Berkeley) in 1985. While at Berkeley, Hlatky was awarded her first research grant from the National Cancer Institute to develop what she characterized as a "model for cancer" using physics. Her model became the standard in the field and helped her achieve professional prominence.

Thereafter, Harvard Medical School (Harvard) recruited Hlatky, and in 1989 she joined the radiation and oncology department as a faculty member. At Harvard, Hlatky established her first research laboratory, in part using equipment she brought with her from Berkeley. Hlatky worked at Harvard for sixteen years, conducting "wet lab" or benchtop research, with a focus on combining the fields of mathematics and cancer

biology to improve cancer treatment modeling. In 2004, Hlatky applied for and received a $10 million research grant from the National Aeronautics and Space Administration (NASA), and served as the principal investigator for the grant.¹

In the world of Federal grant funding for scientific research projects, grants are typically awarded based on an evaluation of the ability of the principal investigator, the quality of the science, and the institutional support for the project. The principal investigator is the person responsible for the research, and essentially runs the laboratory, but the grant is awarded to and administered by the nonprofit organization or institution, which receives and disburses the grant funds and serves as the project administrator.

Usually, a research administrator at the nonprofit institution is responsible for helping the principal investigator apply for grants and ensures that all funds are used in accordance with applicable law and grant requirements.

When a laboratory purchases equipment for a research project, the institution incurs the expense and then seeks reimbursement by the Federal grantor from awarded grant funds. If a principal investigator wishes to move her research and grant funding from one institution to another, the current institution could relinquish the remainder of the grant, and the next institution would apply to take over its administration. The principal investigator might also request to take the equipment that was purchased with Federal grant funds to her new laboratory. When there is a dispute between the investigator and the institution regarding the transfer of grant funding or of laboratory equipment, the Federal grantor decides whether the funding and equipment follow the principal investigator.

In 2005, after Hlatky secured the research grant from NASA, she moved her laboratory to St. Elizabeth's Hospital, which was part of the Caritas Christi Hospital system (Caritas). Hlatky brought with her to Caritas not only the NASA grant, but also her team members, equipment, reagents, and, most importantly, cell samples generated through her research. The cell samples were stored in small vials, tens of thousands of which were placed inside large, specialized freezers containing liquid nitrogen. After moving to Caritas, Hlatky founded the Center of Cancer Systems Biology (Center) and continued to expand her laboratory by obtaining additional Federal grant funding. She used the funds to renovate her laboratory space, hire additional researchers, and purchase specialized equipment, such as incubators, sterile hoods, and "minus 80 degree" freezers for her samples.

Steward Health Care System, LLC (Steward), a private, for-profit hospital system, acquired Caritas in November 2010. After the acquisition, Hlatky continued to manage the Center and work as the principal investigator without a contract from Steward for more than a year. During this period, other institutions, including Tufts Medical Center, encouraged Hlatky to relocate the Center to their respective institutions, but she wished to stay at Steward if possible because of the difficulty involved in moving her laboratory. At that time, Hlatky and her team had developed a unique method for...