Janda v. Madera Community Hosp.

Decision Date17 August 1998
Docket NumberNo. CV-F-98-5021 OWW DLB.,CV-F-98-5021 OWW DLB.
Citation16 F.Supp.2d 1181
PartiesJohn P.S. JANDA, M.D., Plaintiff, v. MADERA COMMUNITY HOSPITAL, Robert C. Kelley, Ronald Castonguay, M.D., Mohammad Arain, M.D., Kenneth Bernstein, M.D., Kanwal J. Singh, M.D., David B. Kaye, M.D., Theodore Nassar, M.D., Satwant Samrao, M.D., Louis Hernandez, M.D., David Berry, Anna Dasilva and Georgia Baker, Defendants.
CourtU.S. District Court — Eastern District of California

Scott R. Shewan, Born Pape and Shewan, Clovis, CA, Robert N. Meals, Meals and Bor, Seattle, WA, for Plaintiff.

Carey H. Johnson, Stammer McKnight Barnum and Bailey, Fresno, CA, for Defendants.

MEMORANDUM OPINION RE: DEFENDANTS' MOTION TO DISMISS PURSUANT TO FED. R. CIV. P. 12(b)(6)

WANGER, District Judge.

I. INTRODUCTION

Plaintiff John P.S. Janda, a physician, initiated this suit on January 7, 1998, after the Madera Community Hospital closed its orthopedic department, alleging the closure was undertaken to eliminate non-Caucasian physicians to change the racial composition of the orthopedic department. Plaintiff asserts state law and civil rights claims under 42 U.S.C. §§ 1981, 1985(3) against Defendants.

Defendants move to dismiss Plaintiff's fourth and fifth claims for failure to state a claim. See Fed.R.Civ.P. 12(b)(6). The motion is DENIED IN PART AND GRANTED IN PART.

II. FACTUAL BACKGROUND

Plaintiff was born in India to Indian parents and is now a United States citizen. He is an orthopedic surgeon licensed to practice medicine in the state of California. In 1983 Plaintiff was appointed to Madera Community Hospital's ("Hospital") courtesy medical staff. Three years later, in 1986, Dr. Janda was elevated to the Hospital's "active" staff.

The Hospital is a private, not-for-profit hospital organized under the laws of California. Its medical departments are managed under an "open" and "closed" system. In an "open staff" system, all "qualified" physicians with medical staff privileges are permitted to work at the Hospital in their respective medical departments. Under a "closed system," the Hospital contracts with an "exclusive provider" or particular physician group for certain medical services, thereby "closing" the medical practice to other physicians who are not members or employees of the contracted physician group.

At the beginning of 1997, the Hospital's orthopedic surgery staff operated under an "open" system. Dr. Janda and Dr. Ronald Castonguay, a Caucasian, were the only two orthopedic surgeons on the active staff. Dr. Soo-Ill Chang, an orthopedic surgeon, was a member of the Hospital's "courtesy" staff, but resigned his membership in April of 1997.

Because the orthopedics staff was experiencing heavy on-call and emergency room coverage in early 1997, Dr. Janda recommended to the Hospital it consider retaining Dr. Rajiv Puri, an orthopedic surgeon. Dr. Puri was born in India. Dr. Castonguay allegedly met with the Hospital's chief executive officer, Robert C. Kelley, and threatened to resign if Dr. Puri was retained on the orthopedics staff.

In May 1997, the Hospital, through its Chief Executive Officer, the Medical Executive Committee, and the Board of Trustees, in consultation with Dr. Castonguay, decided to "close" the orthopedic department and award an exclusive contract to Dr. Castonguay. The "closed" system, according to Dr. Janda, effectively vitiated his medical privileges at the Hospital.

Dr. Janda alleges that "Defendants' actions in awarding the exclusive contract to Dr. Castonguay, in excluding [him] from the medical staff, and in keeping Dr. Puri off the medical staff, were motivated by a belief that the medical staff was comprised of too many physicians from various ethnic minorities, and an expressed desire to bring more Caucasians onto the medical staff." Pl.'s Compl. at ¶ 19. Such racial animus contravenes the Hospital's bylaws, which provide that "[n]o aspect of medical staff membership or particular clinical privileges shall be denied on the basis of race, color, ethnic group, religion, national origin ... unrelated to the ability to fulfill patient care and required medical staff obligations."

Dr. Janda alleges the Hospital: (1) violated 42 U.S.C. § 1981; (2) violated 42 U.S.C. § 1985(3); (3) infringed a physician's right to practice his profession under California law; (4) breached their employment contract by violating the Bylaws; and (5) intentionally interfered with economic relations. Plaintiff seeks compensatory and punitive damages, attorneys' fees and costs.

III. Legal Standard

A motion to dismiss for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6) is disfavored and rarely granted: "a complaint should not be dismissed for failure to state a claim unless it appears beyond a doubt that the Plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957). In deciding a motion to dismiss, the court "must accept as true all material allegations in the complaint and construe them in the light most favorable to" the plaintiff. NL Indus. v. Kaplan, 792 F.2d 896, 898 (9th Cir.1986). Conclusions of law, however, are not presumed true. Western Mining Council v. Watt, 643 F.2d 618, 624 (9th Cir.), cert. denied, 454 U.S. 1031, 102 S.Ct. 567, 70 L.Ed.2d 474 (1981).

The court need not accept as true allegations that contradict facts which may be judicially noticed. Mullis v. United States Bankruptcy Ct., 828 F.2d 1385, 1388 (9th Cir.1987), cert. denied, 486 U.S. 1040, 108 S.Ct. 2031, 100 L.Ed.2d 616 (1988). For example, matters of public record may be considered, including pleadings, orders, and other papers filed with the court or records of administrative bodies, Mack v. South Bay Beer Distributors, 798 F.2d 1279, 1282 (9th Cir.1986), conclusory allegations, unreasonable inferences, or unwarranted deductions of fact need not be accepted, Western Mining Council, 643 F.2d at 624, and allegations in the complaint may be disregarded if contradicted by facts established by exhibits attached to the complaint, Durning v. First Boston Corp., 815 F.2d 1265, 1267 (9th Cir.), cert. denied, 484 U.S. 944, 108 S.Ct. 330, 98 L.Ed.2d 358 (1987).

IV. ANALYSIS AND DISCUSSION
A. Do the Hospital's Bylaws Create an Enforceable Contract?

According to the complaint, the relationship between the Hospital and its physicians is governed by the "Bylaws of the Medical Staff of Madera Hospital" ("Bylaws"). The Plaintiff contends that the "Bylaws form a contract between the Hospital and the members of its medical staff." Pl.'s Compl. at ¶ 9. Dr. Janda claims this "contract" was breached when Defendants, in violation of the Bylaws, closed the orthopedics department in order to exclude non-Caucasian physicians. Id. at ¶ 10. Defendants move to dismiss this cause of action on the grounds that Plaintiff has not established that the Bylaws constitute an enforceable contract between the Hospital and Plaintiff.

1. Split of Authority

Although there is no case directly on point in California1, the majority of jurisdictions have held that hospital bylaws, when approved and adopted by the governing board, are a binding and enforceable contract between the hospital and physicians. Islami v. Covenant Med. Ctr., 822 F.Supp. 1361, 1370-71 (N.D.Iowa 1992) (Iowa law is in accord with majority view that hospital's bylaws create enforceable contract); Houston v. Intermountain Health Care, Inc., 933 P.2d 403, 408 (Utah Ct.App.1997); Gonzalez v. San Jacinto Methodist Hosp., 880 S.W.2d 436, 439 (1994) (procedural rights prescribed by the hospital's bylaws are contractual under Texas law); Lewisburg Community Hosp., Inc. v. Alfredson, 805 S.W.2d 756, 759 (Tenn. 1991) (Hospital bylaws are an integral part of the contractual relationship between the hospital and its medical staff. Under the bylaws, the physician was entitled to a hearing because the hospital took adverse action against the physician which "significantly reduce[d] ... [his] clinical privileges."); Lawler v. Eugene Wuesthoff Mem'l Hosp. Ass'n, 497 So.2d 1261, 1264 (Fla.App. 5th Dist.1986); Anne Arundel Gen. Hosp., Inc. v. O'Brien, 49 Md.App. 362, 370, 432 A.2d 483 (1981) (Under Maryland law, "it is well settled that hospital bylaws have the force and effect of an enforceable contract."); Miller v. Indiana Hosp., 277 Pa.Super. 370, 419 A.2d 1191 (1980); St. John's Hosp. Med. Staff v. St. John Reg'l Med. Ctr., 90 S.D. 674, 245 N.W.2d 472, 475 (1976) (medical staff bylaws are an enforceable contract between physician and hospital); see also Balkissoon v. Capitol Hill Hosp., 558 A.2d 304, 308 (D.C. 1989) ("Thus, although the bylaws may create contractual rights, the Hospital's obligation to act in accordance with its bylaws is independent of any contractual right of appellant.").

These courts apply little, if any, contract law analysis in concluding that hospital bylaws create an enforceable contract. See Charles R. Galloway, Observation: Exclusive Contracts and the Staff Physician, 66 MISS. L.J. 479, 485-86 (1996). For example, in Berberian v. Lancaster Osteopathic Hosp. Ass'n. Inc., 395 Pa. 257, 149 A.2d 456 (1959), the court simply held that "when the board of directors approved the staff by-laws, they became an integral part of the contractual relation between the hospital and the members of its staff." Id. 149 A.2d at 459.

However, in Virmani v. Presbyterian Health Services Corp., 127 N.C.App. 71, 488 S.E.2d 284 (1997), the North Carolina Court of Appeals, after a thorough analysis of contract law, held that hospital bylaws constitute an enforceable, binding contract between the hospital and its medical staff. Id. 488 S.E.2d at 287-88. In that case, the hospital argued that no contract was formed because there was no "mutual exchange of consideration" given that the hospital was statutorily required to enact bylaws governing the suspension and termination of a physician's privilege to practice in the...

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