Kizzire v. Baptist Health Systems, Inc.

• Decision Date: 21 October 2004
• Docket Number: No. CV-04-HS-1247-S.,CV-04-HS-1247-S.
• Citation: 343 F.Supp.2d 1074
• Parties: Rhonda KIZZIRE, et al., Plaintiffs, v. BAPTIST HEALTH SYSTEM, INC., Defendant.
• Court: U.S. District Court — Northern District of Alabama

Page 1074

343 F.Supp.2d 1074

Rhonda KIZZIRE, et al., Plaintiffs, v. BAPTIST HEALTH SYSTEM, INC., Defendant.

No. CV-04-HS-1247-S.

United States District Court, N.D. Alabama, Southern Division.

October 21, 2004.

Archie C. Lamb, Jr., A. David Fawal, Chris W. Cantrell, Law Offices of Archie Lamb LLC, E. Kirk Wood, Birmingham, AL, John T. Sutton, Tuscaloosa, AL, for Plaintiffs.

Fournier J. Gale, III, James R. Bussian, Maynard Cooper & Gale PC, Clarence M. Small, Jr., Labella S. Alvis, Michael A. Vercher, Christian & Small LLP, Birmingham, AL, Layne E. Kruse, Fulbright & Jaworski, Houston, TX, Terry O. Tottenham, Marc B. Collier, Fulbright & Jaworski

LLP, Austin, TX, R. Jeffrey Layne, Frederick (Rick) Robinson, Fulbright & Jaworski LLP, Mitchell E. Zamoff, Christopher R. Zaetta, Ty Cobb, Catherine E. Stetson, Edward C. Crooke, Hogan & Hartson LLP, Washington, DC, Alice Miller Maples, Troy R. King, Office of the Attorney General, Montgomery, AL, for Defendants.

Memorandum of Opinion

HOPKINS, District Judge.

I. INTRODUCTION

This is a civil action, filed on June 16, 2004, by the Plaintiff, Rhonda Kizzire, on behalf of herself and others similarly situated, against the Defendant, Baptist Health System, Inc. (doc. 1). On July 7, 2004, the Plaintiff filed her First Amended Class Action Complaint (doc. 6), adding as Plaintiffs Larry Calvin Martin and Michael R. Dennis. Finally, the Plaintiff filed a Second Amended Complaint on August 2, 2004 (doc. 11), adding as Defendant American Hospital Association.

The Second Amended Complaint alleges Baptist Health System, Inc. ("BHS") is the largest health care system in Alabama and one of the state's largest employers. BHS is a not-for-profit, 501(c) charitable, tax-exempt corporation that owns and manages hospitals and health-related facilities in the state of Alabama. Defendant BHS has operated free from federal and state taxes because it promised the government that it would operate as a charity provider of health care for the uninsured and that it would not engage in business directly or indirectly, for the benefit of private interests. In reality, BHS does just the opposite: it charges its uninsured patients significantly more than those who have insurance, generally pursuing the poor or uninsured relentlessly by aggressive and humiliating collection techniques; and through either "connected" board members and/or physicians whose for-profit businesses are favored and subsidized by the "tax-free" organization, are rampantly violating the federal and state prohibition against profiteering by "private interests."

BHS and its confederates who employ the same business model have thereby amassed and hoarded hundreds of millions of dollars in cash and marketable securities, which otherwise should be available to provide charity care to the uninsured who were contemplated by the tax exemption. Moreover, enormous property and revenues have been insulated from taxation, the effect of which has bestowed upon Defendant BHS and its confederates greater liquidity than that possessed by most state and local governments.

The American Hospital Association is the national trade association for the nonprofit hospital industry, and serves as the representative for Defendant BHS. The American Hospital Association has conspired with, and aids and abets BHS and its other nonprofit hospital members in carrying out their unfair, discriminatory, unconscionable and oppressive business practices.

Second Amended Complaint, at 1. It alleges the following Counts: (1) Third Party Breach of Contract (Count One); Breach of Contract (Count Two); Breach of Duty of Good Faith and Fair Dealing (Count Three); Breach of Charitable Trust (Count Four); Violations of the Emergency Medical Treatment and Active Labor Act (Count Five); Unjust Enrichment/Constructive Trust (Count Six); Civil Conspiracy/Concert of Action (Count Seven); Aiding and Abetting (Count Eight); and a Count for Injunctive/Declaratory Relief (Count Nine).

Presently before the Court is Defendant Baptist Health System, Inc's Motion to Dismiss on Res Judicata Grounds (doc. 19); Defendant Baptist Health System, Inc's Motion to Dismiss (doc. 21); and Defendant American Hospital Association's Motion to Dismiss (doc. 32). For the reasons stated in this memorandum, the motions will be GRANTED.

II. STANDARD OF REVIEW

Because matters outside the pleadings¹ have been considered by the Court and not specifically excluded in rendering its decision, the parties and this Court have treated these motions as converted to Motions for Summary Judgment pursuant to Fed.R.Civ.P. 12(b).

In conducting [a summary judgment analysis], [the Court must] view all evidence and factual inferences in the light most favorable to the nonmoving party. Id. Summary judgment is proper where "there is no genuine issue as to any material fact" and "the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). However, "the mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986). Only factual disputes that are material under the substantive law governing the case will preclude entry of summary judgment. Id.

Lofton v. Secretary of Dept. of Children and Family Services, 358 F.3d 804, 809 (11th Cir.2004).

III. GENERAL ALLEGATIONS OF THE SECOND AMENDED COMPLAINT

The following allegations are, under Lofton, accepted as having been established.

The Second Amended Complaint alleges the following:

8. Defendant BHS represents itself as an Alabama based, tax exempt, charitable, nonprofit hospital system. BHS is a ministry of the churches of the Birmingham Baptist Association whose representatives elect BHS's Board of Trustees. It was founded in 1922 by a group of local Baptist congregations.

9. Defendant BHS is the largest healthcare provider in Alabama maintaining 10 hospitals in Alabama, including Baptist Medical Center Shelby County.

10. Defendant BHS is also one of the most financially successful hospital systems in the Alabama. In 2001, BHS generated approximately $580 million in revenue and has total assets valued at over $623 million.

11. Defendant BHS entered into express and/or implied Agreements with the United States Government and the State of Alabama, Jefferson, Shelby, Dekalb, Cherokee, Talladega, Cullman, Walker and Lawrence Counties to provide mutually affordable medical care to all of its patients in return for substantial tax exemptions. An express and/or implied contractual relationship was thereby created between Defendant BHS and the United States Government and the State of Alabama, Jefferson, Shelby, Dekalb, Cherokee, Talladega, Cullman, Walker and Lawrence Counties to accomplish such purpose. Defendant BHS's uninsured and medically indigent patients during the period between June 16, 1994 and June 16, 2004 were the express and/or implied intended third party beneficiaries of such Agreements.

12. Defendant BHS receives a federal income tax exemption as a purported "charitable" institution under 26 U.S.C. § 501(c)(3). Under § 501(c)(3), Defendant BHS is required to operate "exclusively" in furtherance of a charitable purpose, with no part of its operations attributable directly or indirectly to any noncharitable commercial purpose and with no part of its earnings inuring to the benefit of any private individual or entity. By accepting this favorable tax exemption, Defendant BHS explicitly and/or implicitly agreed: to operate exclusively for charitable purposes; to provide an emergency room open to all of its uninsured patients without regard to their ability to pay for such care; to provide mutually affordable medical care to all of its uninsured patients; not to charge its uninsured patients the highest and full undiscounted cost for medical care; not to charge its uninsured patients a higher rate for medical care than its insured patients; to use its net assets and revenues to provide mutually affordable medical care to its uninsured patients; and not to pursue outstanding medical debt from its uninsured patients through humiliating collection efforts, lawsuits, liens and garnishments.

13. Defendant BHS also receives state and local income, property and sales tax exemptions from the State of Alabama under Ala.Code § 40-23-5. Under § 40-23-5, in order for a nonprofit hospital to be exempt from taxation it must not operate for pecuniary gain or individual profit. By accepting these favorable state and local tax exemptions, Defendant BHS explicitly and/or implicitly agreed: to operate exclusively for charitable purposes; to provide mutually affordable medical care to all of its uninsured patients; not to charge its uninsured patients the highest and full undiscounted cost of medical care; not to charge its uninsured patients a higher rate for medical care than its insured patients; to use its net assets and revenues to provide mutually affordable medical care to its uninsured patients; and not to pursue outstanding medical debt from its uninsured patients through humiliating collection efforts, lawsuits, liens and garnishments.

14. Despite its favorable tax exempt status and its substantial net revenues and asset reserves in the hundreds of millions of dollars, Defendant BHS has breached its Agreements with the United States Government, the State of Alabama, and Jefferson, Shelby, Dekalb, Cherokee, Talladega, Cullman, Walker and Lawrence Counties by failing to provide emergency room medical care to its uninsured patients without regard to their ability to pay for such care; charging its uninsured patients the highest and full undiscounted cost for medical care at grossly inflated rates from the actual cost of providing such services; allowing noncharitable for-profit physician groups and service providers to derive profit from its tax exempt...