Lorens v. Catholic Health Care Partners

• Decision Date: 13 January 2005
• Docket Number: No. 1:04 CV 1151.,1:04 CV 1151.
• Citation: 356 F.Supp.2d 827
• Parties: Lloida LORENS, on behalf of herself and all others similarly situated, Plaintiff v. CATHOLIC HEALTH CARE PARTNERS, et al., Defendants
• Court: U.S. District Court — Northern District of Ohio

356 F.Supp.2d 827

Lloida LORENS, on behalf of herself and all others similarly situated, Plaintiff v. CATHOLIC HEALTH CARE PARTNERS, et al., Defendants

No. 1:04 CV 1151.

United States District Court, N.D. Ohio, Eastern Division.

January 13, 2005.

COPYRIGHT MATERIAL OMITTED

Daniel P. Goetz, and R. Eric Kennedy, Weisman, Kennedy & Berris, Cleveland, OH; and Matthew H. Barrett, Miraldi & Barrett, Lorain, OH, for Plaintiff.

Ty Cobb, Edward C. Crooke, Catherine E. Stetson, Christopher R. Zaetta, Mitchell E. Zamoff, Hogan & Hartson, Washington, D.C., Michael K. Gire, James J. Hughes, James J. Hughes, III, Richard M. Knoth, Diane M. Signoracci, Brickler & Eckler, Columbus, OH, Mark Herrmann, Geoffrey J. Ritts, Jeffrey W. Saks, Robert C. Weber, Jones Day, Cleveland, OH, for Defendants.

ORDER

OLIVER, District Judge.

Plaintiff Lloida Lorens ("Lorens" or "Plaintiff") filed the instant action as a class action complaint against Defendants Catholic Healthcare Partners, Community Health Partners, Community Health Partners Hospital and Surgical Center and ten John Does (together "CHP"), and the American Hospital Association ("AHA") (together, "Defendants"). The court held a hearing on Defendants' Motions to Dismiss (ECF Nos. 17 and 20) on January 5, 2005, at 2:00 p.m. The heart of Plaintiff's Complaint are allegations that CHP, a 26 U.S.C. § 501(c)(3) charitable organization, charges uninsured patients substantially higher rates than insured patients. The Amended Complaint alleges the following claims against CHP: (1) a third party-beneficiary claim for breach of contract between CHP and the federal government under 26 U.S.C. § 501(c)(3); (2) breach of contract; (3) breach of duty of good faith and fair dealing; (4) breach of charitable trust under 26 U.S.C. § 501(c)(3); (5) violation of the Ohio Consumer Sales Practices Act (OCSPA), O.R.C. § 1345; and (6) unjust enrichment. Additionally, the Complaint asserts claims against AHA for (7) civil conspiracy and (8) aiding and abetting the violations pled in Counts (2), (3), and (5) above.

Pending before the court are Defendants CHP and AHA's Motions to Dismiss (ECF Nos. 17 and 20.) For the following reasons, both Motions are granted as to all claims arising from Counts (1) and (4), the claims over which the court has original federal question jurisdiction pursuant to 28 U.S.C. § 1331. The remaining state law claims are dismissed pursuant to 28 U.S.C. § 1367(c)(3).

I. FACTS

According to Plaintiff's Complaint, she received medical services at a CHP hospital. Thereafter, CHP sued Plaintiff in Ohio state court when she failed to pay her bill. Plaintiff claims she was charged an unreasonable rate for her medical care. She further asserts that CHP charges higher prices to uninsured patients than it does to insured patients for comparable services. (First Am. Compl. ¶ 15, 18.)

Defendant CHP is a not-for-profit, charitable hospital organization with federal tax exempt status under 26 U.S.C. § 501(c)(3). The Complaint alleges that by accepting 501(c)(3) tax exemption, CHP:

explicitly and/or implicitly agreed: to provide an emergency room open to all of its uninsured patients without regard to their ability to pay for such care; to provide affordable medical care to all of its patients; to use its net assets and revenues to provide affordable medical care to its uninsured patients; and not to pursue outstanding medical debt from its uninsured patients.

(First Am. Compl. at ¶ 11.) Plaintiff contends CHP has failed to meet these obligations, and that she and others similarly situated are third party beneficiaries of these obligations.

AHA is a national association of not-for-profit hospitals and health care organizations. On December 16, 2003, AHA sent a letter to Department of Health and Human Services Secretary Tommy Thompson. According to Plaintiff, this letter "falsely represented to the Secretary that nonprofit hospitals were required by the federal Medicare regulations to charge and aggressively collect such grossly inflated medical expenses." (Id. at ¶ 20.) Plaintiff also contends that AHA sent a White Paper to its membership falsely advising that "the Medicare laws and regulations prevented them from offering discounts to uninsured patients and required them to aggressively collect medical debt from the uninsured through collections lawsuits, liens and garnishments." (Id. at 23.)

II. DISMISSAL STANDARD

Rule 12(b)(6) of the Federal Rules of Civil Procedure allows the court to determine the legal sufficiency of a plaintiff's claims. See Mayer v. Mylod, 988 F.2d 635, 638 (6th Cir.1993). Courts reviewing a 12(b)(6) motion must accept the well-pled factual allegations of the complaint as true and construe all reasonable inferences in favor of the plaintiff. See Miller v. Currie, 50 F.3d 373, 377 (6th Cir.1995). However, the court is not required to accept conclusions of law or unwarranted inferences of fact cast in the form of factual allegations. Blackburn v. Fisk University, 443 F.2d 121, 123 (6th Cir.1971). Accordingly, a court must determine "whether the plaintiff undoubtedly can prove no set of facts in support of [his] claim that would entitle [him] to relief" under a viable legal theory advanced in the complaint. Columbia Natural Resources, Inc. v. Tatum, 58 F.3d 1101, 1109 (6th Cir.1995), cert. denied, 516 U.S. 1158, 116 S.Ct. 1041, 134 L.Ed.2d 189 (1996).

III. RELATED ONGOING LITIGATION

The court notes that this lawsuit is one of dozens of similar lawsuits filed in district courts across the country on behalf of uninsured and indigent patients. In October 2004, the Judicial Panel on Multidistrict Litigation rejected a motion to transfer and consolidate the pending actions into one combined action. In re Not-For-Profit Hospitals/Uninsured Patients Litigation, 341 F.Supp.2d 1354 (J.P.M.L.2004). As an initial matter, the court looks to those other actions to see if they offer any guidance. At the time of the hearing, Plaintiffs had voluntarily dismissed five cases prior to a ruling on a motion to dismiss.¹ In three additional actions, the district courts had granted defendants' motions to dismiss. Burton v. William Beaumont Hosp., 2004 WL 2790624 (E.D.Mi. Dec.3, 2004); Darr v. Sutter Health, 2004 WL 2873068 (N.D.Ca. Nov.30, 2004); Amato v. UPMC, No. 04-1025 (W.D.Pa. Nov. 23, 2004). No court has yet to find for the Plaintiffs on any substantive legal issue. Although the court analyzes this specific case on its own merits, the court does find the legal analysis from the other dismissals persuasive.

IV. LAW AND ANALYSIS

A. Third-Party Beneficiary Breach of Contract

Plaintiff maintains that CHP owes her, and other similarly-situated uninsured Americans, a contractual duty based on CHP's tax-exempt status under 26 U.S.C. § 501(c)(3). Plaintiff further contends that CHP has breached its contractual duties, and that as a third-party beneficiary of the contract, she has an implied cause of action to sue CHP for damages on the contract.

Permitting this claim to continue would require the court to make numerous jumps in logic that run counter to legal authority. First, the court would need to find that the tax code creates a binding contract, a proposition for which there is nearly no legal support. The court would then need to find an implied cause of action in the tax statute granting private citizens the right to sue for damages, a cause of action that is not supported by the case law. Next, the court would need to find that Plaintiff had standing to sue as a third-party beneficiary on a purported contract under which Plaintiff and Plaintiff's class are not specifically mentioned as third party beneficiaries. Even if the court made these stretches in legal interpretation, the court would then need to construct specific terms in such a contract (specific terms that do not appear to exist in the statutory or regulatory language) and assess whether Plaintiff's allegations, if true, could constitute a breach. While the court in no way minimizes the importance of the issues Plaintiff seeks to raise, an analysis of the claim indicates that it has no legal merit.

1. Does a Contract Exist?

The first barrier to Plaintiff's claim is the lack of legal precedent for the proposition that 501(c)(3) tax exempt status creates any kind of contract or contractual obligation. No court has ever held that 501(c)(3) creates a binding contract. Further, courts do not consider the tax code to be contractual. E.g., McLaughlin v. Comm'r of IRS, 832 F.2d 986, 987 (7th Cir.1987) ("the notion that the Federal Income Tax is contractual or otherwise consensual in nature is not only utterly without foundation but ... has been repeatedly rejected by the courts.") Without language in the 501(c)(3) statute indicating Congressional intent to create a contract, the presumption is that statutes are not, and do not create, contracts. See Nat'l R.R. Passenger Corp. v. Atchison, Topeka & Santa Fe Ry. Co., 470 U.S. 451, 465-66, 105 S.Ct. 1441, 84 L.Ed.2d 432 (1985).

[A]bsent some clear indication that the legislature intends to bind itself contractually, the presumption is that "a law is not intended to create private contractual or vested rights but merely declares a policy to be pursued until the legislature shall ordain otherwise." Dodge v. Board of Education, 302 U.S. 74, 79, 58 S.Ct. 98, 100, 82 L.Ed. 57 (1937). See also Rector, Christ Church v. County of Philadelphia, 24 How. 300, 302, 16 L.Ed. 602 (1861) ("Such an interpretation is not to be favored"). This well-established presumption is grounded in the elementary proposition that the principal function of a legislature is not to make contracts, but to make laws that establish the policy of the state.

Id. An examination of the 501(c)(3) statute indicates it does not contain any language establishing a contract. Rather, it lists the types of organizations that may be tax-exempt. 26 U.S.C. 501(c)(3). Absent any specific contract-creating language,...