Mahan v. Avera St. Luke's

• Decision Date: 10 January 2001
• Docket Number: No. 21135., No. 21118
• Citation: 621 N.W.2d 150,2001 SD 9
• Parties: Drs. John MAHAN, James MacDougall, Michael Holte, Chester Mayo, Matthew Reynen, and Donald Frisco, Individuals, and Residents of Aberdeen, South Dakota, and Orthopedic Surgery Specialists, Ltd., A South Dakota Medical Partnership, Plaintiffs and Appellees, v. AVERA ST. LUKE'S, A South Dakota Non Profit Community Hospital, Defendant and Appellant.
• Court: South Dakota Supreme Court

621 N.W.2d 150

2001 SD 9

Drs. John MAHAN, James MacDougall, Michael Holte, Chester Mayo, Matthew Reynen, and Donald Frisco, Individuals, and Residents of Aberdeen, South Dakota, and Orthopedic Surgery Specialists, Ltd., A South Dakota Medical Partnership, Plaintiffs and Appellees, v. AVERA ST. LUKE'S, A South Dakota Non Profit Community Hospital, Defendant and Appellant.

Nos. 21118, 21135.

Supreme Court of South Dakota.

Argued April 26, 2000.

Reassigned October 26, 2000.

Decided January 10, 2001.

Rehearing Denied February 20, 2001.

Chester A. Groseclose, Jr. of Richardson, Groseclose, Wyly, Wise & Sauck, Aberdeen, SD, and Richard G. Braman, Thomas S. Darling of Gray, Plant, Mooty, Mooty, & Bennett, Minneapolis, MN, Attorneys for plaintiffs and appellees.

Edwin E. Evans, Melissa C. Hinton of Davenport, Evans, Hurwitz & Smith, Sioux Falls, SD, Attorneys for defendant and appellant.

GILBERTSON, Justice (on reassignment).

[¶ 1.] Orthopedic Surgery Specialists (OSS), a South Dakota corporation, and its individual physicians, commenced this action against Avera St. Lukes (ASL) alleging breach of contract. The trial court granted OSS' motion for summary judgment and entered a mandatory permanent injunction against ASL. ASL then filed this appeal. We reverse.

FACTS AND PROCEDURE

[¶ 2.] ASL is a private, nonprofit, general acute care hospital located in Aberdeen, South Dakota, organized under the nonprofit corporation laws of South Dakota. ASL is part of Avera Health, a regional health care system sponsored by the Sisters of the Presentation of the Blessed Virgin Mary of Aberdeen, South Dakota. Since 1901, the Presentation Sisters have been fulfilling their mission statement "to respond to God's calling for a healing ministry... by providing quality health services" to the Aberdeen community. ASL has expanded its mission beyond the Aberdeen community to become the only fullservice hospital within a 90-mile radius of Aberdeen.

[¶ 3.] As required by SDCL 47-23-13, ASL is governed by a Board of Trustees (Board), which manages its affairs. The Board consists of 15 members from Aberdeen and surrounding communities, including five physicians and four Presentation Sisters. It is the duty of the Board "[t]o implement the purpose and objectives of [ASL] as determined by the Members of [ASL] and in accordance with the Statement of Philosophy of the Presentation Sisters." By Laws of St. Luke's Midland Regional Medical Center (Corporate Bylaws), art V, § 14(b). Membership in ASL is limited to "religious Members of the Congregation of the Sisters of the Presentation of the Blessed Virgin Mary of Aberdeen, South Dakota." Corporate Bylaws, art I, § 3.

[¶ 4.] In mid-1996, ASL's neurosurgeon left Aberdeen. After his departure, the Board passed a resolution to recruit two neurosurgeons or two spine-trained orthopedic surgeons to fill the void. During the recruitment process, ASL learned that most neurosurgeon applicants would not be interested in coming to Aberdeen if there was already an orthopedic spine surgeon practicing in the area. This was due to the small size of the community and the probable need for the neurosurgeon to supplement his or her practice by performing back and spine surgeries. Back and spine surgeries are also performed by orthopedic spine surgeons and the applicants were doubtful whether Aberdeen could support the practice of both a neurosurgeon and an orthopedic spine surgeon. [¶ 5.] ASL was successful in recruiting a neurosurgeon who arrived in December, 1996. Around this time, ASL learned that OSS, a group of Aberdeen orthopedic surgeons, had decided to build a day surgery center that would directly compete with ASL. During the first seven months that OSS' surgery center was open, ASL suffered a 1000 hour loss of operating room usage.

[¶ 6.] In response to the loss of operating room income, ASL's Board passed two motions on June 26, 1997. The first motion closed ASL's medical staff with respect to physicians requesting privileges for three spinal procedures: (1) spinal fusions, (2) closed fractures of the spine and (3) laminectomies. The second motion closed ASL's medical staff to applicants for orthopedic surgery privileges except for two general orthopedic surgeons being recruited by ASL. The effect of "closing" the staff was to preclude any new physicians from applying for privileges to use hospital facilities for the named procedures. The Board's decision did not affect those physicians that had already been granted hospital privileges, including the physician-members of OSS. In making its decision, the Board specifically determined that the staff closures were in the best interests of the Aberdeen community and the surrounding area.

[¶ 7.] In the summer of 1998, OSS recruited Dr. Mahan (Mahan), a spine-fellowship trained orthopedic surgeon engaged in the practice of orthopedic surgery. While OSS was recruiting Mahan, one of the OSS physicians advised Mahan that the staff at ASL had been closed to orthopedic surgery privileges. Despite this warning, Mahan began practicing with OSS. On at least two occasions, Mahan officially requested an application for staff privileges with ASL. These requests were denied due to the Board's decision on July 26, 1997.

[¶ 8.] In September of 1998, Mahan and OSS (Plaintiffs) commenced this action against ASL, challenging the Board's decision to close the staff. Plaintiffs claimed that the action was a breach of the medical/dental staff bylaws (Staff Bylaws) and sought a writ of mandamus and permanent injunction ordering ASL to consider Mahan's application for hospital privileges. Both parties submitted cross motions for summary judgment. After a hearing, the circuit court determined that ASL had breached the Staff Bylaws by closing the staff. In making its decision, the circuit court relied exclusively on the Staff Bylaws. The circuit court determined that the Board had delegated a significant amount of its power and authority concerning staff privileges to the medical staff. The circuit court reasoned that because of this delegation, the Board no longer had the power to initiate actions that affected the privileges of the medical staff. The circuit court concluded the Board had breached its contract with the medical staff when it closed the staff to the named procedures without first consulting the staff. Plaintiffs' request for a permanent injunction was granted, requiring ASL to consider Mahan's application for privileges. ASL appeals raising the following issues:

1. Whether the individual OSS physicians have standing to challenge the Board's decision.

2. Whether the Board's decision breached its contract with the Staff.

ANALYSIS

[¶ 9.] 1. Whether the individual OSS physicians have standing to challenge the Board's decision.

[¶ 10.] It is well settled in South Dakota that "a hospital's bylaws constitute a binding contract between the hospital and the hospital staff members." Read v. McKennan Hospital, 2000 SD 66, ¶ 14, 610 N.W.2d 782, 785 (citing St. John's Hospital Medical Staff v. St. John Regional Medical Center, Inc., 90 S.D. 674, 679, 245 N.W.2d 472, 474 (1976)). It is also well settled that when such bylaws are approved and accepted by the governing board they become an enforceable contract between the hospital and its physicians. See Northeast Georgia Radiological Assoc. v. Tidwell, 670 F.2d 507, 511 (5th Cir.1982); Janda v. Madera Community Hosp., 16 F.Supp.2d 1181, 1188 (E.D.Cal. 1998); Terre Haute Regional Hosp., Inc. v. El-Issa, 470 N.E.2d 1371, 1377 (Ind.Ct. App.1984).

[¶ 11.] Only parties to a contract have rights in the contract. As such, the parties to the contract are the only ones who can seek enforcement of the contract. See Leonard v. Leonard, 529 N.W.2d 208, 211 (S.D.1995)

. The OSS staff doctors are currently members of the medical staff at ASL; they are a party to the contract between ASL and the medical staff. However, merely being party to a contract is not enough to have standing.

[¶ 12.] "`Generally, for a litigant to have standing to bring an action before the court, the litigant must `show that he personally has suffered some actual or threatened injury as a result of the putatively illegal conduct of the defendant.'" Parsons v. South Dakota Lottery Commission, 504 N.W.2d 593, 595 (S.D. 1993) (quoting Gladstone, Realtors v. Bellwood, 441 U.S. 91, 99, 99 S.Ct. 1601, 1608, 60 L.Ed.2d 66, 76 (1979)). In regard to whether the OSS staff doctors suffered an injury, the circuit court found:

It is undisputed that the Board's decision resulted in an economic benefit for ASL and an economic hardship for these doctors in their private medical practice, OSS. It is also undisputed that the OSS staff doctors, through their medical corporation OSS, spent time and money to recruit Mahan, only to end up with him unable to perform certain procedures because of his inability to obtain staff privileges at ASL. As a result, the OSS staff doctors have had to support Mahan while being unable to build their practice or increase their patient base as expected. Clearly [the OSS] [d]octors... have standing.

The circuit court properly found that the OSS staff doctors have standing to bring a cause of action for breach of contract.

[¶ 13.] 2. Whether the Board's decision breached its contract with the Staff.

[¶ 14.] A. The relationship and specific terms of the Bylaws.

[¶ 15.] As noted, in South Dakota, bylaws constitute a contract between a hospital and its medical staff. Read, 2000 SD 66, ¶ 14, 610 N.W.2d at 785. As such, in this case we are called upon to construe the bylaws that are at issue. In so doing we apply the normal principles for construction and interpretation of a contract. St. John's, 245 N.W.2d at 475. We review the construction of a contract under the de novo standard as a question of law. Read, 2000 SD 66, ¶ 22, 610 N.W.2d at 786.

[¶ 16.] Under South Dakota law, "[t]he affairs of a [non-profit] corporation shall be managed...