Mccoy v. East Texas Medical Center Reg. Healthcare, Civ.A. 2:04CV223.

• Decision Date: 31 August 2005
• Docket Number: No. Civ.A. 2:04CV223.,Civ.A. 2:04CV223.
• Citation: 388 F.Supp.2d 760
• Parties: Crystal Lynn MCCOY, et al. v. EAST TEXAS MEDICAL CENTER REGIONAL HEALTHCARE SYSTEM, et al.
• Court: U.S. District Court — Eastern District of Texas

388 F.Supp.2d 760

Crystal Lynn MCCOY, et al. v. EAST TEXAS MEDICAL CENTER REGIONAL HEALTHCARE SYSTEM, et al.

No. Civ.A. 2:04CV223.

United States District Court, E.D. Texas, Marshall Division.

August 31, 2005.

Richard F. Scruggs, Attorney at Law, Pascagoula, MS, Robert William Richards, The Richards Law Firm, Jacksonville, TX, for Plaintiff.

Robert C. Walters, Vinson & Elkins, Dallas, TX, for Defendant.

MEMORANDUM OPINION AND ORDER

WARD, District Judge.

I. Introduction.

Plaintiffs Crystal Lynn McCoy ("McCoy") and Cora Fay Edison ("Edison") filed a class action complaint against East Texas Medical Center Regional Healthcare System, East Texas Medical Center — Jacksonville, and East Texas Medical Center (together "ETMC"). The Plaintiffs seek to certify a class consisting of all uninsured patients of ETMC who were charged an amount for medical care in excess of the amount charged to ETMC's Medicaid patients and/or were pursued for such debt through collection efforts and lawsuits. The Plaintiffs' Complaint alleges the following claims against the ETMC entities: (1) a third-party beneficiary claim for breach of contract between ETMC and the federal government under 26 U.S.C. § 501(c)(3); (2) breach of the duty of good faith and fair dealing; (3) violation of the Texas Deceptive Trade Practices Act ("TDTPA"), Tex. Bus. & Com.Code § 17.41 et seq.; (4) unjust enrichment/constructive trust; (5) civil conspiracy/concert of action; (6) and injunctive/declaratory relief. ETMC has moved to dismiss the Plaintiffs' class action complaint under F. Rule Civ. P. 12(b)(1) and 12(b)(6). The Court grants ETMC's motion and dismisses with prejudice the Plaintiffs' causes of action based upon Federal law. The Court dismisses without prejudice Plaintiffs' supplemental claims based upon Texas law.

II. Factual Background.

According to McCoy's complaint, she went to ETMC — Jacksonville on December 30, 2002, complaining of abdominal pain. She received treatment in ETMC — Jacksonville's emergency room and was released after three hours at the hospital. ETMC — Jacksonville charged McCoy $4,135.20 for services rendered. McCoy, however, was an uninsured student who had no money to pay for the hospital visit. As a result, McCoy claims that she has been receiving bills and demands for payment from bill collectors representing the hospital.

According to Edison's complaint, she was involved in a car wreck on January 9, 2002, in Tyler, Texas. Edison was transported to ETMC in Tyler, where she received treatment. Edison claims to have been uninsured at the time of treatment and indigent. According to Edison, she had received treatment several times before the car wreck from ETMC and did not have sufficient funds to pay for the previous treatments as well. Edison claims that ETMC has repeatedly tried to collect overdue bills for the various treatments through mailings and phone calls from the hospital, as well as a collection agency.

ETMC Regional Healthcare System is a not-for-profit Texas corporation that operates ETMC — Jacksonville and East Texas Medical Center. Both ETMC — Jacksonville and ETMC are also not-for-profit Texas corporations. The Plaintiffs state the following allegations against ETMC defendants:

ETMC has engaged in the pattern and practice of charging inordinate and inflated rates for medical care to the Plaintiff and the Class.... Defendants [sic] ETMC charges the Plaintiff and the Class more than they charge most insured patients and patients on Medicare or Medicaid for the same medical services. It also utilizes aggressive and humiliating collection practices to recover this inflated medical debt from the Plaintiff and the Class.

(Class Action Complaint 3). The Plaintiffs further state:

Such charging and collection practices violate ETMC's agreement with the United States government and any other taxing entity such as the State of Texas or the various counties or cities involved to provide mutually affordable medical care to the Plaintiffs and the Class in return for a substantial federal, state[,] and local tax exemption.

(Id.). The Plaintiffs contend they and others similarly situated are third-party beneficiaries of these agreements with the United States government and other taxing entities.

The Court notes that this lawsuit is one of dozens of similar lawsuits filed in federal district courts across the country on behalf of putative classes of uninsured and indigent patients based upon legal theories identical to those advanced by the Plaintiffs.¹ In October, 2004, the Judicial Panel on Multidistrict Litigation rejected a motion to transfer and consolidate the pending actions into one combined action.² In re Not-For-Profit Hospitals/Uninsured Patients Litigation, 341 F.Supp.2d 1354 (J.P.M.L. Oct. 19, 2004). The plaintiffs in these similar cases have not fared well. No court has found for the plaintiffs on any substantive legal issue. See supra note 1.

III. Legal Analysis.

In considering a motion to dismiss for failure to state a claim pursuant to Fed.R.Civ.P. 12(b)(6), courts have found dismissal pursuant to this provision "is viewed with disfavor and is rarely granted." Lowrey v. Tex. A & M Univ. Sys., 117 F.3d 242, 247 (5th Cir.1997) (quoting Kaiser Aluminum & Chem. Sales v. Avondale Shipyards, 677 F.2d 1045, 1050 (5th Cir.1982)). "The complaint must be liberally construed in favor of the plaintiff and all facts pleaded in the original complaint must be taken as true." Id. A district court may not dismiss a complaint under Fed.R.Civ.P. 12(b)(6) "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would enable him to relief." Id. (quoting Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-02, 2 L.Ed.2d 80 (1957)). In discussing this standard for dismissal, the Fifth Circuit has stated: "The question therefore is whether in the light most favorable to the plaintiff and with every doubt resolved in his behalf, the complaint states any valid claim for relief." Id. (quoting 5B CHARLES A. WRIGHT & ARTHUR R. MILLER, FEDERAL PRACTICE AND PROCEDURE, § 1357, at 601 (1969)). "In other words, a motion to dismiss an action for failure to state a claim `admits the facts alleged in the complaint, but challenges the plaintiff's rights to relief based upon those facts.'" Ramming v. United States, 281 F.3d 158, 161 (5th Cir.2001), cert. denied, 536 U.S. 960, 122 S.Ct. 2665, 153 L.Ed.2d 839 (quoting Tel-Phonic Servs., Inc. v. TBS Int'l, Inc., 975 F.2d 1134, 1137 (5th Cir.1992)). Furthermore, "when considering a Rule 12(b)(6) motion to dismiss for failure to state a claim, the district court must examine the complaint to determine whether the allegations provide relief on any possible theory." Id. at 161-62.

A. Breach of Contract Under I.R.C. § 501(c)(3).

In Count One, the Plaintiffs claim that they are third-party beneficiaries of ETMC's agreement with the United States government under 26 U.S.C. § 501(c)(3)³ in which the United States government gave ETMC federal income tax exemption in exchange for ETMC:

operat[ing] exclusively for charitable purposes; provid[ing] emergency room medical care to the Plaintiffs and the Class without regard to their ability to pay for such medical care; provid[ing] mutually affordable medical care to the Plaintiffs and the Class; and not ... pursu[ing] outstanding medical debt from the Plaintiffs and the Class by engaging in aggressive, abusive, and humiliating collection practices.

(Class Action Complaint 12-13).⁴

The Plaintiffs claim that ETMC breached the alleged agreement with the United States government through the following actions:

charging the Plaintiffs and the Class the highest and full undiscounted cost of medical care; charging the Plaintiffs and the Class more than its insured patients for the same medical services; failing to use its assets and revenues in the billions of dollars to provide mutually affordable medical care the Plaintiff and the Class; and utilizing aggressive, abusive[,] and humiliating collection practices such as lawsuits, liens, and garnishments to collect such inflated and unreasonable medical debt from the Plaintiffs and the Class.

(Id. 13).

The Plaintiffs do not cite any case or statutory authority for their assertion that a not-for-profit organization enters into a contract with the United States government when it qualifies for tax-exempt status under § 501(c)(3). "The notion that the federal income tax is contractual or otherwise consensual in nature ... has been repeatedly rejected by the courts." McLaughlin v. Comm'r, 832 F.2d 986, 987 (7th Cir.1987); see Newman v. Schiff, 778 F.2d 460, 467 (8th Cir.1985); United States v. Drefke, 707 F.2d 978, 981 (8th Cir.), cert. denied, 464 U.S. 942, 104 S.Ct. 359, 78 L.Ed.2d 321 (1983). Furthermore, in Nat'l R.R. Passenger Corp. v. Atchison, Topeka & Santa Fe Ry., Co., the Supreme Court stated:

[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." 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. Policies, unlike contracts, are inherently subject to revision and repeal, and to construe laws as contracts when the obligation is not clearly and unequivocally expressed would be to limit drastically the essential powers of a legislative body. Indeed, `[t]he continued existence of a government would be of no great value, if by implications and presumptions, it was disarmed of the powers necessary to accomplish the ends of its creation.' Thus, the party asserting the creation of a contract must overcome this well-founded presumption, and we proceed cautiously both in...