Empire Health Found. v. CHS/Community Health Sys. Inc.

370 F.Supp.3d 1252

EMPIRE HEALTH FOUNDATION, a Washington Nonprofit Corporation, Plaintiff,

v.CHS/COMMUNITY HEALTH SYSTEMS INC., a Delaware Corporation; Spokane Washington Hospital Company LLC, a Delaware Limited Liability Company; and Spokane Valley Washington Hospital Company LLC, a Delaware Limited Liability Company, Defendants.

No. 2:17-cv-00209-SMJ

United States District Court, E.D. Washington.

Signed February 27, 2019

Stephen John Sirianni, Eleanor Hamburger, Richard E. Spoonemore, Sirianni Youtz Spoonemore Hamburger, Seattle, WA, for Plaintiff.

Anthony Todaro, Stellman Keehnel, Lianna M. Bash, DLA Piper US LLP, Seattle, WA, for Defendants.

ORDER RULING ON CROSS-MOTIONS FOR SUMMARY JUDGMENT

SALVADOR MENDOZA, JR., United States District Judge

Plaintiff Empire Health Foundation sues Defendants CHS/Community Health Systems Inc., Spokane Washington Hospital Company LLC, and Spokane Valley Washington Hospital Company LLC (collectively "CHS") for breach of contract, alleging it failed to fulfill the charity care commitments it made in its 2008 acquisition of two Spokane area hospitals. ECF No. 1.

The Foundation moves for partial summary judgment solely on the issue of whether CHS provided the amount of charity care contemplated by a condition in a state agency certificate, which the Court previously ruled is enforceable under the parties' contract. ECF Nos. 22, 36, 50. CHS moves for summary judgment, arguing the charity care condition is too indefinite and uncertain to enforce or, alternatively, CHS did not breach the charity care condition and the Foundation is not entitled to any remedy. ECF No. 59. The parties oppose each other's motions. ECF Nos. 58, 62. The Court held a hearing on both motions on February 26, 2019. After reviewing the record and relevant legal authorities, the Court denies both motions because genuine disputes over material facts abound, the contract is enforceable, and an equitable remedy is available.

BACKGROUND

In 2007, Empire Health Services and CHS entered an Asset Purchase Agreement under which Empire Health Services sold Deaconess Medical Center and Valley Hospital and Medical Center to CHS. ECF No. 14-1. The Foundation is a nonprofit community health foundation formed from the proceeds of the sale. ECF No. 1 at 1. The Foundation received all of Empire Health Services' rights and obligations when it dissolved following the sale. Id.

Section 10.14 of the contract concerns "Indigent Care Policies." ECF No. 14-1 at 53–54. Section 10.14 provides,

As of the Closing Date, Buyers shall adopt the indigent care policies of CHS attached as Exhibit D hereto, including the relevant provisions of the billing and collections policy with respect to the indigent, which are at least as favorable to the indigent and uninsured as Seller's indigent care policy, including the relevant provisions of the billing and collections policy with respect to the indigent, for the Hospitals as Buyers' indigent care policy. No patient will be turned away because of age, race, gender or inability to pay. Buyers shall use best efforts to cause the Hospitals to continue to provide services to patients covered by the Medicare and Medicaid programs and those unable to pay for emergent or medically necessary care at levels similar to the historic levels of indigent care previously provided by the Hospitals. For a period of at least ten (10) years following the Closing Date, Buyers will provide the Board of Trustees with an annual report of their compliance with this Section 10.14. Buyers will also continue to provide care through community-based health programs, including cooperation with local organizations that sponsor healthcare initiatives to address identified community needs and improve the health status of the elderly, poor, and at-risk populations in the community. This covenant shall be subject in all respects to changes in legal requirements or governmental guidelines or policies (such as implementation of universal healthcare coverage).

Id.

Exhibit D's charity care policies, which section 10.14 cross-references, provide, "[i]n order to serve the health care needs of our community, and in accordance with RCW [Revised Code of Washington] 70.170 and WAC [Washington Administrative Code] 246-453, [each hospital] will provide ‘Charity Care’ to patients or the ‘Responsible Party’ without financial means to pay for ‘Appropriate hospital-based medical services.’ " ECF No. 14-2 at 14, 27. Exhibit D's charity care policies define eligibility and processes for identifying charity cases and providing or denying charity care. Id. at 14–19, 27–32.

Pursuant to the contract, CHS applied for Certificates of Need from the Washington State Department of Health. ECF No. 18-1 at 2. The Department granted CHS's applications "pending agreement to the following conditions":

[Each hospital] will provide charity care in compliance with the charity care policies provided in this Certificate of Need application, or any subsequent policies reviewed and approved by the Department of Health. [Each hospital] will use reasonable efforts to provide charity care in an amount comparable to or exceeding the average amount of charity care provided by hospitals in the Eastern Washington Region. Currently, this amount is 3.35% of the adjusted revenue. [Each hospital] will maintain records documenting the amount of charity care it provides and demonstrating its compliance with its charity care policies.

Id. at 2–3; accord id. at 5. The Department elsewhere described this condition as "requir[ing] CHS to increase the level of charity care to the regional average." ECF No. 63-7 at 41. CHS agreed to this condition. ECF No. 18-2 at 2, 4. Then, in 2008, the Department issued the Certificates of Need and approved the purchase of each hospital, subject to this condition. ECF No. 61-1 at 2; ECF No. 61-2 at 2.

The 3.35% figure was the average of the three most recent years of available data, from 2004 to 2006. ECF No. 63-1 at 93–94; ECF No. 63-5 at 4, 7; ECF No. 63-6 at 4, 7; ECF No. 63-7 at 6. While the 3.35% figure established the initial benchmark for providing charity care, the benchmark was subject to change based on subsequent years' data. ECF No. 63-1 at 94. The Foundation claims that, between 2011 and 2016, CHS failed to meet the benchmark. ECF No. 50. CHS disputes how the Foundation calculated the benchmark, provides an alternative calculation, and claims it approximated or exceeded the benchmark. ECF No. 59.

Section 12.23 of the contract, entitled "No Third Party Beneficiaries," provides, "[t]he terms and provisions of this Agreement are intended solely for the benefit of Buyers and Seller and their respective permitted successors or assigns, and it is not the intention of the parties to confer, and this Agreement shall not confer, third-party beneficiary rights upon any other person." ECF No. 14-1 at 65.

Section 12.24 of the contract, entitled "Enforcement of Agreement," provides,

The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement was not performed in accordance with its specific terms or was otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any court of competent jurisdiction, this being in addition to any other remedy to which they are entitled at law or in equity.

Id.

In its complaint, the Foundation explains,

This lawsuit seeks (1) injunctive relief and/or specific performance to require Defendants to fully comply with the requirements of Agreements, which incorporate the ... Certificate of Need Conditions ...; (2) disgorgement of all excess profits retained by Defendants as a result of its failure to comply with the requirements of the Agreements, as modified by state law, including but not limited to, its failure to provide at least the regional average of charity care to Spokane area indigent patients; and (3) all other contractual and equitable relief available to Plaintiff for Defendants' failure to provide charity care as required by the Agreements.

ECF No. 1 at 8. For its breach of contract cause of action, the Foundation alleges it is entitled to damages "including, without limitation, declaratory and injunctive relief, specific performance, and restitution/disgorgement." Id. at 10. Finally, in its demand for relief, the Foundation asks the Court to "[e]njoin Defendants from current and future breaches of ... contract"; "[o]rder disgorgement of all funds retained by Defendants that should have been provided as charity care and/or community benefits under the Agreement, the ... Certificate of Need conditions and consistent with Washington law"; "[e]nter judgment in favor of the Foundation in an amount to be proven at trial due to Defendants' breach of contract"; and "[a]ward such other relief as is just and proper." Id. at 11.

LEGAL STANDARD

A party is entitled to summary judgment where the documentary evidence produced by the parties permits only one conclusion. Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 250, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). Summary judgment is appropriate if the record establishes "no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). "A material issue of fact is one that affects the outcome of the litigation and requires a trial to resolve the parties' differing versions of the truth." SEC v. Seaboard Corp. , 677 F.2d 1301, 1306 (9th Cir. 1982).

The moving party has the initial burden of showing no reasonable trier of fact could find other than for the moving party. Celotex Corp. v. Catrett , 477 U.S. 317, 325, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Once the moving party meets its burden, the nonmoving party must point to specific facts establishing a genuine dispute of material fact for trial. Matsushita Elec. Indus. Co. v. Zenith...