Lifespan Corp. v. New England Med. Ctr. Inc.

Lifespan Corporation

v. New England Medical Center, Inc., now known as Tufts Medical Center Parent, Inc.,and New England Medical Center Hospitals, Inc.,now known as Tufts Medical Center, Inc.andMartha Coakley, Attorney General for the Commonwealth of Massachusetts, Intervenor

Civil No. 06-cv-421-JNL

Opinion No. 2011 DNH 133

UNITED STATES DISTRICT COURT DISTRICT OF RHODE ISLAND

Dated: August 26, 2011

OPINION & ORDER

This case arises from a dispute between Lifespan Corporation, a non-profit healthcare system in Rhode Island, and New England Medical Center ("NEMC"), a non-profit hospital in Massachusetts, over their brief and unsuccessful affiliation. This court recently issued findings of fact and rulings of law after a bench trial, awarding about $14 million to Lifespan on its claim against NEMC for breach of their disaffiliation agreement and also awarding about $14 million to NEMC and the Massachusetts Attorney General (who had intervened pursuant to her supervisory authority over that state's public charities) on their counterclaims against Lifespan for indemnification and breach of fiduciary duty, respectively. See Lifespan Corp. v. New Eng. Med. Ctr., Inc., --- F. Supp. 2d ----, 2011 U.S. Dist. LEXIS 56525, 2011 WL 2134286 (D.R.I. May 24, 2011) ("Findings &Rulings"). Judgment then entered accordingly. See document no. 224. Both sides have now moved to alter or amend the judgment in various respects. See Fed. R. Civ. P. 52(b), 59(e). This court rules on their motions as set forth below.

I. Amount of damages

Lifespan has moved to amend the judgment to reduce the amount of damages it owes for failing to negotiate inflationary increases in the reimbursement rates paid to NEMC by health insurers Cigna and United from 2000 to 2002. See Findings & Rulings at ¶¶ 99-102, appendix. The issue in dispute is which inflation rate should be used to calculate the damages for the first of those three years (2000). This court used "the total, compounded inflation [rate] for 1998 and 1999," because "the United and Cigna contracts had not been negotiated since 1997," when Lifespan first assumed responsibility for overseeing NEMC's payor contracts. Id. at appendix n.**.

Lifespan argues that this court should have used only the 1999 inflation rate. But this court stands by its earlier ruling. Had Lifespan negotiated inflationary increases in the Cigna and United reimbursement rates for 2000, those increases would not have accounted solely for the previous year's inflation; they would have and should have accounted for all ofthe inflation since the reimbursement rates were last negotiated in 1997.

Contrary to what Lifespan argues, using the compounded 1998/1999 inflation rate to calculate the damages for 2000 is not the same thing as imposing damages against Lifespan for failing to negotiate inflationary increases for 1999 (the year before this court found it should have, see Findings & Rulings at n.17). No damages have been awarded for 1999. This court's damages calculation is based on the assumption that the reimbursement rates paid by Cigna and United would have stayed at the static 1997 level through the end of 1999. By that point, however, Lifespan could have and should have negotiated inflationary increases for 2000 to account for the intervening inflation in 1998 and 1999, bringing the reimbursement rates back to the inflation-adjusted 1997 level. Lifespan's request to reduce the amount of damages it owes is denied.

II. Prejudgment interest

Both sides have moved to alter or amend the judgment to include prejudgment interest. NEMC and the Massachusetts Attorney General argue that interest should be awarded on everyone's damages. Lifespan, hoping for the best of both worlds, argues that interest should be awarded only on its damages, not NEMC's. Both sides agree that Rhode Island lawgoverns whether and how much prejudgment interest to award. See, e.g., R.I. Charities Trust v. Engelhard Corp., 267 F.3d 3, 8 (1st Cir. 2001) (explaining that Rhode Island law on prejudgment interest governs in federal diversity cases brought in that forum, "even where [as here] the dispute is controlled by the substantive law of another state"). This court will analyze each issue in turn.

A. Whether to award interest

Rhode Island has a prejudgment interest statute that provides in relevant part:

In any civil action in which a verdict is rendered or a decision made for pecuniary damages, there shall be added by the clerk of the court to the amount of damages interest at the rate of twelve percent (12%) per annum thereon from the date the cause of action accrued, which shall be included in the judgment entered therein.

R.I. Gen. Laws § 9-21-10. "The dual purpose of prejudgment interest" under that statute, according to the Rhode Island Supreme Court, "is to encourage early settlement of claims and to compensate an injured plaintiff for delay in receiving compensation to which he or she may be entitled." Metro. Prop. & Cas. Ins. Co. v. Barry, 892 A.2d 915, 919 (R.I. 2006) (citing Martin v. Lumberman's Mut. Cas. Co., 559 A.2d 1028, 1031 (R.I. 1989)).

The Rhode Island Supreme Court "has long held that the awarding of [prejudgment] interest is a ministerial act for the clerk of the court, not an issue to be decided by the court." Cardi Corp. v. State, 561 A.2d 384, 387 (R.I. 1989) (citing a line of cases that began with Kastal v. Hickory House, Inc., 187 A.2d 262, 264 (R.I. 1963)). In other words, "once the claim for damages has been duly reduced to judgment the addition of interest is peremptory" and "automatically awarded." Id. The rationale behind this approach is that the statute "speaks imperatively and directly not to the court but to the clerk," admitting of "no conditions or reservations," and it "is not the court's business" when confronted with "a statute so clear and unambiguous" to "read[] into [it] something contrary to its unequivocal language," regardless of whether it "comports with [the court's] ideas of justice, expediency or sound public policy." Kastal, 187 A.2d at 264-65.

There has been one case, however, where the Rhode Island Supreme Court concluded that an award of prejudgment interest "would be inappropriate" for a plaintiff who had rejected an early settlement offer equal to her ultimate recovery, because such an award "would promote neither of the purposes of § 9-21-10." Martin, 559 A.2d at 1031. Several courts have interpreted Martin to mean that "under Rhode Island law, a court may choose not to follow the statutory mandate if the award of interest, inlight of the facts of the case, does not further policy goals." Fratus v. Rep. W. Ins. Co., 147 F.3d 25, 31 (1st Cir. 1998); see also Buckley v. Brown Plastics Mach., LLC, 368 F. Supp. 2d 167, 169-70 (D.R.I. 2005); Commercial Assocs. v. Tilcon Gammino, Inc., 801 F. Supp. 939, 942-43 (D.R.I. 1992), aff'd, 998 F.2d 1092 (1st Cir. 1993); DeCesare v. Lincoln Benefit Life Co., No. PB-99/2048, 2005 WL 372300, at *2, 2005 R.I. Super. LEXIS 25, at *5-6 (R.I. Super. Ct. Jan. 13, 2005) (unpublished).

Even if, despite the clear language of § 9-21-10 (which this court regards as unambiguous), courts have discretion not to award prejudgment interest on equitable grounds, this court would nevertheless award it here, because doing so promotes both of the statutory purposes. First, such an award would help to "encourage early settlement of claims." Barry, 892 A.2d at 919. Early settlement would have been particularly welcome here, because it would have kept Lifespan and NEMC—two non-profit organizations with similar missions to provide health care to the people of New England—from diverting resources away from that mission to pay for their attorneys and other litigation expenses. Lifespan argues that NEMC made early settlement impossible by hurling a "kitchen sink of hyperbolic accusations," which made Lifespan's liability "totally unknowable and not predictable." But that is itself hyperbole. While NEMC's broader theories of liability proved unsuccessful, see, e.g., Findings & Rulings at¶¶ 106, 178, and 199, Lifespan was held liable for particular conduct, relating to NEMC's payor contracts and an interest rate swap transaction, that even its own executives acknowledged was hard to justify, see id. at ¶¶ 76, 117. That liability was hardly "unknowable" or "unpredictable." Moreover, cases settle all the time with uncertain liability.

Second, an award of prejudgment interest will "compensate [both sides] for delay in receiving compensation to which [they were] entitled." Barry, 892 A.2d at 919. NEMC, in particular, has waited about a decade to be compensated for Lifespan's misconduct during their affiliation. Lifespan argues that NEMC essentially compensated itself by withholding (or, as Lifespan puts it, "holding hostage") payments due Lifespan under the affiliation agreement, which roughly equaled the amount of Lifespan's liability. See Findings & Rulings at ¶¶ 16, 49-55. But NEMC withheld those payments only from 2006 to 2008 (the last payment in 2008 was by far the largest), whereas its damages were incurred from 2000 to 2002, meaning that NEMC still waited about half a decade before being compensated.¹ An award of interest would compensate it for that delay. See, e.g., Fratus, 147 F.3d at 31 (affirming award of interest where plaintiffs had "beenforced to wait many years for the money to which they were unquestionably entitled").

Lifespan also argues that the Massachusetts Attorney General caused some of the delay by waiting years to intervene in this case. But Lifespan has not shown that the Attorney General's delay in intervening was unreasonable. See Findings & Rulings at n.4 (rejecting Lifespan's laches defense to the Attorney General's claims); Lifespan Corp. v. New Eng. Med. Ctr., Inc., No. 06-421, 2010 WL 3718952 (D.R.I. Sept. 20, 2010) (rejecting Lifespan's statute of limitations defense). Moreover, there is no reason to believe that the litigation or settlement discussions would...