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Empire Health Foundation v. CHS/Community Health Systems Inc.

United States District Court, E.D. Washington

July 9, 2019

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.

          ORDER GRANTING PLAINTIFF'S MOTION FOR PARTIAL SUMMARY JUDGMENT ON DEFENSES AND AFFIRMATIVE DEFENSES

          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. Before the Court is the Foundation's Motion for Partial Summary Judgment Dismissing CHS's Affirmative Defenses, ECF No. 99. The Foundation seeks partial summary judgment that CHS lacks evidence required to prove all elements of laches, waiver, and equitable estoppel, as well as contributory fault and failure to mitigate damages. Id. CHS opposes the motion, arguing sufficient facts support its defenses and affirmative defenses. ECF No. 135. After reviewing the record and relevant legal authorities, the Court grants the motion because no genuine dispute exists as to any material fact and, as a matter of law, the Foundation is entitled to the ruling it seeks.

         BACKGROUND

         This case is scheduled for a bench trial on August 12, 2019. ECF No. 190. The underlying facts are set forth in the Court's February 27, 2019 Order Ruling on Cross-Motions for Summary Judgment, ECF No. 82, and will not be repeated here.

         Two Certificates of Need, issued by the Washington State Department of Health in 2008, provide, “[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. . . . [Each hospital] will maintain records documenting the amount of charity care it provides and demonstrating its compliance with its charity care policies.” ECF No. 61-1 at 2; ECF No. 61-2 at 2.

         The Court previously ruled this charity care condition is enforceable under the parties' 2007 Asset Purchase Agreement. ECF Nos. 22, 36, 50, 82. Regarding records, the contract provides that “[f]or 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 [provision setting forth charity care requirements].” ECF No. 100-10 at 3; ECF No. 136-1 at 3. Regarding waiver, the contract provides that “[t]he waiver by any party of a breach or violation of any provision of this Agreement shall not operate as, or be construed to constitute, a waiver of any subsequent breach of the same or any other provision hereof.” ECF No. 100-9 at 3; ECF No. 136-1 at 5.

         CHS regularly reported the hospitals' charity care levels to their respective boards of trustees. ECF No. 136-3 at 5-8; ECF No. 137 at 2. Those figures appeared in financial reports to the boards of trustees concerning many aspects of the hospitals' operations. ECF No. 136-3 at 8. CHS discussed those figures, and its compliance with its charity care obligations, at the boards of trustees' meetings. ECF No. 136-3 at 7; ECF No. 137 at 2.

         But the boards of trustees were “never given the data that showed what the regional average of charity care was in the Eastern Washington region, ” even though CHS “did look at that data.” ECF No. 136-3 at 10. Thus, CHS did not disclose to the boards of trustees how the hospitals' charity care levels compared to the regional average. See Id. at 10-12; see also ECF No. 100-2 at 4; ECF No. 100-3 at 4-5. “The emphasis in the discussion was on the reasonable efforts throughout the process not on the regional averages.” ECF No. 136-3 at 12. How the hospitals' charity care levels compared to the regional average was publicly available on an official state government website. See ECF No. 105-12 at 3-4; ECF No. 105-13 at 15; ECF No. 138 at 3; ECF No. 150 at 4.

         The Foundation's executives met with CHS's executives regularly in hopes of forming community partnerships to “co-invest in initiatives to try to . . . address homeless or high utilizers.” ECF No. 136-2 at 6. These meetings were unsuccessful, and no community partnerships formed. Id. at 6-8. During these meetings, the Foundation never expressed concern over whether CHS was fulfilling its charity care obligations. See ECF No. 106 at 2; ECF No. 136-2 at 12.

         In November 2016, a guest lecturer for a graduate class on health administration performed a “rough initial analysis” of the hospitals' charity care levels. ECF No. 136-2 at 10. When he shared the numbers with the Foundation, it soon engaged legal counsel and obtained “a more in-depth expert analysis” because it was “extremely disappointed with the charity care levels.” Id.

         The Foundation did not analyze the hospitals' charity care levels earlier because it understood CHS had an obligation to report to the boards of trustees, and the boards of trustees never notified the Foundation of any issues with the hospitals' charity care levels. Id. at 11-12. Ultimately, the Foundation did not scrutinize the hospitals' charity care levels until it engaged legal counsel. Id. at 13-15. Yet, the Foundation claims it has a fiduciary duty to enforce CHS's charity care obligations on behalf of the Spokane community. ECF No. 105-5 at 15.

         The Foundation filed this action on June 12, 2017, claiming breach of contract and breach of the implied duty of good faith and fair dealing. ECF No. 1. On October 11, 2017, the Court denied CHS's motion to dismiss the Foundation's claims that are “based on CHS's alleged failure to provide the required minimum level of charity-care.” ECF No. 22 at 15. The Court declared “[t]hose claims survive” while dismissing others. Id. The Court also ruled “[t]he Foundation's claims are not time-barred” under the applicable statute of limitations, at least to the extent they are “based upon conduct occurring within the limitations period.” Id. at 14. On February 27, 2019, the Court determined that, if the Foundation were to prevail at trial, it “may not recover under a traditional damages theory” but “may obtain equitable monetary relief.” ECF No. 82 at 14, 17.

         CHS asserts the affirmative defenses of laches, waiver, and equitable estoppel, and the defenses of contributory fault and failure to mitigate damages. ECF No. 38 at 10-11; ECF No. 87 at 2-3.

         CHS argues it has “demonstrated profound prejudice caused by [the Foundation]'s nearly ten-year delay in bringing this action.” ECF No. 138 at 4-5. CHS claims the Foundation's inaction led it to believe it was in compliance with its charity care obligations. Id. at 5. CHS notes the Foundation did not complain about the hospitals' charity care levels until after it announced it was selling them. Id. CHS claims the Foundation's inaction denied it any opportunity to address concerns over the hospitals' charity care levels. Id.

         Had the Foundation complained about the hospitals' charity care levels earlier, CHS would have taken the complaint seriously, escalated the issue to corporate leadership, and investigated the complaint at a local level. ECF No. 106 at 2; ECF No. 107 at 2; ECF No. 108 at 2. Deaconess Medical Center's Chief Executive Officer “would have . . . taken any appropriate action following that investigation.” ECF No. 106 at 2. Valley Hospital and Medical Center's Chief Executive Officer “would have wanted to schedule a meeting with [the Foundation] to discuss [its] concerns in detail and to have an open and honest conversation about what Valley could do to improve.” ECF No. 108 at 2. And, ...


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