51 F.Supp.2D 673 Motions, Pleadings and Filings

51 F.Supp.2d 673
Motions, Pleadings and Filings

United States District Court, E.D. North Carolina,
Western Division.

Jeffrey D. FELDSTEIN, M.D., Plaintiff,
v.
NASH COMMUNITY HEALTH SERVICES INC., and Nash Hospitals, Inc., Defendants.

No. 5:97-CV-522-BR-3.

March 16, 1999.

Physician who was party to recruitment agreement with hospital sued corporation that acquired assets of hospital, including agreement, alleging that agreement was breached. Affirmative defenses were raised and parties cross moved for summary judgment. The District Court, Britt, J., held that: (1) fact issues precluded summary judgment that recruitment contract violated antikickback statute prohibition on payments for Medicare and Medicaid referrals; (2) closing of hospital excused physician from performance of contract condition precedent that he become member of hospital's staff; (3) corporation acquiring by merger corporation that purchased assets of hospital, including recruitment contract in question, assumed obligations of hospital toward physician under recruitment contract; (4) should physician wish to pursue claim under recruitment contract against corporation, physician would be required to satisfy requirement that he obtain membership on staff of hospital operated by corporation; and (5) there were material issues of fact as to whether corporation was attempting to avoid obligations under recruitment agreement by denying staff membership.
Summary judgment granted in part, denied in part.

West Headnotes

[1] KeyCite Notes
170A Federal Civil Procedure
170AXVII Judgment
170AXVII(C) Summary Judgment
170AXVII(C)3 Proceedings
170Ak2533 Motion
170Ak2534 k. By Both Parties. Most Cited Cases
When adverse parties each move for summary judgment, the court will draw all permissible inferences in the light most favorable to each party when considering the motion of the other party.
[2] KeyCite Notes
198H Health
198HIII Government Assistance
198HIII(B) Medical Assistance in General; Medicaid
198Hk484 Providers
198Hk485 k. In General. Most Cited Cases
(Formerly 356Ak241.55)
198H Health KeyCite Notes
198HIII Government Assistance
198HIII(C) Federal Medical Assistance to the Elderly (Medicare)
198Hk532 Providers
198Hk533 k. In General. Most Cited Cases
(Formerly 356Ak241.5)
Anti-kickback statute prohibits the knowing and willful offer, payment, solicitation, or receipt of any remuneration, directly or indirectly, in return for referrals or to induce referrals for which payment may be made under the Medicare or Medicaid programs. Social Security Act, § 1128B(b), as amended, 42 U.S.C.A. § 1320a-7b(b).
[3] KeyCite Notes
198H Health
198HIII Government Assistance
198HIII(B) Medical Assistance in General; Medicaid
198Hk484 Providers
198Hk485 k. In General. Most Cited Cases
(Formerly 356Ak241.55)
198H Health KeyCite Notes
198HIII Government Assistance
198HIII(B) Medical Assistance in General; Medicaid
198Hk499 Administrative Proceedings
198Hk503 Evidence
198Hk503(1) k. In General. Most Cited Cases
(Formerly 356Ak241.55)
198H Health KeyCite Notes
198HIII Government Assistance
198HIII(C) Federal Medical Assistance to the Elderly (Medicare)
198Hk532 Providers
198Hk533 k. In General. Most Cited Cases
(Formerly 356Ak241.5)
Evidence of a corrupt intent is necessary to prove a violation of the statute prohibiting kickbacks involving Medicare or Medicaid referrals. Social Security Act, § 1128B(b), as amended, 42 U.S.C.A. § 1320a-7b(b).
[4] KeyCite Notes
198H Health
198HIII Government Assistance
198HIII(B) Medical Assistance in General; Medicaid
198Hk484 Providers
198Hk485 k. In General. Most Cited Cases
(Formerly 356Ak241.66)
198H Health KeyCite Notes
198HIII Government Assistance
198HIII(C) Federal Medical Assistance to the Elderly (Medicare)
198Hk532 Providers
198Hk537 k. Suspension or Termination of Provider Participation; Penalties. Most Cited Cases
(Formerly 356Ak241.10)
A hospital's offer of remuneration to a physician for his services, and the physician's referral of patients to that hospital, do not, in and of themselves, constitute a violation of the statute prohibiting kickbacks in connection with Medicare and Medicaid referrals; at least one of the parties to the arrangement must have intended to induce patient referrals by offering or soliciting the particular compensation at issue. Social Security Act, § 1128B(b), as amended, 42 U.S.C.A. § 1320a-7b(b).
[5] KeyCite Notes
198H Health
198HIII Government Assistance
198HIII(B) Medical Assistance in General; Medicaid
198Hk484 Providers
198Hk485 k. In General. Most Cited Cases
(Formerly 356Ak241.66)
198H Health KeyCite Notes
198HIII Government Assistance
198HIII(C) Federal Medical Assistance to the Elderly (Medicare)
198Hk532 Providers
198Hk537 k. Suspension or Termination of Provider Participation; Penalties. Most Cited Cases
(Formerly 356Ak241.10)
Physician recruitment contract not falling within one of the safe harbor provisions of statute prohibiting kickbacks in connection with Medicare or Medicaid referrals does not automatically violate statute. Social Security Act, § 1128B(b), as amended, 42 U.S.C.A. § 1320a-7b(b).
[6] KeyCite Notes
95 Contracts
95II Construction and Operation
95II(A) General Rules of Construction
95k143 Application to Contracts in General
95k143(1) k. In General. Most Cited Cases
95 Contracts KeyCite Notes
95II Construction and Operation
95II(A) General Rules of Construction
95k175 Evidence to Aid Construction
95k175(1) k. Presumptions. Most Cited Cases
It is a general principle of North Carolina contract law that parties are presumed to intend what the language used in a contract clearly expresses, and the contract must be construed to mean what on its face it purports to mean.
[7] KeyCite Notes
198H Health
198HIII Government Assistance
198HIII(B) Medical Assistance in General; Medicaid
198Hk484 Providers
198Hk485 k. In General. Most Cited Cases
(Formerly 356Ak241.66)
198H Health KeyCite Notes
198HIII Government Assistance
198HIII(C) Federal Medical Assistance to the Elderly (Medicare)
198Hk532 Providers
198Hk537 k. Suspension or Termination of Provider Participation; Penalties. Most Cited Cases
(Formerly 356Ak241.10)
Contract between physician and hospital was ambiguous as to whether compensation was being provided to physician in return for his referral of patients to hospital, in violation of statute prohibiting kickbacks in return for Medicare or Medicaid referrals; while agreement provided that compensation was not conditioned on physician's use of any item or service provided by hospital, in preceding sentence physician acknowledged that hospital was convenient medical facility for majority of patients likely to be using his services.
[8] KeyCite Notes
170A Federal Civil Procedure
170AXVII Judgment
170AXVII(C) Summary Judgment
170AXVII(C)2 Particular Cases
170Ak2512.5 k. Social Security and Public Welfare, Actions Involving. Most Cited Cases
Material issue of fact as to whether physician and hospital intended to provide for patient referrals in exchange for compensation precluded summary judgment on claim that agreement violated statute prohibiting kickbacks in return for Medicare and Medicaid referrals. Social Security Act, § 1128B(b), as amended, 42 U.S.C.A. § 1320a-7b(b).
[9] KeyCite Notes
198H Health
198HIII Government Assistance
198HIII(B) Medical Assistance in General; Medicaid
198Hk484 Providers
198Hk485 k. In General. Most Cited Cases
(Formerly 356Ak241.66)
198H Health KeyCite Notes
198HIII Government Assistance
198HIII(C) Federal Medical Assistance to the Elderly (Medicare)
198Hk532 Providers
198Hk537 k. Suspension or Termination of Provider Participation; Penalties. Most Cited Cases
(Formerly 356Ak241.10)
393 United States KeyCite Notes
393III Contracts
393k75 Rights and Remedies of United States on Contracts in General
393k75(6) k. Kickbacks. Most Cited Cases
(Formerly 356Ak241.66)
Recruitment contract between hospital and physician was not exempt from statute prohibiting kickbacks in connection with Medicare or Medicaid referrals, by virtue of being exempt from Stark Act, prohibiting physician referrals for designated medical procedures to entities in which physician has interest. Social Security Act, § 1128B(b), as amended, 42 U.S.C.A. § 1320a-7b(b); § 1877, as amended, 42 U.S.C.(1982 Ed.) § 1395nn.
[10] KeyCite Notes
95 Contracts
95II Construction and Operation
95II(E) Conditions
95k221 Conditions Precedent in General
95k221(2) k. What Are Conditions Precedent in General. Most Cited Cases
Under North Carolina law a “condition precedent” is an event which must occur before a contractual right arises, such as the right to immediate performance.
[11] KeyCite Notes
95 Contracts
95II Construction and Operation
95II(E) Conditions
95k221 Conditions Precedent in General
95k221(1) k. In General. Most Cited Cases
Under North Carolina contract law, breach or nonoccurrence of a condition precedent prevents the promisee from acquiring a right, or deprives him of one, but subjects him to no liability.
[12] KeyCite Notes
95 Contracts
95V Performance or Breach
95k303 Excuses for Nonperformance or Defects
95k303(4) k. Performance Prevented by Other Party or Third Person. Most Cited Cases
Under North Carolina contract law, one who prevents the performance of a condition precedent, or makes it impossible by his own act, will not be permitted to take advantage of the nonperformance.
[13] KeyCite Notes
198H Health
198HI Regulation in General
198HI(C) Institutions and Facilities
198Hk268 Staff Privileges and Peer Review
198Hk269 k. In General. Most Cited Cases
(Formerly 204k6 Hospitals)
Physician was excused, under North Carolina law, from performance of conditional precedent to his receipt of benefits under recruitment contract with hospital, that he become member of active medical staff, by closure of hospital after he became temporary member and before process for obtaining permanent membership was complete.
[14] KeyCite Notes
38 Assignments
38V Rights and Liabilities
38k105 Liabilities of Assignee
38k109 k. On Contract Assigned. Most Cited Cases
Under North Carolina law, assignee of executory bilateral contract is not liable to anyone for nonperformance of assignor's duties thereunder unless he expressly promises his assignor or other contracting parties to assume duties.
[15] KeyCite Notes
38 Assignments
38V Rights and Liabilities
38k105 Liabilities of Assignee
38k109 k. On Contract Assigned. Most Cited Cases
Under North Carolina law, if assignee of executory bilateral contract expressly promises assignor that it will perform assignor's obligations under contract, assignee is liable to other party to assigned contract on third party beneficiary theory.
[16] KeyCite Notes
101 Corporations
101XIV Consolidation
101k590 Liabilities for Debts and Acts of Original Corporations
101k590(1) k. In General. Most Cited Cases
Under North Carolina law, surviving corporation of merger would be deemed to have assumed liabilities of merged corporation under physician recruitment contract assumed by merged corporation.
[17] KeyCite Notes
198H Health
198HI Regulation in General
198HI(C) Institutions and Facilities
198Hk259 Officers and Employees
198Hk260 k. In General. Most Cited Cases
(Formerly 204k8 Hospitals)
Under North Carolina law, provision of agreement covering sale of assets of hospital, that nothing therein conferred any rights upon third parties, did not preclude suit by physician for breach of recruitment contract sold under assets purchase agreement; physician's rights arose under recruitment agreement.
[18] KeyCite Notes
198H Health
198HI Regulation in General
198HI(C) Institutions and Facilities
198Hk268 Staff Privileges and Peer Review
198Hk269 k. In General. Most Cited Cases
(Formerly 204k6 Hospitals)
To extent that physician sought to enforce terms of recruitment agreement entered into with hospital, against buyer of recruitment contract and other assets of hospital, physician would be required to observe obligations of contract, including obligation of physician to become member of staff of hospital, which due to closing of hospital would mean becoming member of hospital operated by buyer of assets.
[19] KeyCite Notes
170A Federal Civil Procedure
170AXVII Judgment
170AXVII(C) Summary Judgment
170AXVII(C)2 Particular Cases
170Ak2492 k. Contract Cases in General. Most Cited Cases
Material issues of fact, precluding summary judgment, existed as to whether acquirer of hospital's recruitment contract with physician was attempting to avoid assumption of contract by denying physician membership status at hospital controlled by acquirer.
*676 Michael Steven Colo, Rocky Mount, NC, J. Nicholas Ellis, Poyner & Spruill, Rocky Mount, NC, for Jeffrey D. Feldstein, M.D., plaintiff.
Marshall A. Gallop, Jr., Battle, Winslow, Scott & Wiley, Rocky Mount, NC, J. McLain Wallace, Jr., Battle, Winslow, Scott & Wiley, Rocky Mount, NC, for Nash Community Health Services, Inc., Nash Hospitals, Inc., defendants.

ORDER

BRITT, District Judge.

Motions for summary judgment by plaintiff and defendants are before the court.

Plaintiff filed this action on 3 July 1997, alleging that defendants Nash Community Health Services, Inc. (NCHS) and Nash Hospitals, Inc. (NHI) breached the terms of a contract between plaintiff and Community Hospital of Rocky Mount (Community Hospital), which contract had been assumed by defendants. Defendants filed their answer on 27 August 1997, denying plaintiff's allegations and raising certain affirmative defenses to the enforceability of the contract.

The discovery period closed on 5 June 1998, and dispositive motions limited to the alleged failure of plaintiff to be appointed to the medical staff of Community Hospital and the second and third defenses raised in defendants' answer were to be filed on or before 8 July 1998. On that date, the parties filed the motions for summary judgment at bar. On 28 July 1998, plaintiff filed a response to defendants' motion, and on 5 August 1998, defendants filed a reply. On 30 July 1998, defendants responded to plaintiff's motion, and on 11 August 1998, plaintiff filed a reply. The parties have briefed the issues, and the motions are now ripe for review.

I. Facts

In June 1996, plaintiff entered into an “Agreement Regarding Relocation of Physician and Retention of Physician Services” with Community Hospital, an entity owned and operated by Hospital of Rocky Mount, Inc. (HRM). For convenience, the Agreement will be referred to herein as the HRM Agreement. At that time, two independent, full-service hospitals were located in Rocky Mount: Community Hospital and Nash General Hospital, which was owned and operated by NHI, one of the defendants in this action.

A. The Relationship Between Community Hospital and Defendants

In 1996, HRM, a North Carolina corporation, operated a hospital facility in Rocky Mount known as Community Hospital. HRM's parent corporation was Community Health Systems Inc. (CHS), and HRM had a subsidiary called New Dropdown Corporation (NEWCO). (Pl.'s Mem. at 2; Def.s' Mem. at 13; Def.s' Response at 9.) On 29 January 1997, HRM sold certain assets associated with Community Hospital to its subsidiary, NEWCO, pursuant to an Asset Purchase Agreement between NEWCO, HRM, and CHS, HRM's parent corporation. (Pl.'s Mem. at 2; Answer ¶ 14; Def.s' Mem. at 13.) As part of that Agreement, NEWCO assumed certain liabilities of HRM pursuant to an “Undertaking.” (Pl.'s Compl.Ex. B; Ans. ¶ 14; Def.s' Mem. at 13.) That Undertaking included the HRM agreement. (Pl.'s Compl.Ex. A; Ans. ¶ 23; Def.s' Mem. at 13.) Although HRM sold the assets of the hospital to NEWCO, HRM remained an active corporation following the Asset Purchase Agreement. (Compl. ¶ 3.)

Subsequent to the date of the Asset Purchase Agreement, Nash Health Care Systems, the corporate parent of the defendants in this action, purchased the stock of NEWCO from HRM and ultimately, merged NEWCO into defendant NCHS. (Pl.'s Mem at 2; Def.s' Mem. at 13; Ans. ¶ 2.) As a result of that merger, NCHS succeeded to the rights and liabilities of NEWCO. (Ans. ¶¶ 2-3, 14 and 23; Def.s' Mem. at 13; Affidavit of Richard K. Toomey with attached copy of Asset Purchase*677 Agreement and Schedule 1.2B thereof.) Defendants NCHS and NHI are both nonprofit, charitable, brother/sister affiliates, and each has Nash Health Care Systems, a hospital authority, as its sole member. (Pl.'s Mem. at 2.) Following the merger of NEWCO into NCHS, NCHS closed Community Hospital. (Id.) As a result of all of these dealings, Nash General, operated by NHI, became the sole hospital in Rocky Mount.