Saturday, June 19, 2004
Complaints in the not-for-profit class actions.
The Texas complaint (against East Texas Medical Center and related entities) is 22 pages long and is an amateurish job. The complaint alleges the breach of numerous express and implied contracts with the federal, state, and local governments (in return for tax exempt status)(Count 1); the breach of related duties of good faith and fair dealing (Count 2); violations of the Texas DTPA (Count 3); unjust enrichment/constructive trust (Count 5 - there is no Count 4 -- and only the unjustment enrichment part is a separate "count"; everything else (request for constructive trust and vague request for damages) belongs in the "Relief" section); and civil conspiracy and "concert in [or sometimes "of"] action (Count 6). The complaint seeks various forms of declaratory and injunctive relief (erroneously denominated Count 8 rather than beling listed under a separate heading for "Relief" - and there is no Count 7), as well as damages and the imposition of a constructive trust. Considering how much is allegedly at stake, you'd have thought this big-time class-action firm might have drafted the complaint with a little more care.
Right off the bat, expect the federal district court's subject-matter jurisdiction to be challenged. The complaint alleges the existence of general federal-question jurisdiction (28 USC § 1331) because of the existence of a contract with the federal government based upon the defendants' tax-exempt status. (What contract? And in any event, since when does a breach of contract claim state a federal question?) The complaint also bases jurisdiction on 28 USC § 1340, which gives federal district courts jurisdiction of any civil action arising under, among other things, the Internal Revenue Code. (This is the provision that gives jurisdiction over taxpayers' suits for refunds when they contest a tax bill; it will be interesting to see whether the court believes that it extends jurisdiction to the claims of former patients who complain of collection efforts by the hospital, allegedly in violation of the hospital's duty (pursuant to 26 USC § 501(c)(3)) to leave them alone.)
On the merits, the complaint is very strange. It is premised on the belief that a tax-exempt hospital shouldn't bill for services, or shouldn't try to collect on its bills, or shouldn't try very hard to collect on its bills. This is a strange conception of tax-exempt organizations. Indeed, if a tax-exempt hospital didn't try all reasonable means to collect on its bills, it might find its tax exemption in jeopardy ("private benefit") and the state Attorney General at its door (looking into the dissipation of assets held in a "public trust"). Okay, that last idea is a bit far-fetched, but less so than the allegation that tax-exempt hospitals shouldn't be run in a business-like manner. Among other things, donors might be more than a little concerned that their generosity is being used to fund the care of those who can pay, leaving less money to pay for the care of those who cannot pay. And how does a hospital figure out who can and cannot pay? By trying to collect from anyone who has not previously established their indigent status.
This is going to be interesting . . . . Unfortunately, it's also going to be expensive to defend this pointless lawsuit. What a waste.