Opinion
No. CIV-04-1297-PHX-SRB.
March 23, 2005
ORDER
Plaintiff Gregory James Fields ("Fields" or "Plaintiff") filed the instant action as a class action complaint against Defendants Banner Health ("Banner") and the American Hospital Association ("AHA"). Plaintiff alleges on behalf of himself and all others similarly situated that Banner has failed to provide charitable care to the indigent uninsured and that this failure, together with other facts, constitutes: (1) a breach of Banner's contract with the federal and Arizona governments formed by virtue of Banner's tax-exempt status under 26 U.S.C. § 501(c)(3) and Ariz. Rev. Stat. (A.R.S.) § 43-1201; (2) a breach of Banner's duty of good faith and fair dealing; (3) a violation of the Arizona Consumer Fraud Act (ACFA), A.R.S. § 44-1521 et seq.; (4) a breach of an implied public trust; (5) a violation of the Emergency Medical Treatment and Active Labor Act (EMTALA), 42 U.S.C. § 1395dd (1997); and (6) unjust enrichment. With respect to AHA, Plaintiff charges that AHA has conspired with and aided and abetted Banner in its breaches of contract and the duty of good faith and fair dealing and in the violation of ACFA. Defendants move to dismiss Plaintiff's complaint for failure to state a claim upon which relief can be granted pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure (Docs. 4, 39). The Court now rules on Defendants' motions.
The Court does not regard Count Seven of Plaintiff's First Amended Class Action Complaint, which merely seeks injunctive and declaratory relief for Banner's other violations, as a stand-alone violation.
I. BACKGROUND
Plaintiff was treated in the emergency room of Thunderbird Samaritan Medical Center, one of Banner's hospitals, sometime during 2001. Plaintiff alleges that his treatment was conditioned on his signature of a contract agreeing to pay unspecified and, as he later discovered, inflated charges for his treatment. Plaintiff further alleges that he was uninsured and unable to pay the charges for his medical care, and that he informed Banner of his indigence, but that Banner continued to pursue him for the full amount of the bill, going so far as to file adverse credit reports against Plaintiff.
The exact date of Plaintiff's treatment is never specified in the First Amended Complaint.
Banner has enjoyed tax-exempt status under federal and Arizona law since 1997. According to Plaintiff, such exemption from taxation creates a contract with the United States and the State of Arizona to provide charitable or affordable medical care. Plaintiff alleges that Banner's practice of charging uninsured, indigent patients for the full cost of their medical care and using aggressive collection practices to recover medical debt breaches Banner's contractual obligations as well as other statutory provisions. Plaintiff's action is but one of dozens of lawsuits filed across the country by uninsured, indigent patients seeking damages and injunctive relief from tax-exempt health care providers on various theories. Commonly appearing are breach of contract claims predicated on the theory that uninsured, indigent patients such as Plaintiff are the intended third-party beneficiaries of tax exemption "contracts" between the health care provider and the government (federal or state). Although the Court could ascertain no case to date in which a plaintiff has succeeded on such a theory, the Court will nevertheless address Defendants' Rule 12(b)(6) Motions to Dismiss this and Plaintiff's other causes of action in the context of the specific facts set forth in his First Amended Complaint.
II. LEGAL STANDARDS AND ANALYSIS
Dismissal for insufficiency of a complaint is proper if, on its face, the complaint fails to state a claim. Lucas v. Bechtel Corp., 633 F.2d 757, 759 (9th Cir. 1980). A Rule 12(b)(6) dismissal for failure to state a claim can be based on either: (1) the lack of a cognizable legal theory; or (2) insufficient facts to support a cognizable legal claim. Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1990); Robertson v. Dean Witter Reynolds, Inc., 749 F.2d 530, 534 (9th Cir. 1984).
In determining whether a complaint states a valid claim, all allegations of material fact are taken as true and construed in the light most favorable to the non-moving party. Clegg v. Cult Awareness Network, 18 F.3d 752, 754 (9th Cir. 1994). The complaint should not be dismissed unless it appears beyond doubt that there are "no set of facts" which would entitle the plaintiff to relief under the asserted claim. Conley v. Gibson, 355 U.S. 41, 45-46 (1957); see also Balistreri, 901 F.2d at 701.
A. Claims Against Banner
1. Breach of Contract
In order to state a claim for breach of contract, Plaintiff must demonstrate at a minimum: (1) the creation of a contract between Banner and the federal and Arizona governments by virtue of Banner's exemption from taxation by statute; (2) the existence of a right of action granting private citizens the right to sue for breach of such a contract; and (3) standing on the part of Plaintiff as a third-party beneficiary. See Lorens v. Catholic Health Care Partners, Civ. No. 04-1151, 2005 WL 407719, at *2 (N.D. Ohio Jan. 13, 2005) (following identical three steps of analysis for breach of contract claim by indigent uninsured against health care provider). Banner argues that Plaintiff's arguments fail as a matter of law at each turn.
a. Creation of Contract by Statute
Plaintiff's pursuit of Banner for breach of contract rests on the theory that Banner's enjoyment of tax-exempt status derives from a contract with the federal government under 26 U.S.C. § 501(c)(3) and with the Arizona government under A.R.S. § 43-1201 wherein Banner agreed to provide care to Plaintiff and other indigent uninsured patients at a reasonable cost in exchange for exemption from taxation. Failure to provide such care, Plaintiff charges, constitutes a breach of contract for which Banner is liable.
Arizona law provides that organizations exempt from taxation under 26 U.S.C. § 501 are also exempt from Arizona income tax. A.R.S. § 43-1201. As a result, the Court's discussion of the existence of a contract under federal law applies with equal force to any alleged contract under Arizona law.
Contracts of the federal government are governed by federal law. E.g., Keydata Corp. v. U.S., 504 F.2d 1115, 1124 (Ct.Cl. 1974).
It is axiomatic that a cause of action for breach of contract cannot accrue in the absence of a valid contract. Furthermore, it is long and well established that statutes do not create contracts, but declare policy. Nat'l R.R. Passenger Corp. v. Atchison, Topeka Santa Fe Ry. Co., 470 U.S. 451, 466-67, 105 S. Ct. 1441, 1451-52 (1985); see also Proksa v. Ariz. State Sch. for the Deaf and the Blind, 74 P.3d 939, 941 (2003). "[A]bsent an adequate expression of an actual intent of the State to bind itself, this Court simply will not lightly construe that which is undoubtedly a scheme of public regulation to be, in addition, a private contract to which the State is a party." Nat'l R.R., 470 U.S. at 466-67, 105 S. Ct. at 1452 (citation omitted). Plaintiff appears to suggest that the exchange of consideration by the parties demonstrates such actual intent, attributing to Tucker v. Ferguson, 89 U.S. 527, 22 L. Ed. 805 (1874), the holding that an exemption from taxation becomes a contract where consideration exists. More accurately stated, Tucker stands for the obvious and slightly different proposition that, where a statute gratuitously grants an exemption, no contract exists. 89 U.S. at 574-75. This does little to help Plaintiff's case, and more recent precedent provides no richer fodder for Plaintiff's arguments. Tax exemptions are modernly considered a matter of "legislative grace," Levy v. Comm'r of Internal Revenue, 732 F.2d 1435, 1436 (9th Cir. 1984); IHC Health Plans, Inc. v. Comm'r of Internal Revenue, 325 F.3d 1188, 1194 (10th Cir. 2003), and there is no indication that contractual rights inhere even where such an exemption is granted only following a showing of charitable purpose. Courts have repeatedly held that the tax code is not contractual in nature, see Lane County v. Oregon, 74 U.S. 71, 80, 19 L.Ed. 101 (1868); McLaughlin v. Comm'r of I.R.S., 832 F.2d 986, 987 (7th Cir. 1987), and Plaintiff offers no plausible argument for the application of the law of contracts to exemptions granted by the code. The tax code and its exemptions are, "unlike contracts . . . `inherently subject to revision and repeal.'" Proksa, 74 P.3d at 941 (quoting Nat'l R.R., 470 U.S. at 466, 105 S.Ct. at 1441), and to construe an exemption as a contract would "enormously curtail the operation of democratic government . . . [by] creating rights that could never be retracted or even modified without buying off the groups upon which the rights had been conferred." Id. (quoting Pittman v. Chicago Bd. of Educ., 64 F.3d 1098, 1104 (7th Cir. 1995)).
Even less persuasive is Plaintiff's contention that § 501(c)(3) is an analogue of the Hill-Burton Act, 42 U.S.C. § 291, which courts have recognized as an enforceable contract between hospitals and the government. As noted by other district courts, substantial differences exist between the Hill-Burton Act and § 501(c)(3), see Lorens, 2005 WL 407719, at *2, the most pertinent of which is that Hill-Burton Act fund recipients must sign a "Memorandum of Agreement" containing express contractual language, Euresti v. Stenner, 458 F.2d 1115, 1118-19 n. 4 (10th Cir. 1972), while organizations receiving § 501(c)(3) recognition sign no such written agreement. Washington v. Med. Ctr. of Cent. Ga., Inc., Ferguson v. Centura Health Corp., Civ. No. 04-M-1285, 2004 WL 3213447, at *3 (D. Colo. Dec. 29, 2004). As a matter of law, § 501(c)(3) does not create a contract between the state or federal government and Banner, leaving Plaintiff with no contract on which he can base a valid claim for breach.
b. Private Right of Action
Even if Plaintiff could establish the existence of a contract, Banner argues that Plaintiff cannot bring suit because § 501(c)(3) does not provide for a private right of action either expressly or impliedly. Plaintiff counters that a private right of action must be implied from Congressional acts forming the contract, both because a legal action for breach is a "customary legal incident" of the contractual relationship and because an action for breach of contract may be brought under the allegedly analogous Hill-Burton Act.
Unlike the Hill-Burton Act, § 501(c)(3) contains no express provision of a private right of action by intended third-party beneficiaries for breach of contract. The existence of an implied private right of action depends upon Congressional intent, which is discerned primarily by analyzing the statute's language and legislative history. Transamerica Mortgage Advisors, Inc. v. Lewis, 444 U.S. 11, 15-16, 100 S.Ct. 242, 245 (1979); see also Scientex Corp v. Kay, 689 F.2d 879, 881 (9th Cir. 1982).
Nothing has been presented that would suggest Congress intended to create a private cause of action to enforce the requirements for obtaining and maintaining tax-exempt status. In general, "the legislative scheme of the [Internal Revenue Code] . . . `does not indicate that Congress intended to enforce these tax laws by . . . authorizing private attorneys general.'" Arvin v. Go Go Inv. Club, 1996 WL 708589, at *4 (N.D. Cal. Dec. 5, 1996) (quoting Turner v. Unification Church, 473 F.Supp. 367, 377 (D.R.I. 1978)). The language of the particular statute in question, § 501(c)(3), lists organizations that may apply for tax-exempt status; it does not refer to the individuals who are expected to benefit from those organizations' charitable efforts. Because the statute concentrates "on the person regulated rather than the individuals protected . . . [there is] no implication of an intent to confer rights on a particular class of person." Alexander v. Sandoval, 532 U.S. 275, 289, 121 S. Ct. 1511, 1521 (2001).
Furthermore, even if § 501(c)(3)'s text made clear that it contemplated the protection of indigent, uninsured patients and other organizations' beneficiaries, "[t]he mere fact that the statute was designed to protect [a group] does not require the implication of a private cause of action for damages on their behalf." Transamerica, 444 U.S. at 24, 100 S. Ct. at 249. Congress is fully aware of how to create a private right of action, as demonstrated by its successful attempt in the Hill-Burton Act, 42 U.S.C. § 300s-6, but chose not to do so with respect to § 501(c)(3). Knowledge and power, combined with the refusal to exercise them, appears as deliberate forbearance from creating a private cause of action. Transamerica, 444 U.S. at 20-21, 100 S. Ct. at 247-48. Absent a private cause of action, Plaintiff's claim must be dismissed for failure to state a claim upon which relief may be granted.
c. Standing
Assuming arguendo that Plaintiff could establish the existence of a contract and a private cause of action, he must still demonstrate that he possesses standing to litigate his claims. By Plaintiff's own admission, he does not seek to challenge or revoke Banner's tax-exempt status under the tax code; instead, he urges the Court to find that he has standing to pursue Banner on its contract with the government. Generally, a third-party beneficiary may recover for breach of contract where "(1) the contract itself indicates an intention to benefit the third party, (2) the benefit contemplated is intentional and direct and (3) the contracting parties intend to recognize the third party as the primary party in interest." Flagstaff Med. Ctr., Inc. v. Sullivan, 962 F.2d 879, 892 (9th Cir. 1992). The Second Restatement of Contracts, however, modifies this general rule: a "promisor who contracts with a government or governmental agency to do an act or render a service for the public is not subject to contractual liability to a member of the public for consequential damages resulting from . . . failure to perform unless . . . the terms of the promise provide for such liability. . . ." Restatement (Second) of Contracts § 313 (1981).
Plaintiff contends that he and other indigent uninsured are the intended beneficiaries of § 501(c)(3), and that as such, they may sue to ensure that they are provided with the care required. The only support offered for this contention is the courts' recognition of the standing of similar patients under the Hill-Burton Act. The existence of standing under a separate statute substantially different in its terms from § 501(c)(3), however, does little to persuade the Court that standing exists here. The Court notes that the Hill-Burton Act specifically provides a private right of action, thereby defining a specific group of individuals as intended beneficiaries and providing for liability to them, 42 U.S.C. § 300s-6; § 501(c)(3) does not. The beneficiaries of § 501(c)(3) are neither named nor clearly identified. See Montana v. United States, 124 F.3d 1269, 1273 (Fed. Cir. 1997) (requiring clear identification of class of intended beneficiaries).
To interpret the general language of § 501(c)(3) as conferring standing upon the potential beneficiaries of all tax-exempt organizations would open the door to a flood of unanticipated litigation. See German Alliance Ins. Co. v. Home Water Supply Co., 226 U.S. 220, 231, 33 S. Ct. 32, 35 (1912) (discussing the dangers of extending liability on government contracts to contract beneficiaries); Price v. Pierce, 823 F.2d 1114, 1121 (7th Cir. 1987) (same). Although the recipients of assistance from tax-exempt organizations may benefit rather immediately from § 501(c)(3), a government contract which benefits some individuals more directly than others is still a contract "for the public." See Berberich v. United States, 5 Cl. Ct. 652, 656 (Cl.Ct. 1984) (applying Restatement (Second) § 313 with respect to government contract benefitting residents of single town); Martinez v. Socoma Cos., Inc., 11 Cal. 3d 394, 406 (1974) (residents of low-income neighborhood); Nguyen v. U.S. Catholic Conference, 547 F. Supp 1333, 1348 (W.D. Pa. 1982) (alien refugees); Drummond v. Trustees of the Univ. of Pa., 1993 WL 1156036, 1993 Phila. Cty.Rptr. LEXIS 141, *2 (Pa.Commw.Ct. Feb. 22, 1993) (scholarship recipients); Clifton v. Suburban Cable TV Co., 642 A.2d 512, 515 (Pa.Super.Ct. 1994) (prisoners). § 501(c)(3) reflects no intent to benefit Plaintiff to any greater degree than the rest of the public. Therefore, Plaintiff's lack of standing requires dismissal of his breach of contract claim even if other grounds do not. The Court finds it unnecessary to reach Defendants' additional arguments for dismissal of this count.
2. Breach of Implied Public Trust
Count Two of Plaintiff's Complaint alleges that Banner's actions breached not only its contract with the federal and Arizona governments, but also an implied public trust arising under federal law. Plaintiff contends that Banner entered into a public charitable trust by accepting tax-exempt status under § 501(c)(3) and breached this trust, of which Plaintiff is a beneficiary, by failing to provide care in accordance with its terms. Banner argues that this claim must be dismissed because no charitable trust was formed and for lack of standing. The Court agrees on both points.
Charitable trusts only arise from express, specific language indicating the intent to create a trust, Restatement (Second) of Trusts §§ 348-49 (1959), and § 501(c)(3) lacks such language. Even assuming that a valid charitable trust exists, Plaintiff still must establish that he has standing. "As a general rule no private citizen can sue to enforce a charitable trust merely on the ground that he believes he is within the class to be benefited [sic] by the trust. . . ." George Gleason Bogert, The Law of Trusts and Trustees § 414 (2d ed. 1991); see also Restatement (Second) of Trusts § 391 (1959). In Arizona, "potential beneficiaries of a charitable trust have no standing to enforce, construe, or require an accounting of the trust or trust property." Collier v. Bd. of Nat'l Missions of the Presbyterian Church, 464 P.2d 1015, 1018 (Ariz.Ct.App. 1970); accord Robert Schalkenbach Found. v. Lincoln Found., Inc., 91 P.3d 1019, 1024 (Ariz.Ct.App. 2004). Standing is limited to those with a special interest in the enforcement of a trust, Restatement (Second) of Trusts § 391, cmt. d (1959), and there is no evidence that Plaintiff has any interest more specific or special than that derived from membership in a large class of beneficiaries. Absent a valid charitable trust or standing to sue thereupon, Count Two of Plaintiff's complaint against Banner must be dismissed.
3. Breach of Duty of Good Faith and Fair Dealing
In view of the lack of a valid contract, Plaintiff's attendant claim for breach of the duty of good faith and fair dealing must be dismissed. Liu v. Amway Corp., 347 F.3d 1125, 1138 (9th Cir. 2003); Brazil v. FedEx Ground Package Sys., Inc., Civ. No. 03-6287-TC, 2004 WL 2457776 (D. Or. Nov. 1, 2004).
4. EMTALA
In addition to claims brought under the federal common law, Plaintiff brings suit for violation of EMTALA. Plaintiff alleges that his treatment in 2001 was delayed and conditioned upon his signature of an agreement to pay undisclosed fees for his medical care. Banner highlights the Act's two-year statute of limitations as a basis for dismissal of this claim, pointing out that Plaintiff's Complaint was filed on June 23, 2004, considerably more than two years from the unspecified date of Plaintiff's treatment. Plaintiff proffers the weak counterargument that he was unaware of the full scope of the violation until he discovered the allegedly inflated rates he was charged for his care, and that the statute of limitations should be tolled until the (unspecified) date of this discovery.
The Court finds that this argument is based on a misunderstanding of the protections of EMTALA. While EMTALA provides that individuals visiting hospital emergency rooms must receive a limited amount of emergency medical care without regard to their ability to pay, it does not prohibit hospitals from charging for this medical care. A delay in treatment constitutes a violation of EMTALA, 42 U.S.C. § 1395dd(h); treatment followed by the attempt to exact allegedly inflated fees for that care is not made illegal by the Act. Therefore, Plaintiff's contention that he did not "discover" the EMTALA violation until he was charged for his treatment is incorrect. Any delay of his medical treatment pending signature of a fee agreement occurred and was known at the time of his visit to Banner's facility, and the statute of limitations began to run at that time. See Monrouzeau v. Asociacion del Maestro, No. Civ. 02-2506, 2005 WL 273119, at *3 (D.P.R. Feb. 4, 2005); Vazquez Morales v. Estado Libre Asociado de Puerto Rico, 967 F.Supp. 42, 46-47 (D.P.R. 1997). Since the statute of limitations began to run in 2001, and EMTALA does not provide for tolling of the limitations period, Vogel v. Linde, 23 F.3d 78, 80 (4th Cir. 1994); Sherwood v. Finch, No. Civ. 00-349-HU, 2000 WL 1862562, at *8 (D. Or. Dec. 20, 2000); Estate of Enck v. Beggs, Civ. No. 94-1568-PFK, 1995 WL 519148, at *1 (D. Kan. Aug. 30, 1995) ("The EMTALA does not contain a tolling provision or otherwise provide for any exception to the two-year statute of limitations."), it expired prior to the institution of Plaintiff's action in 2004. Banner's motion to dismiss must be granted with respect to Plaintiff's EMTALA claim.
Plaintiff never alleges that Banner refused to provide the appropriate medical care, only that Banner delayed provision of that care until he agreed in writing to be responsible for the cost of his care.
5. ACFA and Unjust Enrichment
The only counts remaining against Banner consist of Plaintiff's Arizona state law claims of unjust enrichment and for the violation of ACFA. The exercise of jurisdiction over pendent state law claims is a matter of discretion. United Mine Workers v. Gibbs, 383 U.S. 715, 725, 86 S. Ct. 1130, 1138 (1966); Ruud v. U.S. Dept. of Labor, 347 F.3d 1086, 1089 n. 3 (9th Cir. 2003) (recognizing codification and slight modification of Gibbs by 28 U.S.C. § 1367). Where all federal claims have been dismissed before trial, abstention from the exercise of jurisdiction over state law claims is appropriate. 28 U.S.C. § 1367(c)(3); see Gibbs, 383 U.S. at 726, 86 S. Ct. at 1139. Accordingly, this Court dismisses Plaintiff's ACFA and unjust enrichment claims.
B. Claims Against AHA
Plaintiff alleges that Defendant AHA's lobbying and information-gathering and-analyzing activities on behalf of its member hospitals constituted the conspiracy to commit and aiding and abetting of Defendant Banner's breach of contract, breach of the duty of good faith and fair dealing, and violation of ACFA. To the extent that Banner's claims for the underlying breaches of contract and the duty of good faith and fair dealing must be dismissed pursuant to Rule 12(b)(6) for failure to state a claim upon which relief can be granted, Plaintiff's allegations against AHA of conspiracy and aiding and abetting must also be dismissed. Plaintiff does not dispute that Arizona law requires a live underlying wrong in order to pursue claims of conspiracy and aiding and abetting. Wells Fargo Bank v. Arizona Laborers, Teamsters Cement Masons Local No. 395 Pension Trust Fund, 38 P.3d 12, 26, 28 (Ariz. 2002). Furthermore, with respect to the portion of Plaintiff's claims against AHA related to Banner's alleged violation of ACFA, a state law claim, the Court declines to exercise its jurisdiction. See 28 U.S.C. § 1367(c)(3). AHA's Motion to Dismiss the claims against it must be granted.
No other underlying wrongs were pled in Plaintiff's complaint.
IT IS ORDERED granting Defendant Banner's Motion to Dismiss (Doc. 4).
IT IS FURTHER ORDERED granting Defendant AHA's Motion to Dismiss (Doc. 39).
IT IS FURTHER ORDERED directing the Clerk of the Court to terminate this action.