Highlands Physicians, Inc. v. Wellmont Health System
E2017-01549-COA-R3-CV
| Tenn. Ct. App. | Dec 28, 2017Background
- Highlands Physicians, Inc. (HPI) is a physician-owned independent practice association of ~1,500 providers formed to negotiate and coordinate payor contracts; Wellmont Health System (Wellmont) is a hospital system and fifty-percent owner of the Highlands–Wellmont PHO governed by a Stockholders Agreement (SA).
- The SA contained non‑competition/non‑solicitation provisions protecting the PHO’s payor relationships; an unclear 1995 Amendment purportedly narrowed those restraints as to members/officers.
- HPI alleges that, after leadership changes at Wellmont (circa 2011–2014), Wellmont undermined clinical integration and diverted major payor contracts (Humana Medicare Advantage and Cigna) from the PHO, breaching the SA and causing organizational and member damages.
- HPI filed a verified complaint (breach of contract, fiduciary duty, injunctive/declaratory relief, tort claims) and contemporaneous motion to certify a class comprised of HPI and its members (members from June 22, 2012 to the date of the order).
- The trial court certified the class as to all claims under Tenn. R. Civ. P. 23.02(1), (2), and (3). Wellmont appealed interlocutorily under Tenn. Code Ann. § 27‑1‑125. The Court of Appeals reversed certification under 23.02(1) but affirmed certification under 23.02(2) and (3), and affirmed that HPI had standing and met Rule 23.01 requirements.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standing to represent members and seek individualized damages | HPI is itself a harmed class member and seeks recovery for organizational injuries; it can represent members and also seek its members’ damages because of HPI’s payment/tithe structure | HPI (a for‑profit corporation) lacks standing to assert individualized damages on behalf of its members/shareholders; members are not third‑party beneficiaries under the SA | HPI has standing as a class representative because it is a member of the class and alleges organizational injury; question whether members are third‑party beneficiaries is merits‑based and not decided on interlocutory appeal |
| Rule 23.01 – Typicality & Adequacy | HPI’s claims arise from the same course of conduct (Wellmont’s diversion and conduct) and HPI’s financial injury requires proving members’ injuries; HPI’s governance, special litigation committee, and counsel show adequate representation | Wellmont contends HPI’s interests diverge from some members (e.g., members employed by Wellmont) and corporate structure prevents typicality/adequacy | Court affirmed: numerosity and commonality undisputed; typicality satisfied (same events/legal theories); adequacy satisfied (HPI’s purpose, governance, communication, and experienced counsel support representation) |
| Rule 23.02(1) – risk of inconsistent adjudications or dispositive collateral effects | HPI argued individual suits would risk inconsistent rulings and could be dispositive of members’ interests | Wellmont argued declaratory/injunctive relief sought does not create incompatible standards of conduct or otherwise fit 23.02(1)’s narrow protections | Reversed as to 23.02(1): appellate court found HPI failed to show the kind of risk (incompatible affirmative standards or substantial impairment of others’ rights) that subsection (1) requires |
| Rule 23.02(2) & (3) – action on grounds generally applicable; predominance/superiority | HPI: Wellmont acted on grounds generally applicable to class making declaratory/injunctive relief appropriate; common liability issues predominate and class is superior for efficiency/manageability | Wellmont: monetary relief predominates, individualized damages defeat predominance and undermine (2) and (3) | Affirmed as to 23.02(2) and (3): court concluded injunctive/declaratory relief is central enough to fit (2) and that common legal/factual issues predominate with class superiority and manageability under (3) |
Key Cases Cited
- Meighan v. U.S. Sprint Commc’ns Co., 924 S.W.2d 632 (Tenn. 1996) (articulates Rule 23 standards and that class certification is discretionary)
- Lee Med., Inc. v. Beecher, 312 S.W.3d 515 (Tenn. 2010) (abuse‑of‑discretion standard and limits on appellate review of class certification)
- Freeman v. Blue Ridge Paper Prods., Inc., 229 S.W.3d 694 (Tenn. Ct. App. 2007) (typicality/predominance discussion and deference to trial court where reasonable minds can differ)
- Wofford v. M.J. Edwards & Sons Funeral Home Inc., 528 S.W.3d 524 (Tenn. Ct. App. 2017) (recent summary of Rule 23 principles and standards for class certification)
- Butler v. Sears Roebuck & Co., 727 F.3d 796 (7th Cir. 2013) (liability may be adjudicated classwide even if damages vary; damages differences do not preclude certification where damages are readily ascertainable)