Lindsay v. Children’s Hosp. Med’l Ctr. of Akron (Summary)

BREACH OF CONTRACT/EMPLOYMENT

Lindsay v. Children’s Hosp. Med’l Ctr. of Akron, No. 24114 (Ohio Ct. App. Mar. 18, 2009)

The Ohio Court of Appeals affirmed the grant of summary judgment for a hospital on a variety of civil rights claims but denied summary judgment on a breach of contract claim after the hospital terminated the employment contract of a perinatologist.

The court found that the hospital failed to present evidence showing that the physician was given 30 days’ notice of her impending "for cause" termination. Because the chairman of the department sent the physician a letter that did not give a definitive 30-day notice of termination, but instead indicated that "if the physician failed to show marked improvement in her performance, a thirty-day notice of impending termination might be forthcoming," the court ruled that the hospital did not meet its burden for summary judgment.

 

Lindsey v. St. John Health Sys., Inc.

TORT CLAIMS/PEER REVIEW PRIVILEGE

Lindsey v. St. John Health Sys., Inc. – Detroit,
Nos. 268296, 270042 (Mich. Ct. App. Feb. 6, 2007)

The Court of Appeals of Michigan granted summary judgment
to a hospital that was sued by a former patient for intentional infliction
of emotional distress ("IIED"). The patient alleged that during her stay at the
hospital, she was subjected to various rude and disrespectful behaviors on the
part of the hospital’s nursing staff, which included derogatory references, injecting
an unknown substance into the patient’s I.V., failing to respond to the patient’s
requests for assistance, and being "rough" with the patient on one
occasion. The Court of Appeals held that, even if true, the conduct described
did not rise to the level of "outrageous" required to establish an
IIED claim. The court also rejected the patient’s argument that the trial court
should have admitted into evidence a hospital "occurrence report" concerning
the complained of incidents. The court held that the report was privileged and
protected from discovery under the state’s peer review statute.

 

Lipkowitz v. Hamilton Surgery Ctr., LLC (Summary)

ANTI-KICKBACK

Lipkowitz v. Hamilton Surgery Ctr., LLC, No. A-4489-08T1 (N.J. Super. Ct. App. Div. Aug. 4, 2010)

The Superior Court of New Jersey affirmed summary judgment in favor of an ambulatory surgery center which exercised its option to purchase the shares held by two physicians who refused to return the annual eligibility affirmation statement required for compliance with the federal anti-kickback statute. The physicians sued under the state’s Uniform Securities Law, alleging that one of the physicians on the ambulatory surgery center’s board misrepresented to the physicians that it would be no problem if they did not satisfy the one-third/one-third test (which is part of the safe harbor that allowed the physicians to invest in the ambulatory surgery center). Though the physicians’ shares were purchased for over $185,000, which constituted over $136,000 profit over their original $69,000 investments, the physicians argued that the purchase price was insufficient. Rather, they claimed that they were entitled to damages that would give them "the benefit of the bargain." In affirming summary judgment, the appellate court noted that the purpose of the securities law (which prohibits misrepresentations and omissions in the offering of securities for purchase) was to place investors in the same position they were in before making the investment. The court held that the law was not intended to give victims of a misrepresentation the benefit of the bargain. Accordingly, because the physicians had not experienced a loss when their shares were repurchased, their claim could not go forward.

 

Lewis v. Physicians Ins. Co. of Wisconsin

Case No.:

Complete Title
of Case:

2001 WI 60

SUPREME COURT OF WISCONSIN

99-0001

Norvin Lewis and Delores Lewis,
Plaintiffs-Respondents-Petitioners,
v.
Physicians Insurance Company of Wisconsin, Jay
Seldera, M.D. and Wisconsin Patients
Compensation Fund,
Defendants-Appellants,
Lakeland Medical Center, The Dean Health Plan,
Inc. and Donna Shalala,
Defendants.

REVIEW OF A DECISION OF THE COURT OF APPEALS
2000 WI App 95
Reported at: 235 Wis. 2d 198, 612 N.W.2d 389
(Published)

Opinion Filed:
Submitted on Briefs:
Oral Argument:

Source of APPEAL
COURT:
COUNTY:
JUDGE:

June 13, 2001

January 4, 2001

Circuit
Milwaukee
Michael G. Malmstadt

JUSTICES:
Concurred:

ABRAHAMSON, C.J., concurs (opinion filed).
BRADLEY, J., joins concurrence.

Dissented:
Not Participating:

For the plaintiffs-respondents-petitioners there
ATTORNEYS:
was a brief by Timothy J. Aiken, James C. Gallanis and Aiken &
Scoptur, S.C., Milwaukee, and oral argument by Timothy J. Aiken.

For the defendants-appellants there was a brief

by Christopher P. Riordan, Marianne Morris Belke and Crivello,
Carlson, Mentkowski & Steeves, S.C., Milwaukee, and oral argument
by Christopher P. Riordan.

2

2001 WI 60
NOTICE
This opinion is subject to further editing and
modification. The final version will appear
in the bound volume of the official reports.

IN SUPREME COURT

FILED

JUN 13, 2001

Cornelia G. Clark
Clerk of Supreme Court
Madison, WI

No.
99-0001
STATE OF WISCONSIN :

Norvin Lewis and Delores Lewis,
Plaintiffs-Respondents-
Petitioners,
v.
Physicians Insurance Company of
Wisconsin, Jay Seldera, M.D. and
Wisconsin Patients Compensation Fund,
Defendants-Appellants,
Lakeland Medical Center, The Dean Health
Plan, Inc. and Donna Shalala,
Defendants.

REVIEW of a decision of the Court of Appeals. Affirmed.

JON P. WILCOX, J. The issue in this case is whether
¶1
a surgeon can be vicariously liable for the negligence of two
hospital nurses who failed to count accurately the sponges used
in a surgical procedure. Because the plaintiff has not
presented a viable doctrine for imposing vicarious liability on
the surgeon under existing Wisconsin law and because we decline
to adopt the “captain of the ship” theory for Wisconsin, we

No.

99-0001

conclude that the surgeon cannot be held vicariously liable for
the negligence of the two hospital nurses.
The plaintiff in this case, Norvin Lewis (Lewis),
¶2
asserted that the defendant, Jay Seldera, M.D. (Seldera), was
vicariously liable for the failure of two hospital nurses,
employed by Lakeland Medical Center (Lakeland) in Elkhorn,
Wisconsin, to count accurately the number of sponges used in
Lewis’ gallbladder surgery. As a result of their inaccurate
count, a sponge was left in Lewis’ abdomen. Lewis stipulated to
the fact that Seldera was not negligent. The Circuit Court for
Milwaukee County, Michael D. Goulee, Judge, awarded Lewis
$150,000, set off by $50,000 from his settlement with Lakeland.
The court of appeals reversed the circuit court’s decision.
For the following reasons, we now affirm the court of appeals’
ruling.

I
The parties have stipulated to the relevant facts.
¶3
Seldera removed Lewis’ gallbladder at Lakeland on November 8,
1993. During the surgery, Seldera packed off the gallbladder
with laparotomy1 pads (sponges). Nurses Patricia Vickery
(Vickery) and Ellen Chapman (Chapman) were in charge of counting
the sponges. Under Lakeland’s procedures, the nurses, not
Seldera, were responsible for counting the sponges and
overseeing the counting of the sponges. Indeed, Chapman, the

1 Laparotomy is an “[i]ncision in the loin.” Stedman’s
Medical Dictionary 840 (25th ed. 1990). Laparotomy pads are
sponges used to pack off an area in the loin or abdomen.

2

No.

99-0001

“circulating nurse” assigned to the operation, had an
independent duty delineated in the administrative code to count
the sponges. See Wis. Admin. Code § HFS 124.13(7) (Oct., 2000)
(the “‘circulating nurse'” is “a registered nurse who is present
during
an
operation . . . who,
before
the
surgical
procedure . . . is completed, . . . ensures that the sponge,
needle and instrument counts have been done according to
hospital policy”). Both Vickery and Chapman were employed by
Lakeland, not Seldera. According to the medical records from
the surgery, Vickery and Chapman counted the number of sponges
used on four occasions and they thought that the correct number
of sponges had been collected at the end.
¶4
However, Lewis began to have problems and Seldera
operated again on January 30, 1994. During this second surgery,
a retained sponge was discovered. After this sponge was
removed, Lewis recovered. He then brought suit against Lakeland
and Seldera.
Prior to trial, Lakeland agreed that it was
¶5
responsible for the actions of its employees, Vickery and
Chapman. Because Lakeland was a county-owned hospital at the
time of the surgery, its liability for the negligence of Vickery
and Chapman was limited to $50,000. See Wis. Stat.
§ 893.80(3)(1993-94).2 After settling with Lakeland for the
maximum amount allowed under § 893.80(3), Lewis pursued this

2 All subsequent references to the Wisconsin Statutes are
to the 1993-94 version unless otherwise indicated.

3

No.

99-0001

case against Seldera. In consideration for Seldera’s
stipulation to the above facts, Lewis dropped all claims except
for the allegation that Seldera could be held vicariously liable
for Vickery and Chapman’s negligence. Both parties moved for
summary judgment on the issue of whether Seldera could be so
held liable.
¶6
The circuit court issued an oral decision, finding “as
a matter of law, that [Seldera] is, in fact, responsible and
liable for the actions of the parties that were in the operating
room with him and working under his supervision.” The circuit
court maintained that the “doctor is the captain of the ship.
That the doctor is responsible for everything.” Seldera
appealed.
The court of appeals reversed the circuit court’s
¶7
ruling. Lewis v. Physicians Ins. of Wisconsin, 2000 WI App 95,
¶14, 235 Wis. 2d 198, 612 N.W.2d 389. Judge Fine, writing for
the court, rejected the argument that Seldera could be liable
for the negligence of the nurses by distinguishing our decision
in Fehrman v. Smirl, 25 Wis. 2d 645, 131 N.W.2d 314 (1964)
(Fehrman II)3, which held that two doctors could be held liable
for a single injury. Judge Fine further observed that “[n]o
appellate court in Wisconsin has used the ‘captain of the ship’

3 The same action reached this court in two separate cases:
Fehrman v. Smirl, 20 Wis. 2d 1, 121 N.W.2d 255 (1963) (Fehrman
I) and Fehrman v. Smirl, 25 Wis. 2d 645, 131 N.W.2d 314 (1964)
(Fehrman II). Although the underlying facts of the action were
set forth in our Fehrman I decision, Lewis relies on our
discussion of vicarious liability in Fehrman II.

4

No.

99-0001

doctrine to impose liability in a medical malpractice case, and
the doctrine has generally lapsed into disuse elsewhere with the
passage of time.” Lewis, 2000 WI App 95, ¶13. Therefore, the
court of appeals declined to apply that doctrine to the present
case. Id.
Lewis subsequently appealed and this court accepted
¶8
his petition for review.

II
¶9
This case is before us on a grant of summary judgment.
Because the parties have stipulated to the facts, this appeal
only raises a question of law, which we review de novo. L.L.N.
v. Clauder, 209 Wis. 2d 674, 682, 563 N.W.2d 434 (1997).
¶10
At the outset, we note that Lewis is not contending
that Vickery and Chapman were employed by Seldera or that
Vickery and Chapman were “borrowed servants.”4 Nor is Lewis
contending that Seldera was responsible for counting the
sponges. Instead, this case turns on whether Seldera is
vicariously liable for the negligence of Vickery and Chapman
under our holding in Fehrman II or whether we adopt the “captain
of the ship” doctrine.
¶11
It is a basic principle of law, as well as common
sense, that one is typically liable only for his or her own
acts, not the acts of others.5 Nevertheless, the law in certain

4 We declined to discard the “borrowed servant rule” in
favor of the “dual liability approach” in DePratt v. Sergio, 102
Wis. 2d 141, 147, 306 N.W.2d 62 (1981).
5 Oliver Wendell Holmes, Jr., Agency 5 Harv. L. Rev. 1, 14
(1891). On this point, Holmes wrote:

5

No.

99-0001

circumstances will impose “vicarious liability” on a non-
negligent party. Vicarious liability is “[l]iability that a
supervisory party (such as an employer) bears for the actionable
conduct of a subordinate or associate (such as an employee)
because of the relationship between the two parties.” Black’s
Law Dictionary 927 (7th ed. 1999). There is a tension, then,
between the basic principle of individual responsibility under
the law on the one hand and the imposition of vicarious
liability on an innocent party for a tortfeasor’s acts on the
other hand. Because vicarious liability is a severe exception
to the basic principle that one is only responsible for his or
her own acts, we proceed with caution when asked to impose
vicarious liability on an innocent party, doing so only in
accordance with well-settled law.
¶12
One well-settled doctrine for imposing vicarious
liability is respondeat superior, which allows a non-negligent
employer to be held liable for an employee’s actions. See
Shannon v. City of Milwaukee, 94 Wis. 2d 364, 370, 289 N.W.2d
564 (1980) (“Under the doctrine of respondeat superior an
employer can be held vicariously liable for the negligent acts

I assume that common-sense is opposed to making one
man pay for another man’s wrong, unless he actually
has brought the wrong to pass according to the
ordinary canons of legal responsibility,——unless, that
is to say, he has induced the immediate wrong-doer to
do acts of which the wrong, or, at least, wrong, was
the natural consequence under the circumstances known
to the defendant.

Id.

6

No.

99-0001

of his employees while they are acting within the scope of their
employment.”). Respondeat superior is perhaps the most familiar
context in which vicarious liability is imposed. It arises due
to the employer’s control or right of control over the employee;
because of this control or right of control, the negligence of
the employee is imputed to the employer in certain
circumstances. Arsand v. City of Franklin, 83 Wis. 2d 40, 46,
264 N.W.2d 579 (1978); Wis JI——Civil 4030 (1994). Indeed, in
the present case, the hospital admitted that it could be held
vicariously liable for the negligence of the two nurses under
the doctrine of respondeat superior. Lewis, however, does not
argue that Seldera is vicariously liable for the negligence of
Vickery and Chapman under the doctrine of respondeat superior;
instead, he contends that Seldera is vicariously liable under
our holding in Fehrman II or alternatively, under the “captain
of the ship” doctrine. We examine each of his theories for
imposing vicarious liability on Seldera in turn.
In Fehrman v. Smirl, 20 Wis. 2d 1, 6-7, 121 N.W.2d 255
¶13
(1963) (Fehrman I), the plaintiff’s surgeon, Smirl, asked
another surgeon, McDonnell, to assist with treating the
defendant after Smirl had removed the defendant’s prostate
gland. The plaintiff was injured during the course of this
treatment and filed an action against Smirl. Id. at 1-9.
During the jury’s deliberations, it raised a question regarding
Smirl’s responsibility relative to McDonnell’s responsibility.
Fehrman II, 25 Wis. 2d at 654. The circuit court responded that
Smirl “would be responsible for any failure upon the part of Dr.

7

No.

99-0001

McDonnell to exercise such care and skill” and Smirl objected on
the ground that this response may have led the jury to impose
liability on him for negligence committed by McDonnell. Id. at
654-55. Justice Gordon, writing for the majority of this court,
but not agreeing with it on this issue, stated the majority’s
holding as such: “under the circumstances of this case, Dr.
Smirl either was in charge of the patient or was acting jointly
with Dr. McDonnell.” Id. at 656. Therefore, this court upheld
the circuit court’s response to the jury’s question. Id. Lewis
characterizes our holding in Fehrman II as imposing vicarious
liability on a doctor whenever the doctor continues to actively
care for and participate in the treatment of the patient. His
reading is too broad.
We begin our analysis of Fehrman II by recognizing
¶14
that this court’s holding on the issue of vicarious liability
was grounded in the particular facts presented. Id.
Importantly, we did not assert a new doctrine for imposing
vicarious liability. Instead, we merely approved of a response
to a question the jury raised during its deliberation regarding
Smirl’s responsibility relative to McDonnell’s responsibility.
Id. at 653-54. We decline to stretch Fehrman II to hold that
this court’s refusal to overturn a circuit court’s response to a
jury question created a new doctrine for imposing vicarious
liability.
Moreover, in Fehrman II we allowed the circuit court’s
¶15
response to stand in part because it was unclear whose

8

No.

99-0001

negligence was the cause of the plaintiff’s injury.6 As noted,
Smirl was objecting “to the fact that under the court’s
instruction he was held responsible for the negligence which may
have been chargeable to Dr. McDonnell.” Id. (emphasis added).
Therefore, as the court of appeals commented, Fehrman II more
closely resembles the “alternative liability” case of Summers v.
Tice, 33 Cal.2d 80, 199 P.2d 1 (1948). There, two hunters
simultaneously and negligently shot in the direction of the
plaintiff, but it was unclear which bullet injured the
plaintiff. Id. at 2. Because this extraordinary fact pattern
made it impossible for the plaintiff to identify which hunter
caused his injury, the court determined that he could hold both
defendants liable. Id. at 4-5. Thus, the “alternative
liability” theory was born.
¶16
Without adopting the “alternative liability” theory,
we discussed the holding of Summers in Collins v. Eli Lilly Co.,
116 Wis. 2d 166, 342 N.W.2d 37 (1984) where the plaintiff sought
to impose liability on 17 drug companies because she was unable
to determine what specific drug company had made the particular

6 As this court observed in its discussion of res ipsa
loquitur, “[t]here was direct medical proof of negligence.”
Fehrman II, 25 Wis. 2d at 651. On that count, we held that the
defendant was entitled to an instruction on res ipsa loquitur
where an expert testified that “‘it is my opinion that this
result would not have occurred if [Smirl and McDonnell], or
either of them, or both, had been exercising the proper skill
and care and diligence that is expected of them in the
performance of this operation, suprapubic prostatectomy.'” Id.
Therefore, the jury could have found that both doctors breached
their duty of care, but only one doctor caused the plaintiff’s
injury.

9

No.

99-0001

drug that caused her injuries. Id. at 175. Although we
rejected the imposition of liability upon the 17 drug companies,
our discussion of “alternative liability” in Collins is
instructive. In discussing the rule of Summers, we wrote that
under alternative liability “when all defendants, although
acting independently, have breached a duty of care toward the
plaintiff but only one of them caused the injury, each defendant
must prove that he or she did not cause the plaintiff’s injury
or be jointly and severally liable with all other defendants.”
Id. at 183. The direct proof of negligence in Fehrman II,
presented to the jury with the res ipsa loquitur instruction,
indicates that both Smirl and McDonnell may have violated their
respective duties of care to the plaintiff, but only one
doctor’s actions may have caused his injury. 25 Wis. 2d at 650-
53. Our decision in Fehrman II then, while confined to its
facts, is more akin to this theory of alternative liability than
creating a “continuing active management” theory for imposing
vicarious liability.7 Consequently, Fehrman II does not support
Lewis’ new “continuing active management” theory.
Not only does Fehrman II fail to support Lewis’ new
¶17
theory, it is distinguishable from the instant case. In this
case, Seldera did not breach a duty to Lewis; instead, he
stipulated that Seldera was not negligent. In contrast, both

7 Given Justice Gordon’s equivocal statement of the court’s
specific holding on the issue of vicarious liability in Fehrman
II, we caution against relying on that language in the future.
See Fehrman II, 25 Wis. 2d at 656.

10

No.

99-0001

Smirl and McDonnell in Fehrman II may have breached their duties
to the plaintiff. Id. at 656. Although in this case there was
clearly a breach of duty owed to Lewis, that duty was breached
by Vickery and Chapman, the nurses employed by the hospital.
Their duties were defined by hospital policy, not by Seldera.
Chapman’s duty, as the circulating nurse, was also defined by
the administrative code. See Wis. Admin. Code § HFS 124.13(7)
(Oct., 2000). In further contrast to Fehrman II where Smirl
selected McDonnell to assist with the surgery, the nurses here
were selected by Lakeland, not Seldera. Fehrman II, therefore,
is distinguishable from the present case and cannot be relied
upon to impose vicarious liability on Seldera under any theory.
¶18
Lewis, however, seeks support for his “continuing
active management” theory for imposing vicarious liability on
Seldera in the two cases cited by this court in Fehrman II,
Morrill v. Komasinski, 256 Wis. 417, 41 N.W.2d 620 (1950), and
Heimlich v. Harvey, 255 Wis. 471, 39 N.W.2d 394 (1949). In
Morrill, this court confronted the issue of whether three
doctors could be held jointly and severally liable for failing
to diagnose a broken arm properly. 256 Wis. 2d at 426. The
family doctor, Dr. Komasinski, objected to being held jointly
liable with a more experienced doctor, Dr. Bump, whom he called
to assist with the diagnosis and treatment of the plaintiff’s
broken arm. Id. We held that the “evidence amply supports the
findings of the jury.” Id. The evidence indicated that three
doctors, Dr. Komasinski, Dr. Bump, and a Dr. Wright, who was in
charge of taking the X rays, “examined the X rays together and

11

No.

99-0001

decided upon the treatment to be administered.” Id. at 419.
The three doctors then “concluded that the arm should be placed
at right angles to the body with the forearm pointing straight
upward . . . .” Id. It was this diagnosis and treatment by all
three doctors that caused the plaintiff’s injury. Id. at 425.
Therefore, all three doctors were jointly and severally liable.
Id. at 426.
The central fact that distinguishes Morrill from the
¶19
instant case is that there the jury found negligence on the part
of all three doctors who acted in concert whereas here Lewis has
stipulated that Seldera was not negligent. There was no
imposition of vicarious liability in Morrill. Accordingly,
Morrill does not support the theory advanced by Lewis of
imposing vicarious liability when the non-negligent doctor
“continues active participation” in the patient’s case.
Likewise, Heimlich provides no assistance to Lewis.
¶20
There, the defendant, Dr. Harvey, objected to the imposition of
liability when the injury suffered by his patient may have been
inflicted through the course of treatment by his employee, Dr.
Baird, rather than by him. Heimlich, 255 Wis. 2d 471. Noting
that Dr. Harvey “testified that Dr. Baird worked for him for a
salary plus commission,” we rejected Dr. Harvey’s argument by
stating that “it appears to us as well as to the jury that [Dr.
Harvey] has completely acknowledged the acts of Dr. Baird to be
his own, which is a very good recognition of responsibility
under the familiar doctrine of respondeat superior.” Id. at
474-75. Thus, Heimlich was resolved under the well-settled law

12

No.

99-0001

of respondeat superior and did not involve the creation of a new
doctrine for the imposition of vicarious liability.8
As a result, Lewis has not presented a viable doctrine
¶21
for imposing vicarious liability on Seldera under existing
Wisconsin law.9

III
¶22
Alternatively, Lewis asks this court to follow the
circuit court’s lead and adopt the “captain of the ship”

8 We observe that the evidence presented could have led the
jury to conclude that Dr. Harvey was jointly liable with Dr.
Baird because he followed Dr. Baird’s injection with another
injection at the next visit. Heimlich v. Harvey, 255 Wis. 471,
472, 39 N.W.2d 394 (1949). The expert testimony indicated that
the injections were the cause of the defendant’s injury. Id. at
473.

9 Lewis cites Bailey v. Sturm, 59 Wis. 2d 87, 93 n.4, 207
N.W.2d 653 (1973), as approving of his interpretations of
Fehrman II, Morrill v. Komansinski, 256 Wis. 2d 417, 41 N.W.2d
620 (1950), and Heimlich. He reads too much into this
collecting of cases, which does not create a new theory for
imposing vicarious liability on an innocent party. Furthermore,
in brief parentheticals, we characterized Fehrman II and Morrill
as joint liability cases and Heimlich as a case of respondeat
superior. Bailey 59 Wis. 2d at 93 n.4. Thus, our cursory
description of these three cases in Bailey is in accord with our
in-depth discussion above.

13

No.

99-0001

doctrine in order to impose vicarious liability on Seldera.10
Similar to respondeat superior, “captain of the ship” is another
theory that allows a party to invoke vicarious liability, but it
has never been recognized in Wisconsin and, as the court of
appeals acknowledged, has fallen into disfavor in other

10 The concurrence breezily suggests that we avoid the
possible danger of running aground through analysis of the
“captain of the ship” theory for imposing vicarious liability.
Concurrence at ¶¶29-31. We agree that other jurisdictions have
wrestled with this theory for imposing vicarious liability,
which now lacks a solid agency law foundation due to the demise
of the charitable immunity doctrine. See Majority op. at ¶¶22-
24. Because of the difficulties presented by “captain of the
ship”, we also agree that it would be much easier, as the
concurrence seems to propose, to ignore this outdated theory and
engage in an unencumbered search for another theory to impose
vicarious liability on surgeons. Concurrence at ¶31. However,
as a court, we are confined to issues and arguments presented in
the case before us. Accordingly, it is necessary to address
“captain of the ship” because the circuit court premised
Seldera’s liability on it and Lewis argued it before us as an
alternative theory for imposing vicarious liability on Seldera.
We further agree with the concurrence that there are
hypotheticals——with the right facts——where vicarious liability
might perhaps be imposed through a theory of agency law such as
respondeat superior or borrowed servant. See Concurrence at
¶¶33-37. However, the present case is not such a hypothetical——
with the right facts——where vicarious liability might perhaps be
imposed on an individual through a theory of agency law such as
respondeat superior or borrowed servant. This court only
decides cases with real disputes arising from events that
actually took place.

14

No.

99-0001

jurisdictions.11 Lewis, 2000 WI App 95, ¶13. Because “captain
of the ship,” which enabled plaintiffs to recover in the face of
a hospital’s “charitable immunity,” is an antiquated doctrine

11 Pennsylvania, which first raised the “captain of the
ship” doctrine in McConnell v. Williams, 65 A.2d 243 (Pa. 1949),
has since rejected it in Tonsic v. Wagner, 329 A.2d 497, 499-501
(Pa. 1974), and Thomas v. Hutchinson, 275 A.2d 23, 27-28 (Pa.
1971), because of the demise of charitable immunity. Other
jurisdictions declining to adopt the doctrine or abrogating it
include: Iowa in Tappe v. Iowa Methodist Med. Ctr., 477 N.W.2d
396, 402-403 (Iowa 1991) (noting that “captain of the ship” is
not in accord with modern practice and refusing to adopt it);
New Jersey in Sesselman v. Muhlenberg Hosp., 306 A.2d 474, 476
(N.J. Super. Ct. App. Div. 1973) (rejecting “captain of the
ship” doctrine); North Dakota in Nelson v. Trinity Med. Ctr.,
419 N.W.2d 886, 892 (N.D. 1988) (overruled by statute on other
grounds) (limiting “captain of the ship” to cases where the
doctor has “direct control” over the nurses actions); Ohio in
Baird v. Sickler, 433 N.E.2d 593, 595 (Ohio 1982) (refusing to
“breathe[] new life into that now prostrate doctrine”); Oregon
in May v. Broun, 492 P.2d 776, 780-81 (Or. 1972) (acknowledging
that changes in the operating room have made it impossible for
the surgeon to directly supervise all personnel and therefore
concluding that “captain of the ship” is no longer viable with
the demise of charitable immunity); Tennessee in Parker v.
Vanderbilt Univ., 767 S.W.2d 412, 415 (Tenn. Ct. App. 1988)
(asserting that the term “captain of the ship” is confusing and
unnecessary); Texas in Sparger v. Worley Hosp., Inc., 547 S.W.2d
582, 585 (Tex. 1977) (disapproving of “captain of the ship” as a
“false special rule of agency”); and West Virginia in Thomas v.
Raleigh Gen. Hosp., 358 S.E.2d 222, 224-25 (W. Va. 1987)
(observing that the “majority of states which are now
considering the captain of the ship doctrine are rejecting it”
and rejecting the doctrine for West Virginia). See also Stephen
H. Price, J.D., The Sinking of the “Captain of the Ship”:
Reexamining the Vicarious Liability of an Operating Surgeon for
the Negligence of Assisting Hospital Personnel, 10 J. Legal Med.
323, 331-47 (1989) (reviewing the abandonment of the “captain of
the ship” doctrine in light of a more modern view of the
hospital as a health care provider rather than a mere “conduit
for delivery of medical services”).

15

No.

99-0001

that fails to reflect the emergence of hospitals as modern
health care facilities, we decline to adopt it now.
The “captain of the ship” doctrine is an outgrowth of
¶23
the largely defunct “charitable immunity” doctrine, which
granted immunity to most hospitals prior to 1940.12 See Kojis v.
Doctors Hosp., 12 Wis. 2d 367, 372, 107 N.W.2d 131 (1961)
(discarding the “charitable immunity” doctrine in Wisconsin).
To provide some form of recovery for plaintiffs in the face of
“charitable immunity,” the “captain of the ship” doctrine
enabled them to hold a doctor liable for the negligence of
assisting hospital employees. Courts reasoned that charitable
hospitals of the late nineteenth century and early twentieth
century lacked the financial wherewithal to survive a negligence
action against their employees relative to the doctors who
conducted surgery on their premises.13
But now, as numerous commentators have observed,
¶24
modern health care facilities are in a better position to
protect patients against negligence from their employees and

12 Kenneth S. Abraham & Paul C. Weiler, Enterprise Medical
Liability and the Evolution of the American Health Care System,
108 Harv. L. Rev. 381, 385 (1994)(explaining the advent of the
charitable immunity doctrine and heralding its demise).
13 See 1 Barry R. Furrow et al., Health Law 379 (2d ed.
2000) (recounting that the reasoning supporting charitable
immunity was that “a single large judgment could destroy a
hospital” and that “[l]iability insurance was not generally
available to cover a hospital’s risk exposure”).

16

No.

99-0001

insure against the corresponding liability.14 See id.
(acknowledging that modern charitable hospitals “are now larger
in size, better endowed, and on a more-sound economic basis” and
that “[i]nsurance covering their liability is available and
prudent management would dictate that such protection be
purchased”). Over the last 60 years, hospitals have become
increasingly vital facilities for the delivery of health care.
We recognized this shift in Kashishian v. Port, 167 Wis. 2d 24,
38-39, 481 N.W.2d 277 (1992), where we confronted the issue of
whether a hospital could be held vicariously liable under the
doctrine of apparent authority for the allegedly negligent acts
of a doctor working at a hospital as an independent contractor.
In so doing, we observed that “[m]odern hospitals have spent
billions of dollars marketing themselves, nurturing the image
with the consuming public that they are full-care modern health
facilities.” Id. at 38. As full-care modern health facilities,
hospitals are no longer “‘mere structures where physicians
treated and cared for their patients.'” Id. at 42 (citations
omitted). We acknowledged the important role hospitals have in
our health care system and their advent as full-care modern
health care facilities when we stated:
In essence, hospitals have become big business,
competing with each other for health care dollars. As
the role of the modern hospital has evolved, and as

14 See Stephen H. Price, J.D., The Sinking of the “Captain
of the Ship”: Reexamining the Vicarious Liability of an
Operating Surgeon for the Negligence of Assisting Hospital
Personnel, 10 J. Legal Med. 323, 343-48 (1989).

17

No.

99-0001

the image of the modern hospital has evolved (much of
it self-induced), so too has the law with respect to
the hospital’s responsibility and liability towards
those it successfully beckons. Hospitals not only
employ physicians, surgeons, nurses, and other health
care workers, they also appoint physicians and
surgeons to their hospital staffs as independent
contractors.
Id. at 38-39. We recognize the development of the modern
hospital as a health care delivery facility and the attendant
responsibilities this transition has entailed. Simply put,
“captain of the ship” has lost its vitality across the country
as plaintiffs have been able to sustain actions against full-
care modern hospitals for the negligence of their employees.15
Accordingly, we decline to resurrect the anachronistic
¶25
“captain of the ship” doctrine or create a new theory to enable
Lewis to impose vicarious liability on Seldera. Lewis, under
the current negligence law in Wisconsin, had a viable cause of
action against Lakeland. We are mindful of the harsh
consequence Lewis must endure because Lakeland, at the time of
the negligent sponge count, was a county hospital and therefore
its liability was capped at $50,000, which was insufficient to

15 We also note that the “captain of the ship” doctrine is
at odds with the corresponding diminishment of an individual
doctor’s control of the modern operating room that is caused by
increasing specialization and division of responsibility. See
Stephen H. Price, J.D., The Sinking of the “Captain of the
Ship”: Reexamining the Vicarious Liability of an Operating
Surgeon for the Negligence of Assisting Hospital Personnel, 10
J. Legal Med. 323, 340-41 (1989) (discussing the operating
surgeon’s loss of control over the operating room due to the
increase in hospitals providing essential medical services and
increasing sophistication and specialization of both medical
personnel and equipment, which improves patient care).

18

No.

99-0001

cover his damages of $150,000. See Wis. Stat. § 893.80(3).
While this is a troubling deficiency, it is the result of a
legislative policy decision, which may be supported by broader
considerations.16 These broader considerations include providing
full-care modern health care facilities to service citizens who
might otherwise not have access to such a facility.17 If we
circumvented this statute in order to impose liability on
Seldera, we would discourage doctors from working at government-
owned hospitals because they would incur the liability of the
hospital’s assisting employees, whom they had no hand in
selecting. To attach this nondelegable liability to doctors

16 In Sambs v. City of Brookfield, 97 Wis. 2d 356, 377, 293
N.W.2d 504 (1980), we commented on the need for legislative
balancing in the context of caps on liability for municipal
governments. There we wrote:
It is the legislature’s function to evaluate the
risks, the extent of exposure to liability, the need
to compensate citizens for injury, the availability of
and cost of insurance, and the financial condition of
the governmental units. It is the legislature’s
function to structure statutory provisions, which will
protect the public interest in reimbursing the victim
and in maintaining government services and which will
be fair and reasonable to the victim and at the same
time will be realistic regarding the financial burden
to be placed on the taxpayers.

Id.

17 See John Danaher, M.D., Health Care Perform:
Constituencies Necessary for Change, 3 Stan. L. & Pol’y Rev.
155, 157 (1991) (recognizing that the cost of health care for
the 37 million Americans who are uninsured is borne
predominantly by county hospitals or private hospitals as
uncompensated care or charity).

19

No.

99-0001

utilizing government-owned health care facilities would create a
disturbing dichotomy between government hospitals and private
hospitals, which do not attach such nondelegable liability to
doctors utilizing their facilities.18 Thereby we would induce
doctors to practice only at private hospitals, which are liable
for the full amount of damages a negligent employee may inflict
upon a patient.
Of course, patients can hold government-owned health
¶26
care facilities liable for the negligence of their employees
under respondeat superior, but, as noted, the legislature has
capped that liability at $50,000 per occurrence. In accordance
with principles of judicial restraint, we leave it to the
legislature to make any necessary policy adjustments. See
Doering v. WEA Ins. Group, 193 Wis. 2d 118, 132, 532 N.W.2d 432
(1995) (acknowledging “that drawing lines and creating
distinctions to establish public policy are legislative tasks”).
Therefore, while recognizing the unfortunate result in this
case, we must also remain cognizant of the legislative
balancing, which weighs the costs of individual unfairness
against the benefits of having government-owned health care

18 We take judicial notice of the fact that there are
currently 156 general and special hospitals in Wisconsin.
General and Special Hospitals Directory, Department of Health
and Family Services (2001). Excluding special psychiatric
hospitals, currently there are only three government-owned
facilities in Wisconsin at the present time: Memorial Hospital
of Lafayette County (id. at 12), Rusk County Memorial Hospital
(id. at 26), and University of Wisconsin Hospital and Clinic
Authority (id. at 29). Lakeland is now a voluntary nonprofit
corporation (id. at 14).

20

No.

99-0001

facilities where doctors are willing to provide health care to
all segments of the population. As a result, we believe it
would be shortsighted for this court to engage in judicial
lawmaking so that Lewis could impose vicarious liability on
Seldera and recover beyond the statutory maximum.
IV
¶27
In conclusion, we hold that Seldera cannot be held
vicariously liable for the negligence of Vickery and Chapman
under either Fehrman II or “captain of the ship.”
By the Court.—The decision of the court of appeals is
affirmed.

21

No. 99-0001.ssa

¶28 SHIRLEY S. ABRAHAMSON, CHIEF JUSTICE (concurring). I
agree with the mandate because this case has come to us on
summary judgment based on stipulated facts. I write separately
because I am concerned that rules of law might be mistakenly
drawn from the broad language in the majority opinion.
¶29
First, it is a mistake for the majority opinion to
rely on the “captain of the ship” metaphor. This phrase has
taken on various meanings beyond the cases that spawned it.
The majority opinion defines the “captain of the ship”
¶30
doctrine merely as a theory of vicarious liability that is
“similar to respondeat superior.”1 The majority opinion does not
explain precisely what theory of liability it is rejecting when
it rejects a “captain of the ship” doctrine.
¶31
“Captain of the ship” cases can be analyzed as
applying
surgeon’s
the
of
concepts
agency
traditional
supervision and control.2 Let’s forget the picturesque language,
look at the facts of each case, and apply traditional principles
of tort and agency law.3

1 See majority op. at ¶22.
2 See, e.g., Franklin v. Gupta, 567 A.2d 524, 537 (Md. Ct.
App. 1990) (concluding that a careful analysis of “captain of
the ship” cases generally reveals that courts have applied
traditional agency concepts).
3 See Sparger v. Worley Hosp., Inc., 547 S.W.2d 582, 584
(Tex. 1977) (quoting Justice Frankfurter writing that “A phrase
begins life as a literary expression; its felicity leads to its
lazy repetition; and repetition soon establishes it as a legal
formula, undiscriminatingly used to express different and
sometimes contradictory ideas.”).

1

No. 99-0001.ssa

Second, it is a mistake to conclude from the decision
¶32
that a surgeon can never be held liable for the negligence of a
hospital nurse. This issue is not before the court. The
majority opinion carefully states what Lewis is and is not
contending. In particular, it states that Lewis is not relying
on the “borrowed servants” doctrine.4 The majority opinion’s
conclusion that “the surgeon cannot be held vicariously liable
for the negligence of the two hospital nurses” applies only to
the stipulated facts and narrow issues presented in this case.5
A surgeon can be vicariously liable for the negligence
¶33
of hospital nurses if the nurses are under the surgeon’s control
and supervision. Whether hospital nurses are under the
surgeon’s control and supervision would ordinarily be a question
of fact for the fact-finder. The stipulation is silent about
the surgeon’s supervision and control of the hospital nurses in
the present case. The facts of each case would determine
whether the surgeon has exercised supervision or control over
the hospital nurses.

4 See majority op. at ¶10.
The court of appeals concluded that the surgeon did not
employ as borrowed servants those hospital nurses who were
negligent. The majority opinion makes no similar declaration.
If the hospital nurses were “borrowed employees” of the surgeon,
the surgeon was vicariously liable for their negligence. See
Borneman v. Corwyn Transp., Ltd., 219 Wis. 2d 346, 580 N.W.2d
253 (1998) (setting forth law of borrowed employees).
5 See majority op. at ¶¶1, 3, 9, 10, 19.

2

No. 99-0001.ssa

Third, it is a mistake to conclude from the decision
¶34
that a hospital procedure or the administrative code controls
the law of negligence or liability.
¶35
The majority opinion appears to rely on the hospital
procedure that the nurses have responsibility for counting and
overseeing the count of laparotomy pads and on the
administrative code that the circulating nurse ensures that the
counts have been done according to hospital procedure to absolve
the surgeon from liability. Reference to the hospital procedure
and administrative code may be misleading.
¶36
Regardless of what hospital procedure or the
administrative code says about a hospital nurse’s obligations, a
surgeon’s failure to exercise supervision and control over
hospital nurses might constitute negligence, and the nurses’
negligence might then be imputed to the surgeon. Under certain
circumstances, a fact-finder might conclude that a surgeon
should have, or did exercise, control or supervision. Hospital
procedure and the administrative code might constitute customary
medical practice, but customary medical practice does not
necessarily constitute reasonable due care in an action for
medical malpractice.6

6 The standard of reasonable care for a physician is that
degree of care, skill, and judgment that reasonable specialists
would exercise in the same or similar circumstances having due
regard for the state of medical science at the time the plaintiff
was treated. A doctor who fails to conform to this standard is
negligent. See Wis JI——Civil 1023 (1998). Evidence of the usual
and customary conduct of other physicians under similar
circumstances is ordinarily relevant and admissible as an

3

No. 99-0001.ssa

Furthermore, an issue raised at oral argument was
¶37
whether the duty to put in and remove the pads was a
nondelegable duty of the surgeon. The concept of nondelegable
duty is that the surgeon’s duty of due care cannot be delegated
and that the surgeon is liable for the negligence of the
hospital nurse even though the surgeon has done everything that
could be reasonably required of the surgeon. If the duty is
nondelegable, the person with the nondelegable duty is
vicariously liable.7 The parties have not briefed or argued this
theory of liability, and the majority opinion does not directly
address this issue.
¶38
For the reasons set forth, I write separately.
¶39
I am authorized to state that Justice ANN WALSH
BRADLEY joins this opinion.

indication of what is reasonable care. See Nowatske v. Osterloh,
198 Wis. 2d 419, 438, 543 N.W.2d 265 (1996).
7 W. Page Keeton, et al., Prosser and Keeton on the Law of
Torts § 71, at 511-12 (5th ed. 1984).

4

Lifespan Corp. v. New England Med. Ctr., Inc. (Full Text)

Case 1:06-cv-00421-JNL -LM Document 223 Filed 05/26/11 Page 1 of 83 PageID #: 7406

UNITED STATES DISTRICT COURT
DISTRICT OF RHODE ISLAND

Lifespan Corporation

v.

New England Medical Center, Inc.,
now known as Tufts Medical Center
Parent, Inc., and New England
Medical Center Hospitals, Inc., now
known as Tufts Medical Center, Inc.

and

Martha Coakley, Attorney General for
the Commonwealth of Massachusetts,
Intervenor

Civil No. 06-cv-421-JNL
Opinion No. 2011 DNH 083

FINDINGS OF FACT & RULINGS OF LAW AFTER BENCH TRIAL
This case arises from a dispute between a non-profit
healthcare system and a non-profit hospital over their brief and
unsuccessful affiliation. Lifespan Corporation, which runs a
network of hospitals in Rhode Island, sued New England Medical
Center (“NEMC”), a Massachusetts hospital that had joined
Lifespan’s system from 1997 to 2002, alleging that NEMC failed to
make certain payments required by their disaffiliation agreement.
NEMC, admitting non-payment but accusing Lifespan of misconduct
during the affiliation, brought a counterclaim for
indemnification under that same agreement (along with several
other counterclaims on which this court granted summary judgment
to Lifespan, see Lifespan Corp. v. New Eng. Med. Ctr., Inc., 731
F. Supp. 2d 232 (D.R.I. 2010)). The Massachusetts Attorney
General, invoking NEMC’s status as a public charity, intervened

Case 1:06-cv-00421-JNL -LM Document 223 Filed 05/26/11 Page 2 of 83 PageID #: 7407

in the case on behalf of the public interest, see Fed. R. Civ. P.
24, and brought a counterclaim against Lifespan for breach of
fiduciary duty to NEMC, based on the same alleged misconduct.
This court, which is sitting by designation in the District
of Rhode Island and has subject-matter jurisdiction under 28
U.S.C. § 1332(a)(1) (diversity), held a three-week bench trial in
February and March 2011, hearing testimony from nearly 20
witnesses, most of them current or former executives at Lifespan
and NEMC. The parties each submitted proposed findings of fact
and rulings of law, both before and after trial, along with
supporting memoranda. They also submitted, pursuant to this
court’s customary practice for bench trials, a joint statement of
agreed-upon facts and a joint timeline. With the assistance of
those materials, this court makes the following findings of fact
and rulings of law, see Fed. R. Civ. P. 52(a)(1), which result in
a net award of $272,756 to NEMC, after deducting the payments
that NEMC owes Lifespan under the disaffiliation agreement
($13,903,948) from the amount of Lifespan’s liability to NEMC and
the Attorney General ($14,176,704) for its misconduct during the
affiliation.

2

Case 1:06-cv-00421-JNL -LM Document 223 Filed 05/26/11 Page 3 of 83 PageID #: 7408

I. Background1
A. The parties
1. Lifespan is a non-profit healthcare system with its
headquarters in Providence, Rhode Island. It is an umbrella
organization that provides managerial, administrative, and other
support services to its hospital subsidiaries, which include
Rhode Island Hospital (the main teaching hospital for Brown
University’s medical school), Miriam Hospital, Newport Hospital,
and Bradley Hospital, all located in Rhode Island. It is the
largest healthcare system in the Ocean State.
2. NEMC, now known as Tufts Medical Center, is a non-profit
hospital located in the Chinatown neighborhood of Boston,
Massachusetts, with about 415 beds, 500 faculty physicians, 400
other physicians (including residents, interns, and fellows), and
a large nursing staff. It is the teaching hospital for Tufts
University’s medical school and focuses on providing complex
tertiary and quaternary care. It is one of the oldest permanent
medical facilities in the United States.
3. The Massachusetts Attorney General is the chief law
enforcement officer in Massachusetts and has supervisory
authority over the Commonwealth’s public charities, including
NEMC. See Mass. Gen. L. ch. 12, § 8 (“The attorney general shall

This section consists of factual findings pursuant to Fed.
1
R. Civ. P. 52(a)(1).

3

Case 1:06-cv-00421-JNL -LM Document 223 Filed 05/26/11 Page 4 of 83 PageID #: 7409

enforce the due application of funds given or appropriated to
public charities within the commonwealth and prevent breaches of
trust in the administration thereof.”).

B. The affiliation
4. In 1996 and 1997, NEMC engaged in a search for a
potential merger partner. Many of NEMC’s competitors had merged
or otherwise affiliated in prior years, leaving NEMC as one of
the smallest teaching hospitals in the Boston area. For that and
other reasons, NEMC had been in a downward spiral, losing money,
patient volume, and its ability to participate in one of the
area’s major insurance networks (Harvard Pilgrim Health Care).
There was a significant risk that NEMC would not be able to
survive on its own.
5. NEMC approached a number of potential merger partners,
including a for-profit healthcare system (Columbia/HCA) and a
religious healthcare system (Caritas Christi), but those talks
broke down over philosophical differences. NEMC ultimately
decided to affiliate with Lifespan, a non-profit healthcare
system with a compatible mission. They executed a memorandum of
understanding in January 1997, proposing an affiliation in which
Lifespan would become NEMC’s corporate parent, and NEMC would in
turn become one of the hospital subsidiaries in Lifespan’s
system.

4

Case 1:06-cv-00421-JNL -LM Document 223 Filed 05/26/11 Page 5 of 83 PageID #: 7410

6. Lifespan saw the proposed affiliation as an opportunity
to expand its healthcare system beyond Rhode Island into
Massachusetts, in preparation for what it anticipated (wrongly,
as it turned out) would be a movement toward “regionalization” of
the healthcare industry across state lines.
7. NEMC saw the proposed affiliation as a way to improve
its financial condition, reduce its corporate overhead, gain
leverage in its negotiations with health insurers, and obtain
more referrals of complex cases. In addition, the affiliation
would give NEMC an opportunity to claim a “loss on sale” (i.e.,
an accounting write-down for asset depreciation), for which it
could seek partial reimbursement from the Centers for Medicare
and Medicaid Services under then-applicable regulations. See 42
C.F.R. § 413.134(f) (1997).
8. After signing the memorandum of understanding, Lifespan
and NEMC each conducted “due diligence” on the proposed
affiliation. They also submitted the proposal to various
regulatory bodies, including the Massachusetts and Rhode Island
Attorneys General, for review and approval. Once the due
diligence had been completed and the regulatory approvals
received, Lifespan and NEMC entered into a final Amended and
Restated Master Affiliation Agreement in October 1997.
9. The Affiliation Agreement provided that Lifespan would
establish Lifespan of Massachusetts, Inc. (“LOM”), a non-profit

5

Case 1:06-cv-00421-JNL -LM Document 223 Filed 05/26/11 Page 6 of 83 PageID #: 7411

entity. LOM, in turn, became the sole voting member of NEMC,
with the power to oversee and control its operations, including
major financial decisions, budgeting, strategic planning,
policymaking, and contractual negotiations with health insurers.
Lifespan had majority control of LOM and, through it, the ability
to control NEMC.
10. In exchange for NEMC’s agreement to join Lifespan’s
system and submit to its control, Lifespan agreed to transfer
$8.7 million per year to NEMC, which resulted in a total transfer
of about $42 million over the course of the affiliation. NEMC,
in turn, agreed to pay its share of Lifespan’s corporate overhead
expenses, which totaled about $172 million over the course of the
affiliation. See Part III.D, infra (discussing the corporate
overhead charges in greater detail).
11. During the affiliation, Lifespan and NEMC each had its
own board of directors or trustees, and each board had its own
finance committee. Lifespan had the power to appoint and remove
the members of NEMC’s board. NEMC, in turn, had minority
representation (not to exceed 20 percent) on Lifespan and LOM’s
boards. Given this structure, NEMC’s board felt powerless and
uncertain of its role, to the point where one member (a law
school dean) resigned in frustration.
12. Lifespan and NEMC also each had its own chief executive
officer (“CEO”), chief financial officer (“CFO”), and various

6

Case 1:06-cv-00421-JNL -LM Document 223 Filed 05/26/11 Page 7 of 83 PageID #: 7412

other executive officers. NEMC’s CEO and CFO reported directly
and regularly to their counterparts at Lifespan, whom they
regarded as their superiors. Lifespan had the power to hire and
fire them and, through its compensation committee, set their
compensation.
13. During the first three years of the affiliation, NEMC’s
financial situation improved somewhat, largely because of its
return to the Harvard Pilgrim network. But, setting aside the
2
depreciation write-down and other non-operational accounting
adjustments, NEMC continued to lose money. See Part III.E, infra
(discussing NEMC’s financial performance in greater detail). And
despite considerable effort, the parties were unable to grow a
network in Massachusetts.
14. During the last two years of the affiliation, NEMC’s
financial situation deteriorated further. NEMC became
increasingly upset with Lifespan over the performance of its
health insurer contracts, see Part III.B, infra, the unfavorable
outcome of a complex financial transaction, known as an interest
rate swap, recommended by Lifespan’s CFO, see Part III.C, infra,
and the amount of Lifespan’s corporate overhead charges, see Part
III.D, infra.

That return resulted primarily from political pressure that
2
NEMC and its allies applied to Harvard Pilgrim in Massachusetts
(not from the affiliation itself).
7

Case 1:06-cv-00421-JNL -LM Document 223 Filed 05/26/11 Page 8 of 83 PageID #: 7413

C. The disaffiliation
15. Recognizing that the affiliation was not working, NEMC
proposed, and Lifespan agreed, to disaffiliate through a
Restructuring Agreement signed in September 2002 and then closed
in November 2002. The Restructuring Agreement required NEMC to
make a series of payments to Lifespan totaling $30 million and
also to “split on a 50/50 basis . . . any recovery received from
Medicare by NEMC . . . for the loss on sale/depreciation
recapture resulting from the Affiliation.”3
16. NEMC paid most of that $30 million to Lifespan. But,
at the direction of its new CEO Ellen Zane, NEMC refused to pay
the final two installments due in 2006 and 2007, totaling $3.66
million. As grounds for non-payment, NEMC claimed that it had
sustained losses far in excess of that amount because of
Lifespan’s misconduct during the affiliation, including with
regard to (1) the health insurer contracts, (2) the interest rate
swap, (3) the corporate overhead charges, and (4) NEMC’s overall
financial performance.

At that point, it was uncertain whether NEMC would recover
3
anything from Medicare, which had initially denied NEMC’s
reimbursement claim; NEMC was pursuing an administrative appeal
of that decision.

8

Case 1:06-cv-00421-JNL -LM Document 223 Filed 05/26/11 Page 9 of 83 PageID #: 7414

D. The litigation
17. Lifespan brought suit against NEMC in the District of
Rhode Island in 2006, alleging breach of contract and seeking to
recover the $3.66 million that NEMC refused to pay. NEMC brought
a counterclaim against Lifespan under the Restructuring
Agreement’s indemnification provision, see Part II.C, infra
(discussing that provision in greater detail), seeking to recover
the losses allegedly caused by Lifespan’s misconduct. NEMC also
brought counterclaims for breach of fiduciary duty, unjust
enrichment, and unfair business practices.
18. Lifespan moved for summary judgment on its breach of
contract claim. See Fed. R. Civ. P. 56. Although NEMC admitted
non-payment of the $3.66 million, putting it in clear breach of
the Restructuring Agreement, the court (Torres, J.) declined to
enter judgment for Lifespan, ruling that “NEMC’s promise to pay
Lifespan and Lifespan’s promise to indemnify” were so “closely
related” that they needed to be resolved through a single
judgment. See Lifespan Corp. v. New Eng. Med. Ctr., Inc., No.
06-421, 2008 WL 310967, at *2-3, 2008 U.S. Dist. LEXIS 7776, at
*7-8 (D.R.I. Feb. 1, 2008).
19. After that ruling, NEMC finally resolved its Medicare
reimbursement claim, recovering $20,487,895 from Medicare for the
“loss on sale” resulting from the affiliation. Upon learning of
that recovery, Lifespan amended its complaint to add a contract

9

Case 1:06-cv-00421-JNL -LM Document 223 Filed 05/26/11 Page 10 of 83 PageID #: 7415

claim for half of it. NEMC responded by adding more
counterclaims, asserting that the Restructuring Agreement’s
Medicare recovery provision was inapplicable, unconscionable,
contrary to public policy, lacking in consideration, a violation
of the Affiliation Agreement, a breach of fiduciary duty, and an
unjust enrichment.
20. The District of Rhode Island transferred the case to
this court in 2009, after all of the available judges there
recused themselves. The case has at all times remained on the
District of Rhode Island docket.
21. Shortly after that transfer, this court granted a
motion by the Massachusetts Attorney General to intervene in the
case on behalf of the public interest, see Fed. R. Civ. P. 24,
pursuant to her supervisory authority over NEMC as a public
charity, see Mass. Gen. L. ch. 12, §§ 8 et seq. After
intervening, the Attorney General joined in nearly all of NEMC’s
counterclaims against Lifespan (except for the indemnification
and unfair business practices claims). She did not assert any
new claims of her own.
22. The parties then cross-moved for partial summary
judgment. See Fed. R. Civ. P. 56. Specifically, NEMC and the
Attorney General moved for summary judgment on the issue of
whether Lifespan owed a fiduciary duty to NEMC during the
affiliation. After concluding that Massachusetts law governed

10

Case 1:06-cv-00421-JNL -LM Document 223 Filed 05/26/11 Page 11 of 83 PageID #: 7416

all of the parties’ claims, this court ruled that Lifespan did
owe a fiduciary duty to NEMC, by virtue of its control over a
non-profit hospital and the “faith, confidence, and trust” that
NEMC placed in its judgment and advice. Lifespan, 731 F. Supp.
2d at 238-41 (quoting Doe v. Harbor Schs., Inc., 843 N.E.2d 1058,
1064 (Mass. 2006)).
23. Lifespan moved for summary judgment on its claim for
half of NEMC’s recent Medicare recovery, and on nearly all of the
counterclaims (except for NEMC’s indemnification claim, which the
parties agreed was trialworthy). This court ruled that Lifespan
was entitled to half of the Medicare recovery, rejecting the slew
of counterclaims challenging the Restructuring Agreement’s
Medicare recovery provision. Id. at 244-49. Following Judge
Torres’s approach, however, this court declined to enter judgment
for Lifespan, because NEMC’s “closely related” indemnification
claim was still unresolved. Id. at 249 (quoting Lifespan, 2008
WL 310967, at *2-3).
24. This court further ruled that NEMC had released its
tort counterclaims against Lifespan through the Restructuring
Agreement, including its claims for breach of fiduciary duty and
unfair business practices, leaving itself only a contractual
remedy under the agreement’s indemnification provision. Id. at
241-43 (citing Eck v. Godbout, 831 N.E.2d 296, 303 (Mass. 2005)).
This court also rejected NEMC’s other counterclaim, for unjust

11

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enrichment, as unavailable in light of NEMC’s contractual remedy.
Id. at 244 (citing Okmyansky v. Herbalife Int’l of Am., Inc., 415
F.3d 154, 162 (1st Cir. 2005)).
25. This court ruled, however, that the Attorney General
was not bound by NEMC’s release and could therefore proceed to
trial on her claim for breach of fiduciary duty. Id. at 243.
Lifespan argued that the Attorney General’s claim was barred by
the statute of limitations, but this court ruled that no
limitations period applies to such a claim when brought by the
Attorney General. See Lifespan Corp. v. New Eng. Med. Ctr.,
Inc., No. 06-421, 2010 WL 3718952, at *1-2 (D.R.I. Sept. 20,
2010) (document no. 166) (citing Davenport v. Atty. Gen., 280
N.E.2d 193, 197 (Mass. 1972)).4

E. The trial
26. This court held a three-week bench trial in New
Hampshire in February and March 2011. Because only the Attorney
General’s breach of fiduciary duty claim and NEMC’s

Lifespan now argues, in a similar vein, that the Attorney
4
General’s claim is barred by laches. But “Massachusetts law is
clear that ‘[t]he defense of laches is not available to the
defendants where the proceeding is brought by an authorized
public agency to enforce the law of the Commonwealth.’” FDIC v.
Gladstone, 44 F. Supp. 2d 81, 90 (D. Mass. 1999) (quoting Bd. of
Health of Holbrook v. Nelson, 217 N.E.2d 777 (Mass. 1966)).
Moreover, Lifespan has not shown either unreasonable delay by the
Attorney General or prejudice, as would be required to establish
that defense. See, e.g., A.W. Chesterton Co. v. Mass. Insurers
Insolvency Fund, 838 N.E.2d 1237, 1249 (Mass. 2005).
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indemnification claim were still in genuine dispute (Lifespan’s
breach of contract claim having essentially been resolved by the
prior rulings, albeit without an entry of judgment, see Lifespan,
731 F. Supp. 2d at 249; Lifespan, 2008 WL 310967, at *2-3), this
court treated the Attorney General and NEMC as plaintiffs during
the trial, and Lifespan as the defendant.
27. The parties presented testimony from nearly 20
witnesses, most of them appearing live and a few by deposition.
They included high-level NEMC executives (its former chairman of
the board, its current and former CEOs, its former CFOs, and its
former budget director), high-level Lifespan executives (its
chairman, former vice chairman, current and former CEOs, current
and former CFOs, corporate compliance director, and payor
contracting director), a representative from the financial
services firm with which NEMC executed the interest rate swap,
and the parties’ expert witnesses.

II. Applicable legal standards5
A. Lifespan’s breach of contract claim
28. To recover on a claim for breach of contract under
Massachusetts law, Lifespan must prove each of the following
three elements by a preponderance of the evidence: “(1) that the

This section consists of legal rulings pursuant to Fed. R.
5
Civ. P. 52(a)(1).

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parties reached a valid and binding agreement”; “(2) that [NEMC]
breached the terms . . . of the agreement”; and “(3) that [NEMC]
suffered damages from the breach.” Michelson v. Digital Fin.
Servs., 167 F.3d 715, 720 (1st Cir. 1999) (applying Massachusetts
law); see also, e.g., Singarella v. City of Boston, 173 N.E.2d
290, 291 (Mass. 1961).

B. Attorney General’s breach of fiduciary duty claim
29. To recover on a claim for breach of fiduciary duty
under Massachusetts law, the Attorney General must prove each of
the following four elements by a preponderance of the evidence:
(1) the existence of a fiduciary duty from Lifespan to NEMC; (2)
breach of that fiduciary duty by Lifespan; (3) damages to NEMC;
and (4) a causal connection between the breach of fiduciary duty
and the damages. See, e.g., Hanover Ins. Co. v. Sutton, 705
N.E.2d 279, 288-89 & n.18 (Mass. App. Ct. 1999).
30. “A fiduciary duty exists when one reposes faith,
confidence, and trust in another’s judgment and advice.” Harbor
Schools, 843 N.E.2d at 1064. Again, this court has already ruled
that Lifespan owed a fiduciary duty to NEMC during the
affiliation, by virtue of its control over a non-profit hospital
and the faith, confidence, and trust that NEMC placed in its
judgment. See Lifespan, 731 F. Supp. 2d at 238-41. That ruling
is incorporated by reference here.

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31. The “central tenet” of a fiduciary duty “is the duty on
the part of the fiduciary to act for the benefit of the other
party to the relation as to matters within the scope of the
relation,” exercising “utmost good faith.” Harbor Schools, 843
N.E.2d at 1064-65. That duty includes both (1) a duty of loyalty
and (2) a duty of care. See, e.g., Blackstone v. Cashman, 860
N.E.2d 7, 17 (Mass. 2007) (citing Spiegel v. Beacon
Participations, Inc., 8 N.E.2d 895, 904 (Mass. 1937)).
32. The duty of loyalty requires a fiduciary “to act with
absolute fidelity” to the other party and to place the other
party’s interests above its own. Demoulas v. Demoulas Super
Mkts., Inc., 677 N.E.2d 159, 179 (Mass. 1997) (quoting Spiegel, 8
N.E.2d at 904). A fiduciary “may not act out of avarice,
expediency, or self-interest in derogation of [its] duty of
loyalty.” Donahue v. Rodd Electrotype Co. of New Eng., Inc., 328
N.E.2d 505, 515 (Mass. 1975).
33. The duty of care requires “complete good faith plus the
exercise of reasonable intelligence.” Boston Children’s Heart
Found., Inc. v. Nadal-Ginard, 73 F.3d 429, 433 (1st Cir. 1996)
(“BCHF”) (quoting Murphy v. Hanlon, 79 N.E.2d 292, 293 (Mass.
1948)). “Under this standard,” a fiduciary is “not responsible
for mere errors of judgment or want of prudence.” Id. (citing
Sagalyn v. Meekins, Packard & Wheat, Inc., 195 N.E. 769, 771
(Mass. 1935)). Liability attaches only where the fiduciary acts

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in bad faith, or with “clear and gross negligence.” Id. (citing
Spiegel, 8 N.E.2d at 904).6
34. The measure of damages recoverable for a breach of
fiduciary duty is the amount necessary to put the other party “in
the position [it] would have been in if no breach of fiduciary
duty had been committed.” Berish v. Bornstein, 770 N.E.2d 961,
977 (Mass. 2002). “Under Massachusetts law, trial courts are
vested with the discretion to determine the amount of damages for
fiduciary breaches according to the peculiar factors of each
individual case.” BCHF, 73 F.3d at 435 (citing Chelsea Indus.,
Inc. v. Gaffney, 449 N.E.2d 320, 327 (Mass. 1983)).
35. For damages to be recoverable, they must be causally
connected to the breach of fiduciary duty. See, e.g., Reinhardt
v. Gulf Ins. Co., 489 F.3d 405, 412 (1st Cir. 2007) (citing
Sutton, 705 N.E.2d at 280). Causation has two components: the
plaintiff must prove that the breach was both (1) “a but-for
cause” of the damages, and (2) “a “substantial legal factor in

That standard incorporates the “business judgment” rule,
6
which shields corporate officers and directors from liability for
good-faith business judgments reasonably believed to be in the
corporation’s best interests. See, e.g., Halebian v. Berv, 931
N.E.2d 986, 991 n.11 (Mass. 2010). The Attorney General argues
that the business judgment rule should not apply in this
charitable context. But Massachusetts law expressly extends that
rule to officers and directors of charitable corporations. See
Mass. Gen. L. ch. 180, § 6C. Moreover, BCHF involved the
oversight of a charity providing medical care at a Boston
teaching hospital, making it closely analogous. This court will
apply the standard set forth in BCHF.
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bringing about . . . the harm,” which is known as proximate
causation. Id. (citing Tritsch v. Boston Edison Co., 293 N.E.2d
264, 267 (Mass. 1973)).

C. NEMC’s indemnification claim
36. To recover on a claim for contractual indemnification
under Massachusetts law, NEMC must prove by a preponderance of
the evidence that it has suffered losses covered by the
indemnification provision in the Restructuring Agreement. See,
e.g., Spellman v. Shawmut Woodworking & Supply, Inc., 840 N.E.2d
47, 49 (Mass. 2006).
37. Under Massachusetts law, “an indemnity provision . . .
is to be interpreted like any ordinary contract, with attention
to language, background, and purpose.” Caldwell Tanks, Inc. v.
Haley & Ward, Inc., 471 F.3d 210, 216 (1st Cir. 2006) (quoting
Speers v. H.P. Hood, Inc., 495 N.E.2d 880-881 (Mass. App. Ct.
1986)). As a “basic rule of construction,” the court “must give
effect to the parties’ intentions and construe the language to
give it reasonable meaning wherever possible.” Shea v. Bay State
Gas Co., 418 N.E.2d 597, 601 (Mass. 1981).
38. NEMC claims that it has suffered losses covered by two
parts of the Restructuring Agreement’s indemnification provision:
one relating to “willful misconduct and gross negligence,” and

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the other relating to “misrepresentation[s].” This court will
discuss each provision in turn.

i. Willful misconduct and gross negligence
39. The Restructuring Agreement provides that “Lifespan
will indemnify NEMC for any losses it incurs that result directly
and solely . . . from Lifespan’s willful misconduct or gross
negligence in the provision of services to NEMC by Lifespan
employees working under the supervision and direction of Lifespan
employees during the Affiliation Period.”
40. The term “willful misconduct” means misconduct that is
either intentional or involves “such recklessness as is the
equivalent of intent,” and carries a “great chance” of causing
harm to another. Dillon’s Case, 85 N.E.2d 69, 74 (Mass. 1949).
It “is much more than mere negligence, or even than gross or
culpable negligence.” Drumm’s Case, 903 N.E.2d 1127, 1129 (Mass.
App. Ct. 2009) (quoting O’Leary’s Case, 324 N.E.2d 380, 384
(Mass. 1975)).
41. The term “gross negligence” means “very great
negligence, or the absence of slight diligence, or the want of
even scant care.” Altman v. Aronson, 121 N.E. 505, 506 (Mass.
1919). It is “substantially and appreciably higher in magnitude
than ordinary negligence” and “a manifestly smaller amount of
watchfulness and circumspection than the circumstances require of

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a person of ordinary prudence.” Id.; accord Matsuyama v.
Birnbaum, 890 N.E.2d 819, 847 (Mass. 2008).

ii. Misrepresentations
42. The Restructuring Agreement also provides that Lifespan
“shall indemnify and hold harmless NEMC . . . from, against, and
in respect of any and all Losses, incurred or suffered by [NEMC]
as a result of, arising out of or directly or indirectly relating
to,” among other things, “[a]ny misrepresentation by Lifespan, or
any breach or failure of any covenant, or any breach or
inaccuracy in any representation or warranty made by or on behalf
of Lifespan in this Agreement, including in any Schedule or
Exhibit (as each such representation or warranty would read if
all qualifications as to knowledge and materiality were deleted
therefrom).”
43. Lifespan argues that the phrase “in this Agreement”
modifies not only the “representation or warranty” clause, but
also the “misrepresentation” and “covenant” clauses, meaning that
only a misrepresentation in the Restructuring Agreement itself
would be covered. But that argument “is inconsistent with the
general rule of grammatical construction that a modifying clause
is confined to the last antecedent unless there is something in
the subject matter or dominant purpose which requires a different

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interpretation.” Deerskin Trading Post, Inc. v. Spencer Press,
Inc., 495 N.E.2d 303, 307 (Mass. 1986) (quotation omitted).
44. Deerskin involved a contract provision stating that “in
the event of 1) breach of any warranty or 2) delays in delivery,
caused in part by circumstances over which [the supplier] has no
direct control (such as availability of paper and other raw
materials) the liability of [the supplier] shall be limited to a
refund.” Id. The Massachusetts Supreme Judicial Court rejected
the argument that the “no direct control” clause modified the
“breach of any warranty” clause, finding “no language in the
limitation of damages provision and nothing in the subject matter
or dominant purpose of [that] provision that requires [that]
conclusion.” Id. The court noted that “the parenthetical phrase
‘such as availability of paper and other raw materials’ included
in the no direct control clause clearly indicates that the clause
was meant to apply only to delays in delivery.” Id.
45. The analysis here is similar. The phrase “in this
Agreement” is followed by a parenthetical that refers back to the
“representation or warranty” clause (specifically, it states “as
each such representation or warranty would read if all
qualifications as to knowledge and materiality were deleted
therefrom”). That parenthetical strongly suggests that the
intervening phrase “in this Agreement” also refers back to the
“representation or warranty” clause, not the preceding clauses.

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Nothing in the provision’s language, subject matter, or purpose
compels a contrary interpretation.7
46. This court accordingly interprets the indemnification
provision as covering “[a]ny misrepresentation by Lifespan” to
NEMC, not just any misrepresentation in the Restructuring
Agreement. It is worth noting, however, that the only
8
misrepresentations that NEMC has proven in this case also
constituted intentional misconduct by Lifespan, see Part
III.C.ii.b, and thus would be covered by the other part of the
indemnification provision, regardless of the scope of the
misrepresentation clause.
47. A misrepresentation can be either intentional or
negligent under Massachusetts law. Intentional misrepresentation
occurs where a party makes “a false representation of material
fact, with knowledge of its falsity, for the purpose of inducing
[another party] to act on this representation,” and the other

It is true that, as Lifespan notes, the “covenant” clause
7
also appears to refer to covenants in the Restructuring
Agreement. But the word “covenant” already implies as much,
making that a less compelling point. See, e.g., Munro v. Jordan,
2010 Mass. App. Div. 1, 1 (Mass. Dist. Ct. 2010) (“Of course, a
covenant is a contract, or at least part of one.”) (citing
Black’s Law Dictionary 391 (8th ed. 2004), which defines
“covenant” to mean a “formal agreement or promise, usu. in a
contract”).
As the parties know, this court had been leaning toward the
8
opposite reading based on the pre-trial briefing and oral
argument, but that was before reading Deerskin, which neither
party had previously brought to this court’s attention.
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party “reasonably relie[s] on the representation as true,”
resulting in damages. Cumis Ins. Soc’y, Inc. v. BJ’s Wholesale
Club, Inc., 918 N.E.2d 36, 47 (Mass. 2009).
48. Negligent misrepresentation occurs where a party “in
the course of [its] business . . . supplie[s] false information
for the guidance of others in their business transactions,
without exercising reasonable care or competence in obtaining or
communicating the information,” and “those others justifiably
rel[y] on the information,” resulting in pecuniary loss. Id. at
47-48 (citing Nycal Corp. v. KPMG Peat Marwick LLP, 688 N.E.2d
1368 (Mass. 1998)) (formatting altered).

III. Analysis
This court will now analyze each of the parties’ specific
claims, beginning with (A) Lifespan’s claim for breach of
contract and then turning to the Attorney General and NEMC’s
counterclaims for breach of fiduciary duty and indemnification,
respectively, based on Lifespan’s alleged misconduct with respect
to (B) NEMC’s health insurer contracts, (C) the interest rate
swap, (D) Lifespan’s corporate overhead charges, and (E) NEMC’s
financial performance during the affiliation.

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A. Lifespan’s breach of contract claim

Lifespan claims that NEMC committed breach of contract by
failing to make several payments required by the Restructuring
Agreement. This court makes the following findings of fact and
rulings of law on that claim, which result in an award of
$13,903,948 in damages to Lifespan.

i. Findings of fact
49. NEMC agreed in the Restructuring Agreement to pay
Lifespan $1.83 million on or before January 2, 2006 and another
$1.83 million on or before January 2, 2007. To date, NEMC has
not paid Lifespan either of those sums.
50. NEMC also agreed in the Restructuring Agreement to
“split on a 50/50 basis” with Lifespan “any recovery received
from Medicare by NEMC . . . for the loss on sale/depreciation
recapture resulting from the Affiliation.”
51. On or about March 25, 2008, NEMC received a $20,487,895
million recovery from Medicare for the loss on sale/depreciation
recapture resulting from the affiliation. To date, NEMC has not
paid Lifespan any part of that recovery.

ii. Rulings of law
52. The Restructuring Agreement, including each of the
payment provisions just mentioned in ¶¶ 49-50, supra, is a valid

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and binding agreement between Lifespan and NEMC. This court
previously rejected NEMC’s only challenges to the enforceability
of those provisions (specifically, the Medicare recovery
provision). See Lifespan, 731 F. Supp. 2d at 244-49. That
ruling is incorporated by reference here.
53. NEMC breached the terms of the Restructuring Agreement
by failing to make the January 2006 and January 2007 payments
described in ¶ 49, supra. Those breaches caused Lifespan to
suffer $3.66 million in actual damages, which is the sum of those
two payments.
54. NEMC also breached the terms of the Restructuring
Agreement by failing to pay Lifespan half of the Medicare
recovery described in ¶¶ 50-51, supra. That breach caused
Lifespan to suffer $10,243,948 in actual damages, which is half
of the amount that NEMC recovered from Medicare.9
55. Combining those amounts, Lifespan is entitled to a
total of $13,903,948 for NEMC’s breach of the Restructuring
Agreement’s payment provisions.

One of NEMC’s counterclaims, for unjust enrichment, argued
9
that Lifespan’s recovery should be reduced by the amount that
NEMC spent pursuing the Medicare reimbursement. See documents
no. 102, at ¶ 94, and no. 142, at 7-8. This court rejected that
counterclaim as unavailable in light of the express contract.
Lifespan, 731 F. Supp. 2d at 244 (citing Okmyansky, 415 F.3d at
162). NEMC has not argued that it is entitled to such a
reduction under the contract itself, or on any other basis.
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B. Counterclaims relating to health insurer contracts
NEMC and the Attorney General each seek to hold Lifespan
liable for allegedly failing to meet the standard of care in
negotiating NEMC’s contracts with health insurance providers
(also called “payors”) during the affiliation. This court makes
the following findings of fact and rulings of law on those
claims, which result in an award of $5,857,913 in damages to NEMC
and the Attorney General.

i. Findings of fact
56. Lifespan had authority under the Affiliation Agreement
to negotiate NEMC’s payor contracts, which it delegated to the
Lifespan Physicians Professional Services Organization (“PSO”), a
joint venture between Lifespan and certain Rhode Island-based
physician groups. The PSO also handled payor contracting for
Lifespan’s Rhode Island hospitals and their physicians. Lifespan
had control over the PSO and, through it, control over NEMC’s
payor contracting throughout the affiliation.
57. Dr. Joel Kaufman served as the PSO’s executive director
and CEO throughout the affiliation. William Beyer served under
him as chief operating officer (“COO”). They were both based in
Rhode Island. Beyer supervised two PSO teams: one based in
Rhode Island, working on payor contracting for Lifespan’s Rhode
Island hospitals; and the other based in Massachusetts, working

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on payor contracting for NEMC. Robin Junkins, a former NEMC
employee who joined the PSO during the affiliation, led the
Massachusetts team.10
58. At the outset of the affiliation, the PSO (including
Kaufman, Beyer, and Junkins) worked with NEMC officials
(including CFO Mitchell Creem) to assess the past performance and
current status of NEMC’s existing payor contracts. The contracts
were generally found to be outdated, difficult to administer, and
to have unfavorable reimbursement rates. Also, as mentioned
supra, NEMC had recently lost its contract with one of its major
payors, Harvard Pilgrim, resulting in heavy losses of patient
volume and revenue.
59. NEMC’s expert Kim Damokosh, an outside consultant who
has helped NEMC with payor contracting since 2004, testified that
the standard industry practice under such circumstances is to
prepare a comprehensive written analysis of each payor contract
and then a written “blueprint” to guide future negotiations,
neither of which the PSO did. This court is not persuaded,
however, that such an approach actually constitutes the standard

Lifespan paid the salaries of those employees and passed
10
them down to NEMC and the system’s other hospitals through the
corporate overhead charges. See Part III.D, infra.
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industry practice. Damokosh’s testimony establishes only that it
is her own practice.11
60. NEMC generally collected about half of its revenue from
commercial payors, and the other half from governmental payors,
such as Medicare and Medicaid. Because the government
reimbursement rates were non-negotiable and generally
insufficient to cover NEMC’s costs of providing care, NEMC needed
sufficient reimbursement rates and margins on its commercial
business to make up the difference, in order to achieve a
positive operating margin overall.12
61. About 40 percent of NEMC’s revenue came from the three
major non-profit payors in Massachusetts: Harvard Pilgrim, Blue
Cross/Blue Shield of Massachusetts, and Tufts Health Plan
(collectively, the “regional payors”). About 5 to 10 percent
came from three for-profit payors with a national presence:

Before trial, Lifespan moved in limine to exclude
11
Damokosh’s expert testimony as insufficiently reliable to satisfy
Federal Rule of Evidence 702. See Daubert v. Merrell Dow
Pharms., Inc., 509 U.S. 579, 597 (1993); L.R. 16.2(b)(3). This
court held a hearing on that and other limine motions, see
documents no. 205 and 206, and then denied it orally, allowing
Damokosh to testify. Nevertheless, in evaluating Damokosh’s
testimony, this court has kept in mind the arguments made in
Lifespan’s motion and has rejected any of Damokosh’s opinions
that it regards as unreliable, including those based on mere ipse
dixit or speculation.
That need became particularly acute when, just before the
12
affiliation, Congress passed the Balanced Budget Act of 1997,
Pub. L. 105-33, 111 Stat. 251, which significantly reduced
Medicare payments to hospitals.

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Cigna, United Healthcare, and Aetna (collectively, the “national
payors”). Those six payors accounted for the vast majority of
NEMC’s commercial business.

a. Regional payors
62. During the affiliation, the PSO focused its work for
NEMC almost exclusively on renegotiating its contracts with the
regional payors. As an initial priority, the PSO negotiated a
new contract between NEMC and Harvard Pilgrim in 1998, restoring
that relationship. The PSO also renegotiated NEMC’s contracts
with Blue Cross and Tufts that same year. Further contracts or
amendments were negotiated with each of those payors every one or
two years thereafter.
63. To prepare for negotiations with the regional payors,
the PSO (specifically, Beyer and Junkins) met regularly with
representatives from various NEMC departments to discuss their
contracting goals and priorities, including with respect to
reimbursement rates. The PSO then approached the payors and
attempted to negotiate contracts that accomplished NEMC’s
objectives. Where necessary, Beyer and Junkins went back to
NEMC’s representatives to seek more input.
64. During the first half of the affiliation, Creem (NEMC’s
CFO) also played an active role in the regional payor
negotiations. He attended some of the negotiating sessions and,

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when he could not attend, received follow-up reports from Beyer
and Junkins. He regularly discussed negotiating strategy with
them and made recommendations, which they followed. Overall, he
was satisfied with the progress that the PSO made, including on
reimbursement rates, which steadily improved.
65. Creem left NEMC in 2000. A new CFO, Mark Scott, joined
NEMC in 2001. Unlike Creem, Scott did not play an active role in
payor contracting. He complained to Lifespan that the PSO was
doing a poor job and that he wanted to take control of the
negotiations. During 2002, the last year of the affiliation,
Lifespan allowed Scott to become more involved, formally adding
him to the negotiating team. But he and the PSO were unable to
integrate their efforts before the affiliation ended.
66. Notwithstanding the steady improvement in NEMC’s
reimbursement rates, Damokosh testified that NEMC’s rates and
margins on its regional payor business were below industry
standards. Specifically, she testified that other Boston
teaching hospitals generally achieved margins of 3 to 10 percent
on care reimbursed by those payors, whereas NEMC’s aggregate
margin on such care in fiscal year 2003 (the year after the
affiliation, and the earliest year for which data is still
available) was negative 2.3 percent.13

The evidence relating to NEMC’s payor contracts is
13
incomplete, as not all of the contracts, financial data, and
other documents were retained, and neither Beyer nor Junkins (the
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67. This court is not persuaded, however, that any such
deficiencies in rates or margins resulted from poor negotiating
or lack of effort by the PSO. Reimbursement rates in payor
contracts are driven largely by the provider’s position in the
marketplace, including its market share and reputation (and,
likewise, by the payor’s position). A provider with a bigger
market share or a stronger reputation has more bargaining power
with payors–and thus can usually obtain higher rates–than less
prominent providers.
68. At the time of the affiliation, NEMC was one of the
smallest teaching hospitals in the Boston area. And while NEMC
(by Lifespan’s own account) had a strong reputation, most of the
other Boston teaching hospitals, including Massachusetts General
Hospital, Brigham & Women’s Hospital, and Beth Israel Deaconess
Medical Center, had even stronger reputations. As a result, NEMC
had significantly less bargaining power with the regional payors
(as starkly illustrated by Harvard Pilgrim’s decision to drop
NEMC from its network).
69. There was little, if anything, that Lifespan could do
to increase NEMC’s bargaining power during the affiliation. None

two people most likely to have personal knowledge of contract
details) testified at trial. Both sides argue that this court
should draw an adverse inference against the other side with
regard to missing evidence. But this court finds no basis for
doing so. There is no indication of culpable document
destruction, and either side could have called one of those
witnesses to fill in any gaps.

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of the regional payors maintained a significant presence in Rhode
Island throughout that period, so Lifespan could not use its
market share in Rhode Island to significantly increase NEMC’s
leverage with those payors in Massachusetts. And while
14
Lifespan and NEMC were both working hard to grow a network in
Massachusetts and to enhance NEMC’s reputation, those were
challenging, long-term objectives.
70. Even in 2010, after more than five years of
renegotiating its regional payor contracts with Damokosh’s help,
NEMC’s reimbursement rates from those payors remained about 20
percent lower than those of most other Boston teaching hospitals.
Damokosh testified that NEMC is still digging itself out of the
“very deep hole” in which Lifespan left it. But to the extent
that such a hole exists, it is the result of NEMC’s market
position, not the PSO’s performance, and existed even before the
affiliation. 15

Blue Cross/Blue Shield of Rhode Island is a separate
14
entity from Blue Cross/Blue Shield of Massachusetts. Harvard
Pilgrim and Tufts, while both offering coverage in Rhode Island
at the outset of the affiliation, had pulled out of that state by
1999/2000. Harvard Pilgrim paid similar rates to the Rhode
Island hospitals as it paid to NEMC.
Damokosh also testified that, with her help, NEMC obtained
15
significantly higher rates from the regional payors from 2004
onward. But this court is not persuaded that NEMC’s post-
affiliation rates constitute a reliable benchmark for evaluating
the PSO’s 1997-2002 performance, in light of changing conditions
and the fact that Damokosh, by her own account, elevated NEMC’s
payor contracting efforts above the standard of care.
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71. Although unable to command the same rates as other
Boston teaching hospitals, NEMC’s costs of providing care were
generally comparable to, or greater than, theirs. Lifespan
repeatedly urged NEMC to cut its costs, particularly during the
last two years of the affiliation, but NEMC struggled to do so.
Had NEMC cut its costs to a level commensurate with its market
position, its margins on the regional payor business would have
been significantly better.
16

b. National payors
72. The PSO did not renegotiate NEMC’s contracts with the
national payors at all during the affiliation (except in a few
discrete areas, including most notably a contract with Cigna
relating specifically to transplant services). Kaufman, the
PSO’s executive director and CEO, deemed those contracts to be
less of a priority than the regional payor contracts, because the
national payors accounted for a relatively small percentage of
NEMC’s revenue. See ¶ 61, supra.

Because NEMC’s costs varied considerably from year to
16
year, not always moving in lockstep with its revenue, this court
also is not persuaded that NEMC’s aggregate margin on the
regional payor contracts in fiscal year 2003 is a reliable proxy
for determining its margins on each of those contracts,
individually, from 1997 to 2002. Even in 2003, Damokosh
acknowledged that one of NEMC’s contracts, with Tufts, resulted
in a positive margin of 6.1 percent.
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73. Only one of NEMC’s national payor contracts, with
Aetna, had inflationary increases built into its reimbursement
rates for all hospital services. NEMC’s contract with Cigna did
not include any inflationary increases, and its United contract
generally included them only for outpatient services, not for
inpatient services. Both contracts had been negotiated in 1997,
before the affiliation. The PSO allowed the contracts to
“evergreen,” i.e., roll over automatically at the old rates and
terms, without inflationary increases.
74. This court finds, consistent with Damokosh’s testimony,
that it is standard industry practice for reimbursement rates in
payor contracts to keep pace with inflation, and for providers
not to allow contracts to “evergreen” at old rates without
inflationary increases. The standard inflationary increase is a
blend between the medical consumer price index (“CPI”) for the
provider’s region (here, Boston) and the lower all-item CPI.
NEMC’s rates under the Aetna contract, for example, increased
each year by the Boston all-item CPI plus 1 percent.
75. With minimal effort, the PSO likely could have
negotiated inflationary increases for NEMC on its Cigna and
United reimbursement rates, at the same level as NEMC’s Aetna
increases, by the end of the affiliation’s second year. Payors
17

While it usually takes less than a year to negotiate payor
17
contracts, Damokosh acknowledged that, after the affiliation, it
took NEMC (with her help) two years to complete renegotiations
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generally do not object to inflation-only increases. Negotiating
such increases from Cigna and United would not have interfered
with the PSO’s efforts with the regional payors or required any
shift in contracting priorities, and would have increased NEMC’s
revenue by millions of dollars.
76. No one at NEMC ever instructed the PSO to forego
seeking inflationary increases on the Cigna and United contracts,
or suggested that the PSO should pursue other priorities to the
exclusion of such increases. Even Lifespan’s CFO acknowledged at
trial that “I have difficulty saying that” it was reasonable and
appropriate for the PSO not to renegotiate those contracts, and
that “I have a difficult time” explaining how inflationary
increases could not be deemed a priority.
77. Damokosh testified that, in addition to failing to keep
pace with inflation, NEMC’s national payor contracts resulted in
reimbursement rates and margins that were below industry
standards. Specifically, she testified that other Boston
teaching hospitals generally achieved margins of 25 to 50 percent
from those payors, whereas NEMC’s aggregate margin from those
payors in fiscal year 2003 (again, the earliest year for which
data is available) was 21 percent.

with all three national payors. This court sees no reason to
hold the PSO to a faster timetable.
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78. But the only national payor contract that individually
failed to achieve a 25 percent margin that year was the Cigna
contract, which had a negative margin of 10.5 percent. Aetna’s
contract (which, again, had built-in inflationary increases)
resulted in a margin of 63 percent, well above Damokosh’s
standard range. United’s contract (which, again, had partial
inflationary increases) resulted in a margin of about 39 percent,
in the middle of the range.
79. Even the national payor contracts that NEMC negotiated
with Damokosh’s help after the affiliation failed to achieve an
aggregate margin of 25 percent (as of 2007). NEMC’s margins on
Aetna and United business were actually lower in 2007 than in
2003. This court is not persuaded that the PSO could have
significantly improved the Aetna and United rates and margins
during the affiliation, aside from negotiating inflationary
increases from United. 18
80. Cigna, however, is a different matter. In addition to
resulting in negative margins, NEMC’s reimbursement rates from
Cigna were 50 to 75 percent lower than the rates that Cigna paid
to Lifespan’s Rhode Island hospitals during the affiliation, even
though Cigna had a relatively small market share in both states.

Damokosh testified that NEMC obtained significantly higher
18
rates from the national payors from 2004 onward. But this court
is not persuaded that NEMC’s post-affiliation rates constitute a
reliable benchmark for evaluating the PSO’s performance. See
note 15, supra.

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The PSO likely could have jointly renegotiated with Cigna on
behalf of NEMC and the Rhode Island hospitals, and thereby
obtained significantly higher rates for NEMC. But the PSO never
attempted to do so.19
81. Damokosh testified, and this court finds, that it is
standard industry practice for healthcare systems to jointly
negotiate payor contracts on behalf of their hospitals wherever
practicable, so as to maximize their leverage with payors and
obtain the highest possible reimbursement rates. As discussed in
Part I, supra, that was also one of the primary goals of the
affiliation. No one at NEMC ever suggested that the PSO should
forego joint negotiations.
82. Even without pursuing joint negotiations, the PSO
likely could have obtained significantly higher rates for NEMC
simply by sharing Cigna’s Rhode Island rate information with NEMC
and the Massachusetts team handling NEMC’s payor contracts, for
use in independent negotiations with Cigna (had they happened,
see ¶ 72, supra). That, too, is standard industry practice
within healthcare systems. The PSO failed, however, to share
rate information across the system. 20

In contrast, the PSO generally negotiated jointly for all
19
of Lifespan’s Rhode Island hospitals.
Lifespan notes that Beyer, as supervisor of both the
20
Massachusetts and Rhode Island teams, had access to all the Rhode
Island rate information. But there is no evidence that he
actually accessed it, used it, or communicated it for the purpose
of helping with NEMC’s payor contracts.
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83. This court is not persuaded, however, that joint
negotiations or information sharing would have resulted in higher
rates for NEMC on its United and Aetna business. Both of those
payors conducted significant business in Rhode Island, but United
had a much larger market share in that state (about 20 percent)
and consequently paid lower rates to Lifespan’s Rhode Island
hospitals than to NEMC, resulting in lower margins. As to Aetna,
the evidence provides no reliable basis for determining whose
rates were higher.

c. Physician groups
84. The PSO did not negotiate payor contracts for NEMC’s
physician groups either. While it is common in the healthcare
industry for hospitals and physicians to negotiate jointly with
payors (as the PSO did for Lifespan’s Rhode Island hospitals and
their physicians), NEMC’s physician groups had traditionally
negotiated their contracts separately from the hospital, and
continued doing so throughout the affiliation, using their own
contracting specialist.
85. The physician groups preferred separate negotiations
because they were independent-minded and wanted to retain control
over their revenue streams. They also lacked confidence in
NEMC’s or the PSO’s ability to achieve better results than their
own specialist. According to Dr. Thomas O’Donnell, who was

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NEMC’s CEO and also a member of one of its physician groups,
“there was a significant amount of antipathy towards Lifespan
among the physician population.”
86. NEMC’s physicians groups generally achieved poor
results on their payor contracts throughout the affiliation.
Their reimbursement rates from the national and regional payors
were at or near the bottom of the market in the Boston area. As
a result, NEMC had to pay or loan more than $15 million to the
physician groups each year to prevent a mass exodus of physicians
from the hospital.
87. Lifespan likely could have forced NEMC’s physician
groups to negotiate jointly with the hospital through the PSO,
because NEMC controlled two-thirds of the seats on the board of
the New England Health Care Foundation, Inc. (“Foundation”),
which was then the sole controlling member of the physician
groups. Lifespan, in turn, exercised control over NEMC, as
discussed in Part I.A, supra.21
88. The Affiliation Agreement, however, provided as follows
with respect to Lifespan’s relationship with NEMC’s physician
groups:
Lifespan shall continue the successful and productive
relationship that currently exists among [NEMC], the

After the affiliation, NEMC persuaded the Foundation to
21
make NEMC its sole member, in exchange for forgiving about $11
million in loans owed by the physician groups to NEMC. NEMC and
the physician groups have since negotiated payor contracts
jointly.

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[Foundation], and the NEMC physician practice groups to
enhance the ability of all of these organizations to
achieve their mission and promote their economic
viability. Lifespan acknowledges that there are
significant financial and operational arrangements
currently in place among [those entities] and shall
move forward with these arrangements with due
recognition of the importance they play in supporting
the academic, teaching and other missions of all the
entities. Consistent with this understanding and with
current practice, adjustments in such arrangements
shall be made only after significant consultation and
meaningful input from the physician groups affected and
Tufts.
(Emphases added.)22
89. Lifespan never approached the physician groups to
request or recommend any adjustments in the traditional
operational arrangement for separate payor contracting by NEMC
and its physician groups. Nor did the physician groups ever
approach Lifespan to request any adjustments in that arrangement,
or express to Lifespan or NEMC any interest in jointly
negotiating contracts with the hospital.

i. Rulings of law
a. Attorney General’s breach of fiduciary duty claim
90. This court has already ruled that Lifespan owed a
fiduciary duty to NEMC during the affiliation. See Lifespan, 731
F. Supp. 2d at 238-41. Lifespan specifically owed a fiduciary

Neither the Foundation nor the practice groups were
22
parties to the Affiliation Agreement, the Restructuring
Agreement, or this litigation.

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duty to NEMC with regard to payor contracting, by virtue of the
control that Lifespan (through the PSO) exercised over NEMC in
that area and the “faith, confidence, and trust” that NEMC placed
in Lifespan’s judgment and advice. Id. (quoting Harbor Schools,
843 N.E.2d at 1064).
91. The Attorney General argues, first, that Lifespan
breached its fiduciary duty of care to NEMC by failing to
comprehensively assess NEMC’s existing payor contracts at the
outset of the affiliation. But the PSO conducted a reasonable,
good-faith assessment of that sort, with NEMC’s assistance. See
¶¶ 58-59, supra. The Attorney General has not met her burden of
proving that Lifespan departed from the standard of care in that
regard.
92. The Attorney General argues, next, that Lifespan
breached its fiduciary duty of care to NEMC by failing to
negotiate sufficient rates and margins from the regional payors.
But the PSO made a reasonable, good-faith effort throughout the
affiliation to negotiate better rates from those payors, with
some success. See ¶¶ 62-71, supra. While the PSO may not have
been the strongest negotiator, the Attorney General has not met
her burden of proving that Lifespan departed from the standard of
care in that regard either.
93. This court agrees with the Attorney General, however,
that Lifespan breached its fiduciary duty of care to NEMC by

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failing to renegotiate NEMC’s Cigna and United contracts to
obtain inflationary increases in their reimbursement rates by the
end of the affiliation’s second year and annually thereafter.
See ¶¶ 72-76, supra. Those failures constituted “clear and
gross” departures from the standard of care that any reasonable
party in Lifespan’s position would have exercised. BCHF, 73 F.3d
at 433 (citing Spiegel, 8 N.E.2d at 904).
94. This court also agrees with the Attorney General that
Lifespan breached its fiduciary duty of care to NEMC by failing
to negotiate jointly with Cigna on behalf of NEMC and the Rhode
Island hospitals, and failing to share Cigna’s Rhode Island rate
information with NEMC and the PSO’s Massachusetts team. See ¶¶
80-82, supra. Those, too, were “clear and gross” departures from
the standard of care that any reasonable party in Lifespan’s
position would have exercised. BCHF, 73 F.3d at 433 (citing
Spiegel, 8 N.E.2d at 904).
95. The Attorney General argues that Lifespan also breached
its fiduciary duty of care by failing to jointly negotiate with
Aetna, United, and the regional payors. But joint negotiations
with those payors likely would not have been helpful to NEMC or
resulted in higher reimbursement rates. See ¶¶ 69, 83, supra.
The Attorney General has not met her burden of proving that
Lifespan departed from the standard of care in that regard, or,
even if it did, that it caused any damages to NEMC.

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96. The Attorney General also argues that Lifespan breached
its fiduciary duty of care to NEMC by failing to negotiate
sufficient rates and margins from the national payors. This
court agrees as to Cigna, which paid unreasonably low rates that
resulted in negative margins. See ¶¶ 93-94, supra. As to Aetna
and United, however, NEMC’s rates and margins were within a
reasonable range. See ¶¶ 78-79, 83, supra. Lifespan did not
depart from the standard of care in that regard (except in
failing to negotiate inflationary increases from United, see ¶
93, supra). 23
97. Finally, the Attorney General argues that Lifespan
breached its fiduciary duty of care by failing to negotiate on
behalf of NEMC’s physician groups. This court rules, however,
that Lifespan made a reasonable, good-faith decision to maintain
the traditional arrangement of separate payor contracting by NEMC
and its physician groups, which reflected their reasonable
preference. See ¶¶ 84-85, 88-89, supra. The Attorney General
has not met her burden of proving that Lifespan departed from the
standard of care in that regard.

The fact that United’s rates were otherwise reasonable
23
does not prevent Lifespan from being held liable for failing to
negotiate inflationary increases, because those increases were
easily attainable, and Lifespan violated the standard of care in
failing to obtain them. Simply put, Lifespan left millions of
dollars on the table in inflationary adjustments because of its
gross negligence.

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98. Lifespan’s breaches of fiduciary duty, see ¶¶ 93-94,
96, supra, were the “but-for” and proximate cause of damages to
NEMC. They foreseeably prevented NEMC from obtaining higher
reimbursement rates from Cigna and United, and thereby resulted
in NEMC’s receiving significantly less revenue from those payors
during the affiliation.
99. As to United, Lifespan’s breach of fiduciary duty
caused NEMC to suffer actual damages in the amount of $2,699,109,
which is the amount of additional revenue that NEMC likely would
have collected from United during the affiliation if Lifespan had
negotiated inflationary increases in United’s reimbursement rates
by the end of the affiliation’s second year, and annually
thereafter, based on the Boston all-item CPI plus 1 percent
(NEMC’s Aetna inflation rate). See Appendix.
100. As to Cigna, Lifespan’s breach of fiduciary duty
included not only a failure to negotiate inflationary increases,
but also a failure to negotiate jointly with the Rhode Island
hospitals and to share Cigna’s Rhode Island rate information,
either of which likely would have resulted in further rate
increases for NEMC. See ¶¶ 80, 82, supra. This court therefore
concludes that it is appropriate to use the full Boston medical
CPI to calculate the Cigna damages, rather than the lower CPI
blend used to calculate the United damages. 24

It is possible that joint negotiations or information-
24
sharing would have resulted in Cigna rate increases even beyond
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101. As to Cigna, then, Lifespan’s breaches of fiduciary
duty caused NEMC to suffer actual damages in the amount of
$3,158,804, which is the amount of additional revenue that NEMC
likely would have collected from Cigna during the affiliation if
Lifespan had negotiated inflationary increases in Cigna’s
reimbursement rates by the end of the affiliation’s second year,
and annually thereafter, based on the Boston medical CPI. See
Appendix.
102. Combining the Cigna and United damages, the Attorney
General is entitled to recover a total of $5,857,913 for
Lifespan’s breaches of fiduciary duty in the area of payor
contracting, which is the amount necessary to put NEMC “in the
position [it] would have been in if no breach of fiduciary duty
had been committed.” Berish, 770 N.E.2d at 977.

b. NEMC’s indemnification claim
103. As discussed in Part II.C.i, supra, Lifespan agreed in
the Restructuring Agreement to “indemnify NEMC for any losses it
incurs that result directly and solely . . . from Lifespan’s
willful misconduct or gross negligence in the provision of
services to NEMC by Lifespan employees working under the

the Boston medical CPI, but this court is not prepared to deem
such increases likely based on the evidence at trial. In any
event, the Attorney General and NEMC have not provided a reliable
basis for measuring damages beyond that level. The medical CPI,
while possibly on the conservative end, is a reliable and
reasonable measure.

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supervision and direction of Lifespan employees during the
Affiliation Period.”
104. The individuals responsible for overseeing NEMC’s
payor contracting during the affiliation (including Kaufman,
Beyer, and Junkins) were Lifespan employees working under the
supervision and direction of Lifespan employees, and were
providing services to NEMC. See ¶¶ 57-58 & n.10, supra.
Lifespan has not argued otherwise.
105. Lifespan was grossly negligent in failing to
renegotiate the Cigna and United contracts to obtain inflationary
increases in their reimbursement rates, in failing to jointly
negotiate with Cigna on behalf of NEMC and the Rhode Island
hospitals or to share Cigna’s Rhode Island rate information
across the system, and in failing to obtain sufficient rates and
margins from Cigna. See ¶¶ 93-94, 96, supra.
106. NEMC argues that Lifespan was also grossly negligent
in all of the other respects that the Attorney General argued in
connection with her breach of fiduciary claim. But, for the
reasons already discussed, this court rules that NEMC has not
proven gross negligence in any of those other respects. See ¶¶
91-92, 95-97, supra.
107. Lifespan’s gross negligence directly and solely caused
NEMC to incur $5,857,913 in losses. See ¶¶ 102, supra. Lifespan
argues that those losses were not “solely” caused by its gross

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negligence because NEMC, too, was involved in payor contracting.
But NEMC played no role in Lifespan’s failures to negotiate with
Cigna and United or to use the system’s leverage in negotiating
with Cigna. See ¶¶ 76, 81, supra. Those failures were
Lifespan’s alone.

C. Counterclaims relating to interest rate swap
NEMC and the Attorney General each seek to hold Lifespan
liable for alleged misconduct in connection with a complex
financial transaction, known as an interest rate swap, that NEMC
executed during the last year of the affiliation. This court
makes the following findings of fact and rulings of law on those
claims, which result in an award of $8,318,791 in damages to NEMC
and the Attorney General.

i. Findings of fact
108. In 1992, NEMC issued more than $100 million in revenue
bonds to finance a major building project. The bonds were
callable in July 2002. In the years leading up to that date,
interest rates dropped significantly from the rate at which the
bonds had been issued, creating a potential opportunity for NEMC
to refinance the bonds at a lower rate. Lifespan and NEMC both
recognized that opportunity.

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109. About a year before the call date, Lifespan’s CFO
David Lantto arranged for representatives of Morgan Stanley, a
financial services firm, to present a bond refinancing proposal
to NEMC. Morgan Stanley proposed that NEMC refinance the bonds
in July 2002, using Morgan Stanley as underwriter. In the
meantime, Morgan Stanley proposed that NEMC enter into an
interest rate swap, which it claimed would enable NEMC to “lock
in” the current low interest rate and “protect” against any rate
increases before the refinancing date.
110. The proposed swap worked as follows: NEMC would agree
to pay Morgan Stanley a fixed interest rate, and Morgan Stanley
would agree to pay NEMC a variable interest rate (based on a swap
rate index), on a notional amount roughly equal to the amount of
NEMC’s bonds. Upon termination of the swap, whichever party had
the higher balance would pay the difference. Thus, if the
variable rate went up, Morgan Stanley would make a payment to
NEMC. Conversely, if the variable rate went down, NEMC would
make a payment to Morgan Stanley.
111. Under ordinary conditions, where the swap rate index
moved roughly in tandem with the refinancing rate available to
NEMC, the swap would offset any movements in the refinancing rate
and effectively enable NEMC to “lock in” the current rate (minus
Morgan Stanley’s $1.6 million transaction fee, which was built
into the swap). But if the swap rate index “decoupled” from that

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refinancing rate, NEMC would not actually “lock in” the current
rate; it would be at risk of paying more, or receiving less, in
the swap than the amount necessary to offset changes in the
refinancing rate.
112. Morgan Stanley mentioned that risk of decoupling
(known as “basis risk” or “swap spread risk”) to NEMC, but only
in passing, and not in a way that enabled NEMC to fully
understand the nature and scope of the risk. After the
affiliation, NEMC asserted a claim against Morgan Stanley for
failing to fully disclose the swap’s risks. They settled the
claim in June 2005 for $2.25 million. The settlement agreement
stated that Morgan Stanley was not admitting liability and was
settling “solely for reasons of economy.”
113. Before Morgan Stanley’s proposal, NEMC had never
entered into an interest rate swap or seriously considered one,
either in conjunction with a bond refinancing or otherwise. As
with many non-profit organizations, NEMC’s board and management
were conservative and ordinarily not inclined to enter into
complex financial transactions of that sort. The idea for the
swap came from Morgan Stanley broker Jeff Seubel, who suggested
it to Lantto, who in turn suggested it to NEMC.
114. Unbeknownst to NEMC, Lantto had a close, longstanding
personal friendship with Seubel. Lantto had worked with Seubel
in the past, and Seubel had recommended Lantto for the CFO

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position that Lantto held before coming to Lifespan. Their
business relationship had developed into a friendship because of
their mutual affinity for wine. They had gone to wine tastings
together, bought dinner and wine for each other on numerous
occasions, and stayed overnight at each other’s homes. Seubel
was also part of a wine-related business partnership that Lantto
wanted, but had never been invited, to join.
115. Lifespan’s own corporate policies, including its
conflict of interest policy and its meals/gifts policy, required
Lantto to fully disclose his personal relationship with Seubel
and offer to recuse himself from the proposed transaction with
Morgan Stanley. Lantto knew of those policies and requirements,
on which he had received training, but nevertheless failed to
disclose the personal relationship to NEMC, recuse himself, or
offer to do so.
116. In a report prepared after the affiliation, Lifespan’s
compliance officer and internal audit director Thomas Igoe found,
based on an internal investigation, that Lantto “should have
recused himself from the process [of considering the swap] or
more fully disclosed his friendship” with Seubel and that his
failure to do so put his “independence” in question and gave “the
appearance of conflict via preferential access.” Igoe found that
Lantto and Seubel “needed to maintain a relationship beyond
reproach; they have not.”

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117. This court agrees with those findings and further
finds that Lantto not only appeared to have, but actually had, a
conflict of interest in the swap transaction, which resulted in
preferential access for Morgan Stanley. Lantto introduced Morgan
Stanley to NEMC, and then pressured NEMC to enter into the swap,
taking the steps described in ¶¶ 118-123, infra, all for the
purpose of pleasing his friend Seubel, strengthening their
personal relationship, returning past favors, and likely also in
hopes of being invited to join Seubel’s wine partnership. He did
so in knowing disregard of NEMC’s interests.
118. NEMC’s CFO, Mark Scott, strongly opposed the swap, in
part because it was a complex transaction and difficult to
understand or assess. In an attempt to better understand it, he
requested Lantto’s permission to engage an independent financial
advisor, Chris Payne of the firm Ponder & Co., for a second
opinion on Morgan Stanley’s proposal, explaining that he had
worked with Payne in the past and had confidence in his judgment.
Lantto denied that request. 25
119. Lantto thereafter insisted that NEMC engage a less
expensive financial advisor of his choosing, Public Financial
Management (“PFM”), to prepare a fairness opinion on the swap.
PFM did not provide its fairness opinion until February 2002,

This is one of many examples of Lifespan’s control over
25
NEMC during the affiliation, including with respect to the
interest rate swap. See Lifespan, 731 F. Supp. 2d at 238-41; ¶
9, supra, and ¶ 135, infra.

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after NEMC had already entered into the swap. The opinion was
too late to be of any use to NEMC. Before providing that
opinion, PFM participated in some conference calls regarding the
swap, but did not give NEMC any significant advice regarding its
risks.
120. Scott also requested that Lantto arrange for
competitive bidding against Morgan Stanley by other financial
firms. Lantto denied that request as well, explaining that he
had worked with Morgan Stanley in the past and could vouch for
their competence (but, again, not disclosing his personal
relationship with Seubel). As a result of Lantto’s decision,
NEMC received no competing proposals before entering into the
swap with Morgan Stanley.
121. Scott informed Lantto and various NEMC officials,
early in the process of considering the swap, that he strongly
opposed doing it. Lantto pressured him not to continue raising
strong objections. Lantto also expressed disapproval when Scott
renewed his request for a second opinion from Ponder & Co.
Because Lantto was his superior, see ¶ 12, supra, and because
Scott had just joined NEMC that year, he acquiesced to that
pressure, toning down his opposition to the swap.
122. NEMC officials relied heavily on Lantto’s advice in
deciding whether to enter into the swap, perceiving him as a
financial expert. Lantto understood the potential risks of the

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swap, including basis risk (albeit not by that name), but never
discussed those risks with NEMC officials or expressed any
concerns about the swap. He spoke only of the swap’s potential
benefits, reiterating Morgan Stanley’s claim that it would “lock
in” the current interest rate.26
123. At Lantto’s urging, NEMC approved the swap in late
2001. Lantto personally attended the relevant finance committee
and board meetings at NEMC. His presence at those meetings was
unusual and reasonably understood by NEMC officials as an
implicit endorsement of the swap. Lantto then personally
presented the swap to Lifespan’s finance committee and board,
which also approved it, clearing the way for NEMC to enter into
the swap. NEMC executed the swap contract with Morgan Stanley in
January 2002.
124. Less than a month later, a group of Lifespan’s Rhode
Island hospitals rejected a very similar swap proposal presented
by Morgan Stanley. Those hospitals were contemplating a new bond
issuance, rather than a refinancing. They decided that, in light
of their poor credit rating and resulting uncertainty about
whether they would be able to arrange acceptable bond financing

Lantto, who testified by deposition, denied using the
26
phrase “lock in,” acknowledging that it was inaccurate. But NEMC
officials recalled his saying it, and contemporaneous NEMC board
meeting minutes expressly state that “Lantto . . . asked the
board to ratify . . . the locking in of December interest rates
through a hedging mechanism.” This court finds that Lantto
likely did use that phrase.

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that year, the swap was “too risky.” Lantto, having already
pressured NEMC into its swap, did not apply the same pressure to
the Rhode Island group.
125. Under the contract with Morgan Stanley, NEMC’s swap
was scheduled to terminate in July 2002, simultaneously with
NEMC’s anticipated bond refinancing. Morgan Stanley projected
that, if interest rates moved as expected over the next six
months, the swap would result in savings to NEMC of $10,604,144
on the bond refinancing, relative to NEMC’s existing payment
obligations on the original bonds.
126. After NEMC signed the contract, however, interest
rates unexpectedly moved in a direction adverse to NEMC’s swap
position. That movement included a decoupling of the swap rate
index from NEMC’s available refinancing rate. See ¶ 111, supra.
By July 2002, as a result of that adverse rate movement, NEMC’s
projected savings on the bond refinancing had dropped by nearly
half, to $5.73 million.
127. If NEMC had terminated the swap at that point, it
would have been required to make a large payment to Morgan
Stanley. See ¶ 110, supra. That payment, if not folded into a
simultaneous bond refinancing, would have been classified as an
operating loss for accounting purposes and consequently would
have put NEMC at risk of defaulting on its bond covenants, which
would have caused a host of other problems.

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128. NEMC expressed to Morgan Stanley its unhappiness with
the swap’s performance and the now-apparent basis risk. Morgan
Stanley, still seeking to serve as NEMC’s underwriter in the bond
refinancing, advised NEMC that it expected interest rates to move
in NEMC’s favor soon. Based on that advice, NEMC decided, with
approval from Lifespan and Lantto (who still had not disclosed
his conflict of interest), to extend the swap beyond July 2002,
and delay the refinancing.
129. After the extension, however, interest rates moved in
a direction even further adverse to NEMC’s swap position. In
August 2002, as Lifespan and NEMC moved closer to disaffiliation,
Lantto distanced himself from the transaction, telling Scott to
take the lead. NEMC then engaged Ponder & Co., the consultant
that Scott had wanted to engage earlier, to present options with
regard to the swap and refinancing.
130. Based on Ponder’s advice, NEMC decided to refinance
the bonds with Merrill Lynch as underwriter, rather than Morgan
Stanley, which it fired. NEMC terminated the swap with Morgan
Stanley in November 2002 and refinanced the bonds through Merrill
Lynch. In the end, NEMC saved only $681,209 on the refinancing,
relative to its existing bond payment obligations. NEMC made a
payment of $8.954 million to Morgan Stanley under the swap, which
was folded into the refinancing.

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131. If not for his friendship with Seubel, Lantto never
would have arranged for Morgan Stanley (or any other firm) to
present a swap proposal to NEMC, or pressured NEMC to enter into
a swap. NEMC, in turn, never would have entered into a swap.
Instead, NEMC likely would have refinanced its bonds in July 2002
at then-prevailing interest rates. That would have resulted in
present value savings to NEMC of $11.25 million.27
132. If Lantto had arranged for Morgan Stanley to present
the swap proposal, but then disclosed his conflict of interest to
NEMC and recused himself from the transaction, Scott would have
opposed the swap more openly and forcefully, likely with the
backing of his chosen consultant. Without Lantto there to
counter Scott’s view and push the transaction through, NEMC
likely never would have entered into a swap, and instead would
have refinanced the bonds in July 2002.
133. Regardless of whether Lantto disclosed his conflict of
interest or recused himself, NEMC would not have entered into the
swap, and likely would have refinanced the bonds in July 2002, if
Lantto had discussed with NEMC the potential risks of the swap,
including its basis risk, rather than speaking only of its

There is also a possibility, though not a likelihood, that
27
NEMC would have conducted an “advance refunding” of the bonds,
refinancing them in advance of July 2002 to truly lock in the
current interest rate. That can only be done once during the
life of the bonds. An advance refunding would have resulted in
present value savings to NEMC of $8.538 million, after accounting
for negative arbitrage.

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benefits and falsely stating to NEMC that the swap would “lock
in” current interest rates. See ¶ 122, supra.
134. Foregoing the swap would have left NEMC at risk of
potential interest rate increases after January 2002, but also
would have left open the possibility of beneficial rate
reductions (which actually happened), would not have required
NEMC to pay a $1.6 million transaction fee to Morgan Stanley, see
¶ 111, supra, and would not have created the risk of a large swap
payment that, if not folded into a simultaneous bond refinancing,
could cause NEMC to default on its bond covenants, see ¶¶ 110,
127, supra. On balance, foregoing the swap would have been the
better course for NEMC.

ii. Rulings of law
a. Attorney General’s breach of fiduciary duty claim
135. This court has already ruled that Lifespan owed a
fiduciary duty to NEMC during the affiliation. See Lifespan, 731
F. Supp. 2d at 238-41. Lifespan specifically owed a fiduciary
duty to NEMC with regard to the interest rate swap and bond
refinancing, by virtue of the control that Lifespan exercised
over those matters and the “faith, confidence, and trust” that
NEMC placed in Lifespan’s judgment and advice. Id. (quoting
Harbor Schools, 843 N.E.2d at 1064).

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136. Lifespan breached its fiduciary duty to NEMC when
Lantto, its CFO, knowingly gave Morgan Stanley preferential
28
access to NEMC, concealed from NEMC his personal relationship
with Seubel, failed to recuse himself from the proposed swap
transaction, pressured NEMC to enter into the swap, prohibited
competitive bidding, prohibited NEMC from obtaining a timely
second opinion from its chosen consultant, suppressed opposition
from NEMC’s CFO, advocated the swap to NEMC without discussing
its risks, and falsely stated to NEMC that the swap would “lock
in” current interest rates.
137. Each of those acts and omissions was done knowingly by
Lantto for the purpose of advancing his self-interest, and in
knowing disregard of NEMC’s interests. See ¶ 117, supra. Lantto
failed, in each instance, to exercise “utmost good faith” toward
NEMC. Harbor Schools, 843 N.E.2d at 1064-65. Each of those acts
and omissions therefore constituted a breach of his–and
Lifespan’s–duty of loyalty to NEMC. See, e.g., Demoulas, 677
N.E.2d at 179 (duty of loyalty requires fiduciary “to act with

“Under ordinary principles of agency,” a corporation “is
28
vicariously liable for the tortious conduct of its employee
committed within the scope of his employment.” Kourouvacilis v.
Am. Fed’n of State, County & Mun. Emps., 841 N.E.2d 1273, 1283
(Mass. App. Ct. 2006) (citing Worcester Ins. Co. v. Fells Acres
Day Sch., Inc., 558 N.E.2d 958, 967 (Mass. 1990)).
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absolute fidelity”); Donahue, 328 N.E.2d at 515 (fiduciary “may
not act out of . . . self-interest”).29
138. Lifespan argues that a fiduciary has no duty to
disclose a conflict of interest unless non-disclosure would
unjustly enrich the fiduciary. But “the circumstances creating
such fiduciary obligations as a duty to disclose are varied,” and
not subject to any “universally-applicable rule.” Geo. Knight &
Co. v. Watson Wyatt & Co., 170 F.3d 210, 216 (1st Cir. 1999)
(citing Massachusetts cases). The touchstone is whether the
fiduciary’s “failure to make disclosure would be inequitable.”
Id. Here, Lantto’s knowing concealment of his conflict of
interest was inequitable and disloyal to NEMC, regardless of
whether it unjustly enriched him.
139. Moreover, even if unjust enrichment were required,
that requirement would be satisfied here. Lantto had not only a
personal interest in the swap, but also a financial interest, in
that he wanted to join Seubel’s wine partnership and likely hoped
the swap would help make that happen. See ¶ 117, supra. That
made his conduct a form of unjust enrichment and self-dealing.
Under such circumstances, “to satisfy the duty of loyalty, a
fiduciary . . . must disclose details of the transaction and the

During closing argument, Lifespan argued that Lantto’s
29
conduct was “not unusual” and is the sort of thing that “happens
all of the time” in the business community. But that assertion
is not supported by the evidence and, in any event, would not
excuse knowingly disloyal behavior by a fiduciary.
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conflict of interest to the corporate decisionmakers” so that
they can make an informed and independent judgment. Demoulas,
677 N.E.2d at 181; BCHF, 73 F.3d at 433-34.
140. Lifespan’s breaches of fiduciary duty, see ¶¶ 136-137,
supra, were the “but-for” and proximate cause of damages to NEMC,
in that they foreseeably caused NEMC to enter into the swap and
suffer damages, which it otherwise would not have done, see ¶¶
131-133, supra, and they were a substantial factor at every stage
of the decision-making process.
141. Lifespan’s breach of fiduciary duty caused actual
damages to NEMC in the amount of $10,568,791, which is the
difference between what NEMC likely would have saved on a July
2002 bond refinancing had it not entered the swap ($11.25
million), and the amount that it actually saved as a result of
the swap ($681,209). See ¶¶ 130-131, supra. That is the amount
necessary to put NEMC “in the position [it] would have been in if
no breach of fiduciary duty had been committed.” Berish, 770
N.E.2d at 977.
142. Lifespan argues that NEMC’s damages should be measured
relative to what it would have saved had it terminated the swap
as scheduled in July 2002 ($5.73 million), rather than extending
it through November 2002, which would reduce NEMC’s damages by
nearly half, to $5.52 million. See ¶ 126, supra. But NEMC
extended the swap based on Morgan Stanley’s advice and with

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Lantto’s approval, at a time when Lantto’s conflict of interest
remained undisclosed, and Morgan Stanley was still seeking, with
Lantto’s support, to serve as NEMC’s bond underwriter. See ¶
128, supra.
143. NEMC’s decision to extend the swap was a reasonable
and foreseeable response to the dilemma in which it found itself
as a result of Lifespan’s breach of fiduciary duty, and which it
otherwise would not have faced. Cutting off NEMC’s damages as of
July 2002 would not result in full and fair compensation. Cf.,
e.g., Rattigan v. Wile, 841 N.E.2d 680, 690 (Mass. 2006)
(explaining that “the appropriate inquiry” in assessing damages
incurred in an attempt to mitigate “is whether, in the
circumstances, the cost incurred . . . was a reasonable response
to the defendant’s behavior,” not whether the response “actually
succeeded in its purpose”).
144. Finally, the Attorney General and NEMC concede,
without objection from Lifespan, that the swap damages should be
reduced by the $2.25 million payment that NEMC already received
under its settlement agreement with Morgan Stanley. See document
no. 210, at 25. After making that adjustment, the amount of
30

This concession appears to be based on Massachusetts’s
30
Uniform Contribution Among Tortfeasors Act, which provides that
“[w]hen a release . . . is given in good faith to one of two or
more persons liable in tort for the same injury, . . . it shall
reduce the claim against the others . . . in the amount of the
consideration paid for it.” Mass. Gen. L. ch. 231B, § 4; DeLuca
v. Jordan, 781 N.E.2d 849, 858 (Mass. App. Ct. 2003) (explaining
that breach of fiduciary duty is a tort covered by that statute).
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damages to which the Attorney General is entitled for Lifespan’s
breach of fiduciary duty is $8,318,791.

b. NEMC’s indemnification claim
145. As discussed in Part II.C.i, supra, Lifespan agreed in
the Restructuring Agreement to “indemnify NEMC for any losses it
incurs that result directly and solely . . . from Lifespan’s
willful misconduct or gross negligence in the provision of
services to NEMC by Lifespan employees working under the
supervision and direction of Lifespan employees during the
Affiliation Period.”
146. Lantto was a Lifespan employee working under the
supervision and direction of Lifespan employees during the
affiliation when he provided services to NEMC relating to the
refinancing and swap.
147. Lantto’s conduct relating to the swap which
constituted a breach of fiduciary duty, see ¶¶ 136-137, supra,
also constituted willful misconduct, in that Lantto’s acts and
omissions were intentional and carried a “great chance” of harm
to NEMC. Dillon’s Case, 85 N.E.2d at 74.
148. Lantto’s willful misconduct resulted directly and
solely in NEMC’s suffering an actual loss of $8,318,791, after
accounting for the settlement with Morgan Stanley, which reduced
NEMC’s actual loss. See ¶¶ 141, 144, supra.

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149. Lifespan argues that Lantto’s misconduct cannot be
deemed the sole cause of NEMC’s loss, because Morgan Stanley also
contributed to that loss, as evidenced by its settlement with
NEMC. But NEMC never would have even considered the swap if not
for Lantto’s misconduct, see ¶ 131, supra, and, even having
considered it, never would have approved it, regardless of what
Morgan Stanley did. See ¶¶ 132-133, supra. So Lantto’s
misconduct solely and independently caused the loss.
150. Lifespan argues that the word “solely” requires NEMC
to exclude any and all other causes. But, as Justice Holmes
wrote while sitting on the Massachusetts Supreme Judicial Court,
if a defendant were “exonerated because other causes co-operate”
with its own misconduct, then “it never would be liable.” Hayes
v. Town of Hyde Park, 27 N.E. 522, 523 (Mass. 1891). This court
rejects Lifespan’s reading as an unreasonable attempt to render
the indemnification provision meaningless.
151. Moreover, even if this court accepted Lifespan’s
reading, NEMC would still be entitled to indemnification under
the other part of the indemnification provision, in which
Lifespan agreed to indemnify NEMC from any losses “incurred or
suffered by [NEMC] as a result of, arising out of or directly or
indirectly relating to . . . [a]ny misrepresentation by
Lifespan.” See Part II.C.ii, supra.

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152. Lantto misrepresented to NEMC officials that the
interest rate swap would enable NEMC to “lock in” the then-
current interest rate, which he knew was false. See ¶ 122,
supra. He made that misrepresentation for the purpose of
inducing NEMC’s reliance (i.e., to induce NEMC to enter into the
swap based on that purported “lock in” feature), and NEMC
reasonably did so rely, resulting in damages to NEMC. See ¶ 133,
supra.
153. A knowing concealment of material information by one
who has a duty to disclose that information also constitutes a
misrepresentation under Massachusetts law. See, e.g., First
Marblehead Corp. v. House, 473 F.3d 1, 9-10 (1st Cir. 2006)
(citing Fox v. F & J Gattozzi Corp., 672 N.E.2d 547, 550-51
(Mass. App. Ct. 1996), Swinton v. Whitinsville Sav. Bank, 42
N.E.2d 808 (Mass. 1942), and Restatement (Second) of Torts §
551(1) (1977)).
154. Lantto knowingly concealed from NEMC officials his
conflict of interest in the swap transaction and bond
refinancing, which was a material fact that he had a duty to
disclose, by virtue of Lifespan’s fiduciary relationship with
NEMC. See ¶¶ 136-139, supra. He concealed that fact for the
purpose of inducing NEMC’s reliance on his presumed lack of
conflict, and NEMC reasonably did so rely, resulting in damages.
See ¶¶ 131-133, supra.

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155. As a direct result of each of Lantto’s
misrepresentations, NEMC suffered an actual loss of $8,318,791,
after accounting for the settlement with Morgan Stanley. See ¶¶
141, 144, supra. There is no requirement, under the
misrepresentation clause of the indemnification provision, that
NEMC’s loss be caused “solely” by Lifespan’s misrepresentation;
in fact, the loss need only “directly or indirectly relat[e] to”
the misrepresentations. That standard is easily satisfied here.

D. Counterclaims relating to corporate overhead charges
NEMC and the Attorney General each seek to hold Lifespan
liable for alleged misconduct relating to the corporate overhead
expenses that Lifespan charged to NEMC on an annual basis
throughout the affiliation. This court makes the following
findings of fact and rulings of law on those claims, which result
in no liability for Lifespan.

i. Findings of fact
156. NEMC agreed in the Affiliation Agreement to pay its
share of Lifespan’s corporate overhead expenses, on a “budget
neutral basis.” Lifespan’s other hospitals were also responsible
for paying their respective shares. Corporate overhead expenses
included, for example, executive compensation (for Lifespan and
hospital officials), information technology, payor contracting,

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financial services, purchasing, legal services, risk management,
public relations, and marketing.
157. During the affiliation, Lifespan charged, and NEMC
paid, corporate overhead fees in the following amounts:
•
$10,301,000 for fiscal year 1998 (pro-rated because
NEMC joined the system toward the end of that year);
•
$35,875,000 for fiscal year 1999;
•
$36,416,000 for fiscal year 2000;

•
$40,201,000 for fiscal year 2001;
•
$43,075,000 for fiscal year 2002; and
•
$6,612,000 for fiscal year 2003 (pro-rated because NEMC
left the system early that year).

158. Lifespan’s corporate overhead charges were generally
based on its budget projections for each fiscal year. Lifespan
attempted to make budget projections that would equal its actual
expenses. In most years of the affiliation, Lifespan’s actual
expenses turned out to be lower than the budget projections. In
fiscal year 1999, however, the expenses were higher. Overall,
during the affiliation Lifespan spent about $10 million less than
it budgeted systemwide.
159. There was generally no reconciliation, or “true-up,”
at the end of the year between Lifespan’s budget-based corporate
overhead charges and its actual expenses. Lifespan used budget
31

On one occasion, however, at NEMC’s request, Lifespan
31
deferred a $500,000 budgeted expense from 2001 to 2002, when it
was actually incurred.

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projections as the basis of its overhead charges to avoid having
to devote time and resources to reconciliation. That began to
change during the last year of the affiliation (2002), when
Lifespan began using actual expenses for certain costs directly
associated with particular hospitals. See ¶ 163, infra
(discussing allocation among hospitals).
160. Lifespan took its actual expenses into account,
however, when making budget projections for the following fiscal
year. Thus, when the actual expenses were lower than the budget
projections, it generally had the effect of reducing the next
year’s budget and, in turn, reducing the next year’s corporate
overhead charges. That happened, for example, in fiscal year
2000, after Lifespan used much less of its medical malpractice
reserves than projected in fiscal year 1999.
161. Despite spending less than budgeted, Lifespan’s
corporate services had an operating loss nearly every year of the
affiliation, and an overall operating loss of about $11 million
during that period. Even after accounting for non-operating
income, Lifespan had a net loss in half of the fiscal years
during the affiliation and essentially broke even overall (except
for a $5.7 million net gain in fiscal year 1999, which resulted
largely from the malpractice savings).
162. This court is not persuaded that Lifespan’s use of
budget projections, rather than actual expenses, to determine

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corporate overhead charges prevented those charges from being
“budget neutral.” Lifespan saved money in some years, but lost
money in other years. There is no reliable basis for concluding
that the savings and losses would not have balanced out over the
long run. Nor is there any reliable evidence that Lifespan’s
budget-based approach departed from standard industry practice
among healthcare systems.32
163. Lifespan used several different methods to determine
each hospital’s share of the corporate overhead. Certain costs
directly associated with a particular hospital (e.g., salaries
for each hospital’s on-site corporate staff) were charged to that
hospital only. Most costs, however, were allocated among the
hospitals based on their relative revenue. NEMC accounted for
roughly one-third of the system’s revenue and consequently paid
about one-third of the overhead each year.
164. During the first half of the affiliation, NEMC and the
Rhode Island hospitals regularly discussed those allocation
methods with Lifespan and raised objections to allocations that
they considered unfair. Lifespan carefully considered their
33

Indeed, that approach likely reduced NEMC’s charges
32
overall, by putting the risk of cost overruns on Lifespan and
thereby encouraging it to meet or beat the budget.
NEMC still objects, for example, to a $5 million charge in
33
fiscal year 1998 for expenses relating to the COMPASS project,
which Lifespan had initiated to address financial problems that
pre-dated the affiliation. Notwithstanding its origins, however,
that project was designed to benefit the entire system, including
NEMC, and was allocated accordingly.
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respective views and, in some instances, adjusted its methods so
that the allocation would better reflect each hospital’s actual
use of corporate services. Disagreements about the allocation
methods became infrequent during the second half of the
affiliation.
165. This court is not persuaded that Lifespan’s methods
for allocating the corporate charges among its hospitals were any
less favorable to NEMC, on the whole, than to any of the system’s
Rhode Island hospitals, or that a more direct allocation method
would have been any more favorable to NEMC than the mix of
methods that Lifespan used. Nor, again, is there any reliable
evidence that Lifespan’s allocation methods departed from
standard industry practice.
166. At various points during the affiliation, NEMC
requested information from Lifespan regarding the corporate
overhead charges. As NEMC’s budget director John Greenwood
acknowledged, Lifespan officials “tried to provide [NEMC] with as
much details as they ha[d],” including a breakdown of the charges
by department or other cost area. This court is not persuaded
that Lifespan ever refused to provide information that NEMC
requested on that topic.
167. During the second half of the affiliation, NEMC
complained frequently to Lifespan about the amount of corporate
overhead charges. Lifespan maintained that the charges were fair

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and reasonable. At the end of fiscal year 2001, without
Lifespan’s knowledge, NEMC engaged an outside consultant, Applied
Management Systems (“AMS”), to analyze the charges. AMS reported
that Lifespan’s annual overhead expenses exceeded industry
benchmarks by about $7 million.
168. In 2002, as part of preparing to disaffiliate from
Lifespan, NEMC engaged another outside consultant, Cap Gemini
Ernst & Young, to analyze Lifespan’s corporate overhead charges.
Like AMS, Cap Gemini reported that Lifespan’s annual overhead
exceeded industry benchmarks by about $7 million. The report
pointed to specific areas where, in Cap Gemini’s view, NEMC
received no value from Lifespan’s services, or where NEMC and
Lifespan were duplicating efforts.
169. Cap Gemini acknowledged, however, that “[f]or many
critical areas . . . data availability was severely limited, as
the majority of information was at the corporate offices of
Lifespan.” Both its report and AMS’s report were based on a
34
simple comparison of NEMC’s corporate overhead charges (by
department) to the overhead reported by other healthcare systems.
Moreover, both reports were commissioned by NEMC for the purpose

NEMC blames Lifespan for that lack of information, but
34
Lifespan was not involved in the studies or given an opportunity
to assist Cap Gemini or AMS. It is worth noting, moreover, that
NEMC is seeking to have it both ways: accusing Lifespan of
providing insufficient information for NEMC to evaluate the
corporate charges, but then asking this court to deem those
charges excessive based largely on benchmark analyses of the
information that Lifespan provided.
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of bolstering its complaints. This court is not persuaded that
either report provides a reliable, unbiased analysis of
Lifespan’s corporate overhead charges.
170. There were some areas where Lifespan and NEMC
duplicated efforts, particularly with respect to financial
services. But much of that duplication was the inevitable, and
expected, result of an affiliation between two large entities.
To the extent that the duplication exceeded expectations, it was
because of NEMC’s reluctance to fully integrate itself into
Lifespan’s system, not from any over-reaching on Lifespan’s part.
NEMC still received the benefit of Lifespan’s services in any
areas of duplication.35

ii. Rulings of law
a. Attorney General’s breach of fiduciary duty claim
171. This court has already ruled that Lifespan owed a
fiduciary duty to NEMC during the affiliation. See Lifespan, 731
F. Supp. 2d at 238-41. Lifespan specifically owed a fiduciary
duty to NEMC with regard to the corporate overhead charges, by
virtue of the control that Lifespan exercised over the amount of
those charges and the “faith, confidence, and trust” that NEMC

NEMC also received the benefit of Lifespan’s services in
35
the areas where Cap Gemini purportedly found no value to NEMC,
which included services for system integration and shared
services coordination, and the facilities costs for Lifespan’s
corporate headquarters.

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placed in Lifespan’s judgment. Id. (quoting Harbor Schools, 843
N.E.2d at 1064).
172. The Attorney General argues, first, that Lifespan
breached its fiduciary duty to NEMC by basing its corporate
overhead charges on budget projections, rather than actual
expenses. But Lifespan’s budget projections were designed, in
good faith, to equal actual expenses, and it was fair and
reasonable for Lifespan to use a budget-based approach. See ¶¶
158-162, supra. The Attorney General has not proven that
Lifespan acted disloyally to NEMC or departed from the standard
of care in that regard.
173. The Attorney General argues, next, that Lifespan
breached its fiduciary duty to NEMC by using unfair methods to
allocate corporate overhead charges among the system’s hospitals.
But Lifespan made a reasonable, good-faith effort to allocate the
charges fairly, with input from NEMC and the Rhode Island
hospitals. See ¶¶ 163-165, supra. The Attorney General has not
proven that Lifespan acted disloyally to NEMC or departed from
the standard of care in that regard either.
174. The Attorney General also argues that Lifespan
breached its fiduciary duty to NEMC by failing to disclose
sufficient information regarding the corporate overhead charges.
But Lifespan made reasonable, good-faith disclosures to NEMC
throughout the affiliation, showing how the charges were

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allocated and for what services. See ¶¶ 164, 166, supra. The
Attorney General has not proven that Lifespan acted disloyally to
NEMC or departed from the standard of care in that regard.
175. The Attorney General also argues that Lifespan
breached its fiduciary duty by charging NEMC for duplicative
corporate services. But NEMC, not Lifespan, was responsible for
any such duplication, beyond that which was inevitable and
expected as a result of the affiliation. See ¶ 170, supra. The
Attorney General has not shown that Lifespan acted disloyally or
departed from the standard of care in charging NEMC for
duplicative services.
176. It is important, in considering the duplication and
allocation issues, see ¶¶ 173 and 175, supra, to keep in mind
that Lifespan had a fiduciary duty not only to NEMC, but also to
the system’s other hospitals. It would have been unfair to those
hospitals for Lifespan to exempt NEMC from paying its share of
corporate services designed to benefit the entire system, merely
because NEMC had duplicated them, or to use an allocation method
designed to favor NEMC over the other hospitals. Lifespan had to
strike a fair balance between competing hospital interests. 36

See, e.g., Dana Brakman Reiser, Decision-Makers Without
36
Duties: Defining the Duties of Parent Corporations Acting as
Sole Corporate Members in Nonprofit Health Care Systems, 53
Rutgers L. Rev. 979, 1009 (2001) (noting that hospital
subsidiaries in a non-profit healthcare system have “potentially
compet[ing]” interests and that, given “the realities of that
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177. Finally, the Attorney General argues that Lifespan
breached its fiduciary duty by charging NEMC excessive amounts
for corporate overhead. As just discussed, however, the charges
resulted from reasonable, good-faith processes. See ¶¶ 172-176,
supra. While they may have been on the high end compared to some
other healthcare systems, this court is not prepared to rule that
they were unreasonably high or that Lifespan acted disloyally in
setting them at the level it did.37

b. NEMC’s indemnification claim
178. NEMC makes essentially the same arguments in support
of its indemnification claim as the Attorney General made on her
breach of fiduciary duty claim. For the reasons just discussed,
NEMC has not proven that Lifespan committed intentional
misconduct or gross negligence, or made any misrepresentations,
with regard to the corporate overhead charges. See ¶¶ 172-177,
supra. So NEMC is not entitled to indemnification on that basis.

context,” the “fairness” of actions affecting multiple hospitals
“should be defined with reference to the system” as a whole, not
“as if the subsidiary was still freestanding”).
The Attorney General argues that the corporate overhead
37
charges constituted a form of self-dealing and that Lifespan
therefore bears the burden of proving that the charges were fair
to NEMC. See, e.g., Demoulas, 677 N.E.2d at 181. This court
need not resolve that issue because, even assuming arguendo that
the Attorney General’s argument is correct, Lifespan has
satisfied its burden of proof.

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E. Counterclaims relating to NEMC’s financial performance
Finally, NEMC and the Attorney General each seek to hold
Lifespan liable for NEMC’s poor financial performance during the
affiliation. This court makes the following findings of fact and
rulings of law on those claims, which result in no liability for
Lifespan, beyond that already assessed with regard to payor
contracting and the interest rate swap.

i. Findings of fact
179. As discussed in Part I, supra, Lifespan and NEMC
conducted “due diligence” before entering into the affiliation.
As part of that process, NEMC engaged an outside consultant,
Mitchell Creem of the accounting firm Tofias Fleishman Shapiro &
Co. (who later became NEMC’s CFO), to analyze how the affiliation
would affect NEMC’s financial performance in future years. Creem
prepared detailed financial projections, which were shared with
both NEMC and Lifespan.
180. Lifespan and NEMC also jointly engaged an outside
consultant, the accounting firm Ernst & Young LLP, to quantify
and document the potential efficiency gains that could be
achieved through the affiliation. Using Creem’s financial
projections as a baseline, Ernst & Young estimated that the
affiliation would result in annual net savings to NEMC in the
range of $13.45 to $14.6 million.

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181. Based on those projections, Lifespan and NEMC
officials mutually believed that the affiliation would enable
NEMC to return a positive operating margin. Lifespan’s CFO John
Schibler conveyed that belief and provided those projections to
the Rhode Island Attorney General, describing the projections as
“conservative” and “attainable,” and indicating that Lifespan
would take “aggressive” measures, if necessary, in an effort to
achieve them.
182. Lifespan never promised or guaranteed to NEMC,
however, that it would, in fact, return NEMC to a positive
operating margin or achieve the efficiency gains projected by
Ernst & Young. Nor were any of Lifespan’s statements
38
understood by NEMC officials as a promise or guarantee to that
effect. Lifespan and NEMC officials mutually understood that,
despite their best efforts, the projected improvements might not
be achieved.
183. NEMC never achieved a positive operating margin during
the affiliation. NEMC’s expert Rajan Patel testified, and this
court finds, that NEMC had operating losses of about $25 million

NEMC points to a memorandum, written in September 1998, in
38
which Lifespan’s senior vice president of institutional
advancement, David Slone, stated to Lifespan’s CEO that the
depreciation write-down would “return NEMC to a positive
operating margin–as we promised when we took control of that
organization.” This court is not persuaded, however, that
Slone’s isolated use of the word “promise,” in reference to
events occurring a year earlier, was an accurate description of
what happened or reflected personal knowledge.
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in fiscal year 1998, $16.2 million in fiscal year 1999, $15.8
million in fiscal year 2000, $32.3 million in fiscal year 2001,
and $29 million in fiscal year 2002 (after setting aside the
depreciation write-down and certain other accounting adjustments
not reflective of NEMC’s actual performance).
184. Even after accounting for non-operational income, NEMC
never achieved a positive total margin during the affiliation.
Patel testified, and this court finds, that NEMC had total losses
of about $9.2 million in fiscal year 1998, $5.8 million in fiscal
year 1999, $1.1 million in fiscal year 2000, $25.6 million in
fiscal year 2001, and $28.9 million in fiscal year 2002 (again,
after setting aside those accounting adjustments not reflective
of NEMC’s actual performance).
185. NEMC’s total losses would have been even larger in
fiscal years 2000 to 2002 if not for NEMC’s decision, on the
advice of its CFO and with Lifespan’s approval, to draw down its
general reserves in each of those three years. General reserves
are an accounting mechanism used to set aside money for unknown
events. NEMC reduced its general reserves by $5.3 million in
fiscal year 2000, $8.7 million in fiscal year 2001, and $14.1
million in fiscal year 2002, which had the effect of reducing its
total losses by those amounts.
186. As the annual margins indicate, NEMC’s financial
performance improved somewhat from the beginning of the

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affiliation through fiscal year 2000, but then deteriorated again
in fiscal years 2001 and 2002, leaving NEMC with fewer net assets
at the end of the affiliation (about $219 million) than it had at
the beginning (about $289 million), less cash on hand (about $44
million, compared with about $47 million at the beginning), and
in worse financial condition overall.
187. Patel testified that NEMC’s margin and various other
financial metrics fell below industry benchmarks throughout the
affiliation. Specifically, he testified that other teaching
hospitals nationwide generally achieved positive operating
margins in each of those years, and total margins in the range of
2 to 5 percent, whereas NEMC had negative operating margins each
year, and total margins as low as negative 5 to 6 percent in
2001-2002.
188. This court is not persuaded, however, that the
performance of teaching hospitals nationally is a reliable
benchmark for evaluating NEMC’s performance during the
affiliation. Boston teaching hospitals faced a different set of
circumstances over that period than hospitals in other states,
and their financial results (including margins) generally were
not as strong. Moreover, NEMC’s circumstances were unique even
among Boston teaching hospitals. See ¶¶ 67-71, supra.
189. NEMC’s financial performance followed a different
trajectory from that of most other teaching hospitals. Whereas

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NEMC’s performance improved somewhat during the first three years
of the affiliation, other teaching hospitals generally saw their
margins fall by nearly half, in large part because of the
Balanced Budget Act of 1997, which reduced Medicare payments.
See note 12, supra. Then, just as other hospitals generally
stabilized their financial performance, NEMC’s performance
deteriorated again.
190. Patel offered little to no testimony on why NEMC’s
financial performance differed from that of other teaching
hospitals, or what Lifespan could have done to improve it. One
thing that Lifespan repeatedly urged NEMC to do, especially
during 2001-2002, was to reduce its costs, including its number
of full-time employees and its average length of stay. But NEMC
struggled to do so, and to some extent resisted Lifespan’s
advice, leading Lifespan to reject–for the first and only time–
NEMC’s budget for fiscal year 2003.
191. Lifespan had financial problems of its own at the
beginning of the affiliation, reporting a large loss for fiscal
year 1998 (shortly after the affiliation started), which resulted
in an investigation by the Rhode Island Attorney General and a
change of command at Lifespan (then-CEO William Kreykes was
replaced by current CEO George Vecchione). Unlike with NEMC,
however, Lifespan’s financial performance improved steadily
throughout the affiliation.

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ii. Rulings of law
a. Attorney General’s breach of fiduciary duty claim
192. This court has already ruled that Lifespan owed a
fiduciary duty to NEMC during the affiliation. See Lifespan, 731
F. Supp. 2d at 238-41. Lifespan specifically owed a fiduciary
duty to NEMC with regard to its oversight of NEMC’s financial
performance, by virtue of the control that Lifespan exercised
over NEMC and the “faith, confidence, and trust” that NEMC placed
in Lifespan’s judgment and advice. Id. (quoting Harbor Schools,
843 N.E.2d at 1064).
193. The Attorney General argues that Lifespan breached its
fiduciary duty to NEMC by failing to return NEMC to a positive
operating margin and failing to achieve the efficiency gains
projected by Ernst & Young. But, outside of payor contracting,
see Part III.B, supra, and the interest rate swap, see Part
III.C, supra, the Attorney General has not proven any specific
departure(s) from the standard of care by Lifespan, or any
disloyal acts, that caused or contributed to NEMC’s poor
financial performance.
194. This court cannot accept the conclusory proposition,
put forth by NEMC’s expert Patel, that because Lifespan exercised
control over NEMC, and because NEMC’s financial performance
failed to improve as projected, Lifespan must have departed from

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the standard of care (violating what the Attorney General and
NEMC call the “duty to improve NEMC’s performance”). Countless
factors affect the financial performance of a hospital of NEMC’s
size and scope, and many of them cannot be predicted or
controlled by the hospital’s corporate parent. This is no place
for “res ipsa loquitur”-style reasoning.
195. It is important to note, moreover, that NEMC’s
financial performance improved somewhat during the first three
years of the affiliation, at a time when other teaching
hospitals’ margins were generally moving in the opposite
direction. See ¶ 189, supra. NEMC’s own CFO (Creem) considered
NEMC’s financial performance over that period “very successful.”
That demonstrates the flaw in Patel’s logic and suggests that
Lifespan may even have out-performed industry standards in some
respects.
196. The Attorney General also argues that Lifespan
breached its fiduciary duty by misrepresenting that it would
return NEMC to a positive operating margin and achieve the
projected efficiency gains, without exercising reasonable care in
determining if it actually could do so, and without delivering on
that commitment. But Lifespan never made any promises or
guarantees that it would actually achieve those financial
projections, nor did NEMC officials understand it to have done
so. See ¶ 182, supra.

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197. Moreover, “false statements of conditions to exist in
the future, and promises to perform an act” do not constitute
misrepresentations “unless the promisor had no intention to
perform the promise at the time it was made.” Cumis, 918 N.E.2d
at 49. At the time of the alleged misrepresentations, Lifespan
reasonably believed that it would be able to achieve the
projected improvements and intended, in good faith, to achieve
them. So, even if it had promised to achieve those results, the
promises would not be misrepresentations.
198. Finally, in a combination of the two arguments already
discussed, the Attorney General argues that Lifespan “created its
own yardstick” by endorsing Ernst & Young’s projections and
representing that it could achieve them. But the fact that a
fiduciary may have held itself to a higher standard, or expressed
a good-faith belief that it could achieve a higher standard, does
not change the standard for proving a breach of fiduciary duty.
The Attorney General has not met that standard.

b. NEMC’s indemnification claim
199. NEMC makes essentially the same arguments in support
of its indemnification claim as the Attorney General made on her
breach of fiduciary duty claim. For the reasons just discussed,
NEMC has not proven that Lifespan committed intentional
misconduct or gross negligence, or made any misrepresentations,

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with regard to NEMC’s financial performance, except to the extent
already addressed in connection with payor contracting and the
interest rate swap. See ¶¶ 193-198, supra.

IX. Conclusion
Based on the findings and rulings set forth above, this
court awards Lifespan $13,903,948 on its claim against NEMC for
breach of contract, and awards $14,176,704 to NEMC and the
Attorney General on their counterclaims against Lifespan for
indemnification and breach of fiduciary duty, resulting in a net
award of $272,756 to NEMC. The clerk shall enter judgment
accordingly and close the case.

SO ORDERED.

Joseph N. Laplante
United States District Judge
District of New Hampshire

Dated: May 24, 2011
cc: Deming E. Sherman, Esq.
Patricia A. Sullivan, Esq.
Rachel K. Caldwell, Esq.
Bruce A. Singal, Esq.
David A. Wollin, Esq.
Jeffrey T. Rotella, Esq.
Michelle Peirce, Esq.
Adam M. Ramos, Esq.
Eric Carriker, Esq.
Jonathan C. Green, Esq.
Patrick J. Tarmey, Esq.

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APPENDIX: PAYOR CONTRACTING DAMAGES
UNITED
Inflation (Boston
all-item CPI plus
1%)**
6.9%
5.3%
5.3%

Adjusted
revenue

$7,593,546
$7,996,004
$8,419,792
$24,009,342

Lost
revenue

$490,135
$892,593
$1,316,381
$2,699,109

Year

Actual
revenue*

2000
$7,103,411
2001
$7,103,411
2002
$7,103,411
Total $21,310,233

Year

CIGNA
Inflation (Boston
medical CPI)**
12.7%
5.6%
5.6%

Lost
Adjusted
Actual
revenue
revenue
revenue*
$699,057
$6,203,442
$5,504,385
2000
$1,046,450
$6,550,835
$5,504,385
2001
$1,413,297
$6,917,682
2002
$5,504,385
$3,158,804
$19,671,959
Total $16,513,155
* These numbers reflect the amount that NEMC collected from
United and Cigna during fiscal year 2003, the earliest year for
which data is still available. This court finds that the 2003
collections data is a reasonable approximation for the revenue
collected from United and Cigna during each year of the
affiliation (and, as Lifespan’s expert John Lavan acknowledged,
“as good as anything we have”). If anything, it is conservative,
because NEMC’s revenue from those payors had generally been in
decline. This court has excluded United collections for
inpatient services, because they were subject to built-in
inflationary increases, see ¶ 73, supra, and Cigna collections
for transplant services, because they were covered by a contract
separately negotiated during the affiliation, see ¶ 72, supra.
** These percentages reflect the CPI increases for the year
preceding the one listed in the first column. For the year 2000,
because the United and Cigna contracts had not been negotiated
since 1997, see ¶ 73, supra, the percentages reflect the total,
compounded inflation for 1998 and 1999.

83

Lewis v. Physicians Ins. Co. of Wisconsin

Lewis v. Physicians Ins.
Co. of Wisconsin,

No. 99-0001 (Wis. June 13, 2001)

Following an operation to remove a woman’s gallbladder, it was discovered that a laparotomy
pad (sponge) was left in her abdomen. Although according to hospital policy
and the Wisconsin Administrative Code § HFS 124.13(7) nurses are responsible
for counting the sponges before and after an operation, the woman filed this
suit against the surgeon alleging that he was vicariously liable for the negligence
of the nurses. The woman conceded that the surgeon himself was not negligent.
The Supreme Court of Wisconsin concluded that the trial court had inappropriately
applied the “captain of the ship” doctrine.

The court stated that the “captain of the ship” doctrine had never been recognized in Wisconsin,
and was “an antiquated doctrine that fails to reflect the emergence of
hospitals as modern health care facilities . . . .” Although the woman’s
recovery from the hospital (in a separate suit) was statutorily capped at $50,000
(when she had damages equal to $150,000), the court found that “[the capping]
is the result of a legislative policy decision, which may be supported by broader
considerations.”

 

 

Lewis v. UPMC Bedford (Full Text)

Ligouri v. Wyandotte Hospital and Med. Ctr.

STATE OF MICHIGAN COURT OF APPEALS SHARON LIGOURI, Guardian and Conservator of the Estate of ELMIRA LOUISE MILLER   Plaintiff-Appellee FOR PUBLICATION October 04, 2002 v No. 227245 Wayne Circuit Court WYANDOTTE HOSPITAL AND MEDICAL CENTER, d/b/a HENRY FORD WYANDOTTE HOSPITAL   Defendant-Appellant LC No(s). 99-924845-NI Before: Whitbeck, C.J., and Wilder and Zahra, JJ. WILDER, J. Defendant appeals by leave granted the order of the Wayne County Circuit Court requiring defendant to disclose to plaintiff investigative reports and related documents pertaining to injuries suffered by Elmira Louise Miller when she fell in her room at the defendant hospital. We reverse and remand. I. Facts Elmira Louise Miller was admitted to defendant hospital on August 21, 1998 with pneumonia in the lower left lung and possible pulmonary embolism, secondary to deep venous thrombosis. Miller?s condition improved and she was given permission to get out of bed for bathroom privileges. On August 31, 1998, Miller sustained a head injury when she fell while on her way to the bathroom. There were no witnesses to the fall, and Miller reported to nurses that she had tripped on a cord. Shortly thereafter, Miller?s family was informed of her fall and the family requested information from defendant as to how the fall had occurred. According to plaintiff, one of the doctors providing care to Miller stated that the hospital believed Miller had tripped on a fan cord. Plaintiff subsequently filed this action against defendant alleging negligence and breach of contract. Plaintiff ?s fourth amended complaint alleged that Miller fell when she tripped on a fan cord, and that defendant had breached its duty both to maintain the premises in a safe condition and to provide a reasonably safe premises and to protect Miller from foreseeable injury. Defendant moved for summary disposition pursuant to MCR 2.116(C)(4), arguing that plaintiff had actually filed a claim for medical malpractice and had not complied with the pre- suit notification required by MCL 600.2912b.[1] The trial court denied defendant?s motion, concluding that rather than an action for medical malpractice, plaintiff?s claim was one for premises liability.[2] During the course of discovery, plaintiff requested disclosure by defendant of any written reports, investigations, or statements made concerning the circumstances of Miller?s fall. Defendant refused to disclose such information, asserting that under MCL 333.20175(8) and MCL 333.21515, the information was privileged and not subject to discovery. Plaintiff filed a motion to compel the disputed information, and defendant asserted the statutory privilege in opposing the motion. In reply, plaintiff argued that the statutes were inapplicable because the statutory privilege applied only to medical malpractice claims. The trial court agreed that the statutory privilege applied only to malpractice claims, and found that because this action was one for negligence rather than malpractice, the statutory privilege did not apply. The trial court ordered defendant to disclose to plaintiff ?any and all investigation reports and/or incident reports involving the trip and fall.? Defendant sought leave to appeal the trial court?s ruling, and this Court granted defendant?s application. II. Standard of Review Review of a trial court?s grant of a motion to compel discovery is for an abuse of discretion. Michigan Millers Mutual Ins Co v Bronson Plating Co, 197 Mich App 482, 494; 496 NW2d 373 (1992). Whether production of the documents at issue is barred by statute is a matter of statutory interpretation, a question of law which we review de novo. Dye v St John Hospital & Medical Center, 230 Mich App 661, 665; 584 NW2d 747 (1998). III. Analysis Defendant contends that the trial court abused its discretion in granting plaintiff?s discovery request because the documents at issue are privileged from disclosure under MCL 333.20175(8) and MCL 333.21515. We agree. MCL 333.20175(8) provides: The records, data, and knowledge collected for or by individuals or committees assigned a professional review function in a health facility or agency . . . are confidential, shall be used only for the purposes provided in this article, are not public records, and are not subject to court subpoena. MCL 333.21515 provides: ?The records, data, and knowledge collected for or by individuals or committees assigned a review function described in this article are confidential and shall be used only for the purposes provided in this article, shall not be public records, and shall not be available for court subpoena.? When interpreting statutory language, our obligation is to discern the legislative intent that may reasonably be inferred from the words expressed in the statute. Wickens v Oakwood Healthcare System, 465 Mich 53; 631 NW2d 686 (2001). When the Legislature has unambiguously conveyed its intent in a statute, the statute speaks for itself and there is no need for judicial construction; the proper role of a court is simply to apply the terms of the statute to the circumstances in a particular case. Turner v Auto Club Ins Ass?n, 448 Mich 22; 528 NW2d 681 (1995). In constructing a statute, the words used by the Legislature must be given their common, ordinary meaning. MCL 8.3a. [Veenstra v Washtenaw Country Club, 466 Mich 155, 159-160; 645 NW2d 643 (2002).] The statutes at issue here govern the confidentiality of records, reports, and other information collected or used by peer review committees in the furtherance of their duties, and evidence the Legislature?s intent to fully protect quality assurance/peer review records from discovery. Dorris v Detroit Osteopathic Hospital, 460 Mich 26, 40; 594 NW2d 455 (1999). The privilege afforded by the statute may be invoked for records, data, and knowledge collected for or by an individual or committee assigned a review function. Gallagher v Detroit-Macomb Hospital Ass?n, 171 Mich App 761, 768; 431 NW2d 90 (1988). We note that, contrary to plaintiff?s assertion on appeal that the trial court determined the instant case did not involve issues of professional medical care and treatment, the trial court specifically found that the reports at issue in this case are the type of reports protected from subpoena under each of the acts.[3] Because the trial court found that the reports are of the type protected from subpoena under the statutory provisions at issue, the trial court abused its discretion in ordering disclosure of the reports solely because it believed plaintiff?s claim was one for negligence rather than malpractice. Nothing in the plain language of either statute makes protection of quality assurance or peer review reports from subpoena contingent upon the type of claim asserted by the proponent of the subpoena, and the trial court erred by supplementing the unambiguous statutory language with this unstated condition.[4] Reversed and remanded for further proceedings consistent with this opinion. We do not retain jurisdiction. /s/ Kurtis T. Wilder /s/ William C. Whitbeck /s/ Brian K. Zahra 1 MCL 600.2912b provides: ?Except as otherwise provided in this section, a person shall not commence an action alleging medical malpractice against a health professional or health facility unless the person has given the health professional or health facility written notice under this section not less than 182 days before the action is commenced.? 2 For reasons not apparent from the record, in response to defendant?s motion, plaintiff did not refer to the breach of contract claim asserted in the fourth amended complaint. The trial court also did not refer to the breach of contract claim in denying defendant?s motion. However, these omissions are not critical to our resolution of the case. 3 Specifically, the trial court found that ?if this were a legal [sic] malpractice case I would follow Gallagher [v Detroit Macomb Hospital Ass?n, 171 Mich App 761; 431 NW2d 90 (1988)] and not allow these reports to be produced.? 4 In ordering disclosure, the trial court stated that ?to deny the plaintiff these records would certainly affect their [sic] ability to pursue their [sic] case. So I?m going to order them produced.? While production of the records may appear under these circumstances to be the equitable result, equity may not be invoked to avoid application of a statute. Stokes v Mullen Roofing Co, 466 Mich 660, 671; 649 NW2d 371 (2002). © Copyright 2002 The Institute of Continuing Legal Education 1020 Greene Street, Ann Arbor, MI 48109-1444 • icle@umich.edu Phone: (877) 229-4350 or (734) 764-0533 • Fax: (877) 229-4351 or (734) 763-2412 Please read our Privacy Statement and Disclaimer.

Liberty Nat’l Life Ins. Co. v. Univ. of Ala. Health Svcs. Found., P.C. (Summary)

Liberty Nat’l Life Ins. Co. v. Univ. of Ala. Health Svcs. Found., P.C., No. 1012346 (Ala. Sept. 19, 2003)

A life insurance company that provided supplemental cancer insurance to individuals brought suit against a hospital, a health services foundation, and a health system, seeking damages for what the insurer deemed to be improper billing practices. The hospital issued a bill to each patient upon his or her discharge that listed the “actual charges” from its charge master, regardless of whether the hospital had accepted a lesser amount from Medicare or the patient’s private health insurer. Insured patients would submit those bills to the insurer for reimbursement. Pursuant to its insurance policies, the insurer would pay the patients the amount listed on the statement, which was frequently more than the amount received by the hospital.

The insurer sued, claiming that the Hospital’s billing practices were interfering with its contractual relations, causing the insurer tort damage, and violating the state statute governing hospital billing. The trial court dismissed the suit, finding that the insurer lacked standing to sue the hospital over its billing practices. The Alabama Supreme Court reversed in part and remanded the case to the trial court for further proceedings. The court did find the hospital was entitled to sovereign immunity, however, since it was affiliated with a State University.

 

 

 

Lewis v. UPMC Bedford (Full Text)