Segen v. Buchanan Gen. Hosp., Inc.

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF VIRGINIA
ABINGDON DIVISION

JOSEPH C. SEGEN, M.D.,
Plaintiff,

v.

BUCHANAN GENERAL HOSPITAL,
INC., et al.,

Defendants.

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Civil Action No.: 1:06cv00009

REPORT AND
RECOMMENDATION

By: PAMELA MEADE SARGENT
United States Magistrate Judge

This case was initiated by the plaintiff, Joseph C. Segen, M.D., (“Segen”),
against Buchanan General Hospital, Inc., (“Buchanan General”), Dr. J. N. Patel, M.D.,
Dr. Dinkar Patel, M.D., Dr. Doric Turjman, M.D., Sue Rife, Joan Jamison, Kenneth
Joseph Stephens, Beverly Anderson and Fred Pelle, (collectively “the defendants”)1.
The matter is currently before the court on the defendants’ Motions to Dismiss the
plaintiff’s claims pursuant to Rule 12(b)(1) of the Federal Rules of Civil Procedure
for lack of subject matter jurisdiction. (Docket Item Nos. 2, 23 and 35). In addition,
this court will address the defendants’ Motions for Sanctions as to Segen and/or his
counsel for violations of Rule 11of the Federal Rules of Civil Procedure. (Docket
Item Nos. 37 and 38). Pursuant to 28 U.S.C. § 636(b)(1)(B), these motions are before
the undersigned magistrate judge by referral. As directed by the order of referral, the

1 Dr. J. N. Patel, Dr. Dinkar Patel and Dr. Doric Turjman are represented by Thomas R.
Scott of Street Law Firm. Buchanan General, Sue Rife, Joan Jamison, Beverly Anderson and
Fred Pelle are represented by William W. Eskridge of Penn Stuart & Eskridge. All named
defendants, with the exception of Kenneth Joseph Stephens, joined in the Motions to Dismiss.
Stephens is not represented by counsel in this matter.

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undersigned now submits the following report and recommended disposition.

I. Procedural History

On January 23, 2006, Segen filed a complaint with this court against the
defendants alleging claims of breach of contract, wrongful discharge, tortious
interference with his employment contract, conspiracy, retaliation, denial of “due
process rights” and defamation. (Docket Item No. 1, (“Complaint”), at 3-8.) Segen
alleged that jurisdiction was conferred upon this court based on diversity jurisdiction.2
(Complaint at 3.) He alleged that diversity of citizenship existed because he was a
United States citizen, who currently resides in England, and the defendants were
Virginia residents. (Complaint at 3.) In addition, Segen alleged that this court also
possessed jurisdiction over this dispute “based upon Federal HIPAA3 [v]iolations and
numerous federally protected privacy violations.” (Complaint at 3.)

On February 27, 2006, the defendants filed a Motion to Dismiss4 for lack of

2The Complaint incorrectly states: “Jurisdiction of this case is conferred under 42 U.S.C.
[§] 1343 diversity of citizenship….” A review of the United States Codes reveals that there is no
42 U.S.C. § 1343. The proper reference to statute giving the district court jurisdiction in diversity
cases is 28 U.S.C. § 1332.

3 HIPAA refers to the Health Insurance Portability and Accountability Act.

4 The initial motion to dismiss was filed by William W. Eskridge on behalf of Buchanan
General. On April 25, 2006, Eskridge filed an identical motion to dismiss on behalf of Sue Rife,
Joan Jamison, Beverly Anderson and Fred Pelle. (Docket Item No. 23.) Then, on May 9, 2006,
Thomas R. Scott filed a motion to dismiss on behalf of Dr. J. N. Patel, Dr. Dinkar Patel and Dr.
Doric Turjman, which adopted the arguments set forth in the previously-filed motions to dismiss.
(Docket Item No. 35.) Kenneth Joseph Stephens is not represented by counsel in this matter.

The motions will collectively be referred to as the “Motions to Dismiss.”

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subject matter jurisdiction. (Docket Item No. 2), (“Motion to Dismiss”). The
defendants argued that this court lacked subject matter jurisdiction because diversity
of citizenship did not exist. (Motions to Dismiss). Moreover, the defendants argued
that the court also lacked federal question jurisdiction because HIPAA does not
provide for a private right of action. (Motions to Dismiss).

In response to the first Motion to Dismiss, Segen argued that, at all relevant
times, he “was/is domiciled in the state of New York.” (Docket Item No. 9, Response
To Motion to Dismiss, (“Response”), at 1.) He also asserted that he “had/has minimal
and significant contacts with the state of New York,” that he maintains continuing
obligations with the state of New York and that he “deliberately engages himself in
significant activities with the state of New York.” (Response at 1.) Furthermore, he
alleged that his residence in England was only temporary and that he had no intent to
permanently establish a domicile or residence there. (Response at 1.) In the
alternative, Segen contended that, at all relevant times, he “engaged/engages in
minimal and significant contacts with the [s]tate of Florida,” that he “deliberately
engages/engaged himself in significant activities of the state of Florida” and that he
has continuing obligations with the state of Florida. (Response at 2.)

In the Response, Segen also explained that the defendants erroneously argued
that he had asserted a private cause of action pursuant to HIPAA. (Response at 2.)
Segen stated that he actually alleged “a violation of due process in that as a direct and
proximate result of the ‘whistle blowing’ activities of [Segen], defendant’s conspired
and tort[i]ously interfered with the employment of [Segen] at [Buchanan General,]
thereby violating his right of due process.” (Response at 2.)

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On June 6, 2006, counsel for the defendants filed Motions for Sanctions against
Segen and/or his counsel. (Docket Item Nos. 37 and 38, (“Motions for Sanctions”)).5
The defendants argued that Segen’s claims were “not well grounded in fact, including
jurisdictional facts,” were “not supported by existing law or by a good faith argument
for the modification, extension or reversal of existing law, either as to the jurisdiction
of the court or the merits of the claim or both” and that the action was brought “for the
purpose of vexation, annoyance and harassment and in an effort to extract a
settlement.” (Motions for Sanctions at 1.)

On July 24, 2006, the deposition of Segen was taken. On deposition, the
questioning of Segen focused primarily on the factual basis for the claims brought
against the defendants, as well as jurisdictional facts necessary to determine Segen’s
domicile. (Docket Item No. 44), (Deposition Of Joseph C. Segen, M.D., (“Segen
Deposition”)).

Segen then filed a second response to all of the Motions to Dismiss and the
Motions for Sanctions on September 26, 2006. (Docket Item No. 43), (“Second
Response”). Segen reiterated, verbatim, his earlier response, but also claimed that he
“filed [this action] on good basis and facts due to the interference of [his] contract and
[the] termination of [his] contract.” (Second Response at 2.) Segen also asserted that
he relied upon the statements made during his deposition to support his claims.
(Second Response at 2).

5 The initial Motion for Sanctions was filed by William W. Eskeridge on behalf of
Buchanan General on June 6, 2006. (Docket Item No. 37.) On that same day, Eskeridge filed an
identical Motion for Sanctions on behalf of Sue Rife, Joan Jamison, Beverly Anderson and Fred
Pelle. (Docket Item No. 38.)

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II. Facts

A. Background

In October 1997, Segen accepted an offer to work as a pathologist at Buchanan
General in Grundy, Virginia. (Segen Deposition at 16-17.) Prior to accepting the
offer, Segen resided and worked in the New York and New Jersey area. In December
1997, Segen entered into a three-year written contract with Buchanan General. (Segen
Deposition at 18; Segen Deposition, Exhibit 3, (“Three-Year Contract”)). Based upon
the terms of the contract, Segen was required to reside in Buchanan County, Virginia.
(Three-Year Contract at Section 2.5.) The Three-Year Contract expired on its own
terms without renewal or modification. (Segen Deposition at 174-76.) Thus, as
agreed upon, the parties “continue[d] the employment relationship created under the
terms [of the contract] on a monthly basis until terminated according to the provisions
hereunder by either party.” (Three-Year Contract at Section 6.1.) Therefore, upon the
expiration of Segen’s original Three-Year Contract, he continued his employment
with Buchanan General on a month-to-month basis. (Segen Deposition at 175-76.)

Effective April 1, 2003, Segen entered into a one-year employment contract
with Buchanan General. (Segen Deposition, Exhibit 3, (“One-Year Contract”)). By
letter dated January 29, 2004, Segen received a notice of nonrenewal from Buchanan
General, which explained that, in accordance with Section 1.2 of the One-Year
Contract, either party was permitted to provide 60 days notice of nonrenewal and
terminate the contract. (Segen Deposition, Exhibit 3, (“Nonrenewal Letter”)).
Accordingly, Buchanan General notified Segen that the One-Year Contract would

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automatically expire and terminate as of March 31, 2004. (NonRenewal Letter.)
Then, by letter dated March 30, 2004, Buchanan General notified Segen that his April
1, 2003, contract would be terminated immediately because “pursuant to Section 2.8
of [the] Employment Agreement, [Segen was] required to provide notice of any
reprimand by any licensing authority, and notice of any reason to believe that a
complaint or proceeding would be made or filed against [him].” (Segen Deposition,
Exhibit 3, (“Termination Letter”)). Thus, Segen’s employment with Buchanan
General was terminated immediately.

B. Jurisdictional Facts

Once Segen entered into the Three-Year Contract with Buchanan General in
December 1997, he moved to Grundy, Virginia, where he lived and owned property
until well after his termination. Upon the termination of his One-Year Contract with
Buchanan General, Segen was employed for approximately six weeks in February and
March of 2004 with a Veterans Affairs facility in Togus, Maine. (Segen Deposition
at 111-12.) Segen stated that he understood that the employment in Maine would be
only a temporary position. (Segen Deposition at 112.) He also noted that, while
working in Maine, he resided in a “two-month rental” property. (Segen Deposition
at 126.)

Because the position in Maine was only temporary, Segen stated that he began
considering employment opportunities available in Europe. (Segen Deposition at
113.) Segen stated that he received an offer to work in England in March or April of
2004. (Segen Deposition at 114.) However, because of certain licensing requirements,

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Segen stated that there was a delay between when he received the offer and when he
was actually able to begin work. (Segen Deposition at 114.) In the meantime, Segen
stated that he attempted to find employment in New York; however, the job offer in
England was the only option that became available to him. (Segen Deposition at 114.)

After working for approximately six weeks in Maine, Segen returned to his
Grundy, Virginia, residence, where he remained for “five or six months” until he
departed to attend the Armed Forces Institute of Pathology, (“AFIP”), in Bethesda,
Maryland, for continuing education. (Segen Deposition at 115, 127.) Segen felt that
since he had been out of formal medical training since the 1980s, it would be
beneficial to attend the AFIP before he began employment in England. (Segen
Deposition at 115.) Segen attended AFIP for nearly three months. (Segen Deposition
at 127.) Thereafter, he returned to Grundy, Virginia, where he continued to live until
late April of 2005, when he departed for England. (Segen Deposition at 115.)

Segen began his employment in England in May 2005. (Segen Deposition at
116.) Once in England, Segen first worked at Chase Farm Hospital before moving to
Hereford, England, where he is currently employed as a pathologist at Hereford
County Hospital. (Segen Deposition at 111, 116-18.) Segen explained that he has
lived continuously in England since April 2005. (Segen Deposition 128.)

On deposition, Segen acknowledged that he is not eligible to vote in England
because he is not a citizen. (Segen Deposition at 129.) Furthermore, he noted that
New York is “probably” the only place where he is still registered to vote. (Segen
Deposition at 128.) However, Segen explained that he had not voted in New York

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since the late 1990s. (Segen Deposition at 129.) While living in Virginia, Segen did
not register to vote and did not file Virginia income taxes for 2003 and 2004. (Segen
Deposition at 129-30.) Segen also stated that, as a result of his termination from
Buchanan General, he was forced to sell real estate and rental properties that he owned
in Buchanan County, Virginia. (Segen Deposition at 215-20.) Segen expressed a
reluctance to sell his property because he “expect[ed] to die in Grundy.” (Segen
Deposition at 220.)

C. Factual Support for Segen’s Claims

As a result of the Motions for Sanctions that were filed with this court, during
deposition, counsel for the defendants questioned Segen regarding the factual basis
for his claims. With regards to Count One of the Complaint, Segen alleged that he
was wrongfully discharged from his employment with Buchanan General. (Complaint
at 3-5.) Segen alleged that he was initially informed that his termination was based
upon economic reasons; however, he claimed that upon his actual termination,
Buchanan General explained that his termination was due to a reprimand that he had
received from the Board of Medicine. (Complaint at 4; Termination Letter.) On
deposition, Segen acknowledged that his contractual relationship was with Buchanan
General and that Dr. J. N. Patel, Dr. Dinkar Patel and Dr. Doric Turjman had no
authority to terminate his contract. (Segen Deposition 187, 214.) Furthermore,
defense counsel asked Segen if he had any evidence to demonstrate that Dr. J. N. Patel
had anything to do with the alleged wrongful discharge by the hospital. Segen replied,
“[w]ell, if we discard the conspiracy [that is mentioned in later counts], then I am not
aware of anything he specifically did, no.” (Segen Deposition at 185.) Likewise,

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Segen was asked the same question as it related to Dr. Dinkar Patel. Segen stated, “I
believe that those things can be proven, but at this point they are not facts. They are
not proven by deposition, so no.” (Segen Deposition at 185.) As defense counsel
questioned Segen further regarding Count One, the following exchange occurred:

Q: [Did] anybody else give[] you any facts that in any way implicate J.
N. Patel, Dinkar Patel, or Dr. Turjman that they breached your contract
or induced the hospital to breach it or wrongful discharge?

A: Only by implication in connecting the dots.

Q: But no facts?

A: No facts.

Q: All right. And you knew that before this lawsuit was filed? You
knew that you didn’t have any facts to support that claim before this
lawsuit was filed despite which you filed the claim and you hoped to
prove it up when depositions are taken in the case. Is that right?

A: I expect – – I expect it. I expect that those facts [will] be proven. Yes,
I do.

Q: So it’s yes in response to my question?

A: I don’t have times and dates. I expect to have them. I expect that
information to come forth.

Q: I understand.

A: At the time of filing, no, I didn’t have those facts in place. Yes, I do
expect those facts to come out.

Q: Okay. And my question was[,] so you filed this suit without the facts,
and you expect the facts to come out during the discovery process in the

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suit. Is that correct?

A: I expect that, yes.

(Segen Deposition at 186.)

In Count Two, Segen alleged that Dr. J. N. Patel and Dr. Dinkar Patel tortiously
interfered with his employment contract. (Complaint at 5.) Essentially, Segen alleged
that, because his pathology reads did not suggest surgery, Dr. J. N. Patel and Dr.
Dinkar Patel complained that they experienced a loss of income. (Complaint at 5.)
In addition, Segen alleged that Dr. J. N. Patel would then demand a second reading
from a different pathologist. (Complaint at 5.) Segen also claimed that Dr. J. N. Patel
violated HIPAA standards by utilizing confidential medical records to gain
information about patients to whom he had no physician-patient relationship, and then
directly approached these patients to suggest surgery. (Complaint at 5; Segen
Deposition at 21.) Segen explained that Dr. J. N. Patel wanted Segen to provide
pathology readings that would suggest that surgery was necessary. He further
explained that he was pressured to follow these demands because of Dr. J. N. Patel’s
influence at Buchanan General. (Segen Deposition at 40.)

On deposition, Segen stated that Dr. J. N. Patel implied in a conversation that
he was losing money because the hospital had contracted to hire a second physician.
(Segen Deposition at 187.) Segen claimed that Dr. J. N. Patel said, “[w]ell, you’ll be
paying for this.” (Segen Deposition at 187-88.) Defense counsel asked if that was the
only fact he had to show that Dr. J. N. Patel tortiously interfered with his contract, to
which Segen responded, “[t]hat is the only fact, and that’s more than enough.” (Segen
Deposition at 188.) Segen admitted that this was the only fact he had to support the

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claim and explained, “I am so convinced that discovery will bring out this and many
more facts that yes, I felt that I was not being irresponsible by doing that.” (Segen
Deposition at 189.)

When asked the name of a patient that Dr. J. N. Patel had obtained privileged
information about, Segen stated that “[h]e got privileged information from a number
of patients about whether their gallbladders needed to come out or not and whether
they had high values on a HIDA scan.” (Segen Deposition at 21.) Segen explained
that, in the radiology department, there is a list of certain medical information
contained in a particular book. (Segen Deposition at 21-22.) He claimed that Dr. J.
N. Patel would search for patients with “high value[s]” and then approach them
directly about the possibility of surgery. (Segen Deposition at 22.) Segen noted that
Dr. J. N. Patel did this on a regular basis, and that he became aware of these practices
two to three years before he was terminated. (Segen Deposition at 22.)

Segen was unable to identify any patients that Dr. J. N. Patel approached
directly. (Segen Deposition at 24-25.) He stated, “I don’t know those names
specifically.” (Segen Deposition at 23-24.) Segen then explained that Dr. Art Nieto
informed him that several patients had been offended that Dr. J. N. Patel had
approached them and that many considered the behavior to be unethical. (Segen
Deposition at 24.) Continuing, defense counsel asked, “[d]o you, Dr. Segen, know the
name of a single patient whom Dr. J. N. Patel approached when he had not previously
had a physician-patient relation with them and he approached them because that he
had learned the results of their HIDA scan from the radiology department of Buchanan
General Hospital?” (Segen Deposition at 24.) Segen responded, “[n]o. I can get

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those names. But no, I don’t.” (Segen Deposition at 25.) The defendants’ counsel
explained that at some point Segen would have to come forward with information to
support his allegations. (Segen Deposition at 25.) Segen again responded, “[n]o, I do
not know those names now.” (Segen Deposition at 25.)

When questioned further regarding whether Dr. J. N. Patel had wrongly
obtained confidential patient information, Segen commented, “[t]here’s something
that we all have as common knowledge. We all know that the sun is going to get up
tomorrow because we’re used to it. We had common knowledge in this hospital that
that’s the practice that J. N. Patel would do.” (Segen Deposition at 191.) Segen stated
that he had never seen Dr. J. N. Patel actually look for confidential patient
information. (Segen Deposition at 191.) Segen claimed that a radiology technician
would “slip[] information” to him and that Dr. J. N. Patel would then approach
patients directly. (Segen Deposition at 191.)

Similarly, Segen noted that Dr. J. N. Patel had proceeded against Segen’s
advice and recommendation by performing major surgery on a patient. (Segen
Deposition at 28-29.) Segen claim that, based upon the results of a polypectomy, he
informed Dr. J. N. Patel that the results were precancerous and that there should be
no operation on the patient. (Segen Deposition at 29-30.) However, Segen stated that
Dr. J. N. Patel proceeded with surgery, despite the fact that surgery was not warranted.
Segen was unable to identify the patient, but he stated that he had pictures of the
patient and that the hospital was aware of this malpractice. (Segen Deposition at 29.)

Segen also was asked if he had any facts that demonstrated that Dr. Dinkar Patel

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had toriously interfered with his contract. Segen admitted that he had no evidence to
show that Dr. Dinkar Patel approached the hospital administration to induce the
hospital to either terminate Segen’s contract or not renew it. (Segen Deposition at
197.) Segen acknowledged that he had no facts or evidence to support these claims
at the time the action was commenced; instead, he stated that he expected depositions
to provide the information. (Segen Deposition at 190, 197.) Segen stated, “I don’t
have the fact[s]. I expect it to come out in discovery.” (Segen Deposition at 190.)

Moreover, when defense counsel asked Segen whether or not he had reported
any misconduct to the hospital administration regarding Dr. Dinkar Patel, Segen
stated, “[n]o, specifically I did not.” (Segen Deposition at 47.) On deposition, the
following colloquy occurred:

Q: And what did Dr. Dinkar Patel do that you claim was tortious
interference with your contract?

A: I believe that I wasn’t given a fair and appropriate contract for a
three-year extension as were other physicians in the hospital.

Q: Well, what did Dr. Dinkar Patel have to do with that?

A: In a community like that there is – – there are things that occur behind
closed doors. I’m alleging that.

Q: Well, what is it you think he did behind closed doors that constituted
tortious interference with your contract with the hospital?

A: I believe I wasn’t given a fair and appropriate contract because the
people who were major players in the hospital weren’t – – basically said
that I shouldn’t have that contract. I believe that. And whether it’s true
or not, I don’t know.

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Q: What evidence do you have to back up that belief that Dr. Dinkar
Patel was somehow responsible for you . . . not getting a second three-
year contract with the hospital?

A: Dinkar Patel had been sanctioned by the federal government for
multiple violations of medical and Medicare fraud. I had heard from a
third party that he had questioned certain things and said that don’t ask
those type of questions about Dr. Segen.

Q: Was Dr. Dinkar Patel on the board of directors at the hospital?

A: No.

Q: Do you have any knowledge or information that Dr. Dinkar Patel
lobbied any member of the board of directors to try to get them not to
renew your contract for three years?

A: No. I believe it can be obtained, but no.

Q: Well, how do you propose obtaining that knowledge if you don’t have
it?

A: Deposing witnesses.

Q: Well, you have nothing at this point to . . . back up the allegations in
your complaint that Dr. Dinkar Patel somehow interfered with your
contract with Buchanan General Hospital?

A: No. Specifically no.

(Segen Deposition 49-51.)

In Count Three of the complaint, Segen alleged that Dr. Doric Turjman had
tortiously interfered with his contract and conspired with Dr. J. N. Patel to provide
pathology readings that Dr. J. N. Patel approved of, so that Buchanan General could

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make more money. (Complaint at 5-6.) Segen was asked to explain the basis of his
complaint against Dr. Turjman. Segen stated that Dr. Turjman

told me that back in August [2003,] when Dr. J. N. [Patel] decided that
he didn’t like the fact – – he didn’t like the way I was reading slides. He
just didn’t like the way I was doing it, so he took my slides, my tissues
my work, the way that I make my money, and he had them sent down to
Clinch Valley. No reason, just he didn’t like the way I was reading
things.

(Segen Deposition at 58.) Defense counsel clarified by stating, “[i]t wasn’t work you
had already done; it was work that you thought you should be allowed to do?” (Segen
Deposition at 58-59.) Segen claimed that Dr. Turjman told him to read the slides the
way Dr. J. N. Patel wanted them to be read. (Segen Deposition at 59.) Moreover, the
defendants’ counsel asked if Segen had any further conversations with Dr. Turjman
about anything involving Buchanan General. Segen stated,

I don’t recall specifically. I don’t know whether it’s one conversation or
two conversations in which he said he didn’t want the work. And I don’t
know if it was a separate conversation he didn’t want the work, and then
he wanted – – he suggested that for the way for me to keep my job would
be to read the things whatever in the way that J. N. Patel asked me to or
expected me to more.

(Segen Deposition at 59.)

Segen was asked, “do you have any evidence or facts that would prove or tend
to prove that Dr. Turjman either verbally or in writing went to the administration of the
hospital and/or to the board of the hospital to induce the board and/or the administration
to either terminate your contract or not renew your contract?” (Segen Deposition at

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179.) Segen responded, “[n]o, I don’t believe he went to them to terminate the
contract.” (Segen Deposition at 180.) Segen admitted that he had no facts to support
his contention that Dr. Turjman had induced the hospital to terminate his contract or not
to renew it. (Segen Deposition at 199.) He stated that he expected factual support to
be uncovered during the discovery process.

Segen also was asked to provide the factual basis for his claim that Dr. Turjman
and Dr. J. N. Patel conspired to read certain pathology reports in such as way that the
hospital would make more profit. (Segen Deposition at 199-200.) In response, Segen
explained that because Dr. J. N. Patel had allegedly stated that he had lost money by
virtue of Segen not recommending surgery, Dr. Turjman suggested that he read the
pathology in the manner that Dr. J. N. Patel wanted them to be read. (Segen Deposition
at 200.) Segen stated that this information was the sole basis for the conspiracy
allegation in Count Three. (Segen Deposition at 200.)

Segen alleged in Count Four that Sue Rife, President of the Board of Trustees of
Buchanan General, conspired with other Board of Trustees members to wrongfully
terminate his contract. (Complaint at 6.) On deposition, defense counsel asked Segen
how Sue Rife had damaged him. (Segen Deposition at 70.) Segen stated that “Sue Rife
wanted Fred Pelle to fire me as soon as I went to Italy on continuing education[.] She
went into his office and used every reason that she could think of . . . to get me sacked.
None of them had to do with my professional practice.” (Segen Deposition at 70.)
Among other things, he alleged that Sue Rife blamed him for the unlawful behavior of
a young man who Segen had taken in because the young man’s father was a drug addict.
(Segen Deposition 70-71.) Segen also explained that the reason Rife wanted him fired

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was because he had voiced his opinion that someone without a medical background
should not be the president of the board of trustees of a hospital. (Segen Deposition at
72.) Segen stated, “I felt that a hospital should be run by physicians or people who are
professionals, not people who their only contribution to society is being a high school
cheerleader.” (Segen Deposition at 72.) Thus, Segen opined that these statements
created “a bit of a vendetta” and that Rife wanted him fired for personal reasons.
(Segen Deposition at 72.) Segen stated that he was not aware of anything else that Rife
had done that led to his termination. (Segen Deposition at 73.)

Segen claimed that Rife went to Fred Pelle, a former administrator at Buchanan
General, in September 2003 and attempted to have his employment terminated. (Segen
Deposition at 73.) He stated that “one of [his] physician friends . . . told [him] to watch
[his] back, [because] Sue Rife [was] trying to get [him] fired.” (Segen Deposition at
73.) Segen noted that he believed he did not receive a new three-year contract because
of the comments that he had made regarding Rife. (Segen Deposition at 73.) Defense
counsel asked Segen “what information do you have that Sue Rife had anything to do
with your not getting a three-year contract?” (Segen Deposition at 73.) Segen replied,
“[n]one. . . .We tend to connect dots in the world.” (Segen Deposition at 74.) Segen
specifically explained that Count Four of the complaint only pertained to Sue Rife and
that it was not intended to include Dr. J. N. Patel, Dr. Dinkar Patel and Dr. Doric
Turjman. (Segen Deposition at 201.)

In Count Five of the Complaint, Segen alleged that he was terminated from his
employment with Buchanan General because he reported HIPAA violations and other
violations to the hospital administration. (Complaint at 6.) Segen alleged that he

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reported these violations to Joan Jamison, an administrator at Buchanan General, and
Beverly Anderson, the compliance officer at Buchanan General. (Complaint at 6.) He
further alleged that, as a result of reporting the violations, he was subjected to numerous
complaints by the hospital, Dr. J. N. Patel and others. (Complaint at 6.)

On deposition, Segen was asked to describe any improper actions by Joan
Jamison that caused him damages. (Segen Deposition at 74.) Because he had reported
certain violations by Dr. J. N. Patel to Jamison, he opined that she “would make sure
that the problems [for Dr. J. N. Patel] would go away.” (Segen Deposition at 74.)
Although Segen acknowledged that Jamison did not have a vote on the hospital’s board
of directors, he stated that she was “very influential at the hospital.” (Segen Deposition
at 75.) Defense counsel asked Segen if he could identify any act or any specific
recommendation that Jamison made that had caused him to be damaged. In response,
Segen explained that Jamison failed to act upon the violations he reported. (Segen
Deposition at 75.) Additionally, Segen stated that Jamison “made it perfectly clear that
[he] was more of the problem and that [he] needed to be deleted from the hospital
system.” (Segen Deposition at 76.) However, Segen admitted that she did not
specifically say anything to him to indicate that she wanted him “deleted from the
hospital system.” (Segen Deposition at 76.) Defense counsel asked, “[c]an you tell me
one statement that you think Joan Jamison has made that was responsible directly or
indirectly for your being fired?” (Segen Deposition at 77.) Segen replied, “[n]o, I’m
waiting for depositions.” (Segen Deposition at 77.)

Segen was then asked to describe what Beverly Anderson had done to cause him
damage. (Segen Deposition at 77.) Segen explained that he reported incidents to

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Buchanan General’s officers and no action was taken. (Segen Deposition at 78.) He
claimed that, as a result of making the reports, he was terminated. (Segen Deposition
at 78.) Thus, Segen stated, “I draw an inference from that, and I think it’s an
appropriate inference.” (Segen Deposition at 78.) Counsel for the defense asked, “[c]an
you tell me anything that Beverly Anderson did . . . that caused you to be fired?”
(Segen Deposition at 78.) Again, Segen noted that he believed that he was fired as a
result of reporting certain violations. Segen then admitted that he had no evidence to
support his belief that Beverly Anderson caused his termination. (Segen Deposition at
78.)

Defense counsel asked if Segen could present any facts that would indicate that
Dr. J. N. Patel went to the hospital administration and suggested, either verbally or in
writing, that Segen be terminated for reporting alleged HIPAA violations. (Segen
Deposition at 202.) Segen replied, “[w]ell, taking out the suppositions, no.” (Segen
Deposition at 202.) He then acknowledged that he had no facts or witnesses that would
be able to say that “they [were] privy to a conversation between the hospital [and J. N.
Patel] whereby J. N. Patel attempted to induce the hospital to terminate [him] or not
renew [his contract] because of HIPAA violations.” (Segen Deposition at 204.) Segen
also stated that he knew that these facts were not available when he filed the suit, but
that he expected them to come forth in discovery. (Segen Deposition at 204.)

In Count Six, Segen alleged that the hospital acted in bad faith by terminating his
employment because on three previous occasions Buchanan General had maintained
relationships with other physicians who had been restricted by the Board of Medicine.
(Complaint at 7.) Segen claimed that the work of a particular physician at Buchanan

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General had been presented to an outside institution for peer review. (Complaint at 7.)
He further alleged that this physician was found to have committed ethics breaches and
malpractice. (Complaint at 7.) Thus, Segen argued that his due process rights were
violated because he did not receive the peer review similarly situated doctors had
received, which he alleged was required by law. (Complaint at 7.)

Segen explained that the physician referred to in Count Six that was found to
have committed ethics breaches and malpractice was Dr. J. N. Patel. (Segen Deposition
at 153.) Segen noted that the incident that was subjected to peer review was the same
incident mentioned in Count Two, when Dr. J. N. Patel performed major surgery on a
patient despite Segen’s recommendation against surgery. (Segen Deposition at 28-29.)
He acknowledged that he was not aware of any other evidence to support any other
incident that involved a physician whose work was submitted for peer review. (Segen
Deposition at 153.) Although Segen claimed that Dr. J. N. Patel’s actions were
determined to be ethical breaches and malpractice, he admitted that he had not seen a
report that indicated these findings. (Segen Deposition at 153.) Furthermore, despite
allegations that he was entitled by law to peer review before his termination, Segen
stated that he “would have to strike that [allegation]” because he was not aware of what
law required peer review. (Segen Deposition at 157.) Segen also stated that he felt that
his due process rights were violated because he did not receive a hearing explaining
why he was terminated. (Segen Deposition at 157-58.) However, he never requested
a hearing before any hospital committee or board. (Segen Deposition at 158.) Despite
the fact that Segen had previously stated that Dr. J. N. Patel was the physician referred
to in Count Six, he later stated that Count Six was not directed at Dr. J. N. Patel, Dr.
Dinkar Patel or Dr. Doric Turjman. (Segen Deposition at 205.)

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In Count Seven of the Complaint, Segen alleged that the defendants had defamed
him. (Complaint at 7.) On deposition, Segen was asked which of the defendants had
defamed him, to which he responded, “I believe Sue Rife did it. Do I have proof? No.
I believe each one of the parties did, and I don’t have proof, no.” (Segen Deposition at
158.) The defendants’ counsel then asked if he alleged that each defendant had
defamed him. In response, Segen stated, “[y]es, I believe that Fred Pelle was in . . .
position to do it.” (Segen Deposition at 158.) When questioned as to the basis for the
allegation, Segen admitted that he had no evidence to support the claims. (Segen
Deposition at 159.) Segen stated that he felt he had been defamed “[b]ecause I didn’t
get any jobs afterwards . . . I connected the dots. Do I have evidence? No.” (Segen
Deposition at 160.) Segen clearly stated that Count Seven did not involve Dr. J. N.
Patel, Dr. Dinkar Patel or Dr. Doric Turjman, as he had no facts to prove that any of the
three doctors had defamed him. (Segen Deposition at 205.)

Count Eight of the complaint alleged that the defendants conspired to terminate
Segen’s employment. (Complaint at 8.) Specifically, Segen alleged that Kenneth
Joseph Stephens, the former President of the Board of Trustees at Buchanan General,
conspired and discussed the termination of Segen with others, which resulted in tortious
interference with Segen’s contract and wrongful discharge. (Complaint at 8.) In
addition, he alleged that Stephens was interested in property that Segen owned and was
in competition with Segen for other real estate. (Complaint at 8.) Segen also stated that
Stephens, who owned a local lumber store, refused to give him a discount; instead, he
claimed that Stephens commented that Segen’s continued employment with Buchanan
General was his discount. (Segen Deposition at 66.) Defense counsel asked Segen
“[o]ther than not giving you a discount on building materials . . . how do you claim that

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Joe Stephens has damaged you?” (Segen Deposition at 68.) Segen replied, “Stephens
told me to raise the prices of my . . . apartments because he wasn’t able to rent his. So[,]
ultimately I priced myself out of the market for the first two years because of Joe
Stephens, and that was my discount.” (Segen Deposition at 68.) Segen explained that
he followed Stephens’s instructions and increased the rent because he felt that if he did
not, it would have led to getting fired. (Segen Deposition 68-69.)

Segen was then asked, “[w]hat evidence do you have that any of the defendants
conspired or agreed to do something illegal to terminate your employment?” (Segan
Deposition at 161.) Segen answered, “I don’t have depositions on that yet, no.” (Segen
Deposition at 161.) However, he explained that he expected to get evidence to support
the allegations. (Segen Deposition at 161.) Segen noted that he had statements from
three physicians to support his allegations. He stated that Dr. Art Nieto, Dr. Jeff Larsen
and Dr. Will Lester all indicated that “[he] was in deep trouble because they were trying
to get rid of [him].” (Segen Deposition 161.) Segen acknowledged that Count Eight
did not pertain to Dr. J. N. Patel, Dr. Dinkar Patel and Dr. Doric Turjman. (Segen
Deposition at 206.)

II. Analysis

A. Motions to Dismiss

A motion to dismiss made under Federal Rule of Civil Procedure 12(b)(1) tests
the subject matter jurisdiction of a complaint. There are two ways to present a motion
to dismiss for lack of subject matter jurisdiction pursuant to Rule 12(b)(1) which trigger

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different standards of review. See Adams v. Bain, 697 F.2d 1213, 1219 (4th Cir. 1982).
First, if the Rule 12(b)(1) motion attacks subject matter jurisdiction, by asserting that
“a complaint simply fails to allege facts upon which subject matter jurisdiction can be
based,” then “the facts alleged in the complaint are assumed to be true and the plaintiff
. . . is afforded the same procedural protection as he would receive under a Rule
12(b)(6) consideration.” See Adams, 697 F.2d at 1219. Second, if the 12(b)(1) motion
challenges the alleged jurisdictional basis of a complaint by asserting that, although
facially adequate, the allegations are factually untrue, the district court may then
consider extrinsic information beyond the complaint to determine whether subject
matter jurisdiction exists. See Thigpen v. U. S., 800 F.2d 393, 401 n.15 (4th Cir. 1986)
(citing Adams, 697 F.2d at 1219).

In this case, the Rule 12(b)(1) challenge attacked the subject matter jurisdiction
by arguing that the complaint failed to allege facts to establish diversity of citizenship,
and, in the alternative, to establish federal question jurisdiction. (Motion at 1-2.) Here,
the Motions to Dismiss will be treated as if they were Rule 12(b)(6) motions. Thus,
pursuant to the Federal Rules of Civil Procedure, the court will accept as true all well-
pleaded allegations and view the complaint in a light most favorable to the plaintiff.
See De Sole v. U. S., 947 F.2d 1169, 1171 (4th Cir. 1991) (citing Jenkins v. McKeithen,
395 U.S. 411, 421 (1969)). “[A] rule 12(b)(6) motion should be granted only in very
limited circumstances.” Rogers v. Jefferson-Pilot Life Ins. Co., 883 F.2d 324, 325 (4th
Cir. 1989). The court may not dismiss a complaint unless the plaintiff can prove no set
of facts that would entitle the plaintiff to relief. See Conley v. Gibson, 355 U.S. 41, 45-
46 (1957). “The issue is not whether a plaintiff will ultimately prevail but whether the
claimant is entitled to offer evidence to support the claims.” Scheuer v. Rhodes, 416

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U.S. 232, 236 (1974).

In his Complaint, Segen specifically asserted that this court had jurisdiction based
upon diversity of citizenship. (Complaint at 3.) Additionally, Segen claimed that
jurisdiction also was conferred upon this court “based upon Federal HIPAA [v]iolations
and numerous federally protected privacy violations.” (Complaint at 3.) In response,
the defendants argued that this court lacked subject matter jurisdiction because, based
upon the Complaint, Segen had failed to properly allege facts to establish diversity of
citizenship. (Motion at 1-2.) The defendants also argued that Segen’s alternative
jurisdictional argument failed because HIPAA does not provide for a private right of
action. (Motion at 2.)

Pursuant to 28 U.S.C. § 1332, federal district courts have original jurisdiction
over all civil actions where the amount in controversy exceeds $75,000, and is between

(1) citizens of different States; (2) citizens of a State and citizens or
subjects of a foreign state; (3) citizens of different States and in which
citizens or subjects of a foreign state are additional parties; and (4) a
foreign state, defined in section 1603(a) of this title, as plaintiff and
citizens of a State or of different States.

28 U.S.C.A. § 1332(a) (West 2006). In this case, the amount in controversy is not at
issue, as Segen is seeking $4.5 million, plus attorneys’ fees and costs expended.
(Complaint at 8.) Here, the issue is focused upon whether Segen alleged sufficient facts
to establish that diversity of citizenship exists. In his Complaint, Segen specifically
stated that “[j]urisdiction of this case is conferred under . . . diversity of citizenship,
since [Segen] is a United States citizen [who] now resides in England [and] the

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defendants are residents of the Commonwealth of Virginia.” (Complaint at 3.)

The Supreme Court has clearly stated that, “in order to be a citizen of a State
within the meaning of the diversity statute, a natural person must both be a citizen of
the United States and be domiciled within the State.” Newman-Green, Inc. v. Alfonzo-
Larrain, 490 U.S. 826, 828 (1989) (emphasis in original); see also Robertson v. Cease,
97 U.S. 646, 648-49 (1878). In Newman-Green, Inc., the petitioner was an Illinois
corporation which, in its complaint, claimed that 28 U.S.C. § 1332(a)(3) conferred
jurisdiction upon the district court because the party which it was suing was a United
States citizen, domiciled in Venezuela. See 490 U.S. at 828. However, the Court
explained that “the problem . . . is that [the defendant], although a United States citizen,
has no domicile in any State.” Newman-Green, Inc., 490 U.S. at 828. Therefore, the
Court determined that the defendant was “‘stateless’” for purposes of diversity
jurisdiction. Newman-Green, Inc., 490 U.S. at 828.

Similarly, Segen, by his own admission, is a United States citizen who is
currently residing in England. Diversity of citizenship is determined at the time an
action is commenced. See Freeport-McMoRan, Inc., et al. v. K N Energy, Inc., 498 U.S.
426, 428 (1991). Segen initiated this action on January 23, 2006; thus, diversity of
citizenship must have existed as of that date. At the time this suit was commenced,
Segen had been living and working in England continuously for approximately nine
months. So, although Segen remains a United States citizen, he is no longer domiciled
within a state. Thus, based upon Supreme Court precedent, Segen is stateless for
diversity jurisdiction purposes. See Newman-Green, Inc., 490 U.S. at 828. Because
Segen has no domicile in any state, the parties in this case are not diverse; therefore,

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based on the allegations contained in the Complaint, this court is without jurisdiction
to hear this matter. Furthermore, based on the additional evidence provided, Segen can
prove no set of facts under which the court may exercise diversity jurisdiction.

In his Response to the Motion to Dismiss, Segen attempted to add additional facts
and arguments to establish jurisdiction. Segen claimed that, at all relevant times, he was
and currently is, a domiciliary of New York. (Response at 1.) He argued that he has
maintained “minimal and significant contacts” with New York, that he has maintained
“continuing obligations” with the state of New York and that he has “deliberately …
engage[d] himself in significant activities” in New York. (Response at 1.) In the
alternative, Segen made the same assertions with regard to the state of Florida.
(Response at 2.) However, in his Complaint, there is no mention of any connection to
New York or Florida. The Complaint simply states that Segen is a United States citizen
who is currently living in England. On deposition, Segen offered no evidence of any
connection or relationship to the state of Florida. Furthermore, Segen’s only alleged
connections with the state of New York are that he used to live and work there, that he
has paid spousal and child support in New York and that he last voted in New York in
the late 1990s. Based upon Segen’s own statements, the facts indicate that Segen
abandoned his New York domicile in 1997, when he moved to Virginia to begin his
employment with Buchanan General.

In the alternative, Segen claimed that this court possessed jurisdiction “based
upon Federal HIPAA [v]iolations and numerous federally protected privacy violations.”
(Complaint at 3.) The Supreme Court has recognized that “the fact that a federal statue
has been violated and some person harmed does not automatically give rise to a private

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cause of action in favor of that person.” Touche Ross & Co. v. Redington, 442 U.S.
560, 569 (1979). Instead, the Court has stated that private rights of action that enforce
federal law “must be created by Congress.” Alexander v. Sandoval, 532 U.S. 275, 286
(2001).

Various courts have specifically explained that Congress did not intend for
HIPAA to create a private right of action. In an unpublished decision from the Roanoke
Division of this court, a plaintiff argued that the defendant had violated HIPAA when
it failed to seek authorization for the release of certain psychological medical
information. See Haranzo v. Dep’t of Rehabilitative Servs., 2005 U.S. Dist. LEXIS
27302, at *14-15 No. 7:04cv00326 (W.D. Va. Nov. 10, 2005). The court noted that
“no private right of actions exists for HIPAA violations” and dismissed the claim.
Haranzo, 2005 U.S. Dist. LEXIS 27302, at *. In Healthtek Solutions, Inc. v. Fortis
Benefits Ins. Co., 274 F. Supp. 2d 767, 775 (E.D. Va. 2003), the court commented that
HIPAA does not explicitly recognize a private right of action. Similarly, other courts
have explained that HIPAA “specifically indicates that the Secretary of [Health and
Human Services] shall pursue the action against an alleged offender, not a private
individual. Logan v. Dep’t of Veterans Affairs, 357 F. Supp. 2d 149, 155 (2004); see
also O’Donnell v. Blue Cross Blue Shield of Wyo., 173 F. Supp. 2d 1176, 1179-80 (D.
Wyo. 2001) (the court found that HIPAA creates neither an express nor implied private
cause of action).

In this case, Segen’s Complaint precisely stated that “[j]urisdiction is also based
upon . . . HIPAA [v]iolations and numerous federally protected privacy violations.”
(Complaint at 3.) The only federal law that Segen specifically refers to in his

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Complaint is HIPAA. Based upon precedent from several jurisdictions, it is obvious
that courts have determined that Congress did not intend for there to be a federal private
right of action available under HIPAA. Thus, as to Segen’s alternative argument, I am
of the opinion that this court lacks subject matter jurisdiction to hear the case.

Segen also has asserted that the defendants erroneously interpreted his allegations
regarding the HIPAA violations and that this matter is properly before the court
pursuant to 28 U.S.C. § 1331. (Response at 2.) Segen argued that he did not allege a
private cause of action under HIPAA, but, intead, that he “actually allege[d] a violation
of due process in that as a direct and proximate result of the ‘whistle blowing’ activities
. . . [the] defendant[s] conspired and tort[i]ously interfered with [Segen’s] employment
. . . thereby violating his right of due process.” (Response at 2.) However, Segen made
no mention of any applicable federal whistleblowing statute in his Complaint. In
addition, this seems to be a completely distinct basis for jurisdiction than what was
asserted in his original Complaint. Although Segen contends that this court has federal
question jurisdiction, his claims of conspiracy and tortious interference with a contract
simply amount to additional state law claims for which this court does not have
diversity jurisdiction.

The Fourteenth Amendment to the United States Constitution provides that a
state shall not “deprive any person of life, liberty, or property without due process of
law.” U.S. CONST. amend. XIV, 31. The Supreme Court has held that the so-called
“substantive” component of the Due Process Claims does not require a state to protect
life, liberty and property of its citizens against invasion by private actors. Town of
Castle Rock, Colo. v. Gonzales, 545 U.S. 748, ___, 125 S.Ct. 2796, 2803 (2005) (citing

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DeShaney v. Winnebago County Dep’t of Soc. Servs., 489 U.S. 189, 195 (1989)). The
Court also has held that the procedural component of the Due Process Clause “does not
protect everything that might be described as a ‘benefit.’” Town of Castle Rock, 545
U.S. at ____, 125 S.Ct. at 2803.

With regard to Segen’s “due process” allegations, Segen’s Complaint references
no governmental action. While Segen’s Complaint makes reference to a denial of a peer
review “as required by law,” Segen has conceded that he and his counsel know of no
such legal requirement. Also, the Complaint does not allege that Segen’s employment
contract provided any right of peer review. That being the case, I find that an ambiguous
reference to “due process rights” within the Complaint is not sufficient to state a due
process claim over which this court may exercise subject matter jurisdiction.

The assertions made by Segen in his Response to the Motion to Dismiss seem to
be to ineffective attempts to correctly plead proper jurisdiction. However, on the face
of the Complaint, as plead, it is obvious that this court does not have subject matter
jurisdiction to hear this case. Furthermore, based on the additional evidence provided,
it appears Segen can prove no set of facts under which the court may exercise federal
question jurisdiction on the claims asserted. Accordingly, I recommend that the
defendants’ Motions to Dismiss be granted.

B. Motions for Sanctions

Although I am of the opinion that this court lacks subject matter jurisdiction to
hear this case, this court is, nevertheless, authorized to consider the Rule 11 Motions for

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Sanctions that have been filed in this case. See Willy v. Coastal Corp., et al., 503 U.S.
131, 137-39 (1992). In Willy, the petitioner argued that Rule 11 sanctions should not
be considered because after the sanctionable conduct occurred, the Court of Appeals
determined that the District Court lacked subject matter jurisdiction. See 503 U.S. at
137. The Court explained that a final determination of lack of subject matter
jurisdiction in a case in federal court obviously prohibits further adjudication of the
matter. See Willy, 503 U.S. at 137. However, the Court also noted that “such a
determination does not automatically wipe out all proceedings had in the district court
at a time when the district court operated under the misapprehension that it had
jurisdiction.” Willy, 503 U.S. at 137.

In Cooter & Gell v. Hartmarx Corp., 496 U.S. 384 (1990), the Court was faced
with the issue of whether Rule 11 sanctions could be properly imposed for filing a
frivolous complaint after the plaintiff had voluntarily dismissed the action. In Cooter
& Gell, the Court explained that a federal court is permitted to consider issues that are
collateral to the action after the action is no longer pending. See 496 U.S. at 395-96.
Moreover, the Court stated that the decision to impose Rule 11 sanctions is not a
judgment on the merits of the case; instead, “it requires the determination of a collateral
issue: whether the attorney has abused the judicial process, and, if so, what sanction
would be appropriate.” Cooter & Gell, 496 U.S. at 396. The Court determined that the
imposition of a Rule 11 sanction does not amount to an assessment of the legal merits
of a complaint; therefore, it does not raise the issue of whether a district court is
deciding the merits of a case or controversy over which it does not possess jurisdiction.
See Willy, 503 U.S. at 138 (citing Cooter & Gell, 496 U.S. at 396).

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Thus, since the determination of whether Rule 11 sanctions are appropriate is a
collateral issue based upon whether an attorney or unrepresented party has abused the
judicial process, this court has the authority to render a decision as to the Motions for
Sanctions, even though this court is of the opinion that it lacks subject matter
jurisdiction to hear the case.

On June 6, 2006, pursuant to Rule 11 of the Federal Rules of Civil Procedure, the
defendants filed Motions for Sanctions against Segen and/or his counsel. (Motion for
Sanctions at 1.) The defendants argued that the action “was not well[-]grounded in fact,
including jurisdictional facts,” that it “was not supported by existing law or by a good
faith argument for the modification, extension or reversal of existing law, either as to
the jurisdiction of the court or the merits of the claim or both” and that the action was
initiated “for the purpose of vexation, annoyance and harassment and in an effort to
extract a settlement.” (Motion for Sanctions at 1.)

In response, Segen argued that, at all relevant times, he was/is domiciled in the
state of New York. He asserted that he had minimal and significant contacts with the
state of New York, that he maintained continuing obligations with the state of New
York and that he deliberately engaged in significant activities with the state of New
York. Segen also claimed that, although he is currently living abroad, he had no intent
of establishing a domicile or residence there. In the alternative, Segen asserted that, at
all relevant times, he has engaged in minimal and significant contacts with the state of
Florida, that he has deliberately engaged in significant activities in the state of Florida
and that he had maintained continuing obligations with the state of Florida.
Furthermore, Segen alleged that this action was filed “on good basis and facts due to

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the interference of [his] contract and [the] termination of [his] contract.” (Response To
Motion To Dismiss And Motion For Sanctions, (“Response #2″), at 2.) In support of
these arguments, Segen explained that he relied upon the statements he offered during
his deposition, which was taken on July 24, 2006.

Rule 11(b) of the Federal Rules of Civil Procedure provides that, when presenting

a

pleading, written motion, or other paper [to the court], an attorney or
unrepresented party is certifying that to the best of the person’s
knowledge, information, and belief, formed after a [reasonable inquiry
in the matter, that] (1) it is not being presented for any improper purpose,
such as to harass or to cause unnecessary delay or needless increase in
the cost of litigation; (2) the claims, defenses, and other legal contentions
therein are warranted by existing law or by a nonfrivolous argument for
the extension, modification, or reversal of existing law or the
establishment of new law; (3) the allegations and other factual
contentions have evidentiary support or, if specifically so identified, are
likely to have evidentiary support after a reasonable opportunity for
further investigation or discovery; and (4) the denials of factual
contentions are warranted on the evidence or, if specifically so identified,
are reasonably based on a lack of information or belief.

FED. R. CIV. P. 11(b). This rule basically requires an attorney or unrepresented party to
conduct a prefiling investigation of law and fact that is objectively reasonable under the
circumstances. Bus. Guides, Inc. v. Chromatic Commc’ns, Enters., Inc., 498 U.S. 533,
551 (1991).

Pursuant to Rule 11(c)(1)(A) of the Federal Rules of Civil Procedure, a motion
for sanctions must first be served upon the party whose has allegedly committed a

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violation of Rule 11(b); the served party is then allowed 21 days to withdraw or
appropriately correct the challenged paper, claim, defense, contention, allegation or
denial. Furthermore, according to Rule 11(c)(1)(A), if the served party does not
respond during the 21-day “safe harbor” period, then the party seeking Rule 11
sanctions is permitted to file a motion for sanctions with the appropriate district court.

This court should apply an objective test of reasonableness when considering
whether or not Rule 11 sanctions should be imposed. See Artco Corp. v. Lynnhaven
Dry Storage Marina, Inc., 898 F.2d 953, 955-56 (4th Cir. 1990); see also Fahrenz v.
Meadow Farm P’ship, 850 F.2d 207, 210 (4th Cir. 1988). The fact that a plaintiff fails
to provide a sufficient showing to survive summary judgment is not, in itself, enough
to warrant the imposition of Rule 11 sanctions. See Miltier v. Downes, 935 F.2d 660,
664 (4th Cir. 1991). In Miltier, the Fourth Circuit explained that counsel need not be
correct in their legal argument; instead, in order to avoid sanctions, the legal argument
must be reasonable. See 935 F.2d at 664. However, an attorney is required to do more
than simply rely upon the allegations and contentions of a client. As stated earlier, Rule
11 essentially mandates that an attorney conduct at least a minimal investigation before
filing a complaint or otherwise formalizing the allegations. See Blue v. U. S. Dep’t of
the Army, 914 F.2d 525, 542 (4th Cir. 1990).

If this court determines that sanctions are warranted, the court has the authority
to award the prevailing party reasonable expenses and attorney’s fees that are incurred
in presenting or opposing the motion. “A sanction imposed for violation of this rule
shall be limited to what is sufficient to deter repetition of such conduct or comparable
conduct by others similarly situated.” FED. R. CIV. P. 11(c)(2). The Fourth Circuit has

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determined that the district court should consider four factors in determining the amount
of sanctions to impose: (1) the reasonableness of the opposing party’s attorneys fees;
(2) the minimum sanction necessary to deter the offending conduct; (3) the ability to
pay; and (4) factors relating to the severity of the Rule 11 violation. See Brubaker v.
Richmond, 943 F.2d 1363, 1374 (4th Cir. 1991); see also Miltier, 935 F.2d at 665.
According to Rule 11(c)(2), the sanction can include

directives of a nonmonetary nature, an order to pay a penalty into court,
or, if imposed on motion and warranted for effective deterrence, an order
directing payment to the movant of some or all of the reasonable
attorneys’ fees and other expenses incurred as a direct result of the
violation.

FED. R. CIV. P. 11(c)(2). However, monetary sanctions may not be awarded against a
represented party for a violation of Rule 11(b)(2). Furthermore, in accordance with Rule
11(c)(3) of the Federal Rules of Civil Procedure, if a court determines that sanctions
should be imposed, in its Order, the court “shall describe the conduct determined to
constitute a violation . . . and explain the basis for the sanction imposed.” FED. R. CIV.
P. 11(c)(3).

As mentioned previously, the defendants claim that this action was “not well
grounded in fact, including jurisdictional facts.” (Motion for Sanctions at 1.) Based
upon Segen’s Complaint, as plead, existing law does not support his assertion of
jurisdiction pursuant to 28 U.S.C. § 1332. Furthermore, the complaint presented no
factual contentions to establish diversity of citizenship between the parties. In addition,
Segen offered no argument for the “extension, modification, or reversal of existing law
or the establishment of new law.” FED. R. CIV. P. 11(b)(2).

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A simple legal search of caselaw interpreting 28 U.S.C. § 1332 would have
revealed Supreme Court precedent explaining that, for diversity jurisdiction purposes,
a United States citizen living abroad is considered stateless. In his response to the
Motion to Dismiss, Segen seemingly attempted to “correct” his misapplication of
jurisdiction and claimed that he was actually a New York domiciliary, or, in the
alternative, a Florida domiciliary. However, Segen presented no factual basis to
demonstrate that, at the time this action was commenced, he was domiciled in any
location other than England. The only viable argument that Segen could have made
regarding a United States domicile would have been that he was/is a Virginia
domiciliary. But, because the defendants are all Virginia residents, this also would fail,
as a matter of law, to establish diversity of citizenship.

Based upon the face of the Complaint, I am of the opinion that Segen initiated this
claim upon a contention that was not warranted by existing law. As stated in Miltier,
counsel is not required to be correct in the legal position or argument; however, that
legal position must be reasonable. See 935 F.2d at 664. Segen’s counsel made a glaring
mistake in asserting jurisdiction; a mistake which was unreasonable. Thus, it is this
court’s opinion that this action was brought forth without the support of existing law,
and without a good faith argument as to why the current law should be altered. On the
face of Segen’s Complaint, he has presented a claim to this court that is neither well-
grounded in jurisdictional facts nor supported by existing law. “A legal argument fails
to satisfy Rule 11(b)(2) when ‘in applying a standard of objective reasonableness, it can
be said that a reasonable attorney in like circumstances could not have believed his
actions to be legally justified.’” Guidry v. Clare, 442 F. Supp. 2d 282, 288 (E.D. Va.
2006) (quoting Hunter v. Earthgrains Co. Bakery, 281 F.2d 144, 153 (4th Cir. 2002) (a

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legal argument warrants Rule 11 sanctions if it has “absolutely no chance of success
under the existing precedent”). Here, a reasonable attorney, under like circumstances,
would have realized that, based upon existing law, proper jurisdiction did not exist.
Accordingly, I recommend that sanctions be imposed against Segen’s counsel for
unreasonably asserting improper jurisdiction.

The defendants also contend that Segen failed to present a factual basis as to the
merits of his claims. (Motion for Sanctions at 1.) After reviewing the Complaint, it
appears that counsel sufficiently plead Segen’s claims against the defendants. On
deposition, when Segen was questioned as to the factual basis of each claim, he
consistently stated that he knew he had no basis for his claims at the time the action was
commenced. However, Segen repeatedly explained that he expected the factual support
to be brought forth by virtue of the discovery process and after deposing witnesses. Rule
11(b)(3) requires that “the allegations and other factual contentions” must have
evidentiary support or be “likely to have evidentiary support after a reasonable
opportunity for further investigation or discovery.” FED. R. CIV. P. 11(b)(3). Thus, based
upon Rule 11(b)(3), at the time Segen made the statements on deposition, it seems as if
Segen, despite acknowledging that he lacked a sufficient factual basis for his claim, has
offered enough through his allegations to avoid sanctions.

However, it should be noted that the original Motion for Sanctions was presented
to Segen’s counsel in April 2006. (Motions for Sanctions at 2.) Upon presentation,
Segen’s counsel failed to correct the Complaint or withdraw it within 21 days, as
required by Rule 11(c). In accordance with the Federal Rules of Civil Procedure, the
defendants’ counsel filed the Motions for Sanctions with this court in June 2006.

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Segen’s counsel did not respond to the Motions for Sanctions until September 26, 2006,
when they reiterated their argument for diversity jurisdiction and clarified their
contention for federal question jurisdiction. (Response #2 at 1-2.) In the Response,
Segen stated that he “filed [the Complaint] on good basis and facts due to the
interference of said contract and termination of said contract.” (Response #2 at 2.) In
support of these arguments, Segen stated that he relied upon “the statements made during
depositions which were held on July 24, 2006.” (Response #2 at 2.)

Approximately five months passed between the time Segen’s counsel was notified
of the Motions for Sanctions and when Segen’s counsel responded. Furthermore, in
response, Segen simply reiterated previous arguments and asserted that the Complaint
was filed on “good basis and facts.” Segen provided no additional evidence, facts or
argument to demonstrate why sanctions should not be imposed. In addition, during the
July 2006 deposition, Segen claimed that, while he was not aware of any facts to support
his claims at the time the action was commenced, he expected the relevant facts to be
uncovered during the discovery process and after depositions were taken. During
Segen’s deposition, as to virtually every count, he acknowledged that he either had no
facts to support his claims, that he was waiting for depositions to be taken or that his
claims were based upon inferences and not facts. In fact, it appears from the transcript
of the deposition that Count Six was the only claim where Segen did not specifically say
that he had no factual support. In Count Six, Segen claimed that his due process rights
were violated because he was not afforded the benefit of a peer review and because other
employees had received reprimands but had not been terminated. (Complaint at 7.)
However, Segen plainly admitted that he did not request a peer review and that he was
not aware of a law that required any such review, which contradicted what was asserted

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in Count Six of his Complaint. (Segen Deposition at 157-58.)

Segen’s deposition was taken in late July 2006. Since then, Segen has not come
forth with any additional evidence, facts or depositions to support his claims. Nearly six
months have elapsed since Segen asserted that he would present sufficient facts to
support his claims. Segen has presented no additional evidence to this court, and, to this
court’s knowledge, has not attempted further discovery or filed any notice to take
depositions. Rule 11(b)(3) clearly states that allegations and other factual contentions
must have evidentiary support, or that counsel or the unrepresented party be able to
produce such support after a “reasonable opportunity for further investigation or
discovery.” FED. R. CIV. P. 11(b)(3). Thus, this court is of the opinion that Segen has
had ample time, and more than a “reasonable opportunity” to produce evidentiary
support that would demonstrate a good faith argument as to his claims.

In this case, it seems as if Segen’s counsel has merely relied upon his allegations.
An attorney has a duty to conduct a minimal investigation before filing a complaint or
formalizing the allegations. See Blue, 914 F.2d at 542. Since filing the Complaint,
Segen has produced no additional evidence to support his claims and has made no
attempt to collect additional evidence. The only statements or evidence that have been
provided, are Segen’s own statements from the July deposition. However, this
deposition only served as an opportunity for defense counsel to determine if facts were
present to establish jurisdiction and to determine if there was a factual basis for Segen’s
claims. Far from supporting Segen’s claims, not only did this deposition prove that there
was no diversity of citizenship between the parties, but it also proved that Segen did not
have evidentiary support for his claims at the time the action was commenced.

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Segen’s Complaint amounts to nothing more than mere accusations, without any
substantive or factual basis to support it. In Payman v. Wellmont Health Sys., 2005 U.S.
Dist. LEXIS 784 at *22-23, No. 2:04cv00089 (W.D. Va. Jan. 20, 2005), this court
determined that sanctions were warranted where the plaintiff physician based a
discrimination claim solely upon two statements made by employees of the defendant
and the subsequent hiring of another physician. This court held that the plaintiff’s
claims were not objectively reasonable. See also Payman v. Mirza, at *5 2003 U.S. Dist.
LEXIS 3063, No. 2:02cv00023 (W.D. Va. Mar. 3, 2003) (where Judge Jones of this
court found that the plaintiff failed to present objectively reasonable evidence to support
the claims). Likewise, it is not objectively reasonable to base a complaint on
implications or “connecting the dots.”

In the case at hand, the fact that Dr. J. N. Patel allegedly stated that “you’ll be
paying for this” is a completely unreasonable basis for a claim considering Segen
admitted that the alleged statement was the only fact he had to prove that Dr. J. N. Patel
tortiously interfered with his contract. (Segen Deposition at 188.) Although Segen
claimed that Dr. J. N. Patel had illegally obtained privileged patient information, he was
unable to name one patient whose information had been taken. (Segen Deposition at 24-
25.) Segen further explained that he based his allegations against Dr. J. N. Patel on
“common knowledge,” without any substantive facts to support those allegations.
(Segen Deposition at 191.) Similarly, Segen acknowledged that his claims against Dr.
Dinkar Patel and Dr. Doric Turjman were without factual basis and that he expected the
information to come forth during the discovery process. However, Segen has made no
attempt to discover this information.

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When asked about the factual basis for his claims against Sue Rife, Segen stated
that, because he had commented that someone without a medical background should not
be the president of the board of trustees of a hospital, “a bit of a vendetta” was created
and, thus, she wanted him fired. (Segen Deposition at 72.) Segen was questioned
further regarding his evidentiary support for this claim, to which he responded, “[w]e
tend to connect dots in the world.” (Segen Deposition at 74.) Based upon this evidence,
it is not objectively reasonable to claim that Sue Rife conspired to have Segen’s contract
terminated. See Payman, 2005 U.S. Dist. LEXIS 784.

Continuing, Segen acknowledged that his claims against Joan Jamison and
Beverly Anderson were without evidentiary support. (Segen Deposition at 77-78.) Once
again, Segen relied upon inferences and not facts. Segen repeatedly stated that he was
waiting for depositions to be taken or that he “connected the dots.” (Segen Deposition
at 160-61.) However, Segen has yet to present any type of evidentiary support to
substantiate his claims.

The purpose of Rule 11 sanctions is essentially to act as a deterrence to future
litigation abuse and to provide a remedy for that abuse. See In re Sargent, 136 F.3d 349,
352 (4th Cir. 1998); see also Brubaker, 943 F.2d at 1373-74. If courts allow parties
and/or their counsel to file actions upon mere accusations, without appropriate
evidentiary support, the administration of justice will undoubtedly be adversely
impacted. In this case, based upon Segen’s deposition, it seems evident that Segen
initiated this claim knowing that he had no factual basis to support his claims.
Moreover, it is equally as evident that Segen’s counsel, once put on notice that Segen
had no evidentiary support, relied upon Segen’s accusations and failed to conduct further

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investigation and/or discovery that could have produced such support. Because Segen
has failed to produce any relevant evidence to support his claims, I am of the opinion
that sanctions are warranted in this case.

Accordingly I will enter a separate order giving the defendants 10 days to file a
proposed statement of costs with this court.

PROPOSED FINDINGS OF FACT

As supplemented by the above summary and analysis, the undersigned now
submits the following formal findings, conclusions and recommendations:

1.

2.

3.

4.

5.

6.

7.
8.

This action was commenced on January 23, 2006. At that time, Segen was
a United States citizen who was domiciled in England;
For purposes of diversity of citizenship, diversity is determined at the time
the action is commenced;
A person who is a citizen of the United States, but not domiciled within a
State, is considered “stateless” for diversity jurisdiction purposes;
Segen’s Complaint alleged that jurisdiction was conferred upon this court
based upon diversity of citizenship. However, Segen failed to allege facts
to establish proper diversity;
In his Complaint, Segen also alleged that jurisdiction was conferred upon
this court based upon federal HIPAA violations and numerous federally
protected privacy violations;
In his Response to the defendants’ Motions to Dismiss, Segen claimed that
this court possessed federal question jurisdiction because he was denied
due process when the defendants conspired against him and tortiously
interfered with his contract as a result of his whistleblowing activity;
HIPAA does not provide for a private cause of action;
Segen failed to refer to any applicable federal whistleblowing statute, and
his alternative argument for jurisdiction amounted to additional state law
claims for which this court has no diversity jurisdiction to hear;

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9.

10.

11.

12.

13.

Thus, Segen failed to allege facts upon which proper jurisdiction could be
based;
The elements of a Rule 11 sanctions inquiry are: (1) whether the plaintiff
made a reasonable inquiry to determine that the complaint stood well-
grounded in fact; (2) whether the plaintiff made a reasonable inquiry to
determine that the complaint was warranted by existing law; and (3)
whether the complaint was filed for an improper purpose;
The Complaint was neither well-grounded in jurisdictional facts nor in facts
to support Segen’s legal claims;
The Complaint was not warranted by existing law or by a good faith
argument to change the current law; and
Segen failed to provide factual support for his claims, and acknowledged
that he knew he lacked this factual support at the time the action was
commenced.

RECOMMENDED DISPOSITION

Based on the above-stated reasons, I recommend that the court grant the
defendants’ Motions to Dismiss and grant the defendants’ Motions for Sanctions.

NOTICE TO PARTIES

Notice is hereby given to the parties of the provisions of 28 U.S.C. § 636(b)(1)(c)
(West 2006):

Within ten days after being served with a copy [of this Report and
Recommendation], any party may serve and file written objections to
such proposed findings and recommendations as provided by rules of
court. A judge of the court shall make a de novo determination of those
portions of the report or specified proposed findings or recommendations
to which objection is made. A judge of the court may accept, reject, or
modify, in whole or in part, the findings or recommendations made by

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the magistrate judge. The judge may also receive further evidence or
recommit the matter to the magistrate judge with instructions.

Failure to file written objections to these proposed findings and recommendations
within 10 days could waive appellate review. At the conclusion of the 10-day period,
the Clerk is directed to transmit the record in this matter to the Honorable Glen M.
Williams, Senior United States District Judge.

The Clerk also is directed to send copies of this Report and Recommendation to
all counsel of record.

DATED:

February 7, 2007.

/s/ Pamela Meade Sargent
UNITED STATES MAGISTRATE JUDGE

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