Health Mgmt. Assocs., Inc. v. Yerby

Health Mgmt. Assocs., Inc. v. Yerby, 2009 NCBC 14.

NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE
SUPERIOR COURT DIVISION
FRANKLIN COUNTY 06 CVS 0839

HEALTH MANAGEMENT ASSOCIATES,
INC., AND LOUISBURG H.M.A., INC.,
d/b/a FRANKLIN REGIONAL MEDICAL
CENTER,
Plaintiffs

v. OPINION AND ORDER
GRANTING SUMMARY JUDGMENT
LEMUEL G. YERBY, III, M.D., TRIANGLE
SURGICAL ASSOCIATES, P.A.,
MEDICAL MUTUAL INSURANCE
COMPANY OF NORTH CAROLINA a/k/a
MEDICAL MUTUAL INSURANCE
COMPANY OF NORTH CAROLINA, INC.,
MEDICAL MUTUAL SERVICES, LLC,
AND STEVEN SCHWAM, M.D.,
Defendants.

This matter came before the court on a Motion for Summary Judgment (the

“Motion”) filed by Defendants Lemuel G. Yerby, III, M.D. and Triangle Surgical

Associates, P.A. Among other things, the Motion presents the issue of whether, nothing

else appearing, a corporate parent that settles all personal injury claims brought against

it, its subsidiary entity and unrelated alleged joint tortfeasors has standing to seek

recovery of contribution or indemnity from the unrelated but released joint tortfeasors.

Under the facts of this particular matter, the court concludes that such remedies are not

available to the corporate parent, and that the Motion should be granted.

Mitchell Brewer Richardson, by Ronnie M. Mitchell, Esq. and Coy E. Brewer,
Esq. for Plaintiffs.
Young Moore and Henderson, P.A., by William P. Daniell, Esq. and Kelly E.
Street, Esq.; and Walker, Clark, Allen, Grice & Ammons, LLP, by Robert D.
Walker, Jr., Esq. for Defendants.

Jolly, Judge.

[1] This is a civil action seeking recovery for contribution, indemnification and

unjust enrichment. It arises out of settlement by one or more of the Plaintiffs of all

remaining personal injury claims in the case of Joan M. Faulkner and John Faulkner v.

Health Management Associates, Inc.; Louisburg H.M.A., Inc. d/b/a Franklin Regional

Medical Center; Steven Schwam, M.D.; Lemuel Yerby M.D. and Triangle Surgical

Associates, P.A., Franklin County File No. 03 CVS 271 (the “Faulkner Lawsuit”).

[2] This matter was designated as a complex business case pursuant to

Rules 2.1 and 2.2 of the General Rules of Practice for the Superior and District Courts,

and assigned to the undersigned, Special Superior Court Judge for Complex Business

Cases, by Order of The Honorable Sarah Parker, Chief Justice of the Supreme Court of

North Carolina on July 24, 2007.

[3] After considering the briefs, arguments of counsel, pleadings, discovery

and all other admissible matters of record, the court reaches the conclusions reflected in

this Order.

[4] The material facts reflected in paragraphs 5 through 41 of this Order exist,

are undisputed 1 and are pertinent to the issues raised by the Motion.

1
It is not proper for a trial court to make findings of fact in determining a motion for summary judgment
under Rule 56 of the North Carolina Rules of Civil Procedure (“Rule(s)”). However, it is appropriate for a
Rule 56 order to reflect material facts that the court concludes exist and are not disputed, and which
support the legal conclusions with regard to summary judgment. Hyde Ins. Agency v. Dixie Leasing, 26
N.C. App. 138 (1975).
I.

FACTUAL AND PROCEDURAL BACKGROUND

[5] This case arises out of the Faulkner Lawsuit, which was filed by Joan

Faulkner (“Ms. Faulkner”) and her husband (“Dr. Faulkner”) (Ms. Faulkner and Dr.

Faulkner sometimes are referred to herein collectively as the “Faulkners”) on April 7,

2003, in the Superior Court of Franklin County. In that civil action, the Plaintiffs sought

recovery for injuries sustained by Ms. Faulkner during an operating room fire that

occurred on June 25, 2002, at Franklin Regional Medical Center (“Franklin Regional”), a

hospital in Louisburg, North Carolina, that was owned and operated by Louisburg HMA,

Inc.

[6] The Defendants in the Faulkner Lawsuit were (a) Dr. Lemuel G. Yerby, III

(“Dr. Yerby”), a surgeon; (b) Triangle Surgical Associates, P.A., Dr. Yerby’s employer;

(c) Dr. Steven Schwam (“Dr. Schwam”), an anesthesiologist; (d) Health Management

Associates, Inc. (“HMA”) and (e) Louisburg H.M.A., Inc. (“Louisburg HMA”), a subsidiary

of HMA.

[7] HMA is, and at all relevant times to this action was, a corporation

organized and existing under the laws of Delaware with its principal place of business in

Naples, Florida.

[8] HMA is, and at all relevant times to this action was, a “holding company,”

which acquires hospitals and medical practices that it then operates as separate and

distinct corporate entities. The hospitals and medical practices are incorporated in the

states in which they are located.
[9] In 1986, HMA became the sole shareholder of Louisburg HMA, a North

Carolina corporation that owns and operates Franklin Regional.

[10] Louisburg HMA is, and at all times relevant to this action was, a

corporation organized and existing under the laws of the State of North Carolina and

doing business as Franklin Regional Medical Center in Louisburg, North Carolina.

[11] Louisburg HMA is, and at all times relevant to this action was, a

corporation with its own Articles of Incorporation and Bylaws.

[12] At all times relevant to this action, Louisburg HMA owned the land and

buildings where Franklin Regional is located.

[13] At all times relevant to this action, the individuals at Franklin Regional who

provided healthcare to patients were either employees of Louisburg HMA or were

independent contractors who had privileges to treat patients at Franklin Regional.

[14] At all times relevant to this action, HMA did not provide any direct patient

care at Franklin Regional.

[15] On June 25, 2002, Ms. Faulkner underwent a left cervical lymph node

biopsy at Franklin Regional for the purpose of determining whether she was suffering

from cancer.

[16] On June 25, 2002, the surgeon who performed Ms. Faulkner’s procedure

was Dr. Yerby. Anesthesia during that procedure was provided by Dr. Schwam and

Kevin Henson, a certified registered nurse anesthetist (CRNA) who was employed by

Louisburg HMA.
[17] Dr. Yerby and Dr. Schwam were independent contractors who, at all times

relevant to this action and the Faulkner Lawsuit, were not employed by either Louisburg

HMA or HMA.

[18] During the June 25, 2002 surgery, a fire occurred and Ms. Faulkner was

burned on the face, neck and chest.

[19] On April 7, 2003, the Faulkners initiated the Faulkner Lawsuit by filing a

Complaint alleging, among other things, negligence on the parts of HMA, Louisburg

HMA, Dr. Yerby, Triangle Surgical Associates, P.A. and Dr. Schwam.

[20] The Complaint in the Faulkner Lawsuit, as amended, included claims

against HMA that were separate and distinct from the negligence claims being asserted

against Dr. Yerby, Triangle Surgical Associates, P.A. and Dr. Schwam. The claims

against HMA included a claim arising from the termination of Dr. Faulkners’ employment

with the Perry Medders Clinic and a claim for punitive damages.

[21] On September 20, 2004, Dr. Schwam entered into a settlement with the

Faulkners and was released from the Faulkner Lawsuit.

[22] The Faulkner Lawsuit then proceeded with respect to the remaining

claims. It was set for trial on August 29, 2005.

[23] Five days before trial, on or about August 24, 2005, HMA and its

professional liability insurance carrier, The Doctors’ Company, entered into a settlement

with the Faulkners of all remaining claims in the Faulkner Lawsuit. Pursuant to the

Settlement Agreement and Release (“Settlement Agreement”), The Doctors’ Company

paid to the Faulkners its liability policy limits and HMA paid an additional amount to the

Faulkners.
[24] The terms of the Settlement Agreement provided that not only were HMA

and Louisburg HMA released from any liability to the Faulkners arising from the June

25, 2002 surgery, but also that Defendants Dr. Yerby and Triangle Surgical Associates,

Inc. were released from any liability to the Faulkners arising from the surgery.

[25] Defendants Dr. Yerby and Triangle Surgical Associates, Inc. never

authorized HMA to act on their behalf with respect to settlement of the Faulkner

Lawsuit; and, in fact, they refused to participate in the settlement negotiated by HMA.

[26] Defendants Dr. Yerby and Triangle Surgical Associates, P.A. did not

execute the Settlement Agreement.

[27] The Settlement Agreement specifically provided for the release of:

all claims “including, but not limited to, any and all damages
alleged and claimed to have been sustained by Releasors, as
well as any and all claims for negligence, negligent infliction of
emotional distress, loss of consortium, or employment issues
alleged or claimed to have been sustained as a result of any and
all care, treatment, contract of employment, or any other form of
contract between Releasors and any employee, agent or insured
of said Releasees, their agents and employees, arising from
Joan Faulkner’s medical treatment at Franklin Regional Medical
Center on June 25, 2002 or Dr. John Faulkner’s employment with
The Perry Medders Medical Clinic.

[28] The Settlement Agreement did not provide for any allocation of the total

settlement amount between the personal injury claim of Ms. Faulkner, a consortium

claim by Dr. Faulkner, Dr. Faulkner’s contended employment claim or the contended

punitive damages claim against HMA.

[29] On August 24, 2005, The Doctors’ Company issued a settlement check for

its portion of the settlement payment to Patterson Harkavy and Lawrence, as attorneys

for the Faulkners.
[30] On September 13, 2005, pursuant to the Settlement Agreement, HMA

transferred the balance of the settlement payment by wire transfer from a bank account

at Wachovia Corporation in the name of “Hospital Management Associates, Inc.” to

Patterson Harkavy and Lawrence, as attorneys for the Faulkners.

[31] Louisburg HMA did not make any settlement payment to the Faulkners.

[32] On June 5, 2006, the Faulkners dismissed the Faulkner Lawsuit, with

prejudice as to the remaining Defendants.

[33] On or about August 24, 2006, Plaintiffs HMA and Louisburg HMA brought

this civil action, in which they seek “compensatory damages” from various Defendants

in connection with the payment made by and in behalf of HMA to settle the Faulkner

Lawsuit. Plaintiffs voluntarily have dismissed all Defendants other than Dr. Yerby and

Triangle Surgical Associates, P.A.

[34] With regard to the moving Defendants, the Plaintiffs’ claims (“Claim(s)”)

allege that: (a) Plaintiff Louisburg HMA is entitled to contribution, (b) Plaintiff HMA is

entitled to contribution, (c) the moving Defendants have been unjustly enriched by

Plaintiffs and (d) Plaintiff HMA is entitled to indemnity.

[35] At times material to this civil action, HMA operated an insurance program

pursuant to which it collected payments from its subsidiaries, pooled those funds, and

then used them to pay indemnification claims against the subsidiaries if such payments

became necessary. However, at such times, HMA had not been licensed as an

insurance company in North Carolina.

[36] The Defendants filed their Motion on January 23, 2009, and it came on for

hearing before this court on February 25, 2009.
[37] At the time the Motion was called for hearing, Plaintiff HMA did not have a

Certificate of Authority required by North Carolina for foreign corporations transacting

business in this State to maintain an action herein.

[38] The Complaint in this civil action did not include an allegation that the

corporate veil should be pierced or otherwise that the acts of HMA should be treated as

acts of its subsidiary, Louisburg HMA.

[39] In their Answer in the Faulkner Lawsuit, HMA and Louisburg HMA denied

that HMA exercised control over Louisburg HMA or that it operated Louisburg HMA as a

mere instrumentality of HMA. 2

[40] Further, in the course of the Faulkner Lawsuit, HMA filed a formal

response to Plaintiffs’ discovery that was entitled “Defendants (sic) Health Management

Associates, Inc.’s Supplemental Responses to Plaintiffs’ First Set of Interrogatories and

Request for Production of Documents and Motion for Protective Order.” In that factual

response, HMA and Louisburg HMA affirmatively averred that (a) Louisburg HMA was

not a mere instrumentality of HMA; (b) that HMA did not completely dominate Louisburg

HMA’s finances or its policies or business practices and (c) that Louisburg HMA (i) had

its own separate mind, will and existence; (ii) was adequately capitalized; (iii) had

complied with corporate formalities; (iv) had its own independent corporate identity and

(v) had its own articles of incorporation and bylaws.

[41] Notwithstanding Plaintiffs’ pleadings and discovery responses to the

contrary in the Faulkner Lawsuit, in Plaintiffs’ Memorandum in Opposition to

Defendants’ Motion for Summary Judgment (Plaintiffs’ “Memorandum”) in the instant

action, filed on February 18, 2009, HMA and Louisburg HMA take the position that the
2
Answer Defs. Health Mgmt. Assocs. and Louisburg HMA, ¶ 4.
corporate veil between them should be disregarded and considered pierced. Plaintiffs

say that (a) Louisburg HMA had limited capital; (b) its funds were swept to the

controlling parent HMA, and the parent supplied the thinly capitalized Louisburg HMA

with payroll and other funds as necessary for the subsidiary to function; (c) Louisburg

HMA did not observe corporate formalities; (d) HMA completely dominated Louisburg

HMA and (e) that Louisburg HMA was a mere instrumentality of HMA.

II.

DISCUSSION

[42] Defendants contend that they are entitled to summary judgment in their

favor because the undisputed evidence establishes that:

(a) Plaintiff Louisburg HMA paid no portion of the settlement in the

Faulkner Lawsuit, and therefore has no standing in this action to seek recovery

from Defendants Yerby or Triangle Surgical Associates, Inc., whether for

contribution, indemnification or unjust enrichment.

(b) HMA was not a tortfeasor in the Faulkner Lawsuit; and therefore it

has no legal basis as a tortfeasor for pursuing a claim against Defendants Yerby

or Triangle Surgical Associates, Inc. for contribution, indemnification or unjust

enrichment in this action.

(c) HMA, which directly or through its insurance carrier, paid the

settlement in the underlying Faulkner Lawsuit did so while at all times material it

was acting in North Carolina as an unlicensed insurance company, and therefore

it is barred from pursuing this action.
(d) HMA and Louisburg HMA were maintained as separate corporate

entities, they were not the alter ego of each other and the corporate veil between

them prevents HMA from standing in the shoes of Louisburg HMA for purposes

of this civil action.

(e) In the alternative, should there be any evidence of record in this

civil action to the effect that the corporate veil between HMA and Louisburg HMA

was susceptible to piercing, HMA and Louisburg HMA should be judicially

estopped from arguing such contentions because (i) they took a clearly and

materially contrary factual and legal position in the Faulkner Lawsuit; (ii) they

have derived, enjoyed and relied upon the benefits of the corporate structure that

they created and observed and (iii) they now should be estopped from attempting

to avoid the detriments of that corporate structure.

(f) Defendants did not request, encourage or otherwise entice

Plaintiffs to settle the Faulkner Lawsuit, and therefore HMA is not entitled to

pursue a claim for unjust enrichment.

(g) The making of a lump sum settlement payment to the Faulkners,

without there being any allocation made between the various disparate Faulkner

Lawsuit claims, some of which do not involve the moving Defendants, presents a

fatal flaw to the HMA contribution or indemnity claims.

[43] Plaintiffs oppose the Motion, contending that the forecast of evidence is

sufficient to support an inference that:

(a) The corporate veil between HMA and Louisburg HMA should be

deemed pierced, so that the actions of each are attributable to the other.
Consequently, the settlement payment made by HMA should be treated no

differently than if it had been made by Louisburg HMA.

(b) HMA was passively negligent and Defendant Yerby was actively

negligent, and therefore HMA is entitled to indemnification from Defendant

Yerby.

(c) Defendants benefitted from the settlement by HMA of the Faulkner

Lawsuit, and were therefore unjustly enriched.

[44] The court is forced to agree with Defendants.

[45] Louisburg HMA made no settlement payments to the Faulkners, and it has

no independent standing in this action to pursue claims against either Defendant. G.S.

1B-1(a) and (b).

[46] There is no admissible evidence before the court supporting an inference

that HMA was independently negligent in causing any injuries to the Faulkners. Indeed,

Plaintiffs here do not contend that HMA independently was a joint tortfeasor in causing

the Faulkners’ injuries. Consequently, HMA does not have independent standing as a

tortfeasor to bring a contribution claim against the moving Defendants under North

Carolina’s Uniform Contribution Among Tort-Feasors Act, N.C. Gen. Stat. Chapter 1B

(the “Act”) (respective Sections of the North Carolina General Statutes are cited herein

as “G.S.”). G.S. 1B-1(a) and (b). Nationwide Mut. Ins. Co. v. Weeks-Allen Motor Co.,

18 N.C. App. 689 (1973).

[47] There is insufficient admissible evidence forecast in this civil action to give

rise to an inference that (i) HMA failed to maintain a separate corporate identity between

it and Louisburg HMA that would expose HMA to liability for negligent acts of Louisburg
HMA; or that (ii) Louisburg HMA otherwise was acting as the alter ego or as the “mere

instrumentality” of HMA. One of these circumstances was necessary for HMA to have

exposure to liability to third parties for negligent acts of Louisburg HMA, or otherwise for

Louisburg HMA to be deemed at law the alter ego of HMA. The B-W Acceptance Corp.

v. Spencer, 268 N.C. 1, 8 (1966); Whitehurst v. FCX Fruit and Vegetable Service, 224

N.C. 628 (1944).

[48] Even if there was evidence of record that would support an inference that

the corporate veil between HMA and Louisburg HMA could be pierced, under the facts

of this action, the Plaintiffs are estopped from making such an argument by virtue of

their knowingly having taken diametrically opposed positions on the corporate veil

issues in the Faulkner Lawsuit and in the instant action. 3

[49] Therefore, whether under theories of alter ego or piercing of the corporate

veil, neither HMA nor Louisburg HMA is able to stand in the shoes of the other in

attempting to recover on the Claims asserted in this action against the moving

Defendants.

[50] HMA does not have standing to recover contribution from the moving

Defendants on the theory that it is in the position of a subrogated insurance carrier for

Louisburg HMA, because at times material HMA was operating without the necessary

3
The North Carolina courts have recognized that the circumstances under which the equitable doctrine of
judicial estoppel may be imposed are not reducible to a particular formulation of principles. Price v. Price,
169 N.C. App. 187, 190 (2005) (in the context of judicial estoppel). The application of estoppel may vary
based on the facts of each case. Miller v. Talton, 112 N.C. App. 484, 488 (1993). Further, neither intent
to deceive, bad faith nor fraud are necessary before estoppel may apply. Hamilton v. Hamilton, 296 N.C.
574, 576 (1978). Rather, the wrong lies in the inconsistent position on material factual issue
subsequently taken by the party being estopped, rather than in the original conduct. Id. Consequently,
as a matter of equity, the Plaintiffs are bound by their affirmative assertions in the Faulkner Lawsuit to the
effect that there was a separate corporate identity between HMA and Louisburg HMA that could not be
pierced.
licensure in North Carolina. 4

[51] There is insufficient admissible evidence forecast in this civil action to give

rise to an inference that HMA was exposed to or suffered any derivative liability as a

proximate result of contended negligence on the part of either moving Defendant.

Therefore, as a matter of law HMA is not entitled to pursue an indemnity claim, either at

law or equity, against the moving Defendants. 5

[52] There is insufficient admissible evidence forecast in this civil action to give

rise to an inference that either Defendant was unjustly enriched by HMA’s settlement of

the Faulkner claims. In Wright v. Wright, 305 N.C. 345, 350 (1982), the Supreme Court

of North Carolina held that not every voluntary benefit provided to another is unjust

enrichment. Specifically, the recipient of a benefit voluntarily bestowed without

solicitation or inducement is not liable for its value. Id. Here, HMA voluntarily entered

into the Settlement Agreement without solicitation or inducement by the moving

Defendants, and as a matter of law it is not entitled to pursue an unjust enrichment

Claim against them, either at law or equity.

[53] The undisputed admissible evidence forecast in this civil action

establishes that as to the moving Defendants, the settlement payment by HMA to the

Faulkners constituted a voluntary act.

[54] Plaintiff HMA has forecast insufficient evidence to support any of its

Claims against either moving Defendant.

4
G.S. 58-28-15 provides that “no company transacting insurance business in this State without a license
shall be permitted to maintain an action at law or in equity in any court of this State to enforce any right,
claim or demand arising out of the transaction of such business until such company shall have obtained a
license.”
5
See Sullivan v. Smith, 56 N.C. App. 525, 531 (1982).
[55] There exist no genuine issues as to any material fact with regard to the

Plaintiffs’ Claims against the moving Defendants; and pursuant to Rule 56, said

Defendants are entitled to summary judgment in their favor as a matter of law.

[56] In light of the above rulings, no determination is required on the issue of

whether the making of a lump sum payment to the Faulkners, without any allocation

being made between the various disparate Faulkner Lawsuit claims is fatal to the HMA

contribution or indemnity claims.

NOW THEREFORE, based upon the foregoing CONCLUSIONS, it is ORDERED

that Defendants’ Motion for Summary Judgment is GRANTED, and this civil action

hereby is DISMISSED.

This the 1st day of June, 2009.