Johnson v. Hospital Corp. of America

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

_____________________

No. 94-11002
_____________________

ALFRED R. JOHNSON, D.O., ET AL.,

Plaintiff-Appellees,
Cross-Appellants,

versus

HOSPITAL CORPORATION OF AMERICA, ET AL.,

Defendants,

BEDFORD NORTHEAST COMMUNITY HOSPITAL,
INC., ET AL.,

Defendants-Appellants,
Cross-Appellees.

_________________________________________________________________

Appeals from the United States District Court for the
Northern District of Texas
_________________________________________________________________

September 23, 1996

Before JOLLY, DUHÉ, and STEWART, Circuit Judges.

E. GRADY JOLLY, Circuit Judge:

William J. Rea, M.D. and Alfred R. Johnson, D.O. sued the

hospital where they formerly practiced, Bedford Northeast Community

Hospital (the "Hospital"), its parent corporation, HCA Health

Services of Texas, Inc. ("Health Services"), the Hospital’s

administrator, Robert M. Martin, and its chief of staff, Dr. Jim

Linton, and three doctors, Drs. Barry Firstenberg, Richard

Feingold, and Paul Haberer, who served on an ad hoc Hospital
committee to investigate complaints made against Rea and Johnson,

which resulted in the suspension of their admitting privileges.

Rea and Johnson alleged that the Hospital's suspension of their

admitting privileges and its later decision to close the unit to

which they admitted patients violated federal antitrust law. They

also asserted pendent state law claims of breach of contract,

fraud, negligent misrepresentation, slander and business

disparagement and tortious interference with contractual relations.

After a bench trial, the district court held that the Hospital,

Linton, Martin, and Haberer tortiously interfered with Rea and

Johnson's contractual relations with their patients. The district

court denied all other claims. The district court awarded Rea and

Johnson both compensatory and exemplary damages.

We have before us an appeal and cross-appeal. The defendants

appeal the award of damages for tortious interference with business

relations, arguing that the only damages proved at trial were

damages of Rea and Johnson's professional association, for which

they lack standing to seek recovery. The defendants also argue

that the Hospital's decision to close the unit to which Rea and

Johnson admitted patients is protected by the affirmative defense

of legal justification, and that the defendants are entitled to

immunity in connection with the summary suspension of Rea and

Johnson's admitting privileges. Rea and Johnson cross-appeal the

denial of their antitrust and business disparagement claims. The

overarching question before us, thus, is whether Rea and Johnson

-2-
have proved that they are entitled to damages under any theory that

they assert on appeal and, if so, in what amount. We begin with a

review of the relevant facts.

I

Rea and Johnson practice environmental medicine. This

practice involves the treatment of patients with chronic pain or

disease that is believed to be caused or aggravated by chemicals or

other agents found in the patient's environment. Before the

suspension of their hospital privileges, Rea and Johnson admitted

patients to the Environmental Care Unit (“ECU”), a part of the

Hospital's Internal Medicine Department.

The Hospital's relationship with Rea and Johnson had been

tumultuous for some time before their suspension, arising from a

Medicare inspection in September of 1986. Its importance was

heightened because Medicare receipts made up nearly one-half of the

Hospital’s gross revenue. The inspection uncovered several

deficiencies that, unless timely remedied, would result in the loss

of the Hospital's Medicare payments. Among the deficiencies noted

by Medicare was the use of antigens in the ECU.1 Medicare requires

that any medication administered in the Hospital, including

antigens, be properly labeled, dispensed through the Hospital’s

pharmacy, and come from an FDA-approved source. Rea and Johnson

1
Rea and Johnson administered the antigens in small doses to
their patients in order to determine the patient's sensitivity to
the substance.

-3-
manufactured the antigens themselves. They were not an FDA-

approved source.2 Martin notified Rea and Johnson that they would

no longer be able to use the antigens in the Hospital until a

suitable alternative source was found. Martin also advised the

doctors that their reappointment and privileges could be in

jeopardy if their recalcitrance continued. Irrespective of these

instructions, Rea and Johnson continued to provide antigens to

their patients, but only for self-administration.

Other sources of friction arose between the Hospital and Rea

and Johnson. After learning that Rea and Johnson violated hospital

policy by rendering medical services to patients in the "ECU

Hotel," which consisted of several rooms adjacent to the ECU used

by the families of ECU patients "almost as a hotel," the Hospital

decided to close it. Coinciding with its closure of the ECU Hotel,

the Hospital also instituted a cash-only policy for ECU patients.

The Hospital took this action after experiencing problems in bill

collection when insurance coverage was denied to several ECU

patients.

The immediate impetus for the Hospital's suspension of Rea and

Johnson's admitting privileges--one of two factual bases for the

2
Rea and Johnson also manufactured and administered "transfer
factor," a blood product that is used to fight infections and
enhance the immune system. Because transfer factor is an
"investigational drug" requiring approval of the Hospital's
Internal Review Board, which had not approved it, the Hospital
directed Rea and Johnson not to administer it at the Hospital.
Notwithstanding this instruction, they administered transfer factor
to at least one patient after the prohibition.

-4-
present suit--occurred in January of 1987, less than six months

after Medicare inspected the Hospital. The dispute began when the

Hospital's Director of Pharmacy, Mike Warmington, notified Martin,

the hospital administrator, of concerns he had about the drug

regimen of two ECU patients under the care of Rea and Johnson.

On January 22, 1987, the Hospital’s Medical Executive

Committee (“MEC”) met. The MEC was composed of the elected heads

of the Hospital's various departments. During that meeting, Martin

relayed Warmington's concerns. Martin also raised the Hospital's

earlier problems with Rea and Johnson surrounding the use of

antigens and transfer factor in the ECU. Linton, the Hospital's

chief of staff, and Firstenberg, the chairman of internal medicine,

both expressed some concern that the Hospital's previous inquiry

into antigen use was being brought up again now. Feingold

recommended that the MEC bring in an outside consultant to

investigate the charges against Rea and Johnson. Disregarding

Feingold's suggestion, Linton appointed an ad hoc committee (the

"Committee") to review the charts of certain ECU patients.3 The

3
The Hospital's Bylaws provide for the summary suspension of
admitting privileges "whenever action must be taken immediately in
the best interest of patient care . . . ." Hospital Bylaws § 8.2.
The Bylaws further require, however, that complaints about doctors
be submitted in writing to the MEC, which is then to forward the
complaint to the department head where the activities occurred--
here, the Department of Internal Medicine. Bylaws § 8.1-1-5. The
department head is then required to investigate the matter or
appoint an ad hoc committee to investigate. Hospital Bylaws § 8.1-
3. A written report of the investigation is then sent to the MEC,
which may then take action. Id.
Under this framework, Firstenberg, as the Chairman of Internal

-5-
Committee consisted of defendants Drs. Feingold and Firstenberg,

defendant Dr. Paul Haberer, a former chief of staff at the

Hospital, and a fourth member not named as a defendant, Dr. Jeffrey

Mills.

Twenty-two days after its appointment, on February 13, 1987,

three members of the Committee, Mills, Haberer, and Feingold, met

for the first time to review the charts of four ECU patients.

Firstenberg, who was out of town, did not attend the meeting. The

Committee spent two hours reviewing the charts, but prepared no

written findings or recommendations after its review. The charts

showed that Johnson gave one patient four times the daily

recommended dose of Halcion, a level described as toxic in the 1986

Physician's Desk Reference. A second patient received six times

the daily recommended dosage of Halcion, while simultaneously

receiving a second drug that "potentiates" or make stronger the

effect of Halcion. At least one patient appeared from the charts

to be addicted to narcotic pain killers. Other patients

demonstrated depression and suicidal ideations for which no

psychiatric evaluation was performed or treatment provided.

Haberer reported the Committee's findings to Linton by telephone

after the meeting, describing the situation as a “shooting

gallery.”

Medicine, alone had authority to appoint the members of the
Committee.

-6-
 On the morning of February 16, 1987, Martin and Linton met to

discuss the Committee’s findings as orally reported to them by

Haberer. Feingold and Mills confirmed Haberer's report. Joined by

Firstenberg, who had been absent from the Committee's meeting on

February 13, Martin and Linton summoned Johnson. Johnson was

informed that the Hospital was suspending his and Rea's admitting

privileges immediately, but that the doctors' treating privileges

were being suspended effective February 18, 1987, at noon. Both

actions were taken pending further investigation of the doctors'

medical practices through the Hospital's Fair Hearing Process, set

forth in its Bylaws. The Hospital argues on appeal that it did not

immediately suspend the doctors' treatment privileges in order to

allow them "to make arrangements for new doctors to take over the

care of the patients." Despite the promise Johnson made during the

meeting to arrange substitute care, he did not. Martin and Linton

arranged substitute physicians for the ECU patients.

The Hospital confirmed its suspension of Rea and Johnson by

letter the same day, stating that suspensions were based upon §

8.1-4(a)-(f) of the Hospital's Bylaws, which governs summary

suspensions. The letter gave no specific reason for the

suspension. Sometime after the meeting concluded, Firstenberg and

Linton each reviewed for the first time the ECU charts that

triggered the Hospital's suspension of Rea and Johnson.

On February 19, 1987, the MEC met to review the suspension and

voiced considerable concern for the ECU patients' safety. The MEC

-7-
voted unanimously to continue Rea and Johnson's suspension. On

February 26, the MEC met a second time to consider the suspension.

At this meeting, Rea and Johnson each spent an hour answering

questions from the MEC regarding their treatment of patients.

Following the doctors' appearance, the MEC voted unanimously a

second time to affirm the summary suspension pending a full hearing

before the Fair Hearing Committee.

On March 26, 1987, the day before the Fair Hearing Committee

met to consider the suspension, Martin closed the ECU. At the

time, the ECU had no patients and it was doubtful there would be

any new patients in the immediate future.

On March 27, 1987, the Fair Hearing Committee met for over

seventeen hours to hear testimony from Rea and Johnson. Following

the hearing, the committee voted to reinstate Rea and Johnson's

privileges, although at least one member of the committee thought

that the narcotic use in the ECU was "excessive." Based on the

committee's report, the MEC reinstated Rea and Johnson’s

privileges, but placed them on probation for twelve months, on the

condition that the charts of their patients would be reviewed

periodically.

Rea and Johnson appealed the probation decision to the

Hospital’s Board of Trustees, the final authority on admitting

privileges. The Board of Trustees voted to reinstate the doctors

without placing them on probation. The Board of Trustees, however,

sent Rea and Johnson a letter of concern regarding the

-8-
"questionable use of narcotics" in the ECU. The Hospital restored

Rea and Johnson's privileges on June 11, 1987, which was of little

practical consequence to them, however, because the ECU had been

closed.

On September 17, Health Services sold the Hospital to Bedford-

Northeast Community Hospital, Inc. ("BNECH"). Martin continued to

act as Hospital Administrator after the sale to BNECH. Although

Martin discussed with Rea and Johnson the reopening of the ECU on

several occasions, on December 15, 1987, the Hospital made a final

decision not to reopen it.

On February 14, 1989, Rea and Johnson filed this suit, naming

initially as defendants the Hospital Corporation of America ("HCA")

(which was later dismissed by order of the district court), the

Hospital, Martin, Linton, Feingold, Firstenberg, and Haberer. They

asserted violations of the Sherman Act, breach of contract, fraud,

negligent misrepresentation, slander, business disparagement, and

tortious interference with business relations. On February 15,

1990, Rea and Johnson joined as plaintiffs their professional

associations, William J. Rea, M.D. and Associates (“PA1”) and

Environmental Health Center-Dallas, Inc., f/k/a/ WJR & Associates,

P.A. (“PA2"). At the same time they added the Hospital's parent

corporation, Health Services, as a defendant.

Following a bench trial, the district court held for

defendants on the claims for antitrust, breach of contract, fraud,

negligent misrepresentation, slander, and business disparagement.

-9-
With respect to the claim for tortious interference with business

relations, the district court concluded that two defendants,

Firstenberg and Feingold, were entitled to civil immunity under

Texas's peer review statute, and consequently denied the

plaintiffs' claim against them. As to the remaining defendants,

the district court concluded that the Hospital, Health Services,

Martin, Linton and Haberer engaged in two separate incidents of

tortious interference with Rea and Johnson's contractual relations

with their patients--first, by closing the Hospital's ECU and,

second, by summarily suspending Rea and Johnson's admitting

privileges. The district court awarded Rea and Johnson

compensatory damages from February 16, 1987, the date of their

summary suspensions, to December 15, 1987, the date on which the

Hospital decided not to reopen the ECU. Based on expert testimony

that the damages from lost patient revenue equaled $653.23 per day,

the district court awarded Rea and Johnson $197,928.004 in

compensatory damages. The court also awarded Rea and Johnson

exemplary damages in the amount of $200,000.00. Each side has

appealed the district court's judgment.

II

4
The district court found the Hospital, Health Services and
Martin jointly and severally liable to Drs. Rea and Johnson for
$122,154.00. In addition, the court found the Hospital, Health
Services, Martin, Haberer, and Linton jointly and severally liable
for an additional sum of $75,774.00.

-10-
 Our task is to determine whether and to what extent Rea and

Johnson have proved that they are entitled to damages under the

business disparagement, antitrust or tortious interference claims

asserted by them at trial and on appeal. We begin with the

defendants’ claim that Rea and Johnson have failed to prove

standing to recover damages stemming from their summary suspension

and the Hospital's closure of the ECU. We then examine each of the

theories advanced by Rea and Johnson on appeal as a basis for their

recovery of damages.5

III

As a preliminary matter, the defendants contend that Rea and

Johnson lack standing to seek damages stemming from their summary

suspension and the Hospital's closure of the ECU. The defendants

argue that the only damages proved were damages to Rea and

Johnson's professional association, PA2; PA2, moreover, is barred

from recovering any damages for tortious interference because the

limitations period has run, and because PA2 had no admitting

privileges. We are unconvinced by either argument.

The defendants correctly observe that the damages for tortious

interference proved at trial were damages to PA2. The plaintiffs'

expert on damages testified that the loss suffered in this case

included lost profits from the sale of services and products

provided to ECU patients. Because the fees for these services are

5
Rea and Johnson do not appeal the dismissal of their breach
of contract, fraud, and negligent misrepresentation claims.

-11-
paid to PA2, and not to Rea and Johnson directly, the calculation

of damages derived entirely from the loss of earnings to PA2. The

defendants are also correct that under Texas law a shareholder does

not have an individual cause of action for personal damages caused

solely by a wrong done to the corporation. See Cullum v. General

Motors Acceptance Corp., 115 S.W.2d 1196, 1201 (Tex.Civ.App.--

Amarillo 1938, no writ).

We cannot agree, however, that Rea and Johnson lack standing

to recover the damages proved at trial. PA2 assigned its rights to

Rea and Johnson, who may then recover to the same extent as PA2.

See State Fidelity Mortg. Co. v. Varner, 740 S.W.2d 477, 480

(Tex.App.--Houston 1987). Contrary to the defendants' assertion,

PA2 was not barred from recovering damages by limitations. Rea and

Johnson filed their tortious interference claim within the

applicable two-year limitations period; their joinder of PA2 after

the limitations period relates back to the initial filing of the

suit. See Fed. R. Civ. P. 17(a); Ratner v. Sioux National Gas

Corp., 770 F.2d 512, 515, 520 (5th Cir. 1985).

We conclude, moreover, that PA2 has standing to sue for

recovery of damages stemming from the denial of Rea and Johnson's

admitting privileges. In order to establish individual standing,

a plaintiff must show that: (1) he has suffered an actual or

threatened injury as a result of the actions of the defendant; (2)

the injury is "fairly traceable" to the defendant's actions; and

(3) the injury will likely be redressed if he prevails in his

-12-
lawsuit. Save Our Community v. U.S.E.P.A., 971 F.2d 1155, 1160

(5th Cir. 1992) (quoting Valley Forge Christian College v.

Americans United for Separation of Church and State, Inc., 454 U.S.

464, 472, 102 S.Ct. 752, 758-59 (1982)).

PA2 possesses this Article III requirement for standing.

Because Rea and Johnson generate all of the revenues of PA2, they

are the primary assets of that association. As a result, PA2 is

injured in fact by the Hospital's summary suspensions of Rea and

Johnson and we may relieve that injury by awarding damages to PA2.6

As assignees of PA2, Rea and Johnson may recover to the same extent

as PA2.

Having established that Rea and Johnson have standing to

recover the losses sustained by their professional association, we

now consider whether and to what extent they have proved that they

are entitled to damages under any theory asserted by them on

appeal. We first consider whether the plaintiffs' business

6
We note that the Eleventh Circuit Court of Appeals has held
that a corporation of which a suspended physician is the sole
shareholder has no standing to sue for damages stemming from the
denial of the physician's admitting privileges. See Todorov v. DCH
Healthcare Auth., 921 F.2d 1438, 1441 n.1 (11th Cir. 1991). In
Todorov, the Eleventh Circuit reasoned that "[i]t is [the
physician], not [his] corporation, who [is] seeking privileges at
[the Hospital] and, thus, the relief prayed for in this case." Id.

Unlike the plaintiff in Todorov, Rea and Johnson do not seek
injunctive relief since the Hospital has reinstated their admitting
privileges. Even if, however, Rea and Johnson sought injunctive
relief, PA2 would have constitutional standing to seek damages as
it was injured by the Hospital's summary suspension of its primary
assets, Rea and Johnson.

-13-
disparagement claim, denied by the trial court, will support an

award of damages to Rea and Johnson.

IV

Rea and Johnson cross-appeal the district court's denial of

their claims for business disparagement, arguing that they properly

established special damages. The district court found that Rea and

Johnson failed to “show loss of patients or earnings that resulted

directly from the alleged false communications made by Defendants.”

Relying on comment c. to § 632 of the Restatement (2d) of Torts,

Rea and Johnson argue that the actual disparagement need not be the

sole, exclusive factor causing the plaintiffs’ damages; instead,

they assert, the disparagement need only be “a substantial factor

in bringing about the loss.”

We cannot agree. The elements of a claim for business

disparagement are publication by the defendant of the disparaging

words, falsity, malice, lack of privilege and special damages.

Hurlbut v. Gulf Atlantic Life Ins., 749 S.W.2d 762, 767 (Tex.

1987). To prove special damages, a plaintiff must provide evidence

of direct, pecuniary loss attributable to the false communications

of the defendants. Id. (rejecting a claim for business

disparagement where "[o]ur review of the record reveals no evidence

of the direct, pecuniary loss necessary to satisfy the special

damages of a claim for business disparagement). Rea and Johnson

provided no evidence of direct loss at trial, and can point to no

-14-
such loss on appeal. We therefore conclude that Rea and Johnson

are entitled to no damages for business disparagement.

-15-
 IV

We next consider whether the plaintiffs' antitrust claim,

denied by the trial court, can support an award of damages to Rea

and Johnson. Although Rea and Johnson fail to articulate a

coherent theory to support their antitrust claim, they allege that

the Hospital, Health Services, Linton, Martin, Haberer, Firstenberg

and Feingold violated section 1 of the Sherman Act by conspiring to

exclude them from practicing medicine at the Hospital.7 According

to Rea and Johnson, the purpose of their summary suspensions and

the Hospital's closure of its ECU was "to deny all environmental

medicine physicians as a class the ability to compete at the

Hospital," with the effect that the medical practices of the

individual defendants would benefit.

The district court denied Rea and Johnson's antitrust claim

after concluding that they failed to demonstrate a conspiracy

either to close the ECU or to summarily suspend their admitting

privileges. The ECU's closure, the district court found, was a

unilateral decision by the Hospital, acting through Martin, and

therefore could not form the basis of a conspiracy. With respect

to the alleged conspiracy to summarily suspend Rea and Johnson's

admitting privileges, the district court found that any

7
Rea and Johnson also sued under state antitrust law. See
Texas Free Enterprise and Antitrust Act, Tex. Bus. & Comm. Code §
15.05(a). Because the Texas Act mandates that its provisions be
interpreted in harmony with federal antitrust law, id. at §
15.04(a), we do not separately analyze the plaintiffs' state law
antitrust claims.

-16-
"conspiracy . . . among the defendants . . . was not economically

motivated." Although the district court recognized that Rea and

Johnson's theory--that "once [Rea and Johnson] could no longer

treat their patients . . . then these patients could be treated by

other doctors, including the defendants"--"may be true in the

abstract," the court found that "there is no evidence that any of

the individual Defendants stood to benefit economically from the

suspensions of the closing of the ECU." This was, the court noted,

because many of Rea and Johnson's patients were from Canada and no

patient of the plaintiffs "had ever been treated by, were referred

by, or were ever treated afterward by any of the defendant

doctors.”8

When a district court sits as a finder of fact, its factual

determinations will not be overturned on appeal unless they are

clearly erroneous. Pacific Employers Ins. Co. v. M/V Gloria, 767

F.2d 229, 241 (5th Cir. 1985), reh'g denied, 782 F.2d 1351 (5th

Cir. 1986). Under the clearly erroneous standard, "[i]f the

district court's account of the evidence is plausible in light of

the record viewed in its entirety the court of appeals may not

reverse it even though convinced that had it been sitting as the

trier of fact, it would have weighed the evidence differently."

Anderson v. City of Bessemer City, 470 U.S. 564, 574 (1985).

8
In addition to finding no antitrust conspiracy, the court
also found that Rea and Johnson failed to prove that the alleged
conspiracy unreasonably restrained trade.

-17-
 We consider first whether the district court erred in

concluding that no antitrust conspiracy existed to close the ECU

and then address whether the court erred in finding no such

conspiracy with respect to the plaintiffs' summary suspension.

A

Section 1 of the Sherman Antitrust Act forbids contracts,

combinations, or conspiracies in restraint of trade or commerce.

15 U.S.C. § 1. To prevail on a section one claim, plaintiffs must

show that the defendants (1) engaged in a conspiracy (2) that

produced some anti-competitive effect (3) in the relevant market.

See Kiepfer v. Beller, 944 F.2D 1213, 1221 (5th Cir.1991). Section

one applies only to concerted action; unilateral conduct is

excluded from its purview. Monsanto Co. v. Spray-Rite Service

Corp., 465 U.S. 752, 761, 104 S.Ct. 1464, 1469, 79 L.Ed.2d 775

(1984). The plaintiffs bear the burden of proving each element of

the section one violation. See, e.g., Jefferson Parish Hosp. Dist.

No. 2, v. Hyde, 466 U.S. 2, 29, 104 S.Ct. 1551, 1567 (1984).

The initial--and determinative--question in this appeal is

whether Rea and Johnson have established proof of a conspiracy

either to close the ECU or to summarily suspend their admitting

privileges. A plaintiff may rely on either direct or

circumstantial evidence. American Tobacco Co. v. United States,

328 U.S. 781, 809-10, 66 S.Ct. 1125, 1139 (1946). When, as here,

plaintiffs rely on circumstantial evidence to prove the existence

of a conspiracy, they must proffer sufficient evidence to permit

-18-
the inference of an antitrust conspiracy. The Supreme Court in

Matsushita Elec. Indust. Co. v. Zenith Radio Corp. established the

governing standard for what constitutes sufficient evidence to

permit the inference of an antitrust conspiracy:

[T]here must be evidence that tends to exclude the
possibility of independent action. . . . [I]n other
words, [a plaintiff] must show that the inference of
conspiracy is reasonable in light of the competing
interferences of independent action or collusive action
that could not have harmed [the plaintiff]."

475 U.S. 574, 588, 106 S.Ct. 1348, 1356 (1986) (citations omitted)

(emphasis added).

In the present suit, we cannot say that the district court

clearly erred by finding that Rea and Johnson failed to establish

a conspiracy to close the ECU. The district court concluded that

the closure of the ECU was a unilateral decision of the Hospital.

The undisputed evidence amply supports this conclusion. Each of

the defendant doctors testified without contradiction that he had

no input into the decision to close the ECU, testimony that was

confirmed by Martin. Recognizing that the evidence shows no

conspiracy between the Hospital and the defendant doctors, Rea and

Johnson insist on a conspiracy between the Hospital and the entity

that acquired it in September 1987, BNECH.9 Essentially, Rea and

9
Six weeks after the Hospital closed the ECU, it was sold by
its parent, Health Services, to a new entity, Bedford-Northeast
Community Hospital, Inc. ("BNECH"). Thus, Rea and Johnson assert
that prior to its closing, the Hospital and its soon-to-be parent,
BNECH, conspired to close the ECU. In addition, they maintain that
after the ECU's closing, the Hospital and its previous parent,
Health Services, conspired not to reopen the ECU.

-19-
Johnson argue that the closure of the ECU consists of two

subsidiary decisions--the decision by the Hospital to close the ECU

and the decision of BNECH not to reopen the ECU--and that the

Hospital conspired with BNECH in making these decisions. We reject

out-of-hand the existence of a conspiracy initially to close the

ECU. BNECH was not incorporated until nearly six weeks after the

ECU's closure; because it did not exist at the time, it simply

could not have conspired with the Hospital to close the ECU.

We find no greater factual basis for Rea and Johnson's

assertion of a later conspiracy not to reopen the ECU. Rea and

Johnson provide no evidence that the Hospital's first parent,

Health Services, took any action with respect to the ECU after

September 17, the date of the sale to BNECH. Absent such evidence,

Rea and Johnson can point to little more than the mere opportunity

to conspire. In sum, the district court was not clearly erroneous

in choosing to credit Martin's testimony that he decided

unilaterally to close the ECU and, later, not to reopen the ECU and

therefore in refusing to find an antitrust conspiracy surrounding

the ECU's closure. B

Neither can we say that the district court erred by finding

that Rea and Johnson failed to establish a conspiracy to summarily

suspend their admitting privileges. As we noted earlier, to make

such a showing, Rea and Johnson were required to provide "evidence

that tends to exclude the possibility of . . . collusive action

that could not have harmed [the plaintiff]." Matsushita Elec.

-20-
Indust. Co. v. Zenith Radio Corp., 475 U.S. 574, 588, 106 S.Ct.

1348, 1356 (1986) (citations omitted) (emphasis added).

Furthermore, the Supreme Court has explicitly cautioned that "if

the claim is one that simply makes no economic sense[,] respondents

must come forward with more persuasive evidence to support their

claim than otherwise would be necessary." Id. at 1361. Thus, if

the plaintiffs "had no rational economic motive to conspire, and if

their conduct is consistent with other, equally plausible

explanations, the conduct does not give rise to an inference of

conspiracy." Id.

Here, the district court concluded that Rea and Johnson

provided no evidence that "any of the individual Defendants stood

to benefit economically from the suspensions of the closing of the

ECU," and thus that they had proved no antitrust conspiracy. As

before, we cannot say that the district court committed error by

finding that Rea and Johnson failed to establish an illegal

conspiracy. There is no evidence that any individual defendant was

in competition with Rea and Johnson at the time of the summary

suspensions and the closure of the ECU. The district court's

conclusions are supported by the testimony of Drs. Haberer,

Firstenberg, Feingold and Linton, all of whom testified that they

did not hold themselves out as being capable of treating

environmental illnesses. Indeed, Drs. Haberer, Firstenberg, and

Linton did not even have ECU privileges at the time of the

suspensions.

-21-
 The evidence supporting an antitrust conspiracy is even

clearer relative to the Hospital and Health Services. The evidence

showed that patient admissions generate revenues for the Hospital

as well as the admitting doctor. Consequently, there is no

economic benefit that would inure to the Hospital and its parent

from suspending the plaintiffs. Indeed, "as presumably rational

businesses, [they] had every incentive not to engage in the conduct

with which they are charged." Id. at 1360.

In sum, we see no error in the district court's determination

that no antitrust conspiracy existed. We conclude therefore that

Rea and Johnson's antitrust claim can support no award of damages

to them.

V

Finally, we consider whether the claim of tortious

interference with business relations may support the district

court's award of damages to Rea and Johnson. The plaintiffs

asserted two claims based on tortious interference--first, the

Hospital's closure of the ECU and, second, its summary suspension

of Rea and Johnson. We examine first whether tortious interference

stemming from the closing of the ECU may support an award of

damages. We then consider whether tortious interference arising

from the summary suspensions can support an award of damages.

A

The district court held that the defendants, Martin and the

Hospital, tortiously interfered with the plaintiffs’ contractual

-22-
relationships with their patients when they closed the ECU on March

26, 1987, notwithstanding the Hospital's proprietary right to close

one of its units. Relying on Victoria Bank & Trust Co. v. Brady,

811 S.W.2d 931 (Tex. 1991), the district court concluded that under

Texas law only a good faith assertion of legal rights may be raised

as a defense against a claim of interference with contractual

relations; the court then found that although the Hospital had a

proprietary right to close the ECU, Martin and the Hospital did not

act in good faith. Attacking the district court's judgment, the

defendants argue that good faith is not required under Texas law

when a party has a superior interest in the subject matter.

Because they had the lawful right to close the ECU, the defendants

contend, their decision to close the unit cannot be the basis of a

claim for tortious interference with business relations.

To recover for tortious interference with an existing

contract, the plaintiff must prove: (1) the existence of a

contract subject to interference, (2) the act of interference was

willful and intentional, (3) such intentional act was a proximate

cause of plaintiff’s damage and (4) actual damage or loss occurred.

Victoria Bank & Trust Co. v. Brady, 811 S.W.2d 931, 939 (Tex.

1991). Nevertheless, "[e]ven if a plaintiff establishes the

elements of this cause of action, a defendant may still prevail

upon establishing the affirmative defense of justification." Texas

Beef Cattle Co. v. Green, ___ S.W.2d ___, 1996 WL 11237 (Tex.

1996).

-23-
 After this case was tried, the Texas Supreme Court clarified

the relationship of good faith to a defendant's affirmative defense

of justification based on a legal right. See Texas Beef Cattle Co.

v. Green, ___ S.W.2d ___, 1996 WL 11237 (Tex. 1996). The Court

held categorically that "if the trial court finds as a matter of

law that the defendant had a legal right to interfere with a

contract, then the defendant has conclusively established the

justification defense and the motivation behind assertion of that

right is irrelevant." Id. at * 7. Although Victoria Bank stated

that "the defense of legal justification protects only good faith

assertions of legal rights," the Court in Texas Beef expressly

disavow[ed] good faith as relevant to the justification
defense when the defendant establishes its legal right to
act as it did. Only when mistaken, but colorable claims
of legal rights are asserted is the good faith of the
actor legally significant. Only then must the jury
determine whether the defendant believed in good faith
that it had a colorable legal right.

Id.

Thus, Texas Beef is dispositive of the plaintiffs' claim for

damages based on the defendants' closure of its ECU. There is no

agreement between the Hospital and the plaintiffs requiring the

Hospital to keep its ECU open. As such, the Hospital has

established conclusively its legal right to close its ECU. In the

newly shed light of Texas Beef, the Hospital's motivation in

closing its ECU is irrelevant to its defense of justification. We

therefore conclude that Rea and Johnson's claim for tortious

interference stemming from the Hospital's closure of its ECU can

-24-
support no part of the damage award. Consequently, we reverse and

vacate the judgment of the district court, and render judgment for

the defendants on the claim that the Hospital's closure of its ECU

tortiously interfered with the plaintiffs' business contracts. We

now turn to the plaintiffs' second claim for damages based on the

defendants interfering with its business contracts.

B

As we have noted earlier, the district court also held that

the plaintiffs had proved additional damages based on a second

incident of contract interference--the Hospital's summary

suspension of Rea and Johnson's admitting privileges. The district

court concluded, however, that two of the defendants, Firstenberg

and Feingold, acted without malice and therefore were entitled to

immunity. The remaining defendants--Linton, Martin, Haberer and

the Hospital--were not entitled to immunity from civil liability,

the court held, because "the suspension of the Plaintiffs was not

done without malice and in the reasonable belief that their actions

were not warranted by the facts known to them." These defendants

contend that the district court applied the wrong standard for

malice. The district court must be reversed, they argue, because

its finding of malice is clearly erroneous when the correct

standard is applied. Rea and Johnson cross-appeal, arguing that

they presented overwhelming evidence of malice and bad faith on the

part of Feingold and Firstenberg, as well as all other defendants.

-25-
 The defendants' qualification for civil immunity in relation

to the suspensions of Rea and Johnson is governed by Texas' peer

review statute. In 1987--when the alleged tort occurred--that

statute provided in pertinent part that:

(f) The following persons are immune from civil
liability:
(1) a person reporting to or furnishing
information to a medical peer review
committee;
(2) . . . a member, employee, or agent of a
medical peer review committee . . . who takes
any action or makes any recommendation within
the scope of the functions of the . . .
committee . . . if such member, employee, or
agent acts without malice and in the
reasonable belief that such action or
recommendation is warranted by the facts known
to him . . .

Tex. Rev. Civ. Stat. art. 4495b, § 5.06(f) (Vernon Supp. 1985)
(emphasis added).

At the time of the district court’s decision, “malice” had not

been defined by any Texas court for the purpose of art. 4495b, §

5.06(f). Subsequently, however, Texas courts adopted the “actual

malice” standard: "Malice as used in Article 4495(b) . . . [means]

knowledge that an allegation is false or with reckless disregard

for whether the allegation is false.” Maewal v. Adventist Health

Systems/Sunbelt, Inc., 868 S.W.2d 889, 893 (Tex. Ct. App. 1993).

We agree with the defendants that the district court, lacking

a definitive statement from any Texas court, applied the wrong

standard for malice. The standard for common law malice requires

"spite, ill will, evil motive or purposeful injury of another."

Id. at 892. The district court quite clearly based its denial of

-26-
immunity on its conclusion that the Hospital, Martin, Linton and

Haberer acted out of spite toward Rea and Johnson. The court

observed that the suspensions were motivated by "past antagonism

and conflict" between the plaintiffs and Haberer and Martin, "the

perceived arrogance of the Plaintiffs, and, to some extent,

disagreements over the legitimacy of the practice of environmental

medicine." The court further found that Linton and Martin

suspended the plaintiffs without either one of them reviewing a

single chart; instead, they “took this drastic action on the basis

of what they heard from Haberer, who had prior conflicts with

Plaintiffs.” The court specifically concluded that this conduct

"showed malice on the part of [Martin, Linton and Haberer], and

that the acts were intentional and willful."10

This court has on many occasions held that the "clearly

erroneous" standard of review does not insulate factual findings

premised upon an erroneous view of controlling legal principles.

Johnson v. Uncle Ben's, Inc., 628 F.2d 419, 422 (5th Cir. 1980).

In the light of the district court's erroneous application of the

common law standard for malice, we vacate the judgment based on

this claim and remand to the district court for further

consideration and analysis, in accordance with Maewal v. Adventist

Health Systems/Sunbelt, Inc., of whether any defendant acted with

10
With much less explanation, the district court granted
immunity to Firstenberg and Feingold. The court simply found that
the latter "did not act with malice and are, therefore, entitled
to" civil immunity.

-27-
the knowledge that the allegations against Rea and Johnson leading

to their suspensions were false or with reckless disregard for the

falsity of those allegations.

If the district court finds on remand that one or more

defendants acted with knowledge of or reckless disregard for the

falsity of those allegations, and therefore is not entitled to

civil immunity, it must then recalculate its award of compensatory

damages to Rea and Johnson. The court premised its award of

damages not only on the summary suspension of admitting privileges,

but also on the Hospital's closure of the ECU, for which the

Hospital established the affirmative defense of justification. As

we concluded earlier, the Hospital's closure of the ECU, in accord

with its legal right to do so, can support no part of the damage

award. Consequently, Rea and Johnson may not recover for lost

patient revenue after the ECU's closure on March 26, 1987.11 If the

11
Because Rea and Johnson admitted patients at the Hospital
only to the ECU, and because, as we have held, supra, the Hospital
had the proprietary right to close the ECU, they would have
generated no patient revenue from hospital admission after this
date even if their admitting privileges had not been suspended.
They therefore can demonstrate no damages after this date stemming
from the suspension of their admitting privileges.
Arguing that the Hospital's closure of the ECU is "mere
subterfuge or retaliation," Rea and Johnson urge that the
defendants "should not be permitted to dichotomize their
accountability" for the damages to Rea and Johnson stemming from
their suspension. In effect, they argue that they are entitled to
damages even after March 26, even though neither they nor
any other doctor could admit patients to the ECU. We cannot agree.
Were we to accept this, the Hospital would be required to pay
damages to Rea and Johnson notwithstanding its superior legal right
to close the ECU. Because the revenue Rea and Johnson generated
from admitting patients to the ECU would have ceased with the ECU's

-28-
district court decides to award damages to the plaintiffs, and in

the light of the fact that the compensatory damage award, if any,

to Rea and Johnson on remand will be considerably reduced upon

recalculation, the district court also must reconsider and, if

appropriate, recalculate its award of exemplary damages.

VI

Accordingly, we AFFIRM the district court's denial of the

plaintiffs' claims for business disparagement and violations of

section one of the Sherman Act, REVERSE AND VACATE the district

court's award of damages to the plaintiffs for tortious

interference with business relations arising from the Hospital's

closure of the ECU, and VACATE the judgment based on the

plaintiff's claim for tortious interference with business relations

stemming from their summary suspensions and REMAND for additional

findings of fact and recalculation of damages in a manner not

inconsistent with this opinion.

AFFIRMED in part, REVERSED in part,
VACATED in part and REMANDED.

closure even if they had not been suspended, any damages to them
resulting from the closure have no causal connection to the denial
of their patient privileges, and thus the damage award they ask for
would give Rea and Johnson a windfall.

-29-