Lisa Womble v. University Health System, Inc. d/b/a University of Tennessee Regional Medical Center

IN THE COURT OF APPEALS OF TENNESSEE
AT KNOXVILLE
September 17, 2013 Session

LISA WOMBLE v. UNIVERSITY HEALTH SYSTEM, INC. d/b/a
UNIVERSITY OF TENNESSEE REGIONAL MEDICAL CENTER, ET AL.

Appeal from the Circuit Court for Knox County
No. 1-347-11 Dale Workman, Judge

No. E2012-02664-COA-R9-CV-FILED-JANUARY 16, 2014

In the wake of her firing from the University of Tennessee Regional Medical Center in
Knoxville, Tennessee, a nurse brought an employment action raising numerous claims. At
the time the nurse originally began working at the medical center, it was owned and managed
by the University of Tennessee and she was considered an employee of the university. In
1999, the university executed a lease and transfer agreement pursuant to Tennessee Code
Annotated section 49-9-112, by which the operation of the medical center was transferred
to a private, nonprofit corporation. Hospital personnel, like the nurse, who had been
university employees prior to the transfer, were thereafter “leased” by the private, nonprofit
corporation from the university. This interlocutory appeal stems from the trial court’s sua
sponte ruling that Tennessee Code Annotated section 49-9-112(a) is unconstitutional. We
reverse the determination of the trial court.

Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Circuit Court
Reversed; Case Remanded

J OHN W. M CC LARTY, J., delivered the opinion of the Court, in which D. M ICHAEL S WINEY
and T HOMAS R. F RIERSON, II, JJ., joined.

Robert Cooper, Jr., Attorney General and Reporter, William E. Young, Solicitor General, and
Melissa Brodhag, Assistant Attorney General, Nashville, Tennessee, for the
intervenor/appellant, Robert E. Cooper, Jr., Attorney General and Reporter.

George T. Underwood, Jr., Knoxville, Tennessee, for the appellee, Lisa Womble.

Howard B. Jackson and Ronald G. Daves, Knoxville, Tennessee, for the appellee, University
Health System, Inc.
 OPINION

I. BACKGROUND

In 1949, the Tennessee General Assembly appropriated a percentage of the funds
needed for the construction of the University of Tennessee Memorial Research Center and
Hospital (“UT Hospital”). 1949 Tenn. Pub. Acts, ch. 154. The legislation provided that
when completed, UT Hospital would be turned over to the University of Tennessee (“UT”)
for operation, specifically for use in teaching courses in health sciences and with the specific
contemplation “for the care of charity patients.” Id. Forty-eight years later, in 1997, the
legislature authorized UT’s Board of Trustees to create a private, nonprofit corporation for
the purpose of operating UT Hospital. See Tenn. Code Ann. §§ 49-9-1301, et seq. The 1997
legislation provides as follows:

(a) The board of trustees is authorized to: (1) Take all steps necessary for the
creation of a private nonprofit corporation under the Tennessee Nonprofit
Corporation Act . . . for the purpose of operating the University of Tennessee
Memorial Research Center and Hospital. . . . The corporation shall not be an
agency, department or political subdivision of the state. The charter of the
nonprofit corporation shall include that its purpose is to operate the University
of Tennessee Memorial Research Center and Hospital in a manner that will
fulfill the hospital’s mission statement of dedication to its continuation as the
premier center to offer medical care to the underserved population of the
thirteen county area served by the hospital.

***

(3) With prior approval of the attorney general and reporter and with prior
approval of the state building commission in consultation with the majority
and minority leaders of both houses of the general assembly, transfer to a
corporation created under this section any or all assets used in or related
to operation of the University of Tennessee Memorial Research Center
and Hospital on such terms and conditions as the trustees deem in the best
interest of the university and state; provided, however, that the trustees shall
take action to provide for continued support of the education and research
missions of the university in the health sciences, including, but not limited to,
access to facilities that will offer clinical experience for students in the health
sciences.

(b)(1) Debts or other obligations of a corporation created under this

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 section shall be payable only from the assets of the corporation and shall
not be debts or obligations of the state. Neither the university nor the
state shall have any legal or other obligation to finance the deficits of, or
provide financial support to, the corporation. . . .

(Emphasis in bold added.). The statute clearly provides that the nonprofit corporation is not
a state entity. It has been observed that the legislation’s goal was “to divest the state of
interest in UT [Hospital], allowing the hospital flexibility in charting its future course,
including future transactions with other entities, while at the same time guaranteeing the state
a return on its investment and veto power over any transaction it believes contravenes the
public interest.” “Conversions of Nonprofit Hospitals to For-Profit Status: The Tennessee
Experience,” 28 U. Mem. L. Rev. 1077, 1124 n. 251 (1998). University Health System, Inc.
(“UHS”) is the nonprofit corporation created pursuant to Tennessee Code Annotated section
49-9-1301(a) to operate UT Hospital.1

Tennessee Code Annotated section 49-9-1304 was passed by the legislature in 1997
as the original UT Hospital Employee “transition” plan:

(a) In carrying out any transfer of the [UT] Hospital under this part, the board
of trustees shall make reasonable efforts to provide for the transition of
employees from the state to non-state employment in an orderly and
equitable manner.

(b) With respect to employees previously employed by the [UT] Hospital, the
private nonprofit hospital created pursuant to this part shall provide:

(1) A defined insurance and leave benefits package that is equivalent
to or better than the benefits package previously enjoyed by employees
of the [UT] Hospital; and

(2) A deferred compensation program and a defined fixed-benefits

1
“Nonprofit corporations generally are recognized to be public or charitable in nature.” State ex rel
Boone v. Sundquist, 884 S.W.2d 438, 444 (Tenn. 1994). A basic distinction between for profit and nonprofit
entities is the possibility of private enrichment. Thus, “[i]n general terms, a nonprofit enterprise is an
organization in which no part of the income is distributable to its members, directors or officers. . . .” Ronald
Lee Gilman, Tennessee Corporations § 11B-1 (2001). See “Developments in the Law – Nonprofit
Corporations,” 105 Harv. L. Rev. 1578, 1582 (May 1992). There is no prohibition on a nonprofit corporation
conducting enterprises for income or from accumulating earnings. However, such revenues must be used
for the purposes set forth in the charter and there must be no pecuniary gain to the incorporators or members,
and no distribution of income or profits to them. 1 Fletcher Cyclopedia of the Law of Corporations § 68.05.

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 retirement plan that is equivalent to or better than the deferred
compensation program and retirement plan available to participants
within the Tennessee consolidated retirement system.

(c) Any person employed by the [UT] Hospital on June 13, 1997, shall
continue to be eligible for the same tuition reduction authorized to any other
employee of [UT] to the same extent the person was entitled to receive tuition
reduction while employed by the [UT] Hospital as long as that person remains
an employee of the private nonprofit hospital created pursuant to this part.

(d) For those employees employed by the [UT] Hospital, it is the legislative
intent that the private nonprofit hospital created pursuant to this part shall
provide compensation at least equivalent to their current compensation and
shall make reasonable allowance for their accumulated benefits (i.e., sick
leave, vacation, educational benefits, etc.) that the employees were eligible for
at the time of the transfer.

(e) With respect to employees previously employed by the [UT] Hospital, the
private nonprofit hospital created pursuant to this part shall only impose
personnel terminations, layoffs, suspensions or demotions for cause and
shall provide affected employees with due process rights and procedures
that the employees previously enjoyed as employees of the [UT] Hospital.

(Emphasis in bold added.). A year later, however, the legislature enacted the statute that is
at issue herein, Tennessee Code Annotated section 49-9-112:

(a) The University of Tennessee is expressly authorized to lease employees to
any nonprofit corporation created under Tennessee law for the purpose of
operating a hospital with which the university is affiliated through its medical
education programs. Employees leased under the authority of this section
shall remain eligible for all university benefits for which they are
otherwise eligible and shall be subject to termination, layoff, suspension
or demotion only in accordance with university personnel policies and
procedures.

Tenn. Code Ann. § 49-9-112(a) (emphasis in bold added). Pursuant to this legislation, UHS
“leased” the UT Hospital employees (“UT Hospital Employees”) working at the hospital
prior to the transfer effective as of the date operation of UT Hospital was turned over to
UHS. The terms of the statute are implemented by an Employee Services Agreement (“the
ESA”). The following sections of the ESA are pertinent in this appeal:

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1.4 Personnel Policies and Procedures. The following personnel policies will
be applied: (a) As described in Tenn. Code Ann. § 49-9-112, and only to the
extent required therein, UT Hospital Employees shall be subject to
termination, layoff (reduction in force), suspension, or demotion only in
accordance with the UT Personnel Policies and Procedures, as
administered by UHS; (b) Subject to the preceding Section 1.4(a), each UHS
Employee and UT Hospital Employee will be an at-will employee, and may
be terminated at any time, subject to the provisions of any applicable federal,
state and local laws. After Closing [on July 29, 1999], UHS will be solely
responsible for all aspects of supervision and control (including, but not
limited to, salary, shift, call and overtime) of all UT Hospital Employees and
UHS Employees and will exclusively administrate its own comprehensive
personnel system (including, but not limited to, its own non-discrimination and
affirmative action plan and its own travel and reimbursement policy). Except
as provided in this Section 1.4, UT and UT Personnel Policies and Procedures
will have no jurisdiction or authority over the Hospital, UT Hospital
Employees or UHS Employees, other than the responsibility of UHS to
faithfully administrate the UT Personnel Policies and Procedures for UT
Hospital Employees with regard to termination, layoffs, suspension and
demotion. UHS shall, at all times, retain the right to control and direct each
UT Hospital Employee, not only as to the result to be accomplished by the
work, but also as to the task and means by which that result is to be
accomplished. UHS shall, at all times, have the right to direct the time and the
place where services shall be performed by UT Hospital Employees, and (c)
subject to Section 1.4(a), UT may apply its UT Personnel Policies and
Procedures to collect debts and obligations owed to it by UT Hospital
Employees or funds subject to garnishment. UT shall have no obligation to
apply its policies and procedures to collect debts owed by UT Hospital
Employees to UHS.

***

2.1 Payment for Services. As consideration for the provision of services by the
UT Hospital Employees, UHS shall be responsible for the UT Costs . . . paid
or incurred by UT with respect to the UT Hospital Employees.

***

2.3 UT Costs. “UT Costs” shall mean all actual sums of money (other than
Excluded Liabilities) incurred or expended by or on behalf of UT . . . on: (a)

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wages and salaries paid to UT Hospital Employees for the services provided
under this Agreement; (b) federal, state and local taxes paid on the amounts
described in (a); (c) the required contributions on behalf of UT Hospital
Employees under UT Retirement Plans, 401(k) match plan, group health
insurance, and life insurance plans with respect to the amounts described in
(a); (d) amounts paid for unemployment insurance as required by Tennessee
law with respect to the amounts described in (a); . . . (g) cost of fee waivers
and discounts for UT Hospital Employees, spouses and dependents at non-UT
institutions; . . . and (i) any other direct expense . . . relating to UT Hospital
Employees not otherwise specified in this Agreement. . . .

2.4 Excluded Liabilities. The following amounts . . . shall be excluded from
UT Costs and will remain the responsibility of UT:

***

2.4.2 Benefits. Obligations with respect to any UT Hospital Employee
. . . for: (a) any payments or liability under any UT Retirement Plans
....

***

9.4. Liability With Respect to UT Hospital Employees. UT Hospital
Employees performing services under this Agreement are “loaned servants”
of UHS. Respondeat superior liability for the acts and omissions of UHS
Employees and the acts and omissions of UT Hospital Employees on or
after Closing shall lie solely with UHS. All workers’ compensation liability
for occurrences on or after Closing with respect to UT Hospital Employees
shall lie solely with UHS. At all times during the Term of this Agreement, and
at its expense, UHS shall provide workers’ compensation insurance for UT
Hospital Employees in accordance with applicable Tennessee law.

9.5 Protection For UT Hospital Employees. UT and UHS understand and
agree that in performing services under this Agreement, the UT Hospital
Employees are state employees “employed in the service of the state” and
their “compensation is payable by the state” within the meaning of Tenn.
Code Ann. § 8-42-101(3)(A)2 and Tenn. Code Ann. § 8-34-101(18).3

2
In regard to legal representation, section 101(3)(A) “‘State employee’ means any person who is a
(continued...)

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 Therefore, UT and UHS understand and agree that the UT Hospital
Employees remain eligible to participate in the UT Retirement Plans and
other UT Benefit Plans and remain eligible to raise the absolute immunity
defense provided in Tenn. Code Ann. § 9-8-307(h) against individual or
personal liability for acts or omissions within the scope of their
employment. Notwithstanding the above, UT and UHS agree that all
respondeat superior liability for the acts and omissions of the UT Hospital
Employees lies solely with UHS, which will exercise exclusive direction and
control over the performance of services by UT Hospital Employees under this
Agreement. UHS shall indemnify, defend, and hold harmless UT Hospital
Employees against all individual or personal liability for Damages arising out
of, attributed to, or in connection with, any act or omission of a UT Hospital
Employee in the performance of services under this Agreement, except for
willful, malicious, or criminal acts or omissions, or for acts of omissions done
for personal gain.

9.6 Indemnification of UT, State and UT and State Employees. (a) UHS shall
indemnify, defend, and hold harmless UT, the State, and their agents, trustees,
officers, employees, and successors against all Damages in any way arising out
of, attributable to, or in connection with: (1) the Existing Facility Operations
before, on or after Closing; (2) any act or omission of a UHS Employee or a
UT Hospital Employee after the Closing regardless of whether the act or
omission relates to the Existing Facility Operations; or (3) any act or omission
of a UHS Employee or a UT Hospital Employee before the Closing only if the
act or omission relates to the Existing Facility Operations. Without limiting
the generality and scope of the preceding sentence, the obligations of UHS
under this Section 9.6 shall include, without limitation, the following
liabilities: Prior Legal Liabilities, tort liability, worker’s compensation
liability, premises liability, environmental liability, professional liability,
malpractice liability, employment discrimination liability, civil rights liability
and liability for breach of any constitution, statutory, common law or

2
(...continued)
state official . . . or any person who is employed in the service of and whose “compensation is payable by
the state, or any person who is employed by the state whose compensation is paid in whole or in part from
federal funds . . . .”
3
For retirement purposes, section 101 (18) “‘General employee’ means any person who is a state
official . . . or who is employed in the service of, and whose compensation is payable in whole or in part by,
the state, including employees under supervision of the state whose compensation is paid, in whole or in part,
from federal or other funds . . . .”

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 contractual duty. Notwithstanding any provision herein to the contrary, the
indemnification and hold harmless obligations of UHS under this Article 9
with respect to a claim filed under the Tennessee Claims Commission Act for
Damages arising out of, attributable to, or in connection with, an occurrence
before Closing, and for which jurisdiction lies under the Tennessee Claims
Commission Act, shall be limited to the monetary limits of liability established
by the Tennessee Claims Commission Act. The indemnification and hold
harmless obligation of UHS under this Article 9 shall be construed as an
obligation to pay Damages and not merely as an obligation to reimburse UT,
the State and their agents, trustees, officers, employees and successors for
Damages paid by them. The obligations of UHS under this Article 9 shall not
be deemed or construed to waive or abrogate in any way the sovereign
immunity of UT, the State, or any officer or employee of UT or the State.

(Emphasis in bold added.).

Lisa Womble had been employed as a nurse at UT Hospital since July 13, 1988. She
became a leased employee of UHS on July 8, 1999.

Womble’s record contains alleged performance deficiencies. In February 2010,
Womble could not be located at UT Hospital for four hours. She was ultimately found
locked in a bathroom lying on the floor with her cell phone disabled. In a meeting the next
day, it is alleged she made unusual statements to UHS management about UT storing
weapons on the premises. Thereafter, she was placed on medical leave. Womble returned
to work at UT Hospital in late March 2010, at which time she was instructed to not abandon
her work in the future. In April and May 2010, however, UHS purportedly continued to
discern performance issues, such as Womble pre-charting procedures and events before they
were actually done; taking a patient to the wrong operating room; placing a D & C specimen
in view of the patient from whom the specimen came; and opening latex gloves in a sterile
environment before knowing whether the patient had a latex allergy. Womble disputes the
alleged “facts” surrounding these incidents and asserts the charges were a pretext for her
firing. In May 2010, Womble received a written warning and was placed on probation. By
the end of June 2010, UHS management learned of Womble’s involvement in an incorrect
sponge and needle count. Furthermore, according to UHS, it had received unsolicited
statements from eight different registered nurses and surgical technicians outlining concerns
over Womble’s conduct and performance. Three UHS members of management met and
determined that Womble should be terminated.

With regard to discharge of a non-exempt employee, UT policy provides, among other
things, that: (1) there be a pre-discharge meeting wherein the employee is told of the

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reason(s) for the proposed action and given an opportunity to respond; and (2) such
employees may request a post-discharge hearing conducted under the contested case
provisions of the Tennessee Uniform Administrative Procedures Act (“TUAPA”), Tennessee
Code Annotated section 4-5-301, et seq. On July 19, 2010, a pre-discharge meeting was held
with Womble. UHS management members Gary Scott, Betty Gissel, and Thomas Fields
conducted the meeting. Gissel explained that the proposed discharge action related to
ongoing patient safety issues. Womble was given an opportunity to respond, but offered little
to no response; the meeting form reflects the following note: “When asked if she had any
questions she said “No questions, none at all.” Womble later testified: “I felt defeated and
there was no reason to try to communicate with them because they had already made their
decision.” In a deposition, Womble stated:

A: . . . I had never been through that before. They presented this to me and I
thought – I know in the 22 years I worked there that the way the policies have
always worked that they have to actually – supposedly, this is my
understanding of how corrective action works, is when you are corrected you
are called into the office and you are given a verbal warning. When you are
given a verbal warning, you are told it’s a verbal warning and you have to sign
a paper saying it’s a verbal warning, and then that has to happen three times
and then they can write you up for that specific thing. They can’t write you up
for four things all at one time on one piece of paper and never notify you until
the day of the thing.

At the conclusion of the meeting, UHS provided Womble with her termination letter,
which included the following description of Womble’s rights related to challenging the
termination:

As an UT leased employee, you have the right to select from two types of
hearings should you wish to appeal your termination. If you desire a hearing,
you must notify the Vice President of Human Resources in writing on or
before 15 working days from receipt of this letter. . . . In your letter, please
state which type of hearing you are requesting. Your options are:

1) A hearing under the provisions of the Tennessee Uniform
Administrative Procedures Act (TUAPA). If you desire a
TUAPA hearing, you have the right to be represented by your
attorney at the hearing. UHS will also be represented by an
attorney at a TUAPA hearing.

2) A hearing under our Complaint Resolution Policy. This

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 hearing is more informal and less complex but equally fair. If
you elect to have this informal hearing, you will be required to
sign a waiver of your right to a TUAPA hearing. Informal
hearings are conducted without legal counsel.

On August 6, Womble sent a letter to Gissel, Vice President of Human Resources, requesting
the TUAPA hearing.

TUAPA HEARING

The hearing was held over a year later on September 29, 2011. Testimony was given
by nine witnesses, including Womble. On March 27, 2012, the hearing officer entered an
initial order upholding the discharge of Womble as justified. Relevant findings from the
hearing officer are as follows:

I. Ms. Womble Did Not Have a Property Interest in Her Employment.

The Hearing Officer recognizes that counsel for Ms. Womble believes that
Tenn. Code Ann. § 8-30-331 guarantees due process to leased employees like
Ms. Womble, and therefore she could only be discharged “for cause and
[provided] due process rights and procedures that are equivalent to or better
than the due process rights and procedures that the employees previously
enjoyed as employees of the University of Tennessee.” The Hearing Officer,
for reasons stated below believes that Ms. Womble was discharged for cause
and was provided adequate due process.

A public employee may have a property interest in his or her employment, but
that property interest is not created by the Constitution. In the instances where
a public employee has a property interest in her employment, it is based on
statute or contract. {See Board of Regents v. Roth, 408 U.S. 564, 577 (1972)}
For example, if a statute gives an employee property interest in a job, then she
has a definite property interest. A teacher with tenure is considered to have a
property interest in her job. Ms. Womble argued that because she had been a
“career state employee” that she had property interest in her job. While the
Hearing Office[r] can sympathize with Ms. Womble believing that because she
invested many years of her career with the Hospital that she had a legally
protected property interest in her employment, she did not. Consequently, the
Hospital did not have to establish that i[t] provided Ms. Womble with due
process. Instead, the Hospital was required to demonstrate that Ms. Womble’s

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 discharge was not arbitrary or capricious.

II. The Hospital Provided Ms. Womble with Due Process

Even though the Hospital was not required to provide due process because Ms.
Womble did not have a protected property interest in her employment, UHS
did provide Ms. Womble with due process. When Ms. Womble’s first serious
medical incident occurred, the Hospital quickly ensured that she was able to
take FMLA leave and participate in a fitness-for-duty process to ensure that
she was ready to return to work. Then, when Ms. Womble engaged in the
“pre-charting” violations (which she freely admitted that she committed), she
received verbal counseling. Then, when she committed multiple violations,
including:

1. Mishandling the “D & C” specimen in front of a patient
2. Opening non-latex-free glove into sterile field
3. Attempting to take patient to the wrong operating room

she received a Correction Action and probation. Even after these incidents
that put her ability to manage patient safety into question, she committed more
violations a month later when she failed to communicate with other staff in the
operating room, and she removed a bag of used sponges from the pole in the
operating room.

Ms. Womble argues that her due process rights were violated because she
should have had the right to confront the people who reported her violations
each time she committed [one]. The first problem with that argument is that
the Hospital was not required to guarantee her due process rights. Second, Ms.
Womble admitted committing virtually every one of the violations that were
reported. Third, Ms. Womble was given the chance to respond to all charges
at a pre-discharge hearing. Finally, the purpose of the TUAPA hearing was to
enable her (or her counsel) to cross-examine any witness who offered
testimony against [her], which she was permitted to do. The Hearing Office[r]
finds that Ms. Womble did receive constitutionally sufficient due process.

***

The discharge was upheld and the order became final after fifteen days. Womble thereafter
appealed the decision to the Chancery Court for Davidson County, where, after review, the
hearing officer’s order upholding the discharge was affirmed and the petition was dismissed

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with prejudice.

Womble filed the instant action on July 18, 2011,4 alleging breach of contract,
outrageous conduct, wrongful termination, Tennessee Human Rights Act violations (age and
disability), misrepresentation, fraud, deceit, malice, and negligence against UHS and her
former supervisor, Fields. The complaint included a claim pursuant to 42 U.S.C. section
1983 on the theory that UHS had denied Womble of property (her employment) without due
process of law. Womble contends that UHS is “cloaked with color of state authority to stand
in the shoes of the state government regarding [her] employment.”

In the proceedings below, UHS moved for summary judgment on all claims. At the
hearing on the motion, the trial court sua sponte raised the subject of the constitutionality of
section 49-9-112(a). The trial court commented that the enabling legislation was an
unconstitutional delegation of governmental authority to a private entity. At the hearing, the
trial court observed inter alia as follows:

THE COURT: . . . The way the Court sees it, if she’s a loaned employee, then
all you have to do is unloan [her]. . . . [G]ive [her] back to UT. It’s UT’s
problem. . . .

If she’s not your employee and you are not a state entity, then none of that
applies. . . .

***

MR. JACKSON: We terminated [her] . . . .

THE COURT: How do you terminate a loaned employee?

***

THE COURT: . . . I think before I can go further you all are going to have to
decide what is the University of Tennessee hospital. If it’s a private entity and
this is a loaned employee from a governmental entity, all you do with that
loaned employee, if you got a loaned employee, you say we’re no longer – see,

4
Additionally, on July 15, 2011, Womble filed with the Division of Claims Administration. A
Commissioner entered an order of dismissal on July 5, 2012, finding that the Claims Commission lacked
subject matter jurisdiction over the case. Womble appealed. We affirmed. Womble v. State of Tennessee,
No. E2012-01711-COA-R3-CV, 2013 WL 3421925 (Tenn. Ct. App. July 3, 2013).

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you go back to sue your employer. The employer didn’t fire them. They are
still employed by the base employer. You couldn’t fire them if they are a
loaned employee.

MR. JACKSON: They are not a loaned employee; they are a leased employee.

***

MR. JACKSON: . . . [T]hat’s what they have is a contract, the Employee
Services Agreement . . . . And by contract, the agreement states to provide
these people with a hearing under TUAPA if they get let go, and that’s what
happened.

THE COURT: Okay. You assumed the University of Tennessee’s duties.
They are not a leased employee; they are your employee.

MR. JACKSON: Contractual, which doesn’t make you a governmental entity,
it just means by contract you agreed to do this.

***

MR. JACKSON: We don’t give them a name clearing hearing, we just took
on contractually this administrative process . . . .

THE COURT: But I’m saying, these were employees of a state agency.

MR. JACKSON: Right.

THE COURT: Then it went private.

MR. JACKSON: Right.

THE COURT: And this employee agreement was entered into to try to give
everybody what they wanted basically.

***

THE COURT: Instead of setting up a private [entity] and saying your
employment with the state ends today –

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 ***

THE COURT: And you can go work for this private entity if you want to or
you can draw unemployment from the state entity.

***

THE COURT: They set up this thing –

***

THE COURT: – they call a leased employee –

***

THE COURT: They can’t fulfill the duties of a government by contract. The
government has a duty, non-delegable duty to meet its duties. If these were its
employees the Court finds by the contract as read it did not – the hospital is not
entitled to the protection of a private corporation under this agreement. It has
assumed the position and duties of the government. You can’t claim yourself
one thing and then act like something else.

***

THE COURT: . . . The Court finds under the Employee Services Agreement
University Health Systems, Inc., a private corporation, has assumed the duties
that are only the duties of a governmental entity. If that’s a valid contract, then
everything University Health Systems did, giving hearings, et cetera, et cetera,
in terminating the plaintiff’s employment is the action of the government, and
the sole and exclusive remedy is through the Board of Claims, not a private
lawsuit.

If that contract giving University Health Systems the power to take these
actions is not valid because it’s not a non-delegable duty – can’t delegate the
duty . . . then it has assumed the liabilities of those duties and it is liable.

The Court has real trouble understanding how a private entity can be liable as
a government, but that’s what this contract basically says and she would be the
beneficiary of it.

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 The Court thinks the contract is void as to the extent it attempts to give
University Health Systems, a private entity, the powers and duties of the state
of Tennessee as to its employees. To that extent, the Motion for Summary
Judgment is granted except for those actions that are not dependent upon
governmental action.

I don’t think the state can delegate its governmental duties. . . .

Another hearing was held in November 2012, at which time the trial court questioned
the constitutionality of Tennessee Code Annotated section 49-9-112(a) on the ground that
it constituted an unconstitutional lending of the State’s credit. In a discussion with the
Assistant Attorney General, the court observed in part as follows:

THE COURT: “[T]he University of Tennessee attempts to transfer its
employees to a nongovernmental agency as a loaned serv[ant], with them
retaining all of the rights of a university employee, but not being employed by
the university.

At the same time after that ‘99 Agreement, the hospital goes out and it hires
people doing basically the same job. So you’ve got two people, side-by-side,
one had been a former university employee who’s said to be treated as with all
the benefits and rights of the university employee; one said in here who’s not
a university employee.

***

THE COURT: . . . Let’s say you have a patient at the hospital. Can they sue
the nurse that wheeled them down the road and dumped them out on the street
and pushed them out in the chair?

Well, if that person is employed directly by the not-for-profit corporation and
never has been a university employee, they can sue that employee individually,
correct?

***

THE COURT: If that person is a UT . . . “State employee,” can they sue
them?

***

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MS. BRODHAG: It would be treated as if they were a State employee.

THE COURT: Where would you sue them?

***

MS. BRODHAG: They would have to go to the Claims Commission.

THE COURT: All right. So we have a situation. How does the public know
where to sue you? How does the State lend its credit to the not-for-profit
corporation?

That’s what you’ve done. Because you’ve immunized what are now their
employees. How do you do that? Instead of being able to come to court and
sue them as an employee of the not-for-profit corporation, now you say: You
go to the State of Tennessee and the State of Tennessee pays for their sins.
Where they have a co-employee at the same time, working the same job that
that’s not true for. How is that not lending the credit [of] the State to a not-for-
profit corporation?

***

THE COURT: . . . [I]t all goes back to . . . [i]s that agreement in the statute
valid? Can the State do that?

***

THE COURT: Okay. Well, let me ask you this: Does she have a right to a
name clearing hearing as an employee of the State of Tennessee under the
Civil Rights Act?

MS. BRODHAG: As far as I understand, she was a UT employee. She has
the same rights as a UT employee –

***

MS. BRODHAG: She does not have a right to a Civil Service hearing. She’s
not a Civil Servant. She was a UT employee.

***

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THE COURT: . . . [S]he is either employed by a not-for-profit or she’s
employed by the State. She can’t be a mixed metaphor.

***

THE COURT: How does someone that is employed by a not-for-profit get all
the rights of a State employee? How does she get State benefits?

MS. BRODHAG: She’s not employed by the foundation. She’s employed by
the State of Tennessee.

THE COURT: And does what? Makes money for who?

MS. BRODHAG: There is a lease agreement that addresses how all of that
applies.

THE COURT: And so, you have a State employee who has all the rights and
benefits who is making his money for a not-for-profit corporation and they
keep the money, right?

***

THE COURT: [T]he end result is: You have a State employee out here
working and getting paid, getting all State benefits; and the results of her work,
the value of her work, goes to the use and benefit of a nongovernment . . .
employer, correct? . . . [T]he revenue stream does not go to the university.
The revenue stream goes to the not-for-profit, correct?

MS. BRODHAG: Yes. Again, it’s all addressed in the lease agreement how
all that works.

***

THE COURT: Her supervisor’s not a State employee and they’ve got no
supervision, but she’s a State employee being supervised by somebody. Now,
does that make sense? . . .

***

THE COURT: Well, she doesn’t have all the rights of a State employee then.

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 Because she cannot sue her supervisor before the Board of Claims.

Any other State employee, working for the State, is being supervised by the
State and would make claim and have the Board of Claims against her
supervisor; but she doesn’t. . . .

***

THE COURT: . . . [H]ere we’ve got someone who’s . . . “a State employee”
getting all the benefits of a State employee, generating revenue for nonprofits.

Does not – the public wouldn’t know who in the world. She’s treated one way,
and the other employees are treated another. I think that’s an illegal exercise
of [t]he State power.

***

THE COURT: . . . I think this situation is the State lending its credit to a
nonprofit corporation because they used employees who have one set of rights.
They restrict the rights of the public versus what they do when they have two
employees sitting side-by-side, one with one set of rights; the other with the
other.

I think that this is unconstitutional, invalid. . . .

Following the July and November 2012 hearings, the trial court ruled that Tennessee
Code Annotated section 49-9-112(a) was unconstitutional; Womble’s 42 U.S.C. section 1983
claims were dismissed, the remainder of UHS’s motion for summary judgment was denied,
and the parties were granted permission to seek an interlocutory appeal pursuant to Rule 9
of the Tennessee Rules of Appellate Procedure. We granted interlocutory appeal on February
29, 2013, and ruled that the sole issue on appeal is the constitutionality of Tennessee Code
Annotated section 49-9-112.

II. STANDARD OF REVIEW

Questions regarding a statute present issues of law; as such, they are reviewed de novo
with no presumption of the correctness of the trial court’s conclusions. U.S. Bank v. Tenn.
Farmers Mut. Ins. Co., 277 S.W.3d 381, 386 (Tenn. 2009).

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 III. DISCUSSION

A.

The Tennessee legislature has broad authority to act, with its power limited only by
the federal and state constitutions. “[T]he General Assembly may enact any legislation that
is not forbidden by the Tennessee or federal constitutions.” The Eye Clinic, P.C. v. Jackson-
Madison Cnty. Gen. Hosp., 986 S.W.2d 565, 577 (Tenn. Ct. App. 1998). A Tennessee court
“may only invalidate a statute when it contravenes either the federal or state constitution.”
Planned Parenthood of Middle Tenn. v. Sundquist, 38 S.W.3d 1, 7 (Tenn. 2000). See also
Bell v. Bank of Nashville, 7 Tenn. 269, 269-70 (1823).

There is a strong presumption that legislative acts are constitutional. Bailey v. Cnty.
of Shelby, 188 S.W.3d 539, 543 (Tenn. 2006); West v. Tenn. Hous. Devel. Agency, 512
S.W.2d 275, 279 (Tenn. 1974). Statutes are “clothed in a presumption of constitutionality
[because] the legislature does not intentionally pass an unconstitutional act.” Vogel v. Wells
Fargo Guard Servs., 937 S.W.2d 856, 858 (Tenn. 1996) (quoting Cruz v. Chevrolet Grey
Iron Div. of Gen. Motors, 247 N.W.2d 764, 769 (Mich. 1976)). Any reasonable doubt about
whether a statute is constitutional must be resolved in favor of its constitutionality. Bailey,
188 S.W.3d at 543. When construing a statute, a court has the “duty to adopt a construction
which will sustain a statute and avoid constitutional conflict if any reasonable construction
exists that satisfies the requirements of the Constitution.” Planned Parenthood, 38 S.W.3d
at 7 (quoting Davis-Kidd Booksellers, Inc. v. McWherter, 806 S.W.2d 520, 529-30 (Tenn.
1993)).

With regard to the Tennessee Constitution, the legislative authority of the State is
vested in the General Assembly. Tenn. Constitution, article II, section 3. The constitutional
prohibition against delegation of legislative power involves the power to make law, or, the
discretion as to what the law should be. See Lobelville Spec. School Dist. v. McCanless, 214
Tenn. 460 (Tenn. 1964). On the other hand, “any power not legislative in character which
the legislature may exercise it may delegate, and before a court can properly hold that a
statute is void as unconstitutionally delegating legislative power, it must clearly appear that
the power in question is purely legislative.” State ex rel. Llewellyn v. Knox Cnty., 54 S.W.2d
973, 976 (Tenn. 1932) (citation and quotations omitted). The Tennessee Supreme Court
observed what authority is legislative in State ex rel. Llewellyn: “The true distinction . . . is
between the delegation of power to make the law, which necessarily involves discretion as
to what it shall be, and conferring authority or discretion as to its execution, to be exercised
under and in pursuance of the law. The first cannot be done; to the latter no valid objection

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can be made.” Id. (quoting Field v. Clark, 143 U.S. 649,700, 12 S.Ct. 495, 505 (1892)). See
also Dept. of Pub. Welfare v. Nat. Help “U” Ass’n, 270 S.W.2d 337, 339 (Tenn. 1954); First
Suburban Water Util. Dist. v. McCanless, 146 S.W.2d 948, 951 (Tenn. 1941). Thus, a
delegation of power will not be declared unconstitutional unless it clearly appears that the
power delegated is purely legislative.

The State is not constitutionally obligated to operate a hospital – in association with
UT or otherwise. Neither the operation of a hospital nor the management of hospital
employees is an inherently governmental function so its delegation to a nonprofit corporation
cannot amount to an improper delegation of governmental authority. See David M.
Lawrence, “Private Exercise of Governmental Power,” 61 Ind. L.J. 647, 648 (1986) (“We
do recognize certain powers as essentially governmental,” and it is the delegation of these
powers to private actors that prompts the question whether they were delegated improperly).
There are no provisions in the Tennessee or federal constitutions that require the State to
operate a hospital. Having provided for the operation of a hospital and hiring employees to
staff it, the State may not by contract evade any constitutional duties that exist as to those
employees. In Tennessee Code Annotated section 49-9-112, the legislature specifically
authorized the transfer of administrative and financial responsibilities relative to the leased
UT Hospital Employees to UHS. The delegated authority is not purely legislative. The State
has no constitutional duty to provide any particular form or level of benefits to the UT
Hospital Employees5 and we know of no provisions of the state or federal constitutions that
preclude the transfer of such administrative or financial responsibilities. Therefore, the
action by the legislature is permissible. See The Eye Clinic, P.C., 986 S.W.2d at 577.

Instead of presuming that the statute was constitutional, the trial court substituted its
judgment for that of the General Assembly. Primarily, it is for the legislature to determine
the public policy of Tennessee. Crawford v. Buckner, 839 S.W.2d 754, 759 (Tenn. 1992).
In the matter of UT Hospital, the General Assembly determined that it was in the best interest
of the State to transfer operation of the facility to UHS and “to take action to provide for
continued support of the education and research missions of the university.” 6 See Tenn. Code
Ann. § 49-9-1301(a)(3). To assist in accomplishing this purpose, the legislature also deemed
it proper to allow the UT Hospital Employees to be leased to UHS. See Tenn. Code Ann. §

5
Absent an express contract, a university employee in Tennessee does not have a property interest
in employment. Woolsey v. Hunt, 932 F.2d 555, 564-65 (6th Cir. 1991) (UT secretary). Further, Tennessee
Code Annotated section 8-30-101(23)(H) exempts UT employees from the definition of employees employed
in state service.
6
The availability of special expertise and the fact that it may be substantially cheaper for government
to delegate power to private actors than to undertake an activity itself are prime reasons for private delegation
decisions. Lawrence, 61 Ind. L. J. at 656-57.

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49-9-112(a). The statute does not confer purely legislative authority on UHS. Rather, it
provides that UHS must administer certain policies and procedures when supervising and
managing UT Hospital Employees and that UHS must pay for the individuals to receive the
same wages and benefits as other UT workers. Such a delegation of administrative
responsibility is well within the legislature’s discretion. Llewellyn ex rel. State, 54 S.W.2d
at 976. Any concern that the termination of UT Hospital Employees will be affected by
private interest is dispelled by the fact that UHS is a nonprofit corporation and the UT
Hospital Employees retain their rights to pre- and post-termination proceedings pursuant to
the UT Policies and Procedures. See Lawrence, 61 Ind. L. J. at 661 (“[I]f a delegation . . .
does include protection against the domination of private interest, no deprivation without due
process will have occurred.”). We find that the statute does not unconstitutionally delegate
legislative authority.

B.

Article II, section 31 of the Tennessee Constitution provides: “The credit of this State
shall not be hereafter loaned or given in aid of any person, association, company, corporation
or municipality; nor shall the State become the owner in whole or in part of any bank or a
stockholder with others in any association, company, corporation or municipality.” Case law
of this State reveals that the term “credit” as used above refers “to obligations due and to
become due.” Ragsdale v. City of Memphis, 70 S.W.3d 56, 68 (Tenn. Ct. App. 2001).
Tennessee Code Annotated section 49-9-1301(b)(1), the statute that allowed for the creation
of UHS, denotes as follows:

(b)(1) Debts or other obligations of a corporation created under this section
shall be payable only from assets of the corporation and shall not be debts or
obligations of the state. Neither the university nor the state shall have any
legal or other obligation to finance the deficits of, or provide financial support
to, the corporation. Effective on the date of transfer of operation of the
hospital to a corporation created under this section, neither the state nor the
university shall have any legal, financial or other responsibility or liability for
the operation of the hospital or the corporation.

Tenn. Code Ann. § 49-9-1301 (b)(1). Accordingly, the legislature clearly has not extended
the credit of the State to UHS. Further, the ESA specifically provides that all costs for the
UT Hospital Employees are assumed by UHS and the State assumes no obligation for those
costs. There is no loan or extension of credit by the State.

Furthermore, as noted by the Attorney General and UHS, not every extension of the

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State’s credit would be unconstitutional:

The obvious purpose of [Section 31] of our Constitution was to prevent the
State from using its credit as a gratuity or donation to any person, corporation,
or municipality. It is further obvious that it was not designed to prevent the
State from using its credit to aid persons, corporations, or municipalities if
required to accomplish a State or public purpose, or to fulfill a State duty or
obligation under its police power. Under the authorization, the Legislature and
not the courts is the exclusive judge of the manner, means, agencies and
methods to meet and fulfill these purposes.

West, 512 S.W.2d at 283-84 (emphasis added).

The legislation before us clearly meets the public purpose test; it promotes the public
purpose of ensuring the maintenance and delivery of quality health care to a large
geographical area of Tennessee. See Bedford Cnty. Hosp. v. Browning, 225 S.W.2d 41, 43
(Tenn. 1949) (providing hospital facilities is a public purpose). Tennessee citizens in the
East Tennessee region have benefitted by this lease arrangement because UHS has
maintained continuity in the operation of UT Hospital and provided the services of competent
medical professionals, all in keeping with the purpose of the statute creating UHS: “to
operate the University of Tennessee Memorial Research Center and hospital in a manner that
will fulfill the hospital’s mission statement of dedication to its continuation as the premier
center to offer medical care to the underserved population of the thirteen county area served
by the hospital.” Tenn. Code Ann. § 49-9-1301(a)(1). Additionally, the UT Hospital
Employees who have lived and worked under this lease agreement are invested heavily in
their State benefits and retirement accounts.

Where the legislature determines that an entity’s activities serve a public purpose, the
courts do not second guess that judgment. “Courts are not authorized to consider whether
legislation is unwise or inequitable; thus, we cannot consider the wisdom or necessity of the
legislature’s policy decisions.” Ragsdale, 70 S.W.3d at 71-72.

IV. CONCLUSION

We reverse the ruling of the trial court that Tennessee Code Annotated section 49-9-
112 is unconstitutional and that the ESA contract is invalid, vacate the order dismissing
certain claims, and remand this matter to the trial court with the instruction to reconsider the
motion for summary judgment. Costs of the appeal are assessed to appellee, Lisa Womble.

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 _________________________________
JOHN W. McCLARTY, JUDGE

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