Highlands Physicians, Inc. v. Wellmont Health System

12/28/2017
IN THE COURT OF APPEALS OF TENNESSEE
AT KNOXVILLE
November 15, 2017 Session

HIGHLANDS PHYSICIANS, INC. v. WELLMONT HEALTH SYSTEM

Direct Appeal from the Law Court for Sullivan County
No. C41368C E. G. Moody, Chancellor

No. E2017-01549-COA-R3-CV

This is an interlocutory appeal as of right from certification of a class. Plaintiff, a
physician-owned independent practice association, and Defendant, an organization that
owns several hospitals and medical clinics, formed a physician-hospital organization to
further their mutual interests, such as joint negotiations with entities such as insurance
companies. Plaintiff filed this class action lawsuit alleging, among other things, that
Defendant breached the contractual non-solicitation and non-competition agreement
between the parties, which caused harm to Plaintiff and its members. Plaintiff moved to
certify a class consisting of itself and its members, and Defendant objected. The trial
court certified the class with respect to all claims pursuant to each of the three categories
of class actions specified in Rule 23.02 of the Tennessee Rules of Civil Procedure. We
reverse the trial court’s certification of the class pursuant to Rule 23.02 subsection (1) of
the Tennessee Rules of Civil Procedure. We affirm the judgment of the trial court and
certification of the class pursuant to subsections (2) and (3) of Rule 23.02 and remand for
further proceedings.

Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Law Court Reversed in
part, Affirmed in part, and Remanded

BRANDON O. GIBSON, J., delivered the opinion of the court, in which D. MICHAEL
SWINEY, C.J., and JOHN W. MCCLARTY, J., joined.

J. Ford Little and William Kyle Carpenter, Knoxville, Tennessee, for the appellant,
Wellmont Health System.

Elizabeth Hutton, Johnson City, Tennessee, and Gary Michael Elden, Pro Hac Vice, and
Matthew C. Wolfe, Pro Hac Vice, Chicago, Illinois, for the appellee, Highlands
Physicians, Inc.
 OPINION

I. FACTS & PROCEDURAL HISTORY

This is an interlocutory appeal as of right filed pursuant to Tennessee Code
Annotated section 27-1-125 by the Defendant/Appellant Wellmont Health System
(“Wellmont”). Our review on appeal is therefore limited to the trial court’s certification
of a class of plaintiffs pursuant to Rule 23 of the Tennessee Rules of Civil Procedure and
does not extend to the merits of the underlying case.

Plaintiff/Appellee Highlands Physicians, Inc. (“HPI”) is a doctor-owned
independent practice association consisting of healthcare providers whose practices are
primarily located in Northeast Tennessee and Southwest Virginia. HPI’s membership
consists of about 1,500 physicians and other health care practitioners. The organization
was formed to represent the interests of its physicians and their practices in negotiations
and collaborative ventures with health care payors and hospitals. Wellmont is a
Tennessee corporation that operates multiple hospitals and outpatient clinics in generally
the same geographic area as HPI. Wellmont is also the successor by merger to Bristol
Memorial Hospital, Inc. (“Bristol Hospital”).

In 1993, HPI and Bristol Hospital, Wellmont’s predecessor, formed what is now
known as Highlands Wellmont Health Network (the “Network”). The Network is a
Physician-Hospital Organization (“PHO”), which is a common type of organization
formed between doctors and hospitals to promote objectives such as negotiating contracts
with health insurance companies (also known as “payors”). Both HPI and Wellmont are
fifty percent owners of the Network, and they are parties to a Stockholders Agreement
(“SA”) that governs the rights and obligations of the parties in the Network. In the
original SA, Section 3 set forth each party’s agreement to a “Covenant Not to Establish
Entity Similar to the [Network].” In general, this section provided that the parties, their
officers, their shareholders, and their members were prohibited from competing with the
Network or soliciting the Network’s payors. In 1995, Wellmont and HPI purportedly
entered into an amendment of the SA (the “Amendment”), but the record is unclear as to
whether either party has ever located a fully executed copy thereof. Whether the
Amendment is valid and enforceable is not for determination on this appeal, but while the
purported Amendment reiterated the parties’ non-competition and non-solicitation
agreement, it removed those duties from the officers, directors, shareholders, and
members of HPI and Wellmont.

HPI and Wellmont operated well within the confines of the Network for several
years. However, around 2011or 2012, the senior leadership at Wellmont began to
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change, and the relationship between HPI and Wellmont deteriorated over the next few
years. According to HPI, the new leadership at Wellmont took an adversarial position to
HPI and HPI’s members who were not employed by Wellmont. HPI sets forth a
multitude of allegations in its verified complaint to support the proposition that, under
new leadership, Wellmont began to deliberately undermine HPI, dismantle the Network,
and reduce resources previously devoted to maintaining clinical integration1 within the
Network. HPI alleges that this had a detrimental effect on the Network’s ability to
maintain a high level of clinical integration. Additionally, HPI alleges that Wellmont
unlawfully diverted two major insurance contracts from the Network to Wellmont
individually. The first contract was entered into separately by Wellmont with Humana
Medicare Advantage in June 2012 (the “Humana Contract.”). HPI apparently considered
litigation against Wellmont at that time but ultimately decided against it. The second
contract was entered into separately by Wellmont and Cigna in 2014. HPI alleges that
Wellmont aggressively solicited Cigna to make a separate deal with Wellmont, including
telling Cigna that the Network and/or HPI were not sufficiently clinically integrated. HPI
claims that these actions by Wellmont constitute a clear breach of the Stockholders
Agreement and cost HPI and its members tens of millions of dollars in damages.

Based on the aforementioned conduct, HPI filed a verified complaint against
Wellmont on February 2, 2016,2 for claims of breach of contract, declaratory and
injunctive relief, breach of fiduciary duty, defamation, tortious interference with a
business, and deceit of a third party. With respect to declaratory and injunctive relief,
HPI requests that the trial court make the following declarations and enjoin Wellmont
from taking any action inconsistent with such declarations:

1. The SA does not permit Wellmont to contract with an existing
Network payor separately from the Network or solicit payors of the
Network (except, if the Amendment is effective, as provided in its
Section 3.2.2(i)).

2. In Section 3.2.2(i) of the Amendment, the phrase “managed care
networks competing with” does not include a network that already
1
According to the Network’s 2011 Annual Report to its Members, the Network defined “clinical
integration” as “individual providers cooperating in an interdependent fashion so they can pool
infrastructure and resources to develop, implement and monitor evidence-based protocols and various
systematic processes, which enable them to furnish higher quality care in a more efficient manner.” The
Network’s status as clinically integrated has legal consequences on its ability to negotiate contracts with
payors on behalf of its shareholders.
2
HPI and Wellmont previously entered into a “Standstill Agreement” that tolled the statute of limitations
on these claims for a period of time to allow the parties to attempt to resolve the matter without resorting
to litigation. This case was filed pursuant to the Standstill Agreement, and HPI’s complaint was therefore
deemed to have been filed on June 22, 2015.
3
 includes the HPI-Wellmont Network.

3. By its conduct, Wellmont breached SA 3.

4. By its conduct, Wellmont has breached its fiduciary duties of care
and loyalty to HPI.

5. By its conduct, Wellmont has committed an intentional tort
damaging HPI and its members, as set out [in the complaint].

6. Each shareholder must put the interest of the Network ahead of its
own interest.

7. Absent consent of both shareholders, neither shareholder may: (i)
divert for its own benefit a corporate opportunity of the Network; (ii)
compete with the Network; or (iii) solicit any payor of the Network
to contract with a shareholder separately from the Network.

8. Each shareholder must comply with SA 4 procedures to call to the
other’s attention any potential legal or practical impediment to
continuation of the Network or the SA and thereafter to arbitrate any
issues on those subjects.

9. Each shareholder must take all actions and invest all resources
reasonably necessary to ensure that the activities of the Network,
HPI and Wellmont remain lawful, ethical, and clinically integrated.

10. Neither shareholder may retaliate against any witness or member of
HPI3: (i) for participation in this lawsuit; (ii) for testimony given in
this lawsuit; (iii) for cooperation with counsel to provide information
for this lawsuit; or (iv) in general for advancing the interests of the
Network or HPI in this lawsuit.

HPI filed a motion for class certification contemporaneously with its verified
complaint. HPI sought to certify a class of itself and each of its approximately 1,500
members. HPI alleged that its members pay “tithes” to HPI based on the payments made
to those members under the contracts HPI negotiates with payors on behalf of the

3
HPI alleges that most of the members of HPI and potential witnesses in this lawsuit have ongoing
business dealings with Wellmont and that Wellmont should be enjoined from using their position as a
major healthcare employer to intimidate witnesses and HPI members from cooperating in the prosecution
of this suit.
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members. Therefore, any actions by Wellmont that caused harm to HPI would
necessarily harm its members, and vice versa.

Wellmont filed an unverified answer to the complaint on April 4, 2016. Later that
month, Wellmont filed a motion in opposition to class certification. HPI’s motion for
class certification was heard on June 7, 2016, and August 31, 2016. At the hearing on
June 7, 2016, the trial court heard the arguments of counsel for both sides but eventually
agreed to give Wellmont time to take discovery on the issue of class certification. On
August 31, 2016, the court again heard arguments from counsel regarding class
certification and ordered the parties to participate in mediation to settle as many issues in
the case as possible. At a status conference on February 24, 2017, the parties informed
the court that the parties had been in direct communication without the aid of counsel and
that the discovery process was still ongoing. On July 5, 2017, the court once again urged
the parties to continue negotiations in an effort to resolve the case but stated that he
would be ruling on HPI’s motion for class certification within thirty days.

On July 27, 2017, the trial court granted HPI’s motion, certifying the class of
plaintiffs against Wellmont as: “All medical practitioners or practice groups who were
members of Highland’s Physician’s Inc. for part or all of the period beginning June 22,
2012 through the date of this order.” The court certified the class as to “all claims.” The
trial court found that the class satisfied the numerosity, commonality, typicality, and
adequacy of representation requirements of Rule 23.01 of the Tennessee Rules of Civil
Procedure. The trial court also concluded that HPI satisfied all three subparts of Rule
23.02 in order to maintain a class action. Further, the court held that HPI could proceed
as a proper class representative on behalf of the class. Wellmont filed this interlocutory
appeal regarding class certification.

II. ISSUES PRESENTED

Wellmont presents the following issues for review on appeal:

1. Whether the trial court erred in certifying a class because HPI, a for
profit corporation, does not have standing to assert claims for
individualized damages against Wellmont on behalf of its
shareholders, members, and independent medical practice groups?

2. Whether the trial court erred in certifying a class because HPI failed
to establish the requirements for class certification under Tennessee
Rule of Civil Procedure 23.01?

3. Whether the trial court erred in certifying a class because HPI failed
5
 to establish the requirements for class certification under Tennessee
Rule of Civil Procedure 23.02?

III. STANDARD OF REVIEW

Pursuant to Tennessee Code Annotated section 27-1-125, the Court of Appeals

shall hear appeals from orders of trial courts granting or denying class
certification under Rule 23 of the Tennessee Rules of Civil Procedure, if a
notice is filed within ten (10) days after entry of the order. All proceedings
in the trial court shall be automatically stayed pending the appeal of the
class certification ruling.

Tenn. Code Ann. § 27-1-125. Recently, this Court summarized the deferential standard
of review that guides our analysis of a trial court’s grant or denial of class certification:

A trial court’s decision on class certification is entitled to deference.
See Meighan v. U.S. Sprint Commc’ns Co., 924 S.W.2d 632, 637 (Tenn.
1996). The grant or denial of class certification is discretionary, and the
court’s decision will stand absent abuse of that discretion. Id.
(citing Sterling v. Velsicol Chem. Corp., 855 F.2d 1188, 1197 (6th Cir.
1988)). The abuse of discretion standard typically applies when a choice
exists in the trial court among several acceptable alternatives. Lee Med.,
Inc. v. Beecher, 312 S.W.3d 515, 524 (Tenn. 2010) (citing Overstreet v.
Shoney’s, Inc., 4 S.W.3d 694, 708 (Tenn. Ct. App. 1999)). Because the
trial court is vested with the responsibility to make that choice, a reviewing
court cannot second-guess the lower court’s judgment or merely substitute
an alternative it finds preferable. Id. at 524 (citations omitted). A
reviewing court must instead affirm the discretionary decision so long as
reasonable legal minds can disagree about its correctness. Eldridge v.
Eldridge, 42 S.W.3d 82, 85 (Tenn. 2001) (citing State v. Scott, 33 S.W.3d
746, 752 (Tenn. 2000); State v. Gilliland, 22 S.W.3d 266, 273 (Tenn.
2000)). The same principles apply here; a trial court’s certification decision
must stand if reasonable judicial minds can differ about the soundness of its
conclusion. Freeman v. Blue Ridge Paper Prod., Inc., 229 S.W.3d 694,
703 (Tenn. Ct. App. 2007) (citing White v. Vanderbilt Univ., 21 S.W.3d
215, 223 (Tenn. Ct. App. 1999)). “The abuse of discretion standard of
review does not, however, immunize a lower court’s decision from any
meaningful appellate scrutiny.” Beecher, 312 S.W.3d at 524 (citing Boyd v.
Comdata Network, Inc., 88 S.W.3d 203, 211 (Tenn. Ct. App. 2002)).

6
 A trial court’s discretion is not unbounded. Cf. Gulf Oil Co. v. Bernard,
452 U.S. 89, 100, 101 S.Ct. 2193, 68 L.Ed.2d 693 (1981). A trial court
must consider controlling legal principles and relevant facts when making a
discretionary decision. Beecher, 312 S.W.3d at 524 (citing Konvalinka v.
Chattanooga–Hamilton Cnty. Hosp. Auth., 249 S.W.3d 346, 358 (Tenn.
2008); Ballard v. Herzke, 924 S.W.2d 652, 661 (Tenn. 1996)). A trial court
abuses its discretion if it (1) applies an incorrect legal standard, (2) reaches
an illogical or unreasonable decision, or (3) bases its decision on a clearly
erroneous evaluation of the evidence. Elliott v. Cobb, 320 S.W.3d 246,
249-50 (Tenn. 2010) (citation omitted); see also Walker v. Sunrise Pontiac–
GMC Truck, Inc., 249 S.W.3d 301, 308 (Tenn. 2008) (citation omitted).
Additionally, a trial court abuses its discretion if it “strays beyond the
applicable legal standards or when it fails to properly consider the factors
customarily used to guide the particular discretionary decision.” Beecher,
312 S.W.3d at 524 (citing State v. Lewis, 235 S.W.3d 136, 141 (Tenn.
2007)).

Appellate courts review a trial court’s discretionary decision to determine
“(1) whether the factual basis for the decision is properly supported by
evidence in the record, (2) whether the lower court properly identified and
applied the most appropriate legal principles applicable to the decision, and
(3) whether the lower court’s decision was within the range of acceptable
alternative dispositions.” Id. at 524-25 (citing Flautt & Mann v. Council of
Memphis, 285 S.W.3d 856, 872-73 (Tenn. Ct. App. 2008)). We review the
trial court’s legal conclusions de novo with no presumption of correctness.
Id. at 525 (citing Johnson v. Nissan N. Am., Inc., 146 S.W.3d 600, 604
(Tenn. Ct. App. 2004); Boyd v. Comdata Network, Inc., 88 S.W.3d 203,
212 (Tenn. Ct. App. 2002)). We review the trial court’s factual conclusions
under the preponderance of the evidence standard. Id. (citations omitted).

Wofford v. M.J. Edwards & Sons Funeral Home Inc., 528 S.W.3d 524, 537-38 (Tenn. Ct.
App. 2017), perm. app. denied (Tenn. Aug. 18, 2017) (quoting Roberts v. McNeill, No.
W2010-01000-COA-R9-CV, 2011 WL 662648, at *3-5 (Tenn. Ct. App. Feb. 23, 2011)).

IV. Discussion

Class action lawsuits are procedural vehicles that allow a representative party to
prosecute or defend an action on behalf of himself and the class. See generally, Tenn. R.
Civ. P. Rule 23. The goals of class action lawsuits include the promotion of efficiency,
judicial economy, protection of defendants from inconsistent obligations, protection of
the interests of absentee plaintiffs, and generally creating a convenient and economical
7
way to adjudicate similar lawsuits. Meighan v. U.S. Sprint Commc’ns Co., 924 S.W.2d
632, 637 (Tenn. 1996). However, class actions are “‘exception[s] to the usual rule that
litigation is [to be] conducted by and on behalf of the individual named parties only.’”
General Telephone Co. of Southwest v. Falcon, 457 U.S. 147, 155 (1982) (quoting
Califano v. Yamasaki, 442 U.S. 682, 700-01 (1979)). There is no absolute right to class
action status in Tennessee, but it may be granted in the sound discretion of the trial court.
Crouch v. Bridge Terminal Transp., Inc., No. M2001-00789-COA-R3-CV at *2 (Tenn.
Ct. App. Apr. 30, 2002), perm. app. denied (Tenn. Sept. 16, 2002). We have discussed
the law relevant to this decision by the trial court as follows:

Rule 23 of the Tennessee Rules of Civil Procedure governs class action
certification. Walker, 249 S.W.3d at 307 (citing Hamilton v. Gibson Cnty.
Util. Dist., 845 S.W.2d 218, 225 (Tenn. Ct. App. 1992)). The burden is on
the proponent of class certification to demonstrate that a class action is
appropriate. Id. This burden is two-fold. The proponent must first satisfy
the numerosity, commonality, typicality, and adequacy of representation
requirements of Rule 23.01. Id. at 307-08 (citing Tenn. R. Civ. P. 23.01).
Rule 23.01 permits class certification if

(1) the class is so numerous that joinder of all members is impracticable, (2)
there are questions of law or fact common to the class, (3) the claims or
defenses of the representative parties are typical of the claims or defenses
of the class, and (4) the representative parties will fairly and adequately
protect the interest of the class.

Tenn. R. Civ. P. 23.01. The proponent of class certification must
demonstrate compliance with each of Rule 23.01’s requirements. Walker,
249 S.W.3d at 307-08.

The proponent must next establish the class action is maintainable under
Rule 23.02. Id. at 308. In contrast to Rule 23.01, the proponent of class
certification must establish only one Rule 23.02 basis for the maintenance
of a class action. Id. Rule 23.02 provides three bases for class action
certification:

(1) the prosecution of separate actions by or against individual members
of the class would create a risk of

(a) inconsistent or varying adjudications with respect to individual
members of the class which would establish incompatible standards of
conduct for the party opposing the class, or
8
 (b) adjudications with respect to individual members of the class which
would as a practical matter be dispositive of the interests of the other
members not parties to the adjudications or would substantially impair
or impede their ability to protect their interest; or

(2) the party opposing the class has acted or refused to act on grounds
generally applicable to the class, thereby making appropriate final
injunctive relief or corresponding declaratory relief with respect to the
class as a whole; or

(3) the court finds that the question of law or fact common to the
members of the class predominate over any questions affecting only
individual members, and that a class action is superior to other available
methods for the fair and efficient adjudication of the controversy. The
matters pertinent to the findings include: (a) the interest of members of
the class in individually controlling the prosecution or defense of
separate actions; (b) the extent and nature of any litigation concerning
the controversy already commenced by or against members of the class;
(c) the desirability or undesirability of concentrating the litigation of the
claims in the particular forum; (d) the difficulties likely to be
encountered in the management of a class action.

Tenn. R. Civ. P. 23.02. Class certification is permissible only if the
proponent demonstrates compliance with both Rule 23.01 and Rule 23.02.
Freeman, 229 S.W.3d at 702 (citing Hamilton, 845 S.W.2d at 225).

Wofford, 528 S.W.3d at 537-38.

When making a determination regarding whether to certify a class, a trial court
must undertake a “rigorous analysis” of the aforementioned requirements of Rule 23. Id.
at 538-40. In this case, the trial court’s order states that the court conducted a rigorous
analysis to determine that all of the requirements for class certification were satisfied.
Specifically, the court considered “the submissions of the parties including evidence in
the form of the filings to date, including such documents as the verified complaint,
answers to discovery, the Rule 30.02(6) deposition of HPI’s executive director Brant
Kelch, and certain documents produced by the parties.” Additionally, the court heard the
matter over the course of two days and issued a written order detailing its findings and
conclusions, ultimately concluding that the requirements of Rule 23 had been satisfied.

1. Standing
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 As an initial issue, Wellmont asserts that the trial court erred in certifying the class
“because HPI, a for profit corporation, does not have standing to assert claims for
individualized damages against Wellmont on behalf of its shareholders, members, and
independent medical practice groups.” Wellmont continuously asserts that HPI cannot
represent the class because the proposed class is comprised of HPI’s own
members/shareholders. Any argument that HPI is suing for the individualized damages
to its members appears to be a misinterpretation of the verified complaint. Wellmont
cites to cases such as Bano v. Union Carbide Corp., 361 F.3d 696, 714-15 (2d Cir. 2004)
for the proposition that corporations and associations do not have standing to assert
claims for individualized damages on behalf of their members. However, the facts in
Bano are distinguishable from the case at bar in that the organization was attempting to
pursue the claims of its members without being a member of the class itself. Id. The
Bano court noted that where the involvement of individual members of an organization is
necessary, “the standing of an association is limited to bringing claims arising out of
injuries that the organization, not simply its members, suffered.” Id. That is precisely
what HPI is seeking to recover in the case at bar. HPI’s prayer for relief is for the
recovery of damages caused to the organization itself, and it seeks to be named class
representative for other individuals that will be recovering individualized damages that
Wellmont allegedly caused to them. In sum, HPI, as a member of the class itself and
claiming its own damages against Wellmont, has standing to act as a class representative.
See United States v. City of New York, 258 F.R.D. 47, 67 (E.D.N.Y. 2009) (allowing an
organizational plaintiff that suffered similar injuries to individual class members to serve
as class representative for a portion of the claims brought).

Furthermore, it is Wellmont’s position that the members of HPI do not have
individualized damages against Wellmont because the SA does not specify HPI’s
members/shareholders as being third party beneficiaries to the SA. Whether HPI’s
members/shareholders are in fact third party beneficiaries to the SA is one of the common
questions that will need to be resolved on the merits by the trial court. We decline to
address the merits of this issue on an interlocutory appeal from the certification of a class.

2. Tennessee Rule of Civil Procedure 23.01

Rule 23.01 of the Tennessee Rules of Civil Procedure requires compliance with
each of Rule 23.01’s four (4) requirements as prerequisites to a class action lawsuit:

(1) The class is so numerous that joinder of all members is impracticable,

(2) There are questions of law or fact common to the class,

10
 (3) The claims or defenses of the representative parties are typical of the
claims or defenses of the class, and

(4) The representative parties will fairly and adequately protect the interest
of the class.

See Tenn. R. Civ. P. 23.01 (emphasis added). These requirements are commonly referred
to as (1) numerosity, (2) commonality, (3) typicality, and (4) adequacy of representation.
Wellmont does not dispute that HPI has demonstrated compliance with the first and
second elements of Rule 23.01 – numerosity and commonality. Wellmont does,
however, allege that the trial court erred in finding that the elements of typicality and
adequacy of representation had been proven.

A. Typicality

Wellmont alleges that the trial court erred in finding that HPI met its burden of
proving that the “claims or defenses of the representative parties [HPI] are typical of the
claims or defenses of the class.” “‘[A] plaintiff’s claim is typical if it arises from the
same event or practice or course of conduct that gives rise to the claims of other class
members, and if his or her claims are based on the same legal theory.’” Freeman v. Blue
Ridge Paper Prods., Inc., 229 S.W.3d 694, 703 (Tenn. Ct. App. Jan. 25 2007) (quoting In
re Am. Med. Sys., Inc., 75 F.3d 1069, 1082 (6th Cir. 1996)).

With respect to typicality, the court found as follows:

HPI’s primary source of revenue is today, and has been since its inception
in 1993, “tithes” received from its members. HPI receives a percentage of
receipts of member payments under agreements negotiated by HPI and the
Highlands Wellmont Health Network. Verified Complaint ¶ 72; Eden
Decl. ¶¶ 2–4; Kelch Decl. ¶¶ 3–5. To prove its own case, HPI must thus
also prove its members’ cases. HPI’s claim therefore “arises from the same
. . . . course of conduct” as the other class members’ claims, which satisfies
the typicality requirement. Freeman, 229 S.W.3d at 703.

HPI is seeking relief in this case based on the same legal theories and conduct as
the class. Wellmont’s course of conduct as it relates to the allegedly antagonistic
behavior toward HPI and the diversion of payor contracts forms the basis of the claims of
HPI and all of its class members. Further, any injury to the members of HPI is also an
injury to HPI itself. As a result, even if HPI were the only plaintiff in this lawsuit, HPI
would have to prove the damages of each of its individual members in order to calculate
their two and one half percent tithe that they receive from their members. Wellmont also
11
argues that the payment system is not as simple as the flow-through tithing process that
HPI describes. However, Wellmont has made no persuasive argument to the contrary.

In its reply brief, Wellmont again addresses HPI’s corporate structure as
preventing not only standing, but also a finding of typicality between HPI and its
shareholders. According to Wellmont, “[t]o have the ability to bring direct claims of the
shareholders, HPI would have to establish, among other things, that the shareholders’
claims and HPI’s claims are distinct and not reliant on evidence of injury to the other.”
We reiterate our analysis of HPI’s standing in this matter set forth in Section C above.
HPI and its members are all claiming individualized injuries flowing from Wellmont’s
conduct. We affirm the trial court’s finding of typicality.

B. Adequacy of Representation

In addition to proving that HPI’s claims are typical claims, HPI must also prove
that, as a putative class representative, it will adequately represent the interests of the
class. Pursuant to Rule 23.01(4), the proposed class representative “must have common
interests with the unnamed class members and it must appear that the class
representatives will vigorously prosecute the case and protect the interests of the class
through qualified counsel.” Wofford, 528 S.W.3d at 537-38.

In finding that HPI satisfies the requirements of Tennessee Rule of Civil
Procedure 23.01(4), the trial court noted the following:

a. HPI exists primarily to advance its members’ interest. Verified
Complaint ¶ 73(a); HPI 30.02(6) Witness Dep. Tr. at 97–98. HPI was
formed for the purpose of negotiating contracts like the Stockholders’
Agreement at issue in this case, and representing the members’ interest
in dealings with hospitals like Wellmont. Verified Complaint ¶ 72 &
Ex. 3 at 3–4; HPI 30.02(6) Witness Dep. Tr. at 116–19.

b. As HPI’s Executive Director testified, “HPI wasn’t put together for HPI
to become a big, successful company. It was put together to basically
represent the interests of the doctors in collaboration with Wellmont.”
HPI 30.02(6) Witness Dep. Tr. at 119. If HPI makes more than
$50,000/year in net income, it returns the surplus to its members. HPI
30.02(6) Witness Dep. Tr. at 97–98.

c. HPI is governed by a Board of Directors elected by its shareholders.
Verified Complaint ¶ 73(a). The Board of Directors has chosen a
Special Litigation Committee of three directors to make decisions about
12
 this case. Verified Complaint ¶ 73(b). The Special Litigation
Committee has provided updates to the Board of Directors and HPI’s
members about this litigation. HPI 30.02(6) Witness Dep. Tr. 124–125,
128.

d. Wellmont does not dispute that HPI is represented in this case by
counsel who are experienced and competent in the prosecution of
complex class action litigation, as well as in the other issues relevant to
this dispute. Verified Complaint ¶¶ 73(e)–(f) . . . .

Wellmont asserts that HPI is not an adequate representative for the proposed class
because the organization’s interests are divergent and antagonistic to some class
members. In general, Wellmont points to the fact that some of HPI’s members are
employed by subsidiaries of Wellmont, and Wellmont assumes that these members would
“obviously” not want to harm the parent company of their employer, i.e., Wellmont.
Wellmont, however, does not point to anything in the record on appeal to support this
statement. The most basic function of HPI as an organization is to promote the interests
of its members. We conclude that the record supports the trial court’s findings above and
the determination that HPI is an appropriate class representative.

3. Tennessee Rule of Civil Procedure 23.02

After the proponent of class certification demonstrates compliance with each of
Rule 23.01’s requirements, the proponent must next establish the class action is
maintainable under Rule 23.02. Walker, 249 S.W.3d at 308. In contrast to Rule 23.01,
the proponent of class certification must establish only one Rule 23.02 basis for the
maintenance of a class action. Id. The trial court held that HPI actually satisfied each of
the three bases under 23.02.

A. Tennessee Rules of Civil Procedure Rule 23.02(1)

Rule 23.02(1) allows for a class action lawsuit when:

(1) the prosecution of separate actions by or against individual members of
the class would create a risk of

(a) inconsistent or varying adjudications with respect to individual
members of the class which would establish incompatible standards of
conduct for the party opposing the class, or

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 (b) adjudications with respect to individual members of the class which
would as a practical matter be dispositive of the interests of the other
members not parties to the adjudications or would substantially impair or
impede their ability to protect their interest.

With respect to this basis for maintaining a class action, the trial court found as
follows:

The prosecution of individual actions by individual members of the class
would create a risk of inconsistent or varying adjudications, and would
effectively be dispositive of the interest of other individual members.
Tenn. R. Civ. Proc. 23.02(1). HPI has pled claims the disposition of which
could, as a practical matter, be dispositive of its individual members’
claims. These claims should be decided on a class basis.

Regarding subsection (a) of Rule 23.01, the trial court found that the prosecution
of individual actions by individual members of the class would create the risk of
“inconsistent or varying adjudications.” However, the full reading of subsection (a)
requires not only the risk of inconsistent results, but that those results must also risk
establishing “incompatible standards of conduct” for the party opposing the class, which
in this case is Wellmont. See Tenn. R. Civ. P. 23.02(1)(a). This requirement has been
explained as follows:

[C]ase law has established that Rule 23(b)(1)(A) does not include a
situation in which the risk of inconsistent results in a series of individual
actions would only mean that the nonclass party might prevail in some
cases and not in others, and therefore have to pay damages to some
claimants but not to others. See, e.g., Bogosian v. Gulf Oil Corporation, 62
F.R.D. 124 (E.D.Pa.1973); Walker v. Houston, 341 F. Supp. 1124, 1131
(S.D.Tex.1971); 3B Moore’s Federal Practice ¶ 23.35[1] at 23–272 (1985).
The advisory committee notes make it clear that the situation in which a
party is faced with inconsistent results requiring it to pay some class
members but not others is covered by Rule 23(b)(3) not Rule 23(b)(1).
See Advisory Committee Note of 1966 to Rule 23(b)(3). The risk of
“incompatible standards of conduct” which Rule 23(b)(1)(A) was designed
to protect against involves situations where the non-class party does not
know, because of inconsistent adjudications, whether or not it is legally
permissible for it to pursue a certain course of conduct. Thus, Rule
23(b)(1)(A) is designed to protect against the nonclass party’s being placed
in a stalemated or conflicted position and is applicable only to actions in
which there is not only a risk of inconsistent adjudications but also where
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 the nonclass party could be sued for different and incompatible affirmative
relief. Abramovitz v. Ahern, 96 F.R.D. 208, 215 (D. Conn. 1982) (emphasis
added).

Employers Ins. of Wausau v. Fed. Deposit Ins. Corp., 112 F.R.D. 52, 54-55 (E.D. Tenn.
1986). In this case, HPI seeks a declaration that Wellmont breached the SA and an
injunction to prohibit Wellmont from acting contrary to the SA in the future. HPI has not
sufficiently shown that these declarations and injunctions, even if asserted by various
individuals outside of the class action context, create the risk of Wellmont being sued for
different and incompatible affirmative relief as is discussed in Abramovitz, 96 F.R.D. at
215, above. See Bohlinger v. Am. Credit Co., 594 S.W.2d 710, 712 (Tenn. Ct. App. Oct.
1979 (“A party invoking T.R.C.P., Rule 23, has the burden of showing all the
prerequisites to utilize the class action procedure have been satisfied . . . .”). The trial
court’s order in this case, which more or less recites the wording of Rule 23.02(2)(a), is
no more enlightening. HPI has maintained throughout this case that HPI and its members
share common interests that are not divergent from one another. HPI has not met its
burden of showing that the affirmative relief sought in its verified complaint supplies a
basis for class certification under Rule 23.02(2)(a).

With respect to subsection (b) of Rule 23.02(1), the trial court found that “HPI has
pled claims the disposition of which could, as a practical matter, be dispositive of its
individual members’ claims. These claims should be decided on a class basis.” Again,
the trial court did not elaborate on what claims could be dispositive of individual
members’ claims. HPI asserts that “to avoid giving Wellmont inconsistent obligations, a
court could bind HPI’s members to an adverse ruling on such issues.” We find this
argument to be speculative and unpersuasive. As noted above, HPI has not shown that
there is a substantial risk that any of the declaratory or injunctive relief sought by HPI
would infringe upon the rights of its individual members. Furthermore, HPI has not
claimed that the relief it seeks against Wellmont might deplete Wellmont’s resources or
otherwise impair others’ rights to pursue and collect their own judgments against
Wellmont. Therefore, we reverse the trial court’s finding that certification is appropriate
under Rule 23.02(1)(b).

B. Tennessee Rules of Civil Procedure Rule 23.02(2):

Rule 23.02(2) creates a second type of class action when the following
requirement is met:

(2) the party opposing the class has acted or refused to act on grounds
generally applicable to the class, thereby making appropriate final
injunctive relief or corresponding declaratory relief with respect to the class
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 as a whole

With respect to this basis for maintaining a class action, the trial court found that “HPI
seeks declaratory and injunctive rulings that will apply classwide. Tenn. R. Civ. Proc.
23.02(2). These issues should be decided on a class basis since their disposition
necessarily affects all class members.” Although subsection (2) is similar to subsection
(1), subsection (2) does not contain the more demanding requirement that individual
actions would create a risk of incompatible standards of conduct or negatively impact
other class members. In Section I, infra, we set forth HPI’s prayers for injunctive and/or
declaratory relief sought, some of which apply to the entire class, and all of which stem
from the same conduct by Wellmont.

Wellmont argues that certification under Rule 23.02(2) is not proper because the
primary relief sought by HPI and its class members is not injunctive or declaratory in
nature. Indeed, the Tennessee Supreme Court has explained that “[w]hile [Rule 23.02(2)
may also apply in cases seeking monetary relief, [monetary] relief must be ‘secondary or
ancillary to the predominant injunctive or declarative relief sought.’” Meighan v. U.S.
Sprint Commc’ns. Co., 924 S.W.2d 632, 636 (Tenn. 1996) (quoting H. Newberg,
Newberg on Class Actions, § 4.12, at 294 (2d ed. 1985)). See also Fed. R. Civ. P. 23
advisory committee note (1996) (“subdivision [2] does not extend to cases in which the
appropriate final relief relates exclusively or predominately to money damages.”). HPI’s
verified complaint seeks declaratory, injunctive, and monetary relief. After review of the
entire record on appeal, which is sparse due to the early stage of this litigation, we cannot
conclude that the primary relief sought by HPI in this matter is not injunctive or
declaratory in nature.

We do recognize that reasonable minds could differ as to the propriety of the
decision to certify a class under Rule 23.02(2). But under such circumstances, the abuse
of discretion standard of review dictates that the decision of the trial court be affirmed.
See, Roberts v. McNeill, No. W2010-01000-COA-R9-CV, 2011 WL 662648, at *3-5
(Tenn. Ct. App. Feb. 23, 2011) (citing Freeman v. Blue Ridge Paper Prod., Inc., 229
S.W.3d 694, 703 (Tenn. Ct. App. 2007). (“[A] trial court’s certification decision must
stand if reasonable judicial minds can differ about the soundness of its conclusion.”).

C. Tennessee Rules of Civil Procedure Rule 23.02(3):

The third type of class action set forth in Rule 23.02 is permitted when:

(3) the court finds that the question of law or fact common to the members
of the class predominate over any questions affecting only individual
members, and that a class action is superior to other available methods for
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 the fair and efficient adjudication of the controversy. The matters pertinent
to the findings include: (a) the interest of members of the class in
individually controlling the prosecution or defense of separate actions; (b)
the extent and nature of any litigation concerning the controversy already
commenced by or against members of the class; (c) the desirability or
undesirability of concentrating the litigation of the claims in the particular
forum; (d) the difficulties likely to be encountered in the management of a
class action.

Tenn. R. Civ. P. 23.02(3).

With respect to this basis for maintaining a class action, the trial court found the
following:

Most important, however, the requirements of Tenn. Rule of Civ. Proc.
23.02(3) also are satisfied and should be followed in future proceedings.
The many common questions listed above predominate over individual
issues, which are largely restricted to damages. “Where the defendant’s
liability can be determined on a class-wide basis because the cause of the
[injury] is a single course of conduct which is identical for each of the
plaintiffs, a class action may be the best suited vehicle to resolve such a
controversy.” Freeman, 229 S.W.3d at 706 (certifying class under Rule
23.02(3) where liability could be determined classwide, even though
damages varied among class members).

Wellmont argues that individualized proof to assess damages of the purported
class should preclude a finding of predominance. We disagree. “If the issues of liability
are genuinely common issues, and the damages of individual class members can be
readily determined . . . the fact that damages are not identical across all class members
should not preclude class certification.” Butler v. Sears Roebuck & Co., 727 F.3d 796,
801 (7th Cir. 2013). Moreover, damages pursued by HPI are common to the entire class.
Therefore, even if HPI were the only plaintiff in this case, it would still require proof of
the damages incurred by its members in order to calculate HPI’s damages.

Further, we agree with the trial court and HPI that a class action trial would be
superior to other methods available for adjudicating the claims at issue in this case.
Individual actions are not a reasonable alternative. We cannot see how it would be
preferable to have potentially hundreds of cases with different judges in different courts
dealing with these same legal and factual issues. In such a scenario, there is clearly the
possibility of different results, with different plaintiffs being treated differently and
different obligations for Wellmont. We discern no error in the trial court’s decision that a
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single class action lawsuit heard by one judge resolving the issues once and for all for
everyone is the best course of action.

The evidence does not preponderate against the trial court’s finding that the class
would be manageable. In this particular case, the claimants are all known and
ascertainable – about 1,500 physicians/members of HPI. Further, there is an
organization, HPI, already in place that represents the interests of all potential class
members. HPI also has the ability to communicate with all potential class members and
the resources and counsel secured to prosecute the case.

Finally, we find it prudent to address the proverbial “floodgates” argument that
pervades Wellmont’s filings and oral argument on appeal. Wellmont claims that HPI
“seeks to fundamentally change Tennessee jurisprudence and greatly expand class action
litigation by creating a rule of law which will allow a corporation in dispute with another
corporation to create causes of action for its individual shareholders and to act as their
class representative.” We disagree. Nothing in this Opinion should be construed as
setting forth a general rule allowing shareholders of a corporation to automatically
become additional plaintiffs when the corporation initiates litigation. Such a reading of
this Opinion would ignore the particularized facts of this case, specifically that the
members/shareholders of the corporation at issue, HPI, claim individualized damages
against Wellmont in addition to the damages to HPI as an organization itself by virtue of
the unique payment structure between HPI, its shareholders, and Wellmont. The
determination of whether to certify a class pursuant to Rule 23 in this case, as in any
other, depends on the particular facts, law, claims, and defenses involved. Our review of
the trial court’s analysis of those issues in this case pursuant to Rule 23 substantiates the
trial court’s certification of the class under subsections (2) and (3) of Rule 23.02.

IV. CONCLUSION

For the foregoing reasons, we reverse the order of the trial court granting class
certification pursuant to Rule 23.02(1). We affirm the remainder of the trial court’s order
granting class certification and remand for further proceedings. Costs of this appeal are
to appellant, Wellmont Health System, and its surety, for which execution may issue if
necessary.

_________________________________
BRANDON O. GIBSON, JUDGE

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