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Cleveland Surgery Center L.P. v. Bradley County Memorial Hospital3/24/1999
Two private health care providers sought a declaratory judgment that a county-owned hospital and its business partners had entered into business ventures which were ultra vires and in violation of the Tennessee Constitution. The trial court held that the county hospital had exceeded its authority by entering into unconstitutional business dealings with private entities, and issued an injunction permanently restraining the hospital from participating in these or any similar ventures. We affirm the judgment of the trial court as to the specific business ventures involving these defendants. We modify the judgment by narrowing the permanent injunction consistent with this opinion.
Plaintiffs Cleveland Surgery Center, hereinafter "Surgery Center," and Ocoee Physical Therapy, Inc., hereinafter "Physical Therapy," two businesses owned and operated by private physicians and physical therapists respectively, learned of plans by Bradley County Memorial Hospital, hereinafter "County Hospital," to acquire land and build a medical office building adjoining County Hospital. The plan provided that Ocoee Health Alliance, hereinafter the "Alliance," a partnership owned by County Hospital (50% interest) and local physicians (50% interest), would secure financing for the $8,500,000.00 building project, with no investment or personal liability for the loan on the part of the physicians, who would, however, have an ownership interest in the office building, with each physician owning an equal share of the Alliance's 50% interest. That building project is not the subject of appeal, since SunTrust bank threatened to default the Hospital's loan after adverse publicity and the filing of this lawsuit, resulting in sale of the project to other parties. The appeal concerns whether the Hospital can lawfully engage in similar projects with Alliance.
Desiring to provide services for the patients of County Hospital, Physical Therapy sought membership in the Alliance which was denied on grounds that the Alliance already offered physical therapy services. Surgery Center, which operates a stand-alone surgical clinic, feared that the Alliance planned to establish a competing surgical clinic in the new building and joined with Physical Therapy in this suit against County Hospital, the Alliance, Bradley County Hospital Foundation and Bradley Builders, LLC, alleging unfair competition by the Alliance, ultra vires acts by County Hospital under its Private Acts and unconstitutional business ventures between partners County Hospital and the Alliance.
The trial court held that County Hospital, through its actions as an agent and arm of Bradley County, had exceeded its authority by lending the credit of the county and joining in ultra vires business ventures with private industry in violation of Article II, ยง 29 of the Tennessee Constitution.
Defendants County Hospital and the Alliance appeal and raise the following issues, verbatim:
"1. The Chancellor erred when he determined Bradley County Memorial Hospital is ". . . an agent and arm of Bradley County"; that is, is not an independent governmental entity or quasi-municipal corporation."
"2. The Chancellor erred when he found the Hospital's participation in the Ocoee Health Alliance, which is authorized by the Private Acts creating and governing the Hospital, as well as by T.C.A. sect. 7-57-601 et seq. [The Private Act Hospital Authority Act], was ultra vires and violated Article II, Section 29 of the Constitution of Tennessee."
"3. The terms of the Order of Final Judgment and Permanent Injunction entered by the Chancellor are too broad and imprecise and unduly restrict and interfere with the Hospital's opera
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