HIGHLANDS PHYSICIANS, INC.
WELLMONT HEALTH SYSTEM
Session November 15, 2017
Appeal from the Law Court for Sullivan County No. C41368C E.
G. Moody, Chancellor
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.
R. App. P. 3 Appeal as of Right; Judgment of the Law Court
Reversed in part, Affirmed in part, and Remanded.
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,
Brandon O. Gibson, J., delivered the opinion of the court, in
which D. Michael Swiney, C.J., and John W. McClarty, J.,
BRANDON O. GIBSON, JUDGE.
Facts & Procedural History
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
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.
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 operated well within the confines of the Network for
several years. However, around 2011or 2012, the senior
leadership at Wellmont began to 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
integration 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.
on the aforementioned conduct, HPI filed a verified complaint
against Wellmont on February 2, 2016,  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
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 includes the HPI-Wellmont
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
10. Neither shareholder may retaliate against any witness or
member of HPI: (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.
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 members. Therefore,
any actions by Wellmont that caused harm to HPI would
necessarily harm its members, and vice versa.
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.
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.
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 to establish the requirements for class
certification under Tennessee Rule of Civil Procedure 23.02?