Judge Eli Richardson of the Middle District of Tennessee on Monday denied a motion to dismiss by South Carolina-based Medical University Hospital Authority (MUHA) in a suit alleging that the defendant breached an agreement with plaintiffs CHS/Community Health Systems Inc. and CHSOSC LLC stipulating that the defendant would purchase the assets of four hospitals.
The plaintiffs alleged in their complaint that the defendant breached their agreement by failing to pay the full agreed-upon price of the transaction and failing to pass on communications regarding seller cost reports, among other allegations, according to the court.
The defendant moved to dismiss, arguing that sovereign immunity applied given the defendant is a state agency, which is a factual attack on subject-matter jurisdiction, the court explained.
“Where there is a factual attack on the subject-matter jurisdiction of the court under Fed. R. Civ. P. 12(b)(1),” the court stated, “no presumptive truthfulness applies to the complaint’s allegations; instead, the court must weigh the conflicting evidence to arrive at the factual predicate that subject-matter jurisdiction does or does not exist.”
The plaintiffs argued that the defendant is not entitled to sovereign immunity, claiming the defendant is not a state agency “inasmuch as a judgment against Defendant would not be a judgment against the State of South Carolina,” the judge explained, or, if it is entitled to sovereign immunity, the defendant has waived its entitlement. The plaintiffs contended that the defendant should be treated as a political subdivision, such as a county or city. The Eleventh Amendment gives sovereign immunity from federal lawsuits to states and state agencies or departments, but it excludes political subdivisions, the court said.
Before reaching the question of whether the defendant waived its immunity, the court found that it was not entitled to it in the first place.
The court noted that it is the burden of the defendant in any case invoking sovereign immunity to prove its entitlement, which the court said this defendant did not sufficiently do across multiple criteria, such as the “arm of the state” test. The plaintiffs contended that because the debts of the defendants were not debts of the state of South Carolina, it does not have a right to immunity; the court agreed.
“Despite this burden, Defendant has submitted no evidence or even argument to enable this Court to determine who pays judgments against Defendant,” the court said, “nor has it shown or even discussed any other financial considerations or arrangements that may show that this factor leans in Defendant’s favor.”
Further, the court found that the little state funding the defendant receives weakened its argument. The only piece of the defendant’s argument that strengthened the lean toward being allowed sovereign immunity was the fact that state officials appoint its board members, according to the court, but that factor was not enough to outweigh the other deficiencies.
The plaintiffs are represented by Riley Warnock & Jacobson PLC. The defendant is represented by Bone McAllester Norton PLLC and Burr & Forman LLP.
