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U.S. Court In Michigan Holds Patients Could Not Maintain Charitable Trust Claim Against Hospital


HLD, v. 33, n. 1 (January 2005)

U.S. Court In Michigan Holds Patients Could Not Maintain Charitable Trust Claim Against Hospital

Jennifer and Nia Burton, who do not have health insurance, were treated at William Beaumont Hospital's (Hospital's) emergency room. The Burtons (plaintiffs) sued the hospital and its owner, Beaumont Properties, Inc. (defendants) claiming the Hospital required them to sign guarantees that they would pay the charges for the medical services before treating them. Plaintiffs claimed that as a tax-exempt organization under federal tax law the Hospital has a duty to provide free or discounted medical care to the uninsured, and the Hospital charged them the highest and fullest undiscounted cost for their care. Plaintiffs argued they are third-party beneficiaries of a contract between the government and defendants stemming from the Hospital's tax-exempt status. Defendants filed motions to dismiss the complaint.

Plaintiffs' case was one of several recent suits by uninsured patients against tax-exempt hospitals that allegedly violated federal law by not providing charity care. Several claimants involved in the suits filed with the Judicial Panel on Multidistrict Litigation (JPML) to transfer and consolidate the suits into one action before a single district court. Plaintiffs filed a motion to stay the proceedings pending transfer to multidistrict litigation. The motion was denied, and the JPML denied the other claimants' motions to transfer and consolidate. The three district courts that have ruled on the suits have concluded the plaintiffs failed to state causes of action.

The U.S. District Court for the Eastern District of Michigan granted the motions in part and denied them in part. The court held plaintiffs failed to prove any facts to support their claim of breach of a charitable trust and there were issues of fact about whether the Hospital refused to provide emergency treatment until plaintiffs signed the guarantees.

Defendants argued plaintiffs failed to state a claim under federal law, and the court should decline to exercise supplemental jurisdiction over plaintiffs' state law claims.

The court first considered the federal law claims and plaintiffs' argument that they were third-party beneficiaries of agreements between defendants and various federal, state, and local governments in which defendants agreed to provide charity care to uninsured patients. Defendants argued that no court has ever held that a contract is formed between a not-for-profit organization and the federal government when a not-for-profit organization is granted tax-exempt status. The court held plaintiffs' claim was without foundation and they could not maintain their action based on breach of contract. There is nothing in the 26 U.S.C. � 501(c )(3), the Internal Revenue Code section on tax-exempt organizations, that supports plaintiffs' claims, the court said. The court noted that the U.S. Supreme Court has "counseled against construing a statute as creating a contractual relationship." The court then considered whether there was a breach of charitable trust under � 501(c)(3). The court explained that because it had already determined that plaintiffs had failed to establish they had any contractual rights under � 501(c)(3), their claim based on the charitable trust argument also failed because it was premised on a right stemming from � 501(c)(3). The court noted that even if plaintiffs could prove a charitable trust existed, the proper party to sue for enforcement of a charitable trust in these circumstances would be the state attorney general.

On plaintiffs' claim that defendants violated the Emergency Medical Treatment and Active Labor Act (EMTALA) because treatment was conditioned on the ability to pay for the medical services, the court concluded plaintiffs failed to properly state an EMTALA claim, but that facts remained at issue about whether treatment was delayed until plaintiffs agreed to guarantee payment. For an EMTALA claim, a plaintiff must show an injury that was caused by a denial of, or delay in, treatment. The court concluded plaintiffs failed to allege in their complaint that they suffered any harm under EMTALA because of defendants' actions, and plaintiffs would have to amend their complaint and properly plead an EMTALA claim. The court also concluded that the issues about the delay in treatment could not be addressed in a motion to dismiss and should be left for the summary judgment stage of the case.

Plaintiff also argued defendants violated the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. �1692 et seq., because defendants allegedly overcharged plaintiffs and the collection of the debt was unconscionable. Agreeing with defendants, the court held defendants were not "debt collectors" for purposes of the FDCPA because the term does not apply to a creditor that is collecting its own debt. The court held that plaintiffs could not prove defendants were "debt collectors" under the FDCPA and thus their claim failed.

On plaintiffs' remaining federal law claim under 42 U.S.C. � 1983 that defendants discriminated against plaintiffs because they were uninsured, the court held plaintiffs failed to show defendants were acting under color of state law. To establish a claim under � 1983, a plaintiff must show he or she was deprived of a right by a party acting under color of state law. The court held a private hospital is not a state entity and participation in federal healthcare programs was irrelevant to the determination.

On plaintiffs' state law claims, the court concluded defendants failed to brief the state law issues because defendants assumed the court would find that none of the federal claims were viable and thus would not exercise supplemental jurisdiction over the state law claims. The court held on plaintiffs' request for injunctive relief under Fed. R. Civ. P. 23(b )(2) that relief under that rule is only available for certified class actions, and because a class has not been certified the issue was not ripe for consideration.

Burton v. William Beaumont Hosp., No. 04-72735, 2004 WL 2790624 (E.D. Mich. Dec. 3, 2004). To read the case, go to

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