Lewis, Anthony B. v. Methodist Hospital ( 2003 )

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 02-1555
ANTHONY B. LEWIS,
Plaintiff-Appellant,
v.
METHODIST HOSPITAL, INCORPORATED,
Defendant-Appellee.
____________
Appeal from the United States District Court
for the Northern District of Indiana, Hammond Division.
No. 2:01 CV 175JM—James T. Moody, Judge.
____________
ARGUED SEPTEMBER 26, 2002 —DECIDED APRIL 7, 2003
____________
Before COFFEY, ROVNER, and DIANE P. WOOD, Circuit
Judges.
DIANE P. WOOD, Circuit Judge. Anthony Lewis is a
physician specializing in cardiology. This case concerns
a contract between Lewis and Methodist Hospital in which
Methodist agreed to provide billing services for Lewis’s
cardiology practice. Disputes arose over Methodist’s han-
dling of its responsibilities under the contract, which in
the end caused the parties to end their relationship.
Invoking the diversity jurisdiction of the federal courts,
Lewis (acting in his individual capacity) then sued Meth-
odist for breach of contract and tortious interference
with prospective advantage in business. The district court
2 No. 02-1555
granted Methodist’s motion for summary judgment, on the
ground that Lewis was really asserting tort claims, and
any tort claim was barred by Indiana’s two-year statute
of limitations.
Lewis appeals the district court’s characterization of
his claim as solely a matter of tort law. In his view, Meth-
odist failed to perform its obligations under the contract.
This breach in turn gives rise to a claim for breach of
contract that is subject to Indiana’s more generous ten-
year statute of limitations for written contract actions.
Although we appreciate the district court’s careful effort
to ascertain the governing Indiana rule on this point, we
nevertheless have come to the conclusion that Lewis’s
complaint in part stated a claim for breach of contract.
Accordingly, we reverse and remand for further proceed-
ings on that part of the case. (In so doing, we express no
opinion on the question whether Lewis as an individual
is entitled to sue to enforce rights that may belong only
to his professional corporation, as this was not discussed
in any way by the district court or the parties.)
I
The actual parties to the agreement in question were
Lewis’s professional corporation, Anthony B. Lewis, M.D.,
P.C. (of which he was the sole shareholder) and Methodist
Hospital. On January 1, 1994, they entered into a Manage-
ment Services Agreement (the Agreement) in which the
Hospital agreed to manage Lewis’s cardiology practice
for a one-year term. The Agreement specified that Meth-
odist would provide “staff services, administrative ser-
vices, management support services, billing services, and
purchasing services” to Lewis’s practice. The provision in
the Agreement titled Billing and Collection of Accounts
stated in part, “Hospital shall implement and carry out
billing and collection procedures for medical services using
the Practice’s provider numbers.” The Hospital committed
No. 02-1555 3
itself to hiring and supervising employees as needed to
carry out its duties under the Agreement. The Hospital
received 40% of the net receipts of Lewis’s practice as
payment for its services. The parties twice renewed their
Agreement before allowing it to end on December 31, 1996.
After several unsuccessful attempts to have the Hospital
address his concerns about billing and fee collection, Lewis,
in his individual capacity, filed this lawsuit in federal
court on March 19, 2001.
At the heart of Lewis’s complaint is his allegation that
Methodist Hospital failed adequately to bill and collect
fees from his patients and their insurers for cardiology
services that he provided. In the breach of contract count
he alleged that the Hospital breached its duties under
the Agreement by improperly hiring and supervising
staff or contractors who performed coding, billing and col-
lection work for the practice. Lewis seeks $15,515,806.00
as damages and losses for unbilled and improperly billed
services as well as uncollected charges.
Lewis’s complaint also included a second count for
tortious interference with prospective advantage in busi-
ness. This too was dismissed on summary judgment. Lewis
does not contest that ruling, conceding that his claim
was barred by Indiana’s two-year statute of limitations
for torts. Therefore, the only issue presented in this ap-
peal is whether the Indiana courts would characterize
Lewis’s claim relating to the Hospital’s unsatisfactory
performance of its duties under the contract as a tort
claim. We review the district court’s grant of summary
judgment de novo. Lexington Ins. Co. v. Rugg & Knopp, Inc.,
165 F.3d 1087, 1090 (7th Cir. 1999).
II
In a line of cases that stretches back at least to the late
1800s, the Supreme Court of Indiana has wrestled with
4 No. 02-1555
the dilemma posed by claims that arise under a botched
services contract. See, e.g., Foulks v. Falls, 91 Ind. 315(1883); Boor v. Lowery, 3 N.E. 151 (Ind. 1885); Flint &
Walling Mfg. Co. v. Beckett, 79 N.E. 503 (Ind. 1906). The
problem, as the court has candidly acknowledged, is that
such claims frequently reflect both tort and contract
concerns. Flint & Walling Mfg. Co., 79 N.E. at 505; see
also INS Investigation Bureau, Inc. v. Lee, 784 N.E.2d 566,
576 (Ind. Ct. App. 2003) (“[I]n a contract for work, there
is an implied duty to do the work skillfully, carefully, and
in a workmanlike manner. Negligent failure to do so is
a tort, as well as a breach of contract.”). Where the char-
acterization of the claim matters for purposes of deciding
which statute of limitations should be applied, the Su-
preme Court of Indiana consistently stresses that “the
applicable statute of limitations should be ascertained
by reference to the nature of the harm alleged rather than
by reference to theories of recovery.” Whitehouse v. Quinn,
477 N.E.2d 270, 273 (Ind. 1985) (citing Boor v. Lowrey, 3
N.E. 151 (Ind. 1885)). This provides us with a starting
point here, but (as the Indiana cases richly illustrate) it
can be a difficult principle to apply in practice.
Our task is to predict how the Supreme Court of Indi-
ana would characterize Lewis’s claim that Methodist
Hospital failed to provide proper billing and fee collection
services for his cardiology practice. See Commonwealth
Ins. Co. v. Stone Container Corp., No. 02-2061, 2003 WL
1400794 at *2 (7th Cir. Mar. 19, 2003); Stephan v. Rocky
Mountain Chocolate Factory, Inc., 129 F.3d 414, 416-17 (7th
Cir. 1997) (citing Todd v. Societe Bic, S.A., 9 F.3d 1216,
1221 (7th Cir. 1993) (en banc) (plurality opinion)). If, as
the district court held, Lewis’s first count in the com-
plaint is properly characterized as a tort, then it is barred
by the two-year statute of limitations for injury to per-
sonal property found in Ind. Code § 34-11-2-4. On the other
hand, if Lewis’s claim against the Hospital is, as Lewis
No. 02-1555 5
argues, for breach of contract, then it is governed by the
ten-year statute of limitations found in Ind. Code § 34-11-2-
11, and Lewis’s March 19, 2001, filing was timely.
The district court, in attempting to make sense of the
Indiana authority on this issue, held that the absence of
a specific term for compliance in the Agreement that
Lewis and Methodist executed necessarily meant that
Lewis’s claim arose solely in tort and had no cognizable
contract dimension. The court relied on an earlier deci-
sion of this court, Rexnord Corp. v. DeWolff Boberg &
Assocs., Inc., 286 F.3d 1001 (7th Cir. 2001), as well as
one decision of the Indiana appeals court, Insul-Mark
Midwest, Inc. v. Modern Materials, 594 N.E.2d 459 (Ind.
Ct. App. 1992). Rexnord and Insul-Mark hold that when
parties to a contract choose to specify in their agreement
the terms and standards by which compliance may be
measured, it is those terms or standards, as opposed to
a general standard of care imposed by tort law, that
apply. Rexnord, 286 F.3d at 1005; Insul-Mark, 594 N.E.2d
at 465. This rule allows parties to contract around the
level of care that would otherwise govern their conduct.
It makes good sense as a matter of policy, both because it
is consistent with the general rule that parties may bar-
gain for a higher standard of care than the general tort
law requires, and because it respects the correlative rule
recognized by Indiana courts (and courts in other states
as well) that where a contract contains a limiting or
qualifying provision, that provision may not be avoided
by casting a suit for breach of the contract as a tort. See,
e.g., Orkin Exterminating Co. v. Walters, 466 N.E.2d 55, 58
(Ind. Ct. App. 1984) (“Bringing a suit in tort does not
allow Walters to avoid the limitation of liability clause in
the contract.”); Travelers Cas. & Sur. Co. v. Elkins Con-
structors, Inc., No. IP97-1807-C-T/G, 2000 WL 724006, *11
(S.D. Ind. May 18, 2000) (summarizing Indiana cases); see
also Better Food Mkts. v. American Dist. Tel. Co., 253 P.2d
10, 15-16 (Cal. 1953).
6 No. 02-1555
What Rexnord, Insul-Mark, and these other cases do
not address, however, is the converse proposition: where
a contract does not specify the terms or standards by
which compliance is measured, any performance related
problems may be resolved only by resorting to tort law.
The district court read these cases as creating that rule
of law, and it is with this portion of its decision that we
respectfully disagree.
In fact, fairly read, the core of Lewis’s action against
Methodist Hospital states a claim for breach of contract.
Two principles that can be distilled from the controlling
precedents of the Supreme Court of Indiana lead us to
this conclusion. First, as we have already mentioned,
that court has held that poorly performed duties assumed
under a services contract generally give rise to an action
in either contract or tort. Flint & Walling Mfg., Co., 79
N.E. at 505. Second, and more importantly, in consider-
ing how to classify a claim for statute-of-limitations pur-
poses, the Supreme Court of Indiana has warned that
Indiana courts (and thus federal courts sitting in diversity
that are applying Indiana law) must not collapse all
breach of contract claims into tort claims. Doing so would
impermissibly effect a judicial repeal of the separate
statutes of limitations that the Indiana legislature has
enacted for breach of contract and oral contract claims.
Lawyers Title Ins. Corp. v. Pokraka, 595 N.E.2d 244, 247
(Ind. 1992). See also Schuman v. Kobets, 716 N.E.2d 355(Ind. 1999).
Two earlier Supreme Court of Indiana cases that ad-
dress a related question—how to deal with attorney mal-
practice claims—offer helpful guidance as well. The cases
of Shideler v. Dwyer, 417 N.E.2d 231 (Ind. 1981), and
Whitehouse v. Quinn, 477 N.E.2d 270 (Ind. 1985), provide
a useful contrast to Lewis’s case. Shideler and Whitehouse
rest implicitly on the proposition that where one party to
a contract owes a fiduciary duty to the other party, a
No. 02-1555 7
breach of that duty necessarily gives rise to an action in
tort because it is impossible to contract around fiduciary
obligations. Later, in Lawyers Title, the Supreme Court
of Indiana made the point more explicitly, when it ex-
plained that “[u]nlike actions for attorney malpractice,
with which we dealt in Whitehouse, a specific limitation
period of six years for fraud and for breach of an oral
contract is provided by statute.” 595 N.E.2d at 247. See
also O.K. Sand & Gravel, Inc. v. Martin Marietta Corp., 819
F. Supp. 771, 781 (S.D. Ind. 1992) (“The substance and
nature of the injuries claimed in parts of Counts I, II and
IV concern breaches of specific contract terms and failed
expectations. Those alleged harms are separate from the
harms alleged to have resulted from the breach of a fidu-
ciary duty.”). Because no fiduciary relationship existed be-
tween Methodist Hospital and Dr. Lewis, the concern
about preventing parties from contracting around those
special duties does not exist in our case.
The more recent decisions of the Supreme Court of
Indiana, are more directly on point. In Schuman v. Kobets,
the Indiana Supreme Court reversed an appeals court
decision that characterized all of Linda Schuman’s claims
against her former landlords as tort claims. 716 N.E.2d at
356-57. Schuman was diagnosed with histoplasmosis, an
illness that she likely contracted from the excrement
of pigeons that roosted in the broken window casing and
wall of her rented apartment. Schuman’s efforts to get
her landlords to repair the apartment failed, and after
she suffered a near fatal relapse of the sickness, she and
her mother sued them for negligence, breach of implied
warranty of habitability, and nuisance. Id. at 356. The
court of appeals affirmed the trial court’s dismissal of
Schuman’s claim as time-barred under Indiana’s two-year
statute of limitations for personal injury. While the Su-
preme Court of Indiana agreed that the portion of
Schuman’s complaint that sought relief for personal injury
8 No. 02-1555
arising from the breach of an oral contract was properly
characterized as a tort claim and thus was barred, it
refused to put all of her claims in the tort basket. Id. at 356.
Specifically, the court reasoned that “[s]everal of her
contentions sound like a contact claim. Since a lease is a
contract, the essence of the landlord-tenant relationship
is contractual in nature. Schuman’s warranty claim, for
example, stems from the oral month-to-month lease be-
tween tenant Schuman and landlord Kobets. Thus, this
claim is governed by” the six-year statute of limitations
for oral contracts found in Ind. Code § 34-1-2-1. Id.Schuman followed the lead of the court’s earlier deci-
sion in Lawyers Title Insurance Corp. v. Pokraka, where a
title company’s failure properly to record a purchase money
mortgage had the effect of making Pokraka’s interest in the
property junior to a subsequent mortgage. 595 N.E.2d at
246. The court in Lawyers Title rejected an expansive
reading of Whitehouse, which the court limited to the
attorney malpractice area, and instead held that Pokraka’s
claim relating to her security interest in the property was
covered by the six-year limitation period for fraud and
breach of oral contract. Id. at 247.
Our holding in this case is also supported by many
Indiana appeals court decisions as well as decisions of
the lower federal courts that have refused to apply the
two-year tort statute of limitations to actions that arise
in the context of a contract. See, e.g., Orem v. Ivy Tech
State Coll., 711 N.E.2d 864, 868 (Ind. Ct. App. 1999) (em-
ployer’s breach of specific provision in written agreement
gives rise to claim for breach of contract); Wells v. Stone
City Bank, 691 N.E.2d 1246, 1249 (Ind. Ct. App. 1998)
(“Wells does not appear to allege any duty that was owed
to him outside of that duty arising out of his contractual
relationship with the Bank, and he appears to allege no
breach of that duty other than the Bank’s failure to per-
form the contracted-for-service. His action should not
No. 02-1555 9
be completely barred on the ground that it is essentially
a tort claim.”); Sheridan Health Care Ctr. Inc. v. Centen-
nial Healthcare Corp., No. IP01-0186-C-M/S, 2001 WL
1029111, *8 (S.D. Ind. June 19, 2001) (“In the current cir-
cumstances, where two corporate entities have entered
into a contract that defines the rights and duties of the
parties, when one party alleges the other has failed to
perform a duty in the contract, the party is claiming a
breach, not an independent tort that arises from the
relationship between the parties.”).
It is true that there are other decisions of the lower
Indiana courts that point in the opposite direction. See,
e.g., INS Investigation Bureau, Inc. v. Lee, supra; Raquet
v. Thompson, 693 N.E.2d 969 (Ind. Ct. App. 1998); Strayer
v. Covington Creek Condominium Assoc., 678 N.E.2d
1286 (Ind. Ct. App. 1997). If the decisions of the lower
courts pointed consistently toward a different resolution of
the precise question before us, our task would be more
difficult. But they do not, and we must bear in mind
that our ultimate responsibility is to decide this case as
we think the Supreme Court of Indiana would rule. We
are not bound to follow the decisions of the lower Indi-
ana courts except insofar as they serve as a good pre-
dictor of how the Supreme Court of Indiana might de-
cide the question. Cf. Allstate Ins. Co. v. Menards, Inc., 285
F.3d 630, 632-33 (7th Cir. 2002) (holding federal courts
must attempt to predict how state supreme court would
decide question in absence of controlling precedent and
in doing so are not bound by conflicting lower court pre-
cedents); see also Rocky Mountain Chocolate Factory, Inc.,
129 F.3d at 417. But when the decisions of the Indiana
courts point in different directions, as is the case here, it
is our job to look for other reliable predictors of how the
state’s highest court would rule on this issue.
The best predictors, in our view, come from the court’s
own jurisprudence in this area, especially Lawyers Title
10 No. 02-1555
and Schuman. Lewis and Methodist Hospital enjoyed a
relationship solely on the basis of their contractual agree-
ment. Absent the Agreement, Methodist owed Lewis
nothing. Bearing in mind the Supreme Court of Indi-
ana’s admonition not to collapse all contract claims into
tort, we conclude that under prevailing Indiana law
Lewis’s first count in his complaint against Methodist
Hospital seeks relief for breach of contract and is thus
governed by the ten-year statute of limitations. In reaching
this conclusion, we suggest nothing about the merits of
Lewis’s claim against the Hospital. See Schuman, 716
N.E.2d at 357.
III
The judgment of the district court is REVERSED and the
case is REMANDED for further proceedings on Lewis’s
claim for breach of contract.
A true Copy:
Teste:
________________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—4-7-03