Eye Clinic, P.C. v. Jackson-Madison County General Hospital ( 1998 )

IN THE COURT OF APPEALS OF TENNESSEE
AT JACKSON
THE EYE CLINIC, P.C. and its )
FILED
shareholders; DR. BEN HOUSE, )
DR. JIM PRICE, DR. ARTHUR )
WOODS, DR. MARK BATEMAN and )
DR. BRUCE HERRON, )
)
July 24, 1998
Plaintiffs/Appellees, ) Madison Chancery No. 51932
)
vs. )
) Appeal No. 02A01-9707-CH-00143
JACKSON-MADISON COUNTY ) Cecil Crowson, Jr.
GENERAL HOSPITAL, WEST )
Appellate C ourt Clerk
TENNESSEE HEALTHCARE, INC., )
and HEALTH PARTNERS, INC. )
)
Defendants/Appellants. )
APPEAL FROM THE CHANCERY COURT OF MADISON COUNTY
AT MEMPHIS, TENNESSEE
THE HONORABLE JOE C. MORRIS, CHANCELLOR
For the Plaintiffs/Appellees: For the Defendants/Appellants:
William H. West Gayle Malone, Jr.
Nashville, Tennessee Dan H. Elrod
Mary Ellen Morris
Amanda Haynes Young
Nashville, Tennessee
For the Intervening Defendant/Appellant: For the Amici Curiae, Tennessee Hospital
Association, Tennessee Public and Teaching
John Knox Walkup Hospitals, Inc. and Hospital Alliance of
Michael E. Moore Tennessee, Inc.:
Ann Louise Vix
Nashville, Tennessee William B. Hubbard
Carlos C. Smith
Mark W. Smith
Jerry W. Taylor
Nashville, Tennessee
REVERSED AND REMANDED
HOLLY KIRBY LILLARD, J.
CONCUR:
W. FRANK CRAWFORD, P.J., W.S.
ALAN E. HIGHERS, J.
OPINION
This suit involves a challenge by various eye doctors to the business activities of a public
hospital district and its spin-offs. The trial court granted summary judgment to the plaintiffs after
determining that the defendants’ business activities violated the Tennessee Constitution. We reverse.
Defendant/Appellant Jackson-Madison County General Hospital District (“the District”) is
a quasi-governmental entity created by a Private Act by the Tennessee legislature. The District was
created to provide health care services for area residents. The District created Defendant/Appellant
Health Partners, Inc. (“Health Partners”) and Defendant/Appellant West Tennessee Alliance for
Healthcare, Inc. (“West Tennessee Alliance”) to further its objectives. West Tennessee Alliance is
a physician-hospital organization (“PHO”), created to permit hospitals and doctors to jointly obtain
provider contracts with payors of health care benefits. The District owns fifty (50%) percent of West
Tennessee Alliance, and the other fifty (50%) percent is owned by private physicians.
Health Partners is a preferred provider organization (“PPO”), and the District is its sole
member. Health Partners contracts with health care providers to create a network to offer to
customers. In addition, Health Partners contracts with third-party payors to offer health care
services. In 1995, the District created another PPO called Sight Care Network (“Sight Care”). Sight
Care is not an independent entity; it is a network of eye doctors created to provide services.
Plaintiff/Appellee The Eye Clinic, P.C. is a professional corporation. All of its shareholders
are opthamologists and optometrists, who are also plaintiffs in this suit. All of the individual doctor
plaintiffs had preferred provider agreements with Health Partners at one time, but they have since
been terminated. The parties’ stipluation explains the reason for the termination of the plaintiffs’
agreements:
After the effective date of those terminations, Health Providers, Inc., plans to
limit its provider network in Madison County to The Jackson Clinic, P.A., the West
Tennessee Alliance for Healthcare, L.L.C., and physicians practicing in specialties
or subspecialties not available through either of those organizations.
None of the individual doctor plaintifs are members of the Jackson Clinic and none were invited to
participate in West Tennessee Alliance or Sight Care.
The plaintiffs filed this lawsuit, alleging that Article II, §§ 29 and 31 of the Tennessee
Constitution prohibit the District from jointly owning provider networks with private individuals.
In addition, the plaintiffs asserted that the Tennessee Constitution prohibits the District from
operating PPOs, such as Health Partners and Sight Care. The plaintiffs maintained that the District’s
operation of such PPOs results in a public entity engaging in a business carried on by private
enterprise and violates the constitutional provisions for due process and equal protection. The
plaintiffs sought to enjoin the District from operating West Tennessee Alliance, and also sought to
enjoin the defendants from engaging in any similar enterprises in the future.
The defendants filed a motion for summary judgment. The defendants argued that their
actions were authorized by the Private Act Hospital Authority Act of 1996 (“Hospital Authority
Act”), Tenn. Code Ann. §§ 7-57-601 et seq., and that the state constitution does not forbid their
conduct. This motion was denied.
The plaintiffs filed a motion for partial summary judgment and for a preliminary and
permanent injunction. The trial court issued an order mandating notification to the State Attorney
General that the constitutionality of portions of the Hospital Authority Act were being challenged.
Consequently, the Attorney General intervened as a defendant in this action. The defendants then
filed a cross motion for partial summary judgment.
In a cursory opinion, the trial court granted summary judgment in favor of the plaintiffs,
concluding that the defendants’ actions violated Article II, §§ 29 and 31 of the Tennessee
Constitution. The trial court found that the District “is a joint venture of the City of Jackson and
Madison County.” The defendants were also enjoined from operating West Tennessee Alliance or
any other company in which it co-owned shares of stock with private entities. The defendants were
also enjoined from operating PPOs, such as Health Partners and Sight Care. From this order, the
defendants now appeal.
On appeal, the defendants contend that the trial court erred by concluding that Article II, §§
29 and 31 prohibit the District from co-owning with private entities shares of West Tennessee
Alliance or any other company. They argue that the District is not a “county, city or town” within
the meaning of Article II, § 29 of the Tennessee Constitution. They note that the Hospital Authority
Act authorizes the District to own a provider network jointly with private individuals. They contend
that Article II, § 31 of the Tennessee Constitution, prohibits “the State,” but not an entity such as the
District, from operating PPOs, such as Health Partners and Sight Care. The Attorney General asserts
2
that the trial court erred to the extent that it found that the Hospital Authority Act violates the
Tennessee Constitution.1
Summary judgment should be granted when the movant demonstrates that there are no
genuine issues of material fact and that the moving party is entitled to a judgment as a matter of law.
Tenn. R. Civ. P. 56.03. The party moving for summary judgment bears the burden of demonstrating
that no genuine issue of material fact exists. Byrd v. Hall, 847 S.W.2d 208, 211 (Tenn. 1993). On
a motion for summary judgment, the court must take the strongest legitimate view of the evidence
in favor of the nonmoving party, allow all reasonable inferences in favor of that party, and discard
all countervailing evidence. Id. at 210-11. Summary judgment is only appropriate when the facts
and the legal conclusions drawn from the facts reasonably permit only one conclusion. Carvell v.
Bottoms, 900 S.W.2d 23, 26 (Tenn. 1995). Since only questions of law are involved, there is no
presumption of correctness regarding a trial court's grant of summary judgment. Id. Therefore, our
review of the trial court’s grant of summary judgment is de novo on the record before this Court.
Id.
LEGISLATION
The defendants argue first that their actions are not prohibited by Article II, § 29 of the
Tennessee Constitution because the District is not a “county, city or town” within the meaning of
that provision. Against the background of the pertinent legislation, we shall examine Section 29.
The Hospital Authority Act was passed to enable private act hospitals to compete in the
health care market. Several of its provisions incorporate by reference the Private Act Metropolitan
Authorities Act of 1995 (“Metropolitan Authorities Act”), Tenn. Code Ann. §§ 7-57-501 et seq.
(Supp. 1997). The Metropolitan Authorities Act sets forth its purpose:
The general assembly hereby finds that the demand for hospital, medical and
health care services is rapidly changing as is the way and manner in which such
services are purchased and delivered; that the market for hospital and health care
services is becoming increasingly competitive; and that the hospital and other health
care providers need flexibility to be able to respond to changing conditions by having
the power to develop efficient and cost-effective methods to provide for hospital,
medical and health care needs. The general assembly also finds that the increasing
competition and changing conditions forces hospitals and other health care providers
to develop market strategies and strategic plans to effectively compete. The general
assembly further finds that public hospitals in metropolitan areas are presently at a
competitive disadvantage, and that significant investments in the public assets of
1
An Amici Curiae brief was filed by the Tennessee Hospital Association, the Tennessee
Association of Public and Teaching Hospitals, Inc., and the Hospital Alliance of Tennessee, Inc..
3
private act metropolitan hospital authorities could be jeopardized by inability to
compete with private hospitals because of legal constraints upon the scope of their
operations and limitations upon the power granted to public hospitals under existing
law.
Tenn. Code Ann. § 7-57-501(b).
The Hospital Authority Act broadened the powers of hospitals created by private act. The
broadened powers include the power to:
participate as a shareholder in a corporation, as a joint venturer in a joint venture, as
a general partner in a general partnership, as a limited partner in a limited partnership
or a general partnership, as a member in a nonprofit corporation or as a member of
any other lawful form of business organization, which provides hospital, medical or
health care or engages in any activity supporting or related to the exercise of any
power granted to a private act metropolitan hospital authority;
Tenn. Code Ann. § 7-57-603 (incorporating Tenn. Code Ann. § 7-57-502(b)(1)). Such hospitals
may:
acquire, manage, lease, purchase, sell, contract for or otherwise participate solely or
with others in the ownership or operation of hospital, medical or health program
properties and facilities and properties, facilities, and programs supporting or relating
thereto of any kind and nature whatsoever and in any form of ownership whenever
the board of trustees in its discretion shall determine it is consistent with the purposes
and policies of this part or any private act applicable to it, and may exercise such
powers regardless of the competitive consequences thereof.
Tenn. Code Ann. § 7-57-603 (incorporating Tenn. Code Ann. § 7-57-502(c)).
The District was created by Chapter 686 of the 1949 Private Acts to own the Jackson-
Madison County General Hospital. Its “mission and purpose”:
shall be for the benefit of the City of Jackson, Tennessee and Madison County,
Tennessee, to provide, on a fee-for-service basis with due regard for the needs of
low-income and indigent patients, the full range of health care (including mental
illness), illness prevention and allied and incidental services and operations.
1992 Tenn. Priv. Acts ch. 165, § 1. The Act created a Board of Trustees, whose directors are to
serve without compensation. 1949 Tenn. Priv. Acts ch. 686, § 3. The Board’s power includes:
full, absolute and complete authority and responsibility for the operation,
management, conduct and control of the business and affairs of the Hospital District
herein created, which business and affairs may include without limitation the
provision of health care services for persons in their homes; . . . . Said authority and
responsibility shall include, but shall not be limited to, the establishment,
promulgation and enforcement of the rules, regulations, and policies of the District,
the upkeep and maintenance of all property, the administration of all financial affairs
of the District, the execution of all contracts, agreements and other instruments, and
the employment, compensation, discharge and supervision of all personnel.
Id. ch. 686, § 8 (as amended by 1989 Tenn. Priv. Acts ch. 26, § 2). The private act provides that:
the County Legislative Body of Madison County is hereby authorized to appropriate
to the Hospital District from the General Fund of the County one-half of such sums
4
as may be required to commence the operation of said District, and thereafter one-
half of such sums as may be required to pay any deficits arising in the operation and
maintenance of said District; and are authorized and empowered, also, to levy a tax
sufficient for the purpose upon all taxable property within the said County.
Id. ch. 686, § 13 (as amended by 1992 Tenn. Priv. Act ch. 165, § 2).
SECTION 29
Article II, § 29 of the Tennessee Constitution states as follows:
The General Assembly shall have power to authorize the several counties and
incorporated towns in this State, to impose taxes for County and Corporation
purposes respectively, in such manner as shall be prescribed by law; and all property
shall be taxed according to its value, upon the principles established in regard to State
taxation. But the credit of no County, City or Town shall be given or loaned to or in
aid of any person, company, association or corporation, except upon an election to
be first held by the qualified voters of such county, city or town, and the assent of
three-fourths of the votes cast at said election. Nor shall any county, city or town
become a stockholder with others in any company, association or corporation except
upon a like election, and the assent of a like majority. . . .
(emphasis added).
The defendants argue that the trial court effectively declared the Hospital Authority Act
unconstitutional by interpreting Section 29 to include the District within the meaning of the phrase,
“county, city or town.” Since the trial court’s ruling precludes the District from exercising powers
expressly authorized by the Hospital Authority Act, they contend that the trial court has rendered the
statute a nullity.
The plaintiffs maintain that the defendants have exaggerated the consequences of the trial
court’s ruling. They insist that the trial court at no point deemed the statute to be unconstitutional.
They note that the Metropolitan Hospital Authorities Act limits the powers granted under the statute
“to the extent at the time [that the powers granted are] not prohibited by the Constitution of
Tennessee.” Tenn. Code Ann. § 7-57-502(b). They emphasize that the Hospital Authority Act does
not explicitly authorize the District to co-own shares with private entities. The plaintiffs assert that
the trial court’s holding is limited to the determination that the District itself acted ultra vires by
unconstitutionally co-owning shares with others.
In response to the defendants’ argument on the meaning of Section 29, the plaintiffs argue
that the District is encompassed within the meaning of “county, city or town.” The trial court found
that the District “is a joint venture of the City of Jackson and Madison county.” The plaintiffs
contend that the District’s ownership of West Tennessee Alliance is prohibited since the District co-
owns shares of the PHO with private entities. The defendants argue that, as a matter of law, the
5
District is a distinct entity from the City of Jackson and Madison County and that, therefore, Section
29 does not apply. They assert that the District’s ownership of West Tennessee Alliance is explicitly
authorized by the Hospital Authority Act.
No published Tennessee decisions directly address the interpretation of the phrase, “county,
city or town,” in Section 29. Originally, Section 29 consisted of only the first sentence. The
remaining language was added in 1870 during the period of Reconstruction.2 Tennessee, like many
other states, added this prohibition to its Constitution to prevent itself from becoming burdened by
debt resulting from “public financial support of privately sponsored ‘internal improvements.’” Lewis
L. Laska, A Legal and Constitutional History of Tennessee, 1772-1972, 6 Mem. St. L. Rev. 563,
640-41 (1976). The reason for these provisions has been described as follows:
Early in the nineteenth century it seems to have been the general practice of states
to encourage the building of railroads by permitting the state or a subdivision thereof
to purchase stock in railroad corporations, to issue bonds or lend credit in aid of
railroads, or to make outright donations to them. However, due to the large number
of insolvencies or railroads, caused by frauds or economic conditions, states and
subdivisions thereof found themselves largely indebted, and were themselves
occasionally insolvent because of large investments in such enterprises. Therefore
a reversal of policy set in. As early as 1851 Ohio adopted a constitution containing
a provision prohibiting stock subscriptions or other forms of aid to corporations. In
the ensuing twenty-five years most of the other states adopted similar provisions,
either prohibiting aid altogether or requiring a vote of the people before a
subscription to stock or other sort of aid could be made or extended.
Annotation, Constitutional or statutory provisions prohibiting municipalities or other subdivisions
of the state from subscribing to, or acquiring stock of, private corporations, 152 A.L.R. 495, 495-96
(1944). Adoption of such provisions:
represents the reaction of public opinion to the orgies of extravagant dissipation of
public funds by counties, townships, cities, and towns in aid of construction of
railways, canals, and other like undertakings during the half century preceding 1880,
and it was designed to primarily to prevent the use of public funds raised by general
taxation in aid of enterprises apparently devoted to quasi public purposes, but
actually engaged in private business.
Thaanum v. Bynum Irr. Dist., 232 P. 528 (Mont. 1925); see also Arthur P. Roy, Note, State
Constitutional Provisions Prohibiting the Loaning of Credit to Private Enterprise--A Suggested
Analysis, 41 U. Colo. L. Rev. 135 (1969); Stewart E. Sterk & Elizabeth S. Goldman, Controlling
Legislative Shortsightedness: The Effectiveness of Constitutional Debt Limitations, 1991 Wis. L.
Rev. 1301 (1991).
2
Article II, § 31 was also added to the Tennessee Constitution at this time.
6
In interpreting a constitutional provision, effect must be given to its “ordinary and inherent
meaning.” Gaskin v. Collins, 661 S.W.2d 865, 867 (Tenn. 1983). The intent at the time of
enactment must be examined:
Since constitutions derive their power and authority from the people, our articulation
of constitutional principles must capture the intentions of the persons who ratified the
constitution. These intentions are reflected in the words of the constitution itself,
rather than our own subjective notions of unexpressed constitutional intent.
Martin v. Beer Bd., 908 S.W.2d 941, 947 (Tenn. App. 1995) (internal citation omitted). The
language of Section 29 suggests that the drafters intended that the phrase, “county, city or town,”
be confined to its literal meaning. The first sentence of Section 29 empowers the General Assembly
to authorize counties and towns to impose taxes. The second sentence limits the ability of cities,
counties, and towns to lend credit. The second sentence begins with the word, “but.” The third
sentence, prohibiting such cities, counties, and towns from co-owning stock, begins with the word,
“nor.” Considering these three sentences together, the limitations in the second and third sentences
plainly modify the entities described in the first sentence.
In Lipscomb v. Dean, 69 (1 Lea) Tenn. 546 (Dec. Term 1878), the Court considered whether
the General Assembly could delegate the power to levy taxes to school districts or civil districts
within a county. Finding that the General Assembly could not delegate such a task, the Court
reasoned as follows:
The power to authorize incorporated towns and counties to levy taxes for
corporation and county purposes, is the only part of our Constitution which we can
find that gives the Legislature any power to delegate the right of taxation. The clause
appeared for the first time in the Constitution of 1834, and was copied in that of
1870.
It is a sufficient fact, that in the constitutional convention of 1870, when sec.
29, art. 2, was under consideration, Mr. Seay offered an amendment to insert civil
districts after the word counties, so as to give the Legislature power to authorize the
civil districts to levy and collect taxes, but the amendment offered was at once
rejected.
All the authorities, as well as common sense, agree in the rules that language
must be interpreted in the light of things surrounding the parties using the words to
be interpreted. When the Constitution of 1834 was framed and ratified, there was no
such thing in this State as an incorporated town other than one of fixed and defined
limits, invested with powers of municipal government, and this for local and police
purposes. Such was the condition of things in 1870, and such alone is the sense in
which the “incorporated towns” were used, and to this it must be confirmed.
Id. at 552-53 (emphasis added).
Thus, the Court in Lipscomb indicates that the drafters of the Constitution intended for only
cities, counties, or towns, in the plain sense of the words, to have the power to levy taxes. It notes
7
that an effort to broaden the phrase to include “civil districts” was defeated during the 1870
constitutional convention. Id. Since the third sentence of Section 29 refers to such cities, counties,
or towns, the limitation in the third sentence appears to apply only to cities, counties, and towns with
taxing powers.
In Gibson County Special School Dist. v. Palmer, 691 S.W.2d 544 (Tenn. 1985), the Court
addressed whether a special school district, created by the General Assembly, could assess taxes.
The Court held:
Article 2, § 29 of the Tennessee Constitution permits the legislature to delegate its
taxing power to counties and towns. It has been previously held by Tennessee courts
that special school districts do not fall within the purview of § 29 of Article 2 and
that legislation granting to special school districts the power to levy taxes is an
unconstitutional delegation of the taxing authority.
Id. at 549 (citing Williamson v. McClain, 147 Tenn. 491, 249 S.W. 811 (1923)); see also West
Tennessee Flood Control & Soil Conserv. Dist. v. Wyatt, 193 Tenn. 566, 247 S.W.2d 56 (1952)
(holding that the West Tennessee Flood Control and Soil Conservation District was not authorized
to assess taxes).
Several Tennessee cases have addressed whether agencies and instrumentalities of
municipalities have the power to issue bonds without being subject to the limitation set forth in the
second sentence of Section 29. In each of these cases, the Court narrowly defined the term “county,
city or town” and found that Section 29 did not prevent the entities from issuing bonds so long as
the municipality was not compelled to invoke its taxing power to make payment on the issuance.
See West v. Industrial Dev. Bd., 206 Tenn. 154, 159, 332 S.W.2d 201, 203 (1960) (bonds issued by
an industrial development board); Fort Sanders Presbyterian Hosp. v. Health & Educ. Facilities
Bd., 224 Tenn. 240, 250, 453 S.W.2d 771, 775 (1970) (bonds issued by health & educational
facilities board); Metropolitan Dev. & Housing Agency v. Leech, 591 S.W.2d 427, 429 (Tenn.
1979) (bonds issued by housing agency).
In this case, we must determine whether the District should be considered a city, county, or
town. The District is a “quasi-municipal corporation.” Finister v. Humboldt Gen. Hosp., No.
02501-9704-CH-00038, 1998 WL 321850, at *4 (Tenn. May 26, 1998); Professional Home Health
& Hospice, Inc. v. Jackson-Madison County General Hosp. Dist., 759 S.W.2d 416, 419 (Tenn.
App. 1988).
The plaintiffs argue that the Private Act creating the District obligates Madison County to
8
finance any deficits that may arise. However, the Private Act states only that Madison County “is
hereby authorized to appropriate” funds to commence operations and pay operating deficits; it is not
obligated to do so. See 1949 Tenn. Priv. Acts ch. 686, § 13 (as amended by 1992 Tenn. Priv. Act.
ch. 165, § 2). The record indicates that revenues generated by the District are controlled solely by
the District’s Board and are autonomous from the general funds controlled by the city and county.
Under these circumstances, the District is clearly not a taxing power within the meaning of the
phrase “city, county or town” in Section 29. Instead, it is an autonomous quasi-municipal entity.
This conclusion is consistent with the Tennessee Supreme Court’s holding that the office of
trustee for the hospital authority in Chattanooga-Hamilton County is not a “county office” within
the meaning of Article XI, § 17 of the constitution, but “rather an office of an independent
governmental entity.” Chattanooga-Hamilton County Hosp. Auth. v. City of Chattanooga, 580
S.W.2d 322, 329 (Tenn. 1979). The plaintiffs respond that, nine years later, the Supreme Court,
interpreting the same private act hospital authority, held that the authority was “a subdivision of the
state and county.” Johnson v. Chattanooga-Hamilton County Hosp. Auth., 749 S.W.2d 36, 37
(Tenn. 1988). In Johnson, however, the Court held that the Chattanooga-Hamilton County Hospital
Authority was exempt from the worker’s compensation statute, which does not apply to “the state
of Tennessee, counties thereof, and municipal corporations.” Id. at 37-38; Tenn. Code Ann. § 50-6-
106 (Supp. 1997). See also Finister, supra, at *4 (holding that a hospital district is an “exempt
quasi-municipal corporation” pursuant to the Tennessee Workers’ Compensation Act). The
determination of whether a hospital authority is exempt from the worker’s compensation statute is
an issue separate from whether a hospital authority is a “county, city or town” within the meaning
of the Tennessee Constitution. As noted above, to determine the meaning of the phrase “county, city
or town” in Section 29, we must look to the intent of the framers of the Constitutional provision, not
the intent of a later legislature in enacting a wholly unrelated statute.
Similarly, the plaintiffs cite Crowe v. John W. Harton Mem’l Hosp., 579 S.W.2d 888
(Tenn. App. 1979), for the proposition that a public hospital is considered to be an “instrumentality”
of a municipality so that it is covered by the Governmental Tort Liability Act (“GTLA”), Tenn. Code
Ann. §§ 29-20-101 et seq. (1980 & Supp. 1997). The GTLA applies to “governmental entities,”
which include:
any political subdivision of the state of Tennessee including . . . any instrumentality
9
of government created by any one (1) or more of the herein named local
governmental entities.
Tenn. Code Ann. § 29-20-102(3) (Supp. 1997). Again, the definition of “governmental entities”
pursuant to a statute such as the GTLA has no bearing on the definition of “county, city or town”
pursuant to Article II, § 29.
This holding is consistent with decisions interpreting similar constitutional provisions of
other states. The language “city, county or town,” contained in Article II, Section 29 of the
Tennessee Constitution is more narrow than the language found in the correlating provisions of the
majority of the constitutions of other states. The constitutions of most states extend restrictions on
stock ownership to entities beyond counties, cities and towns.3
In Harshman v. Bates County, 92 U.S. 569, 23 L. Ed. 747 (1876), overruled on other
grounds by Cass County v. Johnston, 95 U.S. 360, 365, 24 L. Ed. 416 (1877), the United States
Supreme Court considered a Missouri constitutional provision restricting the state legislature from
“authoriz[ing] any county, city or town to become a stockholder in . . . any company, association or
corporation.” The issue concerned whether the phrase, “county, city or town,” included townships,
which were subdivisions of counties. Harshman, 23 L. Ed. at 747. The Court held that the
“manifest intention and spirit” of the term included townships, since they had “no power to act as
corporate bodies.” Id. The Court, nevertheless, surmised that:
[h]ad counties alone been mentioned, there might have been no restriction as to cities
and towns; because they are separate and distinct organizations, corporate in
character, and often clothed with legislative functions.
Id.
The Kentucky Court of Appeals considered whether a municipal housing commission could
privately insure its housing projects in City of Louisville Mun. Housing Comm’n v. Public Housing
Admin., 261 S.W.2d 286 (Ky. App. 1953). The applicable constitutional provision prohibits “any
county or subdivision thereof, city, town, or incorporated district, [from] becom[ing] a stockholder
3
See, e.g., Ala. Const. art. IV, § 94 (“county, city, town, or other subdivision of this state
. . . ”); Ark. Const. XII, § 5 (“county, city, town or other municipal corporation . . .”); Fla. Const.
art. VII, § 10 (“state nor any county, school district, municipality, special district, or agency of any
of them . . .”); Ky. Const. § 179 (“county or subdivision thereof, city, town, or incorporated district
. . .”); Miss. Const. art. VII, §183 (“county, city, town, or other municipal corporation . . .”); Mo.
Const. art. XIII, § 1 (“state, nor any county, city, town, municipality, nor other subdivision of the
state . . .”); Okl. Const. art. X, § 17 (“county or subdivision thereof, city, town, or incorporated
district . . .”); Tex. Const. art. III, § 52 (“county, city, town or other political corporation or
subdivision of the State . . .”).
10
in any company, association or corporation.” Ky. Const. § 179. The commission, formed by the
Kentucky legislature, retained “some of the attributes of a state agency although it [was] controlled
by the Mayor of Louisville.” City of Louisville, 261 S.W.2d at 287. The parties did not contend that
the commission was a county, subdivision of a county, city, or town; instead the issue concerned
whether the commission qualified as an “incorporated district” pursuant to the constitutional
provision. Id.
After applying an “ordinary and commonly accepted” interpretation of the terminology, as
well as taking into consideration the intent of the drafters, the Court held that “the ordinary meaning
of the word, ‘Commission,’ denotes something different from ‘District.’” Id. at 288. The Court
found that the fact that the commission operated within defined territorial boundaries did not
“transform the Commission into a District.” Id. The Court reasoned that the commission:
is neither “fish nor fowl” within the definitive ter[m] of sectio[n] . . . 179. It may be
said to be a hybrid, conceived for a purpose not contemplated by the framers of our
Constitution.
Id.
In Thaanum v. Bynum Irr. Dist., 232 P. 528 (Mont. 1925), the Montana legislature created
an irrigation district for the purpose of irrigating land in the Grand Teton area. The district’s board
was granted broad authority to take steps to accomplish its objective. Id. The suit arose after the
district acquired an option to purchase certain shares of stock of a private company or, alternatively,
the right to purchase from the acquirers of these shares the right to use the water owned by the
private company. Id. The Montana Constitution proscribes the “state, nor any county, city, town,
municipality, nor other subdivision of the state” from becoming a “subscriber to, or a shareholder
in, any company or corporation . . . .” Mont. Const. art. 13, § 1.
After considering the history behind the constitutional provision, the Court concluded that
the irrigation district did not constitute the “state, . . . county, city, town, municipality, [or] other
subdivision of the state.” Id.; Thaanum, 232 P. at 530-31. The Court noted that one characteristic
that distinguished the district from the entities expressly mentioned in the constitutional provision
was the power to impose taxes. Id. at 531.
In Day v. Buckeye Water Conserv. Drainage Dist., 237 P. 636 (Ariz. 1925), an irrigation
district was formed pursuant to an Arizona statute. The district entered into an elaborate agreement
with a private company. Id. at 637-38. The plaintiff challenged the district’s conduct based on
11
Article IX, § 7 of the state constitution. This provision provides that:
Neither the state, nor any county, city, town, municipality, or other subdivision of the
state shall ever give or loan its credit in the aid of, or make any donation or grant, by
subsidy or otherwise, to any individual, association, or corporation, or become a
subscriber to, or a shareholder in, any company or corporation or become a joint
owner with any person, company, or corporation, except as to such ownerships as
may accrue to the state by operation or provision of law.
Ariz. Const. art. IX, § 7. The issue in Day was whether the district was included within the phrase,
“other subdivision of the state.” Day, 237 P. at 638.
After considering the history behind the provision and after applying the canon of ejusdem
generis, the Court found that the district was not within the phrase “other subdivision of the state”
as contemplated by the framers of the Arizona Constitution. Id. The Court found that the district’s
functions were markedly dissimilar from the functions of counties, cities, towns, and municipalities
mentioned in the provision. Id. The Court noted that:
irrigation districts and similar public corporations, while in some senses subdivisions
of the state, are in a very different class. Their function is purely business and
economic, and not political and governmental.
Id.
The Court also emphasized that a contrary ruling would jeopardize the viability of such
public corporations. It reasoned:
In many cases the only way in which they can carry out the sole purpose of their
existence is by some plan of joint control or ownership forbidden by section 7, supra.
To hold that they belong to the “other subdivisions of the state” referred to in that
section would be in effect to prohibit their existence.
Id. at 638-39. Citing Thaanum, supra, the Court held that the district did not fall within the ambit
of the constitutional provision. Day, 237 P. at 639; see also Maricopa County Mun. Water
Conserv. Dist. No. 1. v. La Prade, 40 P.2d 94, 99-100 (Ariz. 1935). Courts of other states utilized
similarly narrow interpretations of comparable constitutional provisions in decisions rendered not
long after the provisions were ratified. See, e.g., In re Bonds of Madera Irrigation Dist., 28 P. 675,
676 (Cal. 1892) (“This prohibition in the constitution is Limited [sic] to the public corporations
enumerated in that section, viz., ‘county, city, town, township, board of education, or school-
district,’ and, under familiar rules of construction, cannot be extended to any other public
corporation.”); cases cited in Ann., 152 A.L.R. at 505-08.
In Arkansas Unif. & Linen Supply Co. v. Institutional Serv. Corp., 700 S.W.2d 358 (Ark.
1985), a group of plaintiffs operating commercial laundries challenged the activity of an Arkansas
12
city and a hospital located within the city. The city owned the hospital facility and the land, and
leased them to the hospital. Id. at 359. New board members of the hospital were nominated by the
board, and confirmed by the city council. Id. In the event that the hospital should dissolve, the city
was granted ownership of all of the hospital’s assets. Id. The plaintiffs brought suit when the
hospital incorporated a laundry service business. Id. The plaintiffs claimed that the defendants
violated Article XII, § 5 of the Arkansas Constitution, since the city was lending credit to and
becoming a stockholder in a private company.4 Id.
The Arkansas Supreme Court held that the issue was whether the hospital was the “alter ego”
of the city council. Id. at 360. Although the city council confirmed the board’s nominees, the Court
noted that it had never rejected any of the board’s nominees in the past. Id. The Court also pointed
out that the dissolution provision was drafted to comply with a statutory charitable tax exemption
provision and that the leasing arrangement between the city and the hospital was expressly
authorized by an Arkansas statute. Id. Thus, the Court found that the hospital was sufficiently
autonomous to avoid being “the arm of the city council.” Id. at 361. See also Fairfax County
Indus. Dev. Auth. v. Coyner, 150 S.E.2d 87, 94 (Va. 1966) (industrial development authority not
a “county, city or town” when it issues revenue bonds since no municipality “grants its credit or
becomes liable in any manner for the payment of the bonds and obligations of the [a]uthority.”);
Public Utility Dist. No. 1 v. Taxpayers & Ratepayers of Snohomish County, 479 P.2d 61, 63-64
(Wash. 1971) (joint ownership of power plant by municipal corporations and private companies did
not violate state constitution since the public shareholders retained veto power and, thus, were not
“subject to the overriding control of a shareholder majority.”); but cf. Wilmington Parking Auth.
v. Ranken, 105 A.2d 614, 627-28 (Del. 1954) (constitutional phrase “county, city, town or other
municipality” included a parking authority).
Consequently, we hold that the District is not a “county, city or town” within the meaning
of Article II, Section 29 of the Tennessee Constitution and that, therefore, the defendants’ actions
4
This provision states:
No county, city, town, or other municipal corporation shall become a stockholder
in any company, association or corporation; or obtain or appropriate money for, or
loan its credit to, any corporation, association, institution or individual.
Ark. Const. art. 12, § 5.
13
do not violate Section 29. The trial court is reversed on this issue.
SECTION 31
Article II, § 31 of the Tennessee Constitution states:
The credit of this State shall not be hereafter loaned or given to or in aid of any
person, association, company, corporation or municipality; nor shall the State
become the owner in whole or in part of any bank or a stockholder with others in any
association, company, corporation or municipality.
Since the trial court found that the District’s part ownership of West Tennessee Alliance violated
Section 31, it implicitly found that the District is an “arm of the State.” The defendants contend that
the provision applies only to the State itself. In the alternative, the defendants maintain that even
if the District is an “arm of the State,” the District’s activities do not violate Section 31 since it is
performing a public function, rather than a proprietary function.
The plaintiffs cite no cases indicating that the term “State” as set forth in Section 31 should
be construed broadly, so as to include an “arm” of the State. Indeed, if “State” in Section 31 were
broadly construed, Section 29 would be unnecessary. Section 29 permits a county, city or town to
own stock with others if the arrangement is approved by the electorate. If the term “State” in Section
31 were interpreted broadly, it would include counties, cities and towns and would render Section
29 meaningless. The existence of Section 29 indicates that the term “State” in Section 31 should be
narrowly construed. See Summers v. Thompson, 764 S.W.2d 182, 195 (Tenn. 1988) (holding that
the Tennessee Constitution must be construed in pari materia).
Courts in other states have also interpreted the term narrowly when considering comparable
constitutional provisions. In City of Louisville, supra, the Kentucky Court of Appeals considered
whether a constitutional provision barring “the Commonwealth [from] becom[ing] an owner or
stockholder” proscribed the housing commission’s activities. City of Louisville, 261 S.W.2d at 287
(citing Ky. Const. § 177). The Court held that “[o]bviously, the Housing Commission is not the
Commonwealth.” Id. The Court maintained that, regardless of whether the commission is
considered an agency of the Commonwealth, “[w]e have no doubt the prohibition in that section is
directed to the Commonwealth as such and not to an agency such as this Housing Commission is
shown to be.” Id. Thus, the Court held that the commission was “neither ‘fish nor fowl’ within the
definitive terms” of the constitutional provisions. Id. at 288.
Oklahoma, like Tennessee and Kentucky, has separate constitutional provisions that address
14
governmental aid to corporations. Article X, § 15 of the Oklahoma Constitution prohibits the
“State” from becoming a stockholder. Article X, § 17 prohibits “any county or subdivision thereof,
city, town, or incorporated district” from becoming a stockholder. Oklahoma courts have held that
§ 15 does not apply to municipalities since that provision is limited to the state. See Fretz v. City
of Edmund, 168 P. 800, 804 (Okl. 1916); Lawrence v. Schellstede, 348 P.2d 1078, 1081 (Okl.
1960).
In Andres v. First Arkansas Dev. Fin. Corp., 324 S.W.2d 97 (Ark. 1959), the Arkansas
legislature passed a statute creating corporations to provide financial assistance to industrial
development. The plaintiffs claimed that the statute violated a state constitutional provision
restricting the state from “lend[ing] its credit.”5 Id. at 100. The Court dismissed the argument that
the development corporations were an alter ego of the state. Id. The Court reasoned that “[t]he State
is not ‘lending its credit’ merely because it authorizes the organization of a corporation which may
finance industrial development corporations.” Id.
Plaintiffs in Steup v. Indiana Housing Fin. Auth., 402 N.E.2d 1215 (Ind. 1980), challenged
a statute by the Indiana legislature creating a finance authority. The finance authority was authorized
to create an entity to provide facilities for lower income persons and families. Id. at 1220. The
plaintiffs alleged that this authorization violated a constitutional provision prohibiting the state from
“becom[ing] a stockholder.” Id.; Ind. Const. art. XI, § 12. Finding that the authority “is not the state
in its sovereign capacity,” the Indiana Supreme Court held that the constitutional provision was
inapplicable. Steup, 402 N.E.2d at 1220; see also Sendak v. Trustees of Indiana Univ., 260 N.E.2d
601, 602-04 (Ind. 1970) (Indiana University not considered “state”); Thaanum, 232 P. at 530
(irrigation district “is not the state”); citations listed in Ann., 152 A.L.R. at 505-08; Coyner, 150
S.E.2d at 94 (constitutional credit clause does not apply to industrial development authority since
the Commonwealth is not liable for bonds issued by the authority); Sprague v. Straub, 451 P.2d
49, 57-59 (Ore. 1969) (constitutional prohibition of state ownership of corporate stock does not
apply to investment of industrial accident commission fund and public employees’ retirement fund,
5
The provision states:
Neither the State nor any city, county, town or other municipality in this State, shall
ever lend its credit for any purpose whatever . . .
Ark. Const. art. XVI, § 1.
15
since the state has no proprietary interest in these funds); but cf. Board of Trustees of the Public
Employees’ Retirement Fund of Indiana v. Pearson, 459 N.E.2d 715, 717-18 (Ind. 1984)
(investment of state employees’ retirement fund in stock of private companies violated constitutional
provision since the state could suffer a loss if the stock value fell); West Virginia Trust Fund, Inc.
v. Bailey, 485 S.E.2d 407, 420-21 (W. Va. 1997) (state trust fund violated constitutional provision
since it was an “alter ego” of the state); State ex rel. Gainer v. West Virginia Bd. of Investments,
459 S.E.2d 531, 534-37 (W. Va. 1995) (until public employees’ pension funds actually withdrawn,
the state has a beneficial ownership interest and, thus, the state has unconstitutionally become a
stockholder).
In the case at bar, under a narrow interpretation of the term “State” in Section 31, the District
clearly is not the State. The District’s board of directors is not selected by the State, its operations
are not supported by State revenue, and the State is under no obligation to cover any deficit that the
District may incur.
The plaintiffs argue that the State may not delegate a power that it does not itself possess.
Citing State ex rel. Bd. of Dental Examiners v. Allen, 192 Tenn. 396, 241 S.W.2d 505 (1951), the
plaintiffs claim that since Section 31 prohibits the General Assembly from co-owning shares, it may
not avoid this prohibition by creating hospital authorities and granting them authority to co-own
shares. In Allen, a state statute authorized a county to permit an unlicensed person to practice
dentistry. Id., 192 Tenn. at 397, 241 S.W.2d at 505. Thus, the statute carved out an exception to the
“general law applicable to the entire State,” forbidding the unlicensed practice of dentistry. Id., 192
16
Tenn. at 398, 241 S.W.2d at 506. The Court held that the statute violated Article XI, § 8, which
prohibits suspending:
any general law for the benefit of any particular individual, or to pass any law
granting to any individual rights, privileges, or immunities not extended to any other
member of the community who may be able to bring himself within the provisions
of such law.
Id. (quoting Lineberger v. State ex rel. Beeler, 174 Tenn. 538, 541, 129 S.W.2d 198, 199 (1939)).
The Court reasoned that the General Assembly may not “delegate to the Quarterly Court of a County
the authority to do an act which the Constitution forbids the Legislature from doing.” Allen, 192
Tenn. at 399, 241 S.W.2d at 506.
The plaintiffs’ reliance on Allen is misplaced. Allen holds that municipal ordinances are
subject to the same constitutional restraints as statutes. Since the General Assembly may not enact
a statute suspending a general prohibition, it may not circumvent Article XI, § 8 by authorizing a
county to suspend the general prohibition. Allen has no bearing on whether Section 31 forbids
governmental entities other than the State from co-owning shares. The Tennessee Constitution is
a limitation of powers, not a source of power. Perry v. Lawrence County Election Comm’n, 219
Tenn. 548, 551, 411 S.W.2d 538, 539 (1967). Thus, the General Assembly may enact any legislation
that is not forbidden by the Tennessee or federal constitutions. Fentress County Beer Bd. v.
Cravens, 209 Tenn. 679, 687, 356 S.W.2d 260, 263 (1962).
Therefore, the District’s co-ownership of West Tennessee Alliance or similar entities,
now or in the future, does not violate Article II, Section 31 of the Tennessee Constitution. The
decision of the trial court on this issue is reversed.
ARTICLE I, SECTION 8
In its ruling, the trial court also enjoined the District from operating Sight Care, Health
Partners, or any other PPO in the future, despite the fact that these entities are solely owned by the
District. The trial court did not articulate its reasoning. The defendants assert that the Hospital
Authorities Act authorizes their participation in the PPO business and that nothing in the
Constitution prohibits such activity.
Presumably the trial court agreed with the plaintiffs’ argument that Article I, § 8 of the
Tennessee Constitution bars the governmental operation of PPOs. Article I, § 8, known as the “law
17
of the land” provision, states:
That no man shall be taken or imprisoned, or disseized of his freehold, liberties or
privileges, or outlawed, or exiled, or in any manner destroyed or deprived of his life,
liberty or property, but by the judgment of his peers or the law of the land.
Tenn. Const. art. I, § 8. The plaintiffs’ argument is three-fold: 1) that the notion of a governmental
entity engaging in a business already served by a private enterprise is repugnant to this provision and
the spirit of the constitution; 2) that the defendants deprived the plaintiffs of procedural due process
of law; and 3) that the defendants deprived the plaintiffs of equal protection of the laws.
The plaintiffs cite no authority for the proposition that Tennessee law forbids
governmental entities from engaging in a proprietary capacity. In fact, governmental entities
frequently act as market participants. See, e.g., Reeves, Inc. v. Stake, 447 U.S. 429, 100 S. Ct. 2271,
65 L. Ed. 2d 244 (1980) (state owned and operated a cement plant). Under the plaintiffs’ reasoning,
state and local governments could not operate a hospital, since private hospitals exist. As noted
above, the Tennessee Constitution is a limitation of powers, not a source of power. Perry, 219 Tenn.
at 551, 411 S.W.2d at 539. Thus, the General Assembly may enact any legislation not forbidden by
the Tennessee or federal constitutions. Cravens, 209 Tenn. at 687, 356 S.W.2d at 263. Under the
Hospital Authorities Act, the General Assembly granted the District the right to participate in the
PPO business. The District’s ownership of PPOs, such as Sight Care or Health Partners, is
authorized by the legislature and not forbidden by the Tennessee Constitution. This argument is
without merit.
The plaintiffs also argue that the defendants deprived them of procedural due process of law.
The plaintiffs assert that they were denied due process when they were denied membership in Sight
Care and when their contracts with Health Partners were terminated, because they were not afforded
a hearing or an explanation for the defendants’ action or inaction.
The due process provision in Article I, § 8 is consonant with the due process clause in the
Fourteenth Amendment of the United States Constitution. Riggs v. Burson, 941 S.W.2d 144, 51
(Tenn. 1997). In Rowe v. Board of Educ. of the City of Chattanooga, 938 S.W.2d 351, 354 (Tenn.
1996), the Tennessee Supreme Court held:
In addressing a claim of an unconstitutional denial of procedural due process, we
apply a two-step analysis. Initially we must determine whether [the plaintiffs’]
interest rises to the level of a constitutionally protected property interest. If there is
a constitutionally protected property interest, then the second step is to weigh the
competing interests of the plaintiff and government to determine what process is due
18
and whether deprivation has occurred.
With regard to the first step of the two-step analysis, the Court stated:
To be entitled to procedural due process protection, a property interest must be more
than a “unilateral expectation” or an “abstract need or desire.” It must be a
“legitimate claim of entitlement” to a specific benefit.
Id. (quoting Board of Regents of State Colleges v. Roth, 408 U.S. 564, 577, 92 S. Ct. 2701, 2709,
33 L. Ed. 2d 548 (1972)). Thus, the claimant must have a “vested right” in order to assert this
provision. Kaylor v. Bradley, 912 S.W.2d 728, 735 (Tenn. App. 1995).
Once an entitlement is shown, “the Due Process Clause simply does not mandate that all
government decisionmaking comply with standards that assure perfect, error-free determinations.”
State, ex rel. McCormick v. Burson, 894 S.W.2d 739, 743-44 (Tenn. App. 1994) (quoting Mackey
v. Montrym, 443 U.S. 1, 13, 99 S. Ct. 2612, 2618, 61 L. Ed. 2d 321 (1979)). Instead, “[d]ue process
is flexible and calls for such procedural protections as the particular situation demands.” State v.
Pearson, 858 S.W.2d 879, 885 (Tenn. 1993) (quoting Matthews v. Eldridge, 424 U.S. 319, 334, 96
S. Ct. 893, 902, 47 L. Ed. 2d 18 (1976)). Three factors should be considered when determining the
procedural safeguards that should be utilized:
(1) the private interest affected by the official action; (2) the risk of erroneous
deprivation of the interest through the procedures used and the probable value, if any,
of additional safeguards; and, (3) the government’s interest.
Id. (quoting Matthews, 424 U.S. at 335, 96 S. Ct. at 903).
The defendants do not dispute that the due process clause applies to them since they operate
in a governmental capacity. See Tennessee Cent. Ry. Co. v. Pharr, 183 Tenn. 658, 664, 194 S.W.2d
486, 489 (1946) (“the requirements of due process of law extend to every case of the exercise of
governmental power”); Hinton v. Threet, 280 F. Supp. 831, 840 (M.D. Tenn. 1968). The question
then becomes whether the individual plaintiffs have demonstrated a vested interest. A “plaintiff has
no constitutional right to practice his profession at a public facility.” Meredith v. Allen County War
Mem’l Hosp. Corp., 397 F.2d 33, 35 (6th Cir. 1968) (citing Hayman v. City of Galveston, 273 U.S.
414, 47 S. Ct. 363, 71 L. Ed. 714 (1927)). Thus, there is no merit in the proposition that the plaintiffs
have an entitlement to become members of Sight Care or any other network arrangement. Rowe,
938 S.W.2d at 354. No contract, statute, regulation, or any other act of law entitles them to
19
membership in Sight Care. Instead, the only interest articulated by the plaintiffs is a mere unilateral
expectation or desire to be members. Id.
However, the individual plaintiffs were members of Health Partners. Their membership with
Health Partners was governed by a preferred provider agreement. Outside of this agreement, there
is no act of law, statutory or otherwise, that entitles the plaintiffs to be members of Health Partners.
The agreement stated that either party may terminate the agreement “at any time, with or without
cause, by giving at least 60 days prior written notice to the other party.” The plaintiffs do not allege
that the defendants failed to adhere to the terms of this contract and there is no allegation that Health
Partners failed to follow its own procedures. The plaintiffs do not argue that their contracts could
be terminated only for good cause.
Under these circumstances, the plaintiffs simply had no property interest in an indefinite
continuation of their contractual relationship with Health Partners. The membership in Health
Partners is analogous to employment at will. See Rowe, 938 S.W.2d at 355 (“Substitute teachers
are not tenured . . . and have no ‘legitimate claim of entitlement’ to continued employment sufficient
to give rise to a property interest.”); Gregory v. Hunt, 24 F.3d 781, 785-87 (6th Cir. 1994) (under
Tennessee law, “an at-will employee does not have a property interest in continued employment
unless it can be shown that the employee had a reasonable expectation that termination would be
only for good cause.” Id. at 785). The plaintiffs do not allege that they have been denied staff
privileges at a public hospital. Cf. Armstrong v. Board of Directors, 553 S.W.2d 77 (Tenn. App.
1976). The nature of the parties relationship does not entitle the plaintiffs to a hearing and an
explanation for the termination of their contracts. Their only interest is a unilateral expectation or
desire for the contractual relationship with Health Partners to continue. Rowe, 938 S.W.2d at 354.
Therefore, the denial of the individual plaintiffs’ membership in Sight Care and the
termination of their contracts with Health Partners without a hearing or an explanation does not
violate the requirements of due process.
In addition, the plaintiffs argue that the defendants denied them equal protection of the law
by treating “similarly situated citizens unequally.”6 The plaintiffs argue that the defendants
6
Equal protection is rooted in Article I, § 8 as well as Article XI, § 8. Article XI, § 8
declares:
The Legislature shall have no power to suspend any general law for the benefit of any
20
discriminated against them by denying them membership into the network while inviting similarly
situated doctors to join.
Equal protection analysis under the Tennessee Constitution is identical to equal protection
analysis under the United States Constitution. Riggs, 941 S.W.2d at 52. The standard of scrutiny
applied depends on the nature of the right asserted or the class of persons affected. Id. Three
standards of scrutiny exist:
(1) strict scrutiny, (2) heightened scrutiny, and (3) reduced scrutiny, applying the
rational basis test.
Brown v. Campbell Bd. Of Educ., 915 S.W.2d 407, 413 (Tenn. 1995). In this case, the plaintiffs
do not claim that they are a suspect class or that the defendants have denied them a fundamental
right. Therefore, we apply rational basis review. Riggs, 941 S.W.2d at 53. Under rational basis
review:
if some reasonable basis can be found for the classification . . . or if any state of facts
may reasonably be conceived to justify it, the classification will be upheld.
Id. (quoting Tennessee Small School Systems v. McWherter, 851 S.W.2d 139, 153 (Tenn. 1993);
Newton v. Cox, 878 S.W.2d 105, 110 (Tenn. 1994)). This is a “lenient” standard under which a
defendant may satisfy its burden merely by demonstrating “any possible reason or justification for
the [the statute’s] passage.” Exxon Corp. v. Eagerton, 462 U.S. 176, 195, 103 S. Ct. 2296, 2308,
76 L. Ed. 2d 497 (1983); Kelley v. 3-M Co., 639 S.W.2d 437, 439 (Tenn. 1982) (emphasis added).
The policy underlying the General Assembly’s decision to authorize the District to create
PPOs is articulated in Tennessee Code Annotated § 7-57-501. The statute states that “the increasing
competition and changing conditions forces hospitals and other health care providers to develop
market strategies and strategic plans to effectively compete.” Id. In order to compete in the health
care market, provider networks must be exclusionary. The individual plaintiffs’ provider agreements
particular individual, nor to pass any law for the benefit of individuals inconsistent
with the general laws of the land; nor to pass any law granting to any individual or
individuals, rights, privileges, immunitie, [immunities] or exemptions other than such
as may be, by the same law extended to any member of the community, who may be
able to bring himself within the provisions of such law. No corporation shall be
created or its powers increased or diminished by special laws but the General
Assembly shall provide by general laws for the organization of all corporations,
hereafter created, which laws may, at any time, be altered or repealed and no such
alteration or repeal shall interfere with or divest rights which have become vested.
21
with Health Partners were terminated because Health Partners sought to “limit its provider network
in Madison County to The Jackson Clinic, P.A., the West Tennessee Alliance for Healthcare, L.L.C.,
and physicians practicing in specialties or subspecialties not available through either of those
organizations.” A resolution adopted by the Health Partners’ Board of Directors states that its
provider network shall be limited so that it can enhance its ability to operate its managed care
network. The resolution states that:
this enhancement can be accomplished in the most cost-effective manner by
contracting for physician services to the greatest extent possible with large multi-
specialty entities which offer a structure for the development of internal medical
management and utilization review programs and which effectively can enforce such
programs with their member or employee physicians, thus limiting the cost to Health
Partners, Inc., of such programs[.]
Soon thereafter, the Board of Governors of West Tennessee Alliance approved criteria for
membership, which includes the following provision:
As an expression of the commitment of the Company to integrity in the referral
process, practitioners who have an Economic Conflict of Interest shall not be
permitted to become or to remain Class P members of the Company.
Since the individual plaintiffs retain an interest in an outpatient ophthalmologic surgery center that
competes with the District, Health Partners could reasonably have concluded that they had such an
“Economic Conflict of Interest.” Courts rarely “interfere with decisions which further the hospital’s
health care mission, even if they are at the expense of a doctor or group of doctors.” Alfredson v.
Lewisburg Commun. Hosp., No. 88-311-II, 1989 WL 134739, *4 (Tenn. App. Nov. 8, 1989),
reversed in part on other grounds, 805 S.W.2d 756 (Tenn. 1991). Consequently, we find a rational
basis for the defendants’ denial of membership in the PPOs to the individual plaintiffs. Accordingly,
we hold that the defendants did not deprive the plaintiffs of the constitutional right of equal
protection of law by denying them membership in the provider networks.
In sum, since the District is not a “county, city or town” within the meaning of Article II,
Section 29 of the Tennessee Constitution, the defendants’ actions do not violate Section 29.
Likewise, the District is not within the meaning of “the State” under Article II, Section 31 of the
Tennessee Constitution, and the defendants’ actions do not violate Section 31. The Tennessee
Constitution does not prohibit the District from operating a PPO simply because such entities are
also operated by private businesses. The defendants’ denial of membership in Sight Care to the
individual plaintiffs and the termination of their contracts with Health Partners does not violate due
22
process because the plaintiffs had no vested right in membership in Sight Care or Health Partners;
they had only a unilateral expectation. Finally, since the defendants have articulated a rational basis
for the denial of membership in the PPOs to the individual plaintiffs, the defendants’ actions do not
deprive the individual plaintiffs of their right to equal protection under the law. Therefore, the trial
court’s grant of summary judgment and injunctive relief to the plaintiffs is reversed. Under the
undisputed facts, summary judgment must be granted in favor of the defendants.
The decision of the trial court is reversed and remanded for further proceedings consistent
with this Opinion. Costs on appeal are taxed to Appellees, for which execution may issue, if
necessary.
HOLLY KIRBY LILLARD, J.
CONCUR:
W. FRANK CRAWFORD, P. J., W.S.
ALAN E. HIGHERS, J.
23