Sumeru Health Care Group, L.C. v. Michael Hutchens, et al

Filing

OPINION filed : we AFFIRM the district court s grant of summary judgment to Defendants on all counts, decision not for publication. Alan E. Norris, Circuit Judge; David W. McKeague, Circuit Judge and Helene N. White, AUTHORING Circuit Judge.

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NOT RECOMMENDED FOR PUBLICATION
File Name: 16a0437n.06
No. 15-5788
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
SUMERU HEALTH CARE GROUP, L.C., dba The
Center for Internal Medicine and Pediatrics,
Plaintiff-Appellant,
v.
MICHAEL T. HUTCHINS, Individually and as
Administrator of the Claiborne County Hospital;
CLAIBORNE COUNTY HOSPITAL; BAPTIST
HEALTH SYSTEM OF EAST TENNESSEE, INC.,

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FILED
Aug 01, 2016
DEBORAH S. HUNT, Clerk

ON APPEAL FROM THE
UNITED STATES DISTRICT
COURT FOR THE EASTERN
DISTRICT OF TENNESSEE

Defendants-Appellees.

BEFORE: NORRIS, McKEAGUE and WHITE, Circuit Judges.
HELENE N. WHITE, Circuit Judge. Plaintiff Sumeru Health Care Group operated
medical clinics in East Tennessee that were staffed by foreign physicians under a federal visawaiver program. Sumeru brought this action against Defendant Claiborne County Hospital
(“CCH”) and two affiliates after the clinics failed. While the case was pending in the district
court, Sumeru’s owner challenged a Department of Labor decision imposing penalties for actions
taken with respect to Sumeru’s employment of the foreign physicians. After this court upheld
the Department of Labor ruling, Kutty v. Department of Labor, 764 F.3d 540 (6th Cir. 2014),
Defendants moved for summary judgment, arguing Sumeru’s claims are precluded by findings
from the Department of Labor litigation. The district court agreed, and we AFFIRM.

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I. Background
A. Facts
This case arises out of Sumeru’s establishment and operation of medical clinics in East
Tennessee between 1998 and 2001. Mohan Kutty, a Florida-based internist, began exploring
opportunities for expanding his practice in the late 1990s, and learned of a visa-waiver program
for foreign physicians who practice in medically underserved communities. Kutty decided to set
up a group of fee-for-service clinics in medically underserved East Tennessee and created
Sumeru.
Sumeru opened its first clinic in Maynardville, Union County, in July 1998, and planned
to open additional clinics in Hawkins and Claiborne Counties. At the time, Kutty had not yet
decided where to locate Sumeru’s Tennessee base of operations, which would house the group’s
specialists—a key element of the Sumeru business model. According to Sumeru, Kutty’s plan
was for low-revenue primary-care physicians at the Sumeru clinics to develop a base of patients
for referral to Sumeru specialists, including a cardiologist, who would generate profits for the
group by conducting testing on-site, using Sumeru equipment. The base of operations had to be
located near a hospital, where the cardiologist could refer patients for emergency and in-patient
care. The Maynardville clinic could not serve as the base of operations because Union County
did not have a hospital.
According to Sumeru, Kutty initially planned to establish the base of operations at a
clinic in Tazewell, Claiborne County, but had trouble obtaining admitting privileges at the local
hospital—Defendant CCH—for two of its physicians, allegedly because they are from India.
Thus, Kutty decided to establish Sumeru’s base of operations at a clinic in Rogersville, Hawkins
County, where the local hospital would grant privileges.

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Against this backdrop, Kutty sent letters to the local hospitals, including CCH, in early
July 1998 to seek support for the clinics—mainly, assistance bringing in physicians through the
visa-waiver program. The CCH letter was addressed to Defendant Michael Hutchins, CCH’s
administrator. Hutchins was employed by Defendant Baptist Health Systems of East Tennessee
(“Baptist”), and administered CCH through an agreement between CCH and Baptist. According
to Sumeru, Hutchins did not respond to Kutty’s letter, but after Sumeru decided to assign two
Romanian doctors to Rogersville rather than Tazewell, Hutchins called Kutty “straight out of the
blue” and asked him to reconsider. R. 43-14, Kutty Dep. at 198. Kutty told Hutchins that he
would not bring physicians to Tazewell unless CCH would grant privileges to all of Sumeru’s
physicians, including the Indian doctors, but agreed to meet with Hutchins to discuss Sumeru’s
business plan.
Kutty then met with Hutchins and other CCH leaders for the first time in early 1999. At
this meeting, which took place at CCH, Kutty explained that he planned to open a group practice
staffed by foreign physicians, including a clinic in Tazewell, and requested official support for
visa waivers, as well as assistance in working out an arrangement for Sumeru’s physicians to
work in CCH’s emergency room. Sumeru claims that Hutchins and Kutty worked out a deal for
Sumeru to locate its cardiologist and other physicians in Tazewell, rather than Rogersville.
According to Sumeru, CCH and Kutty agreed that CCH would not actively divert cardiology
work, like echocardiograms, from Sumeru, or acquire new cardiology equipment, and that
Sumeru would not compete with CCH for lab work, X-rays, MRIs, and CTs. Further, CCH
would grant hospital privileges to Sumeru’s non-Indian physicians.
Sumeru opened the Tazewell clinic in February 2000. Kutty initially staffed the clinic
with three internists and a cardiologist, all salaried. Sumeru’s physicians also worked at CCH’s

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emergency room under an agreement that CCH brokered with its emergency-services provider;
payment for the Sumeru physicians’ emergency-room work went directly to Sumeru, not to the
doctors. The foreign physicians also began admitting patients and performing procedures at
CCH; payment for these services also went directly to Sumeru.
By early 2001, Kutty and his administrator, Basavaraj Hooli, began to suspect that the
foreign physicians were shirking their contractual obligations to Sumeru by working insufficient
hours at the Tazewell clinic, and by performing basic diagnostic and evaluative medical work at
CCH that could have been done at the clinic—depriving Sumeru of revenue. Kutty later testified
that he believed the Sumeru physicians were moonlighting at CCH outside of their contracted
emergency-room work and earning independent income.
Dissatisfied with the physicians, Sumeru began cutting their salaries in December 2000
and January 2001. Eight of Sumeru’s physicians hired an attorney, who sent Kutty a letter in
February 2001. Sumeru stopped paying the complaining physicians. The physicians filed a
complaint with the Department of Labor on February 28, 2001, alleging Kutty had violated
federal law by withholding their salaries. Sumeru fired seven of the complaining physicians, and
several other physicians quit. The Tazewell clinic closed, and Sumeru went out of business
within the year. The Tazewell physicians all found other work; none took positions directly with
CCH, although some stayed in the area.
B. Procedural History
Sumeru brought this action against CCH and Hutchins in August 2002, and later
amended its complaint to name Baptist as a defendant. In the amended complaint, Sumeru
brought four state-law claims against Defendants for their alleged roles in the collapse of its East
Tennessee medical-clinic business: tortious interference with prospective business relationship

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(Count I); fraud, fraudulent and/or negligent misrepresentation (Count II); breach of implied
contract/breach of implied duty of good faith and fair dealing (Count III); and unfair competition
(Count IV).
In Count I, Sumeru claimed Defendants tortiously interfered with Sumeru’s prospective
business relationship with the Sumeru physicians by “inducing and providing financial
incentives” for Sumeru’s physicians to breach their contracts, to improperly refer patients to
CCH for procedures that could be done at the Tazewell clinic, and to bill through CCH rather
than Sumeru. In Count II, Sumeru asserted Defendants fraudulently induced Sumeru to open
clinics in East Tennessee in order to entice Sumeru’s physicians to leave Sumeru and contract
with CCH. In Count III, Sumeru alleged Defendants impliedly contracted with Sumeru not to
“induce, entice or encourage” the physicians to breach their employment agreements with
Sumeru, and that Defendants breached their duties under this implied contract by offering the
physicians financial incentives to breach their employment agreements. R. 35, Am. Compl. ¶¶
43–44. Lastly, in Count IV, Sumeru asserted Defendants engaged in unfair competition by
“seeking to monopolize all physicians in the Claiborne County area” and inducing the physicians
to breach their employment contracts. Id. ¶¶ 47–48.
At the time the action was filed, the Department of Labor had already begun investigating
the physicians’ February 2001 complaint against Kutty and his businesses, including Sumeru.
An employer seeking to hire physicians through the visa-waiver program must file a Labor
Condition Application (LCA) with the Department of Labor setting the wage rates and working
conditions for the prospective employees. 8 U.S.C. § 1182(n)(1)(D). Once the Department of
Labor certifies the LCA, the employer must comply with the specified wages and conditions. Id.
§ 1182(n)(2). In April 2001, the Administrator of the Wage and Hour Division determined that

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Kutty willfully failed to pay LCA wages, improperly withheld LCA documents, failed to
maintain payroll records, and retaliated against the physicians for engaging in protected conduct.
The Administrator authorized back wages and civil penalties.
Kutty appealed the Administrator’s decision to a Department of Labor administrative law
judge (ALJ). The ALJ conducted sixteen days of hearings in June and December 2001. In
October 2002, the ALJ issued a 102-page decision and order addressing ten issues, which
included extensive findings of fact and conclusions of law.

The ALJ affirmed the

Administrator’s determination that Sumeru had failed to pay required wages and had retaliated
against the physicians. The ALJ ordered payment of $1,044,294 in back wages and assessed
civil penalties of $108,000. The ALJ also pierced the corporate veil and held Kutty personally
liable. Kutty appealed to the Administrative Review Board (ARB), which affirmed the ALJ in
all respects.
While the administrative proceedings were underway, the instant damages action
continued in federal court. In July 2005, Defendants moved for summary judgment on nine
different grounds, including that Sumeru was collaterally estopped from re-litigating issues
decided by the ALJ in the Department of Labor proceeding. On Sumeru’s motion, the district
court stayed the proceedings while Kutty sought judicial review of the ARB’s decision. The
district court upheld the ARB decision and this court affirmed. Kutty v. U.S. Dep’t of Labor, No.
05-CV-510, 2011 WL 3664476 (E.D. Tenn. Aug. 19, 2011), aff’d, 764 F.3d 540 (6th Cir. 2014),
cert. denied, 135 S. Ct. 1162 (2015).
Defendants notified the district court of the final disposition of the Department of Labor
litigation, and the parties submitted further briefing on Defendants’ pending motion for summary
judgment. The district court then granted summary judgment to Defendants, concluding that the

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issues had already been litigated in the Department of Labor proceedings and thus Sumeru’s
claims were barred under the doctrine of issue preclusion.
II. Discussion
We review de novo the district court’s issue-preclusion determination. Georgia-Pacific
Consumer Prods. LP v. Four-U-Packaging, Inc., 701 F.3d 1093, 1097 (6th Cir. 2012). Under
the doctrine of issue preclusion, “the determination of a question directly involved in one action
is conclusive as to that question in a second suit.” B & B Hardware, Inc. v. Hargis Indus., Inc.,
135 S. Ct. 1293, 1302 (2015) (quoting Cromwell v. County of Sac, 94 U.S. 351, 354 (1877)). We
employ a four-part test:
1) the precise issue raised in the present case must have been raised and actually
litigated in the prior proceeding;
2) determination of the issue must have been necessary to the outcome of the prior
proceeding;
3) the prior proceeding must have resulted in a final judgment on the merits; and
4) the party against whom estoppel is sought must have had a full and fair
opportunity to litigate the issue in the prior proceeding.
United States v. Cinemark USA, Inc., 348 F.3d 569, 583 (6th Cir. 2003).
On appeal, Sumeru concedes that most of the instant lawsuit is foreclosed by the ALJ’s
finding that the physicians fulfilled their obligations to Sumeru and did not breach their
contracts. Sumeru’s counsel clarified at oral argument that the only damages now sought in the
litigation are “up front” expenses—the costs incurred by Sumeru in locating a clinic at Tazewell
and hiring the foreign physicians, for example. Oral Arg. at 10:36–11:37. Thus, Sumeru’s
appellate argument focuses on representations allegedly made by Hutchins to induce Sumeru to
locate a clinic at Tazewell, and the alleged agreements between Kutty and Hutchins resulting
from those representations. Id. at 12:08–12:25.

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To the extent these arguments are in the complaint, the claims are foreclosed by the ALJdetermined facts. The inducement issue Sumeru raises on appeal was plausibly alleged only in
Count II (misrepresentation) and Count III (breach of implied contract). As alleged in Count II,
Defendants represented that Sumeru and CCH “could work together to increase the quality of
health care” in the area, but that Defendants’ “sole basis . . . to induce the Plaintiff to open its
clinics” was “to allow the Claiborne County Hospital to entice the Contracted Physicians already
relocated to the area to leave the Plaintiff’s business and contact [sic] with the Claiborne County
Hospital or affiliated entities.”

R. 35, Am. Compl. ¶ 40.

In Count III, Sumeru alleged

Defendants “impliedly contracted with the Plaintiff” that they “would not engage in any action
that would induce, entice or encourage the Contracting Physicians to breach their employment
agreement with the Plaintiff.” Id. ¶ 43.
However, both counts are premised on the physicians breaching their contracts with
Sumeru, the precise issue already decided by the ALJ.

In Count II, Sumeru alleged that

Defendants’ representations were fraudulent because Defendants “caused the Contacted
Physicians [sic] to breach their contractual agreements with the Plaintiff.” Id. ¶ 40. If the
physicians did not breach their contracts, Sumeru cannot recover on this claim. Count III alleged
that Defendants “offer[ed] the Contracted Physicians financial incentives to breach their
employment agreements.” Id. ¶ 44. If the alleged implied contract was an agreement not to
induce a breach of the physicians’ contracts, the ALJ’s findings foreclose that claim as well.
Specifically, the ALJ found that the physicians fulfilled their duties under their Sumeru
contracts, worked at hospitals under Kutty’s direction, and earned no outside income from CCH.
For example, the ALJ found:
Several doctors worked in emergency rooms, but all testified that they did so at
the request of Dr. Kutty, and that payment for their services went to the clinics.
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Their testimony is corroborated by the paperwork in evidence. . . . Billing and
payment records also show that payments were made to the clinics, and not to
individual doctors. Dr. Kutty testified that he expected that some of the patients
the doctors treated at the emergency room would become their regular patients.
Some of the doctors also testified about additional services they provided to local
hospitals, with official sounding titles, but without any additional pay, as part of
their practice for the clinics.
R. 43-2, D&O at 16. The ALJ also explained:
I do not credit Mr. Hooli’s and Dr. Kutty’s professed belief that the doctors were
working less than 40 hours per week. Both testified that only work in the clinic,
and not work in an emergency room, at the hospital or in nursing homes, should
be counted toward the 40 hours, despite overwhelming evidence that such work
was undertaken at Dr. Kutty’s specific direction, and was necessary to the practice
of medicine for the clinics. Allegations that the doctors were paid by third parties
for moonlighting or were working out of status during the time they were
obligated to work only for Respondents are not supported by the evidence.
R. 43-8, D&O at 72. The ALJ also detailed the circumstances of the seven physicians assigned
to the Tazewell clinic and found that they complied with their contracts. See R. 43-4, D&O at
35–41 (Venkatesh); R. 43-5, D&O at 41–45 (Speil); id. at 45–47 (Chicos); id. at 47–51
(Naseem); R. 43-6, D&O at 51–52 (Casis); id. at 52–55 (Radulescu); id. at 55–56 (Kanagasegar).
Sumeru argues Hutchins induced Kutty to locate his main clinic at Tazewell by agreeing
not to actively divert cardiology work from Sumeru or acquire new cardiology equipment, and
that after Sumeru located in Tazewell CCH breached the agreement by inducing Sumeru’s
cardiologist—Dr. Shoiab Naseem—to perform tests at CCH, rather than at the Sumeru clinic.
But Kutty asserted in the Department of Labor proceedings that he was justified in withholding
Naseem’s salary because Naseem was improperly performing cardiology work at CCH. The
ALJ rejected this claim, instead crediting Naseem’s testimony that he could not perform basic
cardiology tests at the Tazewell clinic because the equipment was inadequate.
We conclude that all four prongs of the issue-preclusion test are satisfied. The “precise
issue raised in the present case” was “raised and actually litigated in the prior proceeding”; the
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ALJ’s findings about the physicians’ conduct while employed by Sumeru were “necessary to the
outcome of the prior proceeding”; the parties agree that the Department of Labor proceeding
“resulted in a final judgment on the merits”; and, Kutty “had a full and fair opportunity to
litigate” the issues. Cinemark, 348 F.3d at 583. Kutty himself raised and litigated these issues as
a defense in the ALJ proceedings.
III. Conclusion
Because Sumeru’s claims rest on precluded issues, we AFFIRM the district court’s grant
of summary judgment to Defendants on all counts.

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