WELKER v. CARNEVALE et al
Filing
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MEMORANDUM OPINION AND ORDER granting 44 Motion for Summary Judgment, and as more fully stated in said Memorandum Opinion and Order. Signed by Judge Kim R. Gibson on 12/12/2016. (dlg)
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF PENNSYLVANIA
NICOLE WELKER and JUSTIN
BRINKLEY, individually, and CHARLES
B. HADAD, ESQUIRE, as Guardian
Ad Litem on behalf of JDWBII, a minor,
Plaintiffs,
v.
THOMAS A. CARNEVALE, M.D.,
CLEARFIELD HOSPITAL,
PENN HIGHLANDS HEALTHCARE,
and PENN HIGHLANDS CLEARFIELD,
Defendants.
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CIVIL ACTION NO. 3:14-CV-149
JUDGE KIM R. GIBSON
MEMORANDUM OPINION
I.
Introduction
This is a medical malpractice action relating to the birth and delivery of a minor,
JDWBII, brought by the minor’s parents, Nicole Welker and Justin Brinkley, and the minor’s
guardian ad litem, Charles Hadad.
Named as defendants are Thomas Carnevale, M.D.,
Clearfield Hospital, Penn Highlands Clearfield, and Penn Highlands Healthcare. Presently
pending before the Court is Defendants Penn Highlands Healthcare and Penn Highlands
Clearfield’s motion for summary judgment (ECF No. 44). These Defendants argue they cannot
be held liable for the alleged negligence of the other Defendants. For the reasons that follow,
the motion will be granted.
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II.
Jurisdiction and Venue
The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1332(a)(1), as there is
complete diversity of citizenship between the parties, and the amount in controversy exceeds
$75,000. Venue is proper under 28 U.S.C. § 1391(b)(2) because a substantial portion of the
events giving rise to the claims occurred in the Western District of Pennsylvania.
III.
Factual Background1
Nicole Welker presented to Clearfield Hospital on July 19, 2012, in active labor. She was
treated by Dr. Thomas Carnevale, the attending obstetrician. Plaintiffs allege that Defendants
Dr. Carnevale and Clearfield Hospital improperly administered the drug Pitocin to Welker
while she was in labor, resulting in serious and permanent neurological disabilities to her son,
JDWBII. Because the allegations of medical malpractice and the child’s injuries are not at issue
in Penn Highland Healthcare and Penn Highlands Clearfield’s motion for summary judgment,
the Court will not elaborate further on the factual background relating to the underlying claims.
At issue instead, is the nature of the corporate relationship between Penn Highlands Healthcare
and Clearfield Hospital.
Clearfield Hospital is a wholly owned subsidiary of Penn Highlands Healthcare, Inc.
(“Penn Highlands Healthcare”).
incorporated on May 31, 2011.
(ECF No. 48 ¶ 1.)
(ECF No. 46 ¶ 2.)
Penn Highlands Healthcare was
On October 1, 2011, Penn Highlands
Healthcare entered into an Affiliation Agreement that established a healthcare system
The factual background is derived from the undisputed evidence of record and the disputed evidence of
record viewed in the light most favorable to Plaintiffs, the nonmoving parties. See Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 265 (1986) (“The evidence of the nonmovant is to be believed, and all justifiable
inferences are to be drawn in his favor.”) (internal quotations omitted).
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consisting of several hospitals in the region, including DuBois Regional Medical Center,
Clearfield Hospital, and Brookville Hospital. (Id. ¶ 3.) In July 1, 2013, Elk Regional Health
Center, Inc. also became affiliated with Penn Highlands Healthcare. (Id. ¶ 3.) Each of these
hospitals is referred to as a “Tier 1” subsidiary of Penn Highlands Healthcare. While the
various healthcare providers affiliated with the respective hospitals are referred to as “Tier 2”
and “Tier 3” subsidiaries. (Id. ¶ 4.) “Penn Highlands is a community based and controlled
healthcare system, the purpose of which is to improve regional access to a wider array of
healthcare services in north-central Pennsylvania.” (Id. ¶ 5.) Penn Highlands Healthcare is a
501(c)(3) charitable organization, as are the hospitals affiliated with it.
(Id. ¶ 5.)
Penn
Highlands Healthcare is the sole corporate member of Clearfield Hospital, as well as the other
affiliated hospitals. (Id. ¶ 6.)
Penn Highlands Healthcare appoints the members of Clearfield Hospital’s Board of
Directors. (ECF No. 48 ¶ 7.) The Bylaws of Penn Highlands Healthcare reserve the power to
approve most major strategic and operational changes before they can be implemented by a
subsidiary hospital such as Clearfield Hospital. (ECF No. 47-5 at 9-10, Bylaws § 2.1(b).) For
example these include, among other decisions: approving “all fundamental transactions”,
amendments to bylaws or other organizational/governance documents of the subsidiary,
expenditures in excess of $500,000, budgets, and changes in mission or direction, including
adding or discontinuing a line of service. (Id.)
Clearfield Hospital was incorporated on February 21, 1901, and remains registered with
the Pennsylvania Department of State as a corporation in good standing. (ECF No. 46 ¶ 9.)
Under the Amended and Restated Bylaws of Clearfield Hospital, effective October 1, 2011,
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Clearfield Hospital’s Board of Directors exercises control over the operation of its facility and
employees. (Id. ¶ 14.)
Each of the affiliated hospitals must be separately licensed by the Pennsylvania
Department of Health, and each facility is responsible for maintaining its license, as well as the
various other licenses and permits required for operation.
(Id. ¶ 16.)
Penn Highlands
Healthcare is not a licensed healthcare provider. (Id. ¶ 17.) Penn Highlands Healthcare does
not directly employ any healthcare providers and did not directly employ any of the healthcare
providers involved in Welker’s treatment on July 19, 2012, including Dr. Carnevale. (ECF Nos.
46 ¶ 18; 48 ¶ 18.) Rather, all of the healthcare providers involved in treating Welker were either
employees of Clearfield Hospital, Clear Med (a subsidiary of Clearfield Hospital), or
independent contractors with staff privileges at Clearfield Hospital.
(ECF No. 46 ¶ 19.)
Clearfield Hospital (and thus not Penn Highlands Healthcare directly) owns the land on which
the hospital sits, the buildings which it operates, and all of the property inside those buildings.
(ECF No. 46 ¶ 22; 48 ¶ 22.) Clearfield Hospital and each of the other affiliated hospitals has its
own Medicare billing number and separately contracts with private insurers who pay for the
healthcare services it provides. (ECF No. 46 ¶ 24.) Penn Highlands, on the other hand, does not
have a Medicare billing number or contracts with third-party payers because it neither provides
nor bills for healthcare services, which are provided exclusively by its subsidiaries. (Id. ¶ 25.)
According to its balance sheet dated June 30, 2014, Clearfield Hospital has $10,913,227 in
current assets and $26,638,856 in total net-assets. (ECF No. 47-7, Clearfield Hospital Balance
Sheet.)
The parties agree that Clearfield Hospital has $11,000,000 in available insurance
coverage for the claims asserted in this case. (ECF Nos. 47 at 5; 49 at 3.)
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Penn Highlands Clearfield is not a separate legal entity, but a registered fictitious name
owned solely by Clearfield Hospital. (Id. ¶ 28.) The name “Penn Highlands Clearfield” was not
in use in July 2012, when Welker was treated at Clearfield Hospital, and was not in general use
until 2014. (Id. ¶ 29.)
On July 16, 2014, Plaintiffs commenced the instant action with the filing of a four-count
complaint against Dr. Carnevale, Clear-Med OB/GYN 2, Clearfield Hospital, Penn Highlands
Healthcare, Inc., and Penn Highlands Clearfield. (ECF No. 1.) In Count I, Plaintiffs bring a
negligence claim against all Defendants. In Count II, Plaintiffs bring a negligence claim against
Defendants Clearfield Hospital, Penn Highlands Healthcare, and Penn Highlands Clearfield.
(Id. ¶¶ 40-42.) In Count III, Plaintiffs bring a claim for corporate negligence against Defendant
Clearfield Hospital. (Id. ¶¶ 43-46.) In Count IV, Plaintiffs bring a claim for negligent infliction
of emotional distress against all Defendants. (Id. ¶¶ 47-49.)
On June 24, 2016, Defendants Penn Highlands Healthcare and Penn Highlands
Clearfield filed the pending motion for summary judgment and supporting documents. (ECF
Nos. 44, 45, 46.) Plaintiffs filed their brief in opposition and related documents on July 25, 2016.
(ECF Nos. 47, 48.) Thereafter, Plaintiff submitted a reply brief. (ECF No. 49.) As a result of the
foregoing filings, the pending motion is now ripe for adjudication.
IV.
Standard of Review
A grant of summary judgment is appropriate when the moving party establishes that
“‘there is no genuine dispute as to any material fact and the movant is entitled to judgment as a
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The parties stipulated to the voluntary dismissal of Clear-Med OB/GYN from the case on January 2, 2015. (ECF
No. 31.)
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matter of law.’” Heffernan v. City of Paterson, 777 F.3d 147, 151 (3d Cir. 2015) (quoting FED. R.
CIV. P. 56(a)). A genuine issue of material fact is one that could affect the outcome of litigation.
Mahoney v. McDonnell, 616 Fed. Appx. 500, 504 (3d Cir. 2015) (citing Anderson, 477 U.S. at 247).
However, “‘[w]here the record taken as a whole could not lead a rational trier of fact to find for
the non-moving party, there is no genuine issue for trial.’” Id. (quoting Matsushita Elec. Indus.
Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986)).
The initial burden is on the moving party to adduce evidence illustrating a lack of
genuine issues. Id. (citing Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986)). Once the moving
party satisfies its burden, the non-moving party must present sufficient evidence of a genuine
issue, in rebuttal. Id. (citing Matsushita Elec. Indus. Co., 475 U.S. at 587). When considering the
parties’ arguments, the Court is required to view all facts and draw all inferences in the light
most favorable to the non-moving party. Id. (citing Armbruster v. Unisys Corp., 32 F.3d 768, 777
(3d Cir. 1994)). Further, the benefit of the doubt will be given to allegations of the non-moving
party when in conflict with the moving party’s claims. Bialko v. Quaker Oats Co., 434 Fed. Appx.
139, 141 n.4 (3d Cir. 2011) (citing Valhal Corp. v. Sullivan Assocs., 44 F.3d 195, 200 (3d Cir. 1995)).
Nonetheless, a well-supported motion for summary judgment will not be defeated
where the non-moving party merely reasserts factual allegations contained in the pleadings. Id.
(citing Williams v. Borough of West Chester, 891 F.2d 458, 460 (3d Cir. 1989)). The non-moving
party must resort to affidavits, depositions, admissions, and/or interrogatories to demonstrate
the existence of a genuine issue. Connection Training Servs. v. City of Philadelphia, 358 Fed. Appx.
315, 318 (3d Cir. 2009) (citing Celotex Corp., 477 U.S. at 324).
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V.
Discussion
Penn Highlands Healthcare argues that it is not liable for the actions of its subsidiary,
Clearfield Hospital. Plaintiffs argue in opposition that the corporate veil should be pierced
under the theory that Clearfield Hospital is simply an alter-ego of Penn Highlands Healthcare.
Penn Highlands Healthcare takes the position that there is no justification for piercing the
corporate veil in this case.
“The accepted rule in Pennsylvania is that a corporation is an entity distinct from its
shareholders even if the stock is held entirely by one person.” Coll. Watercolor Grp., Inc. v.
Willaim H. Newbauer, Inc., 360 A.2d 200, 207 (1976).
There is a “strong presumption in
Pennsylvania against piercing the corporate veil.” Lumax Indus., Inc. v. Aultman, 669 A.2d 893,
895 (1995). “Nevertheless, a court will not hesitate to treat as identical the corporation and the
individuals owning all its stock and assets whenever justice and public policy demand and
when the rights of innocent parties are not prejudiced thereby nor the theory of corporate entity
made useless.” Good v. Holstein, 787 A.2d 426, 430 (Pa. Supp. Ct. 2001) (internal quotation marks
and citations omitted). “The corporate form will be disregarded only when the entity is used to
defeat public convenience, justify wrong, protect fraud or defend crime.” Id.; see also Pearson v.
Component Technology Corp., 247 F.3d 471 (3d Cir. 2001) (Piercing the corporate veil is reserved
for circumstances where equity demands that the corporate form be disregarded, such as to
“prevent fraud, illegality, or injustice, or when recognition of the corporate entity would defeat
public policy or shield someone from liability for a crime.”) (quoting Zubik v. Zubik, 384 F.2d
267, 272 (3d Cir. 1967)).
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“[T]here appears to be no clear test or well settled rule” for when a corporate veil can or
should be pierced, resulting in a controlling owner being held liable for the actions or debts of
its subsidiary. Id. Factors that are typically considered by courts in deciding whether to pierce
the corporate veil include: (1) gross undercapitalization; (2) failure to observe corporate
formalities; (3) substantial mingling of corporate and personal affairs; and (4) using the
corporate form to perpetrate fraud. See, e.g., Siematic Mobelwerke GmbH & Co. KG v. Siematic
Corp., 643 F.Supp.2d 675, 695 (E.D. Pa. 2009). “These factors are not exhaustive, nor is every
element required for a finding of liability; however, the situation must present ‘an element of
injustice or fundamental unfairness.’” Id. at 695 (quoting Trustees, Nat. Elevator Indus. Pension v.
Lutyk, 332 F.3d 188, 194 (3d Cir. 2003)). The burden is on the party seeking to pierce the
corporate veil. Id. at 695.
Penn Highlands Healthcare argues there is no reason in this case to overcome the strong
presumption under Pennsylvania law that a parent company and its subsidiary are separate
entities. Thus, the Court should not pierce the corporate veil and hold it responsible for the
actions of Clearfield Hospital. In response, Plaintiffs make two main points: (1) that Penn
Highlands Healthcare wields considerable control over Clearfield Hospital; and (2) according to
Plaintiffs, that Clearfield Hospital is grossly undercapitalized. (ECF No. 47 at 9-15.)
Plaintiffs’ first point is true, but not particularly significant. As already noted, corporate
distinctions are generally to be maintained even where one corporation or individual is the sole
shareholder of another corporation. See, e.g., Coll. Watercolor Grp., Inc., 360 A.2d at 207. Being
the sole shareholder of a corporation carries with it numerous rights and privileges that amount
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to significant control over the corporation, none of which, by itself, justifies piercing the
corporate veil.
It is a general principle of corporate law deeply “ingrained in our economic and
legal systems” that a parent corporation (so-called because of control through
ownership of another corporation's stock) is not liable for the acts of its
subsidiaries. Thus, it is hornbook law that “the exercise of the ‘control’ which
stock ownership gives to the stockholders . . . will not create liability beyond the
assets of the subsidiary. That ‘control’ includes the election of directors, the
making of by-laws . . . and the doing of all other acts incident to the legal status
of stockholders.”
Black v. JP Morgan Chase & Co., No. CIV.A. 10-848, 2011 WL 4102802, at *31 (W.D. Pa. Aug. 10,
2011), report and recommendation adopted, No. 2:10CV848, 2011 WL 4089379 (W.D. Pa. Sept.
14, 2011) (quoting United States v. Bestfoods, 524 U.S. 51, 61 (1998) (internal citations omitted)).
As the case law makes clear, the critical issue is not how much control Penn Highlands
Healthcare holds over Clearfield Hospital, but how it uses that control. See Coll. Watercolor Grp.,
Inc., 360 A.2d at 207 (corporate veil pierced whenever one in control of a corporation uses that
control or the subsidiary corporation’s assets to further his personal interests). While Penn
Highlands Healthcare’s Bylaws give it considerable control over Clearfield Hospital, Plaintiffs
have not pointed to a single power reserved therein that the very reservation of which is
inappropriate or even unusual in a relationship between a parent company and a wholly owned
subsidiary.
The other factor Plaintiffs rely upon is the argument that Clearfield Hospital is grossly
undercapitalized. “Gross undercapitalization” is one of the four factors courts most often look
at in determining whether to pierce the corporate veil. See. e.g., Siematic, 643 F.Supp.2d at 695.
In support of their assertion that it is undercapitalized, Plaintiffs point to the value of Clearfield
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Hospital’s assets and the size of the insurance policy available to cover their claims and
compare the total of the two to other large medical malpractice verdicts in Pennsylvania. (ECF
No. 47 at 9-15.) Plaintiffs’ argument essentially goes like this: if Clearfield Hospital only has
$22,000,000 (just under $11,000,000 in “current assets” plus $11,000,000 of insurance coverage)
available to pay toward a judgment in favor of Plaintiffs and judgments in similar cases have
been as high as $22,000,000 or even $32,000,000, the verdict in this case could potentially
bankrupt Clearfield Hospital, thus meaning that it is undercapitalized. Plaintiff’s argument is
unpersuasive.
As an initial matter, the financial situation is not quite as simple as Plaintiffs describe.
While Clearfield Hospital has only $10,913,227 in current assets, it has $26,638,856 in total netassets. (ECF No. 47-7, Clearfield Hospital Balance Sheet.) Also as Defendants point out, the
handful of verdicts Plaintiffs reference include significant portions that go to paying future
medical costs which defendants pay in periodic installments over many years. (ECF No. 49 at 35); see also 40 P.S. § 1303.509(b) (future damages in medical malpractice cases generally to be
made in periodic payments).
More importantly, there is no requirement that a subsidiary always perform well
financially in order for its parent to avail itself of the protections provided by corporate form.
While undercapitalization is an important factor in piercing the corporate veil analysis, courts
look for gross undercapitalization suggesting that the shareholder improperly drained or failed
to fund the subsidiary. In the Court’s view, the sole fact that a worst case scenario lawsuit
could conceivably bankrupt a corporation does not by itself justify piercing the corporate veil.
Rather, cases where courts have pointed to gross undercapitalization as one of the factors
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justifying piercing the corporate veil, the undercapitalization is generally very severe and other
factors are usually present which suggest wrong doing, such as siphoning of money or
significant loans from the shareholder to the subsidiary. See. e.g., Trustees of Nat. Elevator Indus.
Pension, Health Benefit & Educ. Funds v. Lutyk, 332 F.3d 188, 196-99 (3d Cir. 2003); In re Blatstein,
192 F.3d 88, 103-09 (3d Cir. 1999).
Here, besides the fact that Clearfield Hospital does have $26,638,856 in total net-assets
plus $11,000,000 in insurance coverage, none of the other factors typically considered in piercing
the corporate veil analysis are present. There is nothing in the record to suggest that Penn
Highlands Healthcare failed to “observe corporate formalities” with respect to its subsidiaries.
There is nothing in the record to suggest there was a “substantial mingling of corporate and
personal affairs” or funds. There is nothing in the record to suggest Penn Highlands Healthcare
used “the corporate form to perpetrate a fraud.” Likewise, there is no allegation that Penn
Highlands Healthcare siphoned money from Clearfield Hospital or improperly loaned it
significant amounts of money.
Also lacking is an element of “unfairness” which is required. Siematic, 643 F.Supp.2d at
695 (in order for a court to pierce the corporate veil, “the situation must present ‘an element of
injustice or fundamental unfairness.’”) (quoting Trustees, Nat. Elevator Indus. Pension v. Lutyk,
332 F.3d 188, 194 (3d Cir. 2003)). The case law makes clear that “unfairness” requires more than
a plaintiff’s desire to have access to deeper pockets. See, e.g., Good, 787 A.2d at 430 (internal
quotation marks and citations omitted) (“The corporate form will be disregarded only when the
entity is used to defeat public convenience, justify wrong, protect fraud or defend crime.”).
Plaintiffs have made no such showing here to overcome the strong presumption under
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Pennsylvania law that corporate form should be respected. A reasonable jury could not find
from this record that Penn Highlands Healthcare is liable for the actions of Clearfield Hospital.
Accordingly, the Court must grant the motion for summary judgment as to Penn Highlands
Healthcare.
With respect to Penn Highlands Clearfield, the Penn Highlands Defendants argue that
Penn Highlands Clearfield is not a proper party to this case because it is not a separate legal
entity, but a registered fictitious name owned solely by Clearfield Hospital which was not in
use in July of 2012. (ECF No. 45 at 8-9.) Plaintiffs state in their brief that they do not oppose the
dismissal of Penn Highlands Clearfield for the reasons identified by Penn Highlands. (ECF No.
47 at 11.) The Court will grant the motion for summary judgment as to Penn Highlands
Clearfield.
V.
Conclusion
For the reasons stated above, the motion for summary judgment filed by Defendants
Penn Highlands Healthcare and Penn Highlands Clearfield will be granted.
An appropriate order follows.
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IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF PENNSYLVANIA
NICOLE WELKER and JUSTIN
BRINKLEY, individually, and CHARLES
B. HADAD, ESQUIRE, as Guardian
Ad Litem on behalf of JDWBll, a minor,
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Plaintiffs,
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CIVIL ACTION NO. 3:14-CV-149
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v.
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JUDGE KIM R. GIBSON
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THOMAS A. CARNEVALE, M.D.,
CLEARFIELD HOSPITAL,
PENN HIGHLANDS HEALTHCARE,
and PENN HIGHLANDS CLEARFIELD,
Defendants.
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ORDER
AND NOW, this 12th day of December, 2016, upon consideration of the motion for
summary judgment filed by Defendants Penn Highlands Healthcare and Penn Highlands
Clearfield (ECF No. 44), and in accordance with the accompanying memorandum opinion, IT
IS HEREBY ORDERED that the motion for summary judgment is GRANTED.
BY THE COURT:
KIM R. GIBSON
UNITED ST A TES DISTRICT JUDGE
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