Lisa Womble v. University Health System, Inc. d/b/a University of Tennessee Regional Medical Center

IN THE COURT OF APPEALS OF TENNESSEE

AT KNOXVILLE

September 17, 2013 Session

LISA WOMBLE v. UNIVERSITY HEALTH SYSTEM, INC. d/b/a

UNIVERSITY OF TENNESSEE REGIONAL MEDICAL CENTER, ET AL.

Appeal from the Circuit Court for Knox County

No. 1-347-11 Dale Workman, Judge

No. E2012-02664-COA-R9-CV-FILED-JANUARY 16, 2014

In the wake of her firing from the University of Tennessee Regional Medical Center in

Knoxville, Tennessee, a nurse brought an employment action raising numerous claims. At

the time the nurse originally began working at the medical center, it was owned and managed

by the University of Tennessee and she was considered an employee of the university. In

1999, the university executed a lease and transfer agreement pursuant to Tennessee Code

Annotated section 49-9-112, by which the operation of the medical center was transferred

to a private, nonprofit corporation. Hospital personnel, like the nurse, who had been

university employees prior to the transfer, were thereafter “leased” by the private, nonprofit

corporation from the university. This interlocutory appeal stems from the trial court’s sua

sponte ruling that Tennessee Code Annotated section 49-9-112(a) is unconstitutional. We

reverse the determination of the trial court.

Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Circuit Court

Reversed; Case Remanded

J OHN W. M CC LARTY, J., delivered the opinion of the Court, in which D. M ICHAEL S WINEY

and T HOMAS R. F RIERSON, II, JJ., joined.

Robert Cooper, Jr., Attorney General and Reporter, William E. Young, Solicitor General, and

Melissa Brodhag, Assistant Attorney General, Nashville, Tennessee, for the

intervenor/appellant, Robert E. Cooper, Jr., Attorney General and Reporter.

George T. Underwood, Jr., Knoxville, Tennessee, for the appellee, Lisa Womble.

Howard B. Jackson and Ronald G. Daves, Knoxville, Tennessee, for the appellee, University

Health System, Inc.

OPINION

I. BACKGROUND

In 1949, the Tennessee General Assembly appropriated a percentage of the funds

needed for the construction of the University of Tennessee Memorial Research Center and

Hospital (“UT Hospital”). 1949 Tenn. Pub. Acts, ch. 154. The legislation provided that

when completed, UT Hospital would be turned over to the University of Tennessee (“UT”)

for operation, specifically for use in teaching courses in health sciences and with the specific

contemplation “for the care of charity patients.” Id. Forty-eight years later, in 1997, the

legislature authorized UT’s Board of Trustees to create a private, nonprofit corporation for

the purpose of operating UT Hospital. See Tenn. Code Ann. §§ 49-9-1301, et seq. The 1997

legislation provides as follows:

(a) The board of trustees is authorized to: (1) Take all steps necessary for the

creation of a private nonprofit corporation under the Tennessee Nonprofit

Corporation Act . . . for the purpose of operating the University of Tennessee

Memorial Research Center and Hospital. . . . The corporation shall not be an

agency, department or political subdivision of the state. The charter of the

nonprofit corporation shall include that its purpose is to operate the University

of Tennessee Memorial Research Center and Hospital in a manner that will

fulfill the hospital’s mission statement of dedication to its continuation as the

premier center to offer medical care to the underserved population of the

thirteen county area served by the hospital.

***

(3) With prior approval of the attorney general and reporter and with prior

approval of the state building commission in consultation with the majority

and minority leaders of both houses of the general assembly, transfer to a

corporation created under this section any or all assets used in or related

to operation of the University of Tennessee Memorial Research Center

and Hospital on such terms and conditions as the trustees deem in the best

interest of the university and state; provided, however, that the trustees shall

take action to provide for continued support of the education and research

missions of the university in the health sciences, including, but not limited to,

access to facilities that will offer clinical experience for students in the health

sciences.

(b)(1) Debts or other obligations of a corporation created under this

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section shall be payable only from the assets of the corporation and shall

not be debts or obligations of the state. Neither the university nor the

state shall have any legal or other obligation to finance the deficits of, or

provide financial support to, the corporation. . . .

(Emphasis in bold added.). The statute clearly provides that the nonprofit corporation is not

a state entity. It has been observed that the legislation’s goal was “to divest the state of

interest in UT [Hospital], allowing the hospital flexibility in charting its future course,

including future transactions with other entities, while at the same time guaranteeing the state

a return on its investment and veto power over any transaction it believes contravenes the

public interest.” “Conversions of Nonprofit Hospitals to For-Profit Status: The Tennessee

Experience,” 28 U. Mem. L. Rev. 1077, 1124 n. 251 (1998). University Health System, Inc.

(“UHS”) is the nonprofit corporation created pursuant to Tennessee Code Annotated section

49-9-1301(a) to operate UT Hospital.1

Tennessee Code Annotated section 49-9-1304 was passed by the legislature in 1997

as the original UT Hospital Employee “transition” plan:

(a) In carrying out any transfer of the [UT] Hospital under this part, the board

of trustees shall make reasonable efforts to provide for the transition of

employees from the state to non-state employment in an orderly and

equitable manner.

(b) With respect to employees previously employed by the [UT] Hospital, the

private nonprofit hospital created pursuant to this part shall provide:

(1) A defined insurance and leave benefits package that is equivalent

to or better than the benefits package previously enjoyed by employees

of the [UT] Hospital; and

(2) A deferred compensation program and a defined fixed-benefits

1

“Nonprofit corporations generally are recognized to be public or charitable in nature.” State ex rel

Boone v. Sundquist, 884 S.W.2d 438, 444 (Tenn. 1994). A basic distinction between for profit and nonprofit

entities is the possibility of private enrichment. Thus, “[i]n general terms, a nonprofit enterprise is an

organization in which no part of the income is distributable to its members, directors or officers. . . .” Ronald

Lee Gilman, Tennessee Corporations § 11B-1 (2001). See “Developments in the Law – Nonprofit

Corporations,” 105 Harv. L. Rev. 1578, 1582 (May 1992). There is no prohibition on a nonprofit corporation

conducting enterprises for income or from accumulating earnings. However, such revenues must be used

for the purposes set forth in the charter and there must be no pecuniary gain to the incorporators or members,

and no distribution of income or profits to them. 1 Fletcher Cyclopedia of the Law of Corporations § 68.05.

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retirement plan that is equivalent to or better than the deferred

compensation program and retirement plan available to participants

within the Tennessee consolidated retirement system.

(c) Any person employed by the [UT] Hospital on June 13, 1997, shall

continue to be eligible for the same tuition reduction authorized to any other

employee of [UT] to the same extent the person was entitled to receive tuition

reduction while employed by the [UT] Hospital as long as that person remains

an employee of the private nonprofit hospital created pursuant to this part.

(d) For those employees employed by the [UT] Hospital, it is the legislative

intent that the private nonprofit hospital created pursuant to this part shall

provide compensation at least equivalent to their current compensation and

shall make reasonable allowance for their accumulated benefits (i.e., sick

leave, vacation, educational benefits, etc.) that the employees were eligible for

at the time of the transfer.

(e) With respect to employees previously employed by the [UT] Hospital, the

private nonprofit hospital created pursuant to this part shall only impose

personnel terminations, layoffs, suspensions or demotions for cause and

shall provide affected employees with due process rights and procedures

that the employees previously enjoyed as employees of the [UT] Hospital.

(Emphasis in bold added.). A year later, however, the legislature enacted the statute that is

at issue herein, Tennessee Code Annotated section 49-9-112:

(a) The University of Tennessee is expressly authorized to lease employees to

any nonprofit corporation created under Tennessee law for the purpose of

operating a hospital with which the university is affiliated through its medical

education programs. Employees leased under the authority of this section

shall remain eligible for all university benefits for which they are

otherwise eligible and shall be subject to termination, layoff, suspension

or demotion only in accordance with university personnel policies and

procedures.

Tenn. Code Ann. § 49-9-112(a) (emphasis in bold added). Pursuant to this legislation, UHS

“leased” the UT Hospital employees (“UT Hospital Employees”) working at the hospital

prior to the transfer effective as of the date operation of UT Hospital was turned over to

UHS. The terms of the statute are implemented by an Employee Services Agreement (“the

ESA”). The following sections of the ESA are pertinent in this appeal:

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1.4 Personnel Policies and Procedures. The following personnel policies will

be applied: (a) As described in Tenn. Code Ann. § 49-9-112, and only to the

extent required therein, UT Hospital Employees shall be subject to

termination, layoff (reduction in force), suspension, or demotion only in

accordance with the UT Personnel Policies and Procedures, as

administered by UHS; (b) Subject to the preceding Section 1.4(a), each UHS

Employee and UT Hospital Employee will be an at-will employee, and may

be terminated at any time, subject to the provisions of any applicable federal,

state and local laws. After Closing [on July 29, 1999], UHS will be solely

responsible for all aspects of supervision and control (including, but not

limited to, salary, shift, call and overtime) of all UT Hospital Employees and

UHS Employees and will exclusively administrate its own comprehensive

personnel system (including, but not limited to, its own non-discrimination and

affirmative action plan and its own travel and reimbursement policy). Except

as provided in this Section 1.4, UT and UT Personnel Policies and Procedures

will have no jurisdiction or authority over the Hospital, UT Hospital

Employees or UHS Employees, other than the responsibility of UHS to

faithfully administrate the UT Personnel Policies and Procedures for UT

Hospital Employees with regard to termination, layoffs, suspension and

demotion. UHS shall, at all times, retain the right to control and direct each

UT Hospital Employee, not only as to the result to be accomplished by the

work, but also as to the task and means by which that result is to be

accomplished. UHS shall, at all times, have the right to direct the time and the

place where services shall be performed by UT Hospital Employees, and (c)

subject to Section 1.4(a), UT may apply its UT Personnel Policies and

Procedures to collect debts and obligations owed to it by UT Hospital

Employees or funds subject to garnishment. UT shall have no obligation to

apply its policies and procedures to collect debts owed by UT Hospital

Employees to UHS.

***

2.1 Payment for Services. As consideration for the provision of services by the

UT Hospital Employees, UHS shall be responsible for the UT Costs . . . paid

or incurred by UT with respect to the UT Hospital Employees.

***

2.3 UT Costs. “UT Costs” shall mean all actual sums of money (other than

Excluded Liabilities) incurred or expended by or on behalf of UT . . . on: (a)

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wages and salaries paid to UT Hospital Employees for the services provided

under this Agreement; (b) federal, state and local taxes paid on the amounts

described in (a); (c) the required contributions on behalf of UT Hospital

Employees under UT Retirement Plans, 401(k) match plan, group health

insurance, and life insurance plans with respect to the amounts described in

(a); (d) amounts paid for unemployment insurance as required by Tennessee

law with respect to the amounts described in (a); . . . (g) cost of fee waivers

and discounts for UT Hospital Employees, spouses and dependents at non-UT

institutions; . . . and (i) any other direct expense . . . relating to UT Hospital

Employees not otherwise specified in this Agreement. . . .

2.4 Excluded Liabilities. The following amounts . . . shall be excluded from

UT Costs and will remain the responsibility of UT:

***

2.4.2 Benefits. Obligations with respect to any UT Hospital Employee

. . . for: (a) any payments or liability under any UT Retirement Plans

....

***

9.4. Liability With Respect to UT Hospital Employees. UT Hospital

Employees performing services under this Agreement are “loaned servants”

of UHS. Respondeat superior liability for the acts and omissions of UHS

Employees and the acts and omissions of UT Hospital Employees on or

after Closing shall lie solely with UHS. All workers’ compensation liability

for occurrences on or after Closing with respect to UT Hospital Employees

shall lie solely with UHS. At all times during the Term of this Agreement, and

at its expense, UHS shall provide workers’ compensation insurance for UT

Hospital Employees in accordance with applicable Tennessee law.

9.5 Protection For UT Hospital Employees. UT and UHS understand and

agree that in performing services under this Agreement, the UT Hospital

Employees are state employees “employed in the service of the state” and

their “compensation is payable by the state” within the meaning of Tenn.

Code Ann. § 8-42-101(3)(A)2 and Tenn. Code Ann. § 8-34-101(18).3

2

In regard to legal representation, section 101(3)(A) “‘State employee’ means any person who is a

(continued...)

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Therefore, UT and UHS understand and agree that the UT Hospital

Employees remain eligible to participate in the UT Retirement Plans and

other UT Benefit Plans and remain eligible to raise the absolute immunity

defense provided in Tenn. Code Ann. § 9-8-307(h) against individual or

personal liability for acts or omissions within the scope of their

employment. Notwithstanding the above, UT and UHS agree that all

respondeat superior liability for the acts and omissions of the UT Hospital

Employees lies solely with UHS, which will exercise exclusive direction and

control over the performance of services by UT Hospital Employees under this

Agreement. UHS shall indemnify, defend, and hold harmless UT Hospital

Employees against all individual or personal liability for Damages arising out

of, attributed to, or in connection with, any act or omission of a UT Hospital

Employee in the performance of services under this Agreement, except for

willful, malicious, or criminal acts or omissions, or for acts of omissions done

for personal gain.

9.6 Indemnification of UT, State and UT and State Employees. (a) UHS shall

indemnify, defend, and hold harmless UT, the State, and their agents, trustees,

officers, employees, and successors against all Damages in any way arising out

of, attributable to, or in connection with: (1) the Existing Facility Operations

before, on or after Closing; (2) any act or omission of a UHS Employee or a

UT Hospital Employee after the Closing regardless of whether the act or

omission relates to the Existing Facility Operations; or (3) any act or omission

of a UHS Employee or a UT Hospital Employee before the Closing only if the

act or omission relates to the Existing Facility Operations. Without limiting

the generality and scope of the preceding sentence, the obligations of UHS

under this Section 9.6 shall include, without limitation, the following

liabilities: Prior Legal Liabilities, tort liability, worker’s compensation

liability, premises liability, environmental liability, professional liability,

malpractice liability, employment discrimination liability, civil rights liability

and liability for breach of any constitution, statutory, common law or

2

(...continued)

state official . . . or any person who is employed in the service of and whose “compensation is payable by

the state, or any person who is employed by the state whose compensation is paid in whole or in part from

federal funds . . . .”

3

For retirement purposes, section 101 (18) “‘General employee’ means any person who is a state

official . . . or who is employed in the service of, and whose compensation is payable in whole or in part by,

the state, including employees under supervision of the state whose compensation is paid, in whole or in part,

from federal or other funds . . . .”

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contractual duty. Notwithstanding any provision herein to the contrary, the

indemnification and hold harmless obligations of UHS under this Article 9

with respect to a claim filed under the Tennessee Claims Commission Act for

Damages arising out of, attributable to, or in connection with, an occurrence

before Closing, and for which jurisdiction lies under the Tennessee Claims

Commission Act, shall be limited to the monetary limits of liability established

by the Tennessee Claims Commission Act. The indemnification and hold

harmless obligation of UHS under this Article 9 shall be construed as an

obligation to pay Damages and not merely as an obligation to reimburse UT,

the State and their agents, trustees, officers, employees and successors for

Damages paid by them. The obligations of UHS under this Article 9 shall not

be deemed or construed to waive or abrogate in any way the sovereign

immunity of UT, the State, or any officer or employee of UT or the State.

(Emphasis in bold added.).

Lisa Womble had been employed as a nurse at UT Hospital since July 13, 1988. She

became a leased employee of UHS on July 8, 1999.

Womble’s record contains alleged performance deficiencies. In February 2010,

Womble could not be located at UT Hospital for four hours. She was ultimately found

locked in a bathroom lying on the floor with her cell phone disabled. In a meeting the next

day, it is alleged she made unusual statements to UHS management about UT storing

weapons on the premises. Thereafter, she was placed on medical leave. Womble returned

to work at UT Hospital in late March 2010, at which time she was instructed to not abandon

her work in the future. In April and May 2010, however, UHS purportedly continued to

discern performance issues, such as Womble pre-charting procedures and events before they

were actually done; taking a patient to the wrong operating room; placing a D & C specimen

in view of the patient from whom the specimen came; and opening latex gloves in a sterile

environment before knowing whether the patient had a latex allergy. Womble disputes the

alleged “facts” surrounding these incidents and asserts the charges were a pretext for her

firing. In May 2010, Womble received a written warning and was placed on probation. By

the end of June 2010, UHS management learned of Womble’s involvement in an incorrect

sponge and needle count. Furthermore, according to UHS, it had received unsolicited

statements from eight different registered nurses and surgical technicians outlining concerns

over Womble’s conduct and performance. Three UHS members of management met and

determined that Womble should be terminated.

With regard to discharge of a non-exempt employee, UT policy provides, among other

things, that: (1) there be a pre-discharge meeting wherein the employee is told of the

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reason(s) for the proposed action and given an opportunity to respond; and (2) such

employees may request a post-discharge hearing conducted under the contested case

provisions of the Tennessee Uniform Administrative Procedures Act (“TUAPA”), Tennessee

Code Annotated section 4-5-301, et seq. On July 19, 2010, a pre-discharge meeting was held

with Womble. UHS management members Gary Scott, Betty Gissel, and Thomas Fields

conducted the meeting. Gissel explained that the proposed discharge action related to

ongoing patient safety issues. Womble was given an opportunity to respond, but offered little

to no response; the meeting form reflects the following note: “When asked if she had any

questions she said “No questions, none at all.” Womble later testified: “I felt defeated and

there was no reason to try to communicate with them because they had already made their

decision.” In a deposition, Womble stated:

A: . . . I had never been through that before. They presented this to me and I

thought – I know in the 22 years I worked there that the way the policies have

always worked that they have to actually – supposedly, this is my

understanding of how corrective action works, is when you are corrected you

are called into the office and you are given a verbal warning. When you are

given a verbal warning, you are told it’s a verbal warning and you have to sign

a paper saying it’s a verbal warning, and then that has to happen three times

and then they can write you up for that specific thing. They can’t write you up

for four things all at one time on one piece of paper and never notify you until

the day of the thing.

At the conclusion of the meeting, UHS provided Womble with her termination letter,

which included the following description of Womble’s rights related to challenging the

termination:

As an UT leased employee, you have the right to select from two types of

hearings should you wish to appeal your termination. If you desire a hearing,

you must notify the Vice President of Human Resources in writing on or

before 15 working days from receipt of this letter. . . . In your letter, please

state which type of hearing you are requesting. Your options are:

1) A hearing under the provisions of the Tennessee Uniform

Administrative Procedures Act (TUAPA). If you desire a

TUAPA hearing, you have the right to be represented by your

attorney at the hearing. UHS will also be represented by an

attorney at a TUAPA hearing.

2) A hearing under our Complaint Resolution Policy. This

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hearing is more informal and less complex but equally fair. If

you elect to have this informal hearing, you will be required to

sign a waiver of your right to a TUAPA hearing. Informal

hearings are conducted without legal counsel.

On August 6, Womble sent a letter to Gissel, Vice President of Human Resources, requesting

the TUAPA hearing.

TUAPA HEARING

The hearing was held over a year later on September 29, 2011. Testimony was given

by nine witnesses, including Womble. On March 27, 2012, the hearing officer entered an

initial order upholding the discharge of Womble as justified. Relevant findings from the

hearing officer are as follows:

I. Ms. Womble Did Not Have a Property Interest in Her Employment.

The Hearing Officer recognizes that counsel for Ms. Womble believes that

Tenn. Code Ann. § 8-30-331 guarantees due process to leased employees like

Ms. Womble, and therefore she could only be discharged “for cause and

[provided] due process rights and procedures that are equivalent to or better

than the due process rights and procedures that the employees previously

enjoyed as employees of the University of Tennessee.” The Hearing Officer,

for reasons stated below believes that Ms. Womble was discharged for cause

and was provided adequate due process.

A public employee may have a property interest in his or her employment, but

that property interest is not created by the Constitution. In the instances where

a public employee has a property interest in her employment, it is based on

statute or contract. {See Board of Regents v. Roth, 408 U.S. 564, 577 (1972)}

For example, if a statute gives an employee property interest in a job, then she

has a definite property interest. A teacher with tenure is considered to have a

property interest in her job. Ms. Womble argued that because she had been a

“career state employee” that she had property interest in her job. While the

Hearing Office[r] can sympathize with Ms. Womble believing that because she

invested many years of her career with the Hospital that she had a legally

protected property interest in her employment, she did not. Consequently, the

Hospital did not have to establish that i[t] provided Ms. Womble with due

process. Instead, the Hospital was required to demonstrate that Ms. Womble’s

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discharge was not arbitrary or capricious.

II. The Hospital Provided Ms. Womble with Due Process

Even though the Hospital was not required to provide due process because Ms.

Womble did not have a protected property interest in her employment, UHS

did provide Ms. Womble with due process. When Ms. Womble’s first serious

medical incident occurred, the Hospital quickly ensured that she was able to

take FMLA leave and participate in a fitness-for-duty process to ensure that

she was ready to return to work. Then, when Ms. Womble engaged in the

“pre-charting” violations (which she freely admitted that she committed), she

received verbal counseling. Then, when she committed multiple violations,

including:

1. Mishandling the “D & C” specimen in front of a patient

2. Opening non-latex-free glove into sterile field

3. Attempting to take patient to the wrong operating room

she received a Correction Action and probation. Even after these incidents

that put her ability to manage patient safety into question, she committed more

violations a month later when she failed to communicate with other staff in the

operating room, and she removed a bag of used sponges from the pole in the

operating room.

Ms. Womble argues that her due process rights were violated because she

should have had the right to confront the people who reported her violations

each time she committed [one]. The first problem with that argument is that

the Hospital was not required to guarantee her due process rights. Second, Ms.

Womble admitted committing virtually every one of the violations that were

reported. Third, Ms. Womble was given the chance to respond to all charges

at a pre-discharge hearing. Finally, the purpose of the TUAPA hearing was to

enable her (or her counsel) to cross-examine any witness who offered

testimony against [her], which she was permitted to do. The Hearing Office[r]

finds that Ms. Womble did receive constitutionally sufficient due process.

***

The discharge was upheld and the order became final after fifteen days. Womble thereafter

appealed the decision to the Chancery Court for Davidson County, where, after review, the

hearing officer’s order upholding the discharge was affirmed and the petition was dismissed

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with prejudice.

Womble filed the instant action on July 18, 2011,4 alleging breach of contract,

outrageous conduct, wrongful termination, Tennessee Human Rights Act violations (age and

disability), misrepresentation, fraud, deceit, malice, and negligence against UHS and her

former supervisor, Fields. The complaint included a claim pursuant to 42 U.S.C. section

1983 on the theory that UHS had denied Womble of property (her employment) without due

process of law. Womble contends that UHS is “cloaked with color of state authority to stand

in the shoes of the state government regarding [her] employment.”

In the proceedings below, UHS moved for summary judgment on all claims. At the

hearing on the motion, the trial court sua sponte raised the subject of the constitutionality of

section 49-9-112(a). The trial court commented that the enabling legislation was an

unconstitutional delegation of governmental authority to a private entity. At the hearing, the

trial court observed inter alia as follows:

THE COURT: . . . The way the Court sees it, if she’s a loaned employee, then

all you have to do is unloan [her]. . . . [G]ive [her] back to UT. It’s UT’s

problem. . . .

If she’s not your employee and you are not a state entity, then none of that

applies. . . .

***

MR. JACKSON: We terminated [her] . . . .

THE COURT: How do you terminate a loaned employee?

***

THE COURT: . . . I think before I can go further you all are going to have to

decide what is the University of Tennessee hospital. If it’s a private entity and

this is a loaned employee from a governmental entity, all you do with that

loaned employee, if you got a loaned employee, you say we’re no longer – see,

4

Additionally, on July 15, 2011, Womble filed with the Division of Claims Administration. A

Commissioner entered an order of dismissal on July 5, 2012, finding that the Claims Commission lacked

subject matter jurisdiction over the case. Womble appealed. We affirmed. Womble v. State of Tennessee,

No. E2012-01711-COA-R3-CV, 2013 WL 3421925 (Tenn. Ct. App. July 3, 2013).

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you go back to sue your employer. The employer didn’t fire them. They are

still employed by the base employer. You couldn’t fire them if they are a

loaned employee.

MR. JACKSON: They are not a loaned employee; they are a leased employee.

***

MR. JACKSON: . . . [T]hat’s what they have is a contract, the Employee

Services Agreement . . . . And by contract, the agreement states to provide

these people with a hearing under TUAPA if they get let go, and that’s what

happened.

THE COURT: Okay. You assumed the University of Tennessee’s duties.

They are not a leased employee; they are your employee.

MR. JACKSON: Contractual, which doesn’t make you a governmental entity,

it just means by contract you agreed to do this.

***

MR. JACKSON: We don’t give them a name clearing hearing, we just took

on contractually this administrative process . . . .

THE COURT: But I’m saying, these were employees of a state agency.

MR. JACKSON: Right.

THE COURT: Then it went private.

MR. JACKSON: Right.

THE COURT: And this employee agreement was entered into to try to give

everybody what they wanted basically.

***

THE COURT: Instead of setting up a private [entity] and saying your

employment with the state ends today –

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***

THE COURT: And you can go work for this private entity if you want to or

you can draw unemployment from the state entity.

***

THE COURT: They set up this thing –

***

THE COURT: – they call a leased employee –

***

THE COURT: They can’t fulfill the duties of a government by contract. The

government has a duty, non-delegable duty to meet its duties. If these were its

employees the Court finds by the contract as read it did not – the hospital is not

entitled to the protection of a private corporation under this agreement. It has

assumed the position and duties of the government. You can’t claim yourself

one thing and then act like something else.

***

THE COURT: . . . The Court finds under the Employee Services Agreement

University Health Systems, Inc., a private corporation, has assumed the duties

that are only the duties of a governmental entity. If that’s a valid contract, then

everything University Health Systems did, giving hearings, et cetera, et cetera,

in terminating the plaintiff’s employment is the action of the government, and

the sole and exclusive remedy is through the Board of Claims, not a private

lawsuit.

If that contract giving University Health Systems the power to take these

actions is not valid because it’s not a non-delegable duty – can’t delegate the

duty . . . then it has assumed the liabilities of those duties and it is liable.

The Court has real trouble understanding how a private entity can be liable as

a government, but that’s what this contract basically says and she would be the

beneficiary of it.

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The Court thinks the contract is void as to the extent it attempts to give

University Health Systems, a private entity, the powers and duties of the state

of Tennessee as to its employees. To that extent, the Motion for Summary

Judgment is granted except for those actions that are not dependent upon

governmental action.

I don’t think the state can delegate its governmental duties. . . .

Another hearing was held in November 2012, at which time the trial court questioned

the constitutionality of Tennessee Code Annotated section 49-9-112(a) on the ground that

it constituted an unconstitutional lending of the State’s credit. In a discussion with the

Assistant Attorney General, the court observed in part as follows:

THE COURT: “[T]he University of Tennessee attempts to transfer its

employees to a nongovernmental agency as a loaned serv[ant], with them

retaining all of the rights of a university employee, but not being employed by

the university.

At the same time after that ‘99 Agreement, the hospital goes out and it hires

people doing basically the same job. So you’ve got two people, side-by-side,

one had been a former university employee who’s said to be treated as with all

the benefits and rights of the university employee; one said in here who’s not

a university employee.

***

THE COURT: . . . Let’s say you have a patient at the hospital. Can they sue

the nurse that wheeled them down the road and dumped them out on the street

and pushed them out in the chair?

Well, if that person is employed directly by the not-for-profit corporation and

never has been a university employee, they can sue that employee individually,

correct?

***

THE COURT: If that person is a UT . . . “State employee,” can they sue

them?

***

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MS. BRODHAG: It would be treated as if they were a State employee.

THE COURT: Where would you sue them?

***

MS. BRODHAG: They would have to go to the Claims Commission.

THE COURT: All right. So we have a situation. How does the public know

where to sue you? How does the State lend its credit to the not-for-profit

corporation?

That’s what you’ve done. Because you’ve immunized what are now their

employees. How do you do that? Instead of being able to come to court and

sue them as an employee of the not-for-profit corporation, now you say: You

go to the State of Tennessee and the State of Tennessee pays for their sins.

Where they have a co-employee at the same time, working the same job that

that’s not true for. How is that not lending the credit [of] the State to a not-for-

profit corporation?

***

THE COURT: . . . [I]t all goes back to . . . [i]s that agreement in the statute

valid? Can the State do that?

***

THE COURT: Okay. Well, let me ask you this: Does she have a right to a

name clearing hearing as an employee of the State of Tennessee under the

Civil Rights Act?

MS. BRODHAG: As far as I understand, she was a UT employee. She has

the same rights as a UT employee –

***

MS. BRODHAG: She does not have a right to a Civil Service hearing. She’s

not a Civil Servant. She was a UT employee.

***

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THE COURT: . . . [S]he is either employed by a not-for-profit or she’s

employed by the State. She can’t be a mixed metaphor.

***

THE COURT: How does someone that is employed by a not-for-profit get all

the rights of a State employee? How does she get State benefits?

MS. BRODHAG: She’s not employed by the foundation. She’s employed by

the State of Tennessee.

THE COURT: And does what? Makes money for who?

MS. BRODHAG: There is a lease agreement that addresses how all of that

applies.

THE COURT: And so, you have a State employee who has all the rights and

benefits who is making his money for a not-for-profit corporation and they

keep the money, right?

***

THE COURT: [T]he end result is: You have a State employee out here

working and getting paid, getting all State benefits; and the results of her work,

the value of her work, goes to the use and benefit of a nongovernment . . .

employer, correct? . . . [T]he revenue stream does not go to the university.

The revenue stream goes to the not-for-profit, correct?

MS. BRODHAG: Yes. Again, it’s all addressed in the lease agreement how

all that works.

***

THE COURT: Her supervisor’s not a State employee and they’ve got no

supervision, but she’s a State employee being supervised by somebody. Now,

does that make sense? . . .

***

THE COURT: Well, she doesn’t have all the rights of a State employee then.

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Because she cannot sue her supervisor before the Board of Claims.

Any other State employee, working for the State, is being supervised by the

State and would make claim and have the Board of Claims against her

supervisor; but she doesn’t. . . .

***

THE COURT: . . . [H]ere we’ve got someone who’s . . . “a State employee”

getting all the benefits of a State employee, generating revenue for nonprofits.

Does not – the public wouldn’t know who in the world. She’s treated one way,

and the other employees are treated another. I think that’s an illegal exercise

of [t]he State power.

***

THE COURT: . . . I think this situation is the State lending its credit to a

nonprofit corporation because they used employees who have one set of rights.

They restrict the rights of the public versus what they do when they have two

employees sitting side-by-side, one with one set of rights; the other with the

other.

I think that this is unconstitutional, invalid. . . .

Following the July and November 2012 hearings, the trial court ruled that Tennessee

Code Annotated section 49-9-112(a) was unconstitutional; Womble’s 42 U.S.C. section 1983

claims were dismissed, the remainder of UHS’s motion for summary judgment was denied,

and the parties were granted permission to seek an interlocutory appeal pursuant to Rule 9

of the Tennessee Rules of Appellate Procedure. We granted interlocutory appeal on February

29, 2013, and ruled that the sole issue on appeal is the constitutionality of Tennessee Code

Annotated section 49-9-112.

II. STANDARD OF REVIEW

Questions regarding a statute present issues of law; as such, they are reviewed de novo

with no presumption of the correctness of the trial court’s conclusions. U.S. Bank v. Tenn.

Farmers Mut. Ins. Co., 277 S.W.3d 381, 386 (Tenn. 2009).

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III. DISCUSSION

A.

The Tennessee legislature has broad authority to act, with its power limited only by

the federal and state constitutions. “[T]he General Assembly may enact any legislation that

is not forbidden by the Tennessee or federal constitutions.” The Eye Clinic, P.C. v. Jackson-

Madison Cnty. Gen. Hosp., 986 S.W.2d 565, 577 (Tenn. Ct. App. 1998). A Tennessee court

“may only invalidate a statute when it contravenes either the federal or state constitution.”

Planned Parenthood of Middle Tenn. v. Sundquist, 38 S.W.3d 1, 7 (Tenn. 2000). See also

Bell v. Bank of Nashville, 7 Tenn. 269, 269-70 (1823).

There is a strong presumption that legislative acts are constitutional. Bailey v. Cnty.

of Shelby, 188 S.W.3d 539, 543 (Tenn. 2006); West v. Tenn. Hous. Devel. Agency, 512

S.W.2d 275, 279 (Tenn. 1974). Statutes are “clothed in a presumption of constitutionality

[because] the legislature does not intentionally pass an unconstitutional act.” Vogel v. Wells

Fargo Guard Servs., 937 S.W.2d 856, 858 (Tenn. 1996) (quoting Cruz v. Chevrolet Grey

Iron Div. of Gen. Motors, 247 N.W.2d 764, 769 (Mich. 1976)). Any reasonable doubt about

whether a statute is constitutional must be resolved in favor of its constitutionality. Bailey,

188 S.W.3d at 543. When construing a statute, a court has the “duty to adopt a construction

which will sustain a statute and avoid constitutional conflict if any reasonable construction

exists that satisfies the requirements of the Constitution.” Planned Parenthood, 38 S.W.3d

at 7 (quoting Davis-Kidd Booksellers, Inc. v. McWherter, 806 S.W.2d 520, 529-30 (Tenn.

1993)).

With regard to the Tennessee Constitution, the legislative authority of the State is

vested in the General Assembly. Tenn. Constitution, article II, section 3. The constitutional

prohibition against delegation of legislative power involves the power to make law, or, the

discretion as to what the law should be. See Lobelville Spec. School Dist. v. McCanless, 214

Tenn. 460 (Tenn. 1964). On the other hand, “any power not legislative in character which

the legislature may exercise it may delegate, and before a court can properly hold that a

statute is void as unconstitutionally delegating legislative power, it must clearly appear that

the power in question is purely legislative.” State ex rel. Llewellyn v. Knox Cnty., 54 S.W.2d

973, 976 (Tenn. 1932) (citation and quotations omitted). The Tennessee Supreme Court

observed what authority is legislative in State ex rel. Llewellyn: “The true distinction . . . is

between the delegation of power to make the law, which necessarily involves discretion as

to what it shall be, and conferring authority or discretion as to its execution, to be exercised

under and in pursuance of the law. The first cannot be done; to the latter no valid objection

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can be made.” Id. (quoting Field v. Clark, 143 U.S. 649,700, 12 S.Ct. 495, 505 (1892)). See

also Dept. of Pub. Welfare v. Nat. Help “U” Ass’n, 270 S.W.2d 337, 339 (Tenn. 1954); First

Suburban Water Util. Dist. v. McCanless, 146 S.W.2d 948, 951 (Tenn. 1941). Thus, a

delegation of power will not be declared unconstitutional unless it clearly appears that the

power delegated is purely legislative.

The State is not constitutionally obligated to operate a hospital – in association with

UT or otherwise. Neither the operation of a hospital nor the management of hospital

employees is an inherently governmental function so its delegation to a nonprofit corporation

cannot amount to an improper delegation of governmental authority. See David M.

Lawrence, “Private Exercise of Governmental Power,” 61 Ind. L.J. 647, 648 (1986) (“We

do recognize certain powers as essentially governmental,” and it is the delegation of these

powers to private actors that prompts the question whether they were delegated improperly).

There are no provisions in the Tennessee or federal constitutions that require the State to

operate a hospital. Having provided for the operation of a hospital and hiring employees to

staff it, the State may not by contract evade any constitutional duties that exist as to those

employees. In Tennessee Code Annotated section 49-9-112, the legislature specifically

authorized the transfer of administrative and financial responsibilities relative to the leased

UT Hospital Employees to UHS. The delegated authority is not purely legislative. The State

has no constitutional duty to provide any particular form or level of benefits to the UT

Hospital Employees5 and we know of no provisions of the state or federal constitutions that

preclude the transfer of such administrative or financial responsibilities. Therefore, the

action by the legislature is permissible. See The Eye Clinic, P.C., 986 S.W.2d at 577.

Instead of presuming that the statute was constitutional, the trial court substituted its

judgment for that of the General Assembly. Primarily, it is for the legislature to determine

the public policy of Tennessee. Crawford v. Buckner, 839 S.W.2d 754, 759 (Tenn. 1992).

In the matter of UT Hospital, the General Assembly determined that it was in the best interest

of the State to transfer operation of the facility to UHS and “to take action to provide for

continued support of the education and research missions of the university.” 6 See Tenn. Code

Ann. § 49-9-1301(a)(3). To assist in accomplishing this purpose, the legislature also deemed

it proper to allow the UT Hospital Employees to be leased to UHS. See Tenn. Code Ann. §

5

Absent an express contract, a university employee in Tennessee does not have a property interest

in employment. Woolsey v. Hunt, 932 F.2d 555, 564-65 (6th Cir. 1991) (UT secretary). Further, Tennessee

Code Annotated section 8-30-101(23)(H) exempts UT employees from the definition of employees employed

in state service.

6

The availability of special expertise and the fact that it may be substantially cheaper for government

to delegate power to private actors than to undertake an activity itself are prime reasons for private delegation

decisions. Lawrence, 61 Ind. L. J. at 656-57.

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49-9-112(a). The statute does not confer purely legislative authority on UHS. Rather, it

provides that UHS must administer certain policies and procedures when supervising and

managing UT Hospital Employees and that UHS must pay for the individuals to receive the

same wages and benefits as other UT workers. Such a delegation of administrative

responsibility is well within the legislature’s discretion. Llewellyn ex rel. State, 54 S.W.2d

at 976. Any concern that the termination of UT Hospital Employees will be affected by

private interest is dispelled by the fact that UHS is a nonprofit corporation and the UT

Hospital Employees retain their rights to pre- and post-termination proceedings pursuant to

the UT Policies and Procedures. See Lawrence, 61 Ind. L. J. at 661 (“[I]f a delegation . . .

does include protection against the domination of private interest, no deprivation without due

process will have occurred.”). We find that the statute does not unconstitutionally delegate

legislative authority.

B.

Article II, section 31 of the Tennessee Constitution provides: “The credit of this State

shall not be hereafter loaned or given 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.” Case law

of this State reveals that the term “credit” as used above refers “to obligations due and to

become due.” Ragsdale v. City of Memphis, 70 S.W.3d 56, 68 (Tenn. Ct. App. 2001).

Tennessee Code Annotated section 49-9-1301(b)(1), the statute that allowed for the creation

of UHS, denotes as follows:

(b)(1) Debts or other obligations of a corporation created under this section

shall be payable only from assets of the corporation and shall not be debts or

obligations of the state. Neither the university nor the state shall have any

legal or other obligation to finance the deficits of, or provide financial support

to, the corporation. Effective on the date of transfer of operation of the

hospital to a corporation created under this section, neither the state nor the

university shall have any legal, financial or other responsibility or liability for

the operation of the hospital or the corporation.

Tenn. Code Ann. § 49-9-1301 (b)(1). Accordingly, the legislature clearly has not extended

the credit of the State to UHS. Further, the ESA specifically provides that all costs for the

UT Hospital Employees are assumed by UHS and the State assumes no obligation for those

costs. There is no loan or extension of credit by the State.

Furthermore, as noted by the Attorney General and UHS, not every extension of the

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State’s credit would be unconstitutional:

The obvious purpose of [Section 31] of our Constitution was to prevent the

State from using its credit as a gratuity or donation to any person, corporation,

or municipality. It is further obvious that it was not designed to prevent the

State from using its credit to aid persons, corporations, or municipalities if

required to accomplish a State or public purpose, or to fulfill a State duty or

obligation under its police power. Under the authorization, the Legislature and

not the courts is the exclusive judge of the manner, means, agencies and

methods to meet and fulfill these purposes.

West, 512 S.W.2d at 283-84 (emphasis added).

The legislation before us clearly meets the public purpose test; it promotes the public

purpose of ensuring the maintenance and delivery of quality health care to a large

geographical area of Tennessee. See Bedford Cnty. Hosp. v. Browning, 225 S.W.2d 41, 43

(Tenn. 1949) (providing hospital facilities is a public purpose). Tennessee citizens in the

East Tennessee region have benefitted by this lease arrangement because UHS has

maintained continuity in the operation of UT Hospital and provided the services of competent

medical professionals, all in keeping with the purpose of the statute creating UHS: “to

operate the University of Tennessee Memorial Research Center and hospital in a manner that

will fulfill the hospital’s mission statement of dedication to its continuation as the premier

center to offer medical care to the underserved population of the thirteen county area served

by the hospital.” Tenn. Code Ann. § 49-9-1301(a)(1). Additionally, the UT Hospital

Employees who have lived and worked under this lease agreement are invested heavily in

their State benefits and retirement accounts.

Where the legislature determines that an entity’s activities serve a public purpose, the

courts do not second guess that judgment. “Courts are not authorized to consider whether

legislation is unwise or inequitable; thus, we cannot consider the wisdom or necessity of the

legislature’s policy decisions.” Ragsdale, 70 S.W.3d at 71-72.

IV. CONCLUSION

We reverse the ruling of the trial court that Tennessee Code Annotated section 49-9-

112 is unconstitutional and that the ESA contract is invalid, vacate the order dismissing

certain claims, and remand this matter to the trial court with the instruction to reconsider the

motion for summary judgment. Costs of the appeal are assessed to appellee, Lisa Womble.

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_________________________________

JOHN W. McCLARTY, JUDGE

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