ABA Health eSource
June 2008 Volume 4 Number 10

Fifth Circuit Court of Appeals reverses District Court ruling in Kadlec
by Conrad Meyer, Chaffe McCall, L.L.P., New Orleans, LA

Conrad MeyerOn May 8, 2008, the 5th Circuit Court of Appeals reversed the District Court's opinion which had held that Lakeview Medical Center (LMC) had a duty to disclose to Kadlec Medical Center Dr. Robert Berry's drug problem after Kadlec made inquiry to LMC through means of a credentialing questionnaire (after Berry applied to Kadlec for medical staff membership). 1

Factual Background

Dr. Berry was a licensed anesthesiologist in Louisiana and practiced with Drs. William Preau, Mark Dennis, David Baldone, and Allan Parr at Louisiana Anesthesia Associates (LAA). From November 2000 until his termination on March 13, 2001, Dr. Berry was a shareholder of LAA, which was the exclusive provider of anesthesia services to LMC.

In November 2000, a small management team at Lakeview Medical investigated Dr. Berry after nurses expressed concern about his undocumented and suspicious withdrawals of Demerol. The investigative team found excessive Demerol withdrawals by Dr. Berry and a lack of documentation for the withdrawals.

LMC CEO Max Lauderdale discussed the team's findings with Dr. Berry and Dr. Dennis. Dr. Dennis then discussed Dr. Berry's situation with his partners. They all agreed that Dr. Berry's use of Demerol had to be controlled and monitored. But Dr. Berry did not adhere to the monitoring process or account for his continued Demerol withdrawals. Three months later, Dr. Berry failed to answer a page while on-duty at LMC. He was discovered in the call-room, asleep, groggy, and unfit to work. Personnel immediately called Dr. Dennis, who found Dr. Berry not communicating well and unable to work. Dr. Dennis had Dr. Berry removed from the hospital grounds after Dr. Berry said that he had taken prescription medications.

At that point, Lauderdale decided that it was in the best interest of patient safety that Dr. Berry not practice at the hospital. Based on Dr. Berry's previous actions, Dr. Dennis and his three partners at LAA fired Dr. Berry and signed his termination letter on March 27, 2001, which explained that he was fired "for cause":

You have been fired for cause because you have reported to work in an impaired physical, mental, and emotional state. Your impaired condition has prevented you from properly performing your duties and puts our patients at significant risk.... Please consider your termination effective March 13, 2001.

At LMC, Lauderdale ordered the Chief Nursing Officer to notify the administration if Dr. Berry returned.

Despite recognizing Dr. Berry's drug problem and the danger he posed to patients, neither Dr. Dennis nor Lauderdale reported Dr. Berry's impairment to the hospital's Medical Executive Committee, eventually noting only that Dr. Berry was "no longer employed by LAA." Neither one reported Dr. Berry's impairment to LMC's Board of Trustees, and no one on behalf of LMC reported Dr. Berry's impairment or discipline to the Louisiana State Board of Medical Examiners or to the National Practitioner's Data Bank. In fact, at some point Lauderdale took the unusual step of locking away in his office all files, audits, plans, and notes concerning Dr. Berry and the investigation.

After leaving LAA and LMC, Dr. Berry briefly obtained work as a locum tenens at a hospital in Shreveport, Louisiana. In October 2001, he applied through Staff Care, a leading locum tenens staffing firm, for locum tenens privileges at Kadlec Medical Center in Washington State. After receiving his application, Kadlec began its credentialing process. Kadlec examined a variety of materials, including referral letters from LAA and LMC.

LAA's Dr. Preau and Dr. Dennis, two months after firing Dr. Berry for his on-the-job drug use, submitted referral letters for Dr. Berry to Staff Care, with the intention that they be provided to future employers. The letter from Dr. Dennis stated that he had worked with Dr. Berry for four years, that he was an "excellent clinician", and that "he would be an asset to any anesthesia service." Dr. Preau's letter said that he worked with Berry at LMC and that he recommended him highly as an anesthesiologist. Dr. Preau's and Dr. Dennis's letters were submitted on June 3, 2001, only sixty-eight days after they fired him for using narcotics while on-duty and stating in his termination letter that Dr. Berry's behavior put "patients at significant risk."

On October 17, 2001, Kadlec sent LMC a request for credentialing information about Berry. The request included a detailed confidential questionnaire, a delineation of privileges, and a signed consent for release of information. The interrogatories on the questionnaire asked whether "[Dr. Berry] has been subject to any disciplinary action," if "[Dr. Berry has] the ability (health status) to perform the privileges requested," whether "[Dr. Berry has] shown any signs of behavior/personality problems or impairments," and whether Dr. Berry has satisfactory "judgment."

Nine days later, LMC responded to the requests for credentialing information about fourteen different physicians. In thirteen cases, it responded fully and completely to the request, filling out forms with all the information asked for by the requesting health care provider. The fourteenth request, from Kadlec concerning Berry, was handled differently. Instead of completing the multi-part forms, Lakeview Medical staff drafted a short letter. In its entirety, it read:

This letter is written in response to your inquiry regarding [Dr. Berry]. Due to the large volume of inquiries received in this office, the following information is provided.

Our records indicate that Dr. Robert L. Berry was on the Active Medical Staff of Lakeview Regional Medical Center in the field of Anesthesiology from March 04, 1997 through September 04, 2001.

If I can be of further assistance, you may contact me at (504) 867-4076.

The letter did not disclose LAA's termination of Dr. Berry; his on-duty drug use; the investigation into Dr. Berry's undocumented and suspicious withdrawals of Demerol that "violated the standard of care"; or any other negative information. The employee who drafted the letter said at trial that she just followed a form letter, which is one of many that LMC used.

Kadlec then credentialed Dr. Berry, and he began working there. After working at Kadlec without incident for a number of months, he moved temporarily to Montana where he worked at Benefis Hospital. During his stay in Montana, he was in a car accident and suffered a back injury. Kadlec's head of anesthesiology and the credentialing department all knew of Dr. Berry's accident and back injury, but they did not investigate whether it would impair his work.

After Dr. Berry returned to Kadlec, some nurses thought that he appeared sick and exhibited mood swings. One nurse thought that Dr. Berry's entire demeanor had changed and that he should be watched closely. In mid-September 2002, Dr. Berry gave a patient too much morphine during surgery, and she had to be revived using Narcan. The neurosurgeon was irate about the incident.

On November 12, 2002, Dr. Berry was assigned to the operating room beginning at 6:30 a.m. He worked with three different surgeons and multiple nurses well into the afternoon. According to one nurse, Dr. Berry was "screwing up all day" and several of his patients suffered adverse affects from not being properly anesthetized. He had a hacking cough and multiple nurses thought he looked sick. During one procedure, he apparently almost passed out.

Kimberley Jones was Dr. Berry's fifth patient that morning. She was in for what should have been a routine, fifteen minute tubal ligation. When they moved her into the recovery room, one nurse noticed that her fingernails were blue, and she was not breathing. Dr. Berry failed to resuscitate her, and she is now in a permanent vegetative state.

The nurse went directly to her supervisor the next morning and expressed concern that Dr. Berry had a narcotics problem. Dr. Berry later admitted to Kadlec staff that he had been diverting and using Demerol since his June car accident in Montana and that he had become addicted to Demerol. Dr. Berry wrote a confession, and he immediately admitted himself into a drug rehabilitation program.

Jones's family sued Dr. Berry and Kadlec in Washington. Dr. Berry's insurer settled the claim against him. After the Washington court ruled that Kadlec would be responsible for Dr. Berry's conduct under respondeat superior, Western, Kadlec's insurer, settled the claim against Kadlec.

Procedural History

Kadlec and Western filed suit in Louisiana district court against LAA, Dr. Dennis, Dr. Preau, Dr. Baldone, Dr. Parr, and LMC, asserting Louisiana state law claims for intentional misrepresentation, negligent misrepresentation, strict responsibility misrepresentation, and general negligence. Plaintiffs alleged that defendants' tortious activity led to Kadlec's hiring of Dr. Berry and the resulting millions of dollars it had to expend settling the Jones lawsuit. Plaintiffs' claim against LAA for negligence, based on a negligent monitoring and investigation theory, was dismissed before trial.

Plaintiffs' surviving claims for intentional and negligent misrepresentation arise out of the alleged misrepresentations in, and omissions from, the defendants' referral letters for Dr. Berry. These claims were tried to a jury, which returned a verdict in favor of the plaintiffs on both claims. The jury awarded plaintiffs $8.24 million, which is approximately equivalent to the amount Western spent settling the Jones lawsuit ($7.5 million) plus the amount it spent on attorneys fees, costs, and expenses (approximately $744,000) associated with the Jones lawsuit. The jury also found Kadlec and Dr. Berry negligent. The jury apportioned fault as follows: Dr. Dennis 20%; Dr. Preau 5%; LMC 25%; Kadlec 17%; and Dr. Berry 33%. The judgments against Dr. Dennis and Dr. Preau were in solido with LAA. Because defendants were found liable for intentional misrepresentation, plaintiffs' recovery was not reduced by the percentage of fault ascribed to Kadlec. But the amount was reduced to $5.52 million to account for Dr. Berry's 33% of the fault. The district court entered judgment against LMC and LAA accordingly.

Fallout of District Court ruling and Fifth Circuit Reversal

The District Court's finding and multi-million dollar jury verdict against LMC caused an uproar throughout the hospital industry because no court had previously held that such a duty existed. As such, hospitals began to question what information should be included in responding to credentialing questionnaires. The result was also unsettling for many hospitals because most have faced the ethical and legal question of how to respond to third party inquiries about current and former medical staff physicians who have had quality of care or impairment problems.

In overturning the District Court's ruling, the Fifth Circuit Court of Appeals made the following analysis:

  1. The Court of Appeals first held that after choosing to write referral letters, the defendants, LMC and LAA, assumed a duty not to make affirmative misrepresentations in the letters. Based on the evidence submitted, the Court of Appeals found that the letters written to Kadlec by the LAA defendants' were misleading; however, the Court found that the letter from LMC to Kadlec was not misleading. Of note, LAA's letter to Kadlec contained language that Dr. Berry was an excellent physician and would be an asset to any practice. On the other hand, LMC's letter to Kadlec simply stated dates of employment and asked Kadlec to contact LMC for further information.
  2. Next the Court of Appeals held that LMC had no affirmative duty to disclose negative information about Dr. Berry. Based on these holdings, the Court of Appeals determined that LMC did not breach any duty owed to Kadlec, and therefore the judgment against it was reversed.

LMC and LAA had a legal duty to not make affirmative misrepresentations

In this case, the Court of Appeals reasoned that the defendants, including LMC and LAA, had a legal duty not to make affirmative misrepresentations in their referral letters to Kadlec. 2 Once an employer makes a misleading statement in a referral letter, in this case from LAA to Kadlec, about the performance of its former employee, the former employer may be liable for its statements if the facts and circumstances warrant. 3 Here, LMC provided a neutral letter regarding Dr. Berry which contained his dates of employment with LMC and did not attempt to recommend Berry for appointment to Kadlec. LAA, on the other hand, stated that Berry was "excellent" and "would be an asset to any practice" even though they had fired him two months earlier because of his addiction to narcotics.

In contrast to LMC's letter, LAA was recommending Dr. Berry, an anesthesiologist, who held the lives of patients in his hands every day; therefore, policy considerations dictate that the LAA defendants had a duty to avoid misrepresentations in their referral letters. By failing to do so, they misled Kadlec into thinking that Dr. Berry was an "excellent" anesthesiologist, when they had information that he was in fact a drug addict.

According to the Fifth Circuit, by "volunteering to speak and to convey information which influenced the conduct of Kadlec, LAA was bound to disclose the whole truth." In other words, when LAA chose to recommend Dr. Berry as a suitable anesthesiologist, they incurred a duty to disclose information about his drug use and for-cause firing to complete the whole picture. 4

LMC had no affirmative duty to disclose Dr. Berry's drug addiction

After holding that the letters from the LAA defendants were affirmatively misleading, but the letter from LMC was not, the Fifth Circuit Court of Appeals turned to the next question, which was whether LMC had an affirmative duty to disclose information about Dr. Berry's drug addiction.

In Louisiana, there is no duty to disclose unless a special relationship exists, such as a fiduciary or confidential relationship. 5 Also, Louisiana cases suggest that before a duty to disclose is imposed LMC must have had a pecuniary interest in the transaction. 6 The Fifth Circuit believed that the relationship between Lakeview and Kadlec was more "gratuitous," not pecuniary, and that no particular special relationship existed. 7 It recognized some of the important policy issues raised by the case in terms of disclosing information about impaired physicians to third parties, however the Court still held that LMC had no affirmative duty to disclose. The court pointed out that a hospital's duty to disclose must be evaluated in the context of the physician's privacy rights and the possibility of defamation claims against the hospital. 8

Based on the rationale outlined above, the Fifth Circuit Court of Appeal held that LMC's letter was not materially misleading, and because LMC did not have a legal duty to disclose its investigation of Dr. Berry and its knowledge of his drug problems, the judgment against LMC was reversed. 9

Lessons learned from Kadlec

Looking at the Fifth Circuit Court of Appeal decision in hindsight, Kadlec neither makes adverse disclosures safer nor suggests that nondisclosure remains the safest course; both come with risks. At best, Kadlec says it's still safe, at least for the time being, to say virtually nothing while responding to credentialing questionnaires. However, if the hospital decides to respond, it must do so very carefully, by avoiding misleading statements and providing truthful information.

The question of whether to disclose or not to disclose raises important ethical and legal policy questions for hospitals in the context of the dissemination of information. All hospitals rely on each other in attempting to determine whether new physician applicants or existing physician members are truly qualified to perform their jobs and do not pose a risk to patients. If information is purposefully withheld by hospitals or other health care entities because no duty to disclose exists, problems like Kadlec will continue to occur. The positive impact that the district court opinion had in this case is that it made hospitals more mindful when responding to credentialing questionnaires. Post-Kadlec, hospitals began providing more detailed and truthful disclosures, keeping in mind that they must be based on hard evidence and documentation and not rumor or innuendo. Moreover, as an additional protection, many hospitals required physicians to sign absolute, as opposed to qualified, waivers and releases as part of the appointment/reappointment process in order to avoid retaliatory lawsuits in response to truthful disclosures of impairments or questionable competency which led to the non-appointment/reappointment of the physicians.

So what is the ultimate answer? It may be that we need to require the legislature to provide hospitals or healthcare entities with immunity from civil liability when disclosing information regarding a physician to each other. Only then could we have a truly transparent system.

1 See, 2008 WL 1976591.
2 Am. Guar. Co. v. Sunset Realty & Planting Co., 23 So.2d 409, 455-56 (La.1944).
3 See, e.g., Pastor v. Lafayette Bldg. Ass'n, 567 So.2d 793, 796 (La.Ct.App.1990); accord Leon v. Moore, 896 So.2d 1073, 1076 (La.Ct.App.2004) (holding that "[t]here is no general duty to speak, but if one does speak, he may be liable for any intentional misrepresentation (fraud) or any negligent misrepresentation") ; Cypress Oilfield Contractors, Inc. v. McGoldrick Oil Co., 525 So.2d 1157, 1162 (La.Ct.App.1988).(holding that although a bank did not owe a duty of disclosure to the plaintiff, a non-customer, the bank "assumed a duty to insure that the information volunteered was correct").
4 See 2008 WL 1976591 at p 5.
5 See Wilson v. Mobil Oil Corp., 940 F.Supp. 944, 955 (E.D.La.1996) (citing Greene v. Gulf Coast Bank, 593 So.2d 630, 632 (La.1992) and First Downtown Dev. v. Cimochowski, 613 So.2d 671, 677 (La.Ct.App.1993); Bunge Corp. v. GATX Corp., 557 So.2d 1376, 1383-84 (La.1990).
6 See Barrie v. V.P. Exterminators, Inc., 625 So.2d 1007, 1017 (La.1993), ("due to V.P.'s pecuniary interest in supplying the information, the duty arose to exercise reasonable care"). In McLachlan v. New York Life Ins. Co., 488 F.3d 624 (5th Cir.2007), relied on by the defendants, this court said in the middle of one paragraph that under Louisiana law a duty to disclose exists only where there is privity of contract or a fiduciary relationship between the parties. Id. at 628. But later in the same paragraph the court acknowledged that the Louisiana Supreme Court has imposed a duty to disclose where there was no privity or fiduciary relationship. Id. Our review of Louisiana cases confirms that there does not need to be privity of contract or a fiduciary relationship for there to be a duty to disclose. See, e.g., Barrie, 625 So.2d. at 1014 (holding that " Louisiana is a jurisdiction which allows recovery in tort for ... negligent misrepresentation where privity of contract is absent"). The Louisiana Supreme Court has said elsewhere that "[i]t has long been held that the duty to disclose exists" where the parties have a confidential relationship with each other, and the court explained that "[t]he confidential relationship is not restricted to any specific association of the parties," but exists between "generally all persons who are associated by any relation of trust and confidence." Bunge, 557 So.2d at 1383-84 & n. 4 (internal quotation marks omitted). Therefore, we must look carefully at the facts of this case to determine whether there was a duty to disclose. See Barrie, 625 So.2d at 1016 ("Louisiana's case by case development of the tort of negligent misrepresentation has not been restricted to a set theory .... Adopting one of the common law standards as the sole method for determining liability for this tort is not necessary. The case by case application of the duty/risk analysis, presently employed by our courts, adequately protects the misinformer and the misinformed because the initial inquiry is whether, as a matter of law, a duty is owed to this particular plaintiff to protect him from this particular harm.").
7 See 2008 WL 1976591 at p 7.
8 Id.
9 Id.

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