Forget About the “Best Defense” – Is the Truth a Valid Defense to Tortious Interference Claims in Texas?

Andrew Pearce, Kasi Chadwick

March 6, 2017

Texas law allows a party to sue for tortious interference with an existing contract, which requires proof of: 1) an existing contract subject to interference; 2) a willful and intentional act of interference with the contract; 3) that proximately caused the plaintiff’s injury; and 4) caused actual damages or loss. The question presently before the Texas Supreme Court is whether the communication of “truthful information” or “honest advice” can constitute tortious interference with contract in the context of the “for profit” practice of medicine.

The question arises out of Community Health Systems Professional Services Corp. et al. v. Hansen. The case involves an employment contract between Hansen, a surgeon, and Regional Employee Assistance Program (“REAP”), a non-profit corporation certified by the Texas Medical Board to employ physicians, for employment at College Station Medical Center. The contract’s termination clause only allowed a “for cause” termination during the first three years. However, at the end of the third contract year, either party could terminate the contract without cause if the “annual practice losses” exceeded $500,000 “at the end of years three, four, or five.” Further, if the surgeon was terminated at any time without cause, the surgeon was not entitled to “due process rights” in the form of an internal hearing. If the employment contract was terminated for cause, the surgeon was entitled to “due process rights.” The surgeon executed the employment contract in June of 2007.

On February 23, 2010, the College Station Medical Center asked REAP to terminate the surgeon. College Station Medical Center’s board minutes revealed the reasons for the termination were the surgeon’s “clinical losses” exceeded the $500,000 cap in years 2008 and 2009 and the surgeon had “several behavior problems” that the surgeon “continue[d] to display.” The surgeon was subsequently terminated in June of 2010—on the anniversary of three years of employment at College Station Medical Center.

According to College Station Medical Center, the surgeon was terminated without cause after the three-year period. Because of information contained in an internal College Station Medical Center human resources form, the surgeon contends he was truly terminated for cause and, accordingly, was not granted “due process” as required by his employment contract with REAP.

The surgeon filed suit. Relevant to an issue before the Texas Supreme Court, the surgeon sued Community Health Systems Professional Services Corporation (“PSC”) for tortious interference with the surgeon’s contract with REAP. PSC were the third-party consultants hired by College Station Medical Center to review the hospital’s personnel and financial performance. It was based on information found in PSC’s review that the surgeon was fired. PSC argued that it had a business relationship with the hospital that made it legally justified in making the allegedly tortious—but truthful—statements that resulted in the surgeon’s termination.

The trial court dismissed the tortious interference claims. The Thirteenth Court of Appeals of Texas reinstated the claims, agreeing with the surgeon that PSC’s mere assertion of a business relationship with College Station Medical Center was not a justification for its interference with the surgeon’s employment.

On appeal to the Texas Supreme Court, PSC asks the Texas Supreme Court to adopt Restatement Second of Torts § 772 to allow a truthful information defense to tortious interference claims in Texas. As PSC argues, a consultant should not face liability for communicating truthful information to its client—even if that communication leads to the termination of a contract. PSC’s communications were squarely based on uncontested data and the surgeon’s tortious interference claim should be barred because of the truthful information PSC provided.

Yet the surgeon argues that adopting §772 would “create an absolute privilege, allowing a person to volunteer any information he or she desires without liability, so long as it is truthful.” Further, though Texas’ corporate practice of medicine doctrine creates a loophole through which physicians may be employed by non-profit organizations managing for-profit hospitals, allowing groups like PSC—a group of non-physicians—to make recommendations as to the hiring and firing of Texas physicians frustrates the loophole’s requirement that these non-profit organizations be controlled by boards of licensed Texas physicians. Accordingly, the surgeon argues §772 should be adopted by the Texas Supreme Court with caution.

Sitting in Huntsville on March 2, 2017, the Texas Supreme Court heard oral argument on this issue. During oral argument, the Court expressly inquired as to how §772’s truth defense differs from the justification and privilege defenses that presently exist under Texas law as bona fide affirmative defenses. As the Court also pointed out, though Texas tortious interference claims indiscriminately require any underlying tortious act be committed by the defendant to make a showing of the cause of action, if the Court were to adopt §772, then only tortious interference claims based on defamatory statements (i.e. not true statements) will be viable moving forward.

Regardless of the outcome, the Supreme Court’s decision has significant implications for the corporate practice of medicine, “for-profit” hospital management, and related litigation moving forward.