ELECTRONICALLY FILED - 2018 Jan 23 5:43 PM - CHEROKEE - COMMON PLEAS - CASE#2018CP1100067

STATE OF SOUTH CAROLINA ) IN THE COURT OF COMMON PLEAS

)
COUNTY OF CHEROKEE ) SEVENTH JUDICIAL CIRCUIT
)
) C.A. No. 2018-CP-11-______
Gaffney H.M.A., LLC d/b/a Mary Black )
Health System – Gaffney, )
)
Plaintiff, ) SUMMONS
)
vs. )
)
Cherokee County, South Carolina, )
)
Defendant. )
)

TO THE DEFENDANT ABOVE-NAMED:

YOU ARE HEREBY SUMMONED and required to answer the complaint herein, a copy
of which is herewith served upon you, and to serve a copy of your answer to this complaint upon
the subscriber, at the address shown below, within thirty (30) days after service hereof, exclusive
of the day of such service, and if you fail to answer the complaint, judgment by default will be
rendered against you for the relief demanded in the complaint.

s/William R. Thomas
William R. Thomas, SC Bar #16348
Walter H. Cartin, SC Bar #78405
PARKER POE ADAMS & BERNSTEIN LLP
1221 Main Street, Suite 1100 (29201)
Post Office Box 1509
Columbia, South Carolina 29202-1509
Telephone: (803) 255-8000
Facsimile: (803) 255-8017
willthomas@parkerpoe.com
waltcartin@parkerpoe.com

Attorneys for Plaintiff Gaffney H.M.A., LLC d/b/a

Mary Black Health System – Gaffney
January 23, 2018
Columbia, South Carolina

SCCA 401 (5/02)

 ELECTRONICALLY FILED - 2018 Jan 23 5:43 PM - CHEROKEE - COMMON PLEAS - CASE#2018CP1100067
STATE OF SOUTH CAROLINA ) IN THE COURT OF COMMON PLEAS
)
COUNTY OF CHEROKEE ) SEVENTH JUDICIAL CIRCUIT
)
) C.A. No. 2018-CP-11-______
Gaffney H.M.A., LLC d/b/a Mary Black )
Health System – Gaffney, )
)
Plaintiff, ) COMPLAINT
) (DECLARATORY JUDGMENT)
vs. )
)
Cherokee County, South Carolina, )
)
Defendant. )
)

NOW COMES the Plaintiff, Gaffney H.M.A., LLC d/b/a Mary Black Health System–

Gaffney (“Hospital”) and, complaining of the Defendant Cherokee County, South Carolina

(“County”), would respectfully show unto the Court as follows:

NATURE OF ACTION

1. This is an action for declaratory judgment under the South Carolina Uniform

Declaratory Judgment Act, S.C.CODE ANN. §§ 15-53-10, et seq. (1976, as amended). In this

action, Hospital seeks a declaration from the Court concerning the rights and obligations of the

Hospital and the Defendant County under a series of contracts entered into or assumed by the

Hospital.

2. Specifically, Hospital and County disagree whether the Hospital has the right to

terminate certain services addressed in the agreements and/or the agreements themselves.

Therefore, the declaration and judgment of the Court in this action concerning the rights and

obligations of the parties under the contracts will settle the dispute between the parties. Thus, a

justiciable case or controversy exists in this case.

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PARTIES AND JURISDICTION

3. Hospital is a South Carolina limited liability company which operates Mary Black

Health System – Gaffney, a 125-bed acute care hospital facility located in the city of Gaffney in

Cherokee County, South Carolina.

4. Defendant Cherokee County is a political subdivision of the State of South

Carolina.

5. Based on the subject matter of this action, the activities of the Parties, the

contracts governing the Parties’ relationships, and the residence of the Parties, this Court has

subject matter and personal jurisdiction in this matter and venue is proper.

FACTS

6. Prior to 1984, the citizens of Cherokee County were provided hospital services by

Cherokee County Memorial Hospital, which was the 162-bed county-owned hospital facility

located in Gaffney, South Carolina (the “Existing Hospital’).

7. In February, 1984, the County and the Cherokee County Memorial Hospital

Board of Trustees (“Board”) determined that the Existing Hospital was outdated and could not be

renovated or modernized at a reasonable or economically feasible cost when compared to

constructing a replacement facility. Therefore, the County and the Board decided that it would be

in best interests of the public to transition the provision of hospital services from the

governmental sector to the private sector. To accomplish this transition, the County and the

Board entered into a series of agreements with National Medical Enterprises, Inc., a Nevada

corporation, and its wholly-owned subsidiary, NME Hospitals, Inc., a Delaware corporation,

(collectively “NME”), pursuant to which NME ultimately agreed to design, construct and operate

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a new hospital facility in Gaffney (the “New Hospital”) and the County ultimately agreed to

close the Existing Hospital and transition the provision of hospital services to NME.

8. The three phase process for the transition of hospital services was to be

accomplished primarily by the following agreements: (a) Agreement to Provide Management

Services (“Management Services Agreement”), dated January 19, 1984; (b) Lease Agreement

dated February 3, 1984, with a commencement date of August 1, 1984, Addendum to Lease,

dated February 3, 1984, and Amendment to Lease entered into in 1987 (collectively, the “Lease

Agreement”); (c) Purchase and Sale of Assets Agreement (“Asset Purchase Agreement”), dated

February 3, 1984; (d) Indigent Patient Agreement (“Indigent Care Agreement”), dated February

3, 1984; and (d) General Agreement, dated February 3, 1984 and amended on February 3, 1984

(collectively, the “General Agreement”). The listed agreements are collectively referred to as the

“County Agreements”.

9. The Management Services Agreement, dated January 19, 1984, covered the first

phase of the transition. Under this agreement, NME agreed to manage operations at the Existing

Hospital on behalf of the County until such time as all governmental approvals were obtained for

NME to lease the facility and operate it for its own benefit.

10. On July 31, 1984, the County dissolved the Cherokee Memorial Hospital Board of

Trustees and discontinued its duty and authority to provide hospital services in Cherokee County.

Upon dissolution, the County assumed all rights and obligations of the Board under the County

Agreements.

11. The next day, on August 1, 1984, the Lease Agreement, which was entered into in

February, 1984, went into effect and the second phase of the transition began. Under the Lease

Agreement, NME leased the Existing Hospital building in order to operate a hospital facility (the

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“Interim Hospital”) under its own license for a period of three years or such longer time as NME

needed to complete construction and open the New Hospital. The Lease Agreement provided

that, during the Lease period, when NME was operating its Interim Hospital in the building

owned by the County, NME would continue to provide the same services as were offered by the

Existing Hospital and would continue to provide care to indigent patients, unless the County

agreed otherwise.

12. The Asset Purchase Agreement, dated February 3, 1984, provided for the

purchase by NME of substantially all of the capital assets and other personal property used in the

operation of the Existing Hospital. This transfer of assets was effective as of the commencement

date of the Lease Agreement and allowed NME to use such assets for its own benefit in the

operation of the Interim Hospital.

13. The final phase of the transition of hospital services, i.e., the construction and

commencement of operations at the New Hospital, was addressed by the parties primarily in the

General Agreement and the Indigent Care Agreement, both dated February 3, 1984. A copy of

the General Agreement, without exhibits, is attached hereto as Exhibit “A” and a copy of the

Indigent Care Agreement is attached hereto as Exhibit “B”. (Plaintiff Hospital notes that, after

searching its own files and after receiving documents in response to a Freedom of Information

Act request made to the County, all copies of agreements attached hereto are, to the best

information and belief of the Hospital, the most accurate copies of these thirty year old

agreements available at this time).

14. The General Agreement, dated February 3, 1984, contains NME’s promise to

design, construct, equip and complete the New Hospital within three years of the receipt of all

governmental approvals required for such construction and operation. The General Agreement

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also addresses the services to be provided at both the Interim Hospital and the New Hospital to

require in sections 2 and 6 of the General Agreement that the New Hospital offer substantially

the same emergency and non-emergency services as the Existing Hospital, including providing

such services to indigent patients in accordance with the Indigent Care Agreement. Under the

General Agreement, emergency services include the provision of “ambulance services”.

15. With regard to the New Hospital specifically, section 17 of the General

Agreement contains a covenant not to compete pursuant to which the County agrees not to

compete with the New Hospital for a period of 10 years from the opening date.

16. Section 19 of the General Agreement contains NME’s covenant and agreement

that “for a period of at least one year after the opening of New Hospital, [NME] will not sell,

transfer or otherwise dispose of the New Hospital, and during said one-year period, for itself,

operate New Hospital in accordance with the terms and conditions” of the General Agreement.

17 The General Agreement contains no provision specifying the term of the

agreement and termination of the agreement is only allowed prior to the commencement date of

the Lease Agreement and only in the event that the required governmental approvals for the lease

of the Interim Hospital or for the construction of the New Hospital were denied.

18. The Indigent Care Agreement, dated February 3, 1984, obligated NME to provide

specified emergency and non-emergency services to indigent patients at the New Hospital in

exchange for certain reimbursement to be paid by the County to NME. Among the emergency

services required to be provided were emergency transport (ambulance) services.

19. Section 3 of the Indigent Care Agreement provides that the term of the agreement

is “at least twenty years, at the option of the County.” NME was allowed to terminate the

agreement under section 4 of the agreement on fifteen days’ notice to the County but only for

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nonpayment by the County of the reimbursement owed under the Agreement and only after a

five-day cure period.

20. Finally, the Indigent Care Agreement purports to require arbitration as the sole

means for the settlement of disputes under the Agreement. The Agreement, however, does not

contain the legend required by law to validate the arbitration clause. (S.C.CODE ANN. § 15-98-10

(1976, as amended)).

21. On May 9, 1985, the South Carolina Department of Health and Environmental

Control (“DHEC”) issued a Certificate of Need to NME approving the construction of the New

Hospital to consist of 125 acute care beds and to be known as “Upstate Carolina Medical

Center.” Thereafter, NME began construction of the New Hospital while operating the Interim

Hospital pursuant to the Lease Agreement.

22. On September 29, 1987, NME notified the County that it had received an offer

from Health Management Associates, Inc. and its subsidiary, Gaffney H.M.A., Inc. (collectively

“HMA”) to purchase the New Hospital, together with certain equipment, fixtures and other

related personal property to be used in the operation of the hospital, for a purchase price of

$19,600,000. NME notified the County of the HMA offer to purchase pursuant to section 8 of

the General Agreement, which gave the County the right of first refusal for any offers to

purchase the New Hospital. As part of the notice, NME requested that the County waive the

requirements of section 19 of the General Agreement and requested that NME be released from

all of its obligations under all of the County Agreements upon closing of the sale to HMA. As

noted above, section 19 of the General Agreement prohibited the sale of the New Hospital for

one year after opening and required NME to operate the New Hospital in accordance with the

terms of the General Agreement for a period of one year after opening.

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23. On October 27, 1987, the County passed an ordinance (“1987 Ordinance”) that (a)

declined to exercise the County’s right of first refusal to buy the New Hospital from NME; (b)

waived the requirements of section 19 of the General Agreement and approved the sale to HMA;

(c) approved certain amendments to the General Agreement; and (d) released NME from its

obligations under the County Agreements, provided HMA agreed to assume all such obligations.

24. On February 8, 1988, the New Hospital received a license from DHEC to open

and to begin providing services to patients.

25. On February 16, 1988, the County passed an ordinance (the “1988 Ordinance”)

amending the 1987 Ordinance to reflect and approve HMA’s decision not to assume all of the

County Agreements and to indicate that NME would remain obligated under all County

Agreements not assumed by HMA.

26. On February 22, 1988, the County, NME and HMA entered into an agreement

(the “1988 HMA Agreement”) memorializing the parties’ rights and obligations with respect to

the purchase of the New Hospital by HMA. The 1988 HMA Agreement, without exhibits, is

attached hereto as Exhibit “C”. Under the 1988 HMA Agreement, the County waived its right

of first refusal, approved the sale of the New Hospital to HMA and consented to HMA’s

assumption of NME’s obligations under the following County Agreements: (a) the General

Agreement, as amended and modified (the “Amended General Agreement”); (b) the Indigent

Care Agreement; (c) the Hill Burton Trust and the Hill-Burton Waiver Agreement, which

addressed the reimbursement to the federal government triggered by the lease of the Hospital to

NME; and (d) certain other listed agreements, all of the assumed agreements being collectively

referred to as the “Assumed County Agreements.”

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27. The 1988 HMA Agreement also amended the 1984 General Agreement in three

significant respects. Section 7 of the General Agreement was amended to require HMA to

establish a local advisory board to render advice on “various policy issues and matters which

both affect the community and concern the operation of the New Hospital and the services to be

rendered by HMA hereunder.” This amended section indicates that the board’s role is advisory

only and that “HMA shall have the final authority and responsibility for all decisions relating to

the management and operation of the New Hospital.”

28. Section 8 of the 1984 General Agreement was amended to give the County the

right of first refusal on all future sales of the New Hospital, whether or not the County had failed

to exercise previous rights, and to make such provisions binding on all successors and assigns of

the New Hospital.

29. Finally, the 1988 HMA Agreement amended section 19 of the General Agreement

to state:

HMA (and any subsequent purchaser from HMA) covenants and agrees that, for a
period of at least one year after its acquisition of the New Hospital, it will not sell,
transfer or otherwise dispose of the New Hospital and that, during such one-year
period, it shall, for itself, operate the New Hospital in accordance with the terms
and conditions hereof. This provision shall be binding upon HMA, its successors
and assigns. All references to HMA in the General Agreement shall collectively
mean Health Management Associates, Inc. and Gaffney HMA, Inc.

30. There are no term or termination provisions stated in the 1988 HMA Agreement

itself and, other than the amendments to the General Agreement, the Assumed County

Agreements remained unchanged upon HMA’s purchase of the New Hospital.

31. Since its inception in February 1988, the New Hospital has operated under the

ownership of the same legal entity, Gaffney H.M.A., Inc., which converted to Gaffney H.M.A.,

LLC in March 2008. In April 2015, Gaffney Medical Center and Mary Black Hospital in

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Spartanburg, South Carolina, were placed under the oversight of common local leadership to

create a health system, with the New Hospital assuming its current name as “Gaffney H.M.A.,

LLC d/b/a Mary Black Health System-Gaffney.”

32. For the past 30 years, the Hospital has been the safety net hospital and sole

community provider to the citizens of Cherokee County. In its current form, the Hospital

operates 125 acute care beds and employs 400 full time and part time clinical and nonclinical

staff. The medical staff of the Hospital is comprised of 159 physicians. The Hospital provides a

full array of inpatient and outpatient services to its patients, including the provision of

$1,376,631 in 2017 of indigent care to patients without the ability to pay. When combined with

its partner, Mary Black Health System – Spartanburg, the system has 332 licensed acute care

beds, more than 1400 employees, and more than 400 physicians on the medical staff.

Spartanburg and Gaffney are approximately 22 miles apart

33. Since 1988, the Hospital has also been providing and/or subsidizing the county-

wide emergency medical services system (“EMS Services”) in Cherokee County directly or

through contracts with third party ambulance service providers without any financial assistance

from the County.

34. As a rural hospital, Plaintiff Hospital faces significant financial pressures from a

variety of sources, including the reduction in reimbursement by commercial and governmental

payors, the lack of Medicaid expansion in South Carolina (unlike in other states), increased

competition from regional medical centers, and a rising uninsured rate. These same financial

pressures are confronting all rural hospitals and, if not addressed, lead ultimately to the inability

of a hospital to continue to operate. According to The North Carolina Rural Health Research

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Program, there have been 83 rural hospital closures since January 2010. (See,

www.shepscenter.unc.edu/programs-projects/rural-health/rural-hospital-closures/).

35. In an effort to address these concerns, Plaintiff Hospital has made the necessary

decision to implement two measures relevant to this action. In December 2017, Hospital

announced its decision to cease providing scheduled, inpatient labor, and delivery services at the

Hospital. Thus, as of April 1, 2018, the Hospital’s obstetrics program would be consolidated with

and performed at Mary Black Health System-Spartanburg. The decision to consolidate obstetrics

services was prompted by the declining utilization of those services at the Hospital and by the

desire to maintain financial viability and quality of care with regard to those services.

36. In addition to the consolidation of obstetric services, the Hospital was also forced

to make a difficult decision with regard to its provision of EMS Services. After suffering years of

financial stress from having to subsidize EMS Services with no financial assistance from the

County, Hospital notified the County that it would not be able to provide EMS Services after

March 1, 2018, unless the County agreed to make emergency supplemental payments to support

EMS Services at the rate of $45,000 per month beginning March 1, 2018 through the end of

May, 2018, at which time the Hospital would end its provision of EMS Services and the County

would assume all responsibility therefor.

37. In his December 7, 2017 memorandum to the County, the Hospital’s Chief

Executive Officer explained that Hospital’s two contracted EMS Services providers had notified

Hospital that they would terminate their contracts effective January 14, 2018, because of

“continued, unsustainable financial losses,” which losses were occurring despite the Hospital’s

payment of an annual subsidy of $960,000. (Exhibit “D”, attached hereto). Hospital’s request

for an emergency supplemental monthly payment from the County was an effort by the Hospital

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to postpone the termination of the services until June, 2018 in order to give the County additional

time to assume operation of the EMS Services. The memorandum indicates that in the absence of

these supplemental payments, the Hospital will terminate EMS Services as of March 1, 2018.

38. In response to Hospital’s notice of termination and request for supplemental

payments, the County Council met on December 18, 2017 and stated its position that the

Assumed County Agreements required Hospital to continue to provide the covered services in

perpetuity and that Hospital should continue to do so.

39. Both before and after sending its notice of termination of EMS Services, Hospital

attempted to engage County in negotiations with regard to immediate funding assistance, the

eventual assumption by the County of the EMS Services, and with regard to the Hospital’s right

to have final authority and responsibility for all decisions related to the management and

operation of the Hospital, including the right to determine what services are provided. In these

discussions, the Hospital asserted its position that the 1988 HMA Agreement and the Assumed

County Agreements contemplate the Hospital’s eventual authority over these essential

management decisions and, even if Hospital’s authority is not clear, because these thirty-plus-

year-old agreements lack expiration dates or reasonable termination provisions, they are

contracts in perpetuity, which are disfavored under the law and are terminable upon reasonable

notice.

40. To date the parties continue to disagree as to Hospital’s rights and obligations

under the 1988 HMA Agreement and the Assumed County Agreements, and no resolution has

been reached.

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FOR A FIRST CAUSE OF ACTION
(DECLARATORY JUDGMENT)

41. Each and every allegation set forth in paragraphs 1 through 40 is incorporated by

reference as if restated verbatim herein.

42. The Hospital is currently experiencing significant financial stress. In 2017, the

Hospital lost approximately $200,000 per month. The Hospital must be able to take certain

operational measures to remain financially viable and to continue as a going concern.

43. In order to protect the financial viability of the Hospital and to ensure its ability to

continue to provide safety net services to the citizen of Cherokee County and to gain relief from

the uncertainty posed by the existence of these thirty-year-old agreements, Hospital believes that

it is entitled to, and by this declaratory judgment action seeks, the declaration of the Court as

follows:

(A) The Court has jurisdiction over the parties and subject matter of

this action;

(B) The Court may exercise its jurisdiction over the controversy

insofar as it involves the Indigent Care Agreement, notwithstanding that

agreement’s arbitration clause, because such clause does not comply with

the requirements of S.C.CODE ANN. § 15-98-10 (1976, as amended) and,

therefore, is void and of no effect;

(C) A genuine controversy exists as to the rights of the parties under

the agreements which are the subject matter of this Complaint;

(D) A declaratory judgment will resolve the controversy between the

parties by determining finally the parties’ rights and obligations with

respect to the agreements at issue;

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(E) Under section 19 of the Amended General Agreement, the Hospital

is only obligated to provide services in accordance with the terms of the

General Agreement and the Indigent Care Agreement, including EMS

Services, for a period of one year after HMA’s acquisition of the New

Hospital, which obligation expired in February, 1989. Therefore, Hospital

has the final authority to determine what services it will or will not

provide without reference to the Amended General Agreement or the

Indigent Care Agreement;

(F) Neither the Amended General Agreement, the Indigent Care

Agreement, nor the 1988 HMA Agreement contain a provision which

states a period for the duration of the agreement and none of these

agreements contain a provision which expressly states a term in

perpetuity. Therefore, these agreements are perpetual contracts, which are

disfavored in the law, and are subject to termination upon reasonable

notice;

(G) Hospital has already provided the County with “reasonable notice”

of the termination of obstetric services and the termination of EMS

Services;

(H) To the extent that circumstances surrounding the Amended

General Agreement, the Indigent Care Agreement, and the 1988 HMA

Agreement can be interpreted to imply a defined time of duration, all such

time periods have long expired, and Hospital is under no obligation to

provide new services or to continue to provide any existing services,

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including the obstetric services and the EMS Services, in accordance with

the terms and conditions of the agreements.

WHEREFORE, Plaintiff Hospital respectfully prays for judgment against the Defendant

County and for an order of the Court determining and declaring as set forth in ¶ 43 (A) through

(H) above and further granting Plaintiff such other and further relief as the Court deems just and

proper.

Respectfully submitted,

s/William R. Thomas
William R. Thomas, SC Bar #16348
Walter H. Cartin, SC Bar #78405
PARKER POE ADAMS & BERNSTEIN LLP
1221 Main Street, Suite 1100 (29201)
Post Office Box 1509
Columbia, South Carolina 29202
Telephone: (803) 255-8000
Facsimile: (803) 255-8017
willthomas@parkerpoe.com
waltcartin@parkerpoe.com

Attorneys for Plaintiff Gaffney H.M.A., LLC d/b/a

Mary Black Health System – Gaffney
January 23, 2018
Columbia, South Carolina

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