Humana, Inc. v. Kissun

471 S.E.2d 514, 221 Ga. App. 64

• Court: Court of Appeals of Georgia
• Decided: July 12, 1996
• Docket: A95A2781
• Status: Published

Opinions

Blackburn, Judge.

We granted Humana, Inc.’s (Humana) application for interlocutory review of the trial court’s order denying its motion for summary judgment as to all plaintiffs’ claims. Plaintiffs brought the underlying medical malpractice action against Humana and its wholly-owned subsidiary General Hospital of Galen, Inc., (General) d/b/a Humana Hospital-Newnan (the hospital).¹ Humana contends the trial court erred in denying its motion for summary judgment, thereby effectively disregarding its separate corporate status absent a showing that it had abused the corporate form or that adherence to its separate corporate identity would promote injustice or protect fraud. The first issue on appeal, therefore, is whether plaintiffs’ evidence pierces the corporate veil between General and Humana.

1. In order for the plaintiffs’ evidence to pierce the corporate veil, “it must be shown that [Humana’s] disregard of the corporate entity made [General] a mere instrumentality for the transaction of [Humana’s] affairs; that there is such unity of interest and ownership that the separate personalities of the [subsidiary] and the owners no longer exist; and to adhere to the doctrine of corporate entity would promote injustice or protect fraud.” (Punctuation omitted; emphasis supplied.) Derbyshire v. United Bldrs. Supplies, 194 Ga. App. 840, 844 (392 SE2d 37) (1990).

Both factors must be found because “[o]ne reason the law establishes separate corporate identity is so that a corporation can hold itself independently apart and insulated from the existence of another related corporation even while it uses the related corporation or controls it to promote its own ends.” Boafo v. Hosp. Corp. of America, 177 Ga. App. 75, 76 (338 SE2d 477) (1985). “For the issue to be submitted to a jury there must be evidence that the corporate arrangement was a sham, used to defeat justice, to perpetrate fraud or to evade statutory, contractual or tort responsibility.” Derbyshire, supra at 844. See also Hogan v. Mayor &c. of Savannah, 171 Ga. App. 671, 673 (3) (320 SE2d 555) (1984); Kelley v. Austell Bldg. Supply, 164 Ga. App. 322, 325 (3) (297 SE2d 292) (1982).

In Boafo, supra, the plaintiffs’ attempt to pierce the corporate veil between the Hospital Corporation of America (HCA) and its wholly-owned subsidiary, Medical Center West, Inc. which operated Parkway Regional Hospital, the allegedly negligent hospital, was unsuccessful.

Therein, the evidence indicated “that the two corporations shared some officers, that they jointly purchased the hospital property from bankruptcy receivership, that Medical Center West, Inc. was not incorporated in Georgia until six days after the property was purchased, that HCA own[ed] 100% of the Medical Center West stock, that some officers were paid only by HCA and the hospital administrator was paid by HCA for security reasons while the amount was charged back against Parkway Regional Hospital, that major (not day-to-day) accounting and financial functions [were] performed by HCA through a national cash management system, that Medical Center West [had] insurance coverage of the hospital by an insurer who [was] another wholly owned subsidiary of HCA, that HCA operated] a Center for Health Studies which provided] non-mandatory educational seminars for hospitals which [was] available to Parkway Regional Hospital at less than full cost, that HCA employ[ed] a national purchasing director to negotiate purchasing agreements for HCA and subsidiary-owned hospitals but Medical Center West [was] free to, and [did], negotiate its own purchasing contracts if it [got] better rates.” Id. at 75-76.

We determined that “no basis exist[ed] for disregarding HCA’s separate identity unless its ulterior motive or purpose [was] to promote fraud and injustice or defeat a public convenience.” Id. at 77. As there was no evidence of HCA’s purpose, we affirmed the trial court’s grant of HCA’s motion for summary judgment. Id.

In the present case, the evidence likewise fails to produce any evidence that Humana sought to perpetrate fraud or evade contractual or tort responsibility. The evidence shows that General is incorporated under the laws of Utah and Humana is incorporated in the State of Delaware. Each corporation maintained separate minute books and separate corporate seals. The two corporations share officers in that all the officers of General are also officers of Humana, although Humana has many officers who are not officers of General. The hospital used the Humana national logo on its letterhead, sign, and advertising, but the hospital did its own local advertising. Humana hired attorneys for General to handle suits for or against the hospital. The hospital’s chief executive officer, Jack Davis, was hired and supervised by Humana’s regional vice president. Davis was responsible for the hospital’s day-to-day operation. He exercised complete hiring, firing, and purchasing authority for the hospital, as long as the decisions were within the budget set by the regional vice president. Davis signed all contracts and leases on the part of General Hospitals of Humana, Inc. d/b/a Humana Hospital-Newnan.²

Humana supported its motion for summary judgment by, among other things, the affidavit and deposition of Walter Neely, its vice president and general counsel. The overall import of Neely’s affidavit was that although General was a wholly-owned subsidiary corporation of Humana, the two corporations were separate in all means and sustained independent identities. Upon being cross-examined regarding his affidavit, Neely admitted that his averments were based upon his general knowledge of Humana’s relationship with its subsidiary corporations rather than any specific knowledge of Humana’s relationship with General. As Neely’s affidavit was not based upon personal knowledge, it is without probative value. See Williams v. Hajosy, 210 Ga. App. 637, 639 (436 SE2d 716) (1993). Further, where the testimony between Neely’s affidavit and deposition is contradictory, it will be construed against him. See Prophecy Corp. v. Charles Rossignol, Inc., 256 Ga. 27, 30 (343 SE2d 680) (1986).

In Neely’s deposition he testified as to the usual way Humana interacted with its subsidiaries. While we do not consider this as direct evidence of Humana’s interaction with General, it is some evidence of their interaction, especially considering that no contradictory evidence was produced. Neely deposed that Humana operated a credit and charge back accounting system by withdrawing cash from its hospitals’ depository accounts on a daily basis and creating an asset on the hospital’s books in the intercompany account. Neely deposed that Humana was very scrupulous in accurately keeping the account. Neely further deposed that Humana would reduce any hospital’s deficit by crediting its intercompany account or lessening its intercompany liability so that the hospitals were always funded with the amount necessary to meet their obligations. Additionally, the hospital was issued liability insurance of at least five million dollars. Although the existence of excess liability insurance was discussed during Neely’s deposition, no admissible evidence of such insurance is contained in the record.

Our review of the evidence reveals very little difference between the present case and the evidence outlined in Boafo, supra, as to the issues raised in this division. The present case involves the use of the Humana name and logo by the hospital but such fact does not require a different result. The common use of advertising and the use of the same logo is not sufficient to pierce the corporate veil. See Cornwell v. Williams Bros. Lumber Co., 139 Ga. App. 773 (229 SE2d 551) (1976).

Most importantly, no evidence was produced indicating that Humana’s interaction with its subsidiaries was calculated in any way “to promote fraud and injustice or defeat a public convenience.” Boafo, supra at 77. See also Fla. Shade Tobacco Growers v. Duncan, 150 Ga. App. 34, 35 (256 SE2d 644) (1979). Compare Kelley, supra (sufficient evidence to authorize jury to find use of separate entities used to evade contractual responsibility).

The law allows a parent corporation to use its subsidiary to promote its own purposes and yet, to keep its separate identity. See Boafo, 177 Ga. App. at 76. In order to disregard the separate corporate entity which the law has created, evidence that General was a “mere instrumentality for the transaction of [Humana’s] affairs . . . [and] that the separate personalities of the corporation and the owner no longer exist” in order to promote injustice or protect fraud must be presented. Plaintiffs have failed to present such evidence.

“A defendant who will not bear the burden of proof at trial need not affirmatively disprove the nonmoving party’s case; instead, the burden on the moving party may be discharged by pointing out by reference to the affidavits, depositions and other documents in the record that there is an absence of evidence to support the nonmoving party’s case. If the moving party discharges this burden, the nonmoving party cannot rest on its pleadings, but rather must point to specific evidence giving rise to a triable issue.” Lau’s Corp. v. Haskins, 261 Ga. 491 (405 SE2d 474) (1991).

In view of the absence of evidence outlined above, the trial court erred in denying Humana’s motion for summary judgment as to this division, effectively disregarding the separate corporate status of Humana absent a showing that it had abused the corporate form or that adherence to its separate corporate identity would promote injustice or protect fraud.

2. Plaintiffs assert that even if insufficient evidence was presented to pierce the corporate veil between Humana and General, their additional theories of liability preclude summary judgment to Humana. Plaintiffs contend that Humana is liable for the negligent acts and omissions attributable to the staff and doctors at the hospital, as all of these individuals and the hospital are its apparent/ostensible agents. Plaintiffs alternatively assert that Humana is liable for the negligent acts and omissions attributable to its joint venturer, General.

Apparent or ostensible authority as a basis upon which a hospital could be held liable for the medical negligence of doctors was recognized in Brown v. Coastal Emergency Svcs., 181 Ga. App. 893, 897 (354 SE2d 632) (1987), in which this Court held that “the doctrine of apparent agency is predicated on principles of estoppel and applies where it can be shown that the third party dealt with the agent in reliance upon the authority which the principal has apparently conferred upon him.” (Punctuation omitted.) “ ‘One who represents that another is his servant or other agent and thereby causes a third person justifiably to rely upon the care or skill of such apparent agent is subject to liability to the third person for harm caused by the lack of care or skill of the one appearing to be a servant or other agent as if he were such.’ ” Id.

In affirming the opinion of this Court, the Georgia Supreme Court held: “There is an objective standard. The apparent principal must represent or hold out the apparent agent. Then, too, justifiable reliance must lead to the injury.” Richmond County Hosp. Auth. v. Brown, 257 Ga. 507, 509 (361 SE2d 164) (1987).

In response to defendant’s motion for summary judgment, plaintiffs provided the affidavit of plaintiff Ray M. Thomas, which averred that he had relied upon the name and reputation of Humana in leaving Amala Thomas in the care of the hospital; that the brochures and signs which he saw at the hospital prominently featured the “Humana” name; that he was unfamiliar with and no one advised him that the hospital was owned or operated by anyone other than Humana. Plaintiffs argue that Humana held out the hospital and its staff, as its agents, acting on its behalf and that Amala Thomas was injured as a result of a reliance upon the representations of Humana.

Plaintiffs argue that Humana has failed to factually pierce' or otherwise respond to plaintiffs’ apparent/ostensible agent and joint venturers theories of liability and that questions of fact exist as to such matters and the trial court did not err in denying defendant’s motion for summary judgment as to such claims.

Plaintiffs’ assertions require this Court to address an issue of first impression, that being, can those uses of a subsidiary corporation by its parent corporation which the court has approved without jeopardizing the separate identity and liability shield of the parent, be used to establish the elements of a claim against the parent based on apparent authority or joint venturer?

Plaintiffs’ reliance upon Brown v. Coastal Emergency Svcs., supra; Richmond County Hosp. Auth. v. Brown, supra; Abdul-Majeed v. Emory Univ. Hosp., 213 Ga. App. 421, 423 (445 SE2d 270) (1994), and Whitaker v. Zirkle, 188 Ga. App. 706, 709 (374 SE2d 106) (1988), is misplaced as none of these cases involves an attempt to impose liability upon a parent corporation for the acts of its subsidiary corporation which owns and operates the involved hospital. Rather, they involve an attempt to impose liability upon the hospital and the corporation with which it has contracted to provide medical services (usually emergency room) for the acts of the physicians who are retained to actually treat the patients of the subject hospital.

Standing alone, the lawful uses of a subsidiary corporation by its parent corporation cannot support a claim against such parent under a theory of apparent agency or joint venturer. Such claims must rest upon factors other than those which the law contemplates and approves. Since the law allows a parent corporation to use its subsidiary to promote its own purposes and yet keep its separate identity, to hold otherwise, would be to allow the very uses approved in “piercing the veil” tests to establish a claim under a theory of apparent agency or joint venturer, thus vitiating the law of parent/subsidiary corporate use. See Boafo, supra.

In the present case, plaintiffs attempt to hold Humana (parent corporation) liable for the actions of General (subsidiary corporation) and those physicians actually treating patients at the hospital operated by General under alternative apparent agency and joint venturer theories. Plaintiffs argue that the fact that the Humana sign and logo were used at the hospital distinguishes this case from Boafo, and is evidence that Humana allowed General to hold itself out as being Humana, relying upon Watson v. Howard Johnson Franchise Systems, 216 Ga. App. 237 (453 SE2d 758) (1995).

Watson, supra, was a case which involved a franchise arrangement, did not involve the uses of a subsidiary corporation by its parent corporation, and turned on the specific facts therein involved. In that case, the franchise agreement required the franchisee to have a plaque at the motel check-in desk advising customers of the details of ownership and operation of the motel. The franchisor inspected the subject motel, did nothing about the violation, and was charged with knowledge thereof. Additionally, the franchisor had control of the advertising signs which were used by the franchisee to attract customers.

While Boafo did not involve the use of a sign, the use of a common logo and advertising was involved in Cornwell, supra, and such facts were deemed to be insufficient, even in light of additional facts, to treat two corporations as a single entity. We cannot consider those approved uses of a subsidiary corporation by a parent corporation in support of a claim under a theory of apparent agency or joint venturer. Construing other evidence most favorably to plaintiffs there is an absence of evidence giving rise to a triable issue as to such claims.

Plaintiffs contend that Humana has not addressed its apparent authority or joint venturer contentions and therefore summary judgment should be denied. Humana however moved for summary judgment as to all of plaintiffs’ claims and pointed out a lack of evidence to support plaintiffs’ contentions. Humana met its burden under Lau’s Corp. v. Haskins, supra, and it thus fell to plaintiffs to point to specific admissible evidence contained in the record giving rise to a triable issue. Plaintiffs having failed to do so, Humana was entitled to summary judgment and the trial court erred in denying such motion.

Judgment reversed.

Andrews, Johnson and Ruffin, JJ, concur. Birdsong, P. J., concurs and concurs specially. Beasley, C. J., concurs in part and dissents in part. McMurray, P. J., Pope, P. J., and Smith, J., dissent.

1 William Thomas Redwood, M.D., was also named as a defendant but is not involved in this appeal.

2 General Hospitals of Humana, Inc. later changed its name to General Hospitals of Galen, Inc.