IN THE COURT OF APPEALS OF TENNESSEE

AT JACKSON

October 27, 2009 Session

JAMES K. PATTERSON, M.D., ET AL. v. METHODIST HEALTHCAREMEMPHIS HOSPITALS

Direct Appeal from the Circuit Court for Shelby County

No. CT-002611-04 Karen R. Williams, Judge

No. W2008-02614-COA-R3-CV - February 2, 2010

The plaintiffs/appellants, two doctors, filed suit after they were deemed to have voluntarily

relinquished their medical staff privileges at Methodist Healthcare-Memphis Hospitals for failure

to maintain compulsoryinsurance coverage. The doctors’ complaint and amended complaint alleged

breach of contract, intentional interference with business relationships, common law retaliatory

discharge, and violation of federal and state whistleblower statutes. In separate orders, the trial court

dismissed the doctors’ whistleblower and retaliatory discharge claims. The court later granted

summary judgment in favor of the defendant on the remaining claims. We affirm.

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

Remanded

DAVID R. FARMER, J., delivered the opinion of the Court, in which HOLLY M. KIRBY, J. and

J. STEVEN STAFFORD, J., joined.

Robert L. Moore and Dawn Davis Carson, Memphis, Tennessee, for the appellants, James

K. Patterson, M.D. and Rushton E. Patterson, Jr., M.D.

William L. Bomar, Memphis, Tennessee, for the appellee, Methodist Healthcare-Memphis,

Hospitals.

OPINION

I. Background and Procedural History

The following facts are undisputed. The plaintiffs/appellants, James K. Patterson, M.D. and

Rushton E. Patterson, Jr., M.D. (“doctors”), operated an obstetrical and gynecological practice

located near Methodist Hospital-North in Memphis, Tennessee. The doctors first applied for and

received medical staff privileges at Methodist Healthcare-Memphis Hospitals (“Methodist”) in the
late 1980's. Until October 2003, Methodist did not suspend, revoke, or terminate the doctors’

privileges for any reason. On October 23, 2003, Methodist notified the doctors it would deem their

privileges voluntarily relinquished if the doctors did not provide proof of continuous and

uninterrupted professional liabilityinsurancewithout periods of non-coverage byOctober 27, 2003.1

The doctors did not provide proof of the requisite insurance coverage and, as a result, were unable

to continue treating patients at Methodist’s facilities. 

The doctors filed suit following the relinquishment of their privileges seeking compensatory

and punitive damages. The doctors’ complaint and amended complaint alleged breach of contract,

intentional interference with businessrelationships, common law retaliatorydischarge, and violation

of federal and state whistleblower statutes. The gravamen of the doctors’ complaint and amended

complaint was that Methodist wrongfully terminated the doctors’ privileges in retaliation for reports

Dr. Rushton Patterson made regarding alleged TennCare andOmniCare fraud at Methodist HospitalNorth. Methodist disputed the doctors’ claims and, over the course of the proceedings, filed several 2

motions to dismiss. In separate orders, the trial court dismissed the doctors’ whistleblower and

retaliatory discharge claims. 

Methodist filed a motion to dismiss and/or for summary judgment arguing that the doctors

could not establish their remaining claims for breach of contract and intentional interference with

In June 2001, Methodist’s board of directorsrevised its bylaws to expressly require the maintenance 1

of “continuous and uninterrupted professional liability insurance coverage, without periods of non-coverage,

and including either extended reporting (‘tail’) or retroactive (‘prior acts’) coverage.” The prior version

required medical staff to “maintain a minimum of one million dollars professional liability insurance from

an insurance company licensed to do business in Tennessee.” The parties dispute whether the language of

the revised bylaw imposed a heightened insurance requirement or confirmed themeaning of the prior version,

but it is unnecessary to reach this question in the present appeal.

It is undisputed that Dr. Rushton Patterson prepared a letter to then Governor Don Sundquist on 2

June 20, 2002, complaining of an incident in which he “delivered an undocumented alien” while providing

unpaid emergency services for Methodist Hospital-North. Dr. Rushton Patterson asserted that illegal or

undocumented aliens had been receiving tours of Methodist’s facilities weeks in advance of their

“emergency” deliveries. This led him to believe that certain Methodist employees had entered into

arrangements with human traffickers to facilitate deliveries at Methodist with intent to defraud Methodist’s

physicians of payment for their services. Dr. Patterson later discovered that the complained of patient had

obtained TennCare and OmniCare coverage for her and her child. This patient filed a complaint against him

with the hospital, which Methodist dismissed on September 13, 2002, following an internal investigation. 

Dr. Patterson’s letter to Governor Sundquist asserted:

These people have successfully stolen services from me and the honest taxpayers of

Tennessee. This was done with the help of employees of state government as well as

employees of Methodist Healthcare. Thisrepresents a new twisted version of the American

dream with illegal aliens smuggling family members into this country so the taxpayers can

support them. I sincerely hope that you will act to correct this problem.

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business relationships. On the breach of contract claim, Methodist submitted that its bylaws did not 3

create an enforceable contract between the parties and, in the alternative, that the doctors first

breached the contract. Methodist argued that the doctors’ violations of hospital bylaws made the

decision to relinquish their privileges an exercise of business judgment. Consequently, Methodist

argued, the doctors could not establish the essential elements of intentional interference with

business relationships, including the element of improper motive or improper means. Finally,

Methodist submitted that the record was devoid of evidence of the alleged illegal alien incident,

which it argued should be dismissed or denied as a supporting factor for the doctors’ claims.

The trial court granted summary judgment in favor of Methodist. While not explicitly 4

addressing whether the bylaws were a contract, the court found that the doctors could not establish

claims for breach of contract. The court concluded that the doctors: (1) knew of the revised bylaws,

(2) acknowledged they were responsible for understanding the revised bylaws, and (3) agreed to

abide by and be bound by the revised bylaws. The court further concluded that the doctors failed to

carry their burden of production on the issues of tortious interference with business relationships and

punitive damages. The doctors timely filed a notice of appeal.

II. Issues Presented

The doctors limit their appeal to the trial court’s grant of summary judgment. The doctors

broadly frame the issues before this Court as whether the trial court erred in granting summary

judgment in favor of Methodist and correspondinglywhetherthere is a genuine issue of material fact

that precludes a grant of summary judgment. The determinative issues within these broader

5

questions, as we perceive them, are:

(1) Whether Methodist has established that the doctors first breached the parties’

contract and are not entitled to recover damages, shifting the burden of

production to the doctors;

For brevity’s sake, we will refer to the motion as a motion for summary judgment.

3

Methodist filed a motion to alter or amend the court’s initial order. The court granted Methodist’s

4

motion, vacated its initial order, and filed a modified order. The modified order deleted a notation and added

a finding that “Plaintiffs acknowledged that they were responsible for knowing the contents of the by-laws

and agreed to abide by and be bound by the then existing medical staff by-laws.”

In a separate section of their brief, the doctors argue that the trial court erroneously concluded there 5

were no genuine issues of material fact. The doctors point to several disputed facts in the parties’ briefs and

other papers in support of their position; however, they recognize that courts should deny a properly

supported motion forsummary judgment only if materialfacts are in dispute. To determine whether disputed

facts are material, we must first analyze the substantive issues to determine which facts are essential. We

will therefore address the asserted issues of material fact within our analysis of the substantive claims.

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(2) Whether the doctors have demonstrated that a genuine issue of material fact exists

that would preclude summary judgment on their claims for breach of contract;

(3) Whether Methodist affirmatively negated the element of improper motive or

improper means on the doctors’ claims for intentional interference with business

relationships, shifting the burden of production to the doctors;

(4) Whether the doctors have demonstrated that a genuine issue of material fact exists

that would preclude summary judgment on their claims for intentional interference

with business relationships.

III. Standard of Review

Tennessee Rule of Civil Procedure 56 provides that a party is entitled summary judgment

only if the “pleadings, depositions, answers to interrogatories, and admissions on file, together with

the affidavits . . . show that there is no genuine issue as to any material fact and that the moving party

is entitled to a judgment as a matter of law.” Tenn. R. Civ. P. 56.04. “The moving party has the

ultimate burden of persuading the court that there are no genuine issues of material fact and that the

moving party is entitled to judgment as a matter of law.” Martin v. Norfolk S. Ry. Co., 271 S.W.3d

76, 83 (Tenn. 2008) (citing Byrd v. Hall, 847 S.W.2d 208, 215 (Tenn. 1993)). Accordingly, the

burden to show that summary judgment is appropriate first rests with the moving party. See id. “The

moving party may make the required showing and therefore shift the burden of production to the

nonmoving party by either: (1) affirmatively negating an essential element of the nonmoving party’s

claim; or (2) showing that the nonmoving party cannot prove an essential element of the claim at

trial.” Id. (citation omitted). The nonmoving party has no duty to provide evidence to support its

claim unless the moving party carries its initial burden. Id. (citations omitted).

A party will not succeed on a motion for summary judgment merely by asserting that the

nonmoving party is without evidence to support its claim. Id. at 83-84 (citing Byrd, 847 S.W.2d at

215). “The moving party must either produce evidence or refer to evidence previously submitted

by the nonmoving party that negates an essential element of the nonmoving party’s claim or shows

that the nonmoving party cannot prove an essential element of the claim at trial.” Id. at 84 (citing

Hannan v. Alltel Publ’g Co., 270 S.W.3d 1, 5 (Tenn. 2008)). Production of evidence that raises

doubts about the merits of the nonmoving party’s claim will not suffice. Id. (citing McCarley v. W.

Quality Food Serv., 960 S.W.2d 585, 588 (Tenn. 1998)). “[T]he moving party must point to

evidence that tends to disprove an essential factual claim made by the nonmoving party.” Id. (citing

Blair v. W. Town Mall, 130 S.W.3d 761, 768 (Tenn. 2004)).

Once a moving party carries its initial burden, the focus of the inquiry shifts to the

nonmoving party who must “produce evidence of specific facts establishing that genuine issues of

material fact exist.” Id. (citations omitted). The Tennessee Supreme Court has articulated four

methods by which the nonmoving party can satisfy its burden of production and defeat a motion for

summary judgment:

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(1) pointing to evidence establishing material factual disputes that were over-looked

or ignored by the moving party; (2) rehabilitating the evidence attacked by the

moving party; (3) producing additional evidence establishing the existence of a

genuine issue for trial; or (4) submitting an affidavit explaining the necessity for

further discovery pursuant to Tenn. R. Civ. P., Rule 56.06.

McCarley, 960 S.W.2d at 588. Courts must accept the evidence proffered by the nonmoving party

as true and resolve any doubts concerning the existence of a genuine issue of material fact in favor

of the nonmoving party. Martin, 271 S.W.3d at 84 (citation omitted). “‘A disputed fact is material

if it must be decided in order to resolve the substantive claim or defense at which the motion is

directed.’” Id. (quoting Byrd, 847 S.W.2d at 215). “A disputed fact presents a genuine issue if ‘a

reasonable jury could legitimately resolve that fact in favor of one side or the other.’” Martin, 271

S.W.3d at 84 (quoting Byrd, 847 S.W.2d at 215).

If the party moving for summary judgment bears the burden of proof at trial, the burdenshifting analysis differs. Hannan, 270 S.W.3d at 9 n.6. “For example, a plaintiff who files a motion

for partial summary judgment on an element of his or her claim shifts the burden by alleging

undisputed facts that show the existence of that element and entitle the plaintiff to summary

judgment as a matter of law.” Id. Likewise, a defendant can shift the burden of production to a nonmoving plaintiff by alleging undisputed facts to show the existence of an affirmative defense. Id.

This Court reviews a trial court’s decision on a motion for summary judgment de novo with

no presumption of correctness. Martin, 271 S.W.3d at 84 (citing Blair, 130 S.W.3d at 763). We

review the evidence in the light most favorable to the nonmoving party and draw all reasonable

inferences in the favor of the nonmoving party. Id. (citing Staples v. CBL & Assocs., 15 S.W.3d 83,

89 (Tenn. 2000)).

IV. Analysis

A. Breach of Contract

We first consider whether the trial court properly granted summary judgment to Methodist

on the doctors’ breach of contract claims. Methodist argues that the doctors first breached the 6

Methodist argued in support of its motion for summary judgment that its bylaws did not create an 6

enforceable contract between the parties. The Tennessee Supreme Court in Lewisburg Community Hospital,

Inc. v. Alfredson, 805 S.W.2d 756 (Tenn. 1991), determined as a matter of first impression that “a hospital’s

bylaws are an integral part of its contractual relationship with the members of its medical staff.” Id. at 759

(citations omitted). In subsequent cases, there has been little doubt whether the bylaws governing a

relationship between a hospital and its medical staff are contractually binding. See, e.g., City of Cookeville

v. Humphrey, 126 S.W.3d 897, 903 (Tenn. 2004); Bryant v. Tenet, Inc., 969 S.W.2d 923, 926 (Tenn. Ct. App.

1997); Eyring v. E. Tenn. Baptist Hosp., 950 S.W.2d 354, 356 (Tenn. Ct. App. 1997). But here the governing

document expressly states that it “is not and shall not be deemed to be a contract.” In its prior submissions,

(continued...)

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parties’ contract–the revised bylaws–and are not entitled to recover on their claims. It is well

accepted that “[a] party who has materially breached a contract is not entitled to damages stemming

from the other party’s later material breach of the same contract.” McClain v. Kimbrough Constr.

Co., 806 S.W.2d 194, 199 (Tenn. Ct. App. 1990) (citations omitted). The first material breach

alleged in this case is the doctors’ failure to maintain continuous and uninterrupted insurancewithout

periods of non-coverage. There is substantial evidence in the record, much of it undisputed, to

establish that the doctors consented to the terms of the contract, violated the terms of the contract,

and were not excused from performing the contract.

The relevant bylaw required the doctors to maintain “continuous and uninterrupted

professional liability insurance coverage, without periods of non-coverage, and including either

extended reporting (‘tail’) or retroactive (‘prior acts’) coverage.” As the bylaw suggests, a physician

who changes insurance carriers may maintain the requisite coverage in one of two ways. First, the

physician may purchase “tail” coverage from his previous carrier; tail coverage insures a physician

for acts that occurred under an expiring insurance policy but are reported at a later date. Second, the

physician may purchase “prior acts” coverage from a new carrier, which provides retroactive

coverage to a date preceding the new policy’s inception date. In either case, the physician is able to

obtain insurance for procedures performed under a prior insurance policy that has lapsed, preventing

uninsured gaps in coverage that might expose a hospital to liability. 

It is undisputed that the doctors did not purchase tail or prior acts coverage upon changing

insurance carriers at various points and, as a consequence, developed periods of non-coverage. Dr.

James Patterson developed a gap in coverage from December 1, 2000, to December 1, 2001. Dr.

Rushton Patterson developed more extensive gaps from July 8, 1985, to December 31, 1996, and

from January 1, 1997, to December 31, 2001. The doctors developed these gaps because they

affirmatively decided not to purchase tail or prior acts coverage. The record is replete with

deposition testimony from Frederick Seilkop (“Mr. Seilkop”), the doctors’ formerinsurance broker,

explaining that the doctors consciously choose to develop gaps in their coverage for “economic

reasons,” often against the professional advice of others. In the late 1990's and early 2000's, Mr.

Seilkop expressly advised the doctors to keep their retroactive coverage intact. The doctors

nonetheless chose not to purchase tail or prior acts coverage despite understanding the implications

of developing gaps.

The doctors’ decisions not to purchase tail or prior acts coverage ensured it would be much

more costly for them to cover their gaps in the future. According to Mr. Seilkop, once a physician

allows his retroactive date to expire without purchasing tail coverage it becomes virtuallyimpossible

to fullycover preexisting gaps. Michael Blaum (“Mr. Blaum”), owner and president of Medical Risk

(...continued) 6

Methodist argued that such a disclaimer is not illegal or otherwise violative of Tennessee public policy. The

parties’ briefs, however, contain cursory discussion of this issue without citation to legal support on either

side of the argument. We will assume, without deciding, that the bylaws are a contract. See Lister v.

Methodist Med. Ctr. of Oak Ridge, 1993 WL 481402, at *1 (Tenn. Ct. App. Nov. 18, 1993).

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Services, Inc., explained that allowing a gap in coverage to arise makes it difficult to obtain

insurance coverage in the “standard” market. Specific to the doctors, Mr. Blaum testified in his

deposition that their adverse claims histories and prior insurance decisions limited their abilityto buy

tail or prior acts coverage. 

The costly nature of procuring tail or prior acts coverage with a preexisting gap was further

exacerbated by difficulties in the insurance market following the terrorists attacks of September 11,

2001. Blayne Burns (“Ms. Burns”), Methodist’s corporate director of risk, finance, and insurance,

described September 11th as a “significant date for every type of insurance including medical

malpractice insurance.” The insurance market became a “hard market” and many insurance carriers

went out of business including one of the largest writers of medical malpractice insurance. Mr.

Blaum added, “It was the largest insurance loss in the history of the world, and it adversely affected

all the reinsurance markets, and the reinsurance markets are responsible for providing insurance to

the individual physician insurance companies, so they had to pass their losses on to the physician

insurance companies.” Methodist notified its doctors of the potential fallout in a newsletter dated

January 2002, which it forwarded to all doctors’ offices and posted in its medical lounges. The

newsletter notified staff members of the possibility of non-renewal as a result of the hard market,

reminded them of Methodist’s compulsory insurance requirements, and provided them with a list

of insurance professionals to contact should difficulties arise.

Several months later, the doctors applied for reappointment with Methodist. By the doctors’

own admissions, they understood at this time they had an obligation to purchase tail coverage and

knew it would be “very expensive” to cover their gaps. The doctors nonetheless applied for

reappointment with Methodist and agreed to abide by Methodist’s bylaws. Each doctor signed and

dated an application that expressly stated:

I further acknowledge that I am responsible for knowing the contents of the bylaws,

rules and regulations of the Organizations and their medical/professional staffs and

agree to be bound by them if granted membership and/or privileges or affiliation.

. . . .

I further acknowledge that I have read and understand the foregoing Authorization

and Release.

Thus, there is no genuine issue of material fact as to whether the doctors agreed to purchase

continuous and uninterrupted insurance with periods of non-coverage as a condition of exercising

privileges at Methodist. 

The doctors nevertheless argue that the parties’ contract did not include an obligation to

purchase tail coverage or that their performance of this obligation was excused. The doctors first

argue that Methodist unilaterally imposed the revised insurance requirements, but we find no

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evidence to support this argument. In order to form a valid contract, both parties must assent to its 7

terms. Johnson v. Central Nat’l Ins. Co. of Omaha, Neb., 356 S.W.2d 277, 281 (Tenn. 1962). 

Similarly, the modification of an existing contract is enforceable only when accomplished with the

mutual assent of both parties. Buchholz v. Tenn. Farmers Life Reassurance Co., 145 S.W.3d 80, 84

(Tenn. Ct. App. 2003) (citation omitted); Galbreath v. Harris, 811 S.W.2d 88, 92 (Tenn. Ct. App.

1990). Methodist has demonstrated that the doctors assented to the terms of the revised bylaws. The

doctors have failed to produce evidence to show that they did not assent to the terms of the relevant

bylaw when they submitted their applications for reappointment. The doctors have equally failed

to produce evidence to show that the Board of Directors improperly adopted the resolution. Dr.

James Patterson instead testified in his deposition that he did not complain about the revision in the

relevant bylaw because “there was nothing to complain about.” We are unable to find any evidence

to show that the Methodist imposed the revised insurance requirement on the doctors without their

individual consent.

The doctors next argue that Methodist agreed to exclude the revised insurance requirement

from their contract by accepting their applications for reappointment. This argument is contrary to

the express terms of their applications, inconsistent with the terms of the bylaws included in the

record, and not supported by citation to any testimony or other evidence. There is no citation to

evidence in the record to show that the parties negotiated a contract other than that represented by

the bylaws in effect. Further, there is no evidence in the record to suggest that Methodist actually

had knowledge of the gaps when it approved the doctors’ applications for reappointment. 

In their sworn affidavits, the doctors stated that they disclosed the gaps in their tail coverages

to Methodist. The affidavits, however, do not indicate when or how this purported “disclosure”

occurred. It becomes clear upon review of the doctors’ deposition testimony, statement of

undisputed facts, and other papers that their “disclosure” did not specifically identify the existence

of gaps in their coverage; rather, the doctors at various points signed releases that allowed Methodist

to contact their insurance providers and provided certificates of insurance coverage that indicated

their policies’ effective dates. And it is undisputed that the certificates of insurance and

8

There issome suggestion that Methodist changed its bylaws with an intent to terminate the doctors’ 7

privileges. We find no support for this argument. The only evidence on this issue demonstrates that

Methodist was not specifically aware that the revision might disqualify any of its physicians. Further, the

revision occurred well before the alleged illegal alien incident, which is the only proffered basis of

retaliation.

For example Dr. Rushton Patterson and counsel for Methodist had the followingexchange regarding 8

the doctors’ “disclosures”:

Question: “Now, in your discovery responses and pleadings and statements by your lawyers,

they have indicated or you have indicated that you disclosed to Methodist and its employees

the existence of these gaps at various times in the past; is that right?”

(continued...)

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reappointment applications did not indicate whether there were existing gaps in the doctors’

insurance coverages. Further, the only testimony on this issue was that Methodist did not have

procedures in place prior to 2003 to catch gaps in coverage. Thus, accepting as true that the doctors

“disclosed” their gaps – i.e. signed releases to allow Methodist to contact their insurance providers

and provided Methodist with certificates of insurance coverage–there is absolutelynothing to suggest

that the objective manifestations of the parties showed that either party intended to exclude the

revised bylaw from the parties’ contract. See Moody Realty Co. v. Huestis, 237 S.W.3d 666, 674

(Tenn. Ct. App. 2007) (“Courts determine mutuality of assent by assessing the parties’

manifestations according to an objective standard.”). Rather, the objective manifestations of the

parties indicated that the doctors would be bound by the revised bylaws.

The doctors next submit that, even if they agreed to the revised bylaws, their performance

should be excused due to the impossibility or impracticability of procuring tail coverage following

the attacks of September 11th. The doctors cite this Court’s decision in Groner v. On-Site Grading,

Inc., No. E1999-00219-COA-R3-CV, 2000 WL 502843 (Tenn. Ct. App. Apr. 28, 2000), for the

proposition that “failure to perform a contract is excused if performance becomes impossible due

to a cause not attributable to the non-performing party and the impossibility is ‘not among the

probable contingencies which a man of ordinary prudence should have foreseen and provided for.’” 

Id. at *4 (quoting Wilson v. Page, 325 S.W.2d 294, 298 (Tenn. Ct. App. 1958) (italics omitted)). 

The rule of law cited, while good law, pertains to the rule of supervening impracticability whereby

the occurrence of an unforseen circumstance following the formation of the contract excuses a

party’s performance. See Restatement (Second) of Contracts § 261 (1981); 30 Richard A. Lord,

Williston on Contracts § 77:16 (4th ed. 2004). 

More pertinent to the current discussion is the similar rule of existing impracticability. The 9

Restatement (Second) of Contracts states the rule of existing impracticability as follows:

Where, at the time a contract is made, a party’s performance under it is impracticable

(...continued) 8

Answer: “Define disclose.”

Question: “Tell them about, tell Methodist or an authorized corporate representative of

Methodist about the gaps in your Tail coverage?”

Answer: “No, those were apparent when my insurance information was sent to y’all and you

investigated it as you do for every renewal.”

The comments to the Restatement recognize that although this rule is “sometimes phrased in terms 9

of ‘impossibility,’ it has long been recognized that it may operate to discharge a party’s duty even though

the event has not made performance absolutely impossible.” Restatement (Second) of Contracts § 261 cmt.

d (1981). The Tennessee Supreme Court has agreed that the rule is one of “impracticability” rather than

actual “impossibility.” See North Am. Capital Corp. v. McCants, 510 S.W.2d 901, 905 (Tenn. 1974) (citing

Hinchman v. City Water Co., 167 S.W.2d 986, 991 (Tenn. 1943)). 

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without his fault because of a fact of which he has no reason to know and the

non-existence of which is a basic assumption on which the contract is made, no duty

to render that performance arises, unless the language or circumstances indicate the

contrary.

Restatement (Second) of Contracts § 266(1) (1981) (emphasis added). The comments to the

Restatement explain that “[a] party’s performance may be as easily affected by impracticability

existing at the time the contract was made, because of some fact of which he was ignorant, as by

supervening impracticability.” Restatement (Second) of Contracts § 266 cmt. a (1981). It is

essential, however, that “the affected party must have had no reason to know at the time the contract

was made of the facts on which he later relies.” Id. (emphasis added). 

The doctors cannot avoid their contractual obligation to procure tail coverage in the present

case because it is undisputed that they knew of or had reason to know of the existing difficulties in

the insurance market when they agreed to be bound by the hospital bylaws. The complained of 10

deterioration in the insurance markets indisputably occurred in late 2001 and early 2002. The

doctors nonetheless agreed to procure the requisite insurance coverage when they subsequently

applied for reappointment pursuant to hospital bylaws. As the Tennessee Supreme Court has stated,

“A man may contract to do what is impossible, as well as what is difficult, and be liable for failure

to perform.” Hinchman v. City Water Co., 167 S.W.2d 986, 991 (Tenn. 1943) (quoting Williston

on Contracts (Revised Ed.), Vol. 6, p. 5410). If the doctors contracted to do the impossible, they

have produced no evidence to demonstrate that their failure to perform was excusable. We hold that

the doctors were bound to purchase and maintain continuous and uninterrupted professional liability

insurance without periods of non-coverage.

Having concluded that the doctors were bound to the terms of the revised bylaws, it is clear

that the doctors first breached the parties’ contract. It is undisputed that the doctors did not comply

with the revised insurance requirement. It is undisputed that the doctors’ alleged breaches occurred

prior to the relinquishment of their privileges in October of 2003. With these undisputed facts,

Methodist has demonstrated that the doctors breached the contract between them by failing to

maintain continuous and uninterrupted insurance coverage without periods of non-coverage. 

Methodist therefore met its burden to establish first breach. Summaryjudgment is appropriate unless

the doctors can establish a genuine issue of material fact that would preclude summary judgment or

otherwise demonstrate that summary judgment is inappropriate as a matter of law. 

The doctors are unable to establish a genuine issue of material fact on the issue of first

breach. The doctors have presented no specific facts, which if accepted as true, show that they did

not understand or consent to the terms of the revised bylaws. It is undisputed that the doctors agreed

The doctors attempt to frame the issue as whether Methodist gave thema reasonable period of time

10

after October 23, 2003, to obtain coverage. The letter of notice, however, did not ask the doctors to obtain

coverage but to provide proof that they were in compliance with the existing bylaws. Thus, we disagree that

the issue before us is whether it was practicable for the doctors to find coverage in less than a week. 

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to the bylaws and agreed to carry out the duties imposed on them in exchange for staff privileges. 

They have presented no specific facts to establish that Methodist breached the parties’ contract prior

to their initial breach. They have not argued or presented specific facts to show that they were

entitled to notice, an opportunity to cure, or administrative review prior to the relinquishment of their

privileges. In sum, they have pointed to nothing in the record that raises a genuine issue of material

11

fact on the question of first breach. 

The doctors nonetheless argue that Methodist is not entitled to judgment as a matter of law

because it waived or should be equitably estopped from asserting their first breach. “‘A waiver is

an intentional relinquishment of a known right.’” Jenkins Subway, Inc. v. Jones, 990 S.W.2d 713,

722 (Tenn. Ct. App. 1998) (quoting Baird v. Fidelity-Phenix Fire Ins. Co., 162 S.W.2d 384, 388

(Tenn. 1942)). 

Waiver may be proved by express declaration; or by acts and declarations

manifesting an intent and purpose not to claim the supposed advantage; or by a

course of acts and conduct, or by so neglecting and failing to act, as to induce a belief

that it was [the party’s] intention and purpose to waive. In order to establish waiver

by conduct, the proof must show some absolute action or inaction inconsistent with

the claim or right waived.

Id. at 722-23 (citations omitted) (alteration in original) (internal quotation marks omitted). 

The essential elements of equitable estoppel, on the other hand, are: 

(1) Conduct which amounts to a false representation or concealment of material facts,

or, at least, which is calculated to convey the impression that the facts are otherwise

than, and inconsistent with, those which the party subsequently attempts to assert; (2)

Intention, or at least expectation that such conduct shall be acted upon by the other

party; [and] (3) Knowledge, actual or constructive[,] of the real facts.

Cracker Barrel Old Country Store, Inc. v. Epperson, 284 S.W.3d 303, 315-16 (Tenn. 2009)

(alterations in original) (quoting Werne v. Sanderson, 954 S.W.2d 742, 745-46 (Tenn. Ct. App.

1997)). 

The bylaws in their entirety are not found in the record. The only evidence on the question of 11

whether Methodist acted pursuant to its bylaws when it deemed the doctors’ privileges voluntarily

relinquished indicates that Methodist had the right to act immediately. It is not clear whether the doctors

were entitled to notice, a hearing, or other process before the relinquishment of their privileges. The doctors

have not argued or presented evidence to establish any such right. Further, the doctors have not properly

challenged the validity of the revised insurance requirement or the procedures by which Methodist enacted

the requirement. The only such argument is found in a single, unsupported assertion in their brief that the

alleged “change” in the bylaws was made “without notice or input from [the doctors].”

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The doctors’ position is that Methodist learned of their gaps in coverage subsequent to the

renewal of their privileges and failed to act until October 2003. Assuming the evidence provided

by the doctors is true, it appears that Methodist learned of gaps in both doctors’ insurance coverages

in late 2002. The fact that Methodist discovered the gaps some months prior to the relinquishment

of the doctors’ privileges does not persuade this Court that Methodist waived its right to enforce the

breach of the parties’ contract or that Methodist should be estopped from asserting the breach. 

Waiver is not applicable under the circumstances because Methodist did not neglect its rights or so

fail to act as to induce the belief that it was Methodist’s intention and purpose to waive the breach. 

Estoppel does not apply because there is no conduct that amounts to a false representation or

concealment of material facts. Further, there is no conduct calculated to convey the impression that

the facts are otherwise than, and inconsistent with, those which Methodist now relies. There is no

evidence to indicate that Methodist in any way intended to relieve the doctors of their respective

obligations to maintain the requisite coverage or exhibited conduct conveying that impression. 

For these reasons, we hold that Methodist is entitled to summary judgment on the doctors’

claims for breach of contract. Assuming the bylaws were a contract, the doctors assented to and

agreed to be bound by the revised terms of the bylaws, including the requirement to procure

continuous and uninterrupted insurance without periods of non-coverage. It is undisputed that the

doctors did not procure the requisite coverage, breaching the parties’ contract. There is no genuine

issue of material fact as to whether the doctors’ breach occurred before Methodist deemed their

privileges voluntarily relinquished. Under the rule of first breach, the doctors are not entitled to

recover for damages arising out of a later breach. The trial court’s grant of summary judgment on

the doctors’ breach of contract claims is affirmed.

B. Intentional Interference with Business Relationships

We next consider whether the trial court properly granted summary judgment to Methodist

on the issue of intentional interference with business relationships. The Tennessee Supreme Court

expressly adopted the tort of intentional interference with business relationships in Trau-Med of

America, Inc. v. Allstate Insurance Co., 71 S.W.3d 691 (Tenn. 2002). The elements of the tort as

set forth in Trau-Med are:

(1) an existing business relationship with specific third parties or a prospective

relationship with an identifiable class of third persons; (2) the defendant’s knowledge

of that relationship and not a mere awareness of the plaintiff’s business dealings with

others in general; (3) the defendant’s intent to cause the breach or termination of the

business relationship; (4) the defendant’s improper motive or improper means; and

finally, (5) damages resulting from the tortious interference.

Id. at 701 (citations omitted) (footnotes omitted).

The trial court generally concluded that the doctors could not establish the essential elements

of their claim. Our review of the record shows that Methodist raised substantial doubt as to whether

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the doctors demonstrate the first through third elements of intentional interference with business

relationships. Genuine issues of material fact nevertheless exist as to whether Methodist knew of

an existing business relationship between the doctors and patients with Methodist-only health plans

and intended to cause termination of that relationship in retaliation for reports of TennCare and

OmniCare fraud. Additionally, Methodist did not argue that the doctors could not establish the

element of damages. We will therefore focus our review on the fifth element of the doctors’ claim

– improper motive or improper means.

In order to shift the burden of production on this issue to the doctors, Methodist must

affirmatively negate or show that the doctors cannot establish the existence of both improper motive

and improper means. See Watson’s Carpet and Floor Coverings, Inc. v. McCormick, 247 S.W.3d

169, 176 (Tenn. Ct. App. 2007) (citing Trau-Med, 71 S.W.3d at 701). Methodist can meet its burden

on the question of improper motive if it demonstrates that the doctors cannot show that Methodist’s

predominant purpose in relinquishing their privileges was to injure the doctors. See Trau-Med, 71

S.W.3d at 701 n.5 (citing Leigh Furniture &Carpet Co. v. Isom, 657 P.2d 293, 307-08 (Utah 1982)). 

With respect to improper means, Methodist must establish that its conduct was not inappropriate in

light of the circumstances. Id. While recognizing that impropriety in a given case is a fact-intensive

inquiry, the supreme court in Trau-Med offered, as guidance, a non-exhaustive list of improper

means including the following:

means that are illegal or independently tortious, such as violations of statutes,

regulations, or recognized common-law rules; violence, threats or intimidation,

bribery, unfounded litigation, fraud, misrepresentation or deceit, defamation, duress,

undue influence, misuse of inside or confidential information, or breach of a

fiduciary relationship; and those methods that violate an established standard of a

trade or profession, or otherwise involve unethical conduct, such as sharp dealing,

overreaching, or unfair competition.

Id. (citations omitted). 

A showing of impropriety is essential in a case for intentional interference with business

relationships. Our supreme court in Trau-Med imposed the element of improper motive or improper

means to guard against a principal evil: the potential degradation of free market principles “by

holding liable those individuals engaged in legitimate business practices.” Id. at 699-700. With its

decision, Tennessee joined a majority of jurisdictions to have “restructured the elements of the tort

to add the requirement of proof of improper conduct extending beyond the bounds of doing business

in a freely competitive economy.” Id. at 700. The restructured tort balances society’s desire to

encourage free enterprise with its desire to discourage impermissible business conduct:

The theory of the tort of interference, it is said, is that the law draws a line beyond

which no member of the community may go in intentionally intermeddling with the

business affairs of others; that if acts of which complaint is made do not rest on some

legitimate interest, or if there is sharp dealing or overreaching or other conduct below

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the behavior of fair men similarly situated, the ensuing loss should be redressed; and

that the line of demarcation between permissible behavior and interference reflects

the ethical standards of the community. 

Id. at 701-02 (quoting City of Rock Falls v. Chi. Title & Trust Co., 300 N.E.2d 331, 333 (Ill. App.

Ct. 1973)). 

This Court in Watson’s Carpet and Floor Coverings, Inc. v. McCormick, 247 S.W.3d 169

(Tenn. Ct. App. 2007), accordingly recognized that the tort of intentional interference with business

relationships “should not be interpreted in such a way as to prohibit or undermine the ability to

contract freely and engage in competition.” Id. at 178. We noted that “[i]t is a principle of long

standing in Tennessee that the ‘general rule [is] that a person engaged in business may, at his

election, and without good reason, refuse to deal with some other person.’” Id. (alteration in

original) (quotingCrumley v. Watauga Water, Co., 41 S.W. 1058, 1059 (Tenn. 1897)) (citingHarrell

v. Dean Food Co., 619 S.W.2d 528, 533 (Tenn. Ct. App. 1981)). “In other words, in Tennessee, a

person has the freedom or unfettered discretion to do business or not to do business with whomever

he or she chooses for any reason that does not violate the law.” 

We cited with approval the Restatement (First) of Torts § 762, which many jurisdictions

consider viable in the context of interference with business relationship claims. Id. at 179 (citing

Van Natta Mech. Corp. v. Di Staulo, 649 A.2d 399 (N.J. Super. Ct. App. Div. 1994); Circo v.

Spanish Gardens Food Mfg. Co., 643 F. Supp. 51 (W.D. Mo. 1985)). The Restatement (First) of

Torts § 762 provides:

One who causes intended or unintended harm to another merely by refusing to enter

into a business relation with the other or to continue a business relation terminable

at his will is not liable for that harm if the refusal is not

(a) a breach of the actor’s duty to the other arising from the nature of the actor’s

business or from a legislative enactment, or

(b) a means of accomplishing an illegal effect on competition, or

(c) part of a concerted refusal by a combination of persons of which he is a member.

Restatement (First) of Torts § 762 (1939). The comments to the Restatement explain that a refusal

to deal is valid “regardless of the actor’s motive for refusing to enter business relations with the other

and even though the sole motive is a desire to harm the other.” Restatement (First) of Torts § 762

cmt. c (1939). 

Although the “refusal to deal” privilege does not squarelyapplyin the present factual context,

it nonetheless affirms that private parties operating for profit maintain considerable discretion to

refuse to enter into or continue a business relationship. The relationship between the hospital and

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the doctors is just that: a symbiotic business relationship for profit governed by a contract. The

question here is how much discretion either party has in terminating that relationship pursuant to the

express terms of the parties’ contract. Thus, it becomes essential to determine where the line of

demarcation between permissible behavior and impropriety lies in light of the parties’ existing

relationship.

As we determine where the line of demarcation lies in the present case, we pause to

acknowledge the nature of a hospital’s decision to enact and enforce bylaws. The Tennessee

Supreme Court has recognized that “[a] hospital’s business judgment . . . is due great deference.” 

City of Cookeville v. Humphrey, 126 S.W.3d 897, 905 (Tenn. 2004) (citing Armstrong v. Bd. of Dirs.

of Fayette County General Hosp., 553 S.W.2d 77, 79 (Tenn. Ct. App. 1976)). To this point, the

board of directors at a hospital is vested with “ a large measure of management discretion in the

selection of members of the medical staff of a hospital” and “has the authority to promulgate

reasonable rules and regulations as pertain to staff members and their privileges.” Armstrong, 553

S.W.2d at 79 (citation omitted). Methodist maintains that it deemed the doctors’ privileges

voluntarily relinquished pursuant to hospital bylaws for a legitimate business reason: managing the

hospital’s risk exposure. It argues that the doctors cannot show, as a matter of law, that 12

Methodist’s predominant purpose in enforcing its bylaws was to injure the doctors or that Methodist

used improper means to relinquish the doctors’ privileges. 

We agree that the enactment and enforcement of the relevant bylaw was to a large degree an

exercise of business judgment. Methodist enacted this particular bylaw after it was forced to settle

a lawsuit originally filed against a physician who developed gaps in coverage because he changed

insurance carriers. The physician was discovered to have gaps in insurance only after the filing of

suit. Prior to that lawsuit, Methodist “never had a situation where it was brought to [its] attention

that there could be gaps.” The revised bylaw was enacted specifically to address doctors who allow

gaps in their professional liability coverage to arise thereby exposing Methodist to increased risk. 

As Methodist explained, the revised bylaw is important to the management of risk at the hospital

for three reasons: (1) Methodist’s risk of exposure increases if a physician has a gap in insurance

coverage, (2) allowing physicians to remain on staff without continuous coverage adversely affects

Methodist’s ability to obtain coverage in the commercial market, and (3) choosing not to enforce its

bylaws would give incentive to other physicians to allow gaps in coverage to arise. 

We conclude that Methodist acted pursuant to a valid business objective when it enacted and

enforced revised bylaws requiring members of its staff to maintain a minimum level of insurance

coverage. Its decision represents a deliberate decision to limit the number of physicians authorized

to treat patients at its facilities in exchange for increased protection against liability for medical

Methodist does not argue that its enforcement of hospital bylaws is not subject to review. See 12

Baptist Health v. Murphy, 226 S.W.3d 800, 811 (Ark. 2006) (discussing the application of the “rule of nonreview” to decisions concerning medical staff eligibility); see generally Barrows v. Nw. Mem’l Hosp., 525

N.E.2d 50 (Ill. 1988) (analyzing various approaches to the review of hospital staff decisions).

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malpractice. In effect, Methodist chose to “do business” with only those physicians who do not 13

pose an unacceptable threat of liability. In this case, Methodist determined that the doctors, by

violating the terms of hospital bylaws, posed an unacceptable threat of liability. Even if we draw

the inference that Methodist initiated review of the doctors’ coverages in retaliation for reports Dr.

Rushton Patterson made about alleged TennCare and OmniCare fraud, it is undisputed that the

doctors did not maintain continuous interrupted insurance without periods of non-coverage. Even

if the relinquishment of the doctors’ privileges did not change the immediate risk exposure of the

hospital for their prior procedures, their relinquishment acted as general deterrence to medical

personnel on staff who might have similarly attempted to maintain privileges without acquiring tail

or retroactive coverage. 

We hold that Methodist has carried its initial burden on the improper means or motive

element of the doctors’ claim forintentional interference with business relationship. Methodist acted

consistent with its bylaws and the contract between the parties when it dismissed the doctors; it did

not use improper means to rescind the doctors’ privileges. Further, the doctors cannot show as a

matter of law that the predominant purpose was to injure the doctors and not a valid business

decision of the hospital to limit its risk exposure. 

The doctors have failed to create a genuine issue of material fact on this issue. It is

undisputed that six other doctors voluntarily relinquished their privileges for failure to maintain

continuous coverage. Further, it is undisputed that the reinstatement of the doctors’ privileges at

Methodist is contingent on the purchase of the requisite insurance. It has not been suggested that

Methodist would refuse to permit the doctors to regain their privileges if they purchased the requisite

coverage. The fact that Methodist Healthcare-Fayette Hospital, an admittedly “separate entity under

the Methodist LeBonheur Healthcare corporate umbrella,” granted a waiver of a similar insurance

requirement is irrelevant to whether the doctors were entitled to waiver. Because the doctors have 14

failed to raise a genuine issue of material fact that would preclude summary judgment, the trial

The doctors concede this point in an intended jab found in their reply brief: “It is very basic,

13

Methodist is more worried that they might be sued for gaps in their prior tail coverage or their insurance

premiums might go up for having someone on their staff than for patient care.” While we express no

comment on the doctors’ characterization of Methodist’s motive, their point is well-taken. Methodist’s

decision to limit the number of doctors available to serve patients at its hospital is ultimately a business

decision. If patients are dissatisfied with the level of care they receive at Methodist due to the elimination

of physicians with gaps in their insurance coverages, they are free to engage with physicians who practice

elsewhere and to purchase insurance that will allow them to obtain services at another hospital.

If anything, this example supports Methodist’s argument that the decision to relinquish the doctors’ 14

privileges was a business decision. Methodist Healthcare-Fayette Hospital indisputably granted its waiver

based on the need for a physician’sservicesin a medically under-served area of Fayette County. Presumably,

the hospital granted the waiver after weighing the risks associated with allowing the doctor to remain on staff

against the need for his services. It is not at all clear that the hospital would have reached a similar

conclusion if it was located in a community such as Memphis where the supply of physician care is not as

limited.

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court’s holding on this issue is affirmed.

V. Conclusion

For the foregoing reasons, we affirm the grant of summary judgment to Methodist on the

doctors’ claims for breach of contract, intentional interference with business relationships, and

punitive damages in favor of Methodist. Costs of this appeal are assessed to the appellants, James

K. Patterson, M.D. and Rushton E. Patterson, Jr., M.D., and their surety for which execution may

issue if necessary.

_________________________________

DAVID R. FARMER, JUDGE

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