Medical Staff of Avera Marshall Regional Medical Center v. Marshall

OPINION

In 2012, the governing board of respondent Avera Marshall Regional Medical Center, a nonprofit hospital in Marshall, Minnesota, announced a plan to repeal the hospital’s medical staff bylaws and replace them with revised bylaws. Avera Marshall’s Medical Staff, its Chief of Staff, and Chief of Staff-elect eventually commenced an action seeking, as relevant here, a declaration that the Medical Staff has standing to sue Avera Marshall and that the medical staff bylaws are an enforceable contract between Avera Marshall and the Medical Staff. The district court entered judgment for Avera Marshall and dismissed the case after concluding both that the Medical Staff lacked the capacity to sue Avera Marshall and that the medical staff bylaws do not constitute an enforceable contract between Avera Marshall and the Medical Staff. The court of appeals, affirmed the district court. For the reasons discussed below, we reverse the court of appeals and remand to the district court for further proceedings.

Avera Marshall is owned and operated by Avera Health and is incorporated under the Minnesota Nonprofit Corporation Act, Minn. Stat. ch. 317A (2012). Under Avera Marshall’s articles of incorporation and corporate bylaws, Avera Marshall’s board of directors (the board) is vested with the general responsibility for management of Avera Marshall. The corporate bylaws require the board to “organize the physicians and appropriate other persons granted practice privileges in the hospital ... into a medical-dental staff under medical-dental staff bylaws approved by the [board].”

Appellants include two individual physicians and Avera Marshall’s Medical Staff. The medical staff is composed of practitioners, primarily physicians with admitting and clinical privileges to care for patients at the hospital. The Medical Staff is subject to medical staff bylaws originally enacted by the board in 1995. When this case commenced, appellant Dr. Steven Meister was the Chief of Staff of the Medical Staff and appellant Dr. Jane Willett was the Medical Staffs Chief of Staff-elect. Dr. Meister was the chair of the Medical Executive Committee (the MEC), a medical staff committee that acts on the Medical Staffs behalf, and Dr. Willett was a member of the MEC.

Before May 1, 2012, the medical staff bylaws provided that, in order to admit patients, a practitioner was required to be a member of the medical staff. To serve on the medical staff, a physician was required to agree to be bound by the medical *697staff bylaws. One of the “enumerated purposes” for the medical staff set out in the bylaws was “[t]o initiate and maintain rules, regulations and policies for the internal governance of the Medical Staff.” Another enumerated purpose was “[t]o provide a means whereby issues concerning the Medical Staff and the Medical Center [could] be directly discussed by the Medical Staff with the Board of Directors and the Administration, with the understanding that the Medical Staff [was] subject to the ultimate authority of the Board of Directors.”

The bylaws also gave the Medical Staff authority, “[s]ubject to the authority and approval of [the board],” to “exercise such power as is reasonably necessary to discharge its responsibilities under these bylaws and under the corporate bylaws of the Medical Center.” The Medical Staff was also afforded “prerogatives,” such as attending and voting on matters presented at medical staff and committee meetings and holding medical staff office. The bylaws described these prerogatives as “general in nature” and possibly “subject to limitations by special conditions ..., by other sections of these Medical Staff Bylaws and by the Medical Staff Rules and Regulations, subject to approval by [the board].”

Under the bylaws, the Chief of Staff, the MEC, the board, or one-third of active medical staff members could propose amendments to or repeal of medical staff bylaws. The bylaws further provided for review of proposed amendments to the bylaws, either by the MEC itself or by special committee. Section 17.2 of the bylaws specifically provided that, “for the purposes of enacting a bylaws change, the change shall require an affirmative vote of ... two-thirds of the Members eligible to vote.” Bylaws changes recommended by the Medical Staff would not become effective until approved by the board. The bylaws were silent with respect to bylaws changes proposed by the board but not recommended for approval by the Medical Staff. However, the amendment and repeal process was “subject to approval by a majority vote of [the board]” and could not “supersede the general authority of [the board] as set forth in its corporate bylaws or applicable common law or statutes.”

In January 2012, the board notified the Medical Staff that the board had approved the repeal of the medical staff bylaws and that a set of revised medical staff bylaws had been approved. The notice solicited the Medical Staffs input but explained that the revised bylaws would take effect on April 1, 2012. At a medical staff meeting on January 24, 2012, Avera Marshall’s CEO and President announced that, while individual members of the Medical Staff could comment on the changes, the board would not accept comments from the Medical Staff as an organized body, and the proposed changes would not be submitted to the Medical Staff for a vote.

After review, the MEC concluded that the proposed revisions to the bylaws restricted the rights of the Medical Staff, the functioning of medical-staff committees, and the Medical Staffs ability to ensure the quality of patient care. On that basis, MEC recommended that the board reject the changes. Notwithstanding the board’s decision that the repeal and revision of the bylaws would not be submitted to the Medical Staff for a vote, on March 20, 2012, relying on section 17.2 of the former bylaws, the Medical Staff voted on the proposed changes and rejected both the repeal of the former bylaws and the enactment of the revised bylaws. Ultimately, the revised bylaws took effect on May 1, 2012.

Appellants filed a nine-count action against Avera Marshall, seeking a declaration that, as relevant here, the Medical *698Staff had standing and the capacity to sue Avera Marshall and that the former medical staff bylaws constituted a contract between Avera Marshall and the Medical Staff. Appellants also sought to enjoin Avera Marshall from repealing the former bylaws and enforcing the revised bylaws. Avera Marshall moved to dismiss the action on the basis that the Medical Staff lacked standing and the capacity to sue. The district court converted Avera Marshall’s motion to dismiss into a motion for summary judgment and then granted the motion, holding that the Medical Staff did not have the capacity to sue.

The parties then brought cross motions for summary judgment on the issue of whether the former bylaws constituted a contract between Avera Marshall and the Medical Staff or were otherwise enforceable against Avera Marshall. The district court again granted summary judgment to Avera Marshall, this time determining that the former bylaws did not constitute an enforceable contract between Avera Marshall and the Medical Staff or between Avera Marshall and any individual member of the Medical Staff. The district court further concluded that Avera Marshall had the authority to modify the bylaws without approval from the Medical Staff “if [Avera] substantially complies with the procedural prerequisites contained in the Medical Staff Bylaws.” According to the district court, the undisputed factual record showed Avera Marshall substantially complied with the procedural prerequisites in the former medical staff bylaws when it repealed them and enacted the revised medical staff bylaws.

The court of appeals affirmed the district court. It agreed with the district court that the Medical Staff does not have the capacity to sue under Minnesota law because, among other reasons, it is not its own “ultimate creator,” owns no property, and can “contract no indebtedness and pay no bills.” Med. Staff of Avera Marshall Reg’l Med. Ctr. v. Avera Marshall, 836 N.W.2d 549, 557 (Minn.App.2013) (citation omitted) (internal quotation marks omitted). It also held that the medical staff bylaws do not constitute an enforceable contract. Id. at 562. Because the medical staff bylaws “are not contractual,” the court of appeals concluded that Avera Marshall “has the authority to unilaterally amend the bylaws.” Id.

On appeal from a grant of summary judgment, we determine whether any genuine issues of material fact exist and whether the district court erred in its application of the law. Midwest Family Mut. Ins. Co. v. Wolters, 831 N.W.2d 628, 636 (Minn.2013). We must also construe the facts in the light most favorable to the party against whom summary judgment was granted — in this case the Medical Staff. J.E.B. v. Danks, 785 N.W.2d 741, 746 (Minn.2010).1

I.

This appeal presents two primary issues: (1) whether the Medical Staff has the legal capacity to sue; and (2) whether the medical staff bylaws constitute a contract be*699tween Avera Marshall and the Medical Staff. We begin our analysis with the first issue.

The common law rule in Minnesota, established in St. Paul Typothetae v. St. Paul Bookbinders’ Union, is that, “in the absence of a statute otherwise providing,” unincorporated associations “have no legal entity distinct from that of their members” and therefore lack capacity to sue or be sued. 94 Minn. 351, 357, 102 N.W. 725, 726-27 (1905). In 1946, we held that Minnesota still followed the common law rule because the Legislature had not enacted a statute conferring legal capacity to sue upon unincorporated associations. Bloom v. Am. Express Co., 222 Minn. 249, 252-53, 23 N.W.2d 570, 573 (1946). The next year, the Legislature enacted section 540.151. Act of Apr. 24, 1947, ch. 527, § 1, 1947 Minn. Laws 867 (codified at Minn. Stat. § 540.151 (2012)).

Minnesota Statutes § 540.151 provides: When two or more persons associate and act, whether for profit or not, under the common name, including associating and acting as a labor organization or employer organization, whether such common name comprises the names of such persons or not, they may sue in or be sued by such common name, and the summons may be served on an officer or a managing agent of the association. The judgment in such cases shall accrue to the joint or common benefit of and bind the joint or common property of the associates, the same as though all had been named as parties to the action.

Notwithstanding the enactment of section 540.151, we have since reaffirmed the common law rule. See Galob v. San-born, 281 Minn. 58, 62, 160 N.W.2d 262, 265 (1968) (concluding that a village public utility commission was merely a department or agency of a village and could not be sued in its own name). We have never directly addressed whether section 540.151 gives unincorporated associations the capacity to sue. Thus, the parties dispute whether Minn.Stat. § 540.151 abrogated the common law rule that unincorporated associations lack the capacity to sue.

Appellants acknowledge that at common law in Minnesota unincorporated associations did not have the capacity to sue, but argue that the Legislature abrogated that common law rule when it enacted Minn. Stat. § 540.151. Specifically, relying on American Civil Liberties Union of Minnesota v. Tarek ibn Ziyad Academy, the Medical Staff argues that Minn.Stat. § 540.151 unambiguously grants the capacity to sue to associations that satisfy its statutory criteria. 788 F.Supp.2d 950, 955-56 (D.Minn.2011) (noting that the United States Court of Appeals for the Eighth Circuit has recognized that Minn. Stat. § 540.151 “ ‘permit[s] persons associated under a common name to sue under that name’ and that associations can have standing to assert their members’ rights” (quoting Minn. Ass’n of Nurse Anesthetists v. Allina Health Sys. Corp., 276 F.3d 1032, 1049-50 (8th Cir.2002))). According to appellants, section 540.151 allows them to sue because the Medical Staff consists of two or more persons who associate with each other and act for common purposes, using a common name. Further, appellants note that this action was brought in the association’s common name.

Avera Marshall argues that, because the Medical Staff is subject to the authority and approval of the board and possesses no rights that supersede the general authority of the board, the Medical Staff is a department or agent of Avera Marshall rather than a voluntary association existing separately from the hospital. Therefore, Avera Marshall contends that under the common law rule the Medical Staff has no legal capacity to sue. According to Avera Marshall, the common law rule re*700mains good law and is not superseded by Minn.Stat. § 540.151 because the statute is only procedural in nature. Rather than granting the legal capacity to sue, Avera Marshall argues that this statute simply provides that associations that otherwise have the legal capacity to sue in Minnesota ' may do so under the association’s common name.

We conclude that, under its plain language, Minn.Stat. § 540.151 grants to an unincorporated association the right to sue and be sued if it meets the statutory criteria. The statute states that people who associate under a common name “may sue in or be sued by such common name.” Id. Avera Marshall’s claim that section 540.151 simply creates procedures by which an unincorporated association granted the capacity to sue in another statute may bring such 'a lawsuit is contrary to the plain statutory language.2 Section 540.151 contains no limiting language indicating that it applies only if another statute has granted an association the legal capacity to sue. Given the absence of such language and our rules of statutory interpretation that require us to give meaning to all the words used by the Legislature, see Minn.Stat. § 645.17(2) (2012), we can only conclude that when the Legislature used the words “[w]hen two or more persons associate and act ... under the common name ..., they may sue in or be sued by such common name,” it intended to give such associated persons the legal capacity to sue.

Here, the Medical Staff is composed of two or more physicians who associate and act together for the purpose of ensuring proper patient care at the hospital under the common name “Medical Staff.” Therefore, because the Medical Staff satisfies the statutory criteria of section 540.151, we hold that it has the capacity to sue and be sued under Minnesota law.

II.

Having determined that the Medical Staff has the capacity to sue, we turn next to the Medical Staffs argument that the medical staff bylaws create an enforceable contract between Avera Marshall and the Medical Staff. As noted earlier, the district court concluded that the medical staff bylaws did not create an enforceable contract between Avera Marshall and the Medical Staff or its individual members. The Medical Staff argues that the district court and the court of appeals erred because, in consideration for each physician’s appointment to Avera Marshall’s Medical Staff, the physician agreed to be bound by the full extent of the bylaws and the bylaws go beyond anything required by statute or rule. This promise to abide by the bylaws, appellants claim, was an integral part of the contract that existed between Avera Marshall and the Medical Staff. Appellants further argue that Avera Marshall was obligated to comply with the terms of the bylaws and that Avera Marshall breached the former bylaws’ amendment and repeal provision by unilaterally modifying the bylaws.

Avera Marshall contends that the former bylaws were not an enforceable contract because consideration is lacking and there was therefore no bargained-for exchange with any individual physicians or any group of physicians. Avera Marshall maintains that it adopted the medical staff bylaws because it had a preexisting legal *701duty to do so under Minnesota administrative rules and Avera Marshall’s own bylaws. Additionally, Avera Marshall claims that nothing in the bylaws requires that Avera Marshall obtain approval from the Medical Staff before it amends the bylaws. According to Avera Marshall, both its corporate bylaws and the medical staff bylaws gave Avera Marshall the power to unilaterally modify the medical staff bylaws.

With respect to whether the former bylaws create a contract, the district court and court of appeals agreed with Avera Marshall, concluding that the former medical staff bylaws are not an enforceable contract because of a lack of consideration. Med. Staff of Avera Marshall, 836 N.W.2d at 560-62. Both courts reasoned that the bylaws lacked consideration because the bylaws simply memorialized Avera Marshall’s preexisting duty under Minnesota Rules to adopt medical staff bylaws.3

In Campbell v. St. Mary’s Hospital, without any discussion or analysis about whether medical staff bylaws constitute an enforceable contract between a hospital and its medical staff, we implied that a hospital’s bylaws created contractual rights between a physician and the hospital. 812 Minn. 379, 388, 252 N.W.2d 581, 587 (1977) (affirming grant of summary judgment on doctor’s breach of contract claim because “under the bylaws plaintiff was afforded a full measure of his contractual due process rights at every stage of the proceedings to revoke his surgical privileges”). Thus, we have recognized, at least implicitly, that a hospital’s bylaws may constitute a contract between a hospital and its physicians.

A contract is formed when two or more parties exchange bargained-for promises, manifest mutual assent to the exchange, and support their promises with consideration. Restatement (Second) of Contracts § 17 (1981). “Consideration requires that one party to a transaction voluntarily assume an obligation on the condition of an act or forbearance by the other party.” U.S. Sprint Commc’ns Co., Ltd. v. Comm’r of Revenue, 578 N.W.2d 752, 754 (Minn.1998); see also Baehr v. Renn-O-Tex Oil Corp., 258 Minn. 533, 539, 104 N.W.2d 661, 665 (1960) (explaining that consideration “insures that the promise enforced as a contract is not accidental, casual, or gratuitous, but has been uttered intentionally as the result of some deliberation, manifested by reciprocal bargaining or negotiation”). A promise to do something that one is already legally obligated to do provides no benefit and thus is a “mere naked promise,” Hilde v. Int’l Harvester Co. of Am., 166 Minn. 259, 260, 207 N.W. 617, 618 (1926), that does not constitute consideration. Tonka Tours, Inc. v. Chadima, 372 N.W.2d 723, 728 (Minn. 1985) (stating the common law rule that if *702a party does or promises to do what he is already legally obligated to do, there is insufficient consideration to support the new promise).

We begin our analysis of whether there was consideration by noting that the district court, the court of appeals, and Avera Marshall miss the point by focusing on the adoption of the medical staff bylaws as a preexisting legal obligation. First, nothing in the rules Avera Marshall relies on requires the medical staff bylaws to contain any specific provision. Those rules set out only the minimum requirements for adopting bylaws. “[Bjylaws which exceed the minimum standards required under state law satisfy the consideration requirement.” Craig W. Dallon, Understanding Judicial Review of Hospitals’ Physician Credentialing and Peer Review Decisions, 73 Temple L. Rev. 597, 647 (2000). Our review of the bylaws leads us to conclude that the bylaws at issue here exceed the minimum requirements set out in the administrative rules. While Minn. R. 4640.0800, subp. 2, requires the medical staff to formulate and adopt, with the approval of the hospital’s governing body, bylaws, rules, regulations, and policies “for the proper conduct of its work,” the rule leaves it to the medical staff and the hospital’s governing body to determine the specifics of the bylaws, rules, regulations, and policies. Thus, the mere fact that hospitals have a preexisting legal obligation to adopt medical staff bylaws does not provide much guidance as to whether the bylaws as adopted provide the basis for an enforceable contract between a hospital and its medical staff.4

Second, we note that focusing solely on Avera Marshall’s preexisting duty to adopt medical staff bylaws completely ignores the fact that, before a doctor can be granted privileges at the hospital, the doctor must agree to abide by the medical staff bylaws. While it is true that before agreeing to abide by the prospective bylaws members of the Medical Staff had no ability to change or otherwise alter the bylaws, it is also true that they could have chosen not to join the Medical Staff because of those bylaws. Conversely, this focus ignores the fact that Avera Marshall could choose to either grant or not grant privileges.

The record in this case indicates that Avera Marshall formed a contractual relationship with each member of the Medical Staff upon appointment.5 Avera Marshall *703offered privileges to each member of the Medical Staff, so long as the'Medical Staff member agreed to be bound by the medical staff bylaws as a condition of appointment. Each member of the Medical Staff who accepted Avera Marshall’s offer of appointment agreed to be bound by the bylaws. Thus, there was a bargained-for exchange of promises and mutual consent to the exchange. Importantly, there was also consideration.6 Both Avera Marshall and the members of its Medical Staff voluntarily assumed obligations on the condition of an act or forbearance on the part of the other.7

The district court and court of appeals both concluded that the Medical Staff did not have the capacity to sue Avera Marshall and that the medical staff bylaws did not constitute an enforceable contract be*704tween Avera Marshall and the Medical Staff. As a result, appellants’ claims were dismissed. Because we conclude that the Medical Staff has the capacity to sue and be sued under Minn.Stat. § 540.151, and that the medical staff bylaws constitute an enforceable contract between Avera Marshall and the individual members of the Medical Staff, we reverse the decision of the court of appeals and remand to the district court for further proceedings consistent with this opinion.

Reversed and remanded.