Legal Brief - Week 04: Case Hlatky v. Steward Health Care System LLC

Fabrice Tshiyoyi Banyingela

Professor Michael Hales – BYU Idaho

Business Law 375

9 October 2021

Hlatky

v.

Steward Health Care System LLC

 

Case Facts

With three decades of experience, Dr. Lynn Hlatky, a prominent cancer vaccine researcher led a lab at Boston’s St. Elizabeth’s Hospital for five years.

Upon her appointment in 2010, she was soon faced with a dilemma when Steward Health Care System LLC (Steward) acquired St. Elizabeth the same year. To comply with federal law regulating research grants the assets of Dr. Hlatky’s cancer lab were moved into a non-profit corporation, controlled by Steward. 

Steward entered into a three year contract with Dr. Hlatky committing, inter alia, to pay her an annual salary and to continue to provide support and suitable office space for the lab. Dr. Hlatky anticipated that if this agreement was not renewed or extended at the end of three years, she would move her program (lab equipment, grants and cell samples) to another institution. 

Before the end of the three-year period, Steward left the non-profit, withdrew its support to the lab center, and handed its assets in the hands of three unqualified individuals who drove the non-profit into bankruptcy. 

The lab equipment was sold and thousands of cell samples were destroyed. Dr. Hlatky claimed breach of contract by Steward and claim a $10 million of damages to reestablish the cancer research lab. Steward appealed, arguing that Dr. Hlatky was not entitled to the damages suffered by the lab. At most, she was entitled to her personal financial losses, such as lost compensation. An award of $10 million to Dr. Hlatky personally, Steward argued, would be a windfall to her.

 

The Issue

The main issue which therefore arises is whether a contracted institutional support to an employee grant-funded program can be withdrawn by mere transfer of assets to inexperience people leading to bankruptcy and destruction of a multi-million dollar research program without compensation. The judge is also required to respond to the plaintiff's request of $10 million in damage to an asset that she didn’t own.

 

Rule

According to the Wikipedia “a contract is a legally binding agreement that defines and governs the rights and duties between or among its parties. A contract is legally enforceable when it meets the requirements of applicable law… In the event of a breach of contract, the injured party may seek judicial remedies such as damages or cancellation.”

An employment contract is used to provide rights and responsibilities between an “employee” and an “employer”. However, there is no guarantee that employment contracts should be a continued employment. In most states in the United States, an employment relationship is presumed to be “at-will,” – terminable by either the employee or the employer as long as the reason is legal. 

Nevertheless, an employment contract is breached when one party does not keep its promises. 

When an employer breaches a contract, the employee is entitled to receive all the benefits under the contract’s terms – money. This payment is collected in the form of damages: what the employee expected to get out of the contract.  

 

Application

Hlatky and Steward agreed to a three-year contract renewable by mutual agreement. Although she was the center’s director, the contract stipulated that it was Steward's "vision" and under Hlatky's leadership, the Center would "evolve into an internationally competitive program." Hlatky was offered an annual salary of $425,000, and that Steward would supply $323,000 in annual funding for other variable expenses.      

Hlatky agreement with Steward was not merely an employment agreement. Hlatky brought her center together with its equipment, researchers, cell samples, and grant funding from Harvard Medical School to St. Elizabeth Hospital before Steward acquired Caritas.

Dr. Lynn Hlatky alleges that the breach in the clause of the contract that she and Steward relied upon was unfair and unreasonable. It goes against the principles of good faith and simple justice. The consequences of the breach was terrible – she lost her laboratory, equipment, and cell samples. This has resulted in her suffering a loss/damages in her scientist career, and her salary payable for the remainder of the contract and the vision of building an international career that had become her life's work. Therefore, Hlatky's claims $10 million for damages in the amount needed to restore the Center's laboratory.

Steward disputes Hlatky's entitlement to damages as claimed, and only believe that she is entitled to the salary and benefits promised under the contract. Steward also argued that the $10 million in damage might constitute Hlatky’s windfall because there is no proof that she will use that fund to reestablish the cancer laboratory or support comparable research.

Hlatky’s counsel inform the jury that “the lawsuit was never about the windfall but trying to recreate a world where Steward hadn’t abandoned Dr. Hlatky.”

 

Ruling

It is clear that Hlatky’s twenty-five years work in cancer research was forced to end. Hlatky should be compensated without restriction in order to reestablish her laboratory. Steward breached the contract by withdrawing its support to the center, thus stopping Hlatky’s interest in the continuation of the program. Steward must pay the sum of $10 million in damage to Dr. Hlatky and in the future should carefully consider the interest of the employee when transferring its assets to a third party.