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THIRD DIVISION

November 12, 1998

No. 1-95-1351 and 1-96-1921, Consolidated

JUSTICE CAHILL delivered the opinion of the court:

We consider for the second time a dispute between a hospital and a doctor on its staff. Thehospital had signed a contract in 1992 with a group of doctors, granting the group an exclusiveright to perform heart surgery at the hospital. Plaintiff, a heart surgeon on the hospital staff, wasnot a member of the group. Although the exclusive contract prevented plaintiff from using hisclinical privileges, the hospital never gave him written notice that his clinical privileges wererevoked.

Plaintiff filed a three-count complaint against the hospital and the group of doctors. In count I hesought to enjoin the hospital from revoking his clinical privileges to perform heart surgerywithout notice and a hearing under its bylaws, despite the exclusive contract. Counts II and IIIwere based on breach of and tortious interference with contract and sought damages. Achancellor granted the hospital summary judgment on count I, entered a finding under SupremeCourt Rule 304(a) (134 Ill. 2d R. 304(a)), and transferred the contract counts to the law division.

On appeal from the ruling on count I, we reversed summary judgment for the hospital, findingthat the doctor was entitled to a hearing under the hospital bylaws before the doctor's clinicalprivileges could be revoked. See Garibaldi v. Applebaum, 273 Ill. App. 3d 536, 653 N.E.2d 42(1995) (Garibaldi I).

Here the matter took a twist and turn. While the appeal was pending, the legislature amended theIllinois Hospital Licensing Act. See Pub. Act 88-654, eff. January 1, 1995 (amending 210 ILCS85/10.4 (West 1994)). The amendment directs hospitals that contemplate exclusive contracts toadopt a bylaw that specifically provides for a hearing and notice procedures to a practitionerwhose privileges are affected by an exclusive contract. 210 ILCS 85/10.4 (West 1996). Theamendment reads in part:

"(b) All hospitals licensed under this Act, except county hospitals *** shall comply with, and themedical staff bylaws of these hospitals shall include rules consistent with, the provisions of thisSection in granting, limiting, renewing, or denying medical staff membership and clinic staffprivileges.

***

(2) Minimum procedures with respect to medical staff and clinical privilege determinationsconcerning current members of the medical staff shall include the following:

(A) A written notice of an adverse decision by the hospital governing board.

(B) An explanation of the reasons for an adverse decision including all reasons based on thequality of medical care or any other basis, including economic factors.

(C) A statement of the medical staff member's right to request a fair hearing on the adversedecision before a hearing panel whose membership is mutually agreed upon by the medical staffand the hospital governing board. ***

***

(iii) If a hospital exercises its option to enter into an exclusive contract and that contract results inthe total or partial termination or reduction of medical staff membership or clinical privileges of acurrent medical staff member, the hospital shall provide the affected medical staff member 60days prior notice of the effect on his or her medical staff membership or privileges. An affectedmedical staff member desiring a hearing under subparagraph (C) of this paragraph (2) mustrequest the hearing within 14 days after the date he or she is so notified. ***

(D) A statement of the member's right to inspect all pertinent information in the hospitalpossession with respect to the decision.

(E) A statement of the member's right to present witnesses and other evidence at the hearing onthe decision.

(F) A written notice and written explanation of the decision resulting from the hearing.

(G) Notice given 15 days before implementation of an adverse medical staff membership orclinical privileges decision based substantially on economic factors." 210 ILCS 85/10.4 (West1996).

Neither party argued the impact of the amendment on the case before the court. Nor did therecord reveal that a bylaw conforming to the amendment was adopted while this appeal waspending. The case was decided in the trial court and in this court on the hospital bylaws as theywere when the original complaint was filed. Before the trial court addressed this court's opinionon remand, the hospital added a new bylaw (article IX), mandated by the amendment to theHospital Licensing Act.

The hospital notified plaintiff by letter on October 12, 1995, that a new exclusive contract hadbeen signed and that plaintiff was an "affected practitioner" under the new bylaw. Plaintiff askedfor and was given a hearing under the new bylaw. The bylaw states in part:

"The hearing panel may hear evidence on anything pertaining to the exclusive contract,including, without limitation, the way(s) the exclusive contract is expected to improve the qualityor uniformity of patient care or to attract additional patients to receive services at the Hospital, orthe way the contract relates to specific clinical privileges(s) held by the Affected Practitioner(s)which will become subject to the exclusive contract.

***

If the decision to enter into the exclusive contract is based substantially on economic factors, thenthe exclusive contract shall take effect on the sixteenth (16th) day after the report of the hearingpanel is provided to the Affected Practitioners. Economic factors are reasons which are unrelatedto quality of care or the professional competency of services provided at the Hospital." (Emphasisadded.)

The hospital governing board ratified the exclusive contract after the hearing, but rejected ahearing panel's recommendation to "grandfather" doctors who were in plaintiff's position. Afterthe hearing, plaintiff was allowed to amend his complaint to address issues raised by the articleIX hearing. The hospital again moved to dismiss, and on March 21, 1996, the trial courtdismissed "the [i]njunction [c]ase as [m]oot": plaintiff had received a hearing under the newbylaw this court had ruled he was entitled to under the old bylaw. Plaintiff appealed this order.

Meanwhile, counts II and III were under consideration in the law division. In a written orderentered before our decision in the first appeal, the trial court granted summary judgment to thehospital on counts II and III. As in the chancery appeal, the amendment to the Hospital LicensingAct and the new bylaw were not argued or briefed in the law division. The court found that theold bylaws of the hospital did not create a contractual relationship between the hospital andplaintiff. The court concluded that a failure to give plaintiff a hearing under the bylaws could notsupport breach of contract or tortious interference claims. Plaintiff appealed this order.

We consolidated the two appeals, reuniting the two components of a lawsuit, that, we believe,should never have been uncoupled in the first place, given the finding of the chancellor on count Iof the original complaint. Counts II and III of plaintiff's original complaint were predicated on analleged breach of plaintiff's contractual right to a hearing under the hospital bylaws. In paragraph23 of his original complaint addressed to all counts, plaintiff alleged that the exclusive contractentered into by the hospital and the doctor defendants was "a breach of the bylaws." In count IIplaintiff alleged that the doctor defendants tortiously interfered with this "contract" betweenplaintiff and the hospital. In count III plaintiff alleged breach of contract in that, "as a proximateresult of the hospital's breach of the bylaws" (emphasis added), plaintiff was damaged.

In a colloquy between the attorneys and the court on the motion for summary judgment on countI, the following occurred:

"THE COURT: I cannot find within the pleadings a copy of the *** contract [plaintiff relies on].

MR. JOYCE: The *** contract, we believe, as a matter of law, is the bylaw ***.

THE COURT: What I am getting at, Mr. Joyce, is that there appears to be a specific contractdealing with Applebaum and his group. There is no specific contract that I can find or am awareof dealing with Garibaldi and his group.

***

MR. JOYCE: Well, Dr. Garibaldi doesn't have a separate contract. He has relied on the bylaws***."

When ruling on the motion for summary judgment, the trial court noted that plaintiff apparently"was operating under a contract, be it oral or otherwise." The court did not elaborate on thisstatement. But the court ruled that the bylaws had not been breached, relying on yet anotherbylaw that provided that an exclusive agreement with a practitioner would supersede contractswith other practitioners. The trial court found that (a) the hospital had the right to enter into anexclusive contract with the doctor defendants, and (b) the bylaws did not prohibit such a contract.Having made this ruling, it is not clear from our reading of the record why the two contractcounts were not dismissed, but transferred to the law division. Once the chancellor found nobreach of the bylaws, the contract counts lost their predicate.

Defendants apparently agree. In their motions for summary judgment before the law divisionjudge on the contract counts, defendants suggested to the trial court, in res judicata arguments,that the chancellor's disposition of count I effectively disposed of counts II and III. We agree. Thechancellor, having found that the hospital had not breached its bylaws in entering into anexclusive contract with the doctor defendants, undercut the causes of action set out in counts IIand III. Ultimately, of course, the law division judge reached a decision not incompatible withthat of the chancellor but went on to decide an issue that need not have been addressed.

For good or ill, the chancery division and law division cases, now severed, moved along atdifferent appellate speeds. The parties briefed the issues in separate appeals, but the issues remainentwined. On June 14, 1996, we consolidated the appeals. 

We now address the following issues raised in the consolidated appeals: (1) whether thechancellor erred in finding that plaintiff's suit for an injunction was moot without addressing thecounts added to the amended complaint; and (2) whether plaintiff still has a viable contract causeof action for damages for the time between the first exclusive contract and the date of the articleIX hearing under the new amended statute.

We first address plaintiff's argument that the trial court erred in dismissing his injunction case asmoot. He argues that the article IX hearing did not negate his right to a hearing under the oldbylaws in effect when he first filed his lawsuit.

A case is moot when "it presents or involves no actual controversy, interests or rights of theparties or where the issues have ceased to exist." First National Bank v. Kusper, 98 Ill. 2d 226,233, 456 N.E.2d 7 (1983). We agree that the article IX hearing moots plaintiff's request, in countI, for a hearing under the old bylaw. Plaintiff's clinical privileges were extinguished under thenew bylaw; a hearing under the old bylaw would be a pointless exercise. The issue of damagesfor the period before plaintiff received his hearing is a separate question we address later in thisopinion.

Plaintiff next argues that the hearing under the new bylaw and the hospital's rejection, in part, ofthe hearing panel's recommendation were not "fair." "A court *** will be justified in reviewing aprivate hospital's action even where the bylaws are followed if actual unfairness on the part of thehospital, its committees or individual members of the committees is demonstrated in the record."Adkins v. Sarah Bush Lincoln Health Center, 129 Ill. 2d 497, 514, 544 N.E.2d 733 (1989). Wenote that a hearing may be fundamentally unfair where the decision-maker has a pecuniaryinterest in the outcome of the hearing. Cf. Ward v. Village of Monroeville, 409 U.S. 57, 60, 34 L.Ed. 2d 267, 270, 93 S. Ct. 80, 83 (1972) (holding that a hearing where the judge has a "direct,personal, substantial, pecuniary interest" in the outcome of the case violates the due processclause of the fourteenth amendment).

The trial court, unfortunately, did not rule on plaintiff's challenges to the hearing under the newbylaw. After the hospital hearing under the new bylaw, plaintiff amended his complaint to addcounts IV and V. He challenged the fairness of the hearing and the hospital's refusal to follow thehearing panel's recommendation that he be "grandfathered." At the hearing on the hospital'smotion to dismiss, the trial court ruled that the hospital "acted properly under the [article] IXhearing," but added, "I don't mean to exclude [plaintiff] or prevent him by reason of this rulingexercising his rights to challenge the [article] IX hearing" and that "this order is without prejudiceto that proceeding in the event Dr. Garibaldi deems it appropriate." When plaintiff responded thathe had raised the issue of whether the hearing was proper, the trial court responded, "I don't knowthat you've amended your complaint to talk about the period after [the article IX hearing], sothere's nothing before me on it." In fact, counts IV and V were before the court. The Rule 304(a)language in the trial court's order supports this reading of the record. Nevertheless, the trial courtthen dismissed "the [i]njunction [c]ase as [m]oot." We cannot review the arguments here becausethe trial court did not enter judgment on counts IV and V, nor did it dismiss them. We remandwith directions to the trial court to address counts IV and V of the complaint.

We next address plaintiff's argument that the law division trial court erred by granting summaryjudgment for defendants on plaintiff's breach of contract and tortious interference withcontractual rights counts. The trial court ruled that plaintiff could not maintain either countbecause there was no contract between plaintiff and the hospital. This ruling was correct based onthe chancellor's finding that there was no breach of the bylaws. But the trial court also ruled thateven if the bylaws applied, plaintiff's "privileges were not revoked or reduced, because there wasno corrective action initiated." The trial court apparently believed that even if the bylaws createda contract, so long as plaintiff kept his staff privileges, the impact on his clinical privileges didnot implicate a breach of the bylaws. For the reasons set out in Garibaldi I, we disagree.

Plaintiff now argues that Garibaldi I is the "law of the case" and should apply to our review ofthe law division appeal. In Garibaldi I, we held that the hospital "clearly had a contractualrelationship with Garibaldi in 1992." Garibaldi I, 273 Ill. App. 3d at 540. The "law of the case"rule holds that a question of law decided on a previous appeal is binding on the trial court onremand as well as on the appellate court in a subsequent appeal. Martin v. Federal Life InsuranceCo., 268 Ill. App. 3d 698, 701, 644 N.E.2d 42 (1994). We agree. But we may review earlierdecisions if our supreme court makes a contrary ruling on the issue or we find our first decision"palpably erroneous." Foster v. Kanuri, 288 Ill. App. 3d 796, 799, 681 N.E.2d 111 (1997).

Defendants now argue that Garibaldi I was palpably erroneous because we ignored a disclaimerin the preamble of the hospital bylaws that reads: "these bylaws do not purport to be a contractbetween the Medical Staff or any of its individual members."

In support, defendants argue that this case is comparable to Duldulao v. St. Mary of NazarethHospital Center, 115 Ill. 2d 482, 491, 505 N.E.2d 314 (1987), and Semerau v. Village of SchillerPark, 210 Ill. App. 3d 493, 496, 569 N.E.2d 183 (1991), which defendants assert held that similardisclaimers in employee handbooks may negate the formation of a contract. Duldulao is not onpoint. Duldulao only noted that the handbook before the court did not have a disclaimer. Thecase did not address the impact of a disclaimer. We note that Illinois appellate courts have heldthat disclaimers will sometimes (see Semerau, 210 Ill. App. 3d at 496), but not always (seePerman v. ArcVentures, Inc., 196 Ill. App. 3d 758, 764-65, 554 N.E.2d 982 (1990)), negate thecontractual effect of an employee manual.

More to the point, the hospital bylaws implicated here are not analogous to the proceduralpromises in the employee handbooks in Duldulao and Semerau. Unlike an employer whovoluntarily issues employee handbooks, hospitals must, under the Illinois Administrative Code(the Code), adopt bylaws that ensure procedural safeguards for their staff members' clinicalprivileges. The Code required:

"a) The medical staff shall be organized in accordance with written bylaws, rules and regulations,approved by the Governing Board. The bylaws, rules and regulations shall specifically provide***:

1) establishing written procedures relating to *** clinical privileges disciplinary matters ***. ***

***

C) The procedure shall grant to current medical staff members at least: written notice of anadverse decision by the Governing Board; an explanation and reasons for an adverse decision; theright to examine and/or present copies of relevant information, if any, related to an adversedecision; an opportunity to appeal an adverse decision; and written notice of the decisionresulting from the appeal." 77 Ill. Adm. Code