The hits just keep coming for Tuomey Healthcare System, Inc. (“Tuomey”). Tuomey is not permitted to indemnify its trustees or officers according to an opinion published by the Attorney General of South Carolina (“SC AG”) on September 3, 2013. In May, 2013, the government requested approximately $237 million in damages after a jury found Tuomey violated the Stark Law and the False Claims Act by entering into compensation arrangements with physicians that exceeded fair market value, were not commercially reasonable, and took into account volume or value of referrals. The case is pending awaiting a court-ordered damage award and final judgment. In the meantime, South Carolina State Senator J. Thomas McElveen, III requested an opinion from the SC AG on whether the charitable organization can indemnify its officers and board members from personal liability related to the matter (the individual officers and trustees were not parties to the lawsuit).
The SC AG concluded that South Carolina law does not permit Tuomey to indemnify its officers and board members for any claims in which the trustees or officers are not made a party to the proceeding or if the officers or trustees are found to violate state laws. The SC AG analyzed the South Carolina Nonprofit Corporation Act, the South Carolina Trust Code, South Carolina’s common law on indemnification, and the indemnification provision in Tuomey’s bylaws. This opinion confirms that it would be prudent for health system trustees, board members, and officers to understand how applicable laws and bylaw terms might affect their systems’ right/obligation to indemnify them in similar circumstances.