`
`David B. Robbins, WSBA No. 13628
`Michelle L. Maley, WSBA No. 51318
`Perkins Coie LLP
`1201 Third Avenue, Suite 4900
`Seattle, Washington 98101-3099
`Telephone: 206.359.8000
`Facsimile: 206.359.9000
`
`Attorneys for Plaintiff MultiCare Health System
`
`UNITED STATES DISTRICT COURT
`EASTERN DISTRICT OF WASHINGTON
`
`No. 2:22-cv-00007
`
`COMPLAINT FOR DAMAGES
`AND DECLARATORY RELIEF
`
`MULTICARE HEALTH SYSTEM, a
`Washington non-profit,
`
`Plaintiff,
`
`v.
`
`CHS WASHINGTON HOLDINGS, LLC, a
`Delaware limited liability company and
`CHS/COMMUNITY HEALTH SYSTEMS,
`INC., a Delaware corporation,
`
`Defendants.
`
`Plaintiff MultiCare Health System (“MultiCare”), by and through undersigned counsel,
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`hereby files this complaint against defendants CHS Washington Holdings, LLC and
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`CHS/Community Health Systems, Inc. (together, “CHS”) seeking declaratory relief to enforce its
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`rights under the June 30, 2017 Amended and Restated Asset Purchase Agreement by and among
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`CHS Washington Holdings, LLC and CHS/Community Health Systems, Inc. and MultiCare
`
`Health System (“APA”).
`
`MultiCare alleges as follows:
`
`COMPLAINT (No. 2:22-cv-00007) – 1
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`155010278
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`Perkins Coie LLP
`1201 Third Avenue, Suite 4900
`Seattle, Washington 98101-3099
`Phone: 206.359.8000
`Fax: 206.359.9000
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`Case 2:22-cv-00007-TOR ECF No. 1 filed 01/11/22 PageID.2 Page 2 of 11
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`I.
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`PARTIES
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`1.
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`Plaintiff MultiCare is a Washington non-profit corporation engaged in providing
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`healthcare and medical services through acute care hospitals and numerous other affiliated
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`healthcare providers and entities.
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`2.
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`Defendant CHS/Community Health Systems, Inc. is a for-profit Delaware
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`corporation with its principal place of business in Franklin, Tennessee.
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`3.
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`Defendant CHS Washington Holdings, LLC is a for-profit Delaware limited
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`liability company with its principal place of business in Franklin, Tennessee. CHS Washington
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`Holdings, LLC’s governors include Kevin J. Hammons, Benjamin C. Fordham, and Tim L.
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`Hingtgen. On information and belief, Mr. Hammons and Mr. Fordham are domiciled and therefore
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`are citizens of Franklin, Tennessee. On information and belief, Mr. Hingtgen is domiciled and
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`therefore is a citizen of Brentwood, Tennessee.1
`
`4.
`
`MultiCare has diligently searched publicly available information to confirm the
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`identity of additional owners and members, if any, of CHS Washington Holdings, LLC, including
`
`by examining organizational filings with the Washington and Delaware Secretaries of State. But
`
`MultiCare has been unable to confirm the identity or citizenship of any additional owners or
`
`members. On information and belief, however, no owner or member of CHS Washington
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`Holdings, LLC is a Washington citizen. See Carolina Cas. Ins. Co. v. Team Equipment, Inc., 741
`
`F.3d 1082, 1086 (9th Cir. 2014) (reversing dismissal of complaint that did not allege citizenship
`
`of LLC-defendant’s members and owners, where such information was not reasonably available
`
`to plaintiff; “The diversity issues can be better considered by the court after the defendants have
`
`been served and had an opportunity to respond.”).
`
`1 “Governor,” as the Washington Secretary of State uses that term, encompasses LLC members,
`managers, directors, and partners, among others. RCW 23.95.105(12).
`COMPLAINT (No. 2:22-cv-00007) – 2
`Perkins Coie LLP
`1201 Third Avenue, Suite 4900
`Seattle, Washington 98101-3099
`Phone: 206.359.8000
`Fax: 206.359.9000
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`Case 2:22-cv-00007-TOR ECF No. 1 filed 01/11/22 PageID.3 Page 3 of 11
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`II.
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`JURISDICTION AND VENUE
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`5.
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`This Court has jurisdiction of this action under 28 U.S.C. § 1332(a)(1), there being
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`complete diversity of citizenship between the parties and the matter in controversy exceeding the
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`sum or value of $75,000, exclusive of interest and costs.
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`6.
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`Venue is proper in this District under 28 U.S.C. § 1391(b)(2), in that a substantial
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`part of the events giving rise to plaintiff’s claims occurred in this District.
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`III.
`
`FACTUAL ALLEGATIONS
`
`A.
`
`The Asset Purchase Agreement
`
`7.
`
`Before July 1, 2017, CHS, through intermediary entities, owned or leased
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`Deaconess Hospital and Valley Hospital (the “Hospitals”). CHS also owned businesses related to
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`the Hospitals, including medical office buildings and outpatient care facilities (the “Facilities”).
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`CHS further held rights as a Class B member of Rockwood Clinic, P.S. (the “Clinic”), including
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`Rockwood Neurosurgery and Spine. The Clinic at that time employed Dr. Christopher Heller as
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`a physician who worked in the Deaconess Medical Office Building.
`
`8.
`
`On June 30, 2017, CHS, through the Asset Purchase Agreement, sold to MultiCare
`
`the Hospitals, the Facilities, all assets used in connection with the Facilities, and CHS’s Class B
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`membership in the Clinic. Ex. A § 1.1.
`
`9.
`
`On July 1, 2017, MultiCare assumed ownership of select liabilities: obligations
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`accruing from the effective date (called the “Effective Time”) of the APA forward; certain
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`accounts payable, accrued expenses, and other current liabilities; certain capital lease obligations;
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`and obligations and liabilities related to accrued vacation and holiday benefits of Facilities
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`employees. Id. § 1.3.
`
`10.
`
`But the APA expressly carved out “excluded liabilities,” for which CHS retained
`
`liability, including malpractice or general-liability claims arising from events pre-dating the APA’s
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`Effective Time. Id. § 1.4(b).
`
`COMPLAINT (No. 2:22-cv-00007) – 3
`
`155010278
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`Perkins Coie LLP
`1201 Third Avenue, Suite 4900
`Seattle, Washington 98101-3099
`Phone: 206.359.8000
`Fax: 206.359.9000
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`Case 2:22-cv-00007-TOR ECF No. 1 filed 01/11/22 PageID.4 Page 4 of 11
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`11.
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`Consistent with that exclusion, the APA obligates CHS to indemnify MultiCare for
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`malpractice and other claims arising out of pre-sale events.
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`12.
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`In particular, Section 11.2 obligates CHS to defend, indemnify, and hold harmless
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`MultiCare for excluded liabilities (including malpractice and general-liability claims) and third-
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`party claims based on events that occurred prior to the Effective Time:
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`Seller shall defend, indemnify and hold harmless Buyer and its
`Affiliates, and its and their respective officers, directors, employees,
`agents, or
`independent
`contractors
`(collectively,
`“Buyer
`Indemnified Parties”), from and against any and all losses,
`liabilities, damages, costs (including, without limitation, court costs
`and costs of appeal) and expenses (including, without limitation,
`reasonable attorneys’ fees and fees of expert consultants and
`witnesses) that such Buyer Indemnified Party incurs as a result of,
`or with respect to . . . (iii) any of the Excluded Liabilities, [and]
`(iv) any claim made by a third party with respect to or arising out of
`the ownership of the Facilities or Assets or the operation of the
`Business prior to the Effective Time.2
`
`13.
`
`If CHS fails to execute its indemnification obligations within ten (10) days of notice
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`of claim, the APA vests in MultiCare the right, but not the obligation, to undertake its own defense
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`“on behalf of and for the account and at the risk of [CHS].” Ex. A § 11.4.
`
`14.
`
`The APA includes additional provisions to account for CHS’s retention of pre-sale
`
`liabilities and indemnification obligation. In particular, MultiCare agreed to provide CHS with
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`copies of patient records “for purposes of pending claims or litigation involving a patient to whom
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`such records refer, as certified in writing prior to receipt by counsel retained by [CHS] in
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`connection with such litigation.” Id. § 10.4. It agreed to notify CHS in writing regarding any
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`claim or liability covered by the indemnification provision within fifteen (15) days after receiving
`
`a third-party claim. Id. § 11.4. It agreed to “take all reasonable steps to mitigate all liabilities and
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`claims” subject to CHS’s indemnification, “including availing itself as reasonably directed by
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`2 “Business” encapsulates all activities and operations associated with the Assets, Facilities, and
`Clinic Sites. Ex. A, Recital D.
`COMPLAINT (No. 2:22-cv-00007) – 4
`
`Perkins Coie LLP
`1201 Third Avenue, Suite 4900
`Seattle, Washington 98101-3099
`Phone: 206.359.8000
`Fax: 206.359.9000
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`[CHS] of any defenses, limitations, rights of contribution, claims against third parties (other than
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`[MultiCare’s] insurance carriers) and other rights at law,” and “provid[ing] such evidence and
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`documentation of the nature and extent of any liability as may be reasonably requested by” CHS.
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`Id. § 11.6. And both parties agreed to “act in a commercially reasonable manner in addressing any
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`liabilities that may provide the basis for an indemnifiable claim (that is, each party shall respond
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`to such liability in the same manner that it would respond to such liability in the absence of the
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`indemnification provided for in this Agreement).” Id.
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`15.
`
`Section 10.20 of the APA further obligates CHS to maintain “all claims-made
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`professional and general liability insurance policies of the Hospitals for claims related to the period
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`of [CHS’s] ownership and operation of the Hospitals” and “excess insurance coverage” for those
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`claims “relating to the Clinic or arising out of its operations during the period of [CHS’s]
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`ownership” for at least ten (10) years following the asset sale.
`
`B.
`
`MultiCare’s Insurance Coverage
`
`16.
`
`Before the parties executed the APA, The Doctors Company served as the
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`professional liability insurance carrier for the Clinic and its physicians. That insurance remained
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`in effect after the asset sale.
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`17.
`
`In 2019, MultiCare purchased primary insurance coverage from Physicians
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`Insurance for the physicians rather than from The Doctors Company. The new policy through
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`Physicians Insurance provided prior-acts primary coverage for the Clinic physicians. The only
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`policy MultiCare had, which would cover MultiCare and the entities that it acquired through the
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`APA, provided coverage in the event that CHS defaulted on its contractual obligation to maintain
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`such insurance for ten (10) years after the asset sale. See Ex. A § 10.20.
`
`C.
`
`The Underlying Lawsuit
`
`18.
`
`On March 4, 2020, Fasitupe Meafua accused MultiCare and Dr. Heller of
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`malpractice. See Ex. B, March 4, 2020 Notice Letter. Mr. Meafua is a former patient of Rockwood
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`Neurosurgery and Spine. Mr. Meafua alleged injuries “as a result of health care provided to Mr.
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`COMPLAINT (No. 2:22-cv-00007) – 5
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`155010278
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`Perkins Coie LLP
`1201 Third Avenue, Suite 4900
`Seattle, Washington 98101-3099
`Phone: 206.359.8000
`Fax: 206.359.9000
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`Case 2:22-cv-00007-TOR ECF No. 1 filed 01/11/22 PageID.6 Page 6 of 11
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`Meafua” by Dr. Heller, Deaconess Neuroscience Institute, “its partners, employees, agents and/or
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`obstensible [sic] agents.” Id.
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`19.
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`On April 14, 2021, Mr. Meafua filed a negligence suit (the “Underlying Lawsuit”)
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`against MultiCare, Rockwood Neurosurgery and Spine, and Dr. Heller. Mr. Meafua alleged that
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`he suffers from paralysis of all four limbs, as well as related neurologic injuries and deficits,
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`following May 23 and May 25, 2017 surgeries performed by Dr. Heller. See Ex. C, Amended
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`Complaint for Damages.
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`D.
`
`CHS’s Breach of the Asset Purchase Agreement
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`20. MultiCare tendered the defense and indemnification of Mr. Meafua’s initial claim
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`to CHS on March 11, 2020. See Ex. D, March 11, 2020 Letter from MultiCare to CHS. MultiCare
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`at that time reminded CHS that the APA excluded existing or potential malpractice claims based
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`on pre-sale events, and that CHS is contractually obligated to defend, indemnify, and hold harmless
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`MultiCare with respect to such claims. See id.
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`21.
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`CHS accepted tender by email dated April 1, 2020: “Assuming the events of which
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`he writes occurred prior to the 7/1/2017 acquisition by MHS, we will take steps to defend and hold
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`harmless MHS in accordance with the APA of 6/30/17.” Ex. E, April 1, 2020 Email (emphasis
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`added).
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`22.
`
`On June 7, 2021, after Mr. Meafua initiated the Underlying Lawsuit, MultiCare
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`tendered to CHS again. See Ex. F, June 7, 2021 Letter from MultiCare to CHS.
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`23.
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`CHS, in response, walked back its April 1, 2020 acceptance of tender:
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`letter] mis-interprets my email
`[MultiCare’s June 7, 2021
`confirmation of 4/1/2020. While I did in fact state that ‘we will take
`steps to defend and hold harmless MSH [sic] in accordance with the
`APA of 6/30/17,’ there were at that time no allegations specified, or
`defendants specifically named. The obligations of CHS specified in
`the APA apply only to facilities purchased from CHS by Multicare
`Health Systems, and then only to the degree that coverage is not
`provided by a commercial entity.
`
`Ex. G, June 17, 2021 Letter from CHS to MultiCare.
`
`COMPLAINT (No. 2:22-cv-00007) – 6
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`155010278
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`Perkins Coie LLP
`1201 Third Avenue, Suite 4900
`Seattle, Washington 98101-3099
`Phone: 206.359.8000
`Fax: 206.359.9000
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`Case 2:22-cv-00007-TOR ECF No. 1 filed 01/11/22 PageID.7 Page 7 of 11
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`24.
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`CHS advanced two theories for its denial of tender: (1) The Doctors Company
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`provides insurance coverage for MultiCare and Dr. Heller, and (2) the APA did not require CHS
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`to assume liability for Dr. Heller or Rockwood Neurosurgery and Spine, because the asset sale did
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`not include them. See id.
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`25. MultiCare tendered for a third time on July 8, 2021. See Ex. H, July 8, 2021 Letter
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`from MultiCare to CHS. Reiterating CHS’s defense, indemnity, and insurance obligations,
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`MultiCare explained that The Doctors Company was not insuring and would not insure MultiCare
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`or Dr. Heller, and that Rockwood Neurosurgery and Spine was a CHS-owned facility that
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`MultiCare purchased through the APA.
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`26.
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`CHS declined tender again on July 14, 2021, but without offering any legal analysis
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`or substantive response to MultiCare’s tender. See Ex. I, July 14, 2021 Letter from CHS to
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`MultiCare.
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`27.
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`In subsequent communications throughout the fall of 2021, CHS advanced shifting
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`theories to avoid its insurance and indemnification obligations under the APA.
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`28.
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`On August 4, 2021, CHS claimed that MultiCare was obligated to procure and
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`maintain malpractice insurance for MultiCare and Dr. Heller, but without citation to the APA. See
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`Ex. J, Email Thread. CHS instead simply claimed to have “directed buyer to look to the
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`commercial insurer to defend the professional liability claims involving [MultiCare] or its
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`employed physicians, rather than make indemnification claims against the seller under the APA.”
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`Id.
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`29.
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`On October 4, 2021, CHS claimed that its obligation to maintain malpractice
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`insurance for ten (10) years following the asset sale “relates to excess coverage only, not the
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`primary policy that MultiCare obtained by virtue of its acquisition of the Clinic Membership
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`Interest.” Id. CHS’s representation, however, directly conflicts with Section 10.20 of the APA.
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`Ex. A § 10.20 (CHS “shall . . . maintain in effect insurance on all claims-made professional and
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`general liability insurance policies of the Hospitals for claims related to the period of [CHS’s]
`COMPLAINT (No. 2:22-cv-00007) – 7
`
`Perkins Coie LLP
`1201 Third Avenue, Suite 4900
`Seattle, Washington 98101-3099
`Phone: 206.359.8000
`Fax: 206.359.9000
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`155010278
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`Case 2:22-cv-00007-TOR ECF No. 1 filed 01/11/22 PageID.8 Page 8 of 11
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`ownership and operation of the Hospitals,” as well as “excess insurance coverage in effect
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`immediately prior to the date of this Agreement for those claims (whether or not reported) relating
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`to the Clinic or arising out of its operations during the period of [CHS’s] ownership of the Clinic
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`Membership Interest”). Moreover, CHS’s allegation concerning malpractice insurance does not
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`even purport to derogate from its indemnification, hold harmless and defense obligations set forth
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`in Section 11.2 of the APA that it violated by declining MultiCare’s tender.
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`30.
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`On October 7, 2021, CHS abandoned its prior theories, this time hinging denial of
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`tender on Section 11.6 of the APA. See Ex. J. That provision obligates an indemnified party,
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`whether that is MultiCare or CHS, to “take all reasonable steps to mitigate all liabilities and claims,
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`including availing itself as reasonably directed by the Indemnifying Party of any defenses,
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`limitations, rights of contribution, claims against third parties (other than the Indemnified Party’s
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`insurance carriers) and other rights at law.” Ex. A § 11.6. It further obligates both parties to “act
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`in a commercially reasonable manner in addressing any liabilities that may provide the basis for
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`an indemnifiable claim (that is, each party shall respond to such liability in the same manner that
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`it would respond to such liability in the absence of the indemnification provided for in this
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`Agreement).” Id. CHS argued that MultiCare violated its duty to “act in a commercially
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`reasonable manner” by failing to obtain insurance that would cover the Underlying Lawsuit. CHS
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`was not able to cite any provision of the APA obligating MultiCare to procure such insurance,
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`however, nor did it explain why it was commercially unreasonable to rely upon CHS’s express
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`indemnity and insurance obligations contained in the APA.
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`FIRST CAUSE OF ACTION
`IV.
`Breach of Contract & Indemnification
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`31. MultiCare realleges and incorporates by reference, as if fully set forth herein, the
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`allegations in paragraphs 1–30 above.
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`32. MultiCare and CHS are competent parties that entered into the APA for valuable
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`consideration.
`COMPLAINT (No.2:22-cv-00007) – 8
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`155010278
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`Perkins Coie LLP
`1201 Third Avenue, Suite 4900
`Seattle, Washington 98101-3099
`Phone: 206.359.8000
`Fax: 206.359.9000
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`Case 2:22-cv-00007-TOR ECF No. 1 filed 01/11/22 PageID.9 Page 9 of 11
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`33.
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`The APA provides that CHS retained liability for existing or potential medical
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`malpractice claims arising out of pre-sale events.
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`34.
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`The Underlying Lawsuit is a medical malpractice claim arising out of pre-sale
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`events.
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`35.
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`CHS’s failure to assume liability for the Underlying Lawsuit is a material breach
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`of the APA.
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`36.
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`The APA further obligates CHS to defend, indemnify, and hold harmless
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`MultiCare, the Clinic, and Rockwood Neurosurgery and Spine from and against any and all losses,
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`liabilities, damages, costs, and expenses that MultiCare incurs as a result of (1) any excluded
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`liabilities and (2) any claim made by a third party arising out of CHS’s pre-sale ownership of the
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`Facilities or Assets or the operation of the Business.
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`37.
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`The Underlying Lawsuit is both an excluded liability and a claim made by a third
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`party arising out of CHS’s pre-sale ownership of the Facilities or Assets or the operation of the
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`Business.
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`38.
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`CHS’s failure to defend, indemnify, and hold harmless MultiCare Health System,
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`the Clinic, and Rockwood Neurosurgery and Spine for the Underlying Lawsuit is another material
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`breach of the APA.
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`39.
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`The APA further obligates CHS to maintain and apply claims-made professional
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`and general-liability insurance for claims arising out of CHS’s pre-sale ownership of the Hospitals
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`and for those claims relating to the Clinic or arising out of its operations during the period of CHS’s
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`ownership of the Clinic Membership Interest.
`
`40.
`
`The Underlying Lawsuit is a claim arising out of CHS’s pre-sale ownership of the
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`Hospitals and a claim relating to the Clinic or arising out of its operations during the period of
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`CHS’s ownership of the Clinic Membership Interest.
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`41.
`
`CHS’s failure to maintain and apply claims-made professional and general-liability
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`insurance for the Underlying Lawsuit is another material breach of the APA.
`COMPLAINT (No. 2:22-cv-00007) – 9
`
`Perkins Coie LLP
`1201 Third Avenue, Suite 4900
`Seattle, Washington 98101-3099
`Phone: 206.359.8000
`Fax: 206.359.9000
`
`155010278
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`42.
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`By reason of CHS’s breaches, MultiCare has been damaged and continues to be
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`damaged in an amount to be proven at trial.
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`43.
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`All conditions precedent to bringing this cause of action have been satisfied.
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`SECOND CAUSE OF ACTION
`V.
`Declaratory Judgment, 28 U.S.C. § 2201 et seq.
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`44. MultiCare realleges and incorporates by reference, as if fully set forth herein, the
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`allegations in paragraphs 1–43 above.
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`45.
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`An actual controversy exists as to whether CHS breached its contractual obligations
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`to (1) retain liability for the Underlying Lawsuit; (2) defend, indemnify, and hold harmless
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`MultiCare Health System, the Clinic, and Rockwood Neurosurgery and Spine for the Underlying
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`Lawsuit; and (3) maintain and apply claims-made professional, general-liability and, as applicable,
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`excess coverage insurance for the Underlying Lawsuit. MultiCare contends CHS has breached all
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`three obligations. CHS denies that it had or breached any contractual duty.
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`46.
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`The controversy is such that, pursuant to Federal Rule of Civil Procedure 57 and
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`28 U.S.C. § 2201 et seq., MultiCare is entitled to a declaration, in the form of a judgment, that
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`CHS breached its contractual obligations to (1) retain liability for the Underlying Lawsuit;
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`(2) defend, indemnify, and hold harmless MultiCare Health System, the Clinic, and Rockwood
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`Neurosurgery and Spine for the Underlying Lawsuit; and (3) maintain and apply claims-made
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`professional and general-liability insurance for the Underlying Lawsuit. Such a determination and
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`declaration are necessary and appropriate at this time. In light of CHS’s actions, without such
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`relief, MultiCare will suffer harm, including liability for any defense costs and damages incurred
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`in the Underlying Lawsuit.
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`47.
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`All conditions precedent to bringing this cause of action have been satisfied.
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`COMPLAINT (No. 2:22-cv-00007) – 10
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`155010278
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`Perkins Coie LLP
`1201 Third Avenue, Suite 4900
`Seattle, Washington 98101-3099
`Phone: 206.359.8000
`Fax: 206.359.9000
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`Case 2:22-cv-00007-TOR ECF No. 1 filed 01/11/22 PageID.11 Page 11 of 11
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`VI.
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`PRAYER FOR RELIEF
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`WHEREFORE, plaintiff MultiCare prays for the following relief:
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`A. Damages in such amount as may be proven at trial;
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`B. Costs of suit, including MultiCare’s reasonable attorney fees;
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`C. A declaratory judgment that MultiCare did not assume liability for the Underlying
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`Lawsuit, and that CHS has breached its contractual obligations; and
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`D. Such other relief as the Court may deem just and proper.
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`DATED: January 11, 2022.
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`By: s/ Michelle L. Maley
`Michelle L. Maley, WSBA No. 51318
`David B. Robbins, WSBA No. 13628
`Perkins Coie LLP
`1201 Third Avenue, Suite 4900
`Seattle, Washington 98101-3099
`Telephone: 206.359.8000
`Facsimile: 206.359.9000
`MMaley@perkinscoie.com
`DRobbins@perkinscoie.com
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`Attorneys for Plaintiff
`MultiCare Health System
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`COMPLAINT (No. 2:22-cv-00007) – 11
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`155010278
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`Perkins Coie LLP
`1201 Third Avenue, Suite 4900
`Seattle, Washington 98101-3099
`Phone: 206.359.8000
`Fax: 206.359.9000
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