Readers may be interested in two relatively recent lawsuits involving the National Kidney Registry (NKR) and the University of Colorado Hospital Authority (“UCH,” filed 3/26/21) and the University of Maryland Medical Center (“UMMC”, filed 4/2/2018), respectively. (Citations and links to both lawsuits are at the end of this post)
Both suits involve a particular provision of the Member Center Terms and Conditions that seeks to assess fees on transplant centers who took more kidneys out of the NKR network than they put into it, and seeks to do so in perpetuity, unless and until the kidney deficit is erased:
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MCs shall not have net chains started (NCS) less than 0. The fee for MCs with a negative NCS shall be billed on a 1:1 ratio according to the MC’s NCS. For example, a center with a -2 NCS will be billed $2,000/ month, a center with a -20 NCS will be billed $20,000/ month, etc. This provision and the related monthly fee shall survive the termination of the Service Contract. (emphasis added)
Because UCH had a deficit of 8 unpaired kidney exchanges, NKR billed UCH $8000/month under this provision, which UCH refused to pay. According to the Complaint (paragraph 29):
On or about March 17, 2021, NKR informed Denise Harrington, UCH’s Director of Transplant Business that NKR increased the amount of the Center Connectivity fee, which had previously been $275 per month, by the amount of $8,000 per month, to the new amount of $8,275 per month in perpetuity, as result of NKR’s unilateral action to apply Section 1.3. against UCH. (emphasis added)
NKR correctly argues in its motion to dismiss that centers can avoid the deficit charges through kidney delivery:
Member Centers may also comply with Section I.3 by putting an equal number of kidneys into the NKR network as they take out. The purpose of Section I.3 is to encourage Member Centers to enter into the system at least as many potential donors as the number of matches received from the system by Member Center recipient patients. If Member Centers have no obligation to contribute to the nationwide network, the network and the ability to make high quality donor matches breaks down, to the detriment of recipients in need of kidneys.
This option to specifically perform is interesting in its own right, and I may say more about it later, but what if a Member Center couldn’t deliver kidneys to the network, say because the UCH kidney transplant program had been closed? Or because they determined that kidney exchange was bad for their patients? In the event that delivering kidneys to NKR is impossible, is a court likely to award NKR these fees into perpetuity – a present value of nearly $5 million? (using an interest rate of 2%, which may understate the amount, given the current low interest rate environment)
Under the penalty doctrine, NKR would have to describe its loss, and why $1000/kidney/month is a reasonable estimate of it, even if it can’t provide a precise amount. Here, the “in perpetuity” aspect may be troubling to courts, even if the present value is not high relative to whatever the alleged loss is, as it seems unlikely that NKR is harmed in perpetuity if a member center backs out.
Along those lines, NKR’s language quoted above may not help it in this case, because it could suggest that I.3 is designed to ensure performance, rather than estimate damages. In that sense, I was reminded of the fateful testimony from a witness, noted in Judge Posner’s famous Lake River opinion, though Victor Goldberg thinks that is an unfair interpretation of the witness’s statement.
Because both cases settled, we don’t know how a court would have resolved this issue. In both cases the parties seem to agree that the NKR network was owed kidneys under the contract. Normally, that obligation would be translated into monetary terms that the court would award to the nonbreaching party. But when federal law prohibits the exchange of valuable consideration for a kidney, by definition there is no market price for either the court or the contracting parties to reference. Here, the parties attempted to overcome that problem by specifying a recurring charge, but it’s continuation into perpetuity may raise eyebrows, even if the present value of the charges is otherwise reasonable.
The contract and resulting litigation raise other interesting issues, including specific performance and public policy that aren’t touched on here. The referenced documents are:
Complaint: University of Colorado Hospital Authority v. KidneyLife Foundation, Inc. d/b/a National Kidney Registry, Civil Action No. 21-cv-889 (3/26/21)– https://kimberlydkrawiec.org/wp-content/uploads/2021/11/Complaint.pdf
Motion to Dismiss (5/7/21)– https://kimberlydkrawiec.org/wp-content/uploads/2021/11/May-7-motion-to-dismiss.pdf
Member Center Terms and Conditions (Revised 11/20/20)– https://kimberlydkrawiec.org/wp-content/uploads/2021/11/Member-Terms-and-Conditions.pdf
Complaint: KidneyLife Foundation, Inc. d/b/a National Kidney Registry v. University of Maryland Medical Center, Index No. 606183/2018 (4/2/2018) — https://kimberlydkrawiec.org/wp-content/uploads/2021/11/1Summons-Complaint.pdf
My thanks to Eric Posner, Bob Scott, George Cohen, and Mitu Gulati for helpful discussions about this contract and litigation
Update: Al Roth discusses this post at his Market Design Blog and Jeremy Telman discusses it over at ContractsProf Blog