Key Points

  • The Alabama Supreme Court held that U.S.A. Healthcare Management LLC, the single-member LLC the University of South Alabama formed in 2010 to employ its health-system workforce, is not entitled to State immunity under Article I, Section 14, of the Alabama Constitution.
  • Applying the Staudt factors, the majority found that HCM's hospital-management functions are not uniquely governmental, that its LLC power to sue and be sued and its insurance, contracting and purchasing powers mark it as a separate entity, and that its tax treatment does not change its separate legal status.
  • The majority stressed that the university created HCM so its health-system employees would be private employees outside the Teachers' Retirement System, and held that HCM cannot claim both the benefits of private status and the immunity of a State agency.
  • The vote was 5-3: Justice Mendheim wrote for the court, Justice Cook concurred specially, Justice Sellers dissented joined by Justice Wise, Justice Parker dissented separately, and Justice Shaw was recused.
  • The summary judgment for HCM was reversed and the case remanded to the Mobile Circuit Court for further proceedings.

The Alabama Supreme Court held on Friday that the company the University of South Alabama created to employ nearly all of its hospital workers is not part of the State and cannot invoke the state constitution's bar on lawsuits against the State, reviving a widow's medical-negligence claim over her husband's death in the university hospital's emergency department.

Justice Mendheim, writing for a 5-3 majority, reversed a Mobile Circuit Court summary judgment for U.S.A. Healthcare Management LLC, known as HCM. The university formed the single-member limited liability company in 2010 so that its health-system employees would no longer be enrolled in the Teachers' Retirement System of Alabama. The majority concluded that HCM could not claim to be the State while benefiting financially from the fact that its workers are not State employees.

The ruling strips HCM of a defense that had succeeded elsewhere. HCM supported its motion with orders from circuit courts in other lawsuits that had ruled for it on immunity grounds, and according to a dissent, the Supreme Court itself affirmed such a judgment for HCM in 2022 without an opinion. The university's former treasurer, Robert Davis, testified that the USA Health System is "staffed almost entirely by employees of HCM."

The case arose from the death of Preston H. Marsh, 55, who arrived at the hospital's emergency department on the night of March 17, 2023, with dizziness and extreme shortness of breath. His wife, Carol Brown Marsh, alleged that tests indicated heart trauma but that doctors repeatedly sent him back to the lobby after ordering him to take aspirin. He went into cardiac arrest and died early the next morning.

Carol Marsh sued five doctors in February 2025 and sued HCM under respondeat superior. HCM sought dismissal under Article I, Section 14, of the Alabama Constitution, which provides that the State "shall never be made a defendant in any court of law or equity." The university's chief financial officer, Kristen Roberts, said in an affidavit that "any judgment against [HCM] would directly affect the financial status of USA and the State Treasury." The circuit court granted HCM summary judgment in January 2026.

University officials testified that moving the workforce to HCM let the university stop making mandatory retirement-system contributions for those employees. Marsh estimated in her brief that the university "has saved over $105,000,000.00 by its creation of HCM." The court noted that HCM had not disputed the estimate.

The court applied a three-part test from its 1980 decision in Armory Commission of Alabama v. Staudt. That test looks at the character of the powers given to an entity, its relationship to the State, and the nature of its work, to decide whether it is an arm of the State or a separate body licensed for a beneficial purpose. The majority rejected HCM's argument that the test reaches only entities created by statute, noting that HCM was formed under the state's LLC law.

On each factor, the majority found that HCM looks like a separate entity. Running hospitals and clinics, Justice Mendheim wrote, "is not a unique government function." The LLC statute gives HCM the power to "sue and be sued," and HCM's agreements with the university let it arrange liability insurance, sign third-party contracts and buy supplies. The management agreement between the two describes HCM as an "independent contractor" and states that "USA is a governmental entity and shall not indemnify or hold harmless [HCM]."

HCM had argued that the university's control and funding made the two "for all practical purposes, one and the same." Justice Mendheim wrote that the company's employees are the core of the health system and that it was "frankly shocking to this Court that HCM would suggest otherwise." HCM, the opinion said, claims to be an arm of the State "while at the same time it receives undisputedly significant financial benefits from the fact that its employees do not work for the State. We fail to see how both of those claims simultaneously can be true."

The court also held that combining HCM's finances with the university's for tax and reporting purposes did not change the result, citing a provision of the LLC law that an LLC's "status for tax purposes shall not affect its status as a separate legal entity." "In essence, HCM seeks simultaneously to claim the financial benefits of being a private LLC while also claiming the liability protection of being a State agency," Justice Mendheim wrote. "The law cannot support such a stark contradiction." Chief Justice Stewart and Justices Bryan and McCool joined the opinion.

Justice Cook joined it and also wrote separately to criticize the dissent's reliance on the 2022 affirmance, Autrey v. USA Health Care Management. Justice Cook wrote that "it is a mistake, and a violation of the Rules of Appellate Procedure, for parties to cite unpublished orders or memorandums of affirmance," adding that the majority had explained why an entity "formed for the very purpose of not being the State" is not the State.

Justice Sellers, joined by Justice Wise, dissented. He wrote that "most critically, as with all immunity cases, it should be determined who pays a legal judgment entered against HCM," citing the U.S. Supreme Court's 2026 decision in Galette v. New Jersey Transit Corp. He would have affirmed, writing that a single-member LLC whose sole member is a governmental entity "always derives and retains the governmental attributes and exempt purposes of its single-member parent."

Justice Parker dissented separately, writing that the case "strikes me as presenting a close call." Applying existing precedent, Justice Parker concluded that HCM is an arm of the State because the university created, controls and in practice finances it. Justice Parker also wrote of being "entirely sympathetic with the notion that any given entity must take the bitter aspects of state equivalence along with the sweet." Justice Shaw recused himself.

The Supreme Court sent the case back to the Mobile Circuit Court for further proceedings. The opinion is subject to formal revision before publication in the Southern Reporter.