A12A1951. SEWELL et al. v. CANCEL et al. A12A1952. FAULK et al. v. CANCEL et al.
A12A1951, A12A1952
Court of Appeals of Georgia
DECIDED MARCH 30, 2015
771 SE2d 388
PHIPPS, Chief Judge.
After the anesthesiology department of a hospital underwent a restructuring, four anesthesiologists who had been working there under their practice group were not selected for continued employment. Alleging that they had been wrongfully terminated because they had voiced concerns of fraudulent billing practices by fellow anesthesiologists, the four anesthesiologists - Angel Cancel, M.D., Pravin Jain, M.D., Grace Duque-Dizon, M.D., and Monajna Sanjeev, M.D. - filed suit. Included amongst the defendants they named, as have since been grouped by the litigating parties, were: (a) Alvin Sewell, M.D., Sanjiwan Tarabadkar, M.D., and Miles H. McDonald, M.D.; and (b) Louis Goolsby, M.D., A. Donald Faulk, and The Medical Center of Central Georgia, Inc. (“The Medical Center“).
In our decision at Cancel v. Sewell,1 we reviewed several rulings on various defendants’ motions for summary judgment.2 And for reasons explained therein, we affirmed the judgment in Case No. A12A1950; we reversed in part the judgment in Case No. A12A1951, while dismissing that case in part; and we dismissed Case No. A12A1952.3 The dismissals were based on our determination that this court lacked jurisdiction of an order that had been entered after the filing of the original notice of appeal.4 In Sewell v. Cancel,5 the Supreme Court of Georgia concluded that jurisdiction had been perfected as to that order, and thus reversed our decision otherwise and remanded Case Nos. A12A1951 and A12A1952 to us for further proceedings.6 Accordingly, we vacate Divisions 7 and 9 of our decision at Cancel v. Sewell,7 which divisions pertained to Case Nos. A12A1951 and A12A1952. Because the remainder of our opinion at Cancel v. Sewell is not inconsistent with the Supreme Court‘s decision, it stands unchanged. Therefore, much of the factual and procedural background detailed in that opinion need not be repeated here.
In the order at issue at this juncture, the trial court denied two joint motions for summary judgment. In both motions, the respective
Case No. A12A1951
Sewell, Tarabadkar, and McDonald challenge the denial of their joint motion for summary judgment on Counts 4 and 5 of the amended complaint, concerning allegations of breach of fiduciary duty and fraud. Countering that challenge, the plaintiffs recite an allegation of their amended complaint:
Defendants Goolsby, Faulk, and [The Medical Center] engaged in a conspiracy along with Defendants Sewell, Tarabadkar and McDonald which resulted in the constructive dissolution of [Central Georgia Anesthesia Services, P.C. (CGAS)] and the termination of CGAS contractual relations for anesthesiology services with [The Medical Center], and the establishment of a new group of anesthesiologists providing services to [The Medical Center] under the name of The Nexus Medical Group, LLC, which excluded the Plaintiffs.8
1. Conspiracy. As a preliminary matter, we note that “Georgia law does not recognize an independent tort of ‘conspiracy.’ ”9 As the Supreme Court of Georgia has espoused:
A conspiracy is a combination of two or more persons to accomplish an unlawful end or to accomplish a lawful end by unlawful means. Accurately speaking, there is no such thing as a civil action for conspiracy. There is an action for damages caused by acts pursuant to a formed conspiracy, but none for the conspiracy alone.10
In their appellate briefs, the plaintiffs maintain that they adduced evidence of the torts of breach of fiduciary duty and fraud.
2. Breach of Fiduciary Duty. The plaintiffs claim, “There was a breach of fiduciary duty by Sewell, Tarabadkar, and McDonald because they appropriated the assets of CGAS for the benefit of NEXUS, to the exclusion of Plaintiffs.”
The gravamen of the plaintiffs’ claim is that Sewell, Tarabadkar, and McDonald breached their fiduciary duties and usurped CGAS‘s corporate opportunities available through CGAS‘s contract with The Medical Center, whereby only CGAS would provide anesthesiology services to The Medical Center‘s hospital in Macon. Each of the four plaintiffs was a director and shareholder of CGAS; each of the four plaintiffs had an employment agreement with CGAS, and thereby practiced medicine at The Medical Center‘s hospital. However, the contract between CGAS and The Medical Center required that all CGAS physicians voluntarily resign from the medical staff of The Medical Center upon termination of that contract for any reason. Similarly, each employment contract required the CGAS physician to resign from the staff of The Medical Center upon termination of employment with CGAS.
“[A] claim for breach of fiduciary duty requires proof of three elements: (1) the existence of a fiduciary duty; (2) breach of that duty; and (3) damage proximately caused by the breach.”12 Even accepting, arguendo, that the plaintiffs were not required to bring a derivative suit,13 we agree with Sewell, Tarabadkar, and McDonald that the plaintiffs failed to adduce evidence of an essential element of their claim.
Sewell, Tarabadkar, and McDonald argued at the summary judgment hearing that the plaintiffs had failed to show any breach. In particular, these defendants asserted that the termination of CGAS‘s contract with The Medical Center had not been procured by any breach of fiduciary duty, but was the intended result of a decision
Faulk (as President/CEO of The Medical Center) sent a letter dated April 25, 2003 to Cancel (as CEO of CGAS), advising that, due to the allegations raised about and by certain CGAS representatives, including behavioral issues and fraudulent billing practices, The Medical Center was intending to cancel its contract with CGAS, effective May 31, 2003, pursuant to the contract‘s “with cause” clause, unless CGAS demonstrated by that date that it was in substantial compliance with the contract. The April 25 letter demanded that CGAS promptly retain a qualified independent consulting firm, subject to The Medical Center‘s approval of both the firm and its audit protocol, to conduct an audit of CGAS‘S billing practices and report the findings thereof to CGAS and to The Medical Center.14
Additionally, the April 25 letter announced The Medical Center‘s intent to restructure its anesthesiology department effective February 29, 2004, even if CGAS demonstrated its compliance with their contract on or before May 31, 2003. And the letter informed CGAS that, beginning May 12, 2003, The Medical Center would begin a “recruitment process for staff anesthesiology positions” and those hired would become its “employees or independent contractors.” The letter outlined that any CGAS physician intending to provide services in the restructured anesthesiology department should promptly submit an application and that, although The Medical Center could not guarantee that any member of CGAS would be offered a contract of employment within the restructured department, The Medical Center would evaluate each application “fairly, objectively and on its individual merits.”15
Counsel for Sewell, Tarabadkar, and McDonald posited at the summary judgment hearing that The Medical Center‘s action had left the CGAS physicians with essentially
two choices[:] Prove billing compliance and we‘ll leave you in place until February 29. If you don‘t prove it, you‘re out May
31, which is a very short time to go find another job. . . . And, so, it wasn‘t that they had a lot of choice. I mean my people [Sewell, Tarabadkar, and McDonald] didn‘t have it either.
Counsel then cited evidence that, within a few days of receiving Faulk‘s letter, the CGAS directors/shareholders convened a meeting, ultimately deciding that CGAS would terminate its contract with The Medical Center effective August 31, 2003. Evidence of CGAS‘s response was detailed in our earlier opinion:
[A]t a CGAS shareholders and directors meeting on April 29, 2003, the attendees discussed a corporate dissolution. Sewell represented that a dissolution would serve to remove any encumbrances that might stand in the way of the hospital‘s restructuring and allow the hospital to negotiate contracts with the individuals of the group. At a May 5, 2003 CGAS shareholders and directors meeting, a proposal was unanimously passed that the CGAS contract with The Medical Center would terminate on August 31, 2003.16
The minutes from that May 5 meeting reveal that CGAS had its corporate counsel and compliance counsel present, and that CGAS‘s corporate counsel had proposed at the start of the meeting that CGAS‘s contract with The Medical Center, as well as all physician employment contracts with CGAS, be terminated effective August 31, 2003, so as to avoid earlier termination for cause.
After that meeting, as the evidence showed, many of the CGAS physicians - including the plaintiffs - submitted applications to work in the restructured department.17 While eight CGAS physicians received offers to join the restructured department, the plaintiffs did not.
Directors and officers of corporations must discharge their duties in good faith and with the care of an ordinarily prudent person in similar positions.18 “Good faith is not just a question of what is proper
We agree with Sewell, Tarabadkar, and McDonald that these actions by the CGAS directors/shareholders (including these three defendants) amounted to an exercise of their business judgment, based upon facts available at the time and the advice of counsel;20 and that the plaintiffs failed to cite any evidence that Sewell, Tarabadkar, and/or McDonald, nevertheless, breached a fiduciary duty in connection with the termination of CGAS‘s contract with The Medical Center.21 The plaintiffs rely on Quinn v. Cardiovascular Physicians, P.C.,22 wherein the Supreme Court of Georgia held that a jury should resolve allegations of misappropriation of business opportunity and breach of fiduciary duty. But Quinn is distinguishable. In that case, Quinn sued a professional corporation and her two former associates for, inter alia, the misappropriation of business opportunity and violation of fiduciary duties.23 Quinn and her two associates - all physicians - had formed their corporation in April 1982 as equal shareholders.24 About two months afterward, in June 1982, Quinn negotiated a one-year contract with a hospital authority, whereby the corporation would provide cardiology services to the hospital authority.25 But five months later, Quinn was given notice of a meeting of shareholders and directors, which was called for the purpose of terminating her status as an officer and employee of the corporation.26 Quinn tendered her resignation as an officer and director, but indicated that she wished to continue working as an employee under the corporation‘s agreement with the hospital authority.27 Neither of the other two shareholders responded; nor did they subsequently
When sued by Quinn, the two shareholders contended that there was no business opportunity to be appropriated, positing that the first corporation had become unable to provide cardiovascular services to the hospital authority.34 This contention was rejected by the Supreme Court, which determined that the record authorized a jury to find that
this claimed inability was nothing more than the result of the refusal by [the two shareholders] to perform medical services on behalf of the first corporation.... A jury might find that, through means of such refusal, [those two shareholders] purposefully destroyed the expectation of renewal which rightfully belonged to the first corporation ---- all in violation of their duty to it and to Quinn as minority shareholder.35
And with respect to the allegation of breach of fiduciary duty, the Court cited evidence that the assets of the first corporation had been “alienated . . . in secret; Quinn was notified of nothing“;36 the Court explained that a jury might determine that the defendants had “pirated away all the assets of the first corporation,” leaving it as “an empty shell, and Quinn‘s shares in it but a scrap of paper -- all in violation of their duties of good faith.”37
3. Fraud. The plaintiffs claim, “The fraudulent scheme here was to induce the CGAS physicians to vote to terminate [The Medical Center]/CGAS contract themselves so that the Plaintiffs could be terminated without the procedural protections of the medical staff bylaws and the contractual rights provided by their individual contracts with CGAS.”
“The tort of fraud has five elements: a false representation by a defendant, scienter, intention to induce the plaintiff to act or refrain from acting, justifiable reliance by plaintiff, and damage to plaintiff.”39 At the summary judgment hearing, counsel for Sewell, Tarabadkar, and McDonald argued that the plaintiffs had failed to adduce any evidence of a false representation.
Although the plaintiffs maintain that they were duped into voting to terminate CGAS‘s contract with The Medical Center, they have pointed to no evidence to support that claim. Moreover, the record shows that when the plaintiffs signed their respective employment agreements with CGAS, they each also executed a resignation document that was held in escrow by CGAS, in which they expressly relinquished upon termination “all due process rights” under The Medical Center‘s bylaws. The employment agreements provided that the resignation documents would be tendered to The Medical Center upon termination of the physicians’ employment for any reason. As such, plaintiffs were aware of these ramifications when they voted to terminate CGAS‘s contract with The Medical Center. Because the plaintiffs failed to adduce evidence of any false representation made to them by Sewell, Tarabadkar, and/or McDonald, these defendants were entitled to summary judgment on the claims of fraud.40 Nothing
Case No. A12A1952
Goolsby, Faulk, and The Medical Center (hereinafter, collectively the “Hospital Defendants“) challenge the denial of their joint motion for summary judgment on Counts 4 and 5, which sought to hold them liable on theories of breach of fiduciary duty and fraud, respectively. In their joint motion seeking summary judgment, they argued that the plaintiffs had failed to adduce evidence to support elements of their claims of breach of fiduciary duty and fraud. Additionally, they argued that they were entitled to immunity, pursuant to
4. In their sole enumerated error on appeal, the Hospital Defendants contend they were entitled to immunity. They assert that the plaintiffs’ claims arose out of their (the Hospital Defendants‘) decision not to renew their (plaintiffs‘) medical staff privileges. The Hospital Defendants assert that, in making those decisions, they were performing “peer review” activities, and therefore were immune from liability pursuant to
No professional health care provider nor any individual who serves as a member or employee of a professional health care provider or review organization nor any individual who furnishes counsel or services to a professional health care provider or review organization shall be held, by reason of the performance of peer review activities, to have violated any criminal law or to be civilly liable under any law unless he was motivated by malice toward any person affected by such activity.43
” ‘Peer review’ means the procedure by which professional health care providers evaluate the quality and efficiency of services ordered or performed by other professional health care providers . . . .”[45] A “review organization” “engages in or utilizes peer reviews and gathers and reviews information relating to the care and treatment of patients for” certain specified purposes.[46] . . . [W]e hold that a careful reading of these definitions reveals that they address the evaluation of the quality and efficiency of actual medical care services and do not encompass the credentialing process to the extent that every decision to extend or maintain staff privileges is a peer review or medical review function.47
The Hospital Defendants maintain that they made the requisite showings under Hosp. Auth. of Valdosta & Lowndes County as follows. The Hospital cited evidence that in May 2003, The Medical Center created a panel - with members that included Goolsby; the psychological consultant who had been engaged to evaluate the interpersonal dynamics amongst the CGAS physicians; a senior CGAS anesthesiologist (who is not a party to this litigation); and the director of the hospital‘s surgery center - which interviewed and evaluated the CGAS physicians who applied for positions within the anticipated restructured anesthesiology department. According to the Hospital Defendants, “[t]he action taken by the Hospital Defendants underlying the claims is the panel‘s decision. That decision was the result of peer review, and, therefore, the Hospital Defendants are immune from civil liability in connection with that peer review activity.”
The plaintiffs counter that the Hospital Defendants were not entitled to summary judgment based on immunity under
I was present for each interview. Each interviewee was asked approximately the same questions, and was given a full chance to answer and comment on the topics. Generally, the interview focused on the future of the Department of Anesthesiology at [The Medical Center‘s hospital], the need for harmonious participation by all anesthesiologists among each other and with [The Medical Center‘s] staff, and whether the interviewee could be a team player in that context.48
The Hospital Defendants respond by citing other evidence, and by relying on orders entered by the trial court.
(a) Other evidence. The Hospital Defendants cite the deposition testimony of the psychologist who was on the panel; she described that the evaluations primarily addressed behavioral issues and in-fighting amongst the CGAS physicians. The Hospital Defendants additionally cite similar deposition testimony by Goolsby regarding the panel‘s determination that the CGAS group of physicians was not functioning properly - recalling that they had been accusing each other of billing fraud, and summarizing that their “inability to work together, the constant infighting, bickering and one-upmanship” had become “intolerable.”
We agree with the plaintiffs, however. The evidence cited here does not establish that the panel, even if a “peer review” committee, was evaluating the quality and efficiency of “actual medical care services” as contemplated by Hosp. Auth. of Valdosta & Lowndes County.49
(b) Orders entered by the trial court. The Hospital Defendants contend:
The trial court erred in denying summary judgment to [them] because the court found that [The Medical Center‘s] actions underlying the claims were “peer review activities,” as defined by the peer review statute, but failed to apply the immunity provided for in the same statute.
OCGA § 31-7-132 .
The record reveals that the trial court appointed a special master to make recommendations upon discovery matters, including whether The Medical Center was required to produce certain documents to the
Thus referring to those orders in seeking summary judgment on the ground of immunity, the Hospital Defendants posited in their brief: ”This Court has already ruled that the evaluation process was a peer review activity.[50] The Court‘s ruling was correct, and settles this issue.”51 Further, at the summary judgment hearing, counsel for the Hospital Defendants asserted to the court that there was no question “that the Goolsby process was a peer review process as this [c]ourt, you know, has so held.” But the trial court interjected, “You know, that‘s something I‘m not sure about, but go ahead.” When counsel then referred the court to “orders that have been signed and adopted, you know, by the [trial court] accepting the recommendations of the Special Master,” the trial court responded, “I‘m not sure about the scope of that order....”
Given the circumstances of this case, including the summary order on appeal,52 we vacate the denial of summary judgment; we remand the case so that the trial court may clarify whether its orders adopting the special master‘s discovery recommendations further determined that, for purposes of immunity under
Judgment reversed in Case No. A12A1951. Dillard, J., concurs. Ellington, P. J., concurs in judgment only. Judgment vacated, and case remanded in Case No. A12A1952. Dillard, J., concurs as to Division 5 and concurs in judgment only as to Division 4. Ellington, P. J., concurs in judgment only.
DECIDED MARCH 30, 2015.
Holland & Knight, Alfred B. Adams III, Cynthia G. Burnside, Heather A. Calhoun, Leland H. Kynes, for Sewell et al.
McGriff & Associates, George W. McGriff, Eric E. Wyatt, Nicholas G. Dumich, for Cancel et al.
Conley Griggs Partin, Ranse M. Partin, King & Spalding, W. Ray Persons, for Faulk et al.
PHIPPS
CHIEF JUDGE