Summary

The New Jersey Superior Court Appellate Division recently ruled that the damages a physician-independent contractor can recover are limited to those sustained during a notice period in the physician’s contract. The decision limits the potential financial exposure of health care companies in contract disputes with providers. Vosough, M.D., et al. v. St. Joseph’s Regional Medical Center, et al (2014 WL 4210151) (Decided Aug. 27, 2014).

The plaintiffs were three physicians specializing in obstetrics and gynecology who had independent contractor agreements and staff privileges with the defendant St. Joseph’s Regional Medical Center (the “Hospital”) in Paterson, New Jersey. In addition to the Hospital, the defendants were the Hospital’s chief executive officer, William A. McDonald, and chairman of its Department of Obstetrics and Gynecology, Roger K. Kierce, M.D. Dr. Kierce was the plaintiffs’ supervisor. The plaintiff physicians alleged that the Hospital breached its contracts and that the individual defendants intentionally interfered with their contracts with the Hospital. The jury awarded a total of $1,269,079 against the defendants.

The plaintiffs’ contracts required that they provide services as attending physicians in the OB/GYN Department. The contracts provided that either party could terminate without cause with 60 days’ notice.

According to the opinion, Dr. Kierce harassed, disparaged and abused the plaintiffs in a series of incidents, including accusing Dr. Vosough of perjury during a deposition. This conduct violated the medical staff bylaws, which required that all persons be treated with courtesy, dignity and respect and described prohibited conduct. The plaintiff physicians asked the Hospital CEO McDonald to intervene, enforce the bylaws and stop the offending conduct, but he did not do so. The plaintiffs contended that this failure violated their contracts. The Hospital also changed its OB/GYN Department policy with respect to attending physicians’ responsibility for patients, which the plaintiffs also alleged violated their contracts. The plaintiffs presented evidence that Dr. Kierce’s conduct made their continued employment untenable, and that they were constructively discharged, eventually tendering their resignations.

The Appellate Division first addressed the intentional interference claim against McDonald and Kierce. The court noted that, as a matter of law, a party cannot interfere with its own contract, and that a corporation such as the Hospital can only act through its employees and representatives. Accordingly, if the individual defendants were acting within their scope of employment with the Hospital, they could not be found to have “interfered” with the contracts between the Hospital and the individual plaintiffs. The court found that the conduct of Dr. Kierce and CEO McDonald, while arguably intentional and wrongful, was within the scope of their employment. In other words, the individual defendants were performing their duties when they engaged in the acts complained of by the plaintiffs. Because they were acting on behalf of the Hospital, the individual defendants could not have interfered with the contracts between the Hospital and the plaintiffs.

The court then turned to the breach of contract claim. The contracts, which the court analogized to employment contracts, provided that either party could terminate without cause upon 60 days’ notice. The plaintiffs alleged that the Hospital breached the contracts by not enforcing the medical staff bylaws prohibiting harassment by the chief of their department and by substituting a new policy pertaining to the responsibilities of attending physicians. The plaintiffs presented evidence of their lost income for the years 2007 through 2010.

The court held that the plaintiffs could not reasonably expect to have contracts containing the existing terms indefinitely. Indeed, the court ruled that the contract period was limited to 60 days, the notice period in the contracts, and that this period capped the potential damages. As a matter of law, the plaintiffs’ loss of income outside of the 60-day notice obligation could not be attributable to an alleged wrongful termination. Because the plaintiffs presented no evidence of damages during the 60-day period following their resignations, they were not entitled to any recovery

•  In rendering its decision, the Appellate Division noted that New Jersey common law does not recognize a cause of action for a hostile work environment simply because an employee is mistreated by a nasty boss.
• Clauses giving the parties the right to terminate a contract are generally included to give the parties flexibility and to provide the parties with time to find new employment or employees. Under the Vosough case, these clauses can have the effect of limiting any claims for damages.  In this instance, the parties’ damages were limited to the 60-day notice period required for either party to terminate the contract.