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Bloom v. Clara Maass Medical Center

December 13, 1996

JOEL BLOOM, M.D., STANLEY SCHATZMAN, M.D., PLAINTIFFS, AND DONALD STAVIS, M.D., PLAINTIFF-APPELLANT/CROSS-RESPONDENT,
v.
CLARA MAASS MEDICAL CENTER, BELLEVILLE RADIOLOGY ASSOCIATES, P.A., BARRY H. MARTIN, M.D. DEFENDANTS-RESPONDENTS, AND JAMES A. HEIMANN, M.D., DEFENDANT-RESPONDENT/CROSS-APPELLANT.



On appeal from Superior Court of New Jersey, Chancery Division, Essex County.

Approved for Publication December 16, 1996. As Corrected December 12, 1996. As Corrected January 13, 1997.

Before Judges Shebell, Baime, and Braithwaite. The opinion of the court was delivered by Baime, J.A.D.

The opinion of the court was delivered by: Baime

The opinion of the court was delivered by

BAIME, J.A.D.

The principal question presented in this case is whether Donald Stavis, a medical doctor specializing in radiology, was unlawfully denied hospital staff privileges by Clara Maass Medical Center (hereinafter Clara Maass). Clara Maass revoked Dr. Stavis' privileges when he refused to sign an employment contract with Dr. James Heimann, the chairperson of its radiology department. Under Clara Maass' closed-staff policy, Dr. Heimann had an exclusive contract to furnish radiology services to the hospital and only those radiologists hired by him were entitled to staff privileges. Dr. Stavis contends that the protections provided by the hospital's bylaws should have been triggered and that he was denied due process. Other issues pertain to whether Dr. Stavis owned an equity interest in Belleville Radiology Associates (hereinafter Belleville Associates) or was otherwise entitled to a share of its accounts receivable following his resignation, and whether Dr. Barry Martin or Dr. Heimann breached his fiduciary duty in his administration of the medical practice. We hold that Clara Maass' decision to enter an exclusive contract with Dr. Heimann for the provision of radiological services was reasonably related to an appropriate public health objective and did not unfairly deprive Dr. Stavis of a constitutionally protected right. We also find substantial credible evidence in the record supporting the Conclusion that Dr. Stavis owned no equity interest in Belleville Associates and was not entitled to a share of accounts receivable following his resignation. Finally, we conclude that neither Dr. Martin nor Dr. Heimann breached a fiduciary duty nor an implied covenant of good faith and fair dealing.

I.

Donald Stavis, Joel Bloom, and Stanley Schatzman, all medical doctors specializing in radiology, brought this action in the Chancery Division, claiming that Clara Maass unlawfully revoked their staff privileges in violation of the hospital's bylaws. Plaintiffs sought an order restraining Clara Maass and Dr. Heimann from interfering with their staff privileges. They also demanded a declaratory judgment that the exclusive contract between Clara Maass and Dr. Heimann for the provision of radiological services was void, and that they were lawful shareholders, directors and officers of Belleville Associates. The three doctors further sought monetary damages. In their amended complaint, plaintiffs additionally claimed that Belleville Associates and Dr. Martin breached their contractual duty to distribute corporate earnings. They further asserted that Dr. Heimann and Dr. Martin breached an implied covenant of good faith and fair dealing. Dr. Heimann filed a counterclaim in which he asserted that plaintiffs had tortiously interfered with his prospective economic advantage.

The Chancery Division granted Clara Maass' motion for summary judgment. Following a protracted nonjury trial, Judge Simon rendered an extensive oral opinion in which he rejected all but one of plaintiffs' claims. The Judge ordered Dr. Heimann to share with plaintiffs a $25,000 stipend paid to him by Clara Maass in return for his administrative duties. The Judge found no merit in the counterclaim. Dr. Stavis appeals. Dr. Heimann cross-appeals. We affirm the Chancery Division's judgment.

The thirty-seven day trial generated transcripts exceeding several thousand pages. We recount only the essential facts. This case emanates from a long-festering acrimonious dispute pertaining to the management of Clara Maass' radiology department and the ownership of Belleville Associates. The issues presented are rooted in the history of both entities and the way in which they have intersected over the years. Because of the interplay between the two, our recitation of the facts is necessarily somewhat disjointed.

We begin with a brief description of Clara Maass. Clara Maass is a nonteaching community hospital. Its departments provide services exclusively to the hospital's patients. Each department bills the patients directly and is "close-staffed," meaning the chairperson of the department has an exclusive agreement to provide services to the hospital and hire physicians based on need. No other doctors are accorded staff privileges. At the time of trial, all of Clara Maass' departments were close-staffed, and all but one chairperson had a written contract with the hospital. *fn1

Belleville Associates had its genesis in the solo radiology practice of Dr. Joseph Israel. Dr. Israel was appointed chairperson of Clara Maass' radiology department in 1966. In 1968, Dr. James Stovin joined the practice, and approximately one year later, Dr. Israel established two corporations - "Joseph Israel, M.D., P.A.," which administered the radiology department at Clara Maass, and "Joseph Israel and James Stovin, M.D., P.A." (hereinafter I & S) which administered out-patient services. The name of the hospital corporation, "Joseph Israel, M.D., P.A." was later changed to Belleville Associates, and the office corporation, I & S, was dissolved in 1990. Dr. Israel owned all of the stock of the hospital corporation, and Dr. Israel and Dr. Stovin each owned fifty percent of the shares of the office corporation. In 1970, Dr. Martin joined the practice. Two years later, he paid approximately $13,000 to become an equal shareholder with Dr. Israel and Dr. Stovin in I & S.

Dr. Israel continued as chairperson of Clara Maass' radiology department until 1977, when he was succeeded by Dr. Martin. Although Dr. Israel had been given written contracts to serve as chairperson each year, Dr. Martin's agreement was merely verbal. After Dr. Martin became chairperson, Dr. Israel transferred to him ninety percent of his shares of the hospital corporation. In 1984, Dr. Israel transferred the remainder of the stock to Dr. Martin, as well as his thirty percent interest in I & S.

Dr. Schatzman joined Belleville Associates in 1977. Dr. Bloom joined the group in 1978. Dr. Stavis commenced his association with Belleville Associates in 1982. All three testified they were told by Dr. Martin during their initial interview that they would ultimately become partners in the practice.

Dr. Schatzman claimed that Dr. Martin represented he would become a partner after five years. However, he admitted that he never asked Dr. Martin for shares of stock after the completion of the five year period. Dr. Schatzman also acknowledged that he knew Dr. Israel owned most, if not all, of the stock in the hospital corporation and that he never questioned Dr. Martin as to the ownership of these shares after Dr. Israel retired.

Dr. Bloom testified that he requested a written contract when he was initially interviewed by Dr. Martin. Dr. Martin refused and instead gave him a page of his handwritten notes. The unsigned and undated notes were produced at trial. They specify Dr. Bloom's salary, benefits, percentage of profits for the first five years, and in cryptic fashion, state "full partnership thereafter." Dr. Bloom claimed that he was promised he would become a partner in both corporations after five years, that he would be required to purchase shares of the office corporation after two years, and that it would not be necessary for him to buy into the ...


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