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Feldman v. Hunterdon Radiological Associates

July 5, 2006

RUTH S. FELDMAN, M.D., PLAINTIFF-RESPONDENT,
v.
HUNTERDON RADIOLOGICAL ASSOCIATES AND MARK S. MALZBERG, INDIVIDUALLY, DEFENDANTS-APPELLANTS, AND THE BREMS IMAGING GROUP II, LLC AND THE BREMS IMAGING GROUP, LLC, DEFENDANTS-RESPONDENTS.



On certification to the Superior Court, Appellate Division.

SYLLABUS BY THE COURT

(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized).

Ruth Feldman, a physician and shareholder-director of Hunterdon Radiological Associates (HRA), file a complaint against HRA and others alleging a violation of the Conscientious Employee Protection Act (CEPA). The question before the Court is whether Feldman, as a "shareholder-director" of HRA, was an "employee" within the meaning of CEPA.

HRA is comprised of physicians who practice radiology and provide MRI services to the Hunterdon Medical Center (HMC). Feldman began working at HRA in 1978 and became a shareholder-director in 1992. She shared equally with the other shareholder-directors in HRA's profits and losses and had an equal vote in significant business decisions.

In 2000, Feldman became chairperson of medical imaging at HRA. She began to receive complaints about the quality of x-ray readings by another physician at HRA, Dr. Sophia Yeh. Feldman thought strong action was required, but a majority of the other shareholder-directors did not agree. According to Feldman, the work environment at HRA then became very hostile and she was marginalized by the rest of the group.

On November 1, 2001, Feldman gave HRA formal notice that she was leaving. She claims that after her departure from HRA she looked for but could not find comparable employment.

On December 7, 2001, Feldman filed a complaint against HRA and others alleging violations of New Jersey's Law Against Discrimination (LAD) on the basis of gender; unlawful retaliation under CEPA; fraudulent misrepresentation; breach of contract; and wrongful discharge. (Other claims were dismissed or withdrawn.)

HRA and the other defendants moved for summary judgment. That unopposed motion was granted. On a motion for reconsideration, Feldman argued, in part, that her CEPA claim had been improperly dismissed. She contended that she was an "employee" under that statute and that she had been constructively discharged because of her whistle-blowing efforts concerning Dr. Yeh.

The trial court denied the motion for reconsideration. Feldman appealed to the Appellate Division, which reversed. Defendants HRA and Mark S. Malberg filed a petition for certification. The Court granted the petition solely on the issue of whether Feldman was an "employee" of HRA within the meaning of CEPA.

HELD: For the purposes of the Conscientious Employee Protection Act, N.J.S.A. 34:19-1 to -8, it is not a shareholder-director's title or ownership interest that determines employee status. Rather, the inquiry is fact-intensive, focusing on the professional association's direction and control over the shareholder-director and the true power and vulnerability of the shareholder-director within the association. The Court adopts the analytical approach formulated by the United States Supreme Court in Clackamas v. Gastroenterology Assocs. v. Wells, 538 U.S. 440 2003).

1. CEPA was enacted in 1986 in response to the Court's decision in Pierce v. Ortho Pharmaceuticals Corp., which created a cause of action for wrongful discharge when an at-will employee's termination is contrary to a clear mandate of public policy. CEPA prohibits retaliatory action against an employee whose whistle-blowing actions benefit the health, safety, and welfare of the public. (pp. 11-14)

2. Prior case law has established a general approach for determining employee status as contemplated by CEPA: courts must look to the goals underlying CEPA and focus not on labels but on the reality of the person's relationship with the party against whom the CEPA claim is advanced. (pp. 14-19)

3. In Clackamas, the United States Supreme Court formulated a test that modified a definition contained in the Restatement (Second) of Agency. In that case, the Court held it is not the shareholder-director's delineated status that is pivotal. Rather, the focus should be on the party's true power and influence within the organization. Each case must be considered on its merits and there is no "shorthand formula or magic phrase to determine whether a shareholder-director is an employee or employer." (pp. 19-26)

4. Clackamas echoed what our case law previously established. The Court concludes that the Clackamas test is an appropriate point of departure in analyzing a shareholder-director's employment status under CEPA. The critical Clackamas factor is the extent to which the individual is able to influence the organization. When there is no factual dispute over whether a shareholder-director has the ability and authority to root out wrongdoing, there is consequently no need to be a whistle-blower, and the person is not an "employee" for CEPA purposes. (pp. 26-28)

5. It is undisputed that for over a decade, Feldman was one of five or six shareholder-directors in HRA that shared in the management and control of the firm. She possessed an equal vote and voice in all matters, including hiring and compensation. Feldman's inability to persuade her fellow shareholder-directors regarding the performance of Dr. Yeh led her to claim her status as an employer was somehow transformed to that of an employee for CEPA purposes. That is simply not so. No reasonable fact-finder could conclude that Feldman was an "employee" or a member of the vulnerable class of persons the CEPA statute was designed to protect. (pp. 28-31)

The judgment of the Appellate Division is REVERSED, and the trial court's grant of summary judgment is REINSTATED.

CHIEF JUSTICE PORITZ and JUSTICES LaVECCHIA, ZAZZALI, ALBIN, WALLACE, and RIVERA-SOTO join in JUSTICE LONG's opinion.

The opinion of the court was delivered by: Justice Long

Argued April 3, 2006

Plaintiff, Ruth Feldman, a physician and a shareholder-director of Hunterdon Radiological Associates (HRA), filed a complaint against HRA alleging, among other things, a violation of the Conscientious Employee Protection Act (CEPA), N.J.S.A. 34:19-1 to -8. She contended that HRA first marginalized and then constructively discharged her as a result of her attempt to remedy what she viewed as the incompetence of a fellow shareholder-radiologist in reading patients' x-rays. HRA moved for summary judgment on the ground that Feldman was not an employee for CEPA purposes. The trial judge granted the motion and the Appellate Division reversed.

At issue in this appeal is whether Feldman, a shareholder-director of a professional association, was an "employee" within the meaning of CEPA. We hold that, for CEPA purposes, it is not a shareholder-director's title or ownership interest that determines employee status. Rather, the inquiry is fact-intensive, focusing on the professional association's direction and control over the shareholder-director and the true power and vulnerability of the shareholder-director within the association. In assessing those issues, we adopt the approach formulated by the United States Supreme Court in Clackamas Gastroenterology Assocs. v. Wells, 538 U.S. 440, 123 S.Ct. 1673, 155 L.Ed. 2d 615 (2003), to determine a shareholder­ director's "employee" status under the Americans with Disabilities Act (ADA), 42 U.S.C.A. §§ 12101-12213.

Applying that approach, we are in agreement with the trial judge that no reasonable juror could conclude that Feldman was a CEPA employee. Accordingly, we reverse the decision of the Appellate Division and reinstate the trial judge's order.

I.

HRA is comprised of physicians who practice radiology and provide magnetic resonance imaging services to the Hunterdon Medical Center (HMC) in buildings annexed to the hospital. Plaintiff began working at HRA on a part-time basis in 1978 and became a shareholder-director in 1992. Dr. Mark S. Malzberg joined the group in 1993 and became managing partner in 2000. When the events underlying this appeal occurred, there were six shareholder-director physicians at HRA: Dr. Malzberg, Dr. Sophia Yeh, Dr. Alice Sprenger, Dr. Martha Nowell, Dr. Boggiano, and plaintiff.

Plaintiff shared equally with the other shareholder-directors in HRA's profits and losses and had an equal vote in significant business decisions. The managing partner and an office manager handled administrative matters pertaining to HRA's day-to-day operations.

The specific terms of plaintiff's working relationship with HRA were contained in a 1993 "Employment and Stock Purchase Agreement" (Agreement).*fn1 According to the Agreement, "the Corporation desires to employ the Physician and the Physician desires to be employed by the Corporation upon the terms and conditions hereinafter set forth." Among the provisions of the Agreement are those governing the activities of each shareholder-director:

Duties:

(a) The Physician shall devote to the Corporation all of the time, attention and energy necessary for him to perform all professional duties assigned or delegated to him by the Board of Directors and officers of the Corporation, and shall not during the continuance of this Agreement, practice medicine except as an employee of the Corporation.

Included among the physician's duties, which were subject to the approval of the Board of Directors and officers, were keeping and maintaining records, preparing reports, promoting the firm, attending professional conventions and seminars, and rendering quality medical care to patients. The Agreement also provided:

The Physician's other duties shall be such as the Board of Directors and/or officers may from time to time direct, including "on duty" and "on call" assignments at night and on Sundays and holidays, rotated among the professional employees in an equitable manner.

(b) The Physician shall abide by the rules and regulations of the Corporation as established from time to time [by the] Board of Directors of the Corporation, and shall obey all requirements and provisions of the By-Laws of the Corporation.

In addition, the Agreement contained an exclusivity clause requiring each physician to devote his or her entire time to the ...


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