July 2, 2007
ASSIA BROMBERG, M.D., INDIVIDUALLY AND ON BEHALF OF VALLEY HEALTH CARE GROUP, P.A., A NEW JERSEY CORPORATION, PLAINTIFF-APPELLANT/ CROSS-RESPONDENT,
HENRY VELEZ, M.D., DEFENDANT-RESPONDENT/CROSS-APPELLANT.
On appeal from the Superior Court of New Jersey, Law Division, Bergen County, Docket No. BER-L-11059-04.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued May 9, 2007
Before Judges Parker, C.S. Fisher and Yannotti.
In these cross-appeals, both parties challenge the judgment entered on March 16, 2006 after a non-jury trial in which the court dismissed the complaint and the counterclaim with prejudice. This dispute arises out of a partnership between two physicians who purchased a building and entered into an unwritten agreement to practice jointly. We affirm.
Plaintiff Assia Bromberg, M.D. (Bromberg) filed a complaint on August 5, 2004 alleging that defendant Henry Velez, M.D. (Velez) breached their contract, underpaid firm profits to plaintiff and overpaid them to defendant. On September 27, 2004, defendant answered and counterclaimed alleging that he was underpaid his share of the profits, was not paid for administrative services and for renovations made to the building where the parties jointly practiced. In her answer to the counterclaim, plaintiff pleaded waiver and estoppel as affirmative defenses.
The facts pertinent to this appeal are as follows. In 2000, plaintiff and defendant formed a partnership known as Valley Health Care Group (Valley). They also formed a second corporation known as Greenway Oaks to purchase a building for their practice. They practiced together for three years without conflict and it is undisputed that during this time, defendant maintained the billing and administration of the practice, including partnership distributions.
Plaintiff is an obstetrician/gynecologist and defendant specializes in occupational medicine, including workers' compensation reviews and assessments. Before joining plaintiff in practice, defendant had a separate practice handling workers' compensation reviews for Nabisco. When the parties bought the building, defendant borrowed his share of the down payment from plaintiff's husband because defendant was then going through a divorce and had financial difficulties. In establishing the joint practice, plaintiff contends that the parties agreed to pay the expenses from the top of their revenues and share the net profits in accordance with their respective productivity. Defendant had a nurse and office person who worked on the Nabisco files and he paid them separately for the non-partnership work.
The matter was tried to the court from November 14 to 17, 2005. Emanuel Yedwab, a licensed Certified Public Accountant (CPA), had been defendant's accountant since 1989 and served as Valley's accountant after the partnership was formed. Yedwab testified that Valley submitted monthly "cash receipts, disbursements, [and] expenses" from which he and defendant "put together a financial statement showing the income and expenses and [any] profit . . . in accordance with what [they] would do for tax purposes." They also did the reporting for payroll and tax purposes, including W-2 and 1099 forms. Yedwab rarely heard from plaintiff, but he was available to answer any questions that arose. He testified that he did not know of any dispute between the parties regarding distributions until a meeting in 2004, which was attended by plaintiff, defendant, plaintiff's accountant George Farley and himself.
In October 2003, plaintiff began to question the accounting and distribution methods employed by Velez and Yedwab. She contacted Farley, also a licensed CPA, to do an independent audit of the books. When Farley first met with plaintiff, she explained "the way the business operated, the way that the compensation was to be divided" and that defendant claimed "that she owed him money, or the business owed him money." At trial, the parties stipulated to the numbers reflecting income and expenses that were used by Farley in his audit.
Based upon the information provided to Farley by plaintiff, Farley testified that:
I calculated the percentage of fees that each doctor had earned from the inception of the business up until some times [sic] in the middle of 2004.
I then took the expenses that the corporation had paid for 2000 through 2004 from information given to me by [Yedwab], the accountant for the firm, as well as from information I think that was provided to me by [defendant] for 2004, as well. And I applied that information onto a worksheet which spread the . . . income pro rata, according to which doctor had generated the fees, and I then split the expenses 50-50 between the two doctors . . . I came up with a number that would have been a potential distribution for each doctor.
I then subtracted the amount of money that was, in fact, paid to each doctor during the period from 2000 through 2004 and I calculated a balance due from the doctor or a balance due to the doctor based upon that formula.
Using that formula, Farley determined that plaintiff was owed money and defendant owed money to the practice. He indicated that defendant never suggested that Farley's formula was incorrect.
With respect to defendant's claim that plaintiff owed money to the practice, David McIntee, CPA, testified that according to defendant's formula, defendant was due $9,474 and plaintiff owed $22,736 to the practice. With respect to defendant's claim that the practice owed him money for his administrative services, defendant's expert, Roberta Burns, testified that at twenty hours a week for the length of the practice defendant's administrative services were worth $165,885.05, entitling him to half of that amount, $88,914. The parties had never agreed that defendant would be paid for his administrative services, nor did defendant make a claim for payment prior to the lawsuit.
On February 9, 2006, the trial court rendered a written decision in which it found:
In the case at bar, plaintiff complains about the manner in which the management fees had been distributed during the three years of the parties' amicable relationship. Regardless of whether or not plaintiff was involved in the actual calculation of management fees, the figures were hers for the asking. For three years, she accepted the distributions without argument. As such, she is now precluded under the doctrine of estoppel from contesting the manner of calculation. The defendant doctor in good faith relied upon such conduct and was induced to act and to continue his accounting and calculations as accepted and acknowledged by plaintiff. This acceptance and acknowledgment was with each and every partnership check that plaintiff cashed for the three pre-grievance years. Without plaintiff voicing her complaint or questioning the accounting, the defendant would not have been lulled into believing that plaintiff acquiesced to the distribution. This would have caused defendant to revise his accounting and pay out methods. Neither he, nor the partnership's accountant was aware of any grievance, concern or complaint of inequity for three years and they both proceeded with the accounting and tax reporting without incident. Plaintiff, both with her silence as well as her acquiescence (cashing and enjoying her partnership checks uneventfully for three years), created the objective impression. The defendant's response was to continue employing the same accounting methods based on plaintiff's silence and apparent satisfaction and defendant relied on that income and those profits to manage his own life and report his own taxes. Had the defendant not been lulled into inaction or change of accounting by the plaintiff's conduct, he could have taken appropriate steps to protect his interests. To revisit the entire accounting history for "unpaid compensation" by speaking what could have been and should have been voiced years ago after defendant relied upon his open, known and visible actions, will result in an injustice to the defendant that the law is meant to prevent. Plaintiff's silence reasonably misled defendant to his prejudice so that a repudiation of such conduct would be unjust in the eyes of the law. Given that their relationship was strong and otherwise satisfying as partners in a medical practice, defendant had a right to rely upon plaintiff's long-term silence of his accounting methods to mean that she agreed and concurred with his formula, not hers. The Court concludes that plaintiff's charges of unpaid compensation due to the irregularity in the defendant's accounting methods are without merit.
As to the defendant's counterclaim, the Court likewise finds these claims without merit for the reasons stated previously in this decision. The Court notes that it was not until plaintiff filed this lawsuit that any demand for compensation to defendant for his unquestionable contributions towards renovations and administrative tasks in the partnership were filed. These claims are presented in hindsight, in the Court's view, as an intended set-off by defendant in the event plaintiffs wins a recovery on her main claims. Prior to this point, it is clear that defendant never had any expectation, much less a claim, for compensation on his voluntary services towards the success of his medical practice. In the beginning, both parties united, performed tasks, cashed their partnership paychecks, all without any differentiating requests or complaints that only have surfaced in these lawsuits.
In her appeal, plaintiff argues that (1) the trial court erred in finding that the claims were equitably estopped when neither party pled nor tried that issue; and (2) the trial court erred in deciding that plaintiff was estopped from contesting the distribution of profits because defendant did not demonstrate any reliance or detriment.
In his cross-appeal, defendant argues that (1) equitable estoppel was pled and tried; (2) the trial court found the agreement of the parties based upon their conduct; (3) the trial court erred in dismissing defendant's claim for management fees; and (4) the trial court erred in denying defendant's claim for fees for administrative services.
Plaintiff first argues that defendant never raised equitable estoppel as an affirmative defense and the trial court, therefore, improperly held against plaintiff on that basis. Although defendant did not specifically plead equitable estoppel in his answer, as a separate defense, he alleged that "[t]he [p]laintiffs' damage, if any, is the result of their own action or inaction." The defense was raised in defendant's trial brief, during his opening statement and in his written summation. Plaintiff, therefore, had adequate notice in the answer and throughout the trial that defendant was relying on equitable estoppel as an affirmative defense. See Hardwicke v. Am. BoyChoir School, 368 N.J. Super. 71, 98 (App. Div. 2004), aff'd in part and mod. in part, 188 N.J. 69 (2006). We are satisfied that the defense of equitable estoppel was adequately pled and properly before the court. Rivera v. Gerner, 89 N.J. 526, 536 (1982).
Both parties complain, however, that equitable estoppel was improperly used against them. Equitable estoppel is a doctrine based on "'the fundamental duty of fair dealing imposed by law.'" Knorr v. Smeal, 178 N.J. 169, 178 (2003) (quoting Casamasino v. City of Jersey City, 158 N.J. 333, 354 (1999)). It is applied to avert "'the inequitable assertion or enforcement of claims or rights which might have existed, unless prevented by the estoppel.'" Scibek v. Longette, 339 N.J. Super. 72, 84 (App. Div. 2001) (quoting Davin, LLC v. Daham, 329 N.J. Super. 54, 67 (App. Div. 2000)). Thus, equitable estoppel "prevent[s] injustice by not permitting a party to repudiate a course of action on which another party has relied to his detriment." Knorr, supra, 178 N.J. at 178. To establish a claim of equitable estoppel
[T]he claiming party must show that the alleged conduct was done, or representation was made, intentionally or under such circumstances that it was both natural and probable that it would induce action. Further, the conduct must be relied on, and the relying party must act so as to change his or her position to his or her detriment. [Miller v. Miller, 97 N.J. 154, 163 (1984).]
Silence or omission can give rise to estoppel "where one is under a duty to speak or act." Carlsen v. Masters, Mates & Pilots Pension Plan Trust, 80 N.J. 334, 341 (1979).
Here, plaintiff accepted and cashed her distribution checks for three years without objecting to the method or means by which her share was calculated. See Heuer v. Heuer, 152 N.J. 226, 239-40 (1998). Moreover, throughout the three years during which they practiced jointly, plaintiff had full access to the books and documents to verify defendant's calculations. She chose not to be involved in the administrative aspect of the practice. Defendant was led to believe that his calculations were the proper accounting method because plaintiff accepted the distributions without objection. See Knorr, supra, 178 N.J. at 178. We are convinced, therefore, that the trial court properly applied equitable estoppel to plaintiff's claim.
With respect to defendant's counterclaim for payment for his administrative services, the trial court found that his demand for payment only materialized after plaintiff filed the complaint.
Defendant claimed -- and plaintiff admitted -- that defendant sought to be paid for his administrative services. Defendant wanted $3,000 a year and $100 a month for those services. Plaintiff agreed and defendant paid himself those amounts from the practice proceeds. Aside from those amounts already paid to defendant, he never asked for any increase in services and never objected to the amounts agreed upon. Defendant's silence caused plaintiff to rely on his objective conduct -- that he was willing to perform the administrative tasks for $3,000 per year plus $100 per month. We are, therefore, convinced that the trial court properly applied equitable estoppel to defendant's counterclaims.
Defendant next claims that the trial court based its holding on an implied contract and, therefore, he is entitled to monies owed to him by plaintiff. We disagree with defendant's reading of the trial court's decision. As discussed previously, the trial court specifically found that plaintiff's claims were precluded under the doctrine of equitable estoppel, rather than implied contract. Consequently, we find insufficient merit in this argument to warrant further discussion in this written opinion. R. 2:11-3(e)(1)(E).
We have carefully considered the record in light of both parties' arguments and the applicable law. We are satisfied that the trial court's decision was based on findings of fact which are adequately supported by the evidence. R. 2:11-3(e)(1)(A).
Accordingly, we affirm substantially for the reasons stated by Judge Estela M. De La Cruz in her written decision rendered on February 9, 2006.
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