July 24, 2008
PETER KURNIK, M.D., PLAINTIFF-RESPONDENT/ CROSS-APPELLANT,
THE COOPER HEALTH SYSTEM, DEFENDANT-APPELLANT/ CROSS-RESPONDENT.
On appeal from the Superior Court of New Jersey, Law Division, Burlington County, L-1728-02.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued June 4, 2008
Before Judges Lisa, Simonelli, and King.
Plaintiff cardiologist sued defendant hospital for breach of contract and breach of the implied covenant of good faith and fair dealing. Plaintiff claimed defendant forced him to step down as the head of its cardiology division in violation of the terms of his contract. The jury awarded plaintiff both compensatory and punitive damages after a fifteen-day trial. The judge then remitted the punitive damages award to below the statutory cap and awarded counsel fees and enhanced prejudgment interest to plaintiff pursuant to Rule 4:58, the offer-of-judgment rule.
On appeal, defendant asserts that plaintiff's claim for punitive damages should have been dismissed as a matter of law as this was a routine breach of contract action, and that the award for compensatory damages cannot stand because the jury was allowed to award damages for lost wages beyond the term of plaintiff's contract. Defendant also challenges the counsel fee and enhanced prejudgment interest award pursuant to Rule 4:58.
Both parties have appealed from the award of punitive damages. Defendant also claims that the remitted award is excessive; plaintiff claims that the court should not have reduced the punitive award below the statutory cap.
In his cross-appeal, plaintiff also challenges the calculation of prejudgment interest, both as to ordinary interest under Rule 4:42-11 and enhanced interest under Rule 4:58-2, and the court's refusal to impose taxed costs of certain depositions.
We vacate the punitive damages award and reverse and remand for a new trial on breach of contract and on compensatory damages.
This is the procedural background. Plaintiff Peter Kurnik, M.D., filed an amended complaint in Superior Court, Law Division, Burlington County, against defendant The Cooper Health System, alleging breach of contract, breach of the implied covenant of good faith and fair dealing, wrongful discharge, and tortious interference with prospective economic advantage. He sought both compensatory and punitive damages, and also equitable relief: reinstatement of his medical staff privileges. Defendant answered and cross-claimed for breach of contract and breach of the implied covenant of good faith and fair dealing.
On August 25, 2003, pursuant to the offer-of-judgment rule, plaintiff offered to take judgment in his favor for $550,000. The offer was not accepted.
On March 21, 2005 the trial judge granted defendant's motion for summary judgment as to plaintiff's claims for wrongful discharge and tortious interference, but denied the motion as to the remainder of plaintiff's claims.
In a pretrial ruling on October 17, 2005 the trial judge severed plaintiff's claim for reinstatement of his privileges and held that this claim should be separately determined by the court following the jury trial on plaintiff's other claims. The judge also ruled that plaintiff would be allowed to seek damages for lost income beyond the term of his contract date.
Jury selection began on October 18, 2005 and continued until October 20, 2005. Trial began later in the day on October 20, 2005 before the judge and a jury. At the close of evidence, the judge denied defendant's motion to dismiss plaintiff's claim for punitive damages and held that this claim would be bifurcated. The judge granted plaintiff's motion to dismiss the breach of contract claim in defendant's counterclaim. On November 3, 2005 the jury returned a verdict, finding that defendant had breached both plaintiff's contract and the implied covenant of good faith and fair dealing. They awarded plaintiff $6801 for the contract breach and $564,157 for the breach of the implied covenant. On defendant's counterclaim, the jury found that plaintiff had not breached the implied covenant of good faith and fair dealing.
On January 9, 2006 the jury was reconvened before the same trial judge for the punitive damages portion of the case. The jury found that plaintiff was entitled to punitive damages in the amount of $4,680,000. On January 20, 2006 defendant moved for judgment notwithstanding the verdict or a new trial on punitive damages.
On August 25, 2006 the judge entered judgment in favor of plaintiff and against defendant in the amount of $570,158 and awarded prejudgment interest in the amount of $93,568.39, for a total of $663,728.39. The trial judge retired on August 31, 2006 without deciding the new trial or NOV motion regarding punitive damages.
On September 26, 2006 defendant renewed its motion for judgment notwithstanding the verdict or a new trial as to punitive damages. The motion was assigned to the assignment judge, who took over the case upon the trial judge's retirement. On November 19, 2006 the assignment judge denied defendant's motion for a new trial on punitive damages but determined that the punitive damages award should be reduced to $1.5 million. An order to this effect was later entered.
On December 6, 2006 plaintiff moved for enhanced prejudgment interest and counsel fees pursuant to the offer-of-judgment rule and for taxed costs. On March 1, 2007 the assignment judge heard argument and ruled on these issues. Plaintiff then stipulated to the dismissal of his claim for reinstatement of staff privileges.
On March 27, 2007, the assignment judge entered final judgment in plaintiff's favor and against defendant as follows: $570,158 in compensatory damages; $1,500,000 in punitive damages; $27,867.45 in [ordinary] prejudgment interest from May 23, 2002 through December 31, 2002; $18,510.61 in [ordinary] prejudgment interest from January 1, 2003 through August 25, 2003 [date of offer of judgment]; $114,718.91 in prejudgment interest from August 25, 2003 [date of offer of judgment] through March 1, 2006 [one year prior to entry of final judgment]; counsel fees and costs in the amount of $229,965, for the period of November 24, 2003 [date offer of judgment was deemed rejected] through December 31, 2006; and taxable costs in the amount of $4,164.23. The assignment judge denied plaintiff's request for enhanced prejudgment interest on his punitive damages award and denied any prejudgment interest after March 1, 2006. The total final judgment in plaintiff's favor was thus $2,465,384.10.
On May 10, 2007 defendant filed the notice of appeal from the final judgment. On May 25, 2007 plaintiff filed his notice of cross-appeal from the order of December 11, 2006 which reduced the punitive damages award, and from those portions of the final judgment dealing with prejudgment interest and taxed costs.
This is the factual background as presented at trial.
Events Prior to January 10, 2001
After plaintiff graduated from medical school in 1978, he served a three-year residency in internal medicine followed by a three-year cardiology fellowship. He is board certified in internal medicine, cardiology, and interventional cardiology. Interventional cardiologists are internists who have specialized in cardiology and who can perform angioplasties, stenting procedures, and cardiac catheterizations. Cardiac surgeons are surgeons who specialize in heart surgery and who obtain their patients mostly from referrals by cardiologists.
In 1985 plaintiff took a job with defendant, a teaching hospital in Camden, in its cardiology division. He was appointed director of defendant's cardiac catheterization lab and assistant professor in the Robert Wood Johnson Medical School, affiliated with defendant. The cardiology division had a total of fourteen cardiologists on its full-time faculty.
Defendant's cardiac surgeons received their referrals from the cardiologists who worked on staff at the hospital and also from private practitioners. In 1997 there was one large private group of cardiologists, known as the Cardiology Associates of Delaware Valley (CADV), which made referrals to defendant's cardiac surgeons. Dr. Harvey Snyder was the head of CADV.
As director of the catheterization lab, plaintiff implemented a policy of restricting access to the lab to defendant's cardiology faculty. Consequently, Snyder developed some ill will with plaintiff.
The cardiology division, as well as the twelve other divisions of internal medicine, reported to the department of medicine. In 1997 the head of the cardiology division was Dr. Harvey Waxman and the chief of the department of medicine was Dr. Edward Viner. The cardiothoracic surgery division reported to the department of surgery. Dr. DelRossi was both the head of the division of cardiothoracic surgery and the chief of the department of surgery.
All department chiefs reported to the executive vice president and, ultimately, to the president and chief executive officer (CEO) of defendant. In 1997 the president and CEO was Leslie Hirsch. Hirsch reported to the board of trustees, which was defendant's entity of final responsibility and authority. Both DelRossi and Snyder were long-term members of the board. Defendant maintained that Snyder was elected to the board by the medical staff and that the board had an audit ethics committee to review any conflict of interest concerns.
Both plaintiff and Viner agreed that, as of 1997 the cardiothoracic surgery division had many problems. There were concerns that it was not current with the latest medical improvements and that the quality of its work was suffering. In addition, the division had a high mortality rate and was performing an unacceptably low number of open heart procedures. Very few of the division's referrals came from any cardiologist outside of defendant's staff.
Also as of 1997, defendant as an institution was in bad financial condition. It was close to bankruptcy and was considering either going out of business or agreeing to a take-over by another hospital. Nevertheless, plaintiff maintained that the cardiology division was doing very well at that time and that Waxman was a sophisticated businessman, as well as a fine cardiologist.
In September 1997 Waxman made an abrupt decision to leave defendant and to go to Presbyterian Hospital in Philadelphia. He ultimately was successful in convincing thirteen out of the fourteen cardiologists on his staff to go with him. Plaintiff was the only one who stayed.
Viner was an important influence on plaintiff's decision to stay. He appointed plaintiff acting head of the cardiology division and convinced plaintiff to work towards assembling a new staff of cardiologists. Between 1997 and 2000, plaintiff and Viner worked long hours together and became good friends.
Plaintiff's written contract with defendant, as originally executed in June 1998, provided that he would be employed by defendant for an initial period of five years, from September 29, 1997 through September 28, 2002 serving as the acting head of the cardiology division and the director of the catheterization lab. It also provided that the term "shall renew" automatically at the end of each term for an additional two-year term unless plaintiff or defendant provided the other party with 120 days' written notice prior to the end of the current term. Plaintiff "shall also have the right to terminate this Agreement at any time upon 120 days prior written notice of termination." Plaintiff could terminate the agreement "immediately" if defendant failed to comply with any material term or condition, provided that plaintiff gave defendant written notice of such failure and thirty days to cure. In such cases, plaintiff would have the right to terminate only if defendant failed to cure.
During either the initial term or any renewal, paragraph 2.1 provided that defendant had the right to terminate the agreement immediately, without notice, if plaintiff: (a) was involuntarily suspended or terminated from the practice of medicine; (b) lost or had his medical staff privileges suspended; (c) was convicted of a crime; (d) was involuntarily suspended from the Medicare/Medicaid programs; (e) became disabled; (f) failed to comply with a material term or condition of the agreement; (g) failed to provide adequate patient care; or (h) died. Defendant could not terminate the agreement for any reason other than those specified in ¶ 2.1.
Notably, if subsection (f) of ¶ 2.1 was the condition leading to plaintiff's termination, defendant had to give plaintiff written notice detailing his failure to comply and thirty days to cure any such failure. The right to terminate accrued only upon defendant's failure to cure. Any termination would constitute the automatic resignation of any medical staff appointment at defendant but would not disqualify plaintiff from reapplying to the medical staff as a non-salaried physician.
Plaintiff's first-year salary under his contract was $411,000. Plaintiff maintained that, prior to his appointment as acting division head, he had been making $400,000 per year.
Plaintiff interpreted his contract to mean that renewal was the "default option" and that his contract would continue to be renewed unless either he or defendant took direct action to stop the renewal process. Plaintiff had the right to terminate the agreement at any time, i.e., even before the end of the contract term, as long as he gave 120 days' written notice. Defendant could terminate the agreement, however, only if plaintiff's conduct fell into one of the eight enumerated categories.
Effective June 1, 1998 plaintiff became the permanent head of the cardiology division. On September 1, 1998 he executed an amendment to his contract to clarify some items. Specifically, the amendment clarified that plaintiff's five-year term of employment was from September 28, 1997 through September 28, 2002 and that from September 29, 1997 until May 31, 1998 he had served as acting division head and as director of the catheterization lab.
Effective June 1, 1998, and through May 31, 2001, [plaintiff] shall be employed as the Head of the Division of Cardiology, for a term of three years, (as is the case with the other Division Heads). [Defendant] will notify [plaintiff] on or before April 1, 2001 whether he shall be re-appointed as Head of the Division of Cardiology for the remainder of his contract. In the event [plaintiff] is not re-appointed as Division Head, he shall serve as an Associate Division Head for the remainder of the term of his contract (June 1, 2001 through September 28, 2002).
Thus, although plaintiff's employment contract was for five years, his appointment as division head was for only three years. Viner maintained that he gave plaintiff only a three- year term as division head because he was not sure he could do the job.
From June 1, 1998 through May 31, 1999 plaintiff's annual compensation was to be $411,000. If the executive vice president for medical affairs and the chief of the department of medicine determined that the financial condition of the cardiology division permitted it, plaintiff's annual compensation was to be increased to $425,000, retroactive to June 1, 1998.
From June 1, 1999 through May 31, 2000 plaintiff's compensation was to be the amount paid in the prior twelve-month period increased by any percentage by which the consumer price index (CPI) increased during that period. Similarly, from June 1, 2000 through May 31, 2001 plaintiff's compensation was to be the amount paid in the prior twelve-month period increased by any percentage by which the CPI increased.
From June 1, 2001 through September 28, 2002 plaintiff's compensation was to be the amount paid in the prior twelve-month period increased by any percentage by which the CPI increased, provided, however, it is understood and agreed that [plaintiff]'s annual compensation as well as incentive compensation for this period will be subject to the financial conditions of the Division and the only guarantee is that [plaintiff]'s annual rate of compensation during this period shall not be less than 90% of the rate of annual compensation paid to [plaintiff] for the period June 1, 2000 through May 31, 2001.
"Incentive compensation will be considered on an annual basis, based on performance and other relevant considerations. The decision to pay incentive compensation will rest in the discretion of [defendant]'s Chief of Medicine and [defendant]'s Executive Vice President for Medical Affairs." "If [plaintiff]'s employment is terminated he will be entitled to all accrued compensation and other benefits through the date of termination."
As head of the cardiology division, plaintiff was responsible for all of its activities, including the activities of all of its doctors and all of its labs. He was also responsible for taking care of his own patients (about 1500 per year), for doing catheterizations (about 600 per year), for recruiting new cardiologists, and for teaching the cardiology fellows, the internal medicine residents, and the medical students. He estimated that he worked about 100 hours per week in his first two years in the position. Ultimately, within these first two years, he was successful in recruiting an entire new staff of cardiologists. In addition, plaintiff put together a two-year business plan for the division and he established seven outpatient sites in the community where defendant's full-time faculty could see patients.
In the annual report of the department of medicine for the last half of 1997 through the first half of 1998, Viner wrote that a "great debt" was owed to plaintiff who, by working "an endless succession" of eighteen- to twenty-hour days, rebuilt the cardiology division and kept the department afloat. In a subsequent annual report, Viner again singled out plaintiff for "special recognition."
At trial, Viner admitted that plaintiff had rebuilt the cardiology division and kept it afloat, and that he had played an important role in recruiting new cardiologists. Although Viner occasionally told plaintiff how he could do things differently, he never told plaintiff that his performance was deficient or that he was in breach of his contract.
While plaintiff was head of the cardiology division, Dr. Sheldon Goldberg, one of the division's most prominent cardiologists, put together an organization called the Center of Cardiovascular Intervention, which was designed to obtain interventional cardiologists to work closely with vascular surgeons and interventional radiologists. Implementation of this plan required the cooperation of doctors from cardiology, surgery, and radiology.
Plaintiff also opened up access to the catheterization lab and encouraged CADV to increase the volume of procedures its doctors performed at defendant. Nonetheless, Snyder continued to harbor ill will against plaintiff as a consequence of the prior restrictive policy. Because Snyder's group was defendant's contact to cardiology patients, Snyder felt that he was in a superior bargaining position after Waxman's departure. Snyder was able to negotiate an agreement with defendant that guaranteed his group at least 50% of the heart station's interpretations (EKG's, echocardiograms and stress tests). In addition, defendant agreed to give Snyder the title of associate director of Goldberg's Center for Cardiovascular Intervention, a title which carried an annual stipend of $75,000 and required Snyder to attend occasional meetings.
These decisions, which were opposed by both plaintiff and Viner, were made by Hirsch. Hirsch, we observe, reported to the board of trustees and Snyder was a member of the board. In exchange for these benefits, Snyder tacitly agreed to continue to refer his patients to defendant. Viner explained that, although a cardiologist could not be paid by the number of patients he brought in, a hospital could enter into other relationships with the doctor which would make it worth his while to refer patients. That was the situation which existed with Snyder. Viner also concurred with plaintiff's testimony that Snyder was successful in preventing other cardiology groups from interpreting the heart station studies or sitting on the Center for Cardiovascular Intervention, because defendant feared that Snyder would pull his patients.
In 1996 or 1997 an organization known as the Cooper Physician Association (CPA) was created to which all doctors reported. Dr. Christopher Olivia became the president of the CPA in April 2000. In this position, Olivia reported to the executive committee of the department chairs and, ultimately, to defendant's president and board of trustees. Olivia's primary task was to reverse defendant's financial course and to improve its public image.
Starting in late 2000, Viner's superiors were considering changes in the cardiology division because it was still not performing financially, in terms of its negative profit margin for 2000, its projected annualized profit for 2001, the number of interventional procedures being performed in the division, and the amount of overall work done by the division compared to other institutions. In addition, plaintiff was not viewed as a sophisticated businessman or a natural leader.
Olivia believed that the primary reason for the decline in cardiac surgeries was the poor performance of the cardiology division, "because the cardiologists are the ones that really control the patient flows to the cardiothoracic surgeons" and that, as the head of cardiology, plaintiff was directly responsible for this performance. Ultimately, Hirsch and Olivia decided that they would not renew plaintiff as head of the division at the end of his term in June 2001. Olivia maintained that neither Snyder nor Del Rossi played any role in this decision.
Although Hirsch and Olivia instructed Viner not to tell plaintiff about their decision, Viner felt it wrong to work side by side with plaintiff and not tell him. Viner also believed that plaintiff deserved ample notice because he might not want to stay at defendant after his division head position was not renewed.
Events of January 10 to January 19, 2001
On January 10, 2001 plaintiff received a phone call at home from Viner, who was on vacation at the time. According to plaintiff, Viner told him that he had been ordered to request plaintiff's immediate resignation as division head. He told plaintiff that he could have a few days to think it over. Plaintiff claimed that this was the first indication from anyone that his performance was deficient.
Viner, however, claimed that he called plaintiff merely as a courtesy to let him know that Hirsch and Olivia had decided not to renew his contract as division head when it came up for renewal in June 2001. Viner was emphatic that he never told plaintiff on January 10 that he had to resign immediately; rather, the issue only was the non-renewal of his position as division head. According to Viner, when he told plaintiff that the decision had been made not to renew him, plaintiff was shocked and upset.
According to plaintiff, on the morning of January 11, the division's associate head, Dr. Weinstock, told plaintiff that Viner had called him the night before and had told him that, in exchange for removing plaintiff as division head, Viner had been able to extract other concessions from defendant's administrative hierarchy, including the agreement not to appoint Snyder as head of cardiology.
According to Viner, between January 10 and January 15, plaintiff held a dinner meeting at a local diner with other division heads to tell them what had happened. Viner got phone calls all day long every day from other faculty members in his department, who were upset at the news about plaintiff. In Viner's view, activity in the department ground to a halt because everyone was talking about the unfortunate fate of plaintiff as a member of the faculty.
On January 15, 2001 two separate meetings were held at the hospital. The first was called on very short notice in Hirsch's office. Also present at that meeting were Olivia, Viner, Dr. Carolyn Bekes (who was the executive vice president for medical affairs), plaintiff, and plaintiff's wife (who was the head of the nephrology division).
According to plaintiff, Olivia, Viner, and Hirsch told him that he had to resign immediately as division head and that there were reasons for this decision that were not up for discussion. At the end of the meeting, plaintiff and his wife were told not to discuss anything that went on in the meeting with anyone else. Viner claimed that Hirsch merely told plaintiff that he would not be allowed to continue to make the "ruckus" he had been making for the preceding four days.
Later that afternoon, Viner convened an emergency meeting of the department of medicine, which was comprised of about eighty to 100 faculty members. Plaintiff claimed that Viner made derogatory statements about him and the cardiology division and that, because of the "gag order," plaintiff could not respond to any of these accusations. Plaintiff further claimed that there was an outpouring of support for him from the other doctors.
According to Viner, he merely explained why the hospital was contemplating not renewing plaintiff as division head. He explained that the cardiology division was still operating in the "red" and was economically stressed and that, although much of this was not plaintiff's fault, Viner said: "I had to deal with it." Also according to Viner, most of the faculty members at this meeting believed -- incorrectly -- that defendant was trying to get rid of the faculty and have more private physicians at the hospital.
According to Glen Newell, defendant's head of the medical education division, his understanding from this meeting was that plaintiff was being asked to resign as division head, though he was not sure whether he was being asked to step down immediately or in six months. In his mind, the "emergency" nature of the meeting was not that plaintiff was being asked to resign immediately, but that news of plaintiff's resignation was affecting the ability of the faculty members to do their jobs.
At the conclusion of the meeting on January 15, Viner came to the decision that the only way all of the accusations and threats were going to stop was to immediately remove plaintiff as division head. In making that decision, he relied on the provision of plaintiff's contract that required him to behave with proper decorum.*fn1 Viner maintained that neither Snyder nor DelRossi, who were only two out of about twenty-three members on the board of trustees, had anything to do with this decision. Viner communicated his decision to Hirsch and Olivia.
However, Viner also maintained that on January 16 he invited plaintiff to meet with him, Olivia, and other doctors from the department in an effort to turn the decision around. Ultimately, however, Viner was not successful in convincing Olivia to change his mind. According to Dr. Steven Peikin, defendant's head of gastroenterology, who attended that meeting, the meeting turned into a "one-way shouting match" with plaintiff being disrespectful and antagonistic towards Olivia.
On January 17, 2001 Viner called a meeting of all of his division heads except plaintiff. At this meeting, he informed these doctors that plaintiff was going to be asked to resign immediately as head of the cardiology division.
On January 19, 2001 plaintiff was in defendant's Voorhees office seeing patients when he received a call from Peikin, asking if he and Newell, could come see him. Viner claimed that he solicited Peikin to deliver the news to plaintiff because he was a mature member of the faculty who was plaintiff's friend, as well as a fellow division head. Peikin claimed that he offered to talk to plaintiff on Viner's behalf because it was his understanding that plaintiff had been asked to resign as division head and was refusing to do so. Peikin thought that plaintiff was being irrational and that he was going to self-destruct. He claimed that he was sent as plaintiff's friend, not as a messenger for the administration. Newell wound up accompanying Peikin because he was in the room when Viner asked Peikin to talk to plaintiff.
According to plaintiff, Peikin and Newell arrived later that day, at which time Peikin told plaintiff that he was conveying the message from Viner that plaintiff had to resign as division head by the end of the day or else he would be immediately removed from all employment at defendant and locked out of his office. Essentially, if plaintiff did not comply with the demand, he would be out of any job. Plaintiff then resigned as head of the cardiology division effective 5 p.m. that same day.
Viner, however, claimed that he never instructed Peikin to tell plaintiff that he would be fired from the hospital if he did not immediately resign as division head. Rather, the instructions were to tell plaintiff not to "foul his nest all together" and end up being fired from the hospital by Viner's superiors. Viner did admit, however, that if plaintiff had refused to immediately resign as division head, Viner would have removed him as division head. Viner would have then put plaintiff on administrative leave or a forced sabbatical, with pay, for whatever amount of time it took for him to calm down.
Peikin claimed he tried to convince plaintiff that he could not continue as division head if defendant did not want him in that position and that he had to do what was good for him and his family. That is, if plaintiff dug in his heels and continued in his belligerent attitude towards the administration, there was a high risk he could be fired. Peikin told plaintiff that he should make his decision "today" because he could be fired at any time.
Plaintiff believed that his termination as division head was defendant's way of dealing with the problems it was having with the cardiothoracic surgery division. The State of New Jersey had started to question the hospital on the number of open heart surgeries it was performing. Plaintiff believed that his termination was the excuse offered up by defendant to the State and that he was used by defendant as a scapegoat.
Plaintiff admitted that defendant had no obligation to renew him as division head at the end of his term, in June 2001, and that there was no guarantee of renewal. Nevertheless, he believed that there were certain "expectations" and "precedents" based on his sixteen years of employment with defendant. Olivia admitted that defendant's original intent, after not renewing plaintiff as division head, was to keep him on the faculty throughout the term of his contract, "and there's no reason why he would not have been renewed subsequently." Nevertheless, plaintiff's subsequent conduct, after being notified of his non-renewal as division head, would have changed defendant's decision about extending his base contract beyond 2002.
Events Following Plaintiff's Resignation as Division Head
Notably, contrary to his contract, plaintiff was never offered or given the position of associate division head. In addition, he was never given any notice from defendant that he had breached any term of his contract. He was ultimately moved from his office and into a much smaller office on very short notice. Although plaintiff remained on the staff as a cardiologist, he had no leadership or authority position and he operated in an environment that was distrustful, suspicious, and hostile. It was made clear to him that his input was not solicited. Plaintiff immediately began to search for alternate employment.
Viner claimed that, after plaintiff stepped down as division head, it was expected that he would be able to do more clinical work, but that did not happen. Rather, for 2001, plaintiff was second from the bottom in the cardiology division in terms of productivity.
In August 2001 Viner sent plaintiff a note regarding a hospital in North Carolina that was looking for a director of its cardiology division. The note said that plaintiff "might be interested in this." In plaintiff's view, this note was a message that he should look for other employment. Viner, however, maintained that he sent plaintiff this job opportunity merely because he believed that plaintiff might want to start fresh somewhere else.
In the early fall of 2001 plaintiff was told by the administrator for the cardiology division that he had not been included in the division's 2002 budget. Viner, however, claimed that plaintiff was in the 2002 budget until October 2001, when plaintiff made it clear that he was leaving.
Because of family reasons, plaintiff limited his search for new employment to the Philadelphia area. Since he wanted to stay at a teaching hospital, his options were limited to four institutions, one of which was Hahnemann University. Plaintiff made his first inquiry with Hahnemann on January 19, the day he resigned as division head. Plaintiff believed that he sought employment from a markedly reduced bargaining position due to the manner in which he had been removed as division head. In his view, there was a huge stigma attached to this abrupt termination, especially since all the cardiologists in the Philadelphia area knew one another. Although no one at Hahnemann had told him that this affected his employability, the message was "clearly conveyed" to him that it had a huge impact on the position and salary he could command.
Some time in the late spring or early summer of 2001, plaintiff attended a dinner with representatives from Hahnemann at which various cardiologists from defendant were also present. These doctors all knew that plaintiff was considering moving to Hahnemann.
In May 2001 Hahnemann sent plaintiff the draft of a contract offering him a position as professor of medicine and director of the South Jersey operations of its medical school. The salary was $325,000 per year, plus an additional $50,000 per year for his role as director. That contract was never signed by Hahnemann.
Plaintiff ultimately was offered a position by Hahnemann in the fall of 2001, as professor of medicine and associate director of diagnostic and interventional cardiology, at an annual salary of $250,000. On September 18, 2001, the same day he received his contract from Hahnemann, plaintiff gave written notice to defendant that he would be leaving on October 19, 2001. In his letter of termination, plaintiff also asked for privileges to admit and care for his patients at defendant.
According to plaintiff's notice, which was drafted by his attorney, plaintiff invoked ¶ 2.3 of his employment agreement, which indicated that he could terminate the contract immediately if defendant had failed to comply with a material term of the contract and had failed to cure within thirty days. According to plaintiff, the breach was his removal from the division head position without cause; there was no way that defendant could have cured this breach, except by retroactive reinstatement of his position, which it had no intention of doing. Plaintiff signed his contract with Hahnemann on October 15, 2001 which was three days before the end of the thirty-day cure period. However, plaintiff claimed that if defendant had cured its breach within this period, he would have asked Hahnemann to release him from his contract.
Plaintiff claimed that he did everything possible before leaving defendant to make sure that there would be continued care for his patients. Specifically, he suggested to defendant, to no avail, that a joint letter be sent to all of his patients explaining the situation and giving them the option of either continuing with plaintiff at his new facility or choosing a different cardiologist at defendant. Plaintiff also offered, again to no avail, to provide coverage, if needed, in defendant's cardiac catheterization lab. Plaintiff claimed that he was not allowed to contact any of his patients before he left.
Nevertheless, after plaintiff left, one of defendant's medical assistants faxed plaintiff a list of his upcoming appointments. Plaintiff then contacted these patients directly and informed them of their options, i.e., continue with plaintiff at his new location or continue with a different doctor at defendant.
On November 13, 2001 Viner wrote to plaintiff, advising him that defendant was exercising its right to terminate plaintiff's employment contract for cause, on the ground that his abrupt departure on October 18 was in violation of his obligation to give a 120-day notice. This letter also advised plaintiff that his termination had caused significant disruption to patient care and that his medical staff privileges were terminated effective October 18.
In a number of oral discussions, Viner told plaintiff that Viner preferred if plaintiff did not have privileges at defendant, but that there was no way privileges could be denied to plaintiff. According to plaintiff, there was a "fast-track" method designed specifically for doctors in his situation, i.e. those who left the faculty but who wanted to continue privileges at defendant. Although plaintiff wrote to the administrator in charge of defendant's medical staff office on January 24, 2002 asking for an application form for such privileges, defendant's attorney responded to plaintiff's request on February 1, 2002 informing him that the termination of his employment resulted in an automatic termination of his medical staff privileges and that there was no provision for a continuation of such privileges. This letter also stated that defendant would not act favorably upon plaintiff's request for privileges, based on his prior behavior, including his disruptive actions taken at the time Cooper made the decision to change division heads, his efforts to recruit employees for a competitor while on Cooper's payroll, his inappropriate patient solicitation for his new employment while still on Cooper's payroll, his premature departure, his threats of litigation and his current employment for a competitor which has engaged in recruitment of Cooper staff.
The letter concluded that it would be in plaintiff's best interest to pursue privileges elsewhere "rather than engage in a contentious dispute which we strongly believe will not achieve the result [plaintiff] has in mind."
In the fall of 2001 defendant hired Dr. Parillo to serve as director of defendant's "heart institute" at an annual salary of $700,000. This position included the head of critical care as well as the head of cardiology. That is, the new position accorded with defendant's intention to create a "seamless response" to all the needs of its cardiac patients. In Viner's view, this approach would not have been possible while plaintiff was in charge because plaintiff did not have the administrative skills to smooth over the estrangement between the cardiac surgeons and the medical cardiologists.
Calculation of Plaintiff's Damages
Plaintiff claimed that, during his tenure at defendant, he did not get all of the cost-of-living adjustments (COLAs) to which he was entitled, he did not get a salary raise upon becoming division head, and he did not get any incentive bonuses. With respect to his COLAs, he claimed that, a few months before he terminated his employment he asked for and received a retroactive payment for some of his COLAs. With respect to his raise, he claimed that he was supposed to get a $14,000 increase upon becoming the permanent division head. With respect to his bonuses, he claimed that he received a bonus in 2000, which was the same as that given to every member of the cardiology division. He did not receive any other bonuses during his tenure with defendant.
Plaintiff presented his monetary damages as follows. From September 29, 1997 to May 20, 1998, he received everything under the contract to which he was entitled, i.e., $411,000. From June 1, 1998 to May 30, 1999, he suffered damages in the amount of $14,000, because did not receive a COLA or his $14,000 increase for becoming division head. From June 1, 1999 to May 30, 2000, he received a bonus but not his COLA, so his total damages to that point would have been $34,000. From June 1, 2000 to May 30, 2001, he received only part of the COLAs owed to him and he did not get a bonus even though all other members of his division received one that year. His damages for that year were thus $46,161. From June 1 to October 18, 2001, he did not receive a COLA, which would have been $12,987.
Thus, his annual salary for the period from October 19, 2001 until September 29, 2002, which would have been his regular termination date, should have been $466,929. Prorated for three weeks short of a year, the amount he would have earned for that period would have been $441,344. Since he had earned $236,301*fn2 at Hahnemann during that period, his damages were the difference between those two amounts, or $205,043.
In addition, plaintiff claimed that his contract at defendant should have, and would have, been renewed for another two years after September 29, 2002 and that he was entitled to the difference he would have earned at defendant for each of those years and what he actually earned at Hahnemann, or the difference each year between $466,929 and $250,000, or $216,929.
Olivia, however, claimed that, even if plaintiff's contract had been renewed, he would not have stayed at the same salary because that was a division-head salary. Plaintiff denied defendant's claim that his salary had increased from $305,000 to $411,000 when he first became the acting head of the division, despite the fact that a payroll record allegedly reflected such an increase. Rather, plaintiff maintained that he had been earning very close to $400,000 for a number of years prior to 1997.
On cross-examination, plaintiff admitted that his $14,000 raise upon becoming permanent division head was not guaranteed and that his contract provided that it would be granted only if the executive vice president of medical affairs and the chief of the department of medicine determined that the financial condition of the division permitted it. Nevertheless, he claimed that the increasing revenues of the division from 1998 to 2000 would have justified such a raise. Viner, however, claimed that this increase would not have been sufficient to justify any raise.
Plaintiff also conceded that he was not guaranteed any bonuses or incentive compensation under his contract. Viner explained that plaintiff did not get a bonus for 2001 because he was no longer working at defendant at the end of that year.
These are the many issues raised on the appeal and the cross-appeal. We will treat them serially, so far as necessary to dispose of this matter.
I. DID THE COURT ERR BY DENYING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT ON PLAINTIFF'S BREACH OF CONTRACT CLAIM?
II. DID THE COURT ERR IN ITS EXCLUSION OF CERTAIN JURORS FOR CAUSE?
III. DID THE COURT ERR BY REFUSING TO DISMISS PLAINTIFF'S CLAIM FOR PUNITIVE DAMAGES?
IV. DID THE COURT ERR BY ALLOWING THE JURY TO ASSESS DAMAGES FOR PLAINTIFF'S LOSS OF FUTURE WAGES BEYOND THE TERMS OF HIS CONTRACT?
V. DID THE COURT ERR BY ALLOWING THE JURY TO AWARD SEPARATE DAMAGES FOR BREACH OF CONTRACT AND BREACH OF THE IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING?
VI. WAS THE JURY'S AWARD OF COMPENSATORY AND PUNITIVE DAMAGES TAINTED BY COMMENTS MADE BY PLAINTIFF'S COUNSEL DURING CLOSING ARGUMENTS?
VII. DID REVERSIBLE ERROR OCCUR BY VIRTUE OF THE COURT'S EVIDENTIARY RULINGS?
A. DID THE COURT ERR BY EXCLUDING EVIDENCE WITH RESPECT TO PLAINTIFF'S ABILITY TO MITIGATE DAMAGES?
B. DID THE COURT ERR BY EXCLUDING EVIDENCE OF THE PARTIES' PRIOR COURSE OF DEALING?
C. DID THE COURT ERR BY ADMITTING EVIDENCE OF THE SALARIES OF OTHER EMPLOYEES?
D. DID THE COURT ERR BY ADMITTING EVIDENCE WITH RESPECT TO PLAINTIFF'S APPLICATION FOR REINSTATEMENT OF STAFF PRIVILEGES?
E. DID THE COURT ERR IN DENYING DEFENDANT'S MOTION TO COMPEL PRODUCTION OF NOTES TAKEN BY PLAINTIFF, WHICH WERE USED AT HIS DEPOSITION?
Both Appeal and Cross-Appeal Issues
VIII. IS THE PUNITIVE DAMAGES AWARD, AS REMITTED BY THE COURT, EITHER INADEQUATE OR EXCESSIVE?
IX. DID THE COURT ERR IN ITS CALCULATION OF COUNSEL FEES AND ENHANCED PREJUDGMENT INTEREST UNDER THE OFFER-OF-JUDGMENT RULE?
A. WAS PLAINTIFF NOT ENTITLED TO RELIEF UNDER THE OFFER-OF-JUDGMENT RULE BECAUSE HIS COMPLAINT ALSO SOUGHT EQUITABLE RELIEF?
B. DID THE COURT ERR BY REFUSING TO LIMIT PLAINTIFF'S COUNSEL FEES TO THE MAXIMUM SET FORTH IN HIS AGREEMENT WITH COUNSEL?
C. DID THE COURT ERR BY REFUSING TO INCLUDE THE AMOUNT OF THE PUNITIVE DAMAGES AWARD IN THE CALCULATION FOR ENHANCED PREJUDGMENT INTEREST?
D. IF THE PUNITIVE DAMAGES ARE VACATED, IS PLAINTIFF NEVERTHELESS ENTITLED TO COUNSEL FEES AND ENHANCED PREJUDGMENT INTEREST BECAUSE HIS COMPENSATORY DAMAGES SHOULD BE DEEMED LIQUIDATED PURSUANT TO THE OFFER-OF-JUDGMENT RULE?
Additional Cross-Appeal Issues
X. DID THE COURT ERR BY REFUSING TO AWARD EITHER ORDINARY OR ENHANCED PREJUDGMENT INTEREST FOR THE PERIOD AFTER THE JURY VERDICT WAS ANNOUNCED BUT BEFORE FINAL JUDGMENT WAS ENTERED?
XI. DID THE COURT ERR IN ITS REFUSAL TO AWARD TAXED COSTS FOR TWO DEPOSITIONS?
We now consider the key issues which will dispose of this appeal. The first is plaintiff's entitlement to any punitive damages. Defendant contends that the judge erred in refusing to dismiss plaintiff's claim for punitive damages, since this was a routine breach of contract case for which no punitive damages should have been awarded. We agree.
At the conclusion of trial, the judge denied defendant's motion for a directed verdict on punitive damages. She found that defendant failed to give plaintiff the notice he was entitled to under his contract non-renewal as a division head, and that the conduct which evolved from January 10 to January 19 was enough to "present the issue of wanton and disregard of treatment [sic] for the doctor" as to allow the punitive damages claim to remain in the case.
"With rare exception, punitive damages are not available in an action for a breach of contract." Buckley v. Trenton Sav. Fund Soc'y, 111 N.J. 355, 369-70 (1988). In Sandler v. Lawn-AMat Chemical & Equipment Corp., 141 N.J. Super. 437, 448 (App. Div.), certif. denied, 71 N.J. 503 (1976), involving a breach of contract action by a distributor against a franchisor, the appellate court noted that "[p]unitive or exemplary damages have traditionally been reserved for civil wrongs characterized as torts." It held that "[w]here the essence of a cause of action is limited to a breach of [a commercial] contract, punitive damages are not appropriate regardless of the nature of the conduct constituting the breach." Id. at 449.
Even where the breach is "malicious and unjustified," punitive damages are not allowed in actions upon "mere private contracts." Ibid. (quoting McCormick, Damages, § 81 at 286 (1935)). "The addition of such stylized labels as 'malice' and 'maliciously' in the pleadings . . . do not transform the essence of the action into a tortious wrong." Id. at 451.
The Sandler court also held that even if punitive damages could be awarded in contract actions, [t]he mere fact that a court has found that the weight of the evidence is balanced in favor of one side rather than the other, or that the motivation of the breaching party was to advance his own interests and financial position, does not furnish the basis for a finding of the type of wrongful, malicious conduct which could support a claim for punitive damages. [Id. at 451-52.]
The Sandler court noted, however, that several exceptions had been carved out of the rule to permit punitive damages in contract cases "where the unusual relationship between the parties reflects a breach of trust beyond the mere breach of a commercial contract." Id. at 449. Examples of such exceptions included the breach of a contract of marriage, an action against a public utility for failure to comply with its statutory public duty, an action by a depositor against his banker, and actions involving a fiduciary relationship such as that between a seller and his real estate broker. Id. at 449-50.
In language that has subsequently been seized upon by many claimants in contract actions, this court commented:
We do not mean to conclude from the foregoing that the right to punitive damages should turn simply upon the form of action involved, namely, whether it is designated as a tort rather than a contract. There may arise a case involving such an aggravated set of facts that punitive damages might be appropriate regardless of the contract form of the cause of action and even though it may be beyond the scope of the recognized exceptions in the adjudicated cases. However, this is not such a case. [Id. at 451.]
In Ellmex Construction Co., Inc. v. Republic Insurance Co., 202 N.J. Super. 195, 207 (App. Div. 1985), certif. denied, 103 N.J. 453 (1986), this court noted that these gratuitous observations in Sandler were dicta only. It held that New Jersey case law furnished no authority for the conclusion that punitive damages could be imposed in an insurance contract action, such as the one before it, which was nothing more than a traditional breach of contract action. Id. at 207-08.
Similarly, in Balsamides v. Perle, 313 N.J. Super. 7, 31 (App. Div. 1998), aff'd in part, rev'd in part on other grounds sub nom. Balsamides v. Protameen Chemicals, Inc., 160 N.J. 352 (1999), we again affirmed the principle that punitive damages were not usually awarded in breach of commercial contract cases. In accordance with Sandler, however, the court noted that punitive damages could be awarded where there was a breach of trust between the parties "beyond the contractual breach," such as that between an oppressed shareholder and a closely-held corporation. Ibid.; accord Lightning Lube, Inc. v. Witco Corp., 4 F.3d 1153, 1194 (3d Cir. 1993) ("Under New Jersey law breaches of contract, even if intentionally committed, do not warrant an award of punitive damages in the absence of a showing that defendant also breached a duty independent of that created by the contract"); W.A. Wright, Inc. v. KDI Sylvan Pools, Inc., 746 F.2d 215, 217 (3d Cir. 1984) ("'Punitive damages are not recoverable for a breach of contract unless the conduct constituting the breach is also a tort for which punitive damages are recoverable'") (quoting Restatement (Second) of Contracts § 355 (1979)).
Applying these principles, we conclude the judge erred in allowing plaintiff to pursue his claim for punitive damages in this not atypical breach of an employment contract case. The relationship between an employer and employee is not a fiduciary one, nor is it imbued with any special statutory or public duty, so as to fit within any of the carefully circumscribed exceptions to the rule that punitive damages are not awarded in contract cases. The judge here did not find any such relationship; rather, she allowed plaintiff's claim to go forward solely because she found defendant's conduct here to be heavy-handed and in direct contravention of plaintiff's contractual rights. However, New Jersey jurisprudence does not permit an award of punitive damages in such circumstances, and even Sandler, upon which plaintiff relies, unequivocally stated that a mere one-sidedness of the breach, or evidence which indicates that the breaching party acted maliciously, is not enough to sustain an award of punitive damages in a breach of contract action.
Plaintiff argues that the public interest was implicated here by the fact that defendant threatened to lock him out of his office and prevent him from attending to his patients, endangering their health and safety. We disagree. Plaintiff was, in fact, not locked out of his office and there was absolutely no evidence that his patients were ever in potential danger from lack of attention. Although there was much in this record that might make for public disaffection at the way hospitals and doctors conduct their "business," we observe that plaintiff himself was not an innocent party. While he had no obligation to accede to defendant's alleged breach of his contract, he chose to rally his colleagues and to use the hospital forum as a venue for asserting his legal rights. We also observe that plaintiff's colleagues did not appear overly concerned about the welfare of any of the patients. Rather, they apparently viewed plaintiff's alleged wrongful termination as a sign that defendant Cooper was riding roughshod over the rights of all full-time faculty members. In sum, this was a sophisticated labor management dispute. As such, we cannot say that this case was so involved with the public health and welfare, to compel an exception to the usual punitive damages rule.
We also do not conclude that this case can be transformed into a tort claim merely because plaintiff also pursued a cause of action for breach of the implied covenant of good faith and fair dealing. As will be more fully discussed in below, tort damages do not lie for the breach of an implied covenant of good faith and fair dealing found in an employment contract. Noye v. Hoffmann-LaRoche, Inc., 238 N.J. Super. 430, 436 (App. Div.), certif. denied, 122 N.J. 146, 147 (1990). Although certain breaches of an employer's duty may give rise to a tort claim, such as wrongful termination in violation of a clear mandate of public policy, such breaches are not the same as those that derive from an employee's contract, either express or implied.
Id. at 437. See also Pickett v. Lloyd's, 131 N.J. 457, 474-76 (1993) (action by insured against its insurer for bad faith refusal to pay first-party claim sounds more in contract than in tort; to sustain claim for punitive damages, plaintiff would have to show something other than breach of insurer's good faith obligation).
Next, we consider the claim for damages for future lost income. Defendant contends that the judge erred in permitting the jury to award damages for plaintiff's future wage losses beyond the term of his contract, because defendant was under no obligation to renew the contract at the end of its term. Defendant alleges that damages beyond the end date of plaintiff's employment contract were not recoverable as a matter of law, were not within the contemplation of the parties at the time the contract was made, were too speculative, and were not supported by any expert testimony. Also, these claims constituted damages for loss of professional reputation, which are not recoverable for the breach of a contract. In a separate point heading, defendant argues that the failure to renew a contract cannot constitute a breach of contract or a breach of the implied covenant of good faith and fair dealing, where the renewal is optional. We agree with defendant that these future damages were not recoverable as a matter of law and were not within the contemplation of the parties when the contract was made, and that they were not separately recoverable as part of plaintiff's implied covenant claim.
We observe and recall that plaintiff's employment contract was due to expire on September 28, 2002. The contract provided that the term "shall renew" automatically at the end of each term for an additional two-year term unless plaintiff or defendant provided a 120-day written notice of termination before the end of the current term. At trial, over defendant's objection, plaintiff asserted a claim for damages for the two-year period beyond September 28, 2002 on the theory that renewal was the default option and that his contract would have been renewed unless either he or defendant took direct action to stop the renewal process.
Prior to trial, the judge denied defendant's motion to preclude this claim of damages. No reasons were given for this decision. Plaintiff's position at trial was that the "automatic renewal" term of his contract entitled him to seek damages beyond the initial term of his agreement, when coupled with the admissions by Viner and Olivia that, in the ordinary course of events, plaintiff's contract would have been renewed.
Compensatory damages for breach of a contract are intended to compensate the injured party for losses due to the breach and to put that party in as good a position as if performance had been rendered as promised. Totaro, Duffy, Cannova & Co., L.L.C. v. Lane, Middleton & Co., L.L.C., 191 N.J. 1, 12-13 (2007); Donovan v. Bachstadt, 91 N.J. 434, 444 (1982). The breaching party is thus liable for all of the "natural and probable consequences" of the breach. Totaro, Duffy, Cannova & Co., L.L.C., supra, 191 N.J. at 13; Pickett, supra, 131 N.J. at 474. When the wrongful discharge of an employee occurs, the measure of damages is usually the employee's salary for the remainder of the employment period, less any damages that the employee actually earned for that period or could have earned by reasonable efforts. Goodman v. London Metals Exch., Inc., 86 N.J. 19, 34 (1981). Cases from other jurisdictions confirm the principle that the usual remedy for breach of an employment contract, where the contract sets forth a definite term, is to pay the wages due the employee under the contract from the date of discharge until the contract term would have expired. E.g., Granow v. Adler, 206 P. 590, 593 (Ariz. 1922) (upon breach of contract by wrongful discharge, plaintiff is entitled to damages to compensate him for injuries sustained to end of contract period); Zayre Corp. v. Creech, 497 So. 2d 706, 707 (Fla. Dist. Ct. App. 1986) (in action for breach of employment contract by wrongful discharge prior to completion of contract, measure of damages is salary for unexpired term of contract); Hollwedel v. Duffy-Mott Co., Inc., 188 N.E. 266, 268 (N.Y. 1933) (measure of damages for breach of employment contract is "the wage that would be payable during the remainder of the term"); Worrell v. Multipress, Inc., 543 N.E.2d 1277, 1282 (Ohio 1989) (usual remedy in breach of contract cases for wrongful discharge is to pay plaintiff any wages due under contract from date of discharge until contract term expires); Bramhall v. ICN Med. Labs., Inc., 586 P.2d 1113, 1117 (Or. 1978) (usual measure of damages for breach of ordinary contract of employment for term of years is limited to amounts payable for remainder of term); Bad Wound v. Lakota Cmty. Homes, Inc., 603 N.W.2d 723, 726 (S.D. 1999) (employee working under definite term contract dismissed before expiration of term is entitled to lost wages computed from time of discharge to end of contract term).
Defendant also relies on Del Castillo v. Bayley Seton Hospital, 649 N.Y.S.2d 41 (App. Div. 1996). In that case, the plaintiff had entered into a contract with the defendant to provide anesthesiology services as an independent contractor at the hospital for a period of five years. Id. at 42. The contract provided that the hospital would give the plaintiff the first opportunity to negotiate a renewal or modification of the agreement, and that the parties would negotiate in good faith as to any such renewal or modification. The New York court held that this provision was "insufficiently definite to be enforceable by the imposition of damages" because it did not set forth the obligations of the parties in connection with the "first opportunity to negotiate a renewal or modification" of the contract. Id. at 42-43. "The parties did not commit themselves to a renewal or modification of the contract; they only agreed to negotiate." Id. at 43.
True, the renewal provision in plaintiff's contract was qualitatively different than an agreement to negotiate. Rather, the provision stated that renewal shall be automatic unless either party to the contract gave sufficient notice of termination. Nevertheless, we think this distinction provides no basis for approving the award of future lost wages to plaintiff because the fact is that defendant here did give sufficient notice to plaintiff of its decision not to renew his contract. (Note that this is separate and distinct from plaintiff's claim that defendant failed to give him sufficient notice of its intention not to renew him as division head, a term which should have expired on May 31, 2001.) In fact, it was plaintiff who, on September 18, 2001 first gave notice of his termination of the contract effective October 19, 2001 and of his obvious intention not to renew. Defendant responded to that notice in November 2001 by indicating that it was terminating plaintiff's contract because of his failure to give the requisite 120-day notice.
As we view this situation, plaintiff's claim that defendant breached the contract by removing him as division head entitled him to terminate the contract prior to the expiration of its term and to damages for that breach. However, nothing in either the contract or in the evidence presented to the jury suggests that plaintiff could force defendant to renew his contract for an additional two years. As such, we do not believe he was entitled to seek lost wages for these two years. See Canady v. Meharry Med. Coll., 811 S.W.2d 902, 906-07 (Tenn. App. 1991) (where plaintiff had no contract right to renewal or extension of his contract, and where assent of both parties was necessary to renew, parties to such contract should not expect to pay damages for refusal to renew when there is no obligation to do so); see also Tredrea v. Anesthesia & Analgesia, P.C., 584 N.W.2d 276, 288 (Iowa 1998) (compensation for loss of future income beyond a contract date is too speculative).
Plaintiff's reliance on Preston v. Claridge Hotel & Casino, Ltd., 231 N.J. Super. 81 (App. Div. 1989), is misplaced.
Although that court did state that a wrongfully discharged employee could recover future lost wages in a breach of contract action, id. at 88, the cause of action in that case was premised upon a contract implied from an employee handbook, pursuant to Woolley v. Hoffmann-LaRoche, Inc., 99 N.J. 284, modified on other grounds, 101 N.J. 10 (1985). But there was no express or implied contract between the parties that stated the term of employment was for a definite term of years.
It could be argued that a Woolley plaintiff should not fare better than a plaintiff who asserts a cause of action pursuant to an express contract. However, there is a valid basis for this distinction. Parties to a written employment contract have the ability to negotiate all the terms of employment, including salary and the length of service. There is nothing unfair about holding them to these terms and in enforcing their reasonable expectations under the contract. The plaintiff's Woolley "contract" in Preston, by contrast, contained no such negotiated terms.
Nor can plaintiff fare any better by claiming that he was entitled to these future lost wages as part of his claim for breach of the implied covenant of good faith and fair dealing. As will be explained below, an implied covenant cannot override an express termination clause of a contract. Sons of Thunder, Inc. v. Borden, Inc., 148 N.J. 396, 419 (1997). Because the judge erred in allowing this implied covenant claim to go to the jury as a separate component of plaintiff's damages, he cannot use this claim to bootstrap his assertion that he was entitled to future lost wages.
The defendant claims that the judge erred in submitting to the jury a separate charge on the claim of breach of the implied covenant of good faith and fair dealing, allowing the jury to award separate damages for this claim. We agree.
In charging the jury, the judge explained that on plaintiff's breach of contract claim, he had to prove that there was a contract, that he did what the contract required him to do, that defendant failed to do what the contract required it to do, and that defendant's breach caused a loss to plaintiff. The jury was also told that the law implies that each party to a contract will act in good faith and deal fairly with the other party in performing the terms of the contract. To act in good faith and fair dealing, the parties must act honestly towards one another in performing the contract, and must not do anything that would have the effect of destroying or injuring the rights of the other party to receive the fruits of the contract.
The jury was further told that the implied covenant may not override an expressly granted right under the contract, such as the express right to terminate, and that a party's motive to terminate under such circumstances was irrelevant. Nevertheless, a party who fully complies with an express contract term may still breach the implied duty of good faith and fair dealing.
The judge then went into a lengthy discussion regarding the breach of contract claim. The jury was told that, as part of this claim, plaintiff was entitled to damages for such losses as may fairly be considered to have arisen naturally from defendant's breach, or such damages as may reasonably be supposed to have been contemplated by both parties at the time the contract was made as the probable result of the breach. Damages for breach of contract were intended to put the injured party in as good a monetary position as he would have enjoyed had the contract been performed as promised. Defendant does not challenge any portion of this charge.
The judge then instructed the jury that the second part of plaintiff's damages related to the implied covenant of good faith and fair dealing. Those damages were designed to place an injured party in as good a monetary position as he would have enjoyed if the covenant had not been breached. The jury was asked to separately find whether defendant breached the contract and whether it breached the implied covenant of good faith and fair dealing, and to separately find whether plaintiff suffered economic damages as a proximate result of those breaches. During deliberations, the jury asked for, and the judge gave, a re-charge on the law regarding the implied covenant. It returned a verdict finding in favor of plaintiff on both claims, and awarded him $6801 for defendant's breach of the contract and $564,187 for its breach of the implied covenant.
"Every party to a contract . . . is bound by a duty of good faith and fair dealing in both the performance and enforcement of the contract." Brunswick Hills Racquet Club, Inc. v. Route 18 Shopping Ctr. Assocs., 182 N.J. 210, 224 (2005). A breach of this covenant may be found even if no express term of the contract is violated. Id. at 226; Sons of Thunder, Inc., supra, 148 N.J. at 423. Thus, "a party to a contract may breach the implied covenant of good faith and fair dealing in performing its obligations even when it exercises an express and unconditional right to terminate," Sons of Thunder, Inc., supra, 148 N.J. at 422, that is, even where the contract in question contains "express and unambiguous provisions permitting either party to terminate the contract without cause." Id. at 421. However, the covenant cannot override an express contractual term. Wade v. Kessler Inst., 172 N.J. 327, 341 (2002); Sons of Thunder, Inc., supra, 148 N.J. at 419.
The covenant of good faith and fair dealing has been applied in three general ways. First, it "permits the inclusion of terms and conditions which have not been expressly set forth in the written contract." Seidenberg v. Summit Bank, 348 N.J. Super. 243, 257 (App. Div. 2002). Second, it allows "redress for the bad faith performance of an agreement even when the defendant has not breached any express term." Ibid. Third, it permits "inquiry into a party's exercise of discretion expressly granted by a contract's terms." Ibid.
None of these three categories was at issue here. Plaintiff was not seeking to include any term or condition not set forth in his written contract; he was not seeking to hold defendant accountable for the bad faith performance of the agreement despite the lack of breach of any express term; and he was not questioning defendant's exercise of any discretion under the contract. Rather, plaintiff was seeking only to hold defendant accountable for the bad faith breach of an express term of the contract, i.e., the provision that entitled plaintiff to remain as division head until the end of May 2001.
The implied covenant cause of action is not intended to provide a plaintiff with additional damages for the bad faith breach of an express term of a contract. Wade v. Kessler Inst., 343 N.J. Super. 338 (App. Div. 2001), aff'd as modified, 172 N.J. 327 (2002), is instructive on this issue.
In that case, the plaintiff was an at-will employee who sued her former employer for breach of an implied contract of employment contained in an employee handbook, pursuant to Woolley, supra, 99 N.J. at 297-98. Wade, supra, 343 N.J. Super. at 348. Although the jury found no breach of contract, it did award damages for breach of an implied covenant of good faith and fair dealing. Id. at 344. The Appellate Division vacated the verdict on the ground that the jury charge on the implied covenant claim was misleading. Id. at 350-51.
The jury in Wade had been instructed that the contract claim arose from the employer's alleged failure to follow the proper procedure, in accordance with the employee handbook, when terminating the plaintiff. Id. at 349-50. They had also been told that every contract contained an implied covenant of good faith and fair dealing and that the plaintiff was alleging that the defendant violated that covenant in the employment relationship by not providing a fair grievance procedure. Id. at 349. The jury was asked to answer three questions: (1) whether the defendant breached its covenant of good faith and fair dealing when it terminated the plaintiff and failed to hold a hearing under the grievance procedures; (2) whether the defendant terminated the plaintiff in violation of the manual outlining the terms of her employment; and (3) whether the conduct of the defendant proximately caused loss of earnings to the plaintiff? The jury answered "yes" to the first and third questions and "no" to the second. Id. at 350.
In finding that the charge was misleading, we found that the court had failed to tell the jury that it had to find that the employee handbook created an implied contract before it could find that the implied covenant had been breached. Id. at 350-51. The error was compounded by the fact that the court had instructed the jury on the implied covenant claim before the implied contract claim. Id. at 351. The court also failed to make clear that bad faith was an essential element of the claim for breach of the implied covenant. Id. at 352.
On appeal, the Supreme Court affirmed but on slightly different grounds. It first reaffirmed that an implied contract pursuant to Woolley contains an implied covenant of good faith and fair dealing like any other employment agreement. 172 N.J. at 340. However, "[a] breach of the implied covenant of good faith and fair dealing differs from a 'literal violation of a contract.'" Ibid. (quoting Bak-A-Lum Corp. of Am. v. Alcoa Bldg. Prods., Inc., 69 N.J. 123, 130 (1976)). A party may breach the implied covenant even though it does not violate any express term of the contract. 172 N.J. at 341.
The Court found that the first and second questions of the verdict sheet overlapped and that the jury rendered an arguably inconsistent verdict. Id. at 342. That is, the first question focused on whether the defendant had failed to abide by a grievance procedure, whereas the second question pertained to whether the plaintiff's firing violated the "terms of her employment." However, the grievance procedure constituted a term of her employment. Id. at 343.
Significant here, the Court also found that the issue of the implied covenant of good faith and fair dealing should not have been included on the verdict sheet in the first instance. Id. at 342. That is, the plaintiff was correct that the defendant had the obligation to discharge its responsibility under the employment manual in good faith. Id. at 343-44. However, she erred in asserting that the defendant violated the implied covenant of good faith and fair dealing by terminating her without just cause, "because this erroneously suggest[ed] that in breaching a literal term of the manual, defendant also could be found separately liable for breaching the implied covenant of good faith and fair dealing when the two asserted breaches basically rest on the same conduct." Id. at 344.
Because the plaintiff's termination was governed by an express term of the employment manual, the jury should have resolved the question whether she was terminated without just cause "within the framework of an alleged breach of a literal term, not as a violation of the implied covenant." Ibid. By separately asking the jury to find whether the defendant breached the implied covenant, the court "incorrectly invited the jury to find a breach of the implied covenant and a breach of the express grievance provision, when on this record those two claims reflected one and the same alleged breach." Ibid.
Stated differently, defendant's obligation to discharge plaintiff in accordance with the manual and its duty to accord her a three-step grievance review were not implied; they were expressly set forth in the manual itself. From that perspective, there can be no separate breach of an implied covenant of good faith and fair dealing. In a more straightforward case, the breach of the implied covenant arises when the other party has acted consistent with the contract's literal terms, but has done so in such a manner so as to "have the effect of destroying or injuring the right of the other party to receive the fruits of the contract." [Id. at 344-45 (quoting Bak-A-Lum Corp. of Am., supra, 69 N.J. at 129).]
The Court also rejected any argument by the plaintiff that the jury could have found a breach of an implied covenant of good faith and fair dealing absent any express or implied contract. Id. at 345 (citing Noye, supra, 238 N.J. Super. at 434. The Court made it clear, however, that its holding was not to be understood as precluding an employee in an appropriate case from pleading alternative claims. When supported by the facts, a jury may determine whether an employer has breached the express terms of a . . . contract, and if not, whether the employer nonetheless has breached the implied covenant of good faith and fair dealing. [Id. at 346.]
Applying these principles here, we find that the trial judge below erred in charging the jury on both breach of an express contract provision and breach of the implied covenant of good faith and fair dealing, where the two breaches arose from the identical conduct. This was not a case where plaintiff proceeded on alternate claims. Rather, the jury was essentially asked to award plaintiff additional damages if it found that the breach of the contract was done in bad faith. As the Supreme Court noted in Wade, the cause of action for breach of the implied covenant of good faith and fair dealing arises when a defendant has complied with all of the literal terms of the contract but has done so in a way which nonetheless deprives the injured party of the fruits of the contract. In our view, that was not the case here. Moreover, the error is not salvageable because the bulk of the damages awarded by the jury were for breach of the implied covenant.
In addition, based on our conclusion, noted above, the verdict must be reversed in any event because of the error in allowing the jury to consider plaintiff's future lost wages past the term of the contract. We reverse and remand for a new trial on the claim of breach of contract, and, if so, on compensatory damages.
In view of our rulings above which compel a remand for a trial on the issues of breach of contract and compensatory damages, we need not reach and decide the other issues raised on the appeal and cross-appeal as listed at pages 34-36 above. These issues are either mooted by our rulings today or extremely unlikely to reoccur in further proceedings in this matter. If they do arise again, we are confident the new trial judge can deal with them afresh in the revisited context and make adequate rulings.
The judgments entered in the Law Division are vacated and the matter is remanded for a new trial.