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NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
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 ...