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Nanavati v. Horizon Blue Cross/Blue Shield

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION


April 9, 2009

SUKETU NANAVATI, M.D., PLAINTIFF-APPELLANT/ CROSS-RESPONDENT,
v.
HORIZON BLUE CROSS/BLUE SHIELD, DEFENDANT-RESPONDENT/ CROSS-APPELLANT.

On appeal from the Superior Court of New Jersey, Law Division, Cape May County, L-716-03.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued December 8, 2008

Before Judges Carchman, R. B. Coleman and Sabatino.

Plaintiff Dr. Suketu Nanavati, M.D. (Nanavati) appeals from a judgment of the Law Division, Cape May County, dated October 9, 2007, entered following a bench trial conducted on various dates in April and May 2007. Consistent with the oral opinion of Judge Joseph C. Visalli, placed on the record on September 14, 2007, judgment was entered against defendant Horizon Blue Cross Blue Shield (Horizon) on counts one and three of plaintiff's complaint that asserted claims, respectively, of breach of contract and breach of a settlement agreement and in favor of defendant on count two, that asserted a breach of an implied covenant of good faith and fair dealing. The judge ordered the immediate reinstatement of plaintiff as a participating physician in the Horizon plan, but notwithstanding the entry of judgment against Horizon on counts one and three, he declined to award damages, based on his finding that "plaintiff has not proven monetary damages on the breach of contract and/or breach of the settlement agreement." We affirm.

The essential facts are not in dispute. Dr. Nanavati is a physician licensed to practice medicine in New Jersey. He is Board Certified in Internal Medicine and Cardiology and has been a participating physician with Horizon since 1992, pursuant to a Participating Physician Agreement (PPA) which has been amended several times. In general, a participating physician agrees to provide discounted service to plan subscribers in exchange for which Horizon provides advertising and referrals to the participating physician. The PPA originally had a de-selection clause whereby termination of the agreement was permitted for good cause. This clause was amended in 1995, with a "reasonable-cause" provision replacing the "good-cause" provision. The amendment further outlined certain occurrences that would constitute reasonable cause under the PPA and, among other things, the amendment states that reasonable cause shall include: "You [the participating physician] being subject to a disciplinary action by a governmental program, licensing, professional registration or certification authority . . . ."

On September 4, 1996, the Attorney General filed a disciplinary complaint against Dr. Nanavati that alleged repeated acts of negligence and professional misconduct and which sought the suspension or revocation of his license to practice medicine and surgery in the State of New Jersey. The allegations in the complaint, which the Board of Medical Examiners (BME) undertook to investigate, included the writing of exorbitant numbers of prescriptions*fn1 for controlled dangerous substances to two patients, and the failure to record properly the prescriptions written or to document the reasons or diagnoses for prescribing them. The charges are relevant because the final resolution of the investigation had the potential to result in either minor discipline concerning deficient recordkeeping or discipline of a more serious nature concerning an abuse of indiscriminate prescription writing.

On May 7, 1997, Dr. Stanley Harris, Medical Director of Horizon, notified Nanavati by certified mail that Horizon was exercising its right to terminate Nanavati's PPA because of Nanavati's failure to notify Horizon immediately that Nanavati was the subject of a disciplinary action and because such a disciplinary action constitutes reasonable cause under the agreement. Nanavati filed an action in the Essex County Chancery Division to enjoin Horizon from terminating the PPA. On June 3, 1997, an order with temporary restraints was entered in that action requiring Horizon to show cause why the status quo prior to the date of Dr. Harris's letter should not be restored pending a hearing, essentially re-instating Nanavati as a participating physician.

As a result of a subsequent case management conference on January 30, 1998, the Chancery judge ordered, with the consent of the parties, that the matter be placed on the inactive list and that further litigation be held in abeyance pending the final resolution of the charges against Nanavati before the State Medical Examiners. The order further required Nanavati's counsel to notify the court and opposing counsel of the outcome of the disciplinary action within thirty days thereof.

The Essex County matter was eventually dismissed administratively by the court on April 29, 1999. Meanwhile, a Consent Order was first filed by the BME on July 9, 1998, reprimanding Dr. Nanavati for failing to follow statutory recordkeeping requirements and dismissing, with prejudice, all other counts of the administrative complaint. The consequence was, thus, a relatively minor disciplinary reprimand and one not directly concerning Nanavati's practice of medicine. The Order was modified and re-entered on October 22, 1998.*fn2

Nanavati forwarded a copy of the July 9, 1998, Consent Order to Horizon, whereupon Horizon re-certified Nanavati as a participating physician on September 18, 1998. Thereafter, on March 2, 2000, one year and seven months after the initial entry of the Consent Order by the BME, Horizon served notice of termination upon Nanavati, citing the disciplinary action by the licensing authority as the basis for such termination under Sections 12.1 and 12.2 of the PPA. On December 30, 2003, three years and nine months after such termination as a participating physician by Horizon, Nanavati filed his complaint in this action in the Law Division, in Cape May County, alleging, among other things, that Horizon wrongfully terminated the PPA and breached an alleged settlement agreement. Horizon responded with the affirmative defense that it was Nanavati who had breached the terms of the PPA as a result of the disciplinary reprimand issued by the BME.

Following a non-jury trial, the Law Division judge entered a final order on October 9, 2007. As already noted, judgment was entered against defendant Horizon on count one, for breach of contract under the PPA, and count three, for breach of a settlement agreement. Judgment was entered in favor of Horizon on count two, finding no breach of covenant of good faith and fair dealing. The court found, however, that plaintiff Nanavati had failed to prove monetary damages on either the breach of contract or breach of the settlement agreement.

Nanavati filed this appeal on November 21, 2007, from the portion of the judgment that denied him damages. Horizon cross-appealed from the portion of the trial court judgment that found it had breached the PPA that existed between Horizon and Nanavati.

I.

Nanavati contends that once the trial judge determined a breach of contract had occurred, he was required to evaluate the evidence to determine if there was a reasonable estimate of plaintiff's damages. This is precisely what the trial judge did, except that, utilizing contract principles, he found that plaintiff had failed to establish damages of any discernable amount.

Relief in the form of damages is not automatic upon a breach of contract determination. There are three general categories of judicial remedies for breach of contract: "restitution, compensatory damages and performance." Donovan v. Bachstadt, 91 N.J. 434, 443-44 (1982). Each of these remedies serves a different purpose:

Restitution returns the innocent party to the condition he or she occupied before the contract was executed. Compensatory damages put the innocent party into the position he or she would have achieved had the contract been completed. Performance makes the non-breaching party whole by requiring the breaching party to fulfill his or her obligation under the agreement. [Totaro, Duffy, Cannova and Co., L.L.C. v. Lane, Middleton & Co., L.L.C., 191 N.J. 1, 12-13 (2007).]

Damages recoverable for a breach of contract must be such as might reasonably be supposed "to have been within the contemplation of the parties when the contract was made." Van Dusen Aircraft Supplies v. Terminal Const. Corp., 3 N.J. 321, 329 (1949). Even so, a court may limit damages for foreseeable loss by (1) excluding recovery for loss of profits, (2) allowing recovery only for loss incurred in reliance, or (3) if it concludes that in the circumstances justice so requires in order to avoid disproportionate compensation. Restatement (Second) of Contracts § 351 (1979). The non-breaching party is obligated to prove, by a preponderance of the evidence, that the losses he or she seeks to recover "were a reasonably certain consequence of the breach." Pickett v. Lloyd's, 131 N.J. 457, 473 (1993).

This requires proofs on two separate issues. "First, it requires plaintiff to demonstrate that clients were lost as a natural and probable consequence of the breach." Totaro, supra, 191 N.J. at 15 (internal citations omitted). Second, plaintiff must be able to demonstrate to the court the "appropriate method for quantifying that loss." Ibid. Damages for loss of profits are recoverable only where they "might have been realized and are capable of being estimated with a reasonable degree of accuracy." Van Dusen, supra, 3 N.J. at 329. However, those "profits which are remote, uncertain or speculative, are neither an element of damages nor evidence thereof." Ibid.

Here, the trial court found that plaintiff failed to establish with reasonable certainty that he had suffered monetary damages. Such "[f]indings by the trial judge are considered binding on appeal when supported by adequate substantial and credible evidence." Rova Farms v. Investors Ins. Co., 65 N.J. 474, 484 (1974).

II.

Plaintiff argues, however, that the trial court engaged in the wrong analysis in assessing whether or not damages had been demonstrated. Plaintiff asserts that the court rejected his damages claim because "questions may exist" as to the amount of damages. Plaintiff further argues that it was not his burden to prove his case beyond a reasonable doubt, but simply to establish his damage claim with reasonable certainty. However, plaintiff misses the mark in his assessment of the trial judge's findings.

Here, the trial judge did not hold plaintiff to proof beyond a reasonable doubt. He merely found such deficiencies in the record that he concluded plaintiff had failed to establish by a preponderance of the credible evidence, that he had suffered damages in any amount. The opinion of plaintiff's accounting expert, Andrea Clearkin, was speculative at best, and it failed to include all of the factors relevant to a credible analysis. The court found that an important factor missing from the expert's calculation was the revenue from Horizon patients realized by Cape Heart Clinic, Inc., which is an entity wholly owned and operated by Nanavati. Plaintiff argues revenues of this entity should not be considered as it is not a party to this action. That argument, however, would allow plaintiff to segregate and ignore revenue generated by Horizon patients following the termination of the PPA, for the purpose of proving loss of profits caused by termination of the PPA.

We do not disturb the factual findings and legal conclusions of the trial judge "unless we are convinced that they are so manifestly unsupported by or inconsistent with the competent, relevant and reasonably credible evidence as to offend the interests of justice." Rova Farms, supra, 65 N.J. at 484 (quoting Fagliarone v. Twp. of No. Bergen, 78 N.J. Super. 154, 155 (App. Div. 1963)). This is particularly true where the credibility of expert opinion testimony is involved, because a fact finder is never bound to accept the testimony of expert witnesses, even if it is unrebutted by any other evidence. State v. M.J.K., 369 N.J. Super. 536, 549 (App. Div. 2004).

N.J.R.E. 703 requires that experts' opinions be founded on "facts or data." Hisenaj v. Kuehner, 194 N.J. 6, 24 (2008). The "net opinion rule" requires an expert to provide "'the why and wherefore of his or her opinion, rather than a mere conclusion'" Id. (quoting State v. Townsend, 186 N.J. 473, 494 (2006)). The "need for supporting data and a factual basis for the expert's opinion is especially important when the opinion is seeking to establish a cause and effect relationship." Rubanick v. Witco Chem. Corp., 242 N.J. Super. 36, 49 (App. Div. 1990) mod. on other grounds, 125 N.J. 421 (1991). Here, the trial court found the report and opinion of plaintiff's expert, as to Nanavati's lost profits, to be arbitrary and unsupported by factual data. The trial judge reasoned:

The expert does not account for the time necessary to service the various patients, nor does she mention any average amount of time required per patient in the - in the specialty involved for the various patients that were treated and/or evaluated. The expert does not reliably establish a reasonable basis for when the practice would require an associate. The year selected was 2007 as the appropriate time and is without foundation or factual basis. It is simply a time that was pulled out of the air, an arbitrary date unrelated to the number of patients and/or medical procedures.

The trial court found that the opinion testimony of plaintiff's expert was infirm in "both its factual foundation and inherent reasoning." Johnson v. Salem Corp., 97 N.J. 78, 91 (1984) (internal citations omitted). The expert's opinion as to damages was not adequately supported by sufficient underlying facts. It amounted to no more than an inadmissible "net opinion," constituting the "expert's bare conclusions, unsupported by factual evidence." Ibid.

Pointedly missing from the expert's analysis was the substantial increase in payments to Cape Heart Clinic, which remained a participating entity after Nanavati's PPA was terminated, for services performed by Nanavati. The record shows a dramatic increase in both the number of patients treated by Nanavati and revenues received for these services from Horizon billed through the Clinic following the termination of his PPA in March 2000. Furthermore, the trial judge found that "a strong inference of no monetary damage can be reasonably and [] logically drawn based upon plaintiff's failure to resort to litigation much sooner than December 30th, 2003, . . . when the termination took place in March of 2000." In the trial court's opinion, the facts established that any lost profits resulting from the termination of plaintiff's PPA "was more than offset by the increase in payment to Cape Heart Clinic, Inc."

The trial judge found the following facts to be credible and informing:

Doctors who treat patients of Horizon are paid whether they are participating or not participating physicians.

Physicians who are participating are paid at a lower rate; however, they are paid directly versus non-participating physicians who, while they receive a higher rate, are paid first by their patient, who are reimbursed by Horizon.

Even after he was terminated, Nanavati maintained a participating billing entity, Cape Heart Clinic, Inc., under a different tax identification number (TIN).

The records from Horizon reflect that the majority of the collections obtained by Nanavati came through the TIN associated with Cape Heart Clinic not through the TIN number associated with his own practice.

The plaintiff's expert testified each entity with a TIN would file a separate tax return.

The plaintiff's expert testified that she did not look at the tax returns or information regarding Cape Heart Clinic, rather she only reviewed the tax return from Dr. Nanavati.

In reviewing the record, the deficiencies in the expert's report are sufficient to support the trial court's finding that plaintiff had failed to prove monetary damages on the breach of contract and/or breach of the settlement agreement. We find no reason to disturb the trial court's conclusions.

III.

In its cross-appeal, Horizon contends that the trial court erred when it found Horizon had wrongfully terminated the PPA with Nanavati. Specifically, Horizon advances the following logical construct: (1) The PPA sets forth that Horizon can terminate the PPA immediately for reasonable cause; (2) reasonable cause includes any occurrence in which a provider is subject to disciplinary action by a governmental program, licensing, professional registration or certification authority; (3) the final resolution of the BME issued on October 22, 1998, resulted in a disciplinary reprimand of Nanavati; and (4) Horizon was within its contractual rights to terminate its PPA with Nanavati at any point thereafter.

Horizon further contends the BME's Consent Order dated October 22, 1998, was the basis of its termination of the PPA, and, after the fact, it claims no settlement agreement ever existed. On the other hand, the trial court provided ample reasons in the record to support its finding that a settlement agreement did, in fact, exist, and that Nanavati would not have agreed to the Consent Order if he had known or expected it would provide justification for his termination.

Under well settled principles of contracts, where parties agree on "essential terms and manifest an intention to be bound by those terms, they have created an enforceable contract." Weichert Co. Realtors v. Ryan, 128 N.J. 427, 435 (1992). It is required, however, that there be an "unqualified acceptance to conclude the manifestation of assent." Ibid. (quoting Johnson & Johnson v. Charmley Drug Co., 11 N.J. 526, 537 (1953)). "An offeree may manifest assent to the terms of an offer through words, creating an express contract, or by conduct, creating a contract implied-in-fact." Ibid. (citing Restatement (Second) of Contracts § 19(1) (1981)). Silence will not ordinarily manifest assent, but the "relationships between the parties or other circumstances may justify the offeror's expecting a reply and, therefore, assuming that silence indicates assent to the proposal." Weichert, supra, 128 N.J. at 435.

Here, the conduct of the parties manifested "an intention and understanding" of the existence of a contract "that would not allow a termination for a 'technical violation' of record keeping regulations." The trial judge found that while there was never a written agreement the parties allowed a great deal of time to elapse before taking action to terminate after the Medical Board issued the consent order of reprimand in 1998. This conduct is such to create a reliance by the plaintiff . . . that plaintiff accepted the reprimand with the Board.

Plaintiff . . . was re-credentialed on September 18, 1998, which was an affirmative act by the defendant recognizing the suitability of plaintiff as a provider. Moreover, the defendant also maintained the plaintiff as a provider for almost a year after the original case was removed from the inactive list, and about 19 months after the [BME] consent order was filed.

I also find that the conduct of the defendant manifests in an understanding that a technical violation in the record keeping statute was not a reason - reasonable cause for termination. The meaning of the contracts - of a contract's terms can certainly be determined by subsequent conduct of the parties after the contract's execution.

Dr. Harris' testimony, in conjunction with the re-credentialing of Dr. Nanavati after the reprimand speaks loudly in this regard . . . [a] significant 17 months had passed while Horizon had the information available to it. I am satisfied that the committee - the credentialing committee or - and/or Dr. Benedich should have investigated the lapse of times before acting to terminate. Defendant is found to have been in breach of the settlement agreement, the agreement being that a reprimand would not cause a termination of the participating provider agreement.

The facts in the record support the trial court's determination that the conduct of the parties manifested a settlement agreement which clarified the meaning of "reasonable cause" for purposes of termination of the PPA. Specifically, the agreement that arose between the parties excluded a technical violation of the recordkeeping regulations from the reasonable cause category.

Affirmed.


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