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Nanavati v. Horizon Blue Cross/Blue Shield

April 9, 2009


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

Per curiam.


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 ...

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