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Smull v. Residential Healthcare

April 22, 2009

LESTER SMULL, PLAINTIFF-APPELLANT,
v.
RESIDENTIAL HEALTHCARE, INC., D/B/A MEDICAL RESOURCE, ROBERT FINKLE AND DAVID GROELINGER, DEFENDANTS, AND JOHN ZUBAK AND HARVEY MITGANG, DEFENDANTS-RESPONDENTS.



On appeal from Superior Court of New Jersey, Law Division, Burlington County, Docket No. L-3501-03.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued January 14, 2009

Before Judges A. A. Rodríguez and Payne.

On December 8, 2003, plaintiff, Lester Smull, filed a complaint against defendants, Residential Healthcare, Inc., d/b/a Medical Resource (RHC), John Zubak, Robert Finkle, Harvey Mitgang, and David Groelinger, seeking compensatory and punitive damages for breach of contract - wrongful discharge (Count I), breach of an implied covenant of good faith and fair dealing (Count II), breach of oral contract (Count III), intentional infliction of emotional distress (Count IV), fraud, deceit and misrepresentation (Count V), wrongful discharge in violation of public policy (Count VI), defamation (Count VII), and conspiracy (Count VIII). An amended complaint omitting the claim of intentional infliction of emotional distress was filed on May 1, 2004.

In both complaints, plaintiff alleged that he was employed by RHC on July 9, 2001, pursuant to a written employment agreement that guaranteed employment with RHC through December 31, 2005, with guaranteed annual renewal contracts of employment after that date, at an annual salary of $150,000 plus benefits and an expense allowance. Plaintiff further alleged that on July 16, 2003, he was asked to loan RHC the sum of $10,000, which he refused to do. Plaintiff was terminated without notice on the following day. Plaintiff stated in paragraphs 12 and 13 of his initial and amended complaints:

12. In the course of his employment, Mr. Smull had learned of a scheme in which RHC was making unauthorized unearned commission payments to a third party, Diane Bloom, who was then returning a percentage of those payments to certain officers of RHC as unlawful kickback payments through the use of an unauthorized and unofficial corporate checkbook.

13. Upon information and belief, Mr. Smull was terminated by RHC because, in whole or in part, he became aware of the unlawful kickback scheme and the Officers of RHC feared that he would present evidence of same to the Board of Directors and owners of RHC so that this practice would be stopped.

The alleged kickback scheme constituted the basis for plaintiff's cause of action for wrongful discharge in violation of public policy.

On February 1, 2006, plaintiff moved to amend his complaint to allege breach of fiduciary duty on the part of defendants John Zubak, the President and Chief Operating Officer of RHC, and Harvey Mitgang, its Executive Vice-President, arising from their alleged receipt of "monies from RHC in the form of 'commission payments,' stemming from business done between RHC and entities known as Self Funded Alternatives ('SFA') and Self Funded Alternatives of Nevada ('SFA of Nevada')." According to plaintiff, "[b]y accepting commission payments for the business activities of RHC, Messrs. Zubak and Mitgang have acted to the detriment of RHC, have engaged in a conduct of self dealing and unjust enrichment and have breached their fiduciary duty and duty of care to RHC." Plaintiff further alleged that the commission payments had "foreseeably resulted in a depletion of funds from RHC and have been a detriment to RHC."

Plaintiff's motion was supported by a certification by counsel that recited difficulties in obtaining documentary discovery of financial records.*fn1 Counsel continued by stating:

As stated, part of the focus of plaintiff's supplemental document requests seven months ago was the defendants' financial records including records of payments of commissions purportedly made by defendant RHC to two of the individual defendants, John Zubak and Harvey Mitgang. While plaintiff has been stymied to date in his effort to obtain these financial records, defendant Harvey Mitgang testified at deposition on January 24, 2006 that, in fact, he and Mr. Zubak had received commission payments from entities known as Self Funded Alternatives ("SFA") and Self Funded Alternatives of Nevada ("SFA of Nevada").*fn2 This was the first confirmation that, in fact, said commission payments were made to Messrs. Zubak and Mitgang.

After requesting leave to file a second amended complaint, counsel certified that "plaintiff anticipates that this will not unduly lengthen the period of pre-trial discovery in this matter." At the time, the period for discovery had been extended on three occasions from an initial discovery end date of April 15, 2004 to February 2, 2005 to November 3, 2005 and to April 14, 2006. No trial date had been given to the more-than-two-year-old case.

At oral argument on the motion, the judge expressed skepticism that discovery with respect to the commission payment allegations could be completed within the ...


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