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Neil Kahanovitz, M.D v. Electro-Biology

January 27, 2011

NEIL KAHANOVITZ, M.D., PLAINTIFF-APPELLANT,
v.
ELECTRO-BIOLOGY, INC., EBI, L.P. AND BIOMET, INC., DEFENDANTS-RESPONDENTS.



On appeal from Superior Court of New Jersey, Law Division, Morris County, Docket No. L-8-09.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued October 19, 2010 - Decided

Before Judges Messano and Waugh.

Plaintiff Neil Kahanovitz appeals the dismissal on summary judgment of his amended complaint for breach of contract against defendants Electro-Biology, Inc., and EBI, L.P. (collectively EBI), and also against Biomet, Inc. (Biomet). Because we have concluded that there were genuine issues of material fact precluding summary judgment on the contractual claim, at least prior to the completion of discovery, we reverse in part and remand for further proceedings consistent with this opinion. However, we affirm as to the remaining counts of the amended complaint and the denial of Kahanovitz's cross-motion for summary judgment.

We discern the following facts and procedural history from the record.

I.

Kahanovitz is a medical doctor who specializes in orthopedic surgery. Approximately twenty-five years ago, Kahanovitz started working with EBI in the development of medical products, primarily for use in spine surgery. According to Kahanovitz, EBI's sales of those products have exceeded a hundred million dollars.

Kahanovitz and EBI entered into a "consulting agreement" on January 1, 1998. The consulting agreement, which replaced a prior agreement, had a five-year term. Paragraph three of the consulting agreement required Kahanovitz to provide consulting services, as requested by EBI, with respect to such issues as "Product Line development and expansion," "marketing and promotional activities," "reimbursement and managed care programs and strategies," and "research projects and scientific papers regarding the [p]roduct(s)." It also required him to "[m]ake presentations as reasonable and mutually agreeable at various meetings selected by EBI." Paragraph four provided for compensation through a series of three separate categories of minimum payments per year, or one quarter of one percent (.25%) to two percent (2%) of the net sales of three types of products, whichever was greater.*fn1 The agreement also provided that EBI would own the rights to any products resulting from Kahanovitz's consulting services.

The consulting agreement was amended on November 1, 1998. The amendments modified the nature of Kahanovitz's duties and the manner of compensation. The term of the consulting agreement was extended by one year.

The consulting agreement was amended again, effective December 1, 2004.*fn2 The second amendment also revised the nature of Kahanovitz's duties and compensation. It provided that the consulting agreement, as amended, would terminate on November 30, 2008. One of the changes to the compensation section provided as follows:

Notwithstanding the above, during the Term of this Agreement and for so long as Kahanovitz is performing Services within the Agreement Field, EBI shall guarantee Kahanovitz a minimum annual royalty payment equal to two hundred and fifty thousand dollars ($250,000.00) per fiscal year. Said minimum royalty shall be paid in four equal quarterly installments. Minimum quarterly payments will be reconciled with actual royalties earned at the end of each fiscal year.

[(Emphasis added).]

As will be seen, this appeal involves the interpretation of the underlined provision. Kahanovitz contends that it obligated EBI to continue making minimum payments after the expiration of the consulting agreement, while defendants argue that the language cannot reasonably be read to require such continuing payments. EBI notified Kahanovitz during April or May 2008 that the consulting agreement would not be renewed when it expired on November 30, 2008, attributing its decision to changes in the regulatory environment with respect to the relationship between medical device companies and their consulting physicians. When the agreement expired, EBI ceased requesting and Kahanovitz ceased providing services to EBI. Once it had made all payments due to Kahanovitz under its interpretation of the consulting agreement, EBI ceased making payments to him.

Kahanovitz filed his three-count complaint on December 15, 2008. He stated causes of action for breach of contract, unjust enrichment, and imposition of a constructive trust. His theory of EBI's obligations under the agreement was articulated as follows:

11. From the beginning, it was the intention of both Dr. Kahanovitz and the EBI principals with whom he dealt personally, including EBI CEO James R. Pastena, that, so long as Plaintiff maintained an active practice in orthopedic surgery, Dr. Kahanovitz would continue to assist defendants in development and marketing of new orthopedic surgical devices, and that defendants would continue to pay Dr. Kahanovitz royalties on the products which he developed or helped develop for EBI. This arrangement was, and was intended to be, unlike an existing relationship between defendants and their other physician consultants. This arrangement was never intended to pay off Dr. Kahanovitz for using EBI products nor as an incentive to increase his use of EBI products in his clinical practice.

12. From 1981 through 2008, Dr. Kahanovitz remained loyal to EBI. During this period he refused several lucrative consulting offers from defendants' competitors, the last offer just several months ago. In furtherance of his longstanding agreement and relationship with Defendants, and in consideration for Plaintiff's role as an actual developer of the products at issue, as well as the exclusivity of Plaintiff's services to defendants, in or about November, 1998 Plaintiff requested and received a written amendment to the parties' existing contract. The amendment stated that henceforth all of his fees would be paid on the basis of royalties rather than per-diem fees. This arrangement was further memorialized in the parties' Second Amendment of Consulting Agreement, dated December 6, 2004.

13. In or about April, 2008, while the parties' contract was still in force and effect, officers of defendant Biomet Inc. advised Plaintiff of their intention to terminate the parties' contract. Defendants proffered an "explanation" to Plaintiff that governmental authorities were investigating and prosecuting consultancy relationships between surgical implant suppliers and surgeons as fraudulent monetary inducements to physicians to use certain suppliers' products exclusively, in violation of Medicare payment rules. Plaintiff pointed out that, unlike numerous of defendants' hourly-compensated physician-"consultants" who were merely Biomet/EBI-product end users, he was an actual developer, particularly of Biomet's "SpF" electrical stimulation product line. Defendants themselves had recognized this distinction in setting up Dr. Kahanovitz's unique royalty payment arrangement starting in November, 1998 in recognition of Dr. Kahanovitz's role as an actual product developer.

14. Despite the defendants' continuing obligation to accept Dr. Kahanovitz's development and marketing services, and to pay Dr. Kahanovitz the royalties set out in the parties' contract, the defendants thereafter ceased payment to Plaintiff and advised him that the parties' contract was and is "terminated."

Kahanovitz filed an amended complaint, which is substantially the same as his original complaint. Defendants filed their answer and affirmative defenses to the amended complaint on May 22, 2009.

Kahanovitz served interrogatories and document requests on September 29, 2009. On November 9, 2009, he served a notice of deposition, to be held on November 30, 2009.

On November 20, 2009, prior to the completion of the requested discovery, defendants moved for summary judgment. They argued that, as a matter of law and the applicable contractual language, Kahanovitz's right to receive any payments under the consulting agreement terminated when the agreement expired on November 30, 2008. They further argued that there could be no unjust enrichment in light of the termination of Kahanovitz's right to receive compensation.

Kahanovitz opposed the motion and filed a cross-motion for summary judgment in his favor. In his supporting certification, Kahanovitz again outlined the history of his relationship with EBI. He again asserted that, unlike many orthopedic surgeons receiving compensation from device manufactures, he was being compensated for actual services, including product development, assistance with regulatory review and the provision of educational services, rather than merely for using EBI's products during surgery.

Kahanovitz further asserted that the 1998 amendment was designed to provide him with compensation on a "royalty basis" for his services on ...


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