Opinion
CIVIL ACTION NO. 3:97CV-795-S.
May 24, 2001
MEMORANDUM OPINION
This matter is before the court for consideration of the motion of the defendant, Oncology/Hematology Care, Inc. ("OHCI"), for summary judgment. OHCI seeks summary judgment on all claims set forth in the Verified Complaint filed by the plaintiff, Dr. Roger Herzig ("Herzig").
BACKGROUND
This contract dispute arises out of the employment relationship that once existed between OHCI, as employer, and Herzig, as employee, and its eventual termination. In February of 1993, Herzig, an oncologist, commenced employment with Oncology Consultants, Inc. in order to "render professional medical services for the Corporation . . . ." Def.'s Mot. Summ. J. (DN 75), Ex. 1 at ¶ 1. The terms of Herzig's employment were set forth in an "Employment Agreement" dated November 2, 1992 ("Employment Agreement"). See id. at ¶¶ 1-17. In connection with Herzig's employment with OHCI, the parties also executed a "Stock Purchase (Buy-Sell) Agreement" ("Buy-Sell Agreement") pursuant to which Herzig alleges he became a shareholder in OHCI. See Def.'s Mot. Summ. J., Ex. 2.
According to Herzig, Oncology Consultants, Inc. was renamed Oncology/Hematology Care, Inc. in February of 1997. See Pl.'s Resp. (DN 80) at 1. For the sake of clarity, we will refer to this medical practice by which Herzig was employed between February of 1993 and April of 1997 as "OHCI."
In October of 1996, Herzig notified OHCI of his intention to terminate his employment relationship with OHCI, his resignation to become effective on April 30, 1997. See id. at Ex. 3. In December of 1997, Herzig filed his Verified Complaint in this matter. Herzig makes several claims, all of which concern the circumstances surrounding Herzig's employment, his termination of that employment relationship, and the sufficiency of Herzig's financial compensation by OHCI both during and after his employment.
In support of its motion for summary judgment, OHCI argues that:
(1) Herzig is not a shareholder in OHCI because: (a) he never actually tendered the purchase price for shares in OHCI; and (b) even if he did, his status as a shareholder terminated when his employment ended. Therefore, Counts I, II, V, and VII of Herzig's Verified Complaint, which are premised on Herzig's continuing status as a shareholder in OHCI, should be dismissed;
(2) Count III must be dismissed since, as a result of his own breaches of the Employment Agreement, Herzig is not entitled to the deferred compensation claimed to be owed him by OHCI;
(3) Count IV, which claims that OHCI did not fully compensate Herzig during his employment, must be dismissed because "it is beyond genuine dispute that Herzig received full compensation while he was an OHCI employee[;]"
(4) Count VI, which alleges that OHCI has not accounted for investments made on Herzig's behalf, must be dismissed because no investments were made on behalf of Herzig; and
(5) Count VIII, a claim of conversion, must be dismissed because Ohio law prohibits "re-alleging and relabeling the deficient breach of contract allegations."
See generally, Def.'s Mot. Summ. J. at 3.
Each of these arguments, and Herzig's responses thereto, will be discussed in turn below.
STANDARD OF REVIEW
A motion for summary judgment will be granted only when "the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). According to the Supreme Court, the standard is "whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251-52, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). Faced with a motion for summary judgment, the nonmovant must come forth with requisite proof to support its legal claim, particularly where the opposing party has had an opportunity to conduct discovery. See Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).
In the Sixth Circuit, "[t]he mere possibility of a factual dispute is not enough." Mitchell v. Toledo Hosp., 964 F.2d 577, 582 (6th Cir. 1992) (quoting Gregg v. Allen-Bradley Co., 801 F.2d 859, 863 (6th Cir. 1986)). "[T]his standard requires a court to make a preliminary assessment of the evidence, in order to decide whether the plaintiff's evidence concerns a material issue and is more than de minimis." Hartsel v. Keys, 87 F.3d 795, 799 (6th Cir. 1996).
DISCUSSION
I. Choice of Law
We first note that in a diversity action such as this, a district court must apply the choice of law rules of the state in which it sits. See Security Ins. Co. of Hartford v. Kevin Tucker Associates, Inc., 64 F.3d 1001, 1005 (6th Cir. 1995). In breach of contract actions, Kentucky courts first determine whether the relevant contract contains a choice of law provision which specifies the law to be applied in the event that a dispute arises between the parties to the contract. See Prudential Resources Corp. v. Plunkett, 583 S.W.2d 97, 99-100 (Ky. 1979). If so, and so long as the provision is neither unfair nor unreasonable, a Kentucky court will apply the law of the state specified by the contract. See id. In the absence of a valid choice of law provision, the law of "the state [which] has the most significant relationship to the transaction and the parties" will govern a breach of contract action. Breeding v. Massachusetts Indem. and Life Ins. Co., 633 S.W.2d 717, 719 (Ky. 1982) (quoting Lewis v. Family Group, 555 S.W.2d 579, 581-82 (Ky. 1977)). In Breeding, the court explained that "[j]ustice, fairness and the best practical result may best be achieved by giving controlling effect to the law of the jurisdiction which, because of its relationship or contact with the occurrence or the parties, has the greatest concern with the specific issue raised in the litigation." Breeding, 633 S.W.2d at 719 (citation omitted).
The Employment Agreement referred to above contains a choice of law provision which specifies that the agreement "shall be governed in all respects . . . by the laws of the State of Ohio." See Def.'s Mot. Summ. J., Ex. 1 at ¶ 17. Because of this, and because Herzig does not contend that the provision is unfair or unreasonable, Ohio law clearly applies to the parties' current dispute to the extent it arises out of the Employment Agreement.
According to Herzig's complaint and the parties' briefs, several other agreements, both oral and written, may be relevant to the current dispute. These other agreements include: (1) a written Buy-Sell Agreement between Herzig and OHCI; (2) an alleged oral agreement between Dr. Richard Levy, President of OHCI, and Herzig; (3) a written contract entered into by Herzig and Jewish Hospital of Cincinnati, Inc.; and (4) a written contract entered into by Herzig and Galen of Virginia, Inc., d/b/a University of Louisville Hospital. We believe that these agreements, to the extent they may affect the current dispute between Herzig and OHCI, are ancillary to, and arise out of, the Employment Agreement referred to above. Therefore, we will apply Ohio law to this entire breach of contract action. See Terrell v. Cheatham, 255 S.W. 262, 265 (Ky. 1923) (noting that "[t]he rule is thoroughly established that where two written instruments between the same parties are executed simultaneously, refer to each other, and relate to a single transaction, they should be construed together as constituting the entire contract between the parties") (citations omitted).
II. Herzig's Status as an OHCI Shareholder
OHCI first contends that Herzig never paid the purchase price for his shares. Having failed to purchase the shares, OHCI argues that Herzig never became a shareholder of OHCI and is not entitled to the remedies he seeks in Counts I, II, V, and VII of his Verified Complaint. However, we believe there is sufficient evidence in the record to create a genuine issue of material fact with respect to whether Herzig paid for shares in OHCI.
Herzig relies upon evidence in the record which indicates that he may have been a shareholder in OHCI to support those claims based on his shareholder status. First, OHCI's Annual Report, filed with the Secretary of State of Ohio in July of 1997, lists Herzig as a shareholder. See Pl.'s Resp., Ex. 10. Second, the deposition testimony of Mary Heskamp, OHCI's designated corporate representative, indicates that she was unable to determine whether or not Herzig paid for his shares given that there was no rigid method by which OHCI shares were paid for and distributed. See Heskamp Dep. (DN 33) at 94-95. Of course, this establishes nothing. Also, Herzig's affidavit, dated October 24, 2000, indicates that at the time he became employed by OHCI, it was his understanding that the $1,000 per share price would be deducted from his earnings. See Pl.'s Resp., Ex. 8 at ¶ 9. He has not demonstrated that the deductions were in fact made, however. We believe this evidence is barely sufficient to create a genuine issue of material fact with respect to whether Herzig ever became an OHCI shareholder, given that OHCI's evidence consists only of the unsupported statement of Dr. Levy.
OHCI next contends that even if Herzig was an OHCI shareholder at one time, his status as such was terminated when he resigned from OHCI in April of 1997. Under the terms of the Employment Agreement and the Buy-Sell Agreement, OHCI is correct. By the language of these documents, Herzig's status as an OHCI shareholder would have ended when he ceased to be an OHCI employee. See Def.'s Mot. Summ. J., Ex. 1 at ¶ 13; Ex. 2 at ¶ 3. Herzig does not dispute that this is the proper reading of the contractual language. Instead, Herzig contends that the Buy-Sell Agreement is unenforceable.
Herzig claims that the Buy-Sell Agreement is unenforceable both because it is inconsistent with OHCI's Articles of Incorporation and because its $1,000 per share repurchase price operates as an impermissible penalty. Should we find the Buy-Sell Agreement valid and enforceable, summary judgment on Counts I, II, V, and VII of Herzig's Complaint would be proper. See Snell v. Salem Ave. Assoc., 675 N.E.2d 555, 561-62 (Ohio Ct.App. 1996) ("In Ohio, the law is settled that `[w]here a contract is clear and unambiguous, its construction and effect are a matter of law.'") (citations omitted).
First, even assuming that the Articles of Incorporation and the Buy-Sell Agreement are inconsistent, as Herzig contends, we find that the unanimous consent of all OHCI shareholders, including Herzig, to the terms of the Buy-Sell Agreement, while not technically an amendment to OHCI's articles, is, nevertheless, sufficient to bind Herzig. Having agreed to be bound by the Buy-Sell Agreement when he, along with all other OHCI shareholders, signed it, Herzig may not now request relief from its operation. See Endres Floral Co. v. Endres, 651 N.E.2d 950, 954-55 (Ohio 1995).
Herzig also contends that the $1,000 per share price to be paid pursuant to the Buy-Sell Agreement is unenforceable as an unreasonably large penalty for Herzig's breach of contract. Herzig bases this contention on the Kentucky Supreme Court's holding in Man O War Restaurants, Inc. v. Martin, 932 S.W.2d 366 (Ky. 1996). This reliance is misplaced for two reasons. First, as noted above, Ohio law, not Kentucky law, governs our determination of this matter. Second, the Man O War Restaurants court held that "[t]he flaw in this contract is its failure to recognize that upon transfer of the stock to Martin, he held it independently of his status as an employee." Id. at 369. Here, the Buy-Sell Agreement makes clear that Herzig did not hold his shares independently of his status as an employee. See Def.'s Mot. Summ. J., Ex. 2 at ¶¶ 3, 6(f). For these reasons, we find that the Buy-Sell Agreement is enforceable.
We conclude that even assuming Herzig became a shareholder in OHCI by virtue of his employment, his status as such terminated with his employment in April of 1997. Therefore, Counts I, II, V, and VII of the Verified Complaint, which are grounded in Herzig's continued status as an OHCI shareholder, will be dismissed.
III. Herzig's Entitlement to Deferred Compensation
Employment Agreement between OHCI and Herzig provides that a shareholder whose term of employment terminates is entitled to receive deferred compensation, the amount of which must be calculated using a formula based on OHCI's outstanding accounts receivable. See generally Def.'s Mot. Summ. J., Ex. 1 at ¶ 12. However, a departing shareholder forfeits this right to deferred compensation if he or she has breached any of the other provisions of the Employment Agreement. See id. at ¶ 12(d). We believe a genuine issue of material fact exists as to whether Herzig violated the Employment Agreement and forfeited his right to deferred compensation under that contract.
First, whether Herzig violated the provision of his Employment Agreement which required him to devote his "best efforts" to his employment with OHCI is in dispute. See id. at ¶ 7. OHCI cites correspondence and deposition testimony for the proposition that Herzig interfered with the business relationship that existed between OHCI and University of Louisville Hospital. See, e.g. Def.'s Mot. Summ. J., Ex. 9 at App. 85; Herzig Dep. (DN 70) at 178-81. Herzig contends that he and the University of Louisville Hospital did not enter into a contract until after his employment relationship with OHCI terminated. See Pl.'s Resp. at 29; Herzig Dep. at 178-79.
Regardless of whether Herzig interfered with OHCI's relationship with the University of Louisville Hospital, we do not believe the term "best efforts" can reasonably be read to require employee fidelity. The term's plain meaning does not embrace the prohibition on self-dealing advocated by OHCI. If the parties intended to require Herzig's loyalty, they could have so specified. Since OHCI has not alleged that Herzig did not put forth his best efforts in providing professional medical services, we will deny OHCI's motion for summary judgment on that point.
Second, OHCI contends that Herzig's faculty appointment at the University of Louisville breached his contract with OHCI. The Employment Agreement stated that:
[d]uring the term of this Agreement, the Doctor shall not, at any time or place, either directly or indirectly, engage in the practice of medicine to any extent whatsoever, except pursuant to this Agreement. All fees attributable to his professional medical services during the term of this Agreement shall belong to the Corporation.
Def.'s Mot. Summ. J., Ex. 1 at ¶ 7.
Herzig does not dispute that he retained all remuneration received as a result of his faculty appointment. However, he contends that because that appointment did not involve either "the practice of medicine" or the provision of "professional medical services," he did not breach his Employment Agreement with OHCI. While Herzig and OHCI appear to agree that "professional medical services" contemplates some degree of patient care, they dispute whether Herzig provided such care in connection with his appointment to the faculty of the University of Louisville. Compare Pl.'s Resp. at 28 with Def.'s Reply (DN 86) at 13-14.
Herzig's deposition testimony indicates that as a faculty member at the University of Louisville, he was involved, at least peripherally, in the treatment of patients. See Herzig Dep., Part II, at pp. 93-98. Herzig also testified that he was primarily employed by the University in an educational capacity and that any care received by patients at University Hospital was incidental to his primary objective of teaching hospital residents and house officers. See Herzig Dep., Part I, at 98-99. Because the extent to which Herzig provided patient care in connection with his faculty appointment remains unclear, we find that at this stage of the proceedings it is impossible to determine whether Herzig's faculty appointment constituted either the "practice of medicine" or the provision of "professional medical services."
Given the conflicting testimony both as to the extent to which Herzig may have interfered with the business relationship between University of Louisville Hospital and OHCI, and as to whether Herzig practiced medicine as a University of Louisville faculty member, we will deny OHCI's motion for summary judgment with respect to Count III of Herzig's Verified Complaint.
IV. Herzig's Entitlement to Additional Compensation
Under the Employment Agreement, Herzig was entitled to receive a base salary of $400,000 per year. See Def.'s Mot. Summ. J., Ex. 1 at Ex. A. This base amount was to be adjusted annually so that Herzig would receive the same amount of compensation as three other similarly situated shareholders ("the sharing pool"). See id. Herzig's complaint, as well as an affidavit submitted by a certified public accountant retained by Herzig, indicates that Herzig was not paid according to this schedule. See Pl.'s Resp., Ex. 5 at ¶¶ 8-9. On the other hand, the affidavit of William Mischler, a certified public accountant who, during the time period relevant to this case, "provided accounting services" to OHCI. That affidavit states that Herzig was, in fact, paid in accordance with the terms of the Employment Agreement. See Def.'s Reply (DN 86), Mischler Affidavit at ¶¶ 1-6. Given this conflicting testimony, we find that a genuine issue of material fact exists as to whether Herzig is entitled to additional compensation for the time period he was employed by OHCI. OHCI's motion with respect to Count IV of Herzig's Verified Complaint will, therefore, be denied.
Herzig's motion to exclude the affidavit of William Mischler, see DN 88, will be denied. OHCI does not offer Mr. Mischler's affidavit as an expert opinion and, therefore, does not run afoul of Fed.R.Civ.P. 26 (a).
V. OHCI's Cembex Investment
Whether OHCI invested in Cembex Physician Partners, Inc. on behalf of OHCI shareholders is also disputed by the parties. OHCI contends that its shareholders were offered the opportunity to invest in Cembex individually but that OHCI, as an entity, did not invest in Cembex. The affidavit of OHCI's president indicates that while some shareholders chose to invest in Cembex, Herzig did not. See Def.'s Mot. Summ. J., Levy Affidavit at ¶¶ 21-23. As evidence to the contrary, Herzig cites the Cembex offering materials which state that 2,750,000 shares of common stock were to be issued to "original shareholders of [OHCI] . . . ." See Pl.'s Resp., Ex. 20 at 5. This factual dispute is sufficient for Herzig's claim with respect to OHCI's alleged Cembex investment to survive OHCI's motion for summary judgment. OHCI's motion with respect to Count VI of Herzig's Verified Complaint will be denied.
Herzig describes Cembex Physician Partners, Inc. as the "substitute" for PPMC, Inc., a "physician's practice management company focused on oncology" which was "intended to develop into a regional oncology disease management network." See V. Compl. at ¶ 60; Pl.'s Resp. at 11. However, OHCI contends that "Cembex is an inactive entity that does no business." See Def.'s Mot. Summ. J. at 3.
VI. Conversion
Ohio courts have made clear that "a breach of contract does not create a tort claim." Textron Fin. Corp. v. Nationwide Mut. Ins. Co., 684 N.E.2d 1261, 1270 (Ohio Ct.App. 1996) (citation omitted). The Textron court held that:
A tort claim based upon the same actions as those upon which a claim of contract breach is based will exist independently of the contract action only if the breaching party also breaches a duty owed separately from that created by the contract, that is, a duty owed even if no contract existed.Id.
Here, the allegations contained in Count VIII of Herzig's Verified Complaint and explained in his response to OHCI's motion for summary judgment are clearly based on OHCI's alleged breach of contract. See V. Compl. at ¶¶ 73, 74. As summarized in his response to OHCI's motion, Herzig states:
Specifically Dr. Herzig seeks damages for the failure of OHCI to recognize his ownership interest in the management company, now OHCI in which Dr. Herzig invested over $27,000 in reliance on a promise of stock ownership. OHCI has consistently refused to recognize Dr. Herzig's shareholder status since April 30, 1997. It has denied all access to its corporate records requested by Dr. Herzig as a shareholder, voted his stock without his permission and refused to provide information about his investment in the company established to manage physician's practices. The only information produced has been in response to discovery in this case.
Pl.'s Resp. at 34.
These claims add nothing to Herzig's breach of contract allegations contained in Counts I-VII of his Verified Complaint. Therefore, under the authority of Textron, we find that Herzig has failed to state a claim for conversion which exists independently of his contract action. See Textron at 1270. OHCI's motion for summary judgment with respect to Count VIII of Herzig's Verified Complaint will be granted, and Count VIII will be dismissed.
CONCLUSION
For the reasons set forth above, we will apply the substantive law of the state of Ohio in this breach of contract action. We find that a genuine issue of material fact exists with respect to whether Herzig was a shareholder of OHCI during his employment. However, we also find that the Buy-Sell Agreement executed by Herzig and OHCI is enforceable. Therefore, even if Herzig was at one time an OHCI shareholder, that status was terminated when he ceased to be an employee of OHCI, and Counts I, II, V, and VII of Herzig's Verified Complaint must be dismissed. Because genuine issues of material fact exist with respect to Herzig's compensation by OHCI and OHCI's alleged investestments made on Herzig's behalf, OHCI's motion for summary judgment with respect to Counts III, IV, and VI of Herzig's Verified Complaint will be denied. Finally, OHCI's motion will be granted with respect to Count VIII of Herzig's Verified Complaint, and it will be dismissed. A separate order will be entered this date in accordance with this opinion.
ORDER
Motion having been made, and the court being otherwise sufficiently advised, and for the reasons set forth in the accompanying memorandum opinion, IT IS HEREBY ORDERED AND ADJUDGED that:
1. The motion of the defendant, Oncology/Hematology Care, Inc., for summary judgment is GRANTED with respect to Counts I, II, V, VII, and VIII of the plaintiff's Verified Complaint, and those claims are, therefore, DISMISSED;
2. The defendant's motion for summary judgment is DENIED with respect to Counts III, IV, and VI of the plaintiff's Verified Complaint; and
3. The plaintiff's motion to exclude the affidavit of William Mischler is DENIED.