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California Court of Appeals, Fourth District, First Division
October 23, 2013
H. MEHRDAD SADEGHI, Plaintiff and Appellant,v.SHARP MEMORIAL MEDICAL CENTER CHULA VISTA, Defendant and Respondent.
Order Filed Date 11/19/13
APPEAL from an order of the Superior Court of San Diego County, No. 37-2010-00080039- CU-WM-SC William S. Cannon, Judge.
H. Mehrdad Sadeghi, in pro. per.; Andrews & Hensleigh, Barbara Hensleigh and Joseph Andrews, for Plaintiff and Appellant.
Procopio, Cory, Hargreaves & Savitch, Richard D. Barton and Jaime D. Quient, for Defendant and Respondent.
The opinion filed October 23, 2013, is ordered certified for publication.
Dr. H. Mehrdad Sadeghi's medical staff privileges were summarily suspended by the Medical Staff of Sharp Chula Vista Medical Center (SCV). Dr. Sadeghi appeals from the superior court order denying his petition for writ of administrative mandate to compel SCV to void its decision upholding the suspension. We affirm.
This matter arises from a failed surgical procedure by Dr. Sadeghi in 2007. After the procedure, SCV launched an investigation that raised serious concerns about Dr. Sadeghi's mental health and potential violations of the standard of care. As a result, Dr. Sadeghi's medical privileges were suspended by the hospital's Medical Executive Committee (MEC), the peer review body responsible for administering physician privileges. Following this initial suspension, Dr. Sadeghi's privileges were reinstated, but they were again revoked when he failed to comply with conditions imposed by the MEC. Dr. Sadeghi invoked his right under the hospital's bylaws to a formal judicial review hearing of the MEC's actions. More than one year into that proceeding, Dr. Sadeghi suspended the hearing to pursue an informal resolution. When that attempt failed, the hearing resumed and the review panel ultimately upheld the MEC's actions. Dr. Sadeghi challenged the panel's determination in superior court and this appeal followed.
Dr. Sadeghi is board certified in internal medicine, cardiology and interventional cardiology. In 2003, SCV granted Dr. Sadeghi privileges in internal medicine, interventional cardiology, and peripheral interventional procedures. His practice focused on interventional cardiology, a subspecialty of cardiology focused on diagnosis and treatment of cardiovascular disease with catheter-based therapy. Dr. Sadeghi's practice also included catheter-based therapy in the kidneys and legs, a field traditionally occupied by interventional radiologists and that was not performed at SCV until Dr. Sadeghi's arrival. In 2005 Dr. Sadeghi was appointed director of SCV's cardiac catheterization laboratory, or "cath lab." The cath lab consists of two suites dedicated to catheter-based interventional procedures staffed by nurses and technicians trained in those therapies.
Around the time he was appointed as director of the cath lab, Dr. Sadeghi and his partner, Dr. Mehran Moussavian, secured a contract that dramatically increased their business. Shortly after, Dr. Moussavian suffered a personal loss, which further increased Dr. Sadeghi's workload. In late 2006, members of the cath lab staff noticed changes in Dr. Sadeghi's behavior and expressed concern about the length of time Dr. Sadeghi was taking to perform procedures.
On February 22, 2007, Dr. Sadeghi began a procedure to attempt to save the leg of an 81-year-old patient who had refused amputation and was in unremitting pain from poor circulation. In addition to circulatory disease, the patient suffered from numerous other life threatening illnesses. The patient and the patient's family were counseled by Dr. Sadeghi and Dr. Moussavian, and internist Dr. Martha Lozano, about the poor chances of the procedure's success, but the patient was steadfastly opposed to losing a leg and becoming a burden to the family. Although initially scheduled to begin earlier, the procedure did not begin until 8:30 p.m. because of an unrelated problem with Dr. Sadeghi's medical record requirements. The procedure was extraordinarily long and marked by numerous complications.
As the surgery progressed past midnight and into the following day, the cath lab staff became increasingly concerned about Dr. Sadeghi's behavior, particularly his unwillingness to end the procedure and the patient's evident discomfort. On the morning of the second day of the procedure, the cath lab supervisor on duty contacted the lab manager, who was on vacation at the time, and also contacted hospital administration, including SCV's CEO Chris Boyd. Throughout the morning, Boyd and other members of the administration came into the lab to address the situation. Dr. Moussavian was also called to assist. The operation lasted 18 hours, not ending until the afternoon of the second day. The patient passed away a few days later.[2]
As a result of the procedure, SCV's chief of staff, Dr. Seung-Yil T. Song, initiated an investigation. Dr. Song requested a review of the case by the hospital's endovascular-medicine chair, Dr. Walter Olsen, and interviews of the involved staff. Interviews of three staff members were conducted on February 27, 2007 by the hospital's cardiology director, Dr. Daniel Cepin, as well as a human resources representative and a member of the hospital's quality council. The three interviewees painted a picture of erratic and irrational behavior by Dr. Sadeghi. They described him criticizing other physicians and members of the staff and expressing his belief that they were out to get him. A lab technician described another patient, who had been scheduled for a procedure that day, being brought to the cath lab at Dr. Sadeghi's request near midnight, and Dr. Sadeghi asking the technician to film the patient talking about the long hours Dr. Sadeghi was working.
On the evening of February 27, 2007, an informal meeting was arranged with Drs. Sadeghi, Song, Cepin, Lozano, Moussavian and Dr. Errol Korn, the hospital's chair of internal medicine, to discuss the procedure. The other doctors urged Dr. Sadeghi to take time off to rest, but he responded that was not possible. Directly after the meeting with Dr. Sadeghi, the MEC met to discuss the incident. After reports from Dr. Cepin on the three staff interviews and Dr. Korn on the meeting with Dr. Sadeghi, the MEC voted to summarily suspend Dr. Sadeghi's privileges.
Dr. Sadeghi was notified of the suspension the following day by a hand-delivered letter. The letter stated the hospital's medical staff had begun an investigation as a result of the February 22, 2007 procedure. The letter explained the MEC had significant concerns as a result of the investigation and that the summary suspension was necessary to protect the hospital's patients from what it viewed as imminent danger. The letter instructed Dr. Sadeghi to contact the hospital's wellbeing committee immediately for evaluation and notified him of his right under the hospital's bylaws to request an informal hearing with the MEC within seven days.
Dr. Sadeghi invoked this right and appeared before the MEC at its March 6, 2007 meeting. At the meeting, Dr. Sadeghi apologized for his behavior during the February 22, 2007 procedure. He admitted he exercised less than optimal judgment with the staff and took full responsibility for the patient's outcome. He also discussed the personal and professional stressors in his life, including Dr. Moussavian's absence from their practice, family pressure, and an unhealthy work environment, he believed were contributing factors to the incident. Dr. Sadeghi also stated he would never again become too close to a family in a way that clouded his medical judgment and said he would resign from the practice of medicine if he were ever involved in a similar incident.
Dr. Sadeghi also reported he met with the wellbeing committee as directed and had complied with that committee's request for a psychiatric evaluation. He stated the psychiatrist told him there was no need for a follow-up appointment. A member of the MEC reported that Dr. Sadeghi had been cleared by the wellbeing committee, but the committee was not available to make a report that day. The MEC voted to terminate the summary suspension. Some members expressed concern that the determination to lift the suspension was premature, but the MEC rejected a motion to table the decision until more information became available, including a report from the wellbeing committee.
On March 9, 2007, the MEC reconvened to follow up on the termination of Dr. Sadeghi's suspension. After discussion, the MEC voted to validate its decision to terminate the summary suspension, but added a condition that Dr. Sadeghi be required to undergo a second evaluation by the psychiatrist with a written report submitted to the wellbeing committee and the MEC. Counsel for SCV, Richard Barton, was present to advise the MEC on Dr. Sadeghi's case. He informed the MEC that an outside review of the February 22, 2007 incident was also being undertaken and experts were being contacted to evaluate the matter.[3] Dr. Sadeghi was advised of the new condition to the termination of his suspension by hand-delivered letter from Dr. Song that day. On April 2, 2007, Dr. Song delivered a second letter reminding Dr. Sadeghi of the requirement he undergo another psychiatric evaluation.
On April 30, 2007, Dr. Sadeghi wrote to Dr. Korn concerning the second psychiatric evaluation. Dr. Sadeghi explained he had seen the psychiatrist a second time before the MEC's March 9, 2007 meeting and, based on his conversations with the members of the wellbeing committee, believed this second visit satisfied the condition on the termination of his suspension. Dr. Sadeghi stated that after he received Dr. Song's April 2, 2007 letter, he spoke with the wellbeing committee which confirmed no further action on his part was necessary. Dr. Sadeghi also outlined a number of concerns he had about the manner in which the investigation was being conducted, including that key witnesses involved in the February 22, 2007 procedure were not interviewed, the failure of a member of the MEC involved in a business dispute with Dr. Sadeghi to recuse himself from the suspension vote, and the qualifications and methodology of the outside reviewers.
Dr. Song and Dr. Korn responded to Dr. Sadeghi by letter dated May 10, 2007, reassuring Dr. Sadeghi the information contained in his letter would be taken into consideration by the MEC. The letter also advised Dr. Sadeghi that despite his statement that he had visited the psychiatrist two times, he was not in compliance with the condition set by the MEC because he had failed to advise the MEC of the specific date on which the visit occurred or provide verifying documentation. The letter explicitly stated that the failure to provide this information would be "considered a violation of [Dr. Sadeghi's] responsibilities under the bylaws" of the hospital. The letter also notified Dr. Sadeghi that hospital employees had complained of harassment by him resulting from his inquiries concerning the hospital's investigation and directed Dr. Sadeghi to cease and desist all contact with hospital employees related to the investigation.
The reports of three outside physicians engaged by the MEC to review the February 22, 2007 procedure were issued on April 23, April 30 and May 11, 2007. All three reports were highly critical of Dr. Sadeghi's conduct. One stated "[t]his was a monumental failure of judgement and procedural conduct" and the "case demonstrates one of the worst violations of patient safety standards I have ever seen in my professional life." The two other reports were equally scathing.
After receipt of the outside reviewers' reports, the MEC scheduled a special meeting for May 17, 2007. Dr. Sadeghi was informed of the meeting and invited to submit additional information in writing to the MEC. He submitted a detailed letter the day of the meeting. In it, Dr. Sadeghi indicated he had an upcoming appointment for a third visit with the psychiatrist to comply with the MEC's directive in the May 10, 2007 letter from Dr. Song and Dr. Korn. He also detailed his performance in the cath lab since the termination of his suspension, including the length of procedures. Dr. Sadeghi explained, with backup documentation, the procedures he had conducted with above average completion times, including one on May 15, 2007, that lasted over seven hours. The MEC was separately informed of the May 15, 2007 case, and as a result Dr. Song asked Dr. Cepin to review the case and provide a report to the MEC.
At the May 17 meeting, the committee members were provided with the reports of the outside reviewers. Dr. Cepin reported on both the May 15 case and additional interviews that had been conducted with members of the cath lab staff involved in the February case. The MEC meeting minutes indicate grave concern over both the findings in the various reports and Dr. Sadeghi's psychological wellbeing, specifically his interaction with employees and his failure to comply with the MEC's directive to follow up with another psychiatric visit. The committee voted, with the member Dr. Sadeghi identified as being in a business dispute with him abstaining, to immediately impose a summary suspension of all of Dr. Sadeghi's privileges. The committee also voted to (1) direct Dr. Sadeghi to attend the Physician Assessment and Clinical Education (PACE) Program at the University of California, San Diego[4] for assessment of his clinical knowledge and judgment, (2) direct him to refrain from any conduct with staff that might be considered threatening, harassing or disruptive, and (3) use the outside reviewers to conduct a second, broader review of Dr. Sadeghi's cases.
Dr. Sadeghi exercised this right and another informal hearing was held on May 29, 2007. By this time, Dr. Sadeghi had retained counsel, David Rosenberg, and Rosenberg was permitted to attend the hearing as an observer. Dr. Sadeghi and Rosenberg were provided with the reports of the three outside reviewers in advance. At the hearing, Dr. Sadeghi submitted a report from another psychiatrist, Dr. Mark Kalish, who evaluated Dr. Sadeghi at Rosenberg's suggestion. Dr. Kalish's report indicated he found no evidence that Dr. Sadeghi suffered from a diagnosable psychiatric illness. He recommended, however, that Dr. Sadeghi enroll in the PACE Program and participate in three to six months of psychotherapy to assist him in dealing with interpersonal issues and anger management.
With respect to his failure to comply with the MEC's requirement he be seen again by the first psychiatrist, Dr. Sadeghi again explained he met with the psychiatrist twice and had been told by the wellbeing committee that no further evaluation was necessary. Dr. Sadeghi also expressed disagreement with the outside reviewers and asked for the opportunity to provide the MEC with literature supporting his medical conduct during the February 22, 2007 procedure and to address factual errors he perceived in the reports. Finally, Dr. Sadeghi stated he did not pose any risk of imminent harm to patients and indicated his willingness to agree to psychotherapy and to attend the PACE Program.
After Dr. Sadeghi and his counsel were excused from the hearing, the MEC voted to continue its summary suspension of Dr. Sadeghi's interventional cardiology and peripheral interventional privileges. It voted to terminate the suspension of Dr. Sadeghi's general medicine privileges if he satisfied four conditions: (1) submit to a proctoring program, (2) attend the PACE Program, (3) undergo psychotherapy for three to six months, and (4) abstain from conduct that might be considered harassment of the hospital staff. The MEC also agreed to use two of the outside reviewers to conduct a broader review of Dr. Sadeghi's practice. Dr. Sadeghi was informed of the MEC's decision by letter dated May 31, 2007, which also advised Dr. Sadeghi of his right to demand a formal judicial review hearing under the hospital's bylaws. Dr. Sadeghi invoked that right the same day.
Shortly thereafter, Dr. Sadeghi also sought an injunction from the superior court requiring the hospital to reinstate his interventional cardiology privileges. In addition to seeking an injunction, Dr. Sadeghi's complaint included claims for intentional interference with contractual relations and prospective economic advantage, and a claim for "retaliation for reporting illegal conduct" alleging the suspension of his privileges was reprisal for his reporting of medical billing fraud. (Capitalization omitted.) Dr. Sadeghi's request for injunctive relief was denied for failure to exhaust administrative remedies on July 8, 2007.[5]
On June 29, 2007 Dr. Sadeghi was advised by letter that the judicial review hearing would commence on July 9, 2007. The letter set forth the hospital's notice of charges detailing the reasons for the MEC's actions on May 17 and May 29, 2007. It also identified five proposed members of the Judicial Review Committee (JRC): Dr. David Ostrander, an interventional cardiologist like Dr. Sadeghi; Dr. Michael Plopper, a psychiatrist; Dr. David Hansen, an internist on the hospital's staff; Dr. Mark Huang, a cardiothoracic surgeon also on the hospital's staff; and Dr. Mohsin Saeed, an interventional radiologist. A hearing officer for the proceeding, Carlo Coppo, was chosen jointly by Rosenberg and Barton.
The hearing was convened on July 9, 2007, and counsel conducted voir dire of the JRC members. Prior to the start, Dr. Hansen was replaced by Dr. Marilyn Norton, an oncologist on the hospital's staff. At the conclusion of the voir dire, Dr. Sadeghi objected to Dr. Ostrander based on his prior relationship with Barton. Dr. Ostrander had served as an expert consultant for Barton six years earlier and worked with Barton when Dr. Ostrander served as the hospital's chief of staff. Coppo overruled the objection.
As the judicial review hearing proceeded, the MEC received the reports of the two outside reviewers asked to perform broader, retrospective reviews of Dr. Sadeghi's work. Both reviewers were again highly critical of Dr. Sadeghi's work and raised questions about his competence. After receiving these reports, the MEC amended its notice of charges. Dr. Song notified Dr. Sadeghi of the amendment by letter dated August 24, 2007, which added detailed charges based on the problems identified in the expanded reviews.
The letter also added Dr. Sadeghi's failure to comply with the conditions imposed by the MEC in May, despite repeated assurances from Rosenberg of Dr. Sadeghi's compliance, as an additional basis for the suspension. On September 4, 2007, the MEC reinstated the summary suspension of Dr. Sadeghi's general medicine privileges as a result of his failure to show compliance with the conditions set by the MEC on May 29, 2007. Dr. Sadeghi was notified by a letter the following day, and again advised of his right to an informal hearing.
Dr. Sadeghi requested the informal hearing and appeared with Rosenberg before the MEC on September 20, 2007. Rosenberg explicitly agreed to provide the MEC with confirmation of Dr. Sadeghi's enrollment in the PACE Program and expected completion date, as well as a report from Dr. Sadeghi's private therapist. An undated letter from Dr. Song to Dr. Sadeghi, but purportedly sent after the hearing, again amended the notice of charges. The letter states the information promised by Rosenberg concerning Dr. Sadeghi's compliance with the MEC's conditions was not received. It also added a new charge of failure to comply with the MEC's directive to refrain from harassing behavior based on allegations of Dr. Sadeghi going into the cath lab to obtain information concerning the JRC hearing.
At the start of the next judicial review hearing session on September 25, 2007, Rosenberg challenged the makeup of the JRC, arguing the bylaws required at least three hospital staff members. Rosenberg also objected to the lack of an interventional cardiologist with experience in peripheral procedures on the panel. In response, Barton argued there were only two members of the hospital's staff because of the difficulty in finding doctors without a competing financial interest who also had experience in Dr. Sadeghi's medical specialty, as well as the medical staff's desire to have a panel member with psychiatric expertise who was not previously involved in the matter. With respect to the need for an interventional cardiologist with specific experience in peripheral procedures, Barton responded that it is a rare and emerging subspecialty and the two subspecialties with crossover into the types of procedures conducted by Dr. Sadeghi, interventional cardiologists and interventional radiologists, were represented by Drs. Ostrander and Saeed.
The hearing officer overruled both objections and after opening statements, the evidentiary portion of the hearing commenced. Six additional evidentiary sessions took place over the next several months. On February 28, 2008, Dr. Sadeghi wrote to Coppo indicating he would no longer be represented by Rosenberg and, citing Article VIII, Section 4.B of the hospital's bylaws, requesting the MEC discontinue its own representation.
Coppo convened a conference call the following day with Dr. Sadeghi and Barton to discuss Dr. Sadeghi's request. During the call, Dr. Sadeghi stipulated to Barton's continued representation despite the fact that he would be representing himself, at least for the present. A letter from Coppo memorializing the call included a ruling the hearing would continue as scheduled and Barton was permitted to continue his representation of the MEC. Dr. Sadeghi represented himself at the next hearing session, but Rosenberg resumed his representation thereafter. Five additional hearing sessions occurred in April, May and June, 2008.
Then, on August 4, 2008, while the hearing was still ongoing, Dr. Sadeghi wrote to the hospital's new chief of staff, Dr. Jose A. Lira, and the members of the MEC requesting reinstatement of his privileges. Dr. Sadeghi stated he had been informed by the Medical Board of California (Medical Board) that its investigation was over. Dr. Sadeghi also stated that although he had been informed by MEC members and Barton "that there were no issues with [his] competency and clinical expertise, " he enrolled in the PACE Program and anticipated completion in four to six weeks. On August 11, 2008, Dr. Lira responded by letter that the MEC voted to take his request into consideration upon proof of his compliance with its earlier conditions, but that the judicial review hearing should continue as scheduled.
On August 8, 2008, Dr. Sadeghi sent an e-mail to Coppo advising he had retained additional counsel, Erin Muellenberg, and had asked Rosenberg not to work on the case pending the outcome of settlement negotiations with the MEC. The next month, the parties agreed to notify the JRC members they were working " 'on issues relevant to th[e] proceeding' " and further hearing dates were not expected until late October. Settlement negotiations proved unsuccessful and by March 2009, the MEC had voted not to reinstate Dr. Sadeghi's privileges and to resume the judicial review hearing.
After some back and forth between the parties, in August 2009 they agreed to continue the judicial review hearing and Coppo began efforts to reconvene the JRC by contacting the panel members for their availability. In his communications with the panel members, Coppo stated that the JRC was "in a state of adjournment since [its] last session on June 4, 2008 [and] that the best efforts of the parties had not resulted in a resolution of the matter...." In response to Coppo's communication, Dr. Ostrander indicated he would not be available until the end of October 2009 and Dr. Norton was unwilling to commit to continued involvement. Coppo suggested proceeding with a reduced panel of three. By September 2009, Dr. Sadeghi and the MEC agreed to this proposal and a hearing session was set for that month.
Before hearings resumed, Muellenberg, who had taken over representing Dr. Sadeghi in the matter, raised the issue whether the MEC's March 2009 denial of Dr. Sadeghi's request to be reinstated should be considered by the JRC. On July 21, 2009, Muellenberg wrote to Barton requesting that, in addition to the determination of whether the 2007 suspension of Dr. Sadeghi's privileges was warranted and reasonable, the JRC also decide "Dr. Sadeghi's continued medical staff membership at Sharp." The MEC opposed this approach and sought to limit the JRC to its initial charge of adjudicating whether the MEC's actions in 2007 were appropriate.
The JRC reconvened on September 23, 2009, with a second round of voir dire of the three remaining panel members. Evidentiary hearing sessions resumed in November without a final resolution of the scope of what the JRC would determine. On November 20, 2009, Muellenberg submitted a formal motion to Coppo requesting the JRC's determination of whether the summary suspension imposed by the MEC was reasonable and warranted also include the MEC's March 2009 denial of Dr. Sadeghi's request for reinstatement. Coppo concluded the denial of reinstatement was "not relevant and, therefore, not admissible as evidence of whether or not the corrective actions taken against Dr. Sadeghi on February 26, May 17 and September [4], 2007 were reasonable and warranted." Coppo's letter ruling outlined his concern that "to include the denial of reappointment in the current proceedings would involve the addition of an unknown number of additional exhibits and the testimony of an unknown number of additional witnesses relating to" events that occurred subsequent to the MEC's actions in 2007.
Additional evidentiary hearing sessions continued throughout April with closing arguments on April 21, 2010. On May 26, 2010, the JRC issued its final decision. It concluded the MEC established by a preponderance of evidence that its summary suspension of Dr. Sadeghi's privileges on May 17, 2007, and the modification of that action on May 29, 2007, were reasonable and warranted. The JRC's statement of decision outlines the facts upon which its decision was based with specific detail about Dr. Sadeghi's violation of the standard of care during the February 2007 event and Dr. Sadeghi's failure to rebut that evidence. The JRC also concluded the September 4, 2007 reinstatement of the summary suspension of Dr. Sadeghi's general medicine privileges was reasonable and warranted in light of Dr. Sadeghi's failure to comply with the conditions imposed by the MEC for termination of the suspension.[6]
Pursuant to the hospital's bylaws, Dr. Sadeghi appealed the findings of the JRC to the hospital's board of directors, which appointed an appeal board to hear the matter. The appeal board received briefing from both parties and heard oral argument. It issued a written decision on July 22, 2010, affirming the JRC. Dr. Sadeghi filed a petition for writ of mandate under Code of Civil Procedure section 1094.5 seeking to void the JRC's decision. The trial court denied the petition and this appeal followed.
Our review of JRC's decision, like that of the superior court, is governed by Code of Civil Procedure section 1094.5. Under subdivision (b) of this provision, we determine "whether there was a fair trial, " and "whether there was any prejudicial abuse of discretion." (Code Civ. Proc., §1094.5, subd. (b).) "Abuse of discretion is established if the respondent has not proceeded in the manner required by law, the order or decision is not supported by the findings, or the findings are not supported by the evidence." (Ibid.) Abuse of discretion established by the respondent's failure to proceed in the manner required by law is prejudicial and warrants relief only where "the deviation is material." (El-Attar v. Hollywood Presbyterian Medical Center (2013) 56 Cal.4th 976, 991.)
"Decisions concerning medical staff membership and privileges are made through a process of hospital peer review. Every licensed hospital is required to have an organized medical staff responsible for the adequacy and quality of the medical care rendered to patients in the hospital. [Citations.] The medical staff must adopt written bylaws 'which provide formal procedures for the evaluation of staff applications and credentials, appointments, reappointments, assignment of clinical privileges, appeals mechanisms and such other subjects or conditions which the medical staff and governing body deem appropriate.' [Citations.] The medical staff acts chiefly through peer review committees, which, among other things, investigate complaints about physicians and recommend whether staff privileges should be granted or renewed." (Mileikowsky v. West Hills Hospital & Medical Center (2009) 45 Cal.4th 1259, 1267 (Mileikowsky).) The peer review process is codified at Business and Professions Code section 809 et seq.[7] and is a part of the "comprehensive statutory scheme for the licensure of California physicians" required to be included in the medical staff bylaws of acute care facilities. (Mileikowsky, supra, 45 Cal.4th at p. 1267.)
"The primary purpose of the peer review process is to protect the health and welfare of the people of California by excluding through the peer review mechanism 'those healing arts practitioners who provide substandard care or who engage in professional misconduct.' [Citation.]" (Mileikowsky, supra, 45 Cal.4th at p. 1267.) "Another purpose, also if not equally important, is to protect competent practitioners from being barred from practice for arbitrary or discriminatory reasons. Thus, section 809 recites: 'Peer review, fairly conducted, is essential to preserving the highest standards of medical practice' ([§ 809], subd. (a)(3)), but '[p]eer review that is not conducted fairly results in harm both to patients and healing arts practitioners by limiting access to care' ([§ 809], subd. (a)(4)). Peer review that is not conducted fairly and results in the unwarranted loss of a qualified physician's right or privilege to use a hospital's facilities deprives the physician of a property interest directly connected to the physician's livelihood. [Citation.]" (Ibid.) However, "[n]ot every violation of a hospital's internal procedures provides grounds for judicial intervention." (El-Attar v. Hollywood Presbyterian Medical Center, supra, 56 Cal.4th at p. 990.)
Because hospitals are under stringent reporting requirements, the denial of staff privileges can be severely detrimental to a physician's career. Section 805 requires hospitals to report the denial or revocation of privileges to the Medical Board, which maintains a historical record that includes this information. Further, hospitals are "usually required to report disciplinary actions to the National Practitioner Data Bank, established for the purpose of tracking the activities of incompetent physicians." (Mileikowsky, supra, 45 Cal.4th at p. 1268.) Denial or revocation of "privileges therefore may have the effect of ending the physician's career." (Ibid.)
With respect to private hospitals, like Sharp Chula Vista Medical Center, the physician's fair procedure rights "arise from section 809 et seq. and not from the due process clauses of the state and federal Constitutions." (Kaiser Foundation Hospitals v. Superior Court (2005) 128 Cal.App.4th 85, 102.) These statutes "establish[] minimum protections for physicians subject to adverse action in the peer review system." (Mileikowsky, supra, 45 Cal.4th at p. 1268.) The statutory scheme requires hospitals to provide an affected physician both notice and the opportunity for a hearing when a peer review committee has recommended a "final proposed action" that must be reported to the Medical Board. (§§ 809.1, subds. (a), (b), 809.3, subd. (b)(1), (2) & (3).)
The hearing must be held "before a trier of fact" that, as determined by the peer review body, is either "an arbitrator or arbitrators selected by a process mutually acceptable to the licentiate and the peer review body" or "a panel of unbiased individuals... which shall include, where feasible, an individual practicing the same specialty as the licentiate." (§ 809.2, subd. (a).) During the hearing, both parties have the right "[t]o call, examine, and cross-examine witnesses" and "[t]o present and rebut evidence determined by the arbitrator or presiding officer to be relevant." (§ 809.3, subd. (a)(3), (4).) "Upon the completion of a hearing... the licentiate and the peer review body involved have the right to... [a] written decision of the trier of fact, including findings of fact and a conclusion articulating the connection between the evidence produced at the hearing and the decision reached." (§ 809.4, subd. (a)(1).)
As he did in the trial court, Dr. Sadeghi argues he was denied fair procedure by the MEC, SCV's peer review body, in a number of ways. He contends (1) the JRC applied an improper standard by not addressing the actions of the MEC that occurred after 2007; (2) the JRC was improperly constituted; (3) Dr. Sadeghi was improperly precluded from communicating with potential witnesses; (4) his lack of representation for one of the hearing sessions was a violation of his rights; and (5) the length of time it took to reach a hearing and the extended length of the hearing constituted a denial of due process. We reject these contentions.[8]
Dr. Sadeghi argues the peer review statutes, specifically section 809.3, subdivision (b)(3), required the JRC to determine whether the MEC's actions in 2007 continued to be reasonable and warranted at the time of its decision in May 2010. Section 809.3 sets forth rights of the parties during a physician-requested hearing after a final decision by the hospital's peer review body. Subdivision (b)(3) states: "the peer review body shall bear the burden of persuading the trier of fact by a preponderance of the evidence that the action or recommendation is reasonable and warranted." (§ 809.3, subd. (b)(3).) Consistent with this provision, SCV's bylaws provide "the Medical Executive Committee shall bear the burden of persuading the Judicial Review Committee, by a preponderance of the evidence, that its action or recommendation was reasonable and warranted."
As Dr. Sadeghi points out, the bylaws use the phrase "was reasonable and warranted, " while the statute uses the phrase "is reasonable and warranted." (Second italics added.) Dr. Sadeghi contends the Legislature's use of the word "is" evidenced its intent "that the peer review body bears the burden of establishing that the action or recommendation 'is reasonable and warranted' at the time of the hearing (i.e., the present) and not at the time the decision of the peer review body [was made] (i.e., the past)." We disagree.
The statutory scheme provides a mechanism for the licentiate to challenge a particular action of the peer review body. Section 809.1, subdivision (a) provides a physician with the right to written notice that includes "the right to request a hearing on the final proposed action." That provision defines "final proposed action" as "the final decision or recommendation of the peer review body after informal investigatory activity or prehearing meetings, if any." (§ 809.1, subd. (a).) The hearing required by section 809 et seq. is a safeguard to ensure the prior actions of a peer review body are justified. (See Mileikowsky, supra, 45 Cal.4th at pp. 1268-1269 ["A physician... has the right to have a second body of peers independently determine whether a peer review committee's recommendation... [was] reasonable and warranted...."].) Nothing in these provisions contemplates an open-ended proceeding where the JRC subsumes the role of the MEC to determine, in the first instance, whether a physician who has been previously sanctioned is later fit for reinstatement.
In this case, Dr. Sadeghi was provided with notice of the final proposed action of the MEC (reinstatement of the summary suspension of Dr. Sadeghi's cardiology and interventional privileges) on May 31, 2007. He exercised his right to request a hearing that day. Based on the subsequent actions of Dr. Sadeghi with respect to the conditions imposed by the MEC for termination of that suspension and additional information provided to the MEC by the outside reviewers, the MEC issued subsequent notices amending the initial charges on August 24, 2007 and September 5, 2007. At the time of the amendments, the JRC was at its initial stages. Coppo allowed the inclusion of these new final proposed actions, including suspension of all of Dr. Sadeghi's privileges.[9] Under the bylaws and the peer review statutes, the JRC's role was to determine if the MEC's actions outlined in these notices was reasonable and warranted, not anything further. There was no mandate for the JRC to combine any later actions by the MEC into the ongoing proceeding. Any such action could be challenged in the same manner as the MEC's 2007 actions.[10]
Dr. Sadeghi also contends Coppo improperly precluded evidence about his conduct after September 2007. We disagree. Under both the relevant statutes and the hospital's bylaws, the hearing officer had authority to make rulings concerning the relevance of the evidence. Section 809.3, subdivision (a)(4) provides that during the hearing both parties have the right to "present and rebut evidence determined by the... presiding officer to be relevant." Likewise, the bylaws provide: "The hearing officer shall be entitled to determine the order of or procedure for presenting evidence and argument during the hearing and shall have the authority and discretion to make all rulings on questions, which pertain to matters of law, procedure or the admissibility of evidence." Since the JRC's charge was whether the MEC's actions in 2007 were reasonable and warranted, mitigating conduct by Dr. Sadeghi thereafter was irrelevant and could be appropriately excluded by Coppo.
Additionally, much of the evidence Dr. Sadeghi complains was improperly excluded was actually admitted. For instance, Coppo explicitly permitted Dr. Sadeghi to introduce evidence of his "participation in the UCSD PACE Program...." The administrative record includes both the certificate of completion and assessment of Dr. Sadeghi's performance in the program, and Dr. Sadeghi's and his wife's testimony about his participation in the program in 2008. Dr. Sadeghi and his wife also testified about the psychiatric treatment he received after 2007, as well as the 2008 resolution of the accusation filed with the Medical Board.
In sum, we find no denial of fair procedure as a result of the JRC proceeding being confined to the MEC's 2007 actions or the exclusion of any evidence of mitigating conduct by Dr. Sadeghi after 2007.
Dr. Sadeghi argues the makeup of the JRC was defective in three respects: (1) the committee members were biased against him; (2) no member practiced in his specialty; and (3) the panel had less than the requisite three hospital staff members.
Dr. Sadeghi asserts bias based on the fact that Barton, Boyd and Dr. Song made the initial contact with each member of the JRC and Barton "outlin[ed] the case" to Dr. Ostrander. Under the hospital's bylaws, the MEC recommends a "Judicial Review Committee to the Board of Directors for appointment." The board then has the opportunity to object to the selection of members or they are deemed approved. While the record does not address how the initial members were selected, the MEC was entitled to "the unilateral selection of [the] panel members and a hearing officer" subject to Dr. Sadeghi's right to voir dire. (Kaiser Foundation Hospitals v. Superior Court, supra, 128 Cal.App.4th at p. 109; see also El-Attar v. Hollywood Presbyterian Medical Center, supra, 56 Cal.4th at p. 996 ["In the administrative law context, an adjudicator's impartiality in reviewing the propriety of an adverse action taken by an agency may be presumed even if the adjudicator is chosen by, and is a member of, the agency prosecuting the matter."].)
Further, the questioning during voir dire revealed nothing improper about the initial communications with the panel members, which were necessary to assemble the JRC. For instance, when asked "how did you first hear about this case, " Dr. Ostrander responded the "[f]irst time I heard there was a JRC was from Mr. Barton. He called and asked if I would participate as a member. [¶]... [¶] He asked if I would be willing to sit on a panel and gave a very brief thumbnail sketch of the elements of the case." We do not find anything improper in the MEC's selection of the JRC members or its initial contacts with them.
Dr. Sadeghi next argues the panel was defective because it did not include "an interventional cardiologist with experience in lower extremity intervention." Section 809.2, subdivision (a) states "[t]he hearing shall be held, as determined by the peer review body, before a trier of fact, which shall be... before a panel of unbiased individuals who shall gain no direct financial benefit from the outcome, who have not acted as an accuser, investigator, factfinder, or initial decisionmaker in the same matter, and which shall include, where feasible, an individual practicing the same specialty as the licentiate." (Italics added.) The hospital's bylaws model this statute, providing that "[m]embership on a Judicial Review Committee shall, where feasible, include an individual practicing the same specialty as the member." (Italics added.)
When the JRC was initially empanelled, it included an interventional cardiologist, Dr. Ostrander, who Dr. Sadeghi describes as similar to himself, and an interventional radiologist, Dr. Saeed. When the JRC reconvened in September 2009, Dr. Sadeghi stipulated to the reduced panel without Dr. Ostrander and did not request he be replaced with another interventional cardiologist. Further, Dr. Sadeghi explained during the hearing that his practice involved a crossover of these two specialties. In fact, Dr. Sadeghi testified his own practice had an agreement with the hospital's radiology group that if there were complications with procedures involving the lower extremities, an interventional radiologist would be called to assist. In light of Dr. Sadeghi's testimony concerning the involvement of both specialties in lower extremity procedures, we reject his contention that the panel did not include a specialist in his practice area.
We also reject Dr. Sadeghi's argument that the panel was improperly constituted because it contained only two members of the hospital's medical staff. The hospital's bylaws state the JRC "shall be composed of not less than three members of the Medical Staff who are not in direct economic competition with the member[] who requested the hearing, who shall gain no direct financial benefit from the outcome, who have not acted as accuser, investigator, fact finder, initial decision maker or otherwise have not... actively participated in the consideration of the matter leading up to the recommendation or action." As with the physician's specialty, if "it is not feasible to appoint[] a [JRC] from the active Medical Staff, the Medical Executive Committee may appoint members from other staff categories or practitioners who are not members of the Medical Staff."
When Dr. Sadeghi challenged the makeup of the panel at the hearing, Barton argued it was not feasible for the panel to include three members of the hospital's medical staff because of the need to include an invasive cardiologist who was not in economic competition with Dr. Sadeghi. Barton stated the "medical staff does not encompass enough people where the claim couldn't be made that somebody from invasive cardiology here wouldn't be in direct competition with Dr. Sadeghi...." Barton further argued the MEC wanted the JRC to also include an interventional radiologist and a psychiatrist, both of which also needed to come from outside the hospital. As with the invasive cardiologist, an outside interventional radiologist was necessary because of economic competition with Dr. Sadeghi. An outside psychiatrist was needed because those on the medical staff were involved in Dr. Sadeghi's case in some way. Dr. Sadeghi did not dispute these assertions. In light of these facts, we conclude the hearing officer's decision to deny Dr. Sadeghi's request to include another member of the hospital staff was within the limitations imposed by section 809.2, subdivision (a) and the hospital's bylaws.
On September 21, 2007, Coppo issued an order precluding Dr. Sadeghi from any "further ex parte communications, either orally, by e-mail, by fax, or by ordinary mail, with the Hearing Officer, Mr. Barton, Sharp Chula Vista Medical Staff, the Sharp Chula Vista Medical Executive Committee, employees, agents and ancillary personnel of Sharp Chula Vista Hospital, on any matter relating to the Notice of Charges which frames the issues to be tried in this Judicial Review proceeding." Dr. Sadeghi contends there was no basis for Coppo to issue this order and that it prevented him from preparing an adequate defense in violation of his right to fair process. We disagree.
Dr. Sadeghi correctly asserts a fair hearing "requires that the doctor be given a full and fair opportunity to examine and collect evidence and prepare his case for the hearing." (See Rosenblit v. Superior Court, supra, 231 Cal.App.3d at p. 1445 [in drafting its peer review procedure, the organization should "insure a fair opportunity for an applicant to present his position"], italics omitted.) As discussed, the physician's right to fair procedure arises from the statutory peer review scheme. (Kaiser Foundation Hospitals v. Superior Court, supra, 128 Cal.App.4th at p. 102.) While no particular statutory provision addresses the physician's right to communicate directly with potential witnesses, two provisions address the ability to present a defense. Section 809.2, subdivision (d) provides the licentiate "the right to inspect and copy... any documentary information relevant to the charges which the peer review body has in its possession or under its control...." This right, however, is limited. "The... presiding officer shall consider and rule upon any request for access to information, and may impose any safeguards the protection of the peer review process and justice requires." (§ 809.2, subd. (d).) Section 809.3, subdivision (a)(3) gives the parties the right to "call, examine, and cross examine witnesses." The discovery rights afforded by these statutes are "not as broad as a civil discovery standard." (Unnamed Physician v. Board of Trustees (2001) 93 Cal.App.4th 607, 627.)
The September 21, 2007 order was precipitated by complaints from hospital staff about communications by Dr. Sadeghi that were perceived as harassing, Dr. Sadeghi's intrusions into the hospital's medical records department, and Dr. Sadeghi's direct written communication with Coppo. In light of these events, we find Coppo's order appropriate and within his right to "impose any safeguards" to protect the peer review process. (§ 809.2, subd. (d).) The order applied to Dr. Sadeghi individually, not his counsel, and was not an obstacle to Rosenberg's or Muellenberg's ability to obtain evidence or call witnesses.[11] It did not, therefore, violate any procedural right created by the statutory peer review system or prejudice Dr. Sadeghi's ability to present his defense.
As discussed, on February 28, 2008, Dr. Sadeghi wrote to Coppo to state he would no longer be represented by Rosenberg and to request the MEC likewise proceed without representation. The following day, Coppo convened a conference call with Dr. Sadeghi and Barton to discuss this request. During the call, Dr. Sadeghi stipulated to Barton's continued representation of the MEC. Dr. Sadeghi represented himself at one session. Thereafter Rosenberg resumed his representation of Dr. Sadeghi.
Despite these facts, Dr. Sadeghi now contends the one hearing session (out of more than 35) in which he was not represented violated a fair process right created by section 809.3, subdivision (c) and the hospital's bylaws.[12] We do not agree. The record is clear Dr. Sadeghi agreed to the MEC proceeding with representation and this alone obviates his complaint. (See Anton v. San Antonio Community Hospital (1977) 19 Cal.3d 802, 826 [failure of physician to raise objection before the panel or at later hospital appellate review hearing constituted waiver].)
Dr. Sadeghi argues the JRC was not commenced within 60 days as mandated by section 809.2, subdivision (h) and Article VIII, Section 3.C of the hospital's bylaws.[13] This argument was appropriately rejected by the superior court. Dr. Sadeghi first exercised his right to a formal hearing on May 31, 2007. The hearing commenced 40 days later with voir dire of the JRC members on July 9, 2007, within the required timeframe. Dr. Sadeghi argues Code of Civil Procedure, section 581, subdivision (a)(6), which defines commencement of a trial as the beginning of opening statements or the examination of the first witness, applies. According to Dr. Sadeghi, therefore, the hearing did not commence until the first witness was called on September 25, 2007. Dr. Sadeghi provides no support for this contention. We decline to impose a definition set forth in the Code of Civil Procedure on the medical peer review system.
Dr. Sadeghi also contends the hearing was not completed within a reasonable time and Coppo granted continuances without good cause as required by section 809.2, subdivision (h). Dr. Sadeghi asserts that throughout the three-year ordeal he was pressing to move the hearing forward while the MEC and its counsel frustrated those efforts. While there is no question the hearing took an inordinate amount of time, the record does not corroborate Dr. Sadeghi's account of the delay.
Most notably, a 15-month break in the proceedings, from June 2008 to September 2009, resulted from Dr. Sadeghi's own course of action. Specifically, after 15 hearing sessions, Dr. Sadeghi retained new counsel and changed strategy. After cancellation of the hearing session scheduled for June 23, 2008, despite Coppo's repeated requests for additional hearing dates, Muellenberg failed to provide dates for the summer of 2008. Instead, on August 4, 2008, Dr. Sadeghi sent a letter to the MEC requesting reinstatement. Thereafter, Dr. Sadeghi agreed to adjourn proceedings while the MEC considered his request. After the MEC declined to reinstate Dr. Sadeghi, communications among counsel, the hearing officer and the panel members concerning the reconstitution of the JRC occurred through the summer of 2009. By the parties' agreement, the judicial review hearing finally resumed on September 23, 2009.
Also contrary to Dr. Sadeghi's assertions, the record relating to the scheduling of hearings before and after the interim adjournment shows cooperation among all parties to move the proceedings forward as quickly as possible. The one 30-day continuance granted in August 2007 was based on a showing of good cause and was granted only after briefing and oral argument. Hearing dates were otherwise set based on the parties' agreement. The pace of the proceedings was understandably constrained by the schedules of the five panel members, all busy practicing physicians, the hearing officer, counsel for both sides, and 21 percipient and expert witnesses. Despite these constraints, Coppo worked diligently to advance the case.
In light of these facts, we find no denial of Dr. Sadeghi's right to have the charges adjudicated within a reasonable amount of time.
Finally, Dr. Sadeghi contends insufficient evidence supported the JRC's finding that the suspension of his privileges "as of the time of the JRC decision" was reasonable and warranted. He argues had he been able to present evidence concerning his technical ability, mental wellbeing and fulfillment of the requirements imposed by the MEC after his privileges were suspended, the MEC could not have sustained its burden of proof. We reject this hypothetical. As discussed, the JRC was charged with determining whether the MEC's decisions in 2007 were reasonable and warranted at the time they were made. Dr. Sadeghi does not contend insufficient evidence supported those findings. Further, after our independent review of the record, we conclude the JRC's findings were supported by substantial evidence.
The order is affirmed. Each party to bear its own costs.
WE CONCUR: HUFFMAN, Acting P. J., IRION, J.
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February 22, 2000
Presently before the Court are motions by defendants Sonic Financial Corp. ("Sonic") and Speedway Motorsports, Inc. ("Speedway") for summary judgment pursuant to Fed. R. Civ. P. 56. For the reasons stated below, these motions will be granted.
This breach of contract action arises out of the termination of an agreement to purchase the Atlantic City Race Course. On November 13, 1997, Atlantic City Racing Association ("ACRA") and Sonic, both of which were represented by counsel, entered into a Purchase and Sale Agreement, wherein ACRA agreed to sell to Sonic the Atlantic City Race Course and related real estate in Hamilton Township, New Jersey ("the property") for $11 million. Defendant Speedway was not a signatory to the Purchase and Sale Agreement between ACRA and Sonic. The Agreement provided, however, that at closing and as part of the purchase price for the property, Sonic would deliver to ACRA a warrant to purchase 325,000 shares of Speedway's common stock. See Defs.' Ex. A at 4.
Under the Agreement, closing was contingent upon the performance, by the closing date, of specified ACRA obligations and conditions precedent to Sonic's duty to purchase. Relevant provisions of the Agreement respecting these obligations and conditions precedent are set forth below:
1. Obligations of Seller at Closing. At the closing, Seller shall deliver to Buyer the following (collectively referred to hereinafter as the "Closing Documents."):
a. A Bargain and Sale Deed with Covenants Against Grantor's Acts substantially in the form of Exhibit 5.a. attached to this Agreement or in other form acceptable to Buyer's counsel, duly executed by Seller and properly acknowledged, transferring good, marketable and insurable title to all of the Property, including the Leased Premises, to Buyer, provided, however, that such conveyance shall not abrogate Buyer's obligation to lease the Leased Premises to Seller as otherwise provided herein;
b. An affidavit of title substantially in the form of Exhibit 5.b. attached to this Agreement, duly executed by Seller and acknowledged;
7. Conditions Precedent to Obligations of Buyer. The obligations of Buyer under this Agreement shall be subject to the satisfaction, before the Closing Date, of all of the following conditions, any one or more of which may be waived by Buyer in its sole discretion:
d. Seller shall have delivered at Closing all of the Closing Documents, in form and substance satisfactory to Buyer, executed by Seller, conveying to Buyer the Property.
f. Seller shall have good, marketable and insurable title to the Property subject only to the Permitted Exceptions, which shall be conveyed to Buyer at closing.
h. Seller shall have delivered or caused to be delivered such corporate resolutions, shareholder and director approvals . . . as are reasonably required by the Buyer or the title company insuring the Buyer's title to the Property.
i. Buyer shall be satisfied, in its sole discretion, with the results of any environmental or other testing or inspections undertaken pursuant to paragraphs 10 and 13 of this Agreement or otherwise and the results of the Survey undertaken pursuant to Paragraph 11 of this Agreement. Id.
Closing originally was scheduled to occur on or about January 13, 1998, with Sonic having until January 12, 1998 to complete its due diligence. Included in this due diligence was Sonic's right to perform various inspections of the property. During such inspection period, Sonic could terminate the agreement, in its sole discretion, pursuant to the express terms of paragraph 13, which provided in pertinent part:
a.. Buyer and its agents and contractors shall be entitled to enter upon the Property during the period from and after the complete execution of this Agreement by all parties through and including the day before the Closing Date (the "Inspection Period") to obtain financing, to inspect the Property, to perform investigations (including without limitation environmental investigations), to determine the status of utilities thereon, to conduct title examinations, zoning investigations, feasibility studies geological tests and other studies or tests necessary to determine whether the Property is suitable for Buyer's intended use of the Property, including but not limited to soil, surface water and groundwater sampling, drilling and test wells and borings. If, during the Inspection Period, Buyer determines, in Buyer's sole discretion, not to close the purchase of the Property, Buyer may terminate this Agreement, Escrow Agent shall return the full amount of the Earnest Money to Buyer and Buyer and Seller shall be relieved of all obligations hereunder. Defs.' Ex. A at 12.
By letter dated January 9, 1998, Sonic provided ACRA with notice of termination. See Defs.' Ex. B. On January 12, 1998, ACRA and Sonic executed an amendment to the agreement ("the First Amendment"), extending the inspection period through February 11, 1998 and rescheduling the closing date for February 12, 1998. See Defs.' Ex. C. The First Amendment provided that "All other terms, conditions and provisions set forth in the Agreement shall remain in full force and effect, as amended hereby." Id.
On February 9, 1998, Sonic again gave notice of termination, see Defs.' Ex. D, and three days later, the parties entered into a Second Amendment which extended the Inspection Period through February 17, 1998. See Defs.' Ex. E. Under the Second Amendment, the closing date was moved to February 19, 1998, and the purchase price was reduced from $11 million to $9 million:
Seller and Buyer have now agreed to further extend the Inspection Period until February 17, 1998 for purposes of completing a survey and title examination of the Property, to further extend the Closing and the Closing Date until February 19,1998 and to reduce a certain portion of the Purchase Price, and Seller and Buyer wish to further amend the Agreement to reflect such agreements. Id.
As to the continuation of due diligence, the Second Amendment provided in relevant part:
NOW, THEREFORE, in consideration of the mutual promises set forth below and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Seller and Buyer hereby agree as follows:
2. Inspection Period. The definition of the term "Inspection Period" contained in Paragraph 13a of the Agreement is hereby amended by deleting the words "the period from and after the complete execution of this Agreement by all parties through and including the day before the Closing Date" and by inserting the following words in lieu thereof and in lieu of the revised definition of the term "Inspection Period" contained in Paragraph 2 of the First Amendment:
the period from and after the complete execution of this Agreement by all parties through and including February 17, 1998 or on the day which is two (2) days before such date as may reasonably be required by Buyer and agreed upon by Buyer and Seller for the Closing Date subsequent to February 19, 1998.
Provided, however, that the extension of the Inspection Period contemplated by this Second Amendment is for the sole purpose of permitting Buyer to complete its survey and title examination of the Property, Buyer hereby acknowledging that it has completed its physical inspection of the Property and all environmental testing and other inspections of the Property to its satisfaction. Id.
The Second Amendment further provided that "All other terms, conditions and provisions set forth in the Agreement and the First Amendment shall remain in full force and effect, as amended hereby." Id.
By letter dated February 17, Sonic provided a final notice of termination, stating that it would not be closing the purchase of the property. Sonic stated as reasons for the termination that "certain outstanding title issues remain[ed] unresolved to Sonic's satisfaction" and ACRA had not obtained necessary approval of the sale by its stockholders, conditions precedent for closing which Sonic would not waive. Defs.' Ex. F. ACRA concedes that the agreement, as modified by the Second Amendment, was not approved by its shareholders before the February 19, 1998 closing date. See Am. Comp. ¶ 15.
On March 13, 1998 ACRA filed the present action against Sonic and Speedway, asserting claims for breach of contract, fraud, and bad faith, for which it requests specific performance of the agreement or, in the alternative, compensatory damages. On June 7, 1999 Sonic and Speedway filed the instant summary judgment motion, seeking dismissal of all claims. *fn1
A. Jurisdiction
As the plaintiff and defendants are citizens of different states and the amount in controversy exceeds seventy-five thousand dollars ($75, 000), this Court has jurisdiction over the present matter pursuant to 42 U.S.C. § 1332.
B. Summary Judgment Standard
The standard for granting a motion for summary judgment is a stringent one, but it is not insurmountable. Fed. R. Civ. P. 56 provides that summary judgment may be granted only when materials of record "show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Serbin v. Bora Corp., 96 F.3d 66, 69 n.2 (3d Cir. 1996). In deciding whether there is a disputed issue of material fact, the court must grant all reasonable inferences from the evidence to the non-moving party. The threshold inquiry is whether there are "any genuine factual issues that properly can be resolved only by a finder of fact because they may reasonably be resolved in favor of either party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S. Ct. 2505, 2511 (1986).
Supreme Court decisions mandate that a summary judgment motion must be granted unless the party opposing the motion "provides evidence `such that a reasonable jury could return a verdict for the nonmoving party.'" Lawrence v. National Westminster Bank New Jersey, 98 F.3d 61, 65 (3d Cir. 1996) (quoting Anderson, 477 U.S. at 248, 106 S. Ct. at 2510). Once the moving party has carried its burden of establishing the absence of a genuine issue of material fact, "its opponent must do more than simply show that there is some metaphysical doubt as to material facts." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S. Ct. 1348, 1356 (1986). The non-moving party must "make a showing sufficient to establish the existence of [every] element essential to that party's case, and on which that party will bear the burden of proof at trial." Serbin, 96 F.3d at 69 n.2 (quoting Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S. Ct. 2548, 2552 (1986)); see also Quiroga v. Hasbro, Inc., 934 F.2d 497, 500 (3d Cir. 1991) (declaring that non- movant may not "rest upon mere allegations, general denials, or . . . vague statements"). Thus, if the non-movant's evidence is merely "colorable" or is "not significantly probative," the court may grant summary judgment. Anderson, 477 U.S. at 249-50, 106 S. Ct. at 2511.
C. Applicable Law
The purchase and sale agreement between ACRA and Sonic expressly provided that matters pertaining to it shall be governed by the law of New Jersey, see Defs.' Ex. A ¶22 at 18, which neither party contests. The Court therefore will assess plaintiff's breach of contract claims according to New Jersey law. See eg., Caspi v. Microsoft Network, LLC, 732 A.2d 528 (N.J. Super. Ct. App. Div. 1999).
D. Count One - Fraud
Sonic and Speedway seek dismissal of ACRA's fraud claim, arguing that it was not pled with sufficient particularity as required by Fed. R. Civ. P. 9(b). *fn2 To support this argument, defendants cite to Saporito v. Combustion Engineering, Inc., 1988 WL 142406 (D.N.J. 1988). *fn3 This unreported opinion, however, is distinguishable from the present case.
In Saporito, the district court granted defendant's motion to dismiss a RICO claim, where plaintiffs had been granted an opportunity to amend their complaint to satisfy the specificity requirement of 9(b) and the amended complaint still failed to provide the requisite specificity. Id. at *4. Plaintiffs in Saporito filed a civil RICO claim against defendant, their employer, alleging that they were fraudulently induced into early retirement pursuant to a Voluntary Early Separation Plan ("VESP") while certain "favored" employees secretly were informed of a separate and more favorable retirement plan ("VSIP"). Originally, the district court, pursuant to Fed. R. Civ. P 12(b), dismissed the RICO claim. The Court of Appeals for the Third Circuit reversed, finding that plaintiffs had failed to plead the claim with sufficient particularity. *fn4 The Third Circuit therefore remanded the count with instructions to grant plaintiff leave to amend the complaint. The amended complaint repeated that which was stated in the original complaint, but then named some of the "favored" employees alleged to have received the confidential information regarding the VSIP. *fn5 Finding that the complaint as amended remained deficient, the district court reasoned:
[T]he amended complaint virtually mimics paragraph 25 of the original complaint, with the exception that plaintiffs now identify certain employees who, plaintiffs `upon information and belief' allege, selectively received information about VSIP prior to its institution. Plaintiffs still fail to identify [as directed by the Third Circuit on remand] the parties who passed on this information to those `favored' employees or the manner in which this privileged information was transmitted (i.e., mail or wire). Id. at *4. Accordingly, the court granted defendant's motion to dismiss the RICO count for want of specificity.
The Court acknowledges that under Saporito, count I of ACRA's complaint technically fails to provide the necessary particularity under Fed. R. Civ. P. 9(b), namely, who made the representations complained of and how ACRA was harmed therefrom. However, there is no indication that defendants have been prejudiced by this deficiency. The Third Circuit has noted that "in applying [9(b)], focusing exclusively on its `particularity' language `is too narrow an approach and fails to take account of the general simplicity and flexibility contemplated by the rules.' " Christidis v. First Pennsylvania Mortgage Trust, 717 F.2d 96, 100 (3d Cir. 1983). Moreover, the purpose of 9(b) is to "place the defendants on notice of the precise misconduct with which they are charged, and to safeguard defendants against spurious charges of immoral and fraudulent behavior." Seville Indus. Mach. Corp. v. Southland Mach. Corp., 742 F.2d 786, 791 (3d Cir. 1984).
In the instance case, ACRA filed its complaint containing the fraud count on March 13, 1998. Defendants, however, did not file the present motion for summary judgment, raising the specificity issue for the first time, until June 6, 1999, more than one year after the filing of the complaint. In light of this gap in time, and the fact that discovery is now complete, the Court finds no practical reasons for dismissing the fraud count under 9(b). The pleading deficiencies in no way precluded defendants from responding to the allegations in its answer. In addition, in its supporting brief to the instant motion, Sonic provides detailed analysis as to why ACRA's fraud claim should be dismissed on the merits. Thus, Sonic clearly had sufficient notice of the basis of ACRA's fraud claim with which to present a meaningful defense. See United States v. New Sonstein, 27 F.R.D. 284, 285 (E.D. Pa. 1961) (denying motion to dismiss fraud claim where defendant could "prepare an adequate answer from the allegations in the amended complaint" and could "prepare his own discovery and thus prepare an adequate defense to [the] suit"). The Court therefore declines to dismiss ACRA's fraud claim on the grounds that it was pled with insufficient particularity.
Anticipating the above conclusion, defendants also argue that ACRA cannot make out a claim of fraud on the merits. See Sonic's Supp. Br. at 14. In New Jersey, the elements for common law fraud are: (1) a material misrepresentation of a presently existing or past fact; (2) knowledge or belief by the defendant of its falsity; (3) an intention that the other person rely on it; (4) reasonable reliance thereon by that person; and (5) resulting damages. See Alexander v. Cigna Corp., 991 F. Supp. 427, 435 (D.N.J. 1998). Allegations of fraud must be proved by clear and convincing evidence. Thus, to defeat a motion for summary judgment, a plaintiff carries the burden of presenting evidence which could permit a reasonable jury to find by clear and convincing evidence the existence of fraud. Id. A review of ACRA's brief in opposition reveals that it cannot sustain this burden. Thus, for the reasons set forth below, summary judgment will be granted in favor of defendants as to count I of plaintiff's complaint.
1. ACRA proffers no evidence concerning defendants' alleged misrepresentation
In its complaint, ACRA alleges that Sonic and Speedway, through their agents, misrepresented that title to the property would be closed "in accordance with the terms and conditions of the Agreement when they knew, and it was their intention, to close only if they received certain concessions and/or assurances . . . from the State of New Jersey." Am. Comp. ¶ 24. No where in its opposition brief, however, does plaintiff state who made such misrepresentations or to whom they were made. ACRA instead states:
While plaintiff does not believe that the [fraud] allegations [in its complaint] are too general, plaintiff would be very willing to amend said pleadings to state the identity, time, place, and content of the misrepresentations made. However, plaintiff believes that defendants entered into the agreements in issue with no intent to abide by their obligations unless financial concessions from the State of New Jersey were obtained. ACRA's Opp'n. Br. at 41.
As discussed above, the Court is willing to overlook, for dismissal purposes pursuant to Fed. R. Civ. P. 9(b), ACRA's failure to properly plead its fraud claim with sufficient particularity. To defeat a motion for summary judgment based on the merits, however, ACRA cannot sit back and rely on its "belief" or (nonspecific) allegations set forth in its complaint. To the contrary, in order to defeat summary judgment, ACRA bears a present burden of demonstrating the existence of a genuine issue as to a material fact. Such burden at minimum involves presenting some evidence supporting its allegation that defendants made material misrepresentations, i.e., the "time, place, and content" of such misrepresentations. ACRA's offer to provide such information if afforded leave to amend the complaint while, at the same time, failing to supply such facts in its brief opposing defendants' motions for summary judgment appears disingenuous.
ACRA has proffered no evidence from which a reasonable jury could find that either Sonic or Speedway made material misrepresentations to ACRA. The only support ACRA offers to defend its fraud claim are two newspaper articles dated January 18, 1998 and March 17, 1998, which report that representatives of defendants were waiting for concessions from the State of New Jersey before closing the purchase of the property. See Pl.'s Ex. E. Sonic appropriately objects to consideration of these articles on hearsay grounds. Even assuming that ACRA could properly admit this evidence at trial, it fails to be probative of whether defendants, through their agents, made misrepresentations to ACRA. Thus, ACRA has failed to proffer any evidence creating a genuine issue as to defendants' alleged material misrepresentations, an element for which ACRA would bear the burden of proof at trial. On this deficiency alone, defendants are entitled to summary judgment on the fraud claim. *fn6 See Bombard v. Fort Wayne Newspapers, Inc., 92 F.3d 560, 562 (7th Cir. 1996) (stating that the court "rel[ies] on the nonmoving party to identify with reasonable particularity the evidence" upon which the claim is based and "[i]f the nonmoving party fails to establish the existence of an element essential to his case, one on which he would bear the burden of proof at trial, summary judgment must be granted to the moving party").
2. ACRA did not reasonably rely on alleged misrepresentation
Also fatal to ACRA's fraud claim is the fact that Robert Levy, its CEO, admitted that he had read the January 18, 1998 article before the Second Amendment to the sale agreement was executed. Levy's deposition testimony provides in pertinent part:
Q. Now, in paragraph 22 [of the complaint] you allege that, "At the time the defendants entered into the agreement defendants knew they would only close title and provide the warrant if they received assurances and/or agreements and/or concessions from the State of New Jersey." What is your basis for saying that?
A. Our basis for that is media releases to that effect where they told the newspapers that, they stated that, quoted saying that, plus conversation with officials in New Jersey that said that they told the Jersey officials that it was the only way they can close with us is to have, is to have these concessions made.
Q. And with respect to the media statements, tell me about that.
A. I think it's articles that Mr. Murphy showed you.
Q. I show you three documents that have been identified by Mr. Murphy, P-1, P-2 and P-3, and ask you if those are the document you're referring to.
A. These are some of them.
Q. And the one you're looking at right there I believe is in January of 1998.
A. January 18.
Q. Had you read that story at the time?
A. Yeah. I read the story. This is right before he met with the governor.
Q. When I say you read the story, you read the story at the time it came out?
A. Yes. Pl.'s Ex. E at 26-28.
The above testimony reveals that ACRA had knowledge of Sonic's interest in obtaining a memorandum of understanding with the State of New Jersey before finalizing the sale. Thus, assuming, arguendo, that Sonic did materially misrepresent a lack of this interest to ACRA, ACRA nonetheless cannot demonstrate by clear and convincing evidence that it reasonably relied on this misrepresentation. As a result, ACRA cannot make out a claim for fraud. *fn7 Accordingly, the Court will grant summary judgment to Sonic and Speedway as to count I of the amended complaint.
E. Counts Two and Three - Breach of Contract
In its amended complaint, ACRA asserts breach of contract claims against Sonic and Speedway, requesting either specific performance of the agreement (count two) or compensatory damages (count three).
1. Defendant Sonic
Sonic argues that under the clear terms of the agreement, it had sole discretion as to whether to close the purchase or to terminate the sale agreement. Disagreeing, ACRA claims that the second amendment to the sale agreement served to inter alia modify Sonic's otherwise sole discretion. Specifically, ACRA argues that under the second amendment, Sonic could only terminate the agreement by exercising reasonable discretion respecting title and survey concerns.
The interpretation of a contract is a matter of law for the court. See eg, Fastenberg v. Prudential Insurance Co. of America, 707 A.2d 209, 211 (N.J. Super. Ct. App. Div. 1998). "The polestar of contract construction is to discover the intention of the parties as revealed by the language used by them." Karl's Sales and Service, Inc. v. Gimbel Bros., Inc., 692 A.2d 647, 650 (N.J. Super. Ct. App. Div. 1991). Where the terms of the contract are clear, "the court must enforce those terms as written." Thus, the court cannot undertake to rewrite a contract "merely because one might conclude that it [would] have been functionally desirable to draft it differently." Id. (quotation omitted). Where ambiguities appear in the contract, they are to be strictly construed against the drafter. Id. With these principles in mind, the Court finds that the agreement clearly and unambiguously sets forth the terms for cancellation of the contract.
Paragraph 13a. of the agreement clearly sets forth the right of Sonic to perform various inspections of the property "necessary to determine whether the Property is suitable for Buyer's intended use of the Property." Sonic's Supp. Br., Ex. A. at 12. Moreover, the contract expressly provides that "If, during the Inspection Period, Buyer determines, in Buyer's sole discretion, not to close the purchase of the Property, Buyer may terminate this Agreement." Id. Both ACRA and Sonic agree that under this provision of the contract, Sonic obtained the absolute right to terminate the contract. What the parties dispute, however, is the effect, if any, of the Second Amendment on this right of termination.
The Second Amendment to the contract extended the inspection period until February 17, 1998, but with the following qualification:
Provided, however, that the extension of the Inspection Period contemplated by this Second Amendment is for the sole purpose of permitting Buyer to complete its survey and title examination of the Property, Buyer hereby acknowledging that it has completed its physical inspection of the Property and all environmental testing and other inspections of the Property to its satisfaction.
The Court agrees with plaintiff that the phrase, "for the sole purpose of permitting Buyer to complete its survey and title examination of the Property" limited Sonic's right to continued inspection to title and survey matters. Moreover, the paragraph's remaining terms, "Buyer hereby acknowledging that it has completed its physical inspection of the Property and all environmental testing and other inspections of the Property to its satisfaction" clearly establishes that Sonic had completed inspection to its satisfaction as to these subjects. Thus, the express terms of the Second Amendment unambiguously restricted Sonic's right to terminate the agreement under ¶13a to only matters respecting title and survey.
While the Second Amendment confined inspection to title and survey, Sonic still retained the right to terminate the agreement in its sole discretion as to title and survey concerns. Contesting this, ACRA asserts that ¶7, pertaining to conditions precedent to Sonic's obligations, only required that Sonic be reasonably satisfied and contained "no sole discretion language relative to survey or title concerns." ACRA's Opp'n. Br. at 29-30. ACRA is mistaken. Subsection i. to ¶7 specifically provides that, "Buyer shall be satisfied, in its sole discretion, with the results of any . . . testing or inspections undertaken pursuant to Paragraphs 10 and 13 of this Agreement or otherwise and the results of the Survey undertaken pursuant to Paragraph 11 of this Agreement." Defs.' Ex. A at 9 (emphasis added). Thus, the original agreement clearly afforded Sonic with sole discretion in assessing the inspections and survey results.
While the Second Amendment restricts inspection to title and survey matters, no where does it expressly eliminate Sonic's right to exercise sole discretion as to these concerns. Nor can the language of the Second Amendment reasonably be construed to implicitly suspend such discretion. Moreover, ¶6 of the Second Amendment unambiguously states that "All other terms, conditions and provisions set forth in the Agreement and the First Amendment shall remain in full force and effect, as amended hereby." Defs.' Ex. E. Thus, the Court finds that under the clear terms of the original agreement and all amendments thereto, Sonic retained the right to terminate the sale agreement, in its sole discretion, based on title and/or survey concerns.
By letter dated February 17, 1998, Sonic informed ACRA that it was terminating the agreement, stating as reasons that "Certain outstanding title issues remain unresolved to Sonic's satisfaction." Defs.' Ex. F. In its supporting brief, Sonic lists several issues as valid title and survey concerns for terminating the agreement. Not surprisingly, plaintiff disagrees, arguing that the reasons stated did not pertain to title and survey. The Court agrees that several of the matters detailed by Sonic did not relate to title or survey. *fn8 Nonetheless, the Court finds that the following items did constitute valid title and/or survey concerns.
a. Tower Lease
Sonic argues that a Tower Site Lease Agreement ("Tower Lease") entered into between ACRA and Ellis Thompson Corporation ("Ellis") created an encumbrance against the property and interfered with Sonic's intended use thereof. The Court agrees that the existence of the lease created a concern respecting title.
Under the Tower Lease, Ellis obtained the right to lease a portion of the property for a five year period beginning May 1, 1991 and the option to renew the lease for one additional five-year term. Moreover, renewal of the lease would take place automatically, unless Ellis notified ACRA within a certain period of its intent not to renew, which Ellis did not do. Thus, upon expiration of the lease on April 30, 1996, the lease was automatically renewed for another five-year term, which term does not expire until April 30, 2001. While the lease agreement does provide for termination of the lease by either party before the end of the five-year term, such termination requires two years prior notice. Thus, even if ACRA had given Ellis notice of termination, which it did not, Sonic's title to the property would have been subject to the Tower lease for two years.
Pursuant to paragraph 5b of the sale agreement, ACRA had the obligation to deliver to Sonic "An affidavit of title substantially in the form of Exhibit 5.b attached to this Agreement, duly executed by Seller and acknowledged." Under paragraph 5 of Exhibit 5.b, the Seller warrants that "There are no tenants or other occupants of this property. [Seller] has not given anyone else any rights concerning the purchase or lease of this property." *fn9 In light of the Tower Lease, ACRA clearly could not have certified to the truth of paragraph 5 in the affidavit of title. Thus, the Court concludes as a matter of law that the Tower Lease created a legitimate concern respecting title to the property, which concern authorized Sonic to terminate the agreement.
b. Lack of Shareholder Approval
ACRA does not dispute that the issue of shareholder approval qualifies as a title matter. Moreover, ACRA concedes that "At the time the second amendment was entered into, there was not sufficient time between the signing of the second amendment and closing to hold a stockholder's meeting of plaintiff for approval of this transaction as amended." Am. Comp. at ¶ 15. ACRA argues, however, that shareholder approval by the closing date ceased to raise a genuine title concern, because a valid alternate procedure for obtaining shareholder approval was in place. Under this procedure, ACRA's principal stockholders would consent in writing to the purchase and further agree to vote in favor of the transaction at the shareholder's meeting, which would take place sometime after the closing.
The Court agrees with Sonic that the alternative method proposed by ACRA for obtaining shareholder consent was subject to Sonic's approval, which approval it did not extend. Paragraph 26 of the agreement clearly stated in pertinent part:
This agreement . . . constitutes the entire agreement between . . . Seller and Buyer. No breach of any covenant, agreement, warranty or representation contained herein shall be deemed waived unless expressly waived in writing by the party who might assert such breach. . . . This agreement may not be modified by either party unless done so in writing and signed by both parties. Defs.' Ex. A at 19-20.
Acquisition of shareholder approval by the closing date was a condition precedent under paragraph 7h. of the agreement. Id. at 8. ACRA proffers no evidence indicating that Sonic either waived or agreed to modify this condition.
The Court therefore concludes that the issues concerning the Tower Lease and shareholder approval authorized Sonic, pursuant to the termination provision as modified in the Second Amendment, to decline to close title to the Property. Thus, the Court concludes as a matter of law that Sonic did not breach the express terms of the contract.
2. Defendant Speedway
Under the agreement, the closing of the property was a condition precedent to Speedway's obligation to deliver the warrant. As closing was never executed, defendant Speedway's obligation to deliver a Warrant to ACRA failed to materialize. Thus, summary judgment as to counts two and three will be entered in favor of Speedway.
F. Count Four - Bad Faith
In count four of the amended complaint, ACRA asserts that defendants "acted in bad faith in failing to close title and in attempting to allege conditions that they knew did not exist in an attempt to terminate the Agreement." In its opposition brief, however, ACRA fails to set forth any arguments or facts in defense of its bad faith claim. Based on this deficiency alone, the Court is authorized to dismiss ACRA's bad faith claim. See Hoffman v. Bankers Trust Co., 925 F. Supp. 315, 318 (M.D. Pa. 1995); National Comm. Ass'n., Inc. v. American Tel. & Tel. Co., 1998 WL 11874 at *28 (S.D.N.Y. March 16, 1998). Nonetheless, after reviewing the parties' briefs in their entirety, the Court is confident that the factual predicate for ACRA's bad faith claim stems from the same allegations of fact set forth to support its fraud claim. As ACRA did devote a section of its brief in addressing the fraud claim, the Court will treat such discussion as also defending its bad faith claim, and accordingly, will consider the merits of the bad faith claim for summary judgment purposes.
ACRA appears to allege that Sonic acted in bad faith by terminating the agreement, not based on the title issues discussed above, but because it failed to obtain desired concessions from the State of New Jersey. New Jersey law is clear, however, that "Where the contractual right to terminate is express and unambiguous, the motive of the terminating party is irrelevant." Sons of Thunder, Inc. v. Borden, Inc., 690 A.2d 575, 588 (N.J. 1997) (citing Karl's Sales and Service, Inc. v. Gimbel Bros., Inc., 592 A.2d 647, 651 (N.J. Super. Ct. App. Div. 1991). The Court has already determined that Sonic's right to terminate was expressly provided for in the Second Amendment. In addition, the Court has concluded that Sonic acted within its authority under the termination provision in light of the Tower Lease and shareholder approval concerns.
While New Jersey law implies into every contract a covenant of good faith and fair dealing, See Pickett v. Lloyd's, 721 A.2d 445 (N.J. 1993), there is no evidence that Sonic breached this duty. The obligation to perform in good faith requires that neither party do anything which will interfere with or destroy each party's reasonable expectations under the contract. Sons of Thunder, 690 A.2d at 586, 588. Clearly, Sonic's termination of the agreement did not offend ACRA's reasonable expectations of consummating the sale. For instance, before the February 17, 1998 final notice of termination, Sonic had informed ACRA, on two separate occasions, that it would not close the sale. Thus, ACRA cannot assert any genuine surprise that the sale ultimately was not effectuated. This is particularly the case given that the express and unambiguous terms of the Second Amendment granted Sonic sole discretion to terminate the contract respecting issues of title and survey. In light of the Tower Lease and shareholder approval concerns, which effectively made it improbable for ACRA to deliver to Sonic the necessary affidavit of title, ACRA could not reasonably expect Sonic to close the agreement.
The recent case, Sons of Thunder, does not require a different conclusion. In Sons of Thunder, the New Jersey Supreme Court held that "a party to a contract may breach the implied covenant of good faith and fair dealing in performing its obligations even when it exercises an express and unconditional right to terminate." 690 A.2d at 588. Plaintiff Sons of Thunder, Inc. had entered into a contract with defendant Borden, Inc. for the sale of shell stock. Under the contract, Borden agreed to purchase a minimum quantity of shellfish at market price for a period of up to one year. At the end of the first year, the contract automatically was to renew for a period up to five years. The contract provided, however, that either party could cancel the contract by giving written notice of termination ninety days before the effective cancellation date. Id. at 578.
Plaintiff initially encountered obstacles in obtaining a loan to finance a second boat necessary for harvesting shell stock to Borden. During this time, Borden's management underwent changes. Although the new management team supported plaintiff's loan application to a bank, the team later expressed intentions of not honoring Borden's contract with plaintiff. Ultimately, plaintiff obtained the necessary funding, and it was able to supply Borden with shellfish as provided for under the contract. Borden, however, began to decrease its purchases from plaintiff and later even lowered the price it paid for the shellfish purchased. In addition, Borden began sending plaintiff's boats out to harvest claim only in inclement weather. Ultimately, Borden notified plaintiff that it was terminating the contract. The notice of termination complied with the time limitations under the contract.
Plaintiff filed a breach of contract action against Borden, alleging inter alia that it had failed to buy the required amount of shell stock and to pay the contractual price thereof prior to termination of the contract. Plaintiff later amended its complaint to add a claim for breach of the implied covenant of good faith and fair dealing.
The case proceeded to trial, where the jury returned a verdict in favor of plaintiff, finding that Borden had breached the contract prior to termination and had breached its duty of good faith. In addition, the jury found that Borden's termination of the contract was authorized under the express terms of the agreement.
After the verdict, Borden filed a motion for judgment notwithstanding the verdict, arguing that a party cannot be found liable for breach of the duty of good faith and fair dealing when the party terminates the contract pursuant to an express termination clause. The trial court denied Borden's motion, reasoning that the issue of good faith required consideration of Borden's conduct throughout the entire life of the contract and not solely its conduct respecting termination.
On appeal, the appellate division reversed, holding that "the right of Borden to terminate the contract on ninety-days notice in accordance with its express terms cannot be overridden or eliminated by an implied covenant of good faith and fair dealing."
The New Jersey Supreme Court reversed the decision of the appellate division, holding that a party may breach the implied covenant of good faith and fair dealing in performing its obligations under a contract even when it exercises an express and unconditional right to terminate. 690 A.2d at 588. The court agreed with the appellate division that "the implied covenant of good faith and fair dealing cannot override an express termination clause." Id. at 586. The supreme court further recognized that a party's motive in terminating a contract is irrelevant where it does so pursuant to express and unambiguous terms in the contract. Id. at 588. Nonetheless, the court concluded that a jury reasonably could find that Borden had breached its duty of good faith, not by terminating the agreement, but based on its conduct preceding cancellation of the agreement, namely its refusal to buy the required amount of clams. Id. 589.
In reaching this conclusion, the supreme court sought guidance from a decision by the Fourth Circuit Court of Appeals. In United Roasters, Inc., v. Colgate-Palmolive Co., the Fourth Circuit found that Colgate had violated its duty of good faith under North Carolina law, notwithstanding its express right to terminate the contract. Like Sons of Thunder, the contract in Colgate involved the parties' duties and rights respecting goods. In addition, the contract provided Colgate with the absolute right to terminate upon thirty days notice. Finding that Colgate violated its duty of good faith, the Fourth Circuit explained:
What is wrong with Colgate's conduct . . . is not its failure to communicate a decision to terminate . . . , but its cessation of performance. Clearly it had an obligation of good faith performance up until its right of termination was actually effective. The contract expressly obliged it to use its best efforts in the promotion of Banbeanos. Instead of doing that, it simply ceased performance. Id. at 990.
Thus, Sons of Thunder and Colgate both stand for the proposition that a party must continue in good faith to perform its obligations under an existing contract until the final hour when termination of the contract, even pursuant to an express and absolute right to terminate, takes effect. In the instant case, Sonic's only existing obligation to ACRA was to exercise good faith in performing inspections to the property and reviewing their results. ACRA has presented no evidence indicating that Sonic breached this duty. To the contrary, Sonic's willingness to suspend cancellation of the agreement on two separate occasions in order to continue with title and survey inspections evidences a sincere interest in closing the sale. The existence of certain title defects, however, effectively deflated this interest. Sonic's motion for summary judgment as to the bad faith claim will be granted.
In its amended complaint, ACRA also asserts a bad faith claim against Speedway. As the Court already has explained, Speedway's obligation to ACRA never materialized. See supra part E. Moreover, ACRA has failed to present any evidence that Speedway, who was not a party to the agreement, acted in bad faith. Thus, summary judgment as to the bad faith claim also will be granted for Speedway.
For the reasons stated above, defendants Sonic and Speedway's motions for summary judgment dismissing all counts will be granted. The Court will enter an appropriate order.
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