Summary
granting summary judgment against unjust enrichment claim and finding thatSternberg was inapplicable because the action was not a case where there was "`a bona fide dispute as to the existence of a contract or where the contract does not cover the dispute in issue'"
Summary of this case from Union Bank v. CBS CorporationOpinion
02 CIV. 2034 (DLC)
June 25, 2003
Brian D. Zinn, Cohn Lifland Pearlman Herrmann Knopff LLP, Saddle Brook, N.J., for Plaintiff.
Edward Cerasia II, Richard S. Reig, Proskauer Rose LLP, Newark, N.J., for Defendant.
OPINION AND ORDER
Plaintiff Dr. Paul Chi Liu ("Dr. Liu") has sued to recover compensation to which he believes he is entitled for work performed during his employment by Beth Israel Medical Center ("Beth Israel"). He asserts principally that Beth Israel did not use its best efforts to collect payment for the services Dr. Liu rendered to patients. The defendant has moved for summary judgment, on the ground that Dr. Liu has not raised a question of fact as to whether it acted arbitrarily, irrationally, or in bad faith in its collection efforts. For the following reasons, the motion is granted.
BACKGROUND
Dr. Liu was employed at Beth Israel as a physician in the Obstetrics/Gynecology ("OB/GYN") Department from July 1996 to January 31, 2000, when he resigned. He executed a Faculty Practice Plan Agreement ("FPP") when he joined Beth Israel. The FPP authorizes Beth Israel "to bill, collect, and deposit professional fees" on Dr. Liu's behalf "for professional services rendered by him" at Beth Israel. Shortly after joining Beth Israel, on August 5, 1996, Dr. Liu signed a Professional Employee Memorandum of Understanding ("MOU"). The MOU "authorizes" Beth Israel "to bill and collect" for Dr. Liu's services "in any manner considered appropriate by" Beth Israel.
The formula for Dr. Liu's compensation paid in addition to his base salary was contained in the FPP Policies Procedures. The FPP formula was based on the collection Beth Israel made for medical services that Dr. Liu had rendered. The formula gave Dr. Liu 50% of those collections that were equivalent to his base salary, 55% of the collections in excess of the base salary amount up to two times the base salary, and 60% of the collections in excess of two times the base salary. In addition, Dr. Liu was guaranteed a minimum annual supplement. Dr. Liu was paid $47,527.90, $2,864.06, and $43,805.87 over his guaranteed minimum salary for the years 1997 through 1999, respectively.
Dr. Liu asserts that Beth Israel collected an unacceptably low percentage of his yearly billings. He has offered evidence that he contends establishes that Beth Israel was inefficient in its collection process. Among the problems were its deviation for the industry standards for credentialing physicians, which led to delays in processing bills; delays of up to six months in entering a charge in the billing system; requirements that a complete operative report be prepared before any surgical procedures could be billed; inadequate training of doctors in the coding of procedures; an absence of procedures at the "front desk" to insure that the necessary insurance information was obtained from patients prior to rendering treatment; and inadequate procedures to ensure that insurance claims complied with all requirements before they were submitted for payment.
Beth Israel hired two consultants to review its billing operation. In 1995, it hired Ernst Young. The Ernst Young report identified areas for improvement and stated that the net collection rate for the OB/GYN department was 56% compared to an 83% rate at other departments. In 1999, MDx Medical Management Inc. prepared a report for Beth Israel that found that the "billing and collection procedures for OB/GYN are incomplete, often confused, diffused, resulting in delayed and markedly decreased revenue. . . . The collection procedures are minimal relative to the need."
The complaint brings three claims: for breach of contract, unjust enrichment, and quantum meruit. The defendant has moved for summary judgment on each claim.
DISCUSSION
Summary judgment may not be granted unless the submissions of the parties taken together "show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Rule 56(c), Fed.R.Civ.P. The moving party bears the burden of demonstrating the absence of a material factual question, and in making this determination the Court must view all facts in the light most favorable to the non-moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247 (1986); Celotex Corp v. Catrett, 477 U.S. 317, 323 (1986). When the moving party has asserted facts showing that the non-movant's claims cannot be sustained, the opposing party must "set forth specific facts showing that there is a genuine issue for trial," and cannot rest on the "mere allegations or denials" of his pleadings. Rule 56(e), Fed.R.Civ.P.; accord Burt Rigid Box, Inc. v. Travelers Property Cas. Corp., 302 F.3d 83, 91 (2d Cir. 2002). Thus, in determining whether to grant summary judgment, this Court must (1) determine whether a genuine factual dispute exists based on evidence in the record; and (2) determine, based on the substantive law at issue, whether the fact in dispute is material.
The parties have not addressed the issue of which jurisdiction's law the Court should apply. Both parties rely on New York law, thus implicitly agreeing that New York provides the applicable law. In this case, the employment contract was apparently executed in New York, and all performance was in New York. Under these circumstances, and in conjunction with the parties' reliance on New York law in their submissions on this motion, New York law will be applied. See Hannex Corp. v. GMI, Inc., 140 F.3d 194, 203 n. 7 (2d Cir. 1998).
1. Breach of Contract
Dr. Liu asserts that Beth Israel failed to abide by its implied contractual covenant of good faith and fair dealing. Under New York law, every contract contains an implied covenant of good faith and fair dealing. Travellers Intern., A.G. v. Trans World Airlines, 41 F.3d 1570, 1575 (2d Cir. 1994). Even when a contract confers discretion on one of the parties, that discretion is "subject to an obligation that it be exercised in good faith." Id. See also Dalton v. Educational Testing Service, 639 N.Y.S.2d 977, 979 (N.Y. 1995). "Where the contract contemplates the exercise of discretion, this pledge includes a promise not to act arbitrarily or irrationally in exercising that discretion." Dalton, 639 N.Y.S.2d at 979. See also Tagare v. Nynex Network Systems Co., 994 F. Supp. 149, 159 (S.D.N.Y. 1997).
Where the contract grants a party discretion, the law will not read a "best efforts" requirement into the contract unless the parties have explicitly bargained for a best efforts clause. Travellers, 41 F.3d at 1575; Zilg v. Prentice-Hall, Inc., 717 F.2d 671, 679 (2d Cir. 1983).
It is undisputed that the MOU gave Beth Israel discretion to collect for his services "in any manner considered appropriate" by Beth Israel. It is also undisputed that Beth Israel acted in good faith in the billing and collection process. Dr Liu admitted at his deposition that he was not claiming that anyone at Beth Israel had ever demonstrated bad faith or an intent to harm him with regard to his collections.
Dr. Liu asserts instead that Beth Israel did not use its best efforts to collect his billings. As noted above, however, the covenant of good faith and fair dealing does not include the requirement to use best efforts. None of the cases on which Dr. Liu relies is to the contrary.
In Syllman v. Calleo Development Corp., et al., 736 N.Y.S.2d 318 (1st Dep't 2002), an architect sued a development company for funds allegedly owed to him. The court dismissed a claim of "fraudulent misrepresentation," as an attempt to convert a contract action into a tort. Id. at 321. The plaintiff is correct that the court did note, quoting Cardozo's venerable language of Wood v. Lucy, Lady Duff-Gordon, 222 N.Y. 88 (1917), that the contract at issue implicitly contained the obligation to use "good faith best efforts" to fulfill the contract's provisions. Id. Plaintiff cannot rely on Syllman for any more than that, however, as the opinion reaffirms the rule that a "best efforts" requirement must be specifically negotiated: "the `best efforts' requirement provides no ground for affirmative relief unless it has been made the basis of `an independent promise to perform the condition.'" Id. (citation omitted).
In analyzing a breach of fiduciary duty claim, Mellencamp v. Riva Music Ltd., 698 F. Supp. 1154 (S.D.N.Y. 1988), discussed several New York state cases, including one that referred to the implied contractual obligation of a publisher to use its best efforts to promote an author's work where the publisher has an exclusive right in the work. It described the holding of that New York case as follows: "a publisher who breaches his implied obligation to exploit an author's work with no motive other than to injure the author, is liable for prima facie tort." Id. at 1159. While plaintiff wants to rely on Mellencamp for the principle that a contract which provides for compensation through royalties implies a duty to use "reasonable efforts" to exploit a license, the case in fact makes clear the reluctance of courts to transform a contractual relationship into a fiduciary one. The contract law standard which Mellencamp reinforces is "a publisher's implied-in-law contract obligation to use its best efforts to promote an author's work, where the publisher has exclusive rights in the work." Id. at 1158. Here, where the relevant contract is fundamentally an employment contract, and not a licensing agreement, where compensation is not exclusively based on the sharing of profit, and where there have been no allegations of an intent to injure the plaintiff, Mellencamp cannot assist the plaintiff in overcoming the presumption against implying a "best efforts" clause.
Similarly, Morris v. Putnam Berkley, Inc., 687 N.Y.S.2d 139, 140 (1st Dep't 1999), in which the court found that there were questions of fact as to whether there was "an implied promise on defendant's part to use its best efforts to promote the [plaintiff's] software," concerns the breach not of an employment agreement, but of what was at its heart an intellectual property license and royalty arrangement.
Havel v. Kelsey-Hayes Co., 445 N.Y.S.2d 333 (4th Dep't 1981), is similarly inapposite because of its dependence on the intellectual property focus of the contract at issue. In Havel, plaintiff's compensation derived entirely from exploitation of the license. Id. at 381. The Havel court did find an implied obligation to exploit the matter of the contract, but said that this principle is
of particular consequence where the essence of the contract is the grant of a license under which the fate of the subject matter is placed exclusively with the licensee for the purpose of exploitation and profit. . . . [T]he promise will more likely be found where the subject of the exclusive license is patented.
Id. at 382-83.
Finally, Middle Village Assoc. v. Pergament Home Centers, Inc., 708 N.Y.S.2d 840 (N.Y.Sup.Ct. 2000), in which a tenant asked the court to imply a "best efforts" clause into a commercial lease, does quote the Wood v. Lucy maxim regarding fair dealing, good faith, and the employment of "reasonable or `best efforts' in performing" a contract. Id. at 844. It goes on, however, in language more relevant in the present case, to point out that "there must be definiteness to the obligation of the party, as expressly set forth in the contract, to give rise to a duty of utilizing best efforts to accomplish the terms of agreement." Id. (emphasis supplied). In sum, none of plaintiff's cases contradict the need to negotiate separately a "best efforts" clause. It is also worth noting that these five cases all address the implied terms of a contract. Dr. Liu's agreement with BIMC has express language that determines the duty owed him by his employer — namely, to collect his billings "in any manner considered appropriate."
Dr. Liu also argues that his contract with Beth Israel should be treated like a royalties agreement where there is an implied promise to use best efforts to promote merchandise. The collection of money for services rendered is not equivalent to a promotional or marketing agreement. Consequently, there is no need to analyze or compare the law that applies to such contracts.
2. Unjust Enrichment and Quantum Meruit
The claims for unjust enrichment and quantum meruit cannot survive when there is no dispute that a valid contract existed between the parties. See Maryland Casualty Co. v. W.R. Grace and Co., 218 F.3d 204, 212 (2d Cir. 2000) ("The notion of unjust enrichment applies where there is no contract between the parties."); R.B. Ventures, Ltd. v. Shane, 112 F.3d 54, 60 (2d Cir. 1997); Clark-Fitzpatrick, Ind. v. L.I.R.R. Co., 521 N.Y.S.2d 653, 656 (N.Y. 1987).
Dr. Liu acknowledges this well established law, but contends that there is an exception where there are no express terms of the contract directed to the contested issue. He relies on a single case, Joseph Sternberg, Inc. v. Walber 36th Street Assocs., 594 N.Y.S.2d 144, 145 (1st Dept. 1993). The Sternberg court did find an exception to the normal preclusion of a quasi contract claim in the face of an express contract. As defendants rightly point out, however, this finding was based on "a bona fide dispute as to the existence of a contract or where the contract does not cover the dispute in issue," which is not the case here. Id. at 146.
CONCLUSION
Defendant's motion for summary judgment is granted. The Clerk of Court shall close the case.
SO ORDERED.