The University of Miami v. Jerome J. Spunberg — Jan. 2001 (Full Text)

IN THE DISTRICT COURT OF APPEAL OF THE STATE OF FLORIDA

FOURTH DISTRICT JANUARY TERM 2001

THE UNIVERSITY OF MIAMI, INC., a Florida Corporation, d/b/a the
University of Miami School of Medicine,

Appellant,

v.

JEROME J. SPUNBERG, M.D. and BRUCE W. PHILLIPS,
M.D.,

Appellees.

CASE NOS. 4D99-2166, 4D99-2167, 4D99-3371

Opinion filed February 7, 2001

Appeal from the Circuit Court for the Fifteenth Judicial Circuit, Palm Beach
County; James T. Carlisle, Judge; L.T. Case No. CL97-8937 AE.

Jane Kreusler-Walsh of Jane Kreusler-Walsh, P.A., James M. McCann, Jr., of
Akerman, Senterfitt & Eidson, West Palm Beach, and Robert L. Blake of The
University of Miami, Coral Gables, for appellant.

Edna L. Caruso of Caruso, Burlington, Bohn & Compiani, P.A., Robert M.
Montgomery, Jr., of Montgomery & Larmoyeux, James W. Beasley, Jr., and
Robert Hauser, of Beasley, Leacock & Hauser, P.A., West Palm Beach, for
appellees.

G. Thomas Bowden, II, and Donald W. Weidner of Donald W. Weidner, P.A.,
Jacksonville, for Amicus Curiae The Florida Physicians Association.

John M. Knight of The Florida Medical Association, Tallahassee, William F.
Shields of The American College of Radiology, Reston, Virginia, Robert M.
Portman, Jeffrey T. Shaw and Elena N. Broder-Feldman of Jenner &
Block,Washington, D.C., for Amici Curiae-The Florida Medical Association, The
American College of Radiology, and The Florida Radiological Society, Inc.

Julie Gallagher and Simone Marstiller of Agency for Health Care
Administration, Tallahassee, for Amicus Curiae State of Florida, Agency for
Health Care Administration.

POLEN, J.

Drs. Jerome Spunberg and Bruce Phillips (“the PA”) were awarded $8,894,542 in
compensatory and punitive damages against the University of Miami (“UM”) and
$13,933,659 against Columbia/JFK Medical Center, Inc. (“JFK”). Both UM and JFK
separately appealed these respective awards, and both jointly appealed from a
post-trial order awarding $55,500.85 in costs and $32,577.65 in expert fees to
the PA. On our own motion, we consolidate all three appeals for purposes of this
opinion, reverse all the awards, and remand the case for a new trial.

Background

Drs. Spunberg and Phillips formed a professional association to provide
radiation therapy to cancer patients. In 1985, they entered into a contract with
Columbia/JFK Medical Center, Inc. (“JFK”) to be the exclusive provider of such
services at the hospital?s new cancer treatment center. The contract had an
express termination date of May 30, 1990, but provided that the parties could
terminate it on April 30, 1987 or April 30, 1989 upon 90 days? written notice.
It further provided that if the agreement was not renewed or was terminated, all
physicians would lose their staff privileges.

In 1987, JFK and the PA canceled their contract. JFK then entered into a new
exclusive arrangement with Salick Healthcare, Inc. (“Salick”). Under that
arrangement, three new contracts were formed: 1) JFK and Salick entered into a
contract (“JFK/Salick contract”) by which Salick agreed to be the sole provider
of allradiation therapy services for JFK?s cancer center. The agreement was to
terminate “five years from the effective date” of the agreement. As a condition
precedent to the agreement, Salick had to enter into a contract with the PA by
which the PA would be the exclusive provider of such radiation therapy services
under the JFK/Salick contract. The agreement provided that JFK would have to
approve any contracts entered into between Salick and the PA; 2) Salick and the
PA entered into an agreement (“Salick/PA contract”) as just explained, and this
agreement was to terminate on the April 30, 1992 or when the JFK/Salick
agreement terminated. The agreement provided that if this contract was not
renewed, the doctors? staff privileges would automatically terminate at the end
date of the contract; 3) JFK and the PA entered into an agreement (“second
JFK/PA agreement”) to take the place of their original contract. Under this
novation, JFK agreed to assume the “benefits and burdens” of the Salick/PA
contract should Salick terminate the Salick/PA contract during the term of the
Salick/PA contract.

In December, 1991, JFK renewed the JFK/Salick contract through September 30,
1997. However, on October 6, 1996, JFK notified Salick that it would not be
renewing its contract after September, 1997.

During the spring of 1997, JFK and UM began negotiations for UM to replace
Salick as the exclusive provider of radiation therapy services at JFK?s cancer
center. They reached a tentative but substantial agreement to that effect in
mid-July. Around this same time, JFK told UM that it anticipated that the PA
would continue to provide services at the hospital until the end of its term.
JFK indicated that it would not renew its privileges thereafter.

Apparently learning of these negotiations, on June 4, 1997, the PA, through
its attorney, notified JFK in writing that its staff privileges could not be
affected even if JFK decided not to renew its contract with Salick. It insisted
that its”relationship [with JFK] continued as before.”

In September, 1997, the PA contacted UM directors and administrators advising
them that its privileges with JFK remained intact. It told UM that it was aware
of the university?s negotiations with JFK. UM?s attorney then reviewed JFK?s
medical staff bylaws and received assurances from JFK?s representatives that JFK
had the right not to renew the PA?s staff privileges. Based on her review and
these assurances, UM?s attorney advised the university to proceed with
negotiations and consummation of the agreement with JFK.

That same month, JFK purchased a new cancer facility that Salick had finished
building. A hospital administrator suggested that the purchase was made so that
JFK would not have to compete for the PA?s radiation oncology patients.

On September 24, 1997, the PA read an article in the newspaper stating that
once JFK?s contract with Salick ended, and UM?s contract with JFK effectuated,
neither Dr. Spunberg nor Dr. Phillips would be practicing at the hospital. The
article stated that while the doctors were not employed by either JFK or Salick,
they had practicing privileges at the hospital.

On September 26, 1997, JFK notified the PA in writing that it would not be
renewing its privileges because it [JFK] was entering into a new exclusive
contract with UM. JFK informed the PA that it must cease practicing in the
hospital by the end of the year.

On October 6, 1997, the PA sued both JFK and UM. It alleged JFK breached its
medical staff bylaws and also that it tortiously interfered with the PA?s
business relationships. It also asserted a tortious interference action against
UM with respect to the PA?s contract with the hospital. It sought both
compensatory damages and injunctive relief. It was later allowed to amend its
complaint to seek punitive damages against both defendants.

On November 19, 1997, JFK and UM entered into an agreement, effective
retroactive to October 1, 1997, whereby UM replaced Salick as the exclusive
provider of radiation therapy services at the cancer center. The agreement
included an express exception to UM?s exclusivity in the event of a mutual
agreement of the parties or court order. The parties agreed that UM could back
out of the deal if the PA?s staff privileges were not terminated by the end of
the year.

In December, 1997, the PA obtained a temporary injunction allowing it to
remain practicing at the hospital until the lawsuit was resolved. In contesting
the motion, the hospital admitted that it did not comply with either section
395.0191(4), Florida Statutes (1997) [ This section provides, (4) Nothing herein
shall restrict in any way the authority of the medical staff of a licensed
facility to review for approval or disapproval all applications for appointment
and reappointment to all categories of staff and to make recommendations on each
applicant to the governing board, including the delineation of privileges to be
granted in each case. In making such recommendations and in the delineation of
privileges, each applicant shall be considered individually pursuant to criteria
for a doctor licensed under chapter 458, chapter 459, chapter 461, or chapter
466, or for an advanced registered nurse practitioner licensed and certified
under chapter 464, or for a psychologist licensed under chapter 490, as
applicable. The applicant’s eligibility for staff membership or clinical
privileges shall be determined by the applicant’s background, experience,
health, training, and demonstrated competency; the applicant’s adherence to
applicable professional ethics; the applicant’s reputation; and the applicant’s
ability to work with others and by such other elements as determined by the
governing board, consistent with this part. ? 395.0191(4), Fla. Stat. (1997).]
or its bylaws in terminating the PA?s staff privileges, but somehow maintained
that it did not need to do so. The trial court rejected that position, and this
court affirmed without opinion. Columbia/JFKMed. Ctr., Inc. v.
Spunberg, 719 So. 2d 298 (Fla. 4th DCA 1998).

On December 22, 1998, after we issued our mandate, JFK notified the PA in
writing that it [JFK] was offering the PA a chance to apply for renewal of its
staff privileges. On the PA?s pretrial motion in limine, this letter and any
testimony regarding the contents of the letter were excluded at trial for all
purposes.

Trial began in March, 1999 and lasted four weeks. At trial, Dr. Spunberg
testified that the majority of the PA?s patients were referred by other
physicians. He testified he told all key JFK administrators that the Salick/PA
contract expired in 1992, but that he and Dr. Phillips were still allowed to
continue working in the hospital thereafter. In fact, the evidence reflected
that JFK even sent the PA applications forms for reappointment to the medical
staff after 1992 and granted reappointment in 1994-1995 and 1996-1997. [ It was
shown that medical staff privileges are renewed every 2 years.]

The PA maintained that JFK and UM conspired to steal its practice. It
introduced evidence suggesting that UM negotiated for the termination of the
PA?s staff privileges. It maintained that both JFK and UM knew that there were
no positions available for radiation oncologists at any other area hospital but
“didn?t care one way or another.” It acknowledged that most of its patients were
elderly and too sick to drive outside the JFK vicinity.

In support of this “conspiracy theory,” the PA introduced a document showing
that 80% of the PA?s 2,000 patients lived within a four-mile radius of JFK. The
PA argued that this document showed that those patients would remain at JFK even
if the PA?s staff privileges were terminated. Furthermore, it introduced a
profit analysis prepared by JFK which projected revenues for the cancer center
if the PA was eliminated ascompetition. Finally, it introduced a third document
in which JFK recommended purchasing a new cancer center Salick was building
within a few blocks of JFK scheduled to open in 1998. Both JFK and UM admitted
that the purchase was to take control over the PA?s patients.

The PA also showed that JFK?s administrators ignored Dr. Spunberg when he
tried to discuss how the cancer center would be operated after Salick left. It
maintained that it repeatedly advised these administrators that it considered
its staff privileges intact at all times. It expressed surprise about learning
of its termination in a newspaper article in September, 1997.

JFK admitted it never considered the quality of care given by the PA when JFK
terminated its doctors? staff privileges. It also admitted it did not follow its
own bylaws regarding reappointments and hearings. [ Specifically, JFK ?s bylaws
provide that applicants for reappointment show that they remain qualified for
staff membership. Section 3.2.1(e) of the bylaws requires that applicants
request privileges in an area that is not governed by an exclusive provider
contract. An application for reappointment that does not show in its face that
the applicant is qualified for staff membership is subject to summary denial
without a hearing. However, the denial of an application for any other reason
requires a hearing at the applicant ?s request. It was undisputed that JFK did
not provide such a hearing. It was also undisputed that JFK did not make the
determinations set forth in section 395.0191(4), Florida Statutes (1997), or
section 59A- 3.217(e) of the Florida Administrative Code before deciding not to
reappoint the PA. ] However, it claimed that it terminated the PA?s staff
privileges because it believed that the PA intended to compete with JFK at the
new cancer treatment facility Salick was building. It showed that as early as
1997 Dr. Spunberg started handing out business cards and placing a yellow pages
ad indicating he would be also practicing at Salick?s facility. In any event,
both JFK and UM claimed that paragraph 3.7.3 of the bylaws authorized
thetermination of the PA?s staff privileges. [ Paragraph 3.7.3 provides for the
automatic revocation of staff membership and hospital privileges to a physician
that is under contract with an exclusive provider when the exclusive provider
contract is terminated. ]

Notwithstanding the provisions of this bylaw, the PA countered that JFK and
UM entered into their agreement before JFK knew Salick was building a new
facility. It showed that even after the temporary injunction issued, JFK issued
press releases and an annual report stating that the PA would no longer be at
the hospital and that UM was the only provider of radiation therapy services
there. The report was disseminated to the public. [ By court order, JFK amended
the report to reflect that the PA continued to perform such services at the
cancer center.] It also maintained that it lost many of its patient referrals
and income as a result of the defendants? actions. It presented testimony of
physicians who stopped referring patients to the PA because of their concern
over whether they could provide continuity of care should JFK terminate its
privileges. Overall, it maintained both parties generally tried to thwart its
ability to practice at the center.

With respect to damages, the PA?s expert testified that it would take as long
as 10 years for the PA to recover from the loss of referrals at a present value
loss of income of anywhere between $2+ million and $3+ million. He admitted
during cross-examination that he changed his original figures (provided during
discovery) based on a revised report. The defendants? objections to the new
figures were overruled.

The jury awarded the PA $1,933,659 against JFK for both breach of
contract and tortious interference with business relationships, and $644,542
against UM for tortious interference with the PA?s contract with JFK. It also
awarded the PA $12,000,000 in punitive damages againstJFK and $8,250,000 against
UM. The court at first limited the punitive damages to three times the amount of
the compensatory damages awarded, but on the PA?s motion reinstated the jury?s
verdict. Of key import, the court expressly found,

The clear and convincing evidence shows a scheme between the Hospital and the
University to expel the Doctors from the Hospital and take over their medical
practice. . . . Decisions in this case were driven by business and profit
motives . . . .

* * * *

Both the Hospital and the University were aware that the Hospital?s Bylaws
did not allow the Hospital to terminate the Doctors? medical staff privileges,
even if it gave an exclusive contract to the University. The Hospital simply
chose to disregard the Doctors? Bylaw rights. And, the University intentionally
and unjustifiably induced or caused the Hospital to wrongfully terminate the
Doctors? staff privileges . . . . The Defendants? motives were “business
decisions” and profit, pure and simple. . . .

The Court then granted the PA permanent injunctive relief.

Merits

Both UM and JFK argue that the trial court erred in not allowing them
to impeach Dr. Spunberg?s testimony with JFK?s letter that effectively allowed
the PA to reapply for staff privileges. They argue the exclusion prejudiced them
at trial because they were unable to refute the PA?s repeated arguments and
testimony that JFK was trying to kick them out and never offered either doctor
an opportunity to stay. Concluding that this evidence would have shed light on
the issue of good faith, they maintain the jury was not given a complete picture
of what really happened.

We believe the court abused its discretion in excluding the evidence. The
letter directly refutedDr. Spunberg?s testimony that he was never offered an
opportunity to apply for a position to continue to practice radiation oncology
at JFK with UM. The testimony was also prejudicial because it supported the PA?s
“conspiracy” theory and weighed on the defendants? alleged bad faith in not
honoring the bylaws.

The PA suggests that any error was harmless because the letter did not state
that JFK would allow the PA to continue to practice in the hospital. [ Arguing
that JFK ?s letter was nothing more than a settlement offer and, therefore,
inadmissible, counsel for the appellees at oral argument misrepresented to this
court that this letter was sent on the eve of trial. The record directly refutes
this representation.] The letter, however, directly contradicted Dr. Spunberg?s
testimony and, to this extent, it bore on the jury?s perception of the
defendants? [lack of] good faith. Even though it was only one piece of evidence
in a month-long trial, without it coming in, the jury had a slanted view of the
defendants? motivations. As the error was not harmless, we hold the defendants
are entitled to a new trial.

Because we have reversed both verdicts for a new trial on the merits, the
cost award must be reversed as well. While we do not need to reach the other
issues raised by the parties in their respective appeals, we do note that, at
least based on the evidence presented at the first trial, the court should not
have granted a directed verdict on JFK?s estoppel defense. JFK tried its case on
the theory that the PA was estopped to deny that it [the PA] had an implied
contract with Salick after April, 1992. [ Although JFK never pled this specific
affirmative defense, the PA argued in support of its motion for directed verdict
at trial that “their claim . . . of equitable estoppel, as I understand it, is
that Dr. Phillips and Dr. Spunberg are estopped to deny that they had a
continuing exclusive contract with Salick after 1992. Of course we claim there
was no such contract. ” It is, therefore, obvious that the PA knew exactly what
JFK intended to plead. ] It maintained that unless thePA had some implied
contract with Salick after 1992, it could not have successfully maintained that
it had staff privileges at JFK. Assuming the evidence is the same on retrial,
this issue should be sent to the jury. [ It turned out that the court ?s error
was harmless because, over the PA ?s objection, it instructed the jury, The
defendants contended that the [Salick/PA] contract extended beyond April 30,
1992 due to the actions of the plaintiffs and Salick. When parties continue
operating under a contract after its expiration, a presumption arises that the
contract is renewed on its original terms. This is an issue for you to decide.
Thus, the court allowed the jury to determine whether the PA had an implied
contract with Salick after their original contract expired in 1992.]

REVERSED and REMANDED for a new trial.

GUNTHER, J., and DONNER, AMY STEELE, Associate Judge, concur.

NOT FINAL UNTIL THE DISPOSITION OF ANY TIMELY FILED MOTION FOR
REHEARING.