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Patient Care Services v. Segal

OCTOBER 2, 1975.




APPEAL from the Circuit Court of Cook County; the Hon. SAMUEL B. EPSTEIN, Judge, presiding. MR. JUSTICE MCNAMARA DELIVERED THE OPINION OF THE COURT:

Plaintiffs, Patient Care Services, S.C. (hereinafter referred to as Patient Care), an Illinois professional service corporation, and David A. Martinez, M.D., one of its two officers and directors, filed a three-count complaint in the circuit court of Cook County against Medical Services, S.C. (hereinafter referred to as Medical Services), another Illinois professional service corporation, Marshall B. Segal, an officer and director of both of the above-named corporations, and Little Company of Mary Hospital, an Illinois corporation (hereinafter referred to as the hospital). The first count, sounding in equity, alleged that Segal violated his fiduciary duties owed to Patient Care by setting up a competing corporation while an officer and director of Patient Care and by seizing its business asset, requiring the court to impose a constructive trust upon the corporate funds of Segal and Medical Services and to order an accounting. The third count, sounding in law, charged Segal and Medical Services with interference of contract. The second count, which was directed against the hospital, was voluntarily withdrawn by plaintiffs prior to trial. The trial court severed counts one and three and ordered a trial to commence on count one. At the conclusion of all the evidence, the trial court, as trier of fact, entered judgment for defendants on not only count one but also on count three. This appeal follows.

We find the pertinent facts to be as follows. Both Martinez and Segal are licensed doctors in Illinois. Segal additionally is a licensed attorney in Wisconsin and California. During the latter part of 1970 and the early months of 1971, Martinez worked part time in the emergency room of Little Company of Mary Hospital in Evergreen Park, Illinois. During this time the acting administrator of the hospital approached him and inquired whether he would be interested in reorganizing the hospital's out-patient clinic and in assuming some staff responsibilities at the hospital. In April, 1971, Martinez met Segal while both were working at another hospital. Martinez subsequently discussed the proposition offered to him, and the two doctors outlined a program of comprehensive medical planning services which they would offer the hospital. A professional service corporation would be set up to handle the program. During the month of June, the two doctors met on several occasions with the hospital officials and discussed the basic features of this proposal. Essentially, a corporation would be set up by Martinez and Segal that would be responsible for scheduling doctors for the emergency room and out-patient clinic of the hospital and for establishing health care planning. A written proposal was submitted by Segal and Martinez on June 10, and a costs proposal was forwarded to the hospital a few days later.

The parties orally agreed on the basic elements of the proposal and the program commenced on July 1. Patient Care was incorporated by Segal and Martinez in the latter part of June or beginning of July, 1971. Each doctor owned 50% of the corporate shares and became a director of the corporation. Segal was named president and Martinez secretary-treasurer.

A written agreement was never executed between Patient Care and the hospital. Proposed drafts were exchanged on a number of occasions, but at least at the initial stages differences regarding insurance, indemnity, and method of contract renewal precluded finalization of a contract. The hospital agreed to pay Patient Care $22.50 an hour for each hour a doctor employed by Patient Care worked in the emergency room. Additionally the hospital paid Patient Care $3800 a month for the health care planning preparation. Patient Care, in turn, paid the doctors employed by it $15 per hour for each hour of work in the emergency room except for the two principals, who would each receive $21 per hour for this work. Segal and Martinez also drew monthly salaries of $4,000 each, and, subsequent to the commencement of their operation, the two principals agreed that the corporation would pay $185 per day to whichever one of them was in Chicago while the other was outside the city. During the year of its services at the hospital Segal received approximately $92,000 and Martinez $48,000.

Martinez testified that he made it clear in June, 1971, that he had been accepted at Harvard University some months earlier as a candidate for an advanced degree in public policy and that he would be in residence at Harvard for the first year of Patient Care's operation at the hospital. However, he stated at that time that he would commute to Chicago every second or third weekend as studies permitted. He expressed his belief that his studies would be useful in preparing long range health care plans, with most of the benefits accruing to the hospital upon his return from Harvard. Martinez testified that in the summer of 1971 he attempted to begin work on the health care planning, but was told by hospital officials to concentrate his efforts on more immediate problems with the new corporation.

In November Segal, bearing most of the administrative burden with Martinez away at Harvard, told Martinez he was unhappy with their financial arrangement. At the time the principals were drawing a monthly salary and getting paid for work either one performed in the emergency room. Martinez said that he eventually agreed on January 4, 1972, to the aforementioned $185 per day plan. The agreement was made retroactive to July 1, 1971. Martinez testified that it was only after he signed that agreement that he was informed by Segal that the latter had been withdrawing money from the corporation according to the terms expressed in the agreement.

Martinez asserted that Segal's unhappiness continued even after execution of their agreement. In Martinez' opinion Segal's dissatisfaction stemmed from Segal's desire for additional compensation, from Martinez' absence from the city, and from the length of time it was taking Martinez to develop the planning services. On February 21, 1972, Segal wrote Martinez that he had concluded that their association had reached an impasse requiring its termination. Segal further stated that the corporation's arrangement with the hospital would end on June 30, 1972, and that unless Martinez agreed to sell his interest in the company Segal would take steps to dissolve it. On March 16 Segal's attorney wrote Norman Handelsman, Patient Care's attorney, a letter of similar import, adding that Segal intended to negotiate on his own behalf with the hospital and that he wished this information be conveyed to Martinez so that he could do likewise. Two weeks later, Martinez sent a letter to Segal. In it he stated that their differences could be resolved. However, he admonished Segal that any effort to negotiate on his own behalf with the hospital would constitute a breach of Segal's fiduciary duties to Patient Care and run the risk of a lawsuit. On April 3 Martinez met with Paul Wozniak, the executive vice-president of the hospital. At that meeting Wozniak purportedly told the doctor that he wanted a contract to be finalized between the parties to cover the current year operation so that a new one could then be prepared and presented to the hospital board of directors in June to continue Patient Care's program without interruption. Wozniak further related to Martinez that he had been informed that personal problems existed between Segal and Martinez. Martinez replied that such differences were insignificant. Wozniak responded that he hoped the differences could be resolved so that Patient Care's work could continue at the hospital. The hospital official closed the meeting by relaying to Martinez his understanding that Segal had set up his own corporation. This was the first time Martinez had been so informed.

Martinez' subsequent attempts to learn from Segal and Handelsman the status of the pending contract proposals were unsuccessful. On May 2 Timothy Toomey, the hospital's attorney, wrote Handelsman that the failure of the doctors to resolve their problems would in his opinion jeopardize the status of Patient Care and of the two doctors at the hospital and probably at other hospitals as well.

On June 15 Martinez sent a letter to Segal asking his intentions on their future association. He further requested assurances on Segal's part that the quality and continuity of Patient Care's services would not suffer in the corporation's continued relationship with the hospital. In a meeting with Martinez and his attorney on June 19, Wozniak reported that Segal had expressed to him his desire to submit his own proposal for services at the hospital to commence July 1, 1972, to which Wozniak had replied he would consider proposals from both doctors. At the June 19 meeting Martinez responded that any proposal presented by him would be made on Patient Care's behalf only. Martinez then told Wozniak that he understood the hospital was inviting others to submit proposals. Wozniak sat back, laughed, and replied, "Oh, that is in Toomey's hands. Let him play it out. I get all the recommendations and forward them to the board, including his." The following day Segal wrote Martinez that the hospital would no longer negotiate with Patient Care and that their corporation would not be a viable entity after June 30, 1972. On June 21, Martinez presented a proposal to the hospital on behalf of the corporation. It was rejected later that month. Medical Services was hired on an interim basis which was continuing as of the date of trial.

Testifying as a witness under section 60 of the Civil Practice Act (Ill. Rev. Stat. 1973, ch. 110, par. 60), Segal stated that even as of the date of trial he remained an officer, director, and shareholder of Patient Care. He further admitted that the oral contract Patient Care had with Little Company of Mary Hospital had been the sole asset of the corporation. He testified that his company, Medical Services, was performing substantially the same duties and maintaining the same type of daily corporate activities as had been done by Patient Care. While Segal asserted that at the time Medical Services was organized on March 9, 1972, he was retained only as a consultant, he was listed as one of that corporation's incorporators and he did subsequently purchase the organizer's interest in the corporation.

Segal stated that his relationship with Martinez was marked by a continual failure by Martinez to live up to their original oral understandings. According to the witness Martinez had promised to commute to Chicago weekly, to obtain credentials as a hospital staff member, and to make health planning studies. The failure of Martinez to conform to these understandings ultimately caused Segal in the beginning of 1972 to end his efforts to execute a contract between the hospital and Patient Care. He admitted writing Toomey on May 23, 1972, that his differences with Martinez were irreconcilable. Segal further testified that he met with Wozniak in the middle of June, 1972, at which time Wozniak informed him that he was not interested in any proposal from Patient Care to cover the next fiscal year. However, Wozniak indicated to him that he would entertain individual proposals from the two doctors, and accordingly Segal prepared and submitted during the last week of June a proposal by him in the name of Medical Services for comprehensive medical services at the hospital, which subsequently was accepted on an "at will" basis.

Paul Wozniak testified that although no written contract was ever finalized with Patient Care, the hospital and the principals understood that the work agreement was to be for one year. One of the initial obstacles to execution of a contract was the respective parties' differences as to the type of option agreement which should be given the parties if satisfactory work was maintained for the initial year.

Wozniak related that in March, 1972, Segal and Martinez visited him on separate occasions and informed him that they would be "parting ways." Even up to the time of these disclosures, Wozniak was unaware of any impairment of services expended by Patient Care. Although the witness testified that the hospital would not enjoy a relationship with a medical corporation whose principals were at odds with one another, Wozniak asserted that even up to the middle of June, 1972, the hospital was satisfied with the services performed by Patient Care.

Wozniak testified that in early June he informed Segal that the latter could submit a proposal on his own behalf and that he would make the same opportunity available to Martinez. On June 28, Wozniak received a letter from Toomey recommending that the hospital retain Segal individually on a month-to-month basis for emergency room services until the resolution of the problems between the two principals or until a new contract was given to a different entity. On the following day Wozniak held a telephone meeting with several members of the hospital's board of directors, at the conclusion of which Toomey's suggestion was accepted. Consequently, Patient Care's relationship ...

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