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November 22, 1996

CARLOS J. PUIG, et al., Defendants.

The opinion of the court was delivered by: SHADUR

 After the Hearing each of the parties has submitted proposed findings of fact and conclusions of law, and those have been reviewed in detail in conjunction with the Hearing evidence. What follows are this Court's findings of fact ("Findings") and conclusions of law ("Conclusions") in accordance with Rules 52(a) and 65. To the extent (if any) that the Findings as stated may be deemed conclusions of law, they shall also be considered Conclusions. In the same way, to the extent (if any) that matters later expressed as Conclusions may be deemed findings of fact, they shall also be considered Findings.

 Background Facts

 1. Cleveland Hair is a corporation organized under the laws of Ohio, where it also has its principal place of business (Leonhard Dep. 5-10). It is in the business of operating hair transplant facilities located in Rosemont, Illinois; Waltham, Massachusetts; Washington, D.C.; Union, New Jersey; and King of Prussia, Pennsylvania. At those facilities patients are counseled for, and frequently contract for and receive, hair transplant surgery, other surgical procedures and other forms of treatment with the objective of remedying baldness (collectively "hair transplant procedures") (Leonhard Dep. 17-19).

 2. Puig is a Texas citizen (Puig Dep. 20). He is a doctor of osteopathic medicine who specializes in hair transplant procedures (id. 46, 51).

 3. Puig Group is an Illinois corporation having its principal place of business in Illinois (Amended Complaint P3 and Answer P3). It is a professional service corporation formed in about 1993 by Puig, its sole shareholder, to engage in the practice of medicine (Puig Dep. 64-65).

 4. Haenschen is an Illinois citizen (Haenschen Dep. 4). Like Puig, he too is a doctor of osteopathic medicine who performs hair transplant procedures (id. 8, 11). He renders services to Puig Group under a written contract that characterizes him as an independent contractor (id. 31 and Ex. 2).

 Pre-Termination Relationships Among the Parties

 5. Puig and Haenschen began performing hair transplant procedures at Cleveland Hair facilities in the mid-1970s, shortly after each had completed his osteopathic training and Cleveland Hair started its business (Puig Dep. 51; Haenschen Dep. 10-11). At that time both Puig and Haenschen were in the military service, and both started working at Cleveland Hair on a part-time basis. Neither had any training or experience in performing hair transplant procedures, any office or equipment or any patients (Puig Dep. 46-51; Haenschen Dep. 7-11). Cleveland Hair's president arranged for a doctor to train Puig, and shortly thereafter Puig demonstrated the procedure for Haenschen (Puig Dep. 52-57, 147).

 6. Those arrangements continued until late 1993 without any written agreement between Cleveland Hair on the one hand and Puig and other physicians on the other. Although the physicians were referred to collectively as the "Puig Medical Group," they were neither incorporated nor otherwise part of any formal entity.

 7. During that pre-1993 period Puig became Cleveland Hair's Medical Director as well as a corporate director and shareholder. Puig's responsibilities included engaging other doctors who, like Puig and Haenschen, worked at Cleveland Hair's facilities as independent contractors.

 9. Under the Agreement Cleveland Hair is required to lease, furnish and equip the facilities; to employ all of the persons who work at the facilities other than the doctors; and to perform all of the services necessary to manage and support the facilities, including marketing, advertising and promotion of the Puig Group doctors who work at the facilities. Thus Cleveland Hair and not Puig Group is the owner or lessee of the facilities operated by Cleveland Hair, is the employer of the individuals who work there and is obviously responsible to pay for those obligations and to carry out substantial other obligations without regard to the compensation it receives from Puig Group.

 10. Puig and Cleveland Hair caused the Agreement to be drafted carefully to avoid "fee splitting": any sharing by Puig Group with Cleveland Hair, a corporation that is not permitted to and does not practice medicine, of fees that Puig Group receives for medical services (Puig Dep. 63). Thus Cleveland Hair's remuneration under the Agreement is based on compensation for the services that it renders and the expenses that it incurs, without regard to the number of patients or revenues that it generates for Puig Group or any other measure of its success.

 11. *fn2" Without practicing medicine as such, Cleveland Hair employs nurses, surgical assistants and consultants, all of whom play an integral role in the provision of hair transplant procedures rendered to patients at Cleveland Hair's facilities. Indeed, in 1990 Puig awarded Cleveland Hair's Rosemont manager, non-doctor Richard Malmin ("Malmin"), a certificate of merit to recognize his "steadfast devotion to high quality patient care" and for "enhancing hair replacement surgical technology" (CH Ex. 8). *fn3"

 12. In the manner by which the conduct of the hair transplant business has been carried out by Cleveland Hair and Puig Group (an arrangement developed with Puig's active participation and guidance), the physician plays a very limited role aside from actually performing the physical hair transplant procedure. For instance, the physician typically does not meet the patient or see the patient's file until the day of the procedure (Puig Dep. 167, 187). Even then the Cleveland Hair consultant who was responsible for the patient's consultation remains heavily involved (Malmin Tr. 9/17/96; *fn4" Puig Dep. 182 ("When I'm talking to the patients, I encourage the managers to come in whenever I'm talking to a patient and designing their treatment plan")).

 13. Cleveland Hair personnel schedule the hair transplant procedures and designate which Puig Group doctor is available on the day that the patient desires to have the procedure (Puig Dep. 162-67; Haenschen Dep. 161). No doctor participates in making those arrangements.

 15. Both before and after the doctor's performance of his phase of the procedure, Cleveland Hair personnel also perform important and necessary functions such as obtaining patient medical information, applying and changing bandages, removing sutures, giving post-operative check-ups and shampoos, answering patient inquiries, dispensing pre-surgical instructions and remedying post-surgical problems (Puig Dep. 177-79, 201-05; see also App. Ex. 26; Puig Dep. 171-74; Haenschen Dep. 96-104). Cleveland Hair personnel are also responsible for maintenance of the patients' files and, in fact, make most of the notes and other entries contained in those files (App. Ex. 26; Puig Dep. 175-78; Malmin Dep. 174-75; Haenschen Tr. 9/19/96).

 16. Cleveland Hair consultants also prepare proposed treatment plans for prospective patients. While the proposed plans prepared by those consultants are subject to review and approval by a doctor, they are almost always the final versions. In other words, Puig Group almost always concurs with the proposed plan prepared by the Cleveland Hair consultant (Puig Dep. 180-81).

 17. Proposed treatment plans usually contemplate multiple procedures, but they do not provide that all procedures will be performed by the same doctor, and no commitment to that effect is made. In fact Cleveland Hair employees are authorized to schedule a patient's later procedures with doctors other than the one who performed the original procedure (Puig Dep. 168-69). As Finding 12 states, a patient generally has no contact with a doctor until the patient appears for the actual surgery, and only then is he asked to execute a consent form identifying the doctor who is to perform the procedure. Initial surgery dates are always scheduled for a date after the consultation and the preparation of the proposed plan by the Cleveland Hair consultant (Haenschen Dep. 169-70).

 18. If a patient undergoes more than one procedure, the physician typically will not see the file from the date of the first procedure until the date that the next procedure is performed. Later procedures are not scheduled until some period of time has elapsed from the completion of the first procedure. In the intervening period all or substantially all patient contact, including all solicitations to schedule the next procedure, is with Cleveland Hair's personnel and not with the doctors (Puig Dep. 162-65, 167-68, 187).

 19, Hair transplant procedures performed at Cleveland Hair's facilities are cosmetic surgeries and are not medically necessary. Hence the patients are generally persons who respond to advertisements directed at people who desire to have their appearance changed cosmetically. Thus for the entire period of the parties' relationship through late June 1996 the financial success of Puig Group's practice depended on the successful solicitation of patients and on the expenditure of substantial amounts for advertisements and for related promotional activities, all of which were performed by Cleveland Hair (Puig Dep. 106-07). Although the advertisements promoted Puig Group's practice, they also gave Cleveland Hair major prominence (CH Ex. 1).

 20. Almost all of Puig Group's patients have been obtained by Cleveland Hair's efforts (or through referrals from past patients obtained through such efforts), and all Puig Group patients had their first contact with the Cleveland Hair consultant and not with a doctor (Puig Dep. 106-07).

 22. Relatively few physicians (approximately 700) in the United States regularly perform hair transplant procedures. (Puig Dep. 102; Puig Sanction Tr. 36 *fn6" ). Because of medical licensing requirements, Cleveland Hair cannot offer hair transplant procedures at its facilities unless it has contracted with qualified physicians who are licensed to perform them.

 Defendants' Preparation for Termination

 23. On May 24 Puig as Puig Group's President notified Cleveland Hair of the termination of the Agreement effective 30 days thereafter. Puig Group's termination notice ("Notice") purports to be given pursuant to an October 1, 1993 side letter of agreement ("Letter," App. Ex. 3) between Cleveland Hair and Puig Group, entered into at the same time as the Agreement, that addressed an unresolved issue involving malpractice liability insurance. According to the Letter either party had the right to terminate the agreement if at the end of a six-month negotiating period Cleveland Hair and Puig Group were unable to come to terms on the payment of a tail insurance policy.

 24. One of this Court's November 20 memorandum opinions and orders (the "Summary Judgment Opinion") has ruled that the Notice was invalid and ineffective to terminate the Agreement, so that summary judgment has been granted in Cleveland Hair's favor on its Amended Complaint Count I. All of the findings and determinations contained in the Summary Judgment Opinion apply here with equal force, and these Findings will not repeat the factual underpinnings of those determinations.

 25. Puig actually decided to terminate Puig Group's relationship with Cleveland Hair many months before delivering the Notice (if not earlier), because Puig was dissatisfied with the existing relationship. Puig's plan was to have Puig Group perform the functions that Cleveland Hair had been performing, to take over Cleveland Hair's Rosemont facility "lock, stock, and barrel" and to drive Cleveland Hair out of business, at least in the Chicago are where most if not all of its profits were derived (Puig Dep. 95-96; Haenschen Dep. Ex. 8).

 26. At least as early as in February Puig was already seeking financing for his venture described in Finding 25 (Puig Sanction Tr. 30-34; Flahaven Dep. 18, 19, 27, 42-55, 59-69, 70, 78-80). In a February letter to a potential lender, Puig Defendants' lawyer Stephen Schostok, the person who took the lead in securing financing, reported that "our client [Puig] and his medical group have determined to terminate the agreement . . ." (Puig Doc. 70933). That as well as all of the other pre-termination activity dealt with in later Findings belies defendants' contention and Puig's testimony that the decision to terminate the relationship between Cleveland Hair and Puig Defendants was not made until shortly before the Notice was delivered in late May, as a result of an alleged incident of fee-splitting that had occurred in April.

 27. One essential component of Puig Defendants' plan was to keep Cleveland Hair "in the dark" until the last possible moment. Cleveland Hair was given only 30 days' notice because that was all that the Agreement required (Puig Dep. 102). Although Puig Group would of course have been well within its rights if it had served a 30 day notice in implementation of a legitimate termination of the Agreement, under the circumstances that are set out in these Findings the notice period that was chosen by Puig aggravated Cleveland Hair's injuries sustained by reason of defendants' improper conduct.

 28. At least as early as in February Puig was furnishing banks with Cleveland Hair's financial statements, projections for the new venture and a document entitled "Assumptions Supporting PMG Chicago Cash Flow Projections" (App. Exs. 13, 14; Flahaven Dep. 23, 66). But Puig did not furnish any prospective lenders with Puig Group's own audited financial statements. Moreover, Puig took no steps to protect the secrecy of the Cleveland Hair financial information that he was using (Flahaven Dep. 62). All of the actions described both heretofore and hereafter leave no doubt that Puig Defendants' intention to sever their relationship with Cleveland Hair was formed well before Puig Group served Cleveland Hair with the termination Notice in late May.

 29. According to Puig's own testimony (Dep. 545-48) he began to solicit Haenschen, the linchpin of the Rosemont facility, to work at his new venture not later than in February. *fn7" Puig's "business assumptions" document that he was sending to potential lenders--a document that was in existence in early February and delivered to a bank shortly thereafter (App. Ex. 14, containing a fax identification that shows February transmission; Flahaven Dep. 18, 23-24)--includes a statement as to the need to pay substantial bonuses to Puig Group doctors "to assure that [they] do not jump to CHC" (App. Ex. 14). Puig credibly testified that he and Haenschen began discussing leaving Cleveland Hair for the new venture before Puig ever incorporated the assumption regarding "bonuses" in the document (Puig Dep. 545-48).

 30. Haenschen and Puig began to negotiate the terms of the new Puig Group-Haenschen contract not later than April. During those negotiations Haenschen prepared projections that contemplated a scenario in which Puig Group would take over Cleveland Hair's Rosemont operation "lock, stock and barrel" (Haenschen Dep. 133-34 and Ex. 8). Puig told Haenschen that their discussions were highly confidential, and Haenschen kept them secret (Haenschen Dep. 114-15).

 31. On May 17 Haenschen signed a new contract with Puig Group that included a $ 250,000 "signing bonus" and other financial terms under which Haenschen's remuneration would be increased significantly (App. Ex. 7). That new agreement was negotiated before the expiration of the term of Haenschen's existing agreement (Puig Dep. 262-63). Although Haenschen and Puig had negotiated new contracts from time to time, Haenschen had never before received a signing bonus (Haenschen Sanction Tr. 655). Haenschen concededly knew that he was an important part of Puig's plans (id. 654).

 32. It is unclear whether (as Cleveland Hair contends) Puig hired away its Washington, D.C. office manager C.J. Kerins by May 16. It is true that promotional materials found on Puig Group's Internet site and specified there as having been updated as of that date identify Kerins as a consultant in Puig's Houston facility (a facility never managed by Cleveland Hair) (CH Ex. 9). It is also true that neither Puig nor Kerins announced that arrangement until several months after that, when Kerins actually quit his employment at Cleveland Hair and started working as a consultant for Puig Group in Houston, just as the Internet materials indicated. But the page on which the legend "This site was updated 5/16/96" appears (id. at 1) bears an August 13 printout date, so the actual date when the initial reference to kerins was made in the Internet materials is uncertain.

 33. On May 24, the very day that the Notice was sent and before Cleveland Hair had any time to react, Puig also proceeded to attempt to co-opt Cleveland Hair employees and third parties with whom Cleveland Hair expected to have beneficial future relationships. Most though not all of those actions were targeted at the Rosemont facility, the "crown jewel" of the Cleveland Hair-Puig Group operations (Puig Doc. 70144-46). Those efforts by Puig are detailed in the ensuing Findings.

 34. Puig first communicated with Drs. Mangubat and Feldman, the two Puig Group doctors other than Haenschen who worked at Rosemont. Dr. Mangubat was the only doctor at Rosemont who performed Brandy Flap procedures. Those calls were made to ensure that the doctors would not "jump" to Cleveland Hair (Puig Sanction Tr. 39; Puig Doc. 70144-46).

 35. Puig then directed Bill McCarty ("McCarty"), the operator of a Cleveland Hair-affiliated facility in Detroit, Michigan ("Shear Point"), to wire transfer funds earmarked for a Cleveland Hair managed account to a Puig Group account that Puig alone controlled (Puig Sanction Tr. 40). That clearly unlawful activity was undertaken by Puig because he wanted to take control over Cleveland Hair's funds (id. at 41; Puig Doc. 70144-46)--an improper and illegal motive.

 36. Puig next spoke with Lauren Comitor ("Comitor"), the "voice and face" of Cleveland Hair and its advertising consultant, to attempt to secure his services for Puig Group on an exclusive basis. When Comitor indicated in response that Cleveland Hair might attempt to affiliate with another doctor, Puig immediately instructed Comitor to change Cleveland Hair's Chicago area advertisements by substituting Puig's Houston telephone number for Cleveland Hair's telephone number (Puig Sanction Tr. 42-48; Puig Doc. 70144-46)--another clearly unlawful step.

 37. Comitor also told Puig that Dr. Ray Konior ("Konior," another qualified hair transplant physician) was rumored to be a prospective replacement for the Puig Group doctors at Rosemont. Puig telephoned Konior immediately after his conversation with Comitor for the admitted purpose of preempting Cleveland Hair's attempt to recruit Konior to affiliate with its Rosemont office as a replacement for Puig Group (Puig Sanction Tr. 49-50; Puig Doc. 70144-46). Puig accomplished that objective: Cleveland Hair's later efforts to affiliate with Konior were not successful, and in fact Puig Group is currently operating in Konior's facility in Oakbrook Terrace, Illinois (Puig Dep. 463-64).

 38. Before the Notice's specified termination date Puig also spoke with Cleveland Hair's Rosemont office manager Malmin and encouraged him to support Puig Group's ongoing practice during the 30 day pre-termination period. Puig told Malmin that Puig Group would accept employment applications as soon as that period was completed (Puig Sanction Tr. 51; Puig Dep. 276-77; Puig Doc. 70144-46). Puig followed that practice with all of Cleveland Hair's employees: He requested their continuing support and cooperation, put them on notice of his plans and let it be known that he would receive employment applications as soon as the 30 day period expired. That procedure was intended to convey the message to the employees that their future prospects were with Puig Group, so that Puig and Haenschen could carry out an important part of their plan: to keep the Cleveland Hair staff intact and to simply move that staff over to Puig Group (Puig Dep. 262; Haenschen Dep. 46, 60).

 39. Puig knew that Cleveland Hair had no contingency plans in place to provide for the continuation of its business in the event that Puig Group sought to terminate the Agreement (Puig Dep. 379-80). Indeed, except for the Letter (the continued viability of which as a legitimate ground for premature termination of the Agreement is a subject of considerable doubt, and an issue not yet resolved by this Court, but on which Cleveland Hair certainly has more than "some likelihood of succeeding on the merits" *fn8" ), the Agreement has only limited provisions for termination before its stated termination date in 2003 (see Agreement ยง 20).

 Defendants' Conduct After the May 24 Notice

 41. During the 30 day post-Notice period, defendants continued to cement their relationships with Cleveland Hair's employees and the other parties on whom Cleveland Hair was dependent for its operations. Both Puig and Haenschen essentially testified that they saw nothing wrong either with that activity or with any of their other efforts to take over the Rosemont operations to the exclusion of Cleveland Hair, because the latter was "only a management company" that served Puig Group.

 42. On May 29 Puig attempted to divert all incoming funds to an account that only he controlled (App. Ex. 23), an effort that was in violation of the established rights of the parties. Consistently with the nature of the relationship between the parties, their uniform practice had always been that all Puig Group revenues would be deposited in the first instance into accounts managed and controlled by Cleveland Hair (a procedure essential to its ability to obtain reimbursement of its out-of-pocket expenses, for the benefit of the parties' joint venture, the only available source of such reimbursement being the operations of the hair transplant facilities). Puig Group's new account was established at the bank that was financing its new venture and that had provided the funds used by Puig to pay Haenschen's signing bonus, with the bank account having been pledged to secure Puig Group's loan (App. Ex. 24; Puig Dep. 280-81). At the same time Puig has withheld, and continues to withhold, monies that are owed to Cleveland Hair, the majority of which constitute reimbursement for those out-of-pocket expenses (Puig Dep. 407). By refusing to pay those amounts Puig Defendants have also deprived Cleveland Hair of revenue necessary for its continued operations. Although Puig seeks to justify that refusal by making assertions of improprieties on the part of Cleveland Hair, his unilateral self-help action amounts to nothing more than an improper (and impermissible) attempt to destroy Cleveland Hair.

 43. During the same 30 day post-Notice period and while still obligated to operate under the Agreement, Puig negotiated agreements for the sale of Cleveland Hair's patient lists and patient files at its east coast facilities (App. Ex. 20-22; Puig Sanctions Tr. 55-65; Puig Docs. 70765-70794). Puig intended to keep all proceeds derived from those sales (Puig Dep. 45-46). Those patient lists and files include marketing and other information obtained by Cleveland Hair. Indeed, all or substantially all of the patients on the lists were secured by Cleveland Hair. Puig's sales or attempted sales of patient medical records were without any patient consents and thus appear to be at odds with the medical records policy that Puig himself had drafted (Puig Dep. 31-46). But leaving that aside, Puig's testimony that he never intended to collect any amounts for the sales of the medical records or practices, and that he had some other purported purpose for including specified dollar amounts in the brief letter agreements that he himself prepared to reflect his deals with the other doctors, is entirely incredible--that testimony need only be read to see just how contrived and unpersuasive it is.

 44. On June 16 Puig offered to sell the practices of two of Cleveland Hair's facilities (Union and King of Prussia) to a Doctor Horace McVaugh ("McVaugh"), who he had learned was considering affiliating with Cleveland Hair (Puig Doc. 70396). When McVaugh rejected Puig's offer and affiliated with Cleveland Hair instead, Puig sold the practices to another doctor for a lesser amount and then named McVaugh as a defendant in his Counterclaim in this case (Puig Sanctions Tr. 67-74; Puig Doc. 70172). Although Puig knew that McVaugh was qualified to perform hair transplant procedures in all respects, as Puig's own offer to sell the practices to McVaugh confirms, Puig's Counterclaim against McVaugh asserts otherwise. It must be concluded that Puig Defendants' Counterclaim was filed to harass McVaugh and to scotch his affiliation with Cleveland Hair. Indeed, the allegations of the Counterclaim generally, and those against McVaugh in particular, were made ...

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