Opinion
103175/08
7-28-2009
COMMUNITY BURN & WOUND TREATMENT SERVICES, P.C., Plaintiff v. STATEN ISLAND UNIVERSITY HOSPITAL, Defendants
Plaintiff is represented by Rottenberg Lipman & Rich, P.C. Defendant is represented by Epstein Becker & Green, P.C.
The motion of the defendant Staten Island University Hospital ("SIUH") to dismiss the action brought by plaintiff, Community Burn and Wound Treatment Services, P.C. ("CBWT"), for lack of authority and standing, and for failure to state a cause of action is granted in its entirety.
Facts
Jerome Finkelstein, M.D. (Dr. Finkelstein) incorporated CBWT as a professional corporation on April 28, 1997. CBWT entered into a Services Agreement (the "Agreement") with SIUH on July 1, 2007. The Agreement required CBWT personnel to provide medical care for SIUH's Division of Burn and Wound Treatment, and directorial services (termed "administrative services") that would be provided solely by Dr. Finkelstein. Dr. Finkelstein died unexpectedly on October 15, 2007, naming his accountant, Richard L. Goldstein ("Goldstein"), as executor of his Last Will and Testament executed in 2004. Goldstein began acting as executor on March 24, 2008, after receiving Letters Testamentary. Beginning in November 2007 and continuing through May 2008, SIUH withheld Dr. Finkelstein's directorial payments to CBWT for a total of $780,547.88. SIUH said this was authorized by Brian Deforest, CBWT's accountant. Goldstein demanded retroactive compensation for these "administrative" fees on May 12, 2008. In response, SIUH sent a written notice to Dr. Finkelstein's estate on May 31, 2008 that the Agreement had been terminated, and that Deforest had agreed to withholding of the payments. Goldstein countered that Deforest had no "actual or apparent authority" to make any accommodation in payments to CBWT. On July 1, 2008, Goldstein, as executor, petitioned the Surrogate's Court of Queens County demanding $780,547.88 from SIUH. The Surrogate Court denied jurisdiction over "... an action for breach of contract between a professional corporation and the corporate hospital."
Affirmation of Traycee Ellen Klein in Support of Defendant's Motion to Dismiss, attached Exhibit D, signature page.
Affirmation of Traycee Ellen Klein in Support of Defendant's Motion to Dismiss, attached Exhibit D, at 8.
Proceeding by Richard L. Goldstein, as Executor of the Last Will and Testament of Jerome Lee Finkelstein, File No. 2007-4416, *1 [Surr. Ct. Queens Cty., July 1, 2008] Hon. Robert L. Nahman.
On July 15, 2008, CBWT served a Verified Complaint against SIUH alleging breach of contract; unjust enrichment; quantum meruit and quasi contract; and tortious interference with CBWT employees. CBWT sought $780,547.88 based upon the unjust enrichment claim and a further $1,000,000 for tortious interference with CBWT's employees. On September 23, 2008, SIUH made a Motion to Dismiss on grounds that Goldstein had no standing to bring a suit on behalf of CBWT, and that the Verified Complaint failed to state a cause of action.
Discussion
I. Executor Has Limited Authority to Act on Behalf of a Medical Professional Corporation
A professional corporation has particularized requirements under the New York Business Corporations Law ("NY BCL") Article 15. Further, medical professional corporations are health care providers under the New York Public Health Law ("NY PHL") § 238-A. The NY BCL § 1510 (a) grants only limited authority to the executor of an estate of a deceased sole shareholder of a professional corporation. The purpose of this authority is to facilitate the transmission of the value of shares in a professional corporation to the heirs of the deceased owner. CBWT is a medical professional corporation. Goldstein is an accountant, not a physician. A person, not authorized by law to practice in the profession in which the professional corporation is authorized to practice, may not be a director or officer of the professional corporation. Under NY BCL § 1503, Goldstein may not serve or function as a director or officer of CBWT because he is not of the same profession as that of the medical professional corporation. Contrary to Goldstein's argument, an accountant cannot act as as the Director of the Division of Burn and Wound Treatment at SIUH performing so-called "administrative services" because the contracted administrative services are more than merely performing paperwork.
NY BCL Article 15 § 1501-1516.
NY PHL § 238-A, Title 2-D.
NY BCL § 1510 (a).
Id..
Id., § 1503, 1508.
Id., § 1503.
In Ocean Diagnostics Imaging, P.C. v. Merchants Mutual Ins. Co., the Civil Court of Kings County denied a motion for summary judgment brought by an executor, who was not a physician on behalf of a previously solely-owned medical professional corporation. On appeal, the Appellate Term for the Second and Eleventh Judicial Districts ruled "the court has no jurisdiction" due to the death of the incorporating physician and the absence of a professionally qualified officer. The Appellate Term sustained the decision stating the "record does not establish that any of the actions involved herein were authorized by someone with the authority to do so." The Appellate Division, Second Department affirmed a preliminary injunction brought by the executrix, Mrs. Lorraine Olsson, of the deceased chiropractor, Dr. Robert E. Olsson, against another chiropractor, Dr. Bernadette T. Olsson. Negotiations, between Mrs. Olsson and Dr. Bernadette Olsson, for the purchase of the decedent's practice faltered. Dr. Bernadette Olsson improperly solicited the patients of the deceased Dr. Robert E. Olsson, using a list obtained from the professional corporation. The executrix obtained "an injunction against the solicitation of the patients, and sought and obtained a temporary restraining order." The order was affirmed by the Appellate Division, Second Department. The plaintiff, CBWT, relies upon In Re Olsson, the holding of which, in turn, relies upon In Re Estate of Finkle wherein the attorney-executor of an estate recovered psychiatric records taken by another psychiatrist. In Finkle, the decedent's practice was not a professional corporation. The issues in both these Olsson and Finkle involved actions to protect and marshal the assets of an estate so the executor could transmit value to the heirs of the estate. A professionally non-qualified executor of an estate containing a professional corporation may protect the value and integrity of the estate's ownership interest in a professional corporation and facilitate the transference of the assets of an estate to its heirs. However, executors are not granted the powers reserved to members of the profession to which the professional corporation pertains.
Ocean Diagnostic Imaging, P.C. v. Merchants Mutual Ins. Co., 15 Misc 3d 9, 10; [App. Term, 2d & 11th Jud. Dist. 2007]; see also Ocean Diagnostic Imaging, P.C. v. Progressive Casualty Ins. Co. 14 Misc 3d 136A [[App. Term, 2d & 11th Jud. Dist. 2007].
Id.
Id.; citing Matter of Leonard, 199 Misc. 138, 139 [Surr. Ct. of Orange Cty 1950],aff'd by In re Estate of Leonard, 278 App Div 668 [2d Dept 1951].
In Re Olsson, 180 AD2d 739 [2d Dept 1992].
Id. at 740.
Id.
In Re Estate of Finkle, 90 Misc 2d 55, 55 [Surr. Ct, New York Cty 1977].
It is clear that the executor of an estate containing a professional corporation may not control the professional corporation, if the executor is not within that profession. Such an executor is a steward of the value of the professional corporation, not a shareholder, officer or director. The role of that executor is limited to maintaining the value of the shares and transmitting that value to the beneficiaries of the estate.
II. CBWT Failed to State A Valid Cause of Action
A. Breach of Contract
The decedent Dr. Finkelstein, as Director of the Division of Burn and Wound Treatment at SIUH, was required to provide Administrative Services for fifty hours each week. Administrative Services to be provided by the Director are carefully enumerated. The importance of these "administrative services" may be inferred by Dr. Finkelstein's generous remuneration. Many of Dr. Finkelstein's directorial duties labeled as "administrative" were professional ones. CBWT argues the practice of medicine is defined as "diagnosing, treating, operating or prescribing." However, a more complete listing of statutorily defined medical professional activities must add maintaining medical records; exercising appropriate supervision over persons who are authorized to practice only under the supervision of the licensed professional; and practicing the profession without fraud and within its authorized scope. The courts would further add to the list of constituents of the practice of medicine: "the exercise of medical judgment and the rendering of expert medical opinion"; performance of an autopsy; rendering forensic opinions and the maintenance of records; the creation of records and reports; and submitting medical bills. A physician tried to save his medical license by claiming that his actions were outside the practice of medicine. That physician had submitted false and misleading bills and reports to perpetrate a business fraud. The Court of Appeals dismissed any limited interpretation of the "practice of medicine." "The preparation of medical reports for various purposes has always been regarded as a necessary part of medical practice." When administrative duties call for creation of patient reports, the responsibility is a professional one. Other states have adopted an expanded meaning applied to a physician's professional responsibility.
Defendant's Affirmation of Traycee Ellen Klein in Support of Defendant's motion to Dismiss, attached Exhibit C, Services Agreement, at 2, ¶ 1.3.1.
Id. at 2, ¶ 1.3.
Id. at 1 to 4, ¶¶ 1 § 1.3 through 1.5.
NY Educ § 6521.
NY Educ § 6530 (2).
Gross v. NY Times Co., 151 Misc 2d 571, 575 [Supr. Ct. NY Cty. 1991], reversed on other grounds at 82 NY2d 146 [1993].
In the Matter of Gross v. Ambach, 71 NY2d 859, 861 [1988].
People v. McLane, 166 Misc 2d 698, 708 [Supr. Ct. NY Cty. 1991]; see also People v. Daly, 146 Misc 2d 901, 905 [Cty.. Ct. of Rockland Cty. 1990].
People v. Fratt, 146 Misc 2d 77, 79 [Supr. Ct. NY Cty. 1989].
See Citywide Social Work & Psychological Services b. Allstate Ins. Co., 8 Misc 3d 1025A [1st Dept 2005]; Zharov v. NY State Dept of Health, 4 AD3d 58 [3d Dept 2004]; In the Matter of Entin v. Committee on Professional Standards, 287 AD2d 943 [3d Dept 2001]; In the Matter of Margini v. DeBuono, 255 AD2d 639 [3d Dept 1998]; Carothers v. GEICO Indemnity Co., 18 Misc 3d 1147A [Civil Ct. Kings Cty. 2008]; Carnegie Hill Ortho. Services v. AIU Ins. Co., 15 Misc 3d 1138A [Civil Ct. NY Cty. 2007]; and Estate of Frank Russo, 2005 N.Y.Misc LwEXIS 5641 [Surr. Ct. Westchester Cty. 2005].
Id. at 176.
Wasserman v. Board of Regents, 11 NY2d 173, 176 [1962].
Id.
Id. at 177.
Board of Physician Quality Assurance v, Banks, 354 Md. 59, 74 [1999];and Catena v. Commonwealth, Penn. State Bd.of Med. Ed. and Licensure, 49 Pa. Commenw. 542, 546 [1980].
B. Unjust Enrichment
The Agreement provided for Dr. Finkelstein to be the sole Director of so-called administrative services, which in actuality included many professional services. While alive, Dr. Finkelstein held national acclaim as a physician and provider of specialized care. The Agreement made no contingency for a different Director should Dr. Finkelstein die.
Plaintiff's Memorandum of Law in Opposition to Defendant's Motion to Dismiss the Complaint at 2.
1. Executor's Claim to Post-Mortem Fees for Dr. Finkelstein's Directorship
In this action, the executor of the estate claims that the estate is entitled to continue receiving fees in connection with Dr. Finkelstein's role as director of the Burn Center from SIUH pursuant to the agreement with CBWT. The issue before the court is whether the contractual obligations between these corporate entities died when the sole shareholder of the professional corporation died. This court resolves this question in the affirmative.
The Supreme Court of Nassau County denied summary judgment, distinguishing the provision of medical services from providing non-professional services. The Appellate Division, First Department agreed that "conducting audits of hospital statements and doctors' bills, are severable from the prohibited medical examinations." Rather than standing for plaintiff's argument, Accident Claims Determination Corp. v. Durst emphasizes the need to differentiate non-permissible professional services from those permissible ministerial services that may be performed by non-professionals. Plaintiff may not collect for professional services after the death of Dr. Finkelstein despite calling them "Administrative Services". Billing medical services as per Wasserman v. Board of Regents are distinct from audits of medical billing as per Accident Claims Determination Corp. v. Durst.
Accident Claims Determination Corp.v. Durst, 224 AD2d 343 [1st Dept 1996] cross appealed from Supr. Ct. Nassau Cty.
Id.
Answering Affidavits, 2, Exhibit B, Services Agreement..
A non-professional executor of an estate may not act within the professional capacity of a deceased sole shareholder in a professional corporation. In such situations the executor's role is limited solely to those administrative functions directed at preserving the value of the shares for the estate's heirs. In this case, the executor argues that the estate should be entitled to fees in connection with the Agreement for the exclusive services of Dr. Finkelstein. When Dr. Finkelstein was unable to serve as Director, SIUH suffered a loss of unique and exclusive specialized services for which it had bargained. Upon Dr. Finkelstein's death the Agreement terminated CBWT's interests in the role of Director. The executor Goldstein does not have the right to substitute any physician of his choice. A new specialized services contract would have been required.
2. The Exclusive Services Contract Specifically Engaged Dr. Finkelstein as Director
The Agreement had a provision that contemplated a time when Dr. Finkelstein might be incapable of providing directorial services. Under that circumstance, Dr. Finkelstein was replaceable, but only with the approval of SIUH. Upon termination of the Agreement, all of SIUH's obligations were limited to those accruing prior to the date of termination; none extended beyond the Agreement. Dr. Finkelstein's services as Director were cut short by his death. CBWT could have proposed another physician to serve as Director, but did not. Had CBWT done so, SIUH was under no obligation to accept CBWT's nomination. Dr. Finkelstein was a renowned medical expert hired by SIUH for his name, skills and reputation. When such a key person dies, an exclusive contract terminates if the contract "contemplates no substitution." CBWT was unable to perform exclusive contractual obligations following Dr. Finkelstein's death. Consequently, SIUH owed no duty to pay for that which was no longer being received.
Affirmation of Traycee Ellen Klein in Support of Defendant's motion to Dismiss, attached Exhibit C, Services Agreement, at 2, ¶ 1.-3.1.
Id. at 5, ¶ 2.3.4.
Id. at 12-13, ¶ 7.2.6 and 7.2.7.
Id. at 5, ¶ 2.3.4.
Estate of Borrah Minevitch v. Puleo, 9 AD2d 285, 287 [1st Dept 1959]; Buccini v. Paterno Constr. Co., 253 NY 256, 258 [1930].
No one employed by CBWT could automatically fill Dr. Finkelstein's position as Director. Dr. Finkelstein's personal attributes were unique and highly regarded. "Good will is an asset which passes to the estate, unless it is founded on personal conduct or skill in which case it dies with the testator or intestate and is not deemed an asset of the estate." "Personal skill judgment and reputation of a professional person is not a saleable item." "[T]he name skill, judgment and reputation of a professional person is inseparable from the person [and] skill cannot survive death and hence any value entirely disappears." Therefore, the special attributes and qualities that led to the appointment of Dr. Finkelstein died with him. SIUH did not assume that just any replacement would be acceptable or would have Dr. Finkelstein's worth. SIUH is entitled to this view and did not breach its contract.
Spaulding v. Benenati, 57 NY2d 418, 420 [1982]; Cherno v. Cherno, 118 Misc 2d 950, 951 [Supr. Ct., Nassau Cty. 1983]; Felice Fedder Oriental Art, Inc. V. Scanlon, 708 F.Supp. 551, 561 [S.D.NY 1989]; as well as relied upon in Detter v. Miracle Hills Animal Hosp., P.C., 269 Neb. 164, 175 [2005]; and Craver v. Nakagama, 94 N.C.App. 158, 161 [1989].
Cited in Spaulding v. Benanati at 420 above.
Matter of Martin, 178 Misc 43, 45 [Surr. Ct., NY Cty. 1941]; Dawson v. White & Case, 88 NY2d 666, 671 [1996]; and McQuillian v. Kenyon & Kenyon, 271 AD2d 511, 512 [2d Dept 2000].
3. Directorial Fees Were Properly Withheld
CBWT states payments should not have been withheld because Deforest, the accountant for CBWT, was not authorized to decrease payments. This argument is a red herring. Deforest's authorization was not a necessary predicate for eliminating the specified payments. The action brought by CBWT incorrectly defines payments for Administrative Services as being for non-professional services. Firstly, most of the so-called "Administrative Services" are actually professional services. Secondly, upon the demise of Dr. Finkelstein, no other person could be imposed upon SIUH, and the post of Director was vacant. Thirdly, upon the failing of Dr. Finkelstein as Director, " compensation due from the Hospital shall be prorated, during any period when the Director no longer serves in such capacity pursuant to Section 7-2.7." The effect of death upon a personal contract is to leave a valid claim for work done prior to death but to terminate the contract upon death. It is irrelevant whether Deforest gave valid consent to withhold a portion of payment from SIUH to CBWT. The contract was an exclusive service contract. The contract properly provides for SIUH to withhold partial payment in the event of Dr. Finkelstein's death because it was a contract exclusively to procure Dr. Finkelstein's services.
Affirmation of Traycee Ellen Klein in Support of Defendant's motion to Dismiss, attached Exhibit C, page 12, ¶ 7.2.4.
Buccini v. Paterno Const. Co., 253 NY 256, 258 [1930]; and In the Matter of the Application of Janet Shaffer, 2009 NY Slip Op 50939U [Surr. Ct. Nassau Cty. 2009].
Further, SIUH states it would have been improper to provide fees in recompense for professional services to a professional corporation that is improperly constituted. No qualified professional had authority within CBWT. Finkelstein's so-called Administrative Services were incorrectly termed "administrative" when they were actually professional services. New York Education Law § 6530 states that it is improper to allow "any person to share in the fees for professional services, other than: a partner, employee, associate in a professional firm or corporation, professional subcontractor or consultant authorized to practice medicine " Fees, flowing into a commercial business, originating from professional services must be separated from other sources of income. The Appellate Divisions have held that a medical school was unable to share income derived from physicians' professional services, an anesthesiologist was not obliged to turn over fees to a corporation because the professional fees earned were outside the authority of the corporation to collect, and a corporation was prohibited from splitting fees with physicians hired to perform physical exams. CBWT was attempting to bill for medical professional services without having a medical professional as a director or officer of the professional corporation. Therefore, no one was eligible to authorize those services or to bill for them.
NY Educ § 6530, 19.
Empire Magnetic Imaging, Inc. v. Comprehensive Care of NY, PC, 271 AD2d 472, 481 [2d Dept 2000].
Odrich v Trs of Columbia Univ., 308 AD2d 405 [1st Dept 2003]; see United Calendar Manufacturing Corp. v. Huang, 94 AD2d 176, 178 [2d Dept 1983].
Glassman v. Prohealth Ambulatory Surgery Center, Inc., 23 AD3d 522, 523 [2d Dept 2005].
Accident Claims Determination Corp v. Durst, 224 AD2d 343 [1st Dept 1996].
C. Quantum Meruit and Tortious Interference
CBWT argues that SIUH was unjustly enriched by a sum certain of $780,547.88, and demands $1,000,000 for tortious interference with its employees. CBWT may not seek quantum meruit when requesting a sum certain.
Verde Electric Corp v. Fed. Ins. Co., 50 AD3d 672 [2d Dept 2008]; Station Pump & Tank Maintenance & Construction, Inc. v. Score Oil Corp, 112 AD2d 931,932 [2d Dept 1985]; Maxwell v. Forst Port Jefferson Corp., 31 AD2d 813 [2d Dept 1969]; Geer, Du Bois & Co. v. O.M. Scott & Sons Company, 25 AD2d 423, 423-424 [1st Dept 1966].
Public policy disfavors those circumstances when an employee is "deprived of the power of usefulness, and the public is deprived of the benefit of the exercise by them of their knowledge and skill." Upon Dr. Finkelstein's death, the other physicians and the professional staff were being employed by a defunct medical professional corporation without a physician as a shareholder, as a director or as an officer. Professional corporations are only enabled to practice medicine "through the agency of natural persons who are duly licensed to practice medicine." Of course, it is permitted to channel an individual medical practitioner's medical payments through a properly constituted medical corporate entity. However, the agreement between Dr. Finkelstein and SIUH had failed to provide for competent alternative leadership upon Dr. Finkelstein's death, and CBWT as a medical professional corporation was without officers or directors. The NY BCL requires that "each of the proposed shareholders, directors and officers is authorized by law to practice a profession which the corporation is being organized to practice and, if applicable, that one or more of such individuals is authorized to practice each profession which the corporation will be authorized to practice."
Murray v. Cooper, 268 AD 411, 414 [1st Dept 1944], aff'd by Murray v. Cooper, 294 NY 658 [1945]; and Purchasing Assoc., Inc. v. Weitz, 13 NY2d 267, 272 [1963].
People v. John H. Woodbury Dermatological Institute, 192 NY 454, 457 [1908].
Albany Medical College v. McShane, 66 NY2d 982, 983 [1985].
NY BCL § 1503(b).
Between November 2007 and May 2008, CBWT was not a medical professional corporation in compliance with NY BCL § 1503 (b). Therefore, SIUH could not have tortiously interfered with those employment contracts that Dr. Finkelstein had entered into with other physicians. Having been orphaned from a properly constituted medical professional corporation, the staff was entitled to seek alternative employment. SIUH attempted to provide continuous patient care by salvaging medical personnel from CBWT. Tortious interference, requires a showing of malice or dishonesty. CBWT failed to show malice or dishonesty, and therefore failed to present a prima facie case for tortious interference.
Anchor Alloys, Inc. v. Non-Ferrous Processing Corp., 39 A.D. 504, 508 [2d Dept 1972]; appeal denied 32 NY2d 612 [1973].
Conclusion
This court considered the role of the executor of an estate containing a medical professional corporation, where that executor was not a licensed professional in the same profession as the professional corporation. An executor can not acquire the attributes of a shareholder, officer or director of the professional corporation. The executor has only limited authority to act on behalf of the professional corporation. That authority extends only so far as to enable the executor to take those ministerial actions necessary to maintain the value of the shares of the professional corporation for distribution to the heirs of the state. An executor is not qualified to continue the professional services of a professional corporation subsequent to the death of its sole shareholder. Therefore, the executor lacks standing to assert any claims for fees purportedly earned subsequent to Dr. Finkelstein's death. Furthermore, CBWT failed to assert a valid cause of action.
In the absence of authority and standing by Goldstein to take action on behalf of Community Burn and Wound Treatment Center, P.C. in this matter; and in the absence of valid causes of action, the defendant's motion to dismiss is granted to the Staten Island University Hospital.
Accordingly, it is hereby,
ORDERED, that the Defendant, Staten Island University Hospital's motion to dismiss the complaint of the Plaintiff, Community Burn and Wound Treatment Center, P.C. along with all its causes of action is granted in its entirety with prejudice and with costs against the plaintiff.