Hospital not exempt from doctor’s UDTP claim

A physician should be allowed to bring an unfair and deceptive trade practices claim against the hospital that employed him, despite an exception to the statute that generally exempts the learned professions, a divided North Carolina Court of Appeals has ruled in a case of first impression.

Pedro Hernandez moved to North Carolina in 2011 and signed an employment contract with Sandhills Regional Medical Center that required him to set up his own practice and operate as an independent contractor for the hospital. The contract lasted for 36 months but provided that for the first 18 months, Hernandez would receive a guaranteed minimum collection amount of $49,500 per month, plus a $30,000 signing bonus.

The practice was not successful. Hernandez shuttered it in April 2013, and the hospital made several demands for reimbursement of the payments made during the first 18 months. When Hernandez didn’t pay, the hospital sued him, alleging breach of contract and demanding full repayment of the more than $900,000 it had paid him.

Hernandez counterclaimed for breach of contract, fraud, unfair or deceptive trade practices (UDTP), and unjust enrichment. A jury returned a $334,341 verdict for the hospital, and Richmond County Superior Court Judge Richard Brown denied Hernandez’s motions for judgment notwithstanding the verdict and a new trial.

On appeal, Hernandez argued that the jury’s verdict constituted a compromise verdict, that the trial court improperly dismissed his UDTP claim, and that parol evidence was erroneously admitted at trial.

Judge Donna Stroud, writing for the majority, affirmed the verdict and found the evidence to have been properly admitted, but reversed on the UDTP claim, finding that the learned profession exception that Brown had cited in denying the motion did not apply to Hernandez’s claim.

Stroud explained that the statute contains an exception for causes of action for “professional services rendered by a member of a learned profession.” To satisfy the exception, the person or entity in question must be a member of the learned profession, and the relevant conduct must be a rendering of professional services.

The doctor will sue you now

Both sides agreed that doctors and hospitals are members of a learned profession, but the second prong presented an issue of first impression, Stroud said, as to whether the exception “applies to a dispute between a physician and a hospital relating to alleged false claims made by the hospital to induce the physician to enter into an employment contract such as the one at issue in this litigation.”

While other cases have interpreted the exception in some medical contexts, the court distinguished the factual scenarios in those cases—a hospital making a complaint to the Medical Board about a physician’s care, and podiatrists challenging the denial of hospital staff privileges—as they did not suggest that negotiations regarding a business arrangement, even between a physician and a hospital, constitute professional services rendered by a member of a learned profession.

“This case involves a business deal, not rendition of professional medical legal services,” Stroud wrote. “Defendant alleged that the hospital made false representations to induce him to enter into a contract; the fact that he is a physician does not change the nature of the negotiation of a business contract.”

The learned profession exception does not cover claims simply because the participants in the contract are medical professionals, Stroud wrote, and if the court interpreted the exception as broadly as the hospital argued that it should, any business arrangement between medical professionals would be exempted from UDTP claims.

“If a physician entered into a lease agreement for space in a medical office building owned by a group of physicians or hospital and then seeks to bring a UDTP claim based upon a dispute over the lease, it should be treated no differently than a similar lease arrangement for parties in any other business,” Stroud wrote. “The fact that medical services will be provided in the building does not mean that the lease arrangement arises from rendition of professional services and has no effect on the quality of the medical care provided.”

Judge Mark Davis dissented from that part of the court’s decision. Prior case law makes clear that the learned profession is to be construed “broadly,” he wrote, and the contract at issue involved arrangements to provide medical care.

“The agreement even included specific requirements for Defendant to be on emergency call at the Hospital and to accept unassigned patients,” Davis wrote. “Thus, these provisions of the agreement address the rendition of professional services by both the Plaintiff and Defendant and fall within the learned profession exception.”

Just meet me in the middle

At trial, the parties stipulated that the hospital lent Hernandez $902,259, with the dispute focused on whether he had a legal obligation to repay the money. Therefore, the jury should have returned a verdict for the entire amount or for nothing at all, Hernandez argued. The smaller verdict was apparently a compromise reached by the jurors by including some of the payments, but not others, he contended.

The court disagreed, noting that the dollar amount of the verdict alone is insufficient to set aside a verdict as being an unlawful compromise. “Here, the only evidence defendant can offer of a compromise is the amount of the damages, and given the complex evidence and issues presented, the amount alone does not convince us that the jury reached a compromise verdict,” Stroud wrote.

Mark L. Hayes of Durham represented Hernandez. He said that while he was disappointed his client didn’t prevail on the compromise verdict issue, the court stayed true to the purpose of the learned profession exception by narrowing its application.

“The heart of this exception is meant to protect medical providers in the exercise of medical advice and service,” Hayes said. “The Court of Appeals recognized that it was time to pull back on a broad reading of the exception. Just because a hospital is involved, it doesn’t mean the hospital can defraud people.”

Will Freeman of Thomerson Freeman & Rogers in Greenville, South Carolina represented the hospital. He declined to comment on the case.

The 30-page decision is Hamlet H.M.A., LLC v. Hernandez (Lawyers Weekly No. 011-317-18). The full text of the opinion is available online at nclawyersweekly.com.