Zayed v. Dibbs et al

Filing 52

RULING denying 46 MOTION for Summary Judgment filed by Cardiology Center of Acadiana Inc A P M C, 47 Cross MOTION for Summary Judgment filed by Farid Zayed. Signed by Magistrate Judge Patrick J Hanna on 12/20/2010. (crt,Reasor, M)

Z a y e d v. Dibbs et al

D o c . 52

U N IT E D STATES DISTRICT COURT W E S T E R N DISTRICT OF LOUISIANA L A F A Y E T T E -O P E L O U S A S DIVISION F A R I D ZAYED, M.D. V ER SU S C A R D I O L O G Y CENTER OF A C A D IA N A , ET AL C I V I L ACTION NO. 08-692 M A G I S T R A T E JUDGE HANNA BY CONSENT OF THE PARTIES

R U L IN G T h is is a breach of contract claim arising out of an Employment Agreement, s tip u la te d to be the contract between the parties. In an effort to simplify the matter for tria l, the court ordered the parties to file cross motions for summary judgment on the issue o f the interpretation of Schedule A, which governed payment of certain bonuses to p la in tif f by defendant. Plaintiff filed a Motion for Summary Judgment Pursuant to Fed. R . Civ. Proc. 56 (Rec. Doc. 47) and defendants filed a Memorandum of Law Regarding P rof essio n al Contract (Rec. Doc. 46) which the Court construes as a motion for summary ju d g m e n t. After review of the motions and the Employment Agreement, it became a p p a re n t that the contested provisions of the Employment Agreement , particularly the term s "professional fees" and "professional fees included under ancillary services" were a m b ig u o u s and parol evidence regarding the parties' intent would be necessary. A evidentiary hearing was held on December 17, 2010. At the hearing, plaintiff Dr. Farid Zayed, a cardiologist and defendant Dr. Michael Ziad Dibbs, also a cardiologist, te stif ie d and the Employment Agreement was entered into evidence. The parties agreed 1

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th a t Dr. Zayed's Statement of Uncontested Material Facts, which basically recited the p ro v is io n s of the Employment Agreement, were accurate and they were read into the re c o rd at the hearing. The relevant provisions of the Employment Agreement read as f o l lo w s : S c h e d u le A 1 .1 B a se Salary. During the term of the Agreement, Employer agrees to p ay Employee as compensation for Employee services here under a b a se salary of $330,000 dollars per year for a working period of 235 d a ys per year equally spread as much as possible through all 12 m o n th s of the year of employment. Those 235 days will be set form th e start of employment and will be only changed on consensual a g re e m e n t of Employer and Employee. A d d itio n a l Compensation. Following Employee's completion of 3 m o n th s of satisfactory employment, Employer shall pay to Employee a bonus, in addition to base salary as follows: 1. D u rin g the duration of this Agreement and any renewals or e x te n sio n s thereof, Employer shall pay to Employee a bonus e q u a l to 36% of the "Net Collections" in excess of $520,000 p e r year dollars. Net Collections shall mean professional fees g e n e ra te d from all sources rendered by Employee (except for p r o f e s s io n a l fees included under ancillary services), less d is c o u n ts or any sums uncollected, and does not include m o n ie s from Ancillary Services as defined in section 1.3 of th is Schedule. *** F o llo w in g the 3 months of satisfactory employment, E m p l o ye e shall be eligible to receive, in addition to base salary, a sum equal of 33% of ("Net Profit") for Ancillary S e rv ic e s to paid in quarterly payments. If during the duration o f this contract, other cardiologist get employed by/associated w ith cardiology center of acadiana [sic] and get entitled to net p ro f it for ancillary services, the ratio of net profit for Dr. 2

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D ib b s to Dr. zayed [sic] will stay at 2:1. 4. If Employee's "net collection" of professional fees as defined in section 1.2-1 above was $50,000 to $75,000 per 90 day p e rio d , then employee will be entitled to 75% of allowable b o n u s for ancillary service as defined in item 1.2-3 above. If E m p lo ye e 's "net collection" of professional fees as defined a b o v e section 1.2-1 above was $35,000 to $49,999 per 90 day p e rio d , then employee will be entitled to 50% of allowable b o n u s for ancillary service as defined in item 1.2-3. If E m p lo ye e 's "net collection" of professional fees as defined in s e c tio n 1.2-1 above was less than $35,000 per 90 day period, th en employee will not be entitled to bonus for ancillary s e rv ic e as defined in item 1.2-3 above.

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" A n c illa ry Services" shall mean services provided to patients in E m p lo ye r's office. "Net Profit" shall mean all monies generated f ro m professional and technical fees less cost of goods and operating e x p e n se s to include, but not limited to fees paid to other parties for th e management of such Ancillary Services.1 (Emphasis added).

A s discussed at the hearing, there are two possible bonuses in the contract: a bonus b a se d on "Net Collections" (1.2-1) in excess of $520,000 per year, and a bonus based on " N e t Profit" from "Ancillary Services" (1.2-3 and 1.3). The "Net Collections" bonus in c lu d e s "professional fees generated from all sources rendered by Employee," but e x c lu d e s "professional fees included under ancillary services" and "monies from A n c illa ry Services." (1.2-1). The "Net Profit" bonus is based on 33% of "Net Profit" f ro m "Ancillary Services." (1.2-3). While "Ancillary Services" is generally defined as " se rv ice s provided to patients in Employer's office," (1.3), "Net Profit" from same is

"Employment Agreement," Exhibit 2 to Plaintiff's Memorandum in Support of Motion for Summary Judgment Pursuant to Fed.R.Civ.Proc. 56 (Rec. Doc. 47). 3

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s p e c if ic a lly defined to include "all monies generated from professional and technical f e e s ." As a source of revenue to be included in the bonus calculations, "professional fees in c lu d e d under ancillary services" are specifically excluded from "Net Collections" re v e n u e and "professional [and technical] fees" are specifically included in "Net Profit" re v e n u e. A f te r hearing the testimony of Dr. Dibbs and Dr. Zayed, it became clear the d is a g re e m e n t centered around the definition of "professional fees" and which " p ro f e ss io n a l fees" were "included under ancillary services" so that they were excluded f ro m the "Net Collections" bonus calculation. Thus, the pivotal issue is the meaning of th e terms "professional fees" and "professional fees included under ancillary services." An additional issue raised at the hearing was whether various expenses could be included as "cost of goods and operating expenses" in the "Net Profit" calculation for "Ancillary S e rv ic e s" in 1.3. T h e parties agreed that "professional fees" included in the "Net Collections" bonus u n d e r 1.2.1 included revenues from fees for all services performed in any hospital, w h e th e r those services were face-to-face patient evaluations, performing surgical p ro c e d u re s, or reading and interpreting tests such as echocardiograms performed by the h o s p ita l. The parties also agreed that revenues from fees for face-to-face patient e v a l u a tio n s and EKG's performed as part of a patient consultation in the defendants'

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o f f ic e s were included as "professional fees" in the "Net Collections" calculation under 1 .2 .1 . However, the parties disagreed on the definition of "professional fees included u n d e r ancillary services," which are explicitly excluded from the "Net Collections" c a lc u la tio n . Dr. Dibbs favored a broader interpretation of "professional fees included u n d e r ancillary services" to include Dr. Zayed's revenues earned by reading and in ter p re tin g tests administered both in the office and out of the office, except for tests a d m in is te re d in a hospital. This definition would include professional fees generated f ro m reading the results of tests administered by another physician, such as an internist, at e ith e r the internist's office or another facility. According to Dr. Dibbs' interpretation, o n ly when Dr. Zayed read tests administered at a hospital were such professional fees e x c lu d e d as "professional fees included under ancillary services" and thus included in " p ro f e s s io n a l fees" under the "Net Collections" calculation of 1.2.1. Dr. Zayed interpreted "professional fees included under ancillary services" more re stric tiv e ly. Dr. Zayed agreed that revenues generated by him as a result of his in ter p re tatio n of in-office medical testing, at least when he read and interpreted those tests a t the office, were "professional fees included under ancillary services" and thus were not in c lu d e d in the "Net Collections" calculation of 1.2.1. However, Dr. Zayed contended th a t revenues generated by him as a result of his interpretation of in-office testing, when h e read and interpreted those tests at a location other than the office, such as his home or

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a coffee shop, should not be categorized as "professional fees included under ancillary serv ices" but as "professional fees" in the "Net Collections" calculation. In addition, Dr. Z a ye d contended professional fees generated by him as a result of his interpretation of o u t-o f -o f f ic e medical testing, whether administered by a hospital or by an out-of-office p h ys ic ia n , such as an internist, should not be categorized as "professional fees included u n d e r ancillary services" but as "professional fees" in the "Net Collections" calculation. Applicable Law T h e Fifth Circuit summarized Louisiana law, applicable in this diversity case, re g a rd in g interpretation of contracts and parol evidence in Condrey v. SunTrust Bank of G e o r g ia , 429 F.3d 556, 563 (5 th Cir. 2005) as follows: L o u is ia n a law bars parol evidence to evaluate contractual intent "[w]hen the w o rd s of a contract are clear and explicit and lead to no absurd c o n se q u e n ce s." La. Civ.Code Ann. art. 2046 (1987). Louisiana law does a llo w , however, for the admissibility of parol evidence when the written a g re e m e n t is manifestly incomplete and is not intended to constitute the e n tire agreement between the parties. United Investors Life Ins. Co. v. A le x a n d er, 662 So.2d 831, 833 (La.App. 2 Cir.1995); Edwards v. State of L o u is ia n a Through the Dep't of Corrections, 244 So.2d 69, 72 (La.App.1 C i r.1 9 7 1 ) . . . . . T h u s , when the terms of a written agreement are susceptible to more than o n e interpretation, or there is uncertainty or ambiguity as to its provisions, o r the intent of the parties cannot be ascertained from the language e m p l o ye d , parol evidence is admissible to clarify the ambiguity or to show th e intention of the parties. Martin Exploration Co. v. Amoco Prod. Co., 6 3 7 So.2d 1202, 1205 (La.App. 1st Cir.1994); writ denied, 644 So.2d 1048 (L a .1 9 9 4 ). Parol evidence may not be used, however, to vary, alter or add to th e terms of a written contract. Edwards, 244 So.2d at 72.

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F in d in g s of Fact and Conclusions of Law T h e undersigned finds the Employment Agreement susceptible to more than one in te rp re ta tio n and the terms "professional fees" and "professional fees included under an cillary services" ambiguous. Therefore, the court accepted parol evidence in the form o f testimony from Dr. Dibbs and Dr. Zayed to clarify their intentions regarding the in te rp re ta tio n of these terms. After review of the Employment Agreement and c o n s id e r a tio n of their testimony, the undersigned makes the following findings: 1 . The term "professional fees" in "Net Collections" means all professional fees g e n e ra te d from all sources rendered by Dr. Zayed, except for "professional fees included u n d e r ancillary services." The term "professional fees" in "Net Collections" includes, in ad d ition to fees for face-to face consultations and surgical procedures regardless of where th e y are administered, professional fees generated by Dr. Zayed for reading and in te rp re tin g all tests administered outside of the offices of the Cardiology Center of A c a d ia n a , such as in hospitals or by other physicians in that physician's offices or at other f a cilitie s, no matter where the reading and interpretation of those tests by Dr. Zayed took p la c e. 2 . The term "professional fees included under ancillary services" includes all p ro f e ss io n a l fees generated by Dr. Zayed for reading and interpreting all tests (except E K G 's which remain as "professional fees" included in "Net Collections") administered in the offices of the Cardiology Center of Acadiana, no matter where the reading and 7

in te rp re ta tio n by Dr. Zayed took place. This undersigned finds this interpretation of the terms "professional fees" and "p rof essio n al fees included under ancillary services" is consistent with Dr. Dibb's e x p lan a tio n , at oral argument and in brief, of the profit sharing nature of the "Net Profit" f ro m "Ancillary Services" bonus and the goal of the "Net Collections" bonus to e n c o u ra g e new physicians to build their own practice. T h e medical testing provided by the Cardiology Center requires an investment in e q u ip m e n t and technical personnel, and the professional fees generated from the use of th a t equipment are used to offset the expenses of that investment. The expenses of the eq u ipm en t and technical personnel are not imposed on any particular physician. It th e re f o re follows that the revenues derived from use of that equipment, including p ro f e ss io n a l fees, are not credited to any particular physician but pooled into the "Net P ro f it" from "Ancillary Services" calculation to offset the equipment expenses. Therefore, revenues derived from reading the results of in-office testing using in-office eq u ipm en t is properly categorized as "professional fees included under ancillary s e rv ic e s ." H o w e v e r, the defendants have made no investment nor incurred any expenses for e q u ip m e n t or technical personnel when a test is administered outside of their offices using a n o th e r person's equipment. There are no office equipment expenses to offset, and no re a so n to pool the professional fees generated from interpretation of out-of-office tests by

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a particular physician into the "Net Profit" from "Ancillary Services" calculation. In fact, in c lu d in g professional fees for interpretation of "out-of-office testing" into the "Net P ro f it" for "Ancillary Services" calculation would not result in an accurate net profit c a lc u la tio n for "Ancillary Services," as the profit margin would be artificially inflated by re v e n u e s for professional fees that did not derive from "services provided to patients in E m p lo ye r's office," as "Ancillary Services" is defined. Therefore, the undersigned finds th e interpretation advanced by Dr. Zayed that professional fees generated by him for r e a d in g and interpreting all tests administered outside of the offices of defendants, w h ethe r the test is administered in a hospital or other facility or another physician's o f f ic e , are not "professional fees included under ancillary services" is reflective of the tru e intent of the parties. Such professional fees are properly included as "professional f e es " in the "Net Collections" calculation. H o w e v e r, it makes no economic sense to categorize a professional fee as included o r excluded under ancillary services based on the location of the reading and in te rp re ta tio n of the test rather than the location of administering the test. The critical f a cto r in determining the characterization of a professional fee as included or excluded u n d e r ancillary services is who assumed the costs and risks of administering the test - not w h e re the test was read. If the expenses of the test were incurred by defendants at their o f f ic e , it does not matter where the test results were interpreted ­ all are pooled into the " N e t Profit" for "Ancillary Services" calculation. If Dr. Zayed's professional fees from

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re a d in g in-office test results were personally credited to him as "professional fees" in the " N e t Collections" calculation if he read them in a coffee shop, but included in the a n c illa ry services pool if he read them in the office, he would have no incentive to spend m u c h , if any, time in the office which would be an absurd result in conflict with the aims o f developing a practice as reflected in the "Net Collections" bonus structure. Therefore, th e undersigned finds the interpretation by Dr. Dibbs that "professional fees included u n d e r ancillary services" includes all professional fees generated by Dr. Zayed for reading a n d interpreting the results of tests (except EKG's) administered in the offices of d e f en d a n ts , no matter where the reading and interpretation took place, reflects the true in te n t of the parties. Conclusion F o r the reasons given above, plaintiff's Motion for Summary Judgment Pursuant to F e d . R. Civ. Proc. 56 (Rec. Doc. 47) and defendants' Memorandum of Law Regarding P r o f e ss io n a l Contract (Rec. Doc. 46) are DENIED. I T IS THE FINDING OF THE COURT that the following contract terms were in ten d e d by the parties to mean the following: 1. The term "professional fees" in "Net Collections" means all professional fees g e n e ra te d from all sources rendered by Dr. Zayed, except for "professional fees included u n d e r ancillary services." The term "professional fees" in "Net Collections" includes, in ad d ition to fees for face-to face consultations and surgical procedures regardless of where

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th e y are performed, professional fees generated by Dr. Zayed for reading and interpreting a ll tests administered outside of the offices of the Cardiology Center of Acadiana, such as in hospitals or by other physicians in that physician's offices or at other facilities, no m a tte r where the reading and interpretation of those tests by Dr. Zayed took place. 2 . The term "professional fees included under ancillary services" includes all p ro f e ss io n a l fees generated by Dr. Zayed for reading and interpreting all tests (except E K G 's which remain as "professional fees" included in "Net Collections") administered in the offices of the Cardiology Center of Acadiana, no matter where the reading and in te rp re ta tio n by Dr. Zayed took place. IT IS FURTHER ORDERED that whether a particular cost or expense is in c lu d e d in the definition of "cost of goods and operating expenses" shall be determined b y the application of Generally Accepted Accounting Principles (GAAP). L a f aye tte , Louisiana, this 20 th day of December, 2010.

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