MEMORANDUM DECISION Pursuant to Ind. Appellate Rule 65(D), FILED this Memorandum Decision shall not be Feb 26 2019, 7:54 am regarded as precedent or cited before any CLERK court except for the purpose of establishing Indiana Supreme Court Court of Appeals the defense of res judicata, collateral and Tax Court
estoppel, or the law of the case.
ATTORNEY FOR APPELLANT ATTORNEYS FOR APPELLEES Robert E. Saint CARMEL PHYSICIAN SURGERY Emswiller, Williams, Noland & Clarke, CENTER, LLC, CARMEL LLC AMBULATORY SURGERY Indianapolis, Indiana CENTER, LLC, AND WELDON T. EGAN, M.D. John D. Papageorge Jeffrey D. Stemerick Taft Stettinius & Hollister, LLP Indianapolis, Indiana
ATTORNEY FOR APPELLEES CARMEL AMBULATORY SURGERY CENTER, LLC, AND WELDON T. EGAN, M.D. Craig W. Wiley Jackson Lewis, P.C. Indianapolis, Indiana
IN THE COURT OF APPEALS OF INDIANA
Court of Appeals of Indiana | Memorandum Decision 18A-CT-1391 | February 26, 2019 Page 1 of 34 Michael N. Payne, M.D., February 26, 2019 Appellant-Plaintiff, Court of Appeals Case No. 18A-CT-1391 v. Appeal from the Hamilton Superior Court Carmel Physician Surgery The Honorable Steven R. Nation, Center, LLC, Carmel Judge Ambulatory Surgery Center, Trial Court Cause No. LLC, and Weldon T. Egan, 29D01-1602-CT-1582 M.D., Appellees-Defendants.
Barteau, Senior Judge.
Statement of the Case [1] Michael N. Payne, M.D., appeals the trial court’s grant of summary judgment
to Carmel Physician Surgery Center, LLC, Carmel Ambulatory Surgery Center,
LLC, and Weldon T. Egan, M.D. Payne also appeals the trial court’s denial of
his motion for summary judgment as to a counterclaim. We affirm in part,
reverse in part, and remand.
Issues [2] Payne raises eight issues, which we consolidate and restate as:
I. Whether the trial court erred in granting summary judgment to Carmel Physician Surgery Center, LLC, Carmel Ambulatory Surgery Center, LLC, and Weldon T. Egan, M.D. on Payne’s claims of breach of contract.
Court of Appeals of Indiana | Memorandum Decision 18A-CT-1391 | February 26, 2019 Page 2 of 34 II. Whether the trial court erred in granting summary judgment to Carmel Ambulatory Surgery Center, LLC, and Weldon T. Egan, M.D. on Payne’s claims of tortious interference with a contractual relationship.
III. Whether the trial court erred in denying Payne’s motion for summary judgment on Carmel Physician Surgery Center, LLC’s counterclaim of constructive fraud.
Facts and Procedural History I. The Parties [3] Michael N. Payne, M.D., and Weldon T. Egan, M.D., are board-certified
anesthesiologists. Carmel Ambulatory Surgery Center, LLC (the Surgery
Center), is an outpatient surgery center. The Surgery Center hosts a wide
variety of procedures, from dental work to spinal surgery. Payne was a member
of the Surgery Center’s medical staff, and Egan is the Surgery Center’s medical
director. The Surgery Center is governed by bylaws, to which Payne and Egan
were subject. We discuss the bylaws in more detail below, but for now we note
the Surgery Center appoints doctors to the medical staff for two-year terms,
subject to renewal upon reapplication.
[4] The Surgery Center is owned in part by Carmel Physician Surgery Center, LLC
(the Holding Company). The Holding Company is in turn owned by members,
including Egan and (formerly) Payne. The Holding Company provides no
services and derives its income from its ownership stake in the Surgery Center.
The Holding Company pays profits to its members on a quarterly basis.
Court of Appeals of Indiana | Memorandum Decision 18A-CT-1391 | February 26, 2019 Page 3 of 34 [5] The Holding Company is governed by an operating agreement, to which Payne
and Egan were parties. Among other provisions, the agreement establishes
qualifications for membership in the Holding Company. The qualifications
include not being retired, maintaining privileges at St. Vincent Hospital and
Health Care Center, and working on a set number of cases at the Surgery
Center in a twelve-month period. Appellant’s App. Vol. 2, p. 161. Members
are obligated to notify the Holding Company if they fail to meet any of the
qualifications, and failure to meet any of the qualifications results in immediate
termination of membership. Id. at 143, 161. If the Holding Company’s board
of managers questions a member’s qualifications, “the Member shall bear the
burden of producing information and proof of the Member’s continuing
qualification for membership in the [Holding Company.]” Id. at 161.
[6] In addition, the operating agreement provides that a member “shall be deemed
Permanently Disabled” when he or she has suffered a “medically determinable”
condition that prevents the member from meeting the qualifications for
membership, or if the board of managers “determines in good faith that the
Member is or will be unable to safely utilize [the Surgery Center] for the
performance of surgeries or procedures, with or without a reasonable
accommodation, for a continuous period of not less than [120] calendar days,
or a for a period of [180] days during a [12] month period.” Id. at 164. “[A]
Member that takes a lengthy leave of absence can be declared Permanently
Disabled under this Policy.” Id. A member who is deemed “Permanently
Court of Appeals of Indiana | Memorandum Decision 18A-CT-1391 | February 26, 2019 Page 4 of 34 Disabled” may be required to sell his or her membership interest back to the
Holding Company. Id. at 165.
[7] Payne and Egan were also members of Northside Anesthesia Services, LLC
(NAS), a group of doctors that provides anesthesia services to hospitals and
surgery centers. NAS does not have any patient facilities of its own. Instead,
when Payne and Egan provided healthcare services at the Surgery Center, they
acted as members of NAS and billed for their services through NAS.
[8] NAS is not a party to this case, but it plays a central role in the parties’ dispute.
Payne was subject to NAS’s code of conduct, which obligates NAS’s members
to maintain a good state of health so that they can competently practice
medicine. NAS’s code of conduct requires members to self-report health
conditions to NAS’s Committee on Member Health (the Committee) if those
conditions impact their ability to provide competent medical care. NAS’s
members are further required to report to the Committee concerns about any
other member’s competency. The Committee investigates reports that a
member’s competency to practice medicine is hindered by ill health.
[9] Finally, Payne had privileges to practice medicine at St. Vincent Carmel
Hospital, which is near the Surgery Center. The Hospital grants privileges to
physicians for fixed terms, subject to renewal. The Hospital is not a party to
this case, but Payne’s privileges at the hospital are relevant to the dispute.
Court of Appeals of Indiana | Memorandum Decision 18A-CT-1391 | February 26, 2019 Page 5 of 34 II. Events [10] In 2009, Payne was diagnosed with Parkinson’s Disease and multiple myeloma,
a blood cancer. He reported his conditions to NAS’s Committee and took a
leave of absence while he sought treatment. Neither the Surgery Center nor the
Holding Company objected to Payne’s leave of absence or terminated their
contractual relationships with Payne while he was off work for approximately
ten months.
[11] In mid-2010, Payne informed the Committee that he was ready to return to
work. After consulting with Payne and reviewing a letter from his neurologist,
the Committee authorized Payne to return to practice on a part-time basis on
July 31, 2010. The Committee instructed Payne to report if his medical
conditions deteriorated or if he “is incapable of performing the duties of an
anesthesiologist.” Appellant’s App. Vol. XII, p. 45.
[12] Payne returned to practice part-time at the Surgery Center while continuing to
undergo treatment. Beginning in January 2010, Payne received disability
benefits payments from one of his insurers because he was deemed to be
partially disabled. He continued to receive partial disability payments through
August 2013.
[13] Subsequently, several physicians and nurses at the Surgery Center told Egan
they were concerned that Payne’s medical conditions had rendered him
incompetent to practice medicine. Among other concerns, they explained
Payne had poor manual dexterity and had difficulty communicating. Egan
Court of Appeals of Indiana | Memorandum Decision 18A-CT-1391 | February 26, 2019 Page 6 of 34 personally observed Payne at work and determined Payne had limited manual
dexterity and had trouble speaking clearly, which hindered patient care. Payne
later admitted that he was unable to effectively communicate during one urgent
situation where a patient had trouble breathing, and a nurse summoned Egan to
assist Payne in stabilizing the patient.
[14] On July 22 or 23, 2013, Egan orally reported his concerns about Payne’s
competence to the chairperson of NAS’s Committee, Richard Steele, M.D.
The Surgery Center had its own committee, the Quality Assurance Committee,
which was charged with ensuring that the Center was providing competent
care, but Egan preferred to approach NAS’s Committee instead.
[15] On July 23, 2013, Egan and several other doctors talked with Payne about his
medical conditions, and he agreed to take a medical leave of absence. Next, the
Committee sent Payne a letter, dated July 24, 2013. The letter briefly described
the allegations related to Payne’s competency. The Committee further stated
that Payne would not be allowed to return to work until he provided
“documentation from [his] physician(s) addressing [his] overall health including
[his] capability of delivering safe anesthetic care for patients. Appellant’s App.
Vol. XII, p. 47. Therefore, the Committee asked Payne to contact his doctors
and “forward a letter to our committee stating their opinion that you are
capable of returning to work including any restrictions they may feel are
necessary.” Id. at 48. Finally, the Committee instructed Payne to sign a
contract titled, “Agreement for Physician Reentry,” that set forth further
Court of Appeals of Indiana | Memorandum Decision 18A-CT-1391 | February 26, 2019 Page 7 of 34 conditions for Payne to return to medical practice. Id.; Appellant’s App. Vol. 7,
p. 94. Payne signed the agreement on September 11, 2013.
[16] Payne continued to seek medical care while on leave. Neither the Surgery
Center nor the Holding Company objected to the leave of absence or indicated
his employment or membership was at risk. To the contrary, Payne continued
to receive quarterly profit payments from the Holding Company during this
period.
[17] After Payne began his leave of absence, he asked his disability insurers to
provide additional coverage. He claimed in a January 19, 2014 email to an
insurance company representative that he “has been disabled due to my illness”
and had been unable to work since July 24, 2013. Appellant’s App. Vol. XII, p.
165. On April 23, 2014, one of Payne’s disability insurers notified him that his
status was changed to “total disability,” effective retroactively to July 25, 2013.
Id. at 192. His subsequent payment statements from the insurer listed his
disability status as “total.” See, e.g., Appellees’ App. Vol. III, p. 55. Payne did
not tell the Holding Company, the Surgery Center, or NAS that he was seeking
additional payments for disability, or that an insurance company had deemed
him to be totally disabled.
[18] Meanwhile, in 2013 Payne had applied to the Hospital to renew his hospital
privileges, but the hospital decided to table Payne’s application until the
Committee determined he could return to practice. Payne’s hospital privileges
lapsed in January 2014, when his fixed term ended. In addition, Payne’s two-
Court of Appeals of Indiana | Memorandum Decision 18A-CT-1391 | February 26, 2019 Page 8 of 34 year appointment to the medical staff of the Surgery Center expired on January
26, 2014, at the end of the fixed term. Payne had provided information to the
Surgery Center as part of reapplying for appointment to the medical staff. The
Surgery Center decided to delay a decision on Payne’s reappointment pending
his return to work.
[19] During Payne’s leave of absence, he told Egan and other members of the
Holding Company that he was healthy and planned to return to work.
However, during a September 2013 meeting between Payne and Egan, Egan
left Payne with a clear impression that Egan did not want Payne to return to
work due to Egan’s perceptions of Payne’s limitations. Appellant’s App. Vol.
VI, p. 81.
[20] The Committee had instructed Egan to provide a written document explaining
his original concerns about Payne’s competence. Egan provided a letter to the
Committee on February 25, 2014. In the letter, Egan described reports from
doctors and nurses at the Surgery Center about Payne’s inability to competently
manage patients, as well as his own observations of Payne’s poor manual
dexterity and inability to communicate clearly, to the detriment of patients
under Payne’s care.
[21] On March 7, 2014, Payne applied for reappointment to the Surgery Center’s
medical staff. In addition, on March 12, 2014, Payne petitioned the Committee
to allow him to return to practice, providing statements from his physicians.
The Committee met with Payne on March 19, 2014 and determined more
Court of Appeals of Indiana | Memorandum Decision 18A-CT-1391 | February 26, 2019 Page 9 of 34 information was required. The Committee continued to investigate Payne’s
competence, asking doctors and nurses at the Surgery Center to provide
additional information. The Holding Company did not provide any
information to the Committee. Meanwhile, the Committee and Payne agreed
that he would submit to an independent medical examination.
[22] Payne submitted to an independent medical examination in May 2014. The
evaluation team cited Payne’s continuing challenges in motor functions and
speech, and concluded that it could not “endorse [his] return to the clinical
practice of anesthesiology at this time.” Appellant’s App. Vol. XII, p. 100. As
a result, on July 21, 2014, the Committee informed Payne it would not allow
him to resume practicing medicine through NAS. In a July 22, 2014 memo to
Payne, the Committee stated Payne could reapply to return to work, but he
would have to provide “assurances from a competency assessment organization
as well as a recommendation from a nationally accredited residency program
suggesting that you may safely provide anesthesia care for patients.” Id. at 105.
[23] On July 29, 2014, the Holding Company’s board of managers met. The
meeting minutes show the board “ratified the purchase of Dr. Payne’s units in
the month of June.” Appellant’s App. Vol. VII, p. 170. The purchase
effectively terminated Payne’s membership in the Holding Company. The
president of the board, J. Scott Pittman, M.D., explained that the board
terminated Payne’s membership because Payne had failed to work on the
required amount of cases in a twelve-month period. The Holding Company
stopped paying quarterly profit distributions to him as of July 29, 2014.
Court of Appeals of Indiana | Memorandum Decision 18A-CT-1391 | February 26, 2019 Page 10 of 34 III. Trial Court Proceedings [24] On February 23, 2016, Payne filed a civil complaint against Egan, the Surgery
Center, and the Holding Company. He later amended his complaint. In
summary, Payne claimed Egan and the Surgery Center tortiously interfered in
his contractual relationship with the Holding Company. He requested that
Egan and the Surgery Center be ordered to pay punitive damages. Payne
further claimed Egan, the Surgery Center, and the Holding Company breached
the terms of their contracts with him. In addition, he claimed the Holding
Company breached a fiduciary duty to him.
[25] The defendants filed answers, in which they raised various affirmative defenses.
In addition, the Holding Company filed counterclaims. Specifically, the
Holding Company alleged Payne (1) breached his contract with the Holding
Company, and (2) committed constructive fraud against the Holding Company.
[26] The Surgery Center and Egan filed a motion for summary judgment, followed
by the Holding Company’s separate motion for summary judgment. Next,
Payne filed a motion for partial summary judgment against the Surgery Center
and Egan as to his claim for breach of contract. He filed a separate motion for
summary judgment against the Surgery Center and Egan as to their defenses.
Finally, Payne filed a separate motion for summary judgment against the
Holding Company as to its defenses and counterclaims. Each of the parties
filed responses to the various motions, and the court held oral argument.
Court of Appeals of Indiana | Memorandum Decision 18A-CT-1391 | February 26, 2019 Page 11 of 34 [27] On June 6, 2018, the court issued findings and conclusions granting summary
judgment to the Surgery Center and Egan on Payne’s claims for breach of
contract and tortious interference with a contractual relationship. The court
also denied Payne’s motion for partial summary judgment on Egan and the
Surgery Center’s defenses. The court concluded there “is no just reason for
delay” and ordered the entry of a “full, complete, and final” judgment.
Appellant’s App. Vol. II, p. 94.
[28] On June 8, 2018, the trial court issued an order granting summary judgment to
the Holding Company on Payne’s claims for breach of contract and breach of
fiduciary duty. In addition, the court denied Payne and the Holding
Company’s respective motions for summary judgment on the Holding
Company’s counterclaims of breach of contract and constructive fraud.
[29] Payne filed a Notice of Appeal as to the June 6 order and asked the trial court
to certify its June 8 order for interlocutory appeal. The trial court granted his
request. Next, Payne asked this Court to accept jurisdiction over the June 8
order. This Court accepted jurisdiction and consolidated the appeal with
Payne’s appeal of the June 6 order. We discuss additional facts below as
needed.
Discussion and Decision I. Standard of Review [30] Summary judgment is proper if the evidence designated by the parties “shows
that there is no genuine issue as to any material fact and that the moving party
Court of Appeals of Indiana | Memorandum Decision 18A-CT-1391 | February 26, 2019 Page 12 of 34 is entitled to a judgment as a matter of law.” Indiana Trial Rule 56(C). “The
initial burden is on the summary judgment movant to ‘demonstrate [ ] the
absence of any genuine issue of fact as to a determinative issue,’ at which point
the burden shifts to the non-movant to ‘come forward with contrary evidence’
showing an issue for the trier of fact.” Hughley v. State, 15 N.E.3d 1000, 1003
(Ind. 2014) (quoting Williams v. Tharp, 914 N.E.2d 756, 761-62 (Ind. 2009)).
[31] We review a summary judgment decision de novo, applying the same standard
as the trial court. Miller v. Danz, 36 N.E.3d 455, 456 (Ind. 2015). We may
affirm a grant of summary judgment upon any theory supported by the
evidence. Id. On appeal, we construe all facts and reasonable inferences drawn
from those facts in a light most favorable to the nonmoving party. Felsher v.
Univ. of Evansville, 755 N.E.2d 589, 592 (Ind. 2001).
[32] The nonmoving party has the burden on appeal of proving the grant of
summary judgment was erroneous, but we carefully review the trial court’s
decision to ensure the party was not improperly denied a day in court.
McSwane v. Bloomington Hosp. & Healthcare Sys., 916 N.E.2d 906, 909-10 (Ind.
2009) (quotation omitted). The fact that the parties have filed cross-motions for
summary judgment does not alter our standard for review, as we consider each
Court of Appeals of Indiana | Memorandum Decision 18A-CT-1391 | February 26, 2019 Page 13 of 34 motion separately to determine whether the moving party is entitled to 1 judgment as a matter of law. Reed v. Reid, 980 N.E.2d 277, 285 (Ind. 2012).
II. Breach of Contract [33] Payne argues the trial court erred in granting summary judgment to Egan, the
Surgery Center, and the Holding Company on his claims of breach of contract.
To prevail on a claim for breach of contract, a plaintiff must prove the existence
of a contract, a breach of that contract by a defendant, and damages resulting
from the breach. Haegert v. Univ. of Evansville, 977 N.E.2d 924, 937 (Ind. 2012).
The breach must be a cause in fact of the complainant’s loss. WESCO
Distribution, Inc. v. ArcelorMittal Ind. Harbor, LLC, 23 N.E.3d 682, 695 (Ind. Ct.
App. 2014), trans. dismissed.
[34] Generally, the construction of a written contract is a question of law for which
summary judgment is particularly appropriate. Orthodontic Affiliates, P.C., v.
Long, 841 N.E.2d 219, 222 (Ind. Ct. App. 2006). When we review contract
cases, our primary goal is “to ascertain and give effect to the mutual intention
of the parties.” Hutchinson, Shockey, Erley & Co. v. Evansville-Vanderburgh Cty.
Bldg. Auth., 644 N.E.2d 1228, 1231 (Ind. 1994).
1 Payne claims the trial court’s findings and conclusions should carry less weight because the court largely adopted the defendants’ proposed findings and conclusions. The court did not adopt the proposed findings and conclusions verbatim, because the court denied in part both sides’ summary judgment motions. In the absence of verbatim adoption of proposed findings and conclusions, we retain our confidence “that the findings are the result of considered judgment by the trial court.” Safety Nat’l Cas. Co. v. Cinergy Corp., 829 N.E.2d 986, 993 n.6 (Ind. Ct. App. 2005), trans. denied.
Court of Appeals of Indiana | Memorandum Decision 18A-CT-1391 | February 26, 2019 Page 14 of 34 [35] If the terms of a contract are clear and unambiguous, we apply the plain and
ordinary meaning of the language. Wright v. Am. States Ins. Co., 765 N.E.2d
690, 693 (Ind. Ct. App. 2002). By contrast, if the terms of a contract are
ambiguous, it is the responsibility of the trier of fact to ascertain the facts
necessary to construe the contract. Orthodontic Affiliates, 841 N.E.2d at 222.
Consequently, when summary judgment is granted based upon the construction
of a written contract, the trial court has either determined as a matter of law
that the contract is not ambiguous or uncertain, or that any ambiguity can be
resolved without the aid of a factual determination. Id.
A. Egan and the Surgery Center
[36] Payne argues that Egan and the Surgery Center (through its agent, Egan)
violated the Surgery Center’s bylaws, specifically its confidentiality provisions,
when Egan disclosed concerns about Payne’s health to NAS’s Committee.
Payne further claims he was damaged by the disclosure of confidential
information because it led to his leave of absence and, later, the termination of
his membership in the Holding Company. Egan and the Surgery Center
respond that the disclosures were permissible under the bylaws and governing
statutes.
[37] In the preamble to the Surgery Center’s bylaws, the Surgery Center identifies
itself as a “professional review [body]” and a “peer review [committee]” as
defined by Indiana statutes. Appellant’s App. Vol. II, p. 183. The bylaws
establish several committees, including the Quality Assurance Committee,
which is charged with “reviewing, evaluating, and maintaining the quality and Court of Appeals of Indiana | Memorandum Decision 18A-CT-1391 | February 26, 2019 Page 15 of 34 efficiency of patient care.” Id. at 206. Article XIII of the bylaws governs
confidentiality as follows:
Section A. Definition of Representative
For purposes of this Article, the term ‘representative’ includes the governing body, its directors and committees; the Executive Director; the medical staff organization and medical staff members, and committees which have responsibility for collecting and evaluating credentials, acting upon applications for appointment or reappointment; and any authorized representatives of the foregoing.
Section B. Confidentiality of Information
Information with respect to any practitioner submitted, collected, or prepared by any representative, or any other health care facility or organization or medical staff for the purpose of achieving and maintaining quality patient care, reducing morbidity and mortality, or contributing to clinical research shall, to the fullest extent permitted by law, be confidential and shall not be disseminated to anyone other than a Center representative, not used in any way except as provided herein or except as otherwise required by law. Such confidentiality shall also extend to information of like kind that may be provided by third parties. This information shall not become part of any particular patient’s file or of the general Center records.
Section C. Immunity from Liability
1. No Center representative shall be liable to an applicant for damages or other relief for any action taken or statement or recommendation made within the scope of his/her duties if such person acts in good faith and without malice.
Court of Appeals of Indiana | Memorandum Decision 18A-CT-1391 | February 26, 2019 Page 16 of 34 2. No Center representative shall be liable to a practitioner for damages or other relief by reason of providing information, including otherwise privileged or confidential information, to any other Center representative or to any other health care facility or organization of health professionals concerning a practitioner who did or does exercise clinical privileges at this Center, provided that such Center representative acts in good faith and without malice. No information concerning a practitioner shall be furnished to other health care facilities or organizations without the consent of the practitioner unless the furnishing of such information is required by law.
Section D. Activities and Information Covered
1. The confidentiality and immunity provided by this Article shall apply to all acts, communications, reports, recommendations or disclosures performed or made in connection with Center activities concerning, but not limited to:
a. applications for appointment, clinical privileges, or specified services;
b. periodic reappraisals for reappointment, clinical privileges or specified services;
c. corrective action;
d. patient care evaluations;
e. utilization review;
Court of Appeals of Indiana | Memorandum Decision 18A-CT-1391 | February 26, 2019 Page 17 of 34 f. other Center, department, committee or staff activities related to monitoring and maintaining quality patient care and appropriate professional conduct.
2. The acts, communications, reports, recommendations, disclosures and other information referred to in this Article may relate to a practitioner’s professional qualifications, clinical ability, judgment, character, physical and mental health, emotional stability, professional ethics, or any other matter that might directly or indirectly affect patient care.
Section E. Cumulative Effect
Provisions in these by-laws and in application forms relating to authorizations, confidentiality of information and immunities from liability shall be in addition to other protection provided by law and not in limitation thereof, and in the event of conflict, the applicable law shall be controlling.
Id. at 209-11.
[38] The parties agree that Payne, Egan, and the Surgery Center’s officers are subject
to the bylaws, and that the bylaws are a contract. Further, there is no dispute
that Egan, who served as the Surgery Center’s medical director, disclosed
Court of Appeals of Indiana | Memorandum Decision 18A-CT-1391 | February 26, 2019 Page 18 of 34 confidential information about Payne’s physical health to NAS’s Committee, 2 an outside organization of health care professionals, without Payne’s consent.
[39] The trial court determined, and Egan and the Surgery Center claim on appeal,
that they cannot be held liable because Egan’s disclosure to the Committee was
required by law per Article XIII, Section C.2. of the bylaws. They cite to a
provision of the Indiana Administrative Code, which states, in relevant part:
A practitioner who has personal knowledge based upon a reasonable belief that another practitioner holding the same licenses has engaged in illegal, unlawful, incompetent, or fraudulent conduct in the practice of medicine or osteopathic medicine shall promptly report such conduct to a peer review or similar body, as defined in IC 34-6-2-99, having jurisdiction over the offending practitioner and the matter.
844 IAC 5-2-8(a) (2017).
[40] There are two flaws in Egan and the Surgery Center’s argument. First, there is
a dispute of material fact as to whether Egan had a reasonable belief that Payne
was incompetent to practice medicine. Payne submitted evidence to the trial
court, in the form of his deposition, in which he disagreed that his medical
conditions posed a threat to his patients’ well-being. In addition, Payne argued
2 Doctors and nurses employed at the Surgery Center separately discussed their concerns about Payne’s competency with NAS’s Committee in 2014. The trial court determined those discussions were not an actionable breach of the bylaws, and Payne does not challenge that ruling on appeal.
Court of Appeals of Indiana | Memorandum Decision 18A-CT-1391 | February 26, 2019 Page 19 of 34 to the trial court that there is a “factual dispute” as to whether Egan acted in 3 good faith and without malice. Tr. Vol. 2, p. 103.
[41] The trial court acknowledged in its findings and conclusions that the parties
disagreed as to whether Egan lied to the Committee in his oral report in July
2014 and again via letter in February 2014. The trial court specifically found:
“The facts regarding malice are in dispute.” Appellant’s App. Vol. II, p. 77.
The court further found, “there are questions of fact over whether the
information provided to the Healthy Member Committee was false and the
person providing it knew it was false.” Id. at 87. Under these disputed facts,
we cannot conclusively determine at the summary judgment stage that Egan
had a reasonable belief in Payne’s incompetency for purposes of 844 IAC 5-2-
8(a).
[42] Second, even if Egan had a reasonable belief as to Payne’s incompetency, 844
IAC 5-2-8(a) merely requires disclosure to a peer review committee. The
Surgery Center had its own peer review committee, the Quality Assurance
Committee, to whom Egan could have presented his concerns about Payne
without violating the bylaws’ confidentiality requirements. In other words,
3 Payne stated in a summary judgment brief, “Once Dr. Egan and [the Surgery Center] had personal knowledge of the complaints regarding Dr. Payne’s competency, they were duty bound to report the information to the [Surgery Center’s] Quality Assurance Committee.” Appellant’s App. Vol. IX, p. 62. Egan and the Surgery Center read that sentence as a binding concession by Payne that Egan acted in good faith and with a reasonable belief in Payne’s incompetence. We disagree, due to Payne’s arguments during the trial court’s hearing, which put the trial court and opposing parties on notice that Payne did not concede Egan acted in good faith.
Court of Appeals of Indiana | Memorandum Decision 18A-CT-1391 | February 26, 2019 Page 20 of 34 Egan could have fulfilled his perceived duties under 844 IAC 5-2-8(a) without
approaching NAS’s Committee, so his disclosure to the Committee was not
required by law for purposes of the bylaws.
[43] In any event, it is also true that the plain language of Article XIII, section C.2.,
requires Egan to demonstrate that he acted in good faith and with an absence of
malice to avoid liability for disclosing confidential information to an outside
health care facility or organization of health professionals. The trial court
determined there is a dispute of material fact as to whether Egan made his
disclosures to the Committee in good faith. As a result, there are disputes of
material fact as to whether Egan (and, by extension, the Surgery Center)
breached the confidentiality provisions of the bylaws.
[44] The parties and the trial court also addressed whether Egan’s disclosures to the
Committee were permissible under Article VI of the bylaws. That article
governs procedures for the appointment and reappointment of doctors to the
Surgery Center’s medical staff. The article provides, in relevant part, that an
applicant seeking appointment or reappointment to the Surgery Center
“authorizes Center representatives to consult with others who have been
associated with him and/or who may have information bearing on his/her
competence and qualifications.” Appellant’s App. Vol. V, p. 61. Furthermore,
an applicant:
authorizes and consents to Center representatives providing other hospitals, medical associations, licensing board, other health care facilities or organization of health professions with any
Court of Appeals of Indiana | Memorandum Decision 18A-CT-1391 | February 26, 2019 Page 21 of 34 information relevant to such matters that the Center may have concerning him, and releases Center representatives from liability for so doing, provided that such furnishing of information is done in good faith and without malice.
Id.
[45] The trial court determined that Egan’s February 25, 2014 letter to NAS’s
Committee was permissible under Article VI, and thus did not violate the
confidentiality requirements of Article XIII, because Payne had taken steps to
reapply for appointment to the Surgery Center’s medical staff at that time.
Regardless, there are disputes of material fact as to whether Egan acted in
“good faith and without malice.” For that reason, Egan and the Surgery Center 4 are not entitled to summary judgment under Article VI.
[46] In summary, the trial court erred in granting summary judgment in favor of
Egan and the Surgery Center as to Payne’s claim of breach of contract. The
4 On a related note, the “Agreement for Physician Reentry” that Payne and the Committee executed on September 11, 2013, discusses the sharing of information about Payne among the various corporate entities at issue here. Specifically, the Agreement provides:
Both parties agree that [the Committee] may solicit, receive and transmit information from and to other agencies charged with monitoring [Payne’s] recovery. This Coordination will specifically serve as a release of information to permit [the Committee] and other monitoring agencies to share information about [Payne’s] recovery program without violating their separate agreements with [Payne].
Appellant’s App. Vol. XII, p. 50. Neither the parties nor the trial court address how this provision applies to Egan and the Surgery Center’s confidentiality obligations under the Surgery Center’s bylaws, so we will not address it either. See Young v. Butts, 685 N.E.2d 147, 151 (Ind. Ct. App. 1997) (stating the Court will not “make up its own arguments” on appeal). However, the provision may be relevant during proceedings on remand.
Court of Appeals of Indiana | Memorandum Decision 18A-CT-1391 | February 26, 2019 Page 22 of 34 merits of the claim must be resolved by a finder of fact. We need not address
Payne’s other arguments on this issue.
B. Holding Company
[47] Payne’s breach of contract claim against the Holding Company is based on his
belief that the Company violated an “implied duty not to hinder, delay, or
prevent” him from carrying out his duties under the Holding Company’s
operating agreement. Appellant’s Br. p. 38. Specifically, he claims Egan, as an
agent of the Holding Company, unfairly hindered him from returning to work
through communications with NAS’s Committee, which resulted in the
Holding Company terminating Payne’s membership. In response, the Holding
Company argues an implied duty to not hinder contractual performance is
invalid in Indiana.
[48] We find guidance in the Indiana Supreme Court’s decision in First Fed. Sav.
Bank of Ind. v. Key Mkts., Inc., 559 N.E.2d 600 (Ind. 1990). In that case, First
Federal owned a shopping center, and Key Markets owned a one-acre tract
within the shopping center. Key Markets also leased a portion of First
Federal’s land, which was used for a parking lot. Under the lease agreement,
Key Markets could not assign its interest in the leased land without First
Federal’s consent. Key Markets sought to sell the one-acre tract and asked First
Federal to consent to an assignment of the lease for the parking lot. First
Federal refused, which hindered Key Market’s sale. Key Markets sued.
Court of Appeals of Indiana | Memorandum Decision 18A-CT-1391 | February 26, 2019 Page 23 of 34 [49] The trial court concluded First Federal “had a legal duty not to unreasonably
withhold consent” and had violated that duty. Id. at 602. A panel of this Court
affirmed, similarly concluding the landlord had violated its implied duty not to
unreasonably withhold consent.
[50] The Indiana Supreme Court reversed. The Court noted that when the language
of a contract is unambiguous, it should be enforced according to its terms.
When the language is ambiguous, “in limited and particular cases the court
may be required to presume the parties were acting reasonably and in good
faith to discern the intention of the parties and resolve the ambiguity or
uncertainty.” Id. at 604. In general, “it is not the province of courts to require a
party acting pursuant to such a contract to be ‘reasonable,’ ‘fair,’ or show ‘good
faith’ cooperation. Id. The Supreme Court concluded the terms of the contract
at issue were clear and well understood by the parties, and the trial court “erred
in applying improper standards in its interpretation of the contract.” Id. at 606.
The trial court erred in adding a reasonableness requirement.
[51] The Court of Appeals has applied the holding in First Federal to a variety of
contractual contexts. In Old Nat’l Bank v. Kelly, 31 N.E.3d 522, 531 (Ind. Ct.
App. 2015), trans. denied, a panel of this Court stated in a bank-depositor
dispute: “Indiana law does not impose a generalized duty of good faith and fair
dealing on every contract; the recognition of an implied covenant is generally
limited to employment contracts and insurance contracts.” See also Hispanic
College Fund, Inc. v. Nat’l Collegiate Athletic Ass’n, 826 N.E.2d 652, 658 (Ind. Ct.
App. 2005) (dispute involving voluntary membership association and member
Court of Appeals of Indiana | Memorandum Decision 18A-CT-1391 | February 26, 2019 Page 24 of 34 of association; Court determined “Indiana law does not impose a generalized
duty of good faith and fair dealing on every contract”), trans. denied; Allison v.
Union Hosp., Inc., 883 N.E.2d 113, 123 (Ind. Ct. App. 2008) (lawsuit between
nurse anesthetists and hospital for breach of contract; an implied duty of fair
dealing is recognized “generally only in limited circumstances,” when a
“contract is ambiguous or expressly imposes such a duty on the parties”).
[52] In the current case, Payne does not identify any specific provisions of the
operating agreement that are subject to an implicit duty to not hinder
performance. He further fails to identify any contractual ambiguities pursuant
to which such a duty could be found to apply. Following the holding in First
Federal, we conclude that a general duty not to hinder the performance of a
contract is inapplicable here.
[53] Payne cites Lesh v. Trs. of Purdue Univ., 124 Ind. App. 422, 116 N.E.2d 117
(1953), for the proposition that every contract contains an implied condition
that neither party will hinder the other in the discharge of contractual
obligations. We are obligated to follow the Indiana Supreme Court’s more
recent holding in First Federal, in which the Court stated trial courts generally
should not read into contracts a requirement that parties cooperate in good faith
in the performance of contractual duties or rights. Payne also cites Levee v.
Beeching, 729 N.E.2d 215 (Ind. Ct. App. 2000), in support of his claim, but that
case is distinguishable because it dealt with a claim of tortious interference with
a contractual relationship rather than a claim of breach of contract.
Court of Appeals of Indiana | Memorandum Decision 18A-CT-1391 | February 26, 2019 Page 25 of 34 [54] We conclude the trial court did not err in granting summary judgment in favor
of the Holding Company on Payne’s claim for breach of contract. We need not
address the Holding Company’s other arguments on this issue.
III. Tortious Interference with a Contractual Relationship [55] Payne argues the trial court erred in granting summary judgment to Egan and
the Surgery Center on his claim of tortious interference with a contractual
relationship, specifically the Holding Company’s operating agreement. Egan
and the Surgery Center contend Payne’s claim was untimely, and, in the
alternative, that Egan cannot be held liable because he was also a party to the
Holding Company’s operating agreement.
[56] The tort of interference with a contractual relationship is based on “the public
policy that contract rights are property, and under proper circumstances, are
entitled to enforcement and protection from those who tortiously interfere with
those rights.” Winkler v. V.G. Reed & Sons, Inc., 638 N.E.2d 1228, 1234 (Ind.
1994). The five elements of tortious interference with a contractual relationship
are: (1) the existence of a valid and enforceable contract; (2) defendant’s
knowledge of the existence of the contract; (3) defendant’s intentional
inducement of the breach of the contract; (4) the absence of justification; and (5)
damages resulting from defendant’s wrongful inducement of the breach.
Bilimoria Compu. Sys., LLC v. Am. Online, Inc., 829 N.E.2d 150, 156 (Ind. Ct.
App. 2005). A legitimate reason for the defendant’s actions provides the
necessary justification to avoid liability. Bragg v. City of Muncie, 930 N.E.2d
1144, 1148 (Ind. Ct. App. 2010). Court of Appeals of Indiana | Memorandum Decision 18A-CT-1391 | February 26, 2019 Page 26 of 34 [57] The typical claim for tortious interference with a contractual relationship
involves a third party intervening in a two-party contract and improperly
inducing a breach. See, e.g., id. at 1147 (appellant developer claimed city
officials improperly intervened in his contract with the manager of a housing
authority). Payne’s claim is more indirect. He contends Egan and the Surgery
Center (through its agent, Egan) made false statements to NAS’s Committee
about Payne’s competence to practice medicine, which caused Payne to be
placed on leave and rendered unable to practice medicine. Payne further claims
his inability to practice medicine caused the Holding Company to terminate
Payne’s membership under the Company’s operating agreement because he did
not work on a required number of cases in a twelve-month period. He thus
concludes Egan and the Surgery Center interfered with his contractual
relationship with the Holding Company.
[58] Egan and the Surgery Center produced evidence that Egan orally reported to
the Committee in July 2013, and sent a letter to the Committee in February
2014, expressing a good-faith belief that Payne was not competent to practice
medicine. Under our summary judgment standard, Payne was obligated to
produce contradictory evidence of Egan’s specific intent to improperly induce
the Holding Company to terminate Payne’s membership.
[59] It is undisputed that in September 2013, Egan told Payne that he thought Payne
was incompetent to practice medicine and indicated that he did not want Payne
to resume practicing medicine. Nevertheless, there is no evidence that Egan
directly contacted the Holding Company’s board of managers about Payne’s
Court of Appeals of Indiana | Memorandum Decision 18A-CT-1391 | February 26, 2019 Page 27 of 34 medical conditions before or during his leave of absence, much less encouraged
them to terminate his membership. As a result, Payne argues Egan indirectly
sought Payne’s termination from the Holding Company by ensuring Payne did
not return from his leave of absence.
[60] The facts, even when viewed in the light most favorable to Payne, provide no
support for the claim that Egan intended to indirectly seek Payne’s termination
from the Holding Company. It is undisputed that Payne had taken a leave of
absence through NAS’s Committee from late 2008 through the end of July
2010, a span of around ten months. The Holding Company did not object to
Payne’s inability to perform the required number of procedures during his
leave. To the contrary, Payne resumed his medical practice in August 2010
with no impact on his membership in the Holding Company.
[61] When Payne agreed to a second indefinite leave of absence in July 2013
through NAS’s Committee, the Holding Company did not object or indicate
that his membership was at risk. To the contrary, the president of the Holding
Company, J. Scott Pittman, M.D., was supportive of Payne and met with Egan
to “figure out what we could do to get [Payne] back [to work].” Appellees’
App. Vol. 2, p. 55. Another Holding Company board member, Robert
Czarkowski, M.D., indicated all board members wanted Payne “to get healthy
to come back to practice.” Id. at 95. They believed he could return to practice
because “[h]e did it once, we assumed he could have it happen a second time.”
Id. Payne’s privileges at St. Vincent Hospital lapsed in January 2014, which
disqualified Payne from membership in the Holding Company at that time, but
Court of Appeals of Indiana | Memorandum Decision 18A-CT-1391 | February 26, 2019 Page 28 of 34 the Holding Company took no action. Finally, during Payne’s leave of
absence, the Holding Company continued to pay Payne his quarterly share of
the profits until terminating his membership on July 31, 2014.
[62] Based on this undisputed evidence, even though Payne technically no longer
qualified for membership in the Holding Company due to a lack of hospital
privileges and failure to perform the required number of procedures in a twelve-
month period, there was no reason for Egan to believe that the Holding
Company would terminate Payne’s membership while Payne was on leave.
Instead, all evidence indicated the Holding Company would wait for Payne to
return from his 2013 leave of absence, just as it had done during Payne’s
previous leave of absence.
[63] Payne’s theory that Egan intended to interfere with Payne’s membership in the
Holding Company by seeking to have Payne put on an extended leave of
absence through NAS’s Committee is too tenuous and is unsupported by
evidence. As a result, Payne failed to establish a dispute of fact about Egan’s
intent to interfere with Payne’s contractual relationship with the Holding
Company, and his claim must fail.
[64] Payne’s claim that the Surgery Center committed tortious interference with a
contractual relationship is based entirely on his theory that Egan acted as the
Center’s agent. Because Payne’s claim against Egan fails, his claim against the
Surgery Center must also fail. We conclude the trial court did not err in
granting summary judgment in favor of Egan and the Surgery Center on this
Court of Appeals of Indiana | Memorandum Decision 18A-CT-1391 | February 26, 2019 Page 29 of 34 claim. It is unnecessary for us to address Egan and the Surgery Center’s other
arguments in this issue.
IV. Counterclaim: Constructive Fraud [65] Payne argues the trial court should have granted his motion for summary
judgment on the Holding Company’s counterclaim of constructive fraud. The
trial court denied both parties’ motions for summary judgment on this
counterclaim, determining there were questions “of fact as to if and when
Payne did disclose his disability to [the Holding Company] and remained silent 5 when he had a duty to speak.” Appellant’s App. Vol. 2, p. 108.
[66] “Constructive fraud is the breach of a legal or equitable duty which is
fraudulent as a result of its tendency to deceive others, to violate a public or
private trust, or to injure the public interests.” Comfax Corp. v. N. Am. Van Lines,
Inc., 587 N.E.2d 118, 125 (Ind. Ct. App. 1992). “Constructive fraud arises by
operation of law when there is a course of conduct which, if sanctioned by law,
would secure an unconscionable advantage, irrespective of the actual intent to
defraud.” Biberstine v. N.Y. Blower Co., 625 N.E.2d 1308, 1315 (Ind. Ct. App.
1993), trans. dismissed.
5 Payne is not appealing the trial court’s denial of his motion for summary judgment as to the Holding Company’s counterclaim for breach of contract. Further, the Holding Company is not cross-appealing the denial of its motion for summary judgment on its counterclaims.
Court of Appeals of Indiana | Memorandum Decision 18A-CT-1391 | February 26, 2019 Page 30 of 34 [67] The elements of constructive fraud are 1) a duty existing due to the relationship
between the parties, 2) representations or omissions made in violation of that
duty, 3) reliance thereon by the complaining party, 4) injury to the complaining
party as a proximate result thereof, and 5) the gaining of an advantage by the
party to be charged at the expense of the complaining party. Dawson v.
Hummer, 649 N.E.2d 653, 661 (Ind. Ct. App. 1995).
[68] Constructive fraud does not require that intent be proven because the parties are
not dealing with each other at arm’s length. Comfax Corp., 587 N.E.2d at 125.
Instead, the law infers fraud from the relationship between the parties. Id. A
member of a closely held corporation has a fiduciary duty “to deal fairly,
honestly, and openly with [the] corporation and fellow stockholders and must
not be distracted from the performance of [ ] official duties by personal
interests.” Rapkin Grp. v. Cardinal Ventures, Inc., 29 N.E.3d 752, 757 (Ind. Ct.
App. 2015), trans. denied.
[69] The Holding Company’s counterclaim for constructive fraud was based on the
following theory: (1) Payne was a fiduciary of the LLC; (2) during Payne’s
second leave of absence, he knew he was disabled to the point of being
permanently unable to practice medicine but hid that fact from the Holding
Company; (3) the Holding Company relied on Payne’s silence about his
disability and continued his membership in the company; (4) the Holding
Company lost money in the form of inappropriate quarterly profit distributions
to Payne; and (5) Payne received $463,872.14 from the Holding Company in
unearned distributions from the time he went on leave until the Holding
Court of Appeals of Indiana | Memorandum Decision 18A-CT-1391 | February 26, 2019 Page 31 of 34 Company terminated his membership on July 31, 2014. Appellant’s App. Vol.
IV, pp. 104-05.
[70] Payne argues there is no evidence that the Holding Company relied upon his
silence about his medical condition. He instead claims the Holding Company,
through its agent Egan, understood he was medically incompetent and would
not return to the practice of medicine after taking a leave of absence in July
2013.
[71] Whether reliance was justified is a matter for the jury to determine if there is
conflicting evidence. Biberstine, 625 N.E.2d at 1316. In this case, the operating
agreement between Payne and the Holding Company obligated Payne to
inform the Holding Company if he became too medically infirm to competently
practice medicine. Payne never notified the Holding Company his conditions
rendered him incompetent. To the contrary, prior to going on medical leave,
when Payne was asked how he was managing working with his health
conditions, he said he “was doing well.” Appellant’s App. Vol. VII, p. 55.
[72] To be sure, Egan believed Payne was incompetent to practice medicine and
shared that belief with Payne in September 2013, after Payne went on leave.
Even so, Payne continued to tell officers at the Holding Company that he was
seeking treatment, was getting better, and intended to return to the practice of
medicine. After he went on leave, he met with Pittman, the Holding
Company’s chairperson. Payne told Pittman “he thought he would be able to
eventually [resume practicing medicine].” Appellant’s App. Vol. X, p. 142. As
Court of Appeals of Indiana | Memorandum Decision 18A-CT-1391 | February 26, 2019 Page 32 of 34 late as June 2014, Payne sent a letter to Pittman stating that he was physically
able to return to work and hoped to resume the practice of medicine.
[73] In addition, Payne took steps to renew his appointment to the medical staff at
the Surgery Center. On March 12, 2014, he asked NAS’s Committee to allow
him to return to the practice of medicine, providing information from his
doctors. Prior to that date, Payne did not provide the Holding Company with
any information directly from his doctors.
[74] The Holding Company was willing to give Payne a chance to prove he could
return to the practice of medicine. Robert Czarkowski, M.D., a member of the
Holding Company’s board of managers, explained that the Holding Company’s
board intended “for [Payne] to get healthy to come back to practice.”
Appellant’s App. Vol. VII, p. 40.
[75] Meanwhile, despite assuring the Holding Company that he was ready and able
to return to work, Payne asked his disability insurer to increase his payments
after he began his leave of absence on July 24, 2013. He had already been
receiving disability payments for partial disability, but he insisted he had
become completely disabled. Payne claimed in a January 19, 2014 email to an
insurer that he “has been disabled due to my illness” and had been unable to
work since July 24, 2013. Appellees’ App. Vol. V, p. 10. On April 23, 2014,
one of his disability insurers notified him that his status was changed to “total
disability,” effective retroactively to July 25, 2013. Appellees’ App. Vol. III, p.
52. Payne received a payment from his insurer to account for the retroactive
Court of Appeals of Indiana | Memorandum Decision 18A-CT-1391 | February 26, 2019 Page 33 of 34 increase in payments. His subsequent payment statements from the insurer
listed his disability status as “total.” See, e.g., id. at 55. Payne did not tell the
Holding Company, the Surgery Center, or NAS that he was seeking additional
payments for disability.
[76] The foregoing evidence is enough to establish a dispute of material fact as to
whether the Holding Company reasonably relied on Payne’s silence about his
disability and his representations that he was able to return to work while they
continued to pay him quarterly profit dividends. The trial court did not err in
denying Payne’s motion for summary judgment as to the Holding Company’s
counterclaim for constructive fraud.
Conclusion [77] For the reasons stated above, we affirm the trial court’s grant of summary
judgment to the Holding Company on Payne’s claim of breach of contract. We
further affirm the trial court’s grant of summary judgment to Egan and the
Surgery Center on Payne’s claim of tortious interference with a contractual
relationship. In addition, we affirm the trial court’s denial of Payne’s motion
for summary judgment on the Holding Company’s counterclaim of constructive
fraud. We reverse the trial court’s grant of summary judgment to Egan and the
Surgery Center on Payne’s claim for breach of contract. We remand for further
proceedings.
[78] Affirmed in part, reversed in part, and remanded.
Mathias, J., and Crone, J., concur. Court of Appeals of Indiana | Memorandum Decision 18A-CT-1391 | February 26, 2019 Page 34 of 34