Striar v. American Medical International, Inc.

695 N.E.2d 1079, 45 Mass. App. Ct. 87
CourtMassachusetts Appeals Court
DecidedJune 18, 1998
DocketNo. 97-P-0103
StatusPublished
Cited by10 cases

This text of 695 N.E.2d 1079 (Striar v. American Medical International, Inc.) is published on Counsel Stack Legal Research, covering Massachusetts Appeals Court primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Striar v. American Medical International, Inc., 695 N.E.2d 1079, 45 Mass. App. Ct. 87 (Mass. Ct. App. 1998).

Opinion

Gillerman, J.

The defendants, American Medical International, Inc. (AMI), and its subsidiary AMIWoodbroke, Inc. (AWB), appeal from the judgment entered for the plaintiff Brims Distributing Company (Brims)3 in this breach of contract action and from the dismissal of their third-party complaint against Westwood/Pembroke Corporation (WPC). The plaintiffs cross-appeal from the amount of the judgment and interest thereon, as well as from the dismissal of their G. L. c. 93A claim.

The plaintiffs instituted this action on December 6, 1993. AMI and AWB thereafter filed a third-party complaint against WPC.4 Psychiatric Associates of Norfolk County, Inc. (PANC), was allowed to intervene as a party plaintiff on May 6, 1994.5 See note 3, supra. All parties moved for an order of reference to a master under Mass.R.Civ.P. 53, as amended, 423 Mass. 1408 (1996). The case was heard by the master pursuant to the Superior Court judge’s order of reference, the parties waiving their rights to object to the master’s report pursuant to Mass.R.Civ.P. 53(h)(2), 365 Mass. 817 (1974), but preserving all rights [89]*89on appeal.6 The judge adopted the master’s forty-two page report, and entered judgment for Brims on December 3, 1996, in the amount of $2,724,182, representing Striar’s share of the amounts owed to PANC by the defendants, plus statutory interest from the date the complaint was filed.

We summarize the material facts involved in the seven-year history that led to this litigation, taking those facts from the master’s report. The plaintiff, Daniel Striar, and Gary Jacobson, M.D., who is not a party to these proceedings, together owned, controlled (directly or indirectly), and operated two psychiatric hospitals, Westwood Lodge Hospital, purchased in 1973, and Pembroke Hospital, purchased in 1984. In or around 1975, Striar and Jacobson decided that a professional corporation should be formed to provide health care services at Westwood Lodge Hospital, with the hospital’s medical staff employed by the corporation rather than by the hospital. Jacobson incorporated PANC and became its controlling shareholder.

PANC was organized in 1975 as a medical professional corporation. Because Striar, who was not a medical professional, could not be a shareholder of PANC, Striar entered into a long-term management agreement with PANC to serve as its sole and exclusive managing agent.7 His compensation was set at an amount equal to fifty percent of the “corporate net income before taxes calculated on a cash accounting basis.” When Striar and Jacobson acquired Pembroke Hospital in 1984, PANC became the exclusive provider of professional care there as well.

In 1984, Striar and Jacobson began negotiations with representatives of AMI, an international hospital holding company interested in purchasing the two hospitals. On September 13, 1985, Striar and Jacobson, along with certain corporate entities connected with the hospitals, entered into a purchase agreement with AMI and AWB, a wholly owned subsidiary of AMI formed for the acquisition of the hospitals.8 The purchase agreement provided for the purchase of all the as[90]*90sets of the hospitals and the related real estate for a total purchase price of $37,500,000, subject to adjustments. Section 13.15 of the purchase agreement provided that AMI was the guarantor of all the obligations of its subsidiary, AWB, the buyer under the purchase agreement.

Striar and Jacobson were parties to the purchase agreement individually and were described therein as the “primary shareholders” of the two hospitals. In addition, Striar and Jacobson were bound by the representations and warranties set out in section 7 of the purchase agreement.

The obligation of the plaintiffs to complete the transaction was subject to, inter alia, the execution of a ten-year contract between AMI and PANC (the PANC contract), under the terms of which PANC would be the exclusive source of clinical and medical-administrative services for the hospitals after the sale. A material term of the PANC contract (which was executed on June 6, 1986, two days before the closing) was the provision for AMI’s guarantee of the obligations of its subsidiary AWB, the purchaser of PANC’s services, in addition to AMI’s guarantee of all obligations of AWB under the purchase agreement.

Though Striar was not a party to the PANC contract, he participated in its negotiation and he informed AMI representatives of his management agreement with PANC and his entitlement to fifty percent of PANC’s profits as compensation for his services as the exclusive managing agent of the hospitals. The PANC contract itself stated that it was in consideration for the purchase of the hospitals, and it was included as a schedule to the purchase agreement. Section 13.13 of the purchase agreement provided that all schedules to the agreement were “considered a part [of the purchase agreement] as if set forth herein in full.”

Two additional clauses are important to the resolution of this controversy. Section 13.5 of the purchase agreement provided for the survival of representations, warranties, and agreements. The general provision was that all such undertakings survived the closing only for a period of two years. The exception to the two-year limitation was any undertaking “whose specific language expressly recites a term greater than two years.” Section IV of the PANC contract expressly recited a term of ten years. Section 13.14 of the purchase agreement provided that the purchase agreement could be “modified” only by a written instrument signed by “each of the parties hereto” or their authorized representatives.

[91]*91Thus, for a period of ten years, any material change in the provisions of the PANC contract required the signatures of all the parties to the purchase agreement. This interlocking arrangement was of special importance to Striar whose compensation was measured by PANC’S profits but who was not an officer, director, or stockholder of PANC. From the point of view of Striar, the master found, the PANC contract was an important inducement for his assent to the sale of the hospitals to AMI. The contract documents assured him that for a period of ten years there could be no detrimental modification of the PANC contract without his prior written consent. On June 6, 1986, two days before the closing, Striar assigned to Brims “his management rights” under his long term contract with PANC.9

Sometime after acquiring the hospitals on June 8, 1986, AMI began to question Striar’s billing practices under the PANC contract. Among other things, AMI disagreed with the amounts Striar was billing, his billing format and supporting documentation, and the services and costs for which he was claiming reimbursement. Although AMI made substantial payments to PANC under the PANC contract, it refused to pay the disputed amounts.

By December, 1989, Jacobson and representatives of AMI had agreed that Jacobson, in the name of WPC, would repurchase the hospitals from AMI; Striar was not a party to the transaction. As part of WPC’s purchase, Jacobson, as president of PANC, but without Striar’s approval, agreed to accept $2,300,000 as payment in full by AWB and AMI (as the guarantor and parent of AWB) of all the disputed amounts under the PANC contract through December 31, 1989 (the settlement agreement).

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Bluebook (online)
695 N.E.2d 1079, 45 Mass. App. Ct. 87, Counsel Stack Legal Research, https://law.counselstack.com/opinion/striar-v-american-medical-international-inc-massappct-1998.