11-8-17 Legal Intelligencer Article by Vasilios (“Bill”) J. Kalogredis & Katherine E. LaDow*

On August 15, 2017 the Eighth Circuit Court of Appeals affirmed grant of summary judgment by the District Court for the Western District of Arkansas to Johnson Regional Medical Center (“JRMC”) in its breach of contract suit against its former employee, Dr. Robert Halterman. Dr. Halterman was ordered to pay JRMC $64,931.81 in principal, interest, attorneys’ fees, and additional costs for breaching a Recruitment Agreement, Employment Agreement, and Promissory Note entered into with JRMC.

This should be a case worth knowing about to those with an interest in health care because such recruitment arrangements are prevalent in areas where it is difficult to attract, hire, and retain physicians due to the locale or subspecialty where there may be a shortage.

JRMC recruited Dr. Halterman to work as an OB/Gyn. Dr. Halterman signed a Recruitment Agreement, a Promissory Note in JRMC’s favor in the amount of $50,000 (plus interest) to be paid in monthly installments, and an Employment Agreement. JRMC advanced Dr. Halterman $50,000 as a “signing advance” to be paid out in monthly installments. Pursuant to the terms of the Recruitment Agreement, the monthly payments to be made under the Promissory Note would be forgiven so long as Dr. Halterman continued working for JRMC and remained in full compliance with the terms of the Recruitment Agreement. The Recruitment Agreement stated that it shall remain in full force and effect until the final payment on the note was either made or forgiven.

Dr. Halterman worked for JRMC for a mere five months prior to resigning due to a shoulder injury; however, Dr. Halterman later sought and obtained work at another medical facility. JRMC accepted Dr. Halterman’s resignation, but informed the doctor that the monthly forgiveness of the Promissory Note would cease and he must begin making payments under the Promissory Note in the amount of $37,894. Dr. Halterman failed to make any payments towards the Promissory Note balance and JRMC brought a lawsuit against the doctor for breach of contract. The trial court ruled in favor of JRMC and issued a judgment in the amount of $64,931.82 (principal, interest, attorney fees, and costs) against Dr. Halterman.

Dr. Halterman appealed the trial court’s decision, alleging the Recruitment Agreement, Promissory Note, and Employment Agreement were a single contract that JRMC breached, thus excusing his performance under the Agreements. Dr. Halterman argued that JRMC fraudulently induced him into signing the Agreements and Promissory Note by misrepresenting the on-call requirements of the OB/Gyn position. Dr. Halterman also contended that his performance was excused due to his shoulder injury which impaired his ability to perform his job under the Agreements.

The Eighth Circuit rejected Doctor Halterman’s arguments. The Court found that there were two separate agreements to consider: the Recruitment Agreement (which incorporated the Promissory Note) and the Employment Agreement. Specifically, the Appellate Court held that the parties did not intend for the Recruitment and Employment Agreements to function as a single contract since the agreements contained different durations, contained independent merger clauses, contained different obligations, and contained different termination clauses. The Court decided that the Recruitment Agreement and the Promissory Note, as incorporated, were the relevant agreements to examine under JRMC’s breach of contract allegation.

The Court did not entertain Dr. Halterman’s fraudulent inducement argument. The Court recognized that under the relevant Arkansas state law, the remedy for a fraudulent inducement claim is to rescind or cancel the contract. Both JRMC and Dr. Halterman agreed that the contract had been rescinded. However, the parties disagreed about the consequences of the rescinded contractual obligations as related to the $50,000 signing advance/ principal under the Promissory Note. The Court applied the plain language of the Recruitment Agreement and held that Dr. Halterman was contractually obligated to return the remainder of the principal. The Court specifically noted that the doctor failed to introduce any evidence to support his contention that he was contractually entitled to retain the $50,000 principal.

The Eighth Circuit similarly rejected Dr. Halterman’s argument that his performance under the contracts was excused due to his shoulder injury. While the Court conceded that the injury would impair his ability to perform certain OB/Gyn procedures, the Court took issue with Dr. Halterman’s failure to engage in any good-faith negotiations with JRMC to attempt to reach an amicable resolution for the doctor and JRMC. The Court also noted that Dr. Halterman’s injury was only temporary, as evidenced by the fact that he secured subsequent employment within months of his resignation from JRMC.

Finally, the appellate court affirmed the trial court’s award of attorney fees and costs against Dr. Halterman. The Court reasoned that the Promissory Note contained an express provision allowing JRMC to collect any and all reasonable costs and expenses incurred in collecting the balance due under the Promissory Note.

Medical facilities frequently offer physicians loans with beneficial payment terms as part of their recruitment packages. Physicians must remain cognizant that any loan balance which has not been paid back or forgiven by the employer continues to be an outstanding obligation of the physician employee that must be repaid according to the terms of the agreement or promissory note.

To read Johnson Reg’l Med. Ctr. v. Halterman, 2017 BL 284542, 8th Cir., No. 16-3068, 8/15/17, visit: http://src.bna.com/rHz.

Vasilios (“Bill”) J. Kalogredis, Esquire is Chairman of Lamb McErlane’s Health Law Department. Bill has been practicing health law for over 40 years, representing exclusively physicians, dentists, group practices, other health care professionals and health care-related entities.

*Katherine (“Katie”) E. LaDow, Esquire, an associate with Lamb McErlane PC., contributed to this article. Katie is an associate in the litigation department. She concentrates her practice in the areas of state civil litigation, family law and health law.