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Physician who bailed on hospital contract must pay back signing advance

By Lisa Milam-Perez, J.D.

A medical center successfully defended its $64,932 breach of contract win against a physician in its action seeking to recoup outstanding payments on his signing advance. The recruitment agreement between the parties provided that the monthly installments on the promissory note would be forgiven as long as the physician continued working at the hospital, but when he left after five months, the hospital sought payback of the remaining balance. The Eighth Circuit affirmed a grant of summary judgment to the hospital, rejecting the physician’s defenses to performance on the contract, and his claim that the district court had abused its discretion in awarding the hospital attorney fees and costs (Johnson Regional Medical Center v. Halterman, August 15, 2017, Shepherd, B.).

Recruitment agreement. The medical center recruited the defendant physician to work as an OB/Gyn. When he came on board, he signed a physician recruitment agreement, a promissory note in the hospital’s favor of $50,000 (plus interest) in monthly installments, and a physician employment agreement. The hospital advanced $50,000 to the physician as a “signing advance,” paid out in three installments. Under the terms of the physician recruitment agreements, the monthly payments made under the promissory note would be forgiven as long as the physician continued working at the hospital. The agreement also provided that the agreement would continue in full force until the final payment on the note was either made or forgiven (absent prior termination of the agreement); however, obligations that extended beyond this period would survive termination.

Breach of contract. But the physician worked at the hospital a mere five months. He resigned, ostensibly due to a shoulder injury, and later found work elsewhere as a hospitalist. The hospital accepted his resignation in a letter reminding him that the monthly forgiveness of his signing advance would cease, and that he had a balance due of $37,894. After the physician failed to make any payments on the balance, the hospital filed a successful breach of contract action, securing a judgment of $64,932 in principal due, with interest, along with attorneys’ fees and costs.

The physician appealed. In his view, the trio of documents that he executed with the hospital constituted one single contract, and the hospital breached it, thus excusing his performance (i.e., his payment on the promissory note). But the Eighth Circuit found there were two contracts in play: the employment agreement and the recruitment agreement, the latter of which incorporated the promissory note. (Looking to the substantive terms, the appeals court found the parties did not intend the agreements to function as a single contract. The documents had different durations, contained independent merger clauses, different obligations, and different triggers for contract termination.) The contract at issue here was the recruitment agreement (and promissory note)—and the physician’s alleged breach thereof.

Performance was not excused. In support of his contention that his performance under the contract was excused, the physician alleged that the hospital had fraudulently induced him to sign by misrepresenting the on-call requirements of the OB/Gyn position. Under Arkansas law, though, the remedy for fraudulent inducement is to rescind the contract—meaning the physician would have had to return the remainder of the principal. That didn’t happen. At any rate, neither party disputed that the contract was now indeed terminated; at issue was the consequences of that termination. Applying the plain language of the contract, the appeals court held the remaining balance became due and payable upon termination, and the physician was obligated to return the remainder of the principal. He offered nothing to support his contrary position that he was contractually entitled to retain the loan proceeds.

The physician also contended that his performance was excused on account of his shoulder injury, which prevented him from fulfilling his duties under the agreement. It was clear the injury would impair his ability to perform certain OB/Gyn procedures. But he resigned without engaging in any good-faith negotiations with the hospital about the appropriate course to take from there. The disability was not permanent, as evidenced by the fact that he started working again, in a hospitalist function, within months. And he offered no evidence that the hospital wouldn’t have agreed to “a similar level of performance” on his part to fulfill the contract terms. This defense failed as matter of law, and would not excuse him from paying the remainder of the loan proceeds, the court said.

Attorney fees. The physician also contended on appeal that the district court erred in awarding attorney’s fees and costs to the hospital. However, the promissory note contained an express provision allowing for reasonable “costs and expenses” incurred in collecting the balance due on the note. Under Arkansas law, such a provision in a written agreement is enforceable. And the appeals court rejected the physician’s final long-shot argument that the fee award was improper because the hospital was not the prevailing party in the dispute.