Opinion ID: 1897035
Heading Depth: 1
Heading Rank: 1

Heading: facts

Text: Many of the facts are not disputed. We set forth the facts substantially as they are included in the hospital's brief. East End Memorial Association, d/b/a Medical Center East (East End), the plaintiff-appellant herein, is a not-for-profit, membership association corporation, composed of more than 300 individuals, companies, and churches making up 3,000 to 3,500 membership votes. East End was set up in approximately 1946 by individual citizens and civic clubs who saw a need for a hospital on the eastern side of Birmingham. These individuals, civic clubs, and churches raised money to purchase the female dormitory at the old Howard College campus, and they converted it into a 66-bed hospital. In 1978, one of the geographic areas served by East End was the city of Trussville, located in the eastern part of Jefferson County. Prior to 1978, a Dr. Thompson was running a family practice in Trussville, and sometime in 1977 defendant-appellee Dr. Karl Egerman opened a pediatric practice in Trussville. Dr. Thompson and Dr. Egerman were the only physicians in the Trussville area at that time. Dr. Thompson, as a member of the medical staff of East End, customarily sent his patients needing hospital services to East End. It was estimated that 55 to 65 percent of the people in Trussville who needed hospitalization used East End. Sometime in 1978, Dr. Thompson retired and sold his office and medical practice to Carraway Methodist Medical Center. East End, realizing that it no longer had a family practitioner in the Trussville area, assessed the community needs to determine if another family practitioner was needed by the community and could be supported by the Trussville community. Based upon the information that the Birmingham Regional Health Systems Agency had gathered from the American Medical Association, the American Hospital Association, and other medical planning entities throughout the country, East End determined that the population of the Trussville area would support a minimum of at least two additional primary care physicians. With the statistical data in hand showing that the Trussville area population could support another family practice, East End made the decision to set up a family practice clinic in the Trussville area. Evidence presented shows that the forecast made by East End was valid. There are currently three family practice physicians serving the area in addition to Dr. Egerman. At the time of the proposal, there was only one. East End's general approach, after determining that there was a need for a clinic in a given locality, was to first offer the opportunity to a staff physician. That staff physician could employ an additional physician or take on a partner. If no staff member accepted the offer, then East End would recruit an outside physician and assist that physician in establishing his own office. Dr. Karl Egerman, a member of the staff of East End, was offered the opportunity to employ a family practitioner in Trussville with assistance from East End or to become an employee of an East End-owned clinic if that was his preference, and East End would recruit the additional physician for him. Dr. Egerman accepted the offer to employ an additional physician in his own practice. East End had a gross guarantee program that it had used before, successfully, to assist new doctors in operating their own clinics. Under this gross guarantee program, East End, for the doctor's first year of practice, would guarantee that the physician would gross a specified amount of income to be generated through the doctor's private practice, teaching, and other resources, such as working in East End's emergency room. The physician could also borrow interest-free money from East End as start up money, as needed, to help establish his medical practice. The gross income guarantee amount is based on anticipated gross income to be generated from all sources during the first year of practice. Stated simply, the gross guarantee program is designed to help the physician get started, and to guarantee him a fixed amount of gross income for his first year, even if he grosses less than what was anticipated. [1] Under the gross guarantee plan, East End does not get involved in the physician's internal operation. The doctor would select his own quarters and would make his own decisions about equipment purchases and about whom he would hire and what he would pay them. He would set his own salary or draw, if any. East End could review the physician's books at the end of the year and, if there was a dispute, could determine whether the guarantee amount had been met. East End had no right to look at the physician's books until after the end of the guarantee period. Loans were advanced when, and in amounts, requested by the physician. East End had entered into this gross guarantee arrangement with six physicians previously, and the arrangements proved acceptable to East End. This one obviously did not. At about the same time that the gross guarantee program was being offered to Dr. Egerman, two Canadian physicians, who had practiced only one year, contacted East End by letter, expressing an interest in looking at opportunities in Birmingham. These doctors, Norman Abramson and Bryan McClelland, visited Birmingham from Canada and met with Karl and Ilene Egerman, along with executives of East End. After meeting with these doctors, Dr. Egerman asked East End if it would be interested in sponsoring the two new physicians at one time in a gross guarantee program along with himself. He indicated that he wanted both of them, although there were discussions about taking only one doctor at a time. A September 4, 1978, memorandum from Robert C. Chapman, then executive vice-president of East End, to East End's board of directors recited in pertinent part: Dr. Karl Egerman, a Pediatrician practicing in Trussville, has agreed to establish a group practice and take the two family practice physicians EEMH has recruited for Trussville into this group. In addition, Dr. Egerman has purchased land and started construction on a new physicians' clinic at a cost of $250,000.00. The establishment of this group and construction of the office building has been done to assist EEMH in reestablishing and expanding its market share in Trussville. Since the retirement of Dr. Thompson and the opening of the Carraway Services Clinic in Trussville, EEMH's patient load from Trussville has declined. The decline has been due to lack of family physicians in Trussville on EEMH's staff. The opening of the Trussville Medical Clinic, P.A., in November, 1978, with Dr. Egerman and the two new family practice physicians (Dr. McClelland and Dr. Abramson) is greatly needed and should give a boost to EEMH's patient days.... East End agreed to sponsor all three doctors. The actual agreement is evidenced by the following letter to Egerman: Karl E. Egerman, M.D. 116 South Chalkville Road Trussville, Alabama 35173 Dear Dr. Egerman: At the September 18, 1978, meeting of the East End Memorial Association Board of Directors the following guarantees, assistances and/or agreements were approved for the Trussville Medical Clinic, P.A.: 1. Guaranteed annual gross income of $240,000.00 for the first year of practice for three physicians. Gross income is defined as all income received from any source in rendering care to patients, teaching, etc., and is based on billings. Such payment by the Hospital, if any, shall be made as promptly as may be practicable following the end of the first year of practice. The Trussville Medical Clinic, P.A., agrees that its books, records, reports and accounts reflecting its gross billings for professional services and other income during this first year shall be made available to East End Memorial Hospital upon request to determine the Hospital's liability, if any, under this guarantee. Advances against the guarantee will be made upon request, but must be paid back at the end of the first year if the Hospital has no liability under this guarantee. 2. It is the intention of both parties that this agreement shall become effective on the date two Family Practice Physicians begin practicing with Dr. Karl E. Egerman of the Trussville Medical Clinic, P.A., or on December 1, 1978, whichever occurs first. 3. Above-defined guarantees, assistances and/or agreements are contingent upon all physician members and/or physician employees of the Trussville Medical Clinic, P.A., maintaining an Active or Associate Staff position on the East End Memorial Hospital Medical Staff which includes obtaining and maintaining in force professional malpractice insurance coverage in the same amounts required for any member of the Medical Staff. If the above are acceptable to you, please sign both copies and return the original to me for the Hospital's files. We are looking forward to the opening of the Trussville Medical Clinic and to a long affiliation with your P.A. Sincerely, /s/Robert C. Chapman Robert C. Chapman Executive Vice President RCC/mh Accepted by: /s/Karl E. Egerman 10/4/78 KARL E. EGERMAN, M.D. DATE Attested by: /s/Larry K. Anderson 10/4/78 DATE On the advice of Dr. Egerman's lawyer and his accountant, Dr. Egerman had formed the professional association called Trussville Medical Clinic, P.A. (hereinafter TMC), which was to employ Dr. Egerman and the other two physicians. It was established so that Dr. Egerman had total control. Dr. Egerman searched for office space but could not find any that he considered satisfactory. A group of investors in Trussville offered to build Dr. Egerman a building that he could rent; however, this lease offer was well above the going rate. Additionally, Dr. Egerman was going to have to personally guarantee the lease for TMC. All of this being unsatisfactory to Dr. Egerman, he and his wife, Ilene, decided to personally buy land and build a facility for TMC to rent. The Egermans completed construction of the clinic and the gross guarantee program was begun in October 1978. Beginning with Dr. Egerman's first request for money assistance advances in October 1978, through the last request on February 4, 1980, Dr. Egerman received an undisputed $176,800.00 from East End. In early 1979, within the guarantee program period, Dr. Egerman proposed the establishment of a satellite clinic in Odenville, Alabama. This satellite clinic was to be run by TMC and was to employ an additional physician. An additional gross guarantee of $80,000.00 was requested for Odenville by Dr. Egerman and it was approved by East End for this project; but Dr. Egerman never requested any funds for this clinic. Dr. Egerman and his wife bought some property in Odenville and purchased a specially built mobile home for an office. After only a few months of operation, Dr. Egerman sold the satellite clinic. He told East End that he had been talking with Brookwood Hospital about its buying the Odenville Clinic and he then offered to sell it to East End. East End agreed to purchase the Odenville Clinic from Dr. and Mrs. Egerman. The Egermans realized a $24,000.00 profit on the sale. In February 1981, after the last money advance to TMC, East End began discussions with Dr. Egerman's representative concerning repayment of the $176,800.00 advanced to him. Dr. Egerman, through an attorney, on March 16, 1981, advised East End that, basically, the guarantee had been made with TMC, not Dr. Karl Egerman as an individual, and that because of the financial situation of TMC, it was unable to repay any of the monies that had been advanced. The attorney stated that TMC was insolvent and was seriously considering filing a bankruptcy petition. The attorney also claimed that East End had made misrepresentations to Dr. Egerman and that he had been caused to suffer financially because of his reliance on them. The attorney proposed to release East End of all possible liability in return for a cash payment in the sum of $20,000.00 to TMC. After further unsuccessful discussions, this lawsuit for recovery of the $176,800.00 was instituted against TMC and Dr. and Mrs. Egerman under various theories of contract, fraud, alter ego, and constructive trust. TMC answered, alleging that it did not owe the $176,800.00 because it had been misled or fraudulently induced by East End to establish and operate the Trussville clinic, and later filed a counterclaim based on fraud. After full and lengthy discovery was had by all parties, this case was heard by a jury. When the trial proceedings of approximately one and one-half weeks were completed, the case was submitted to the jury by way of special interrogatories, with the jury acting in an advisory capacity as permitted by Rule 39(c), Ala.R.Civ.P., on the equitable issues. The special interrogatories asked if Dr. Egerman or TMC was liable to East End on a contract theory; if Dr. Egerman, Ilene Egerman, or TMC was liable to East End on a fraud theory; whether Dr. Egerman or Ilene Egerman was liable to East End on an alter-ego theory; and, on the counterclaim, whether East End was liable to Dr. Egerman and TMC under a fraud theory. The jury answered the questions by denying all claims of all parties. East End filed a timely motion for judgment notwithstanding the verdict, or in the alternative, motion for new trial, on all of its legal issues for the court to consider along with the equitable alter-ego and constructive trust issues. After taking these matters under advisement, the trial court, in an opinion and order dated March 10, 1986, granted East End's motion for judgment notwithstanding the verdict, or in the alternative, motion for new trial and entered judgment against TMC on the contract theory in the amount of $176,800 plus interest of $66,555.00, denied East End's motion for judgment notwithstanding the verdict, or in the alternative, motion for new trial on its fraud claims, and held against East End on the equitable claims that Karl and Ilene Egerman should be held personally liable because they were merely an alter ego of the clinic.