Jabczenski v. Southern Pac. Memorial Hospitals
| Decision Date | 03 March 1978 |
| Docket Number | CA-CIV,No. 2,2 |
| Citation | 579 P.2d 53,119 Ariz. 15 |
| Parties | Felix F. JABCZENSKI, M. D., Max Baumeister, Jr., M. D., Milton Davis, Jr., M. D., Ruben Acosta, M. D., Jacob B. Redekop, M. D., Stanley S. Tanz, M. D., Donald L. Knutson, M. D., Hector L. Garcia, M. D., Gerrit Dangremond, M. D., John Does 1 through 10, M. D.s, Appellants, v. SOUTHERN PACIFIC MEMORIAL HOSPITALS, INC., A. B. McNabney, Helen B. McNabney, husband and wife, Vance M. Strange, M. D., Harold L. Upjohn, M. D., and Jane Doe Upjohn, husband and wife, Appellees. 2680. |
| Court | Arizona Court of Appeals |
L. Tipton Jackson, Jr., Tucson, for appellants Jabczenski, Baumeister, Davis, Acosta, Redekop & Tanz.
Ettinger & Deckter, P. C. by Jack A. Ettinger and Louis L. Deckter, Tucson, for appellants Knutson, Garcia & Dangremond.
by Joseph R. McDonald, Tucson, for appellees Southern Pac. Memorial Hospitals, Inc., McNabney & Strange.
Slutes, Browning, Zlaket & Sakrison, P. C. by D. Thompson Slutes, Tucson, for appellees Upjohn.
The appellants/plaintiffs bring this appeal to challenge a summary judgment in favor of appellees. In reviewing the granting of the summary judgment we shall view the evidence and all reasonable inferences that may be drawn therefrom in the light most favorable to appellants. Poggi v. Kates, 115 Ariz. 157, 564 P.2d 380 (1977).
Appellants are physicians who were employed by the Southern Pacific Employees Hospital Association (SPEHA), a non-profit corporation, to provide medical services for the members of SPEHA. SPEHA was organized to provide health care to Southern Pacific employees. It was a prepaid health plan which provided the doctors for the members of the plan. The appellants, as employees of SPEHA, had privileges at the Carl Hayden Hospital as at any other hospital. Most of the services were performed at Carl Hayden Hospital, but some of the services could be performed elsewhere in Tucson. The difference between SPEHA and companies like Blue Cross and Blue Shield was that SPEHA did not merely offer insurance, but actually delivered the health care through the doctors it hired.
The Southern Pacific Memorial Hospitals, Inc. (SPMHI), owned the Carl Hayden Hospital in Tucson, Arizona and also the Harkness Community Hospital in San Francisco. SPMHI provided the hospital facilities. It had a "capitation" agreement with SPEHA whereby SPMHI provided the hospital facilities to members of SPEHA for a certain amount per member per year.
Starting in 1967 appellants entered into agreements with SPEHA whereby a portion of their compensation was to be deferred until a later date. The agreements, which provided for specific monthly amounts to be paid to the doctor commencing at a future date, also had provisions as to termination of employment prior to the inception of payments. If the doctor's employment was terminated for certain specified wrongful conduct, neither he nor his beneficiaries were entitled to any payments. However, if the termination was for any other reason, prior to the inception of payments, the payments were to be made according to the tables attached to the agreement. The agreement contained no provisions as to how they were to be funded nor as to how much was to be deferred from the salary of the doctors in consideration of the payments provided for in the agreement.
In order to fund the agreement SPEHA purchased annuity contracts from an insurance company. Each contract named an individual doctor as the insured with SPEHA as the owner and beneficiary of the policy. Appellee McNabney was the business manager for SPEHA in charge of organizing the deferred compensation agreement. He was assisted in the project by appellee Vance M. Strange, the chief surgeon for SPEHA. McNabney was also the administrator of the hospital facilities for SPMHI.
Appellee Harold Upjohn came to California in 1970 at which time he formed two corporations, Health Maintenance, Inc. of Northern California (NorCal) and Health Maintenance Foundation (HMF), a non-profit corporation. HMF was organized to perform the same type of health services as was being provided by SPEHA. SPEHA was having financial difficulties so it entered into a service agreement with HMF by which HMF took over SPEHA's prepaid medical plan. To further this purpose SPEHA transferred to HMF all of its assets and HMF assumed all of SPEHA's liabilities. At the same time NorCal leased the Carl Hayden Hospital in Tucson and the Harkness Community Hospital in San Francisco from SPMHI. The assets of SPEHA consisted of dues paid by its members, and a substantial amount of cash was turned over to HMF in 1971. The insurance annuities which SPEHA had purchased to fund the deferred compensation plan were not initially assigned to HMF nor were the employment contracts between the doctors and SPEHA immediately transferred to HMF. The service agreement specifically set forth that as soon as the "complex" relationship between the physicians and SPEHA was determined, HMF would have the right to have that relationship transferred to it. In the meantime, HMF agreed to fund SPEHA's deferred compensation plan.
In the spring of 1973 the lawyers for HMF informed SPEHA that unless the doctors and the annuities were transferred to HMF there was a substantial risk that the tax savings of the deferred compensation plan would be lost based upon certain internal revenue rulings. In essence, the lawyers were of the opinion that in order to avoid having the doctors immediately taxed on the deferred portion of their salary, it would be necessary for the doctors to be employees of the corporation which was providing the medical services under the prepaid plan. Then the employer as the owner, would be making the contributions and the amounts accrued would not be subject to the general creditors of the doctors.
SPEHA was reluctant to turn the annuity contracts over to HMF because there was a risk that mismanagement by HMF might jeopardize the contracts. However, it recognized that this same risk existed under SPEHA and when balanced against the possibility that the tax benefits of the plan might be lost, it transferred the annuity contracts to HMF and the doctors became employees of HMF.
The board of directors of HMF, after receiving the annuity contracts, decided that a greater rate of interest could be achieved by cashing the annuity contracts and placing the funds in certificates of deposit. It instructed its president to do so. The president, without the knowledge of the board members, including Dr. Upjohn as chairman of the board, cashed the policies but failed to place all the funds received into certificates of deposit. Instead, he spent $500,000 to meet the current operating expenses of HMF. Dr. Upjohn first learned of the president's actions at a board meeting held on October 8, 1974. When Dr. Upjohn and the other directors learned of the disposition of the funds by the president, the board ratified the expenditure. It then passed a resolution authorizing the president to expend the balance of the funds to meet current expenses. The resolution which authorized the expenditure stated that the funds received from the annuity contracts were assets of HMF which did not need to be separated from the general assets of HMF and that use of the funds to purchase medical services for its members would result in favorable public relations and new members.
When HMF took over SPEHA's prepaid plan it initially succeeded in changing a losing situation into a break-even situation. However, by late 1974, HMF was experiencing heavy losses because members of HMF demanded to be served locally rather than being sent to the Southern Pacific hospitals in distant cities such as Tucson and San Francisco. HMF filed a petition for reorganization under Chapter 11 of the Bankruptcy Act, 11 U.S.C.A. § 701 et seq. Appellants then filed this action.
The amended complaint cannot be considered as a shining example of pleading. Although one can deduce the existence of separate claims for relief, there are no separate counts pleaded. The gist of the amended complaint is that the appellees, SPEHA, SPMHI, McNabney and Strange secured money from appellants by telling them that the deferred compensation funds would be invested in insurance annuity contracts whereas in truth and fact it was all a scheme or plan by the appellees to secure the doctors' money so that it could be given to HMF for HMF's own wrongful use and benefit. The amended complaint seems to allege a breach of contract, fraud, an action for damages arising out of acts committed pursuant to a conspiracy, and conversion.
Appellees moved for summary judgment based upon the pleadings and depositions filed with the court. In opposition, appellants filed three affidavits. One is an affidavit of appellants' attorney wherein he states that he had spoken to all of the doctors and that they told him that McNabney represented to them that the funds in the deferred compensation would be held " in trust" and invested on their behalf. This affidavit, based upon hearsay, cannot be considered. Rule 56(e), Arizona Rules of Civil Procedure. Appellants also presented the affidavits of Drs. Jabczenski and Knutson. Dr. Jabczenski's affidavit states in part:
"* * *
5. That defendants McNabney, as Business Manager of Association, and Strange, as Chief Surgeon of Association, orally represented the operation of said 'deferred compensation' program to affiant as follows:
a) that the specific monies deferred from affiant's periodic salary would be invested in life insurance annuity policies upon the life of affiant and for the affiant by the Association.
b) that the annuity policy purchased for the benefit of affiant was purchased with affiant's monies withheld from his periodic salary under the 'deferred compensation' program.
c) that the Association was merely...
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