MEDI-CEN v. Birschbach

• Decision Date: 30 November 1998
• Docket Number: No. 27,27
• Citation: 123 Md. App. 765,720 A.2d 966
• Parties: MEDI-CEN CORPORATION OF MARYLAND v. H. Robert BIRSCHBACH, M.D., Chartered.
• Court: Court of Special Appeals of Maryland

720 A.2d 966

123 Md. App. 765

MEDI-CEN CORPORATION OF MARYLAND v. H. Robert BIRSCHBACH, M.D., Chartered.

No. 27, Sept. Term, 1998.

Court of Special Appeals of Maryland.

November 30, 1998.

Robin G. Banks (Howard G. Goldberg and Goldberg, Pike & Besche, P.C. on the brief), Baltimore, for appellant.

Ronald L. Early (Lerch, Early & Brewer, Chartered on the brief), Bethesda, for appellee.

Argued before HARRELL, J., and JAMES S. GETTY, Judge (retired), Specially Assigned, and ESSOM V. RICKS, Jr., Judge, Specially Assigned.

HARRELL, Judge.

The genesis of this appeal is an action brought in the Circuit Court for Montgomery County by H. Robert Birschbach, M.D. Chartered (Dr. Birschbach), appellee, against Medi-Cen Corporation of Maryland (Medi-Cen), appellant. On 8 August 1996, Dr. Birschbach filed a complaint in the circuit court alleging breach of contract and conversion with regard to his share of accounts receivable that Medi-Cen had collected, or was to collect, from medical patients the doctor had treated. Following a bench trial on 15 and 16 April 1997, the court entered judgment in favor of Dr. Birschbach in the amount of $81,739.04, plus prejudgment interest and costs. For purposes of the instant appeal, it appears that the $81,739.04 award was composed of two basic amounts: (a) $28,741.91, representing 50% of the face amount ($57,483.82) of uncollected accounts receivable for medical services rendered prior to contract termination (1 May 1996), and (b) $52,997.13, representing Dr. Birschbach's share of revenues collected, improper withdrawals, and refunds. As to that judgment, appellant raises in this appeal the following issue which we have rephrased, only as to component (a) of the award:

Whether the trial court erred by awarding the sum of 50% of all outstanding, uncollected accounts receivable for services rendered prior to 1 May 1996.

FACTS

On 29 January 1995, Dr. Birschbach, a physician specializing in internal medicine and gastroenterology, and Medi-Cen, a corporation specializing in administrative billing and marketing services, entered into an Associate Physician Membership Agreement (the Agreement). Pursuant to the Agreement, Medi-Cen was responsible, among other things, for billing and collecting payments from Dr. Birschbach's patients.¹ Medi-Cen deposited the proceeds collected in a bank account owned by Dr. Birschbach, but accessible by both Dr. Birschbach and Medi-Cen, as provided in the Agreement. As compensation for its performance pursuant to the Agreement, Medi-Cen was entitled to withdraw one-half of the collected funds from the bank account on the fifteenth day of each month. The remaining funds were Dr. Birschbach's.

In order to enable Medi-Cen to perform its billing and collection undertakings, Dr. Birschbach provided Medi-Cen's billing service, Health and Quality Management (HQM), with the raw data regarding the services and charges applicable to his patients. Dr. Birschbach kept no copies of this data.

On 26 March 1996, Dr. Birschbach gave Medi-Cen notice that he intended to terminate the Agreement, effective 1 May 1996. Medi-Cen accepted the termination. Both Dr. Birschbach and Medi-Cen assumed that, even after the effective date of termination of the Agreement, Medi-Cen would continue its billing and collection efforts for all services Dr. Birschbach had rendered prior to 1 May 1996 and for which he had provided raw data to HQM. For these services, Medi-Cen would continue to collect its 50% share for all of Dr. Birschbach's accounts receivable accrued, but unpaid, as of 1 May 1996.²

Although Medi-Cen continued collecting the accounts receivable, it did not remit to Dr. Birschbach the 50% portion to which he was entitled. In fact, Dr. Birschbach did not receive a payment from Medi-Cen after 30 April 1996.

On 8 August 1996, Dr. Birschbach filed a complaint in the Circuit Court for Montgomery County alleging breach of contract and conversion.³ After conducting a bench trial on 15 and 16 April 1997, the court found that Medi-Cen had "entirely commandeered [the] accounts receivable as theirs, their property to do with whatever they wish[ed]." Although the court acknowledged that "[t]he record is silent as to whether or not [Medi-Cen]... ever collected any of that [sic] accounts receivable," the court found that the record was "not silent on the question on the amount of those accounts receivable, which is doubled $28,741.91." The court entered judgment in favor of Dr. Birschbach in the amount of $81,739.04, plus prejudgment interest and costs. As noted supra, the $81,739.04 award included $28,741.91, representing 50% of all outstanding uncollected accounts receivable ($57,483.82) for services rendered prior to 1 May 1996.⁴

STANDARD OF REVIEW

Maryland Rule 8-131(c) states:

Action tried without a jury. When an action has been tried without a jury, the appellate court will review the case on both the law and the evidence. It will not set aside the judgment of the trial court on the evidence unless clearly erroneous, and will give due regard to the opportunity of the trial court to judge the credibility of the witnesses.

This Court's standard of review depends upon whether the lower court's ruling being scrutinized was a finding of fact or a conclusion of law. Himelstein v. Arrow Cab, 113 Md.App. 530, 536, 688 A.2d 491 (1997), aff'd, 348 Md. 558, 705 A.2d 294 (1998). "[T]he appellate court should not substitute its judgment for that of the trial court on its findings of fact but will only determine whether those findings are clearly erroneous in light of the total evidence." Van Wyk v. Fruitrade, 98 Md.App. 662, 669, 635 A.2d 14 (1994) (quoting $3,417.46 U.S. Money v. Kinnamon, 326 Md. 141, 149, 604 A.2d 64 (1992)). In contrast, the clearly erroneous standard does not apply to the trial court's determinations of legal questions or to the legal conclusions it draws from its factual findings. Id. (citing Davis v. Davis, 280 Md. 119, 124, 372 A.2d 231 (1977)). The appropriate standard of review in these instances is whether the trial court was legally correct. Himelstein, 113 Md.App. at 536, 688 A.2d 491.

DISCUSSION In order to resolve the parties' dispute as to whether the trial court's award to Dr. Birschbach of 50% of the face value of all outstanding, uncollected accounts receivable was correct, we must examine three issues. Initially, we must determine a definition of "accounts receivable." Second, using this definition, we must analyze whether accounts receivable are property subject to conversion. Finally, if accounts receivable are subject to conversion, we must determine if the circuit court properly valued such property for purposes of the instant conversion action.

A.

We can locate no Maryland cases defining what is an "account receivable." Accordingly, we have looked abroad for guidance. Black's Law Dictionary defines accounts receivable as:

A debt owed to an enterprise, that arises in the normal course of business dealings and is not supported by negotiable paper. For example, the charge accounts of a department store. But income due from investments (unless investments are the business itself) is not usually shown in accounts receivable. A claim against a debtor usually arising from sales or services rendered; not necessarily due or past due.

Black's Law Dictionary 18 (6th ed.1990). Similarly, Webster's Dictionary describes accounts receivable as "a balance due from a debtor on a current account." Merriam Webster's Collegiate Dictionary 8 (10th ed.1993) (emphasis added). In National Bank of Newport v. National Herkimer County Bank, 225 U.S. 178, 32 S.Ct. 633, 56 L.Ed. 1042 (1912), the U.S. Supreme Court examined accounts receivable in the context of bankruptcy law. There, the Court described accounts receivable as "the amounts owing to [a debtor] on open account." Id. at 184, 32 S.Ct. 633. In Chester v. Jones, 386 S.W.2d 544 (Tex.Civ.App.1965), the Texas Court of Civil Appeals analyzed accounts receivable in calculating the amount owed in an accounting. The court described accounts receivable as "contractional obligations owing to a person on an open account." Id. at 547 (citing Valley Nat'l Bank of Phoenix v. Shumway, 63 Ariz. 490, 163 P.2d 676 (Ariz. 1945); West Virginia Pulp & Paper Co. v. Karnes, 137 Va. 714, 120 S.E. 321 (1923)).

After carefully reflecting upon these definitions, we adopt a definition of "account receivable" as:

A balance due from a debtor on an open account, usually for services rendered or goods provided. Such a debt arises in the normal course of business dealings.

B.

The tort of conversion is generally defined as "the wrongful exercise of dominion by one person over the personal property of another." Kalb v. Vega, 56 Md.App. 653, 665, 468 A.2d 676 (1983) (citation omitted). The measure of damages relating to a conversion is determined by the value of the property at the time of the conversion, plus interest. Id. Whether a conversion has occurred is not necessarily determined by the manner in which the defendant acquires the property, but rather his wrongful exercise of dominion over the property. Id. at 666, 468 A.2d 676 (citations omitted). As this Court stated in Allied Investment Corp. v. Jasen, 123 Md.App. 88, 100, 716 A.2d 1085 (1998) (citations omitted):

In determining the seriousness of the interference with the plaintiff's rights, the court should consider factors such as (1) the extent and duration of the defendant's exercise and control; (2) the defendant's intent to assert a right which is inconsistent with the plaintiff's right of control; (3) the defendant's good faith or bad intentions; (4) the extent and duration of the resulting interference with the plaintiff's right of control; (5) the harm done to the chattel; and (6) the expense and inconvenience caused to the plaintiff.

Although conversion may involve nothing more than the improper withholding of property from the owner, it may occur "when the person in...