National Medical Care, Inc. v. Zigelbaum

• Decision Date: 29 November 1984
• Citation: 468 N.E.2d 868,18 Mass.App.Ct. 570
• Parties: NATIONAL MEDICAL CARE, INC. et al. 1 v. Sheldon ZIGELBAUM.
• Court: Appeals Court of Massachusetts

Page 868

468 N.E.2d 868

18 Mass.App.Ct. 570

NATIONAL MEDICAL CARE, INC. et al. ¹ v. Sheldon ZIGELBAUM.

Appeals Court of Massachusetts,

Suffolk.

Argued Jan. 12, 1984.

Decided Sept. 26, 1984.

Further Appellate Review Denied Nov. 29, 1984.

Richard M. Zinner, Boston (Kristine A. Doherty, Boston, with him), for defendant.

Paul F. Saba, Boston, for plaintiff.

Before GREANEY, C.J., and KASS and WARNER, JJ.

WARNER, Justice.

On this appeal after a bench trial in the Superior Court, the following facts, gleaned from the documentary evidence and the judge's findings of fact, are undisputed. Under a written agreement dated January 1, 1971, between National Medical Care, Inc. (NMC), and Human Resource Institute, Inc. (HRI) (a wholly owned subsidiary of NMC), providers of health care services, and the defendant, a psychiatrist, the defendant was employed to supervise a psychiatric services division operated by HRI. The original term of employment was to be for four and one half years from January 1, 1971.

Paragraph 5 of the agreement provided in pertinent part: "In any event, this Agreement and the Employee's employment hereunder may be terminated by the Employer [HRI] ... without cause upon the payment to the Employee of an amount equal to six months' salary at his then salary rate, such amount to be paid in full on the termination date" (emphasis supplied). The agreement further provided in paragraph 10: "This Agreement contains the entire agreement of the parties with respect to its subject matter and no waiver, modification or change of any of its provisions shall be valid unless in writing and signed by the parties against whom such claimed waiver, modification or change is sought to be enforced." NMC guaranteed all of the agreements and obligations of HRI.

In February, 1972, the defendant formed a professional corporation, named Community Mental Health Associates, Inc. (CMHA), of which he was the sole officer, director and stockholder. CMHA, however, had a corporate identity separate and distinct from the defendant. It was formed to provide physicians' services to HRI's Boston facility which had previously been secured directly by NMC and HRI. Prior to January 9, 1973, as a result of conversations about the fiscal relationship of CMHA and HRI's Boston facility, the president of NMC and the defendant agreed that CMHA would provide physicians' services to HRI's Boston facility; that HRI would advance operating funds to CMHA; that the defendant's salary in 1973 would be $70,000, half of which would be paid by NMC and half by CMHA; and that because HRI would advance CMHA funds necessary to meet expenses, including the defendant's salary, NMC and HRI would, in effect, guarantee that the defendant would receive $70,000 as salary for 1973. The substance of these agreements, among other things, was contained in a memorandum of January 9, 1973, prepared by the defendant in concert with the president of HRI. It purported to describe a relationship "which began in April 1972, and will terminate December 31, 1974." On the subject of the defendant's salary the memorandum stated: "[S]alary for 1973 will be $70,000. $35,000 of this will be paid by NMC and $35,000 will be derived from CMHA. All previously maintained malpractice insurance, health and accident insurance, pension plan, life insurance, and other fringes will be maintained for [the defendant] at the same benefit levels which obtained in 1972.... The system as described for 1973 will remain in force for 1974." Both the president of NMC and the defendant accepted the fiscal arrangements as outlined in the agreements and memorandum. According to the memorandum, the books of CMHA would be available for audit by "HRI/NMC personnel on an ad lib basis."

On June 25, 1973, NMC sent a letter to the defendant informing him that the boards of directors of NMC and HRI had voted to terminate his employment as of June 30, 1973. The notice specifically referred to the termination without cause provisions of paragraph 5 of the employment contract of January 1, 1971. Further, the letter stated: "Pursuant to the existing arrangement between NMC and [CMHA] such sum of $35,000 [an amount equal to six months' salary at the current rate] will be paid to you from [CMHA] to the extent of available assets therefrom, and if funds are not sufficient, the balance by NMC. In addition, in accordance with said memorandum, we hereby request that an audit be made of the books of [CMHA] by our authorized financial representative." The references in the letter to "the existing arrangement" and the "memorandum" are to the January 9, 1973, memorandum from the defendant to NMC and HRI. Another request for an audit of the books of CMHA was made by letter of July 10, 1973, which referred to the letter of June 25, 1973, to the defendant from NMC. Counsel for the defendant wrote on November 29, 1973, to counsel for NMC, stating in part: "Under Paragraph 5 of said Employment Contract [dated January 1, 1971], six months' salary, amounting to $35,000 was to be 'paid in full on the termination date.' Said amount was not paid in full on June 30, 1973, and, in fact, has not been paid to the date hereof. In view thereof, it seems to me that your client is liable not only for the $35,000, but for all salary and other benefits payable pursuant to said Employment Contract from July 1, 1973, to the date of delivery of said check in the amount of $35,000--for all of which demand is hereby made." NMC's counsel responded by letter of December 21, 1973, that he believed the defendant had received about $27,000 of the termination payment and that the balance would be forthcoming upon completion of the audit of CMHA's books. The purpose of the audit, he said, was "to ascertain the amounts received by [the defendant] from [CMHA]. After the appropriate computations have been made, then we can provide for any remaining payments." An audit ensued over the following several months. In a letter of February 6, 1974, the representatives of NMC stated that the purpose of the audit was "on the understanding that the entire cash balance, as of July 31, 1973, of $20,890.68, together with all future collections from Patient Receivables, were left to [CMHA] to be used for the purpose of paying $35,000 to [the defendant.] Personal expeditures from corporate funds were charged to [the defendant] as a payment on account of the $35,000." ² NMC's audit showed that the defendant owed $2,054.79 to NMC, but the defendant's accountant challenged the propriety of some of the charges; NMC's representative reaffirmed his conclusions. The dispute apparently ended for the time in a stalemate.

The defendant's claims for termination compensation under the employment contract and for regular compensation, such as they were, lay dormant until NMC and HRI commenced this action on August 6, 1976, to compel the surrender by the defendant of fifty shares of HRI common stock repurchased by HRI under a stock purchase agreement. The defendant counterclaimed, seeking, in the alternative, the $35,000 termination payment called for in the employment contract or damages for lost salary and fringe benefits. Judgment was entered ordering the surrender of the stock ³ and, on the counterclaim, ordering NMC and HRI to pay to the defendant $35,000. The defendant's claims for lost salary and other benefits were dismissed. All parties have appealed.

In a detailed memorandum of decision the judge concluded that (1) the termination of the defendant's employment status was "entirely proper, with the exception of the failure to make [the termination] payment," (2) there was no "understanding" or "arrangement" that CMHA would pay all or any part of the termination payment, (3) the defendant was estopped, by his failure timely to assert illegal termination, from claiming loss of salary and fringe benefits for the term remaining under the employment contract, and (4) NMC and HRI had failed to make the required termination payment of $35,000 to the defendant. NMC and HRI challenge conclusions (2) and (4), and the defendant urges error in (1) and (3).

1. Standard of review. "We give due weight to the findings of the judge who has heard the testimony and who has had an opportunity to weigh the credibility of the witnesses. Seder v. Gibbs, 333 Mass. 445, 446 (1956). His findings of fact will not be set aside unless they are clearly erroneous. Mass.R.Civ.P. 52(a), 365 Mass. 816 (1974). However, '[i]nferences from the basic facts ... are open for our decision, and the inferences drawn by the trial judge are entitled to no weight in this court.' Malone v. Walsh, 315 Mass. 484, 490 (1944). Further, as [was] held in Colby v. Callahan, 311 Mass. 727, 729 (1942), where a judge's ultimate findings are inconsistent with his subsidiary findings, we shall set aside the ultimate findings. See Reardon v. Reardon, 345 Mass. 772, 772 (1963); Atwood v. Atwood, 297 Mass. 229, 231-232 (1937); Wyness v. Crowley, 292 Mass. 459, 460-461 (1935). We are not bound by the judge's conclusions of law. Newburyport Soc'y for the Relief of Aged Women v. Noyes, 287 Mass. 530, 532-533 (1934)." Simon v. Weymouth Agricultural & Industrial Soc., 389 Mass. 146, 148-149, 449 N.E.2d 371 (1983).

2. Termination of the defendant's employment. The clause in the employment contract under which NMC ⁴ purported to terminate the defendant's employment provided: "In any event, this Agreement and the Employee's employment hereunder may be terminated by the Employer ... without cause upon the payment to the Employee of an amount equal to six months' salary at his then salary rate, such amount to be paid in full on the termination date" (emphasis supplied). The June 25, 1973, letter advising the defendant of the termination of employment stated the effective date to be June 30, 1973. The construction of the termination clause is a question of law. Freelander v. G. & K. Realty Corp., 357 Mass. 512, 516, ...