Omari v. Kindred Healthcare Operating, Inc., B185113 (Cal. App. 6/7/2007)

• Decision Date: 07 June 2007
• Docket Number: B185113
• Court: California Court of Appeals Court of Appeals
• Parties: TARIK OMARI et al., Plaintiffs and Respondents, v. KINDRED HEALTHCARE OPERATING, INC., et al., Defendants and Appellants.

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TARIK OMARI et al., Plaintiffs and Respondents, v. KINDRED HEALTHCARE OPERATING, INC., et al., Defendants and Appellants.

B185113

Court of Appeals of California, Second Appellate District, Division Four

June 7, 2007

NOT TO BE PUBLISHED

Appeal from a judgment of the Superior Court of Los Angeles County, No. BC280010, Judith C. Chirlin, Judge. Affirmed.

Manatt, Phelps & Phillips, Michael M. Berger, Barry S. Landsberg, Benjamin G. Shatz and Joanna S. McCallum for Defendants and Appellants.

Law Offices of Victor L. George, Victor L. George, Wayne C. Smith; Esner, Chang & Ellis, Andrew N. Chang and Stuart B. Esner for Plaintiffs and Respondents.

MANELLA, J.

INTRODUCTION

Appellants Kindred Healthcare Operating, Inc., Kindred Healthcare Services, Inc. (Kindred), and two Kindred hospitals, Kindred Los Angeles and Kindred Brea, appeal from a judgment entered upon special verdicts finding Kindred liable for breach of contract, fraud and intentional conversion of medical equipment belonging to respondents Tarik Omari and Bio-Tek Technology, Inc., doing business as Tartech.¹ (See appendix A.)² The jury also found by clear and convincing evidence that Kindred committed the fraud or conversion by means of malice, oppression or fraud, and awarded punitive damages. (See appendix B.) Kindred's primary contentions are that the fraud verdicts are not supported by substantial evidence, the court erroneously excluded impeachment evidence, compensatory and punitive damages were excessive and the punitive damage award was invalid under California law and the United States Constitution. We reject appellants' contentions and affirm the judgment.

PROCEDURAL BACKGROUND

The jury returned a verdict against appellants in the sum of $1,828,113, which included damages for emotional distress in the amount of $500,000. In addition, the jury assessed punitive damages against them in the amount of $3,000,000.³ After judgment was entered April 18, 2005, appellants timely filed motions for a new trial and for judgment notwithstanding the verdict. Both motions were denied June 21, 2005, and appellants timely filed a notice of appeal July 19, 2005.

FACTS⁴

In 1981, Tarik Omari immigrated to the United States from Israel, where he had been a college instructor in electronics and computer science. While working full time, Omari obtained a masters degree in biophysics in 1988, and in 1990, formed his own company, American Medical Services Company (American Medical), a sole proprietorship which sold and serviced biomedical and radiology equipment in the San Fernando Valley.

American Medical provided services to several Vencor hospitals beginning in 1997, before Vencor's name was changed to Kindred in 2000.⁵ At that time, American Medical was the primary service contractor for the radiology department at the Kindred hospitals of Los Angeles, Westminster, Brea and Ontario. The chief executive officer (CEO) of Kindred Los Angeles was Judy McCurdy, whom Omari met while providing services between 1997 and 2000. Virgis Narbutas was the CEO of both Kindred Westminster and Kindred Brea, and had previously been CEO of Kindred Ontario. Omari first met Narbutas in 1999, and exchanged greetings with him many times in the cafeteria of Kindred Brea, while providing radiology services for that hospital from 1997 to approximately 2000. On average, Omari would appear personally at one or another Kindred facility weekly to provide services. He never received any complaints about his services.

In 1996, Omari met Ghassan El-Abed, who was then the director of biomedical engineering with the Kindred regional offices. The two became friends, and eventually Omari considered El-Abed his best friend. In 1999, while El-Abed was still employed by Kindred, they began discussing the formation of a biomedical and hemodialysis company. In 2000, after El-Abed left Kindred and while he was employed by Anaheim General Hospital, they incorporated Bio-Tek Technology, Inc., and set about doing business as Tartech, a company Omari had incorporated in 1998. Omari was the CEO and the chief financial officer (CFO), and El-Abed was the secretary of the corporation. Omari and El-Abed did not have a written contract, but agreed that Omari would provide the capital for the venture, and El-Abed would use his contacts to obtain contracts with Kindred hospitals. Omari was to have a 60 percent ownership in the company, and El-Abed was to have a 40 percent interest.

Omari invested $400,000 to start Tartech. He purchased and overhauled five dialysis machines, a portable X-ray machine, a telemetry machine and other equipment and accessories. Omari hired nurses and licensed personnel to service and maintain the medical equipment, as well as a physician to serve as medical director. Tartech also obtained professional liability and worker's compensation insurance, as required of Kindred vendors. At first, because only Omari was licensed to maintain the biomedical machinery, the company hired a temporary biomedical technician; in 2001, it hired Richard Damon as a full-time technician.

Like other hospitals, Kindred required vendors such as Tartech to have written protocols and procedures, and Omari hired a consultant to write them. El-Abed recommended Candy Peter and his good friend, Cynthia Duque, doing business together as "Peter Duque," and El-Abed represented to Omari that Duque and Peter had the necessary expertise to write a protocol and procedures manual. Omari paid Peter Duque $11,000 to write the manual. At some point after retaining Peter Duque, Omari learned that Duque was employed by Kindred. Duque had been the director of nursing at Kindred Ontario before her promotion in 2000 to the position of chief operating officer (COO) of the Brea facility.⁶ Kindred policy forbids employees from entering into separate contracts with vendors or taking money from them.⁷ Omari was unaware of that policy.

Tartech's first contract was with Kindred Los Angeles, and was signed by McCurdy in February 2000; later, Tartech obtained contracts from Westminster, Ontario and Brea. Tartech's income from Kindred hospitals increased every month, and according to respondents' economist, Tartech could have expected a profit beginning November 2001. However, in November 2001, without Omari's knowledge, El-Abed formed a corporation, International Healthcare Resources, Inc. (IHR), in order to take over Tartech's business. El-Abed filed a statement of domestic stock corporation showing himself as the CEO, secretary and member of the board of directors. Duque was listed as the CFO and the only other director.⁸ There were no other officers.

El-Abed and Duque put their plan into action two days after Omari left the country in mid-December 2001 for a family vacation in Israel. El-Abed submitted contract documents to the four Kindred hospitals under contract with Tartech, in order to begin the process of obtaining approval of IHR as a vendor, representing to the hospitals that Tartech had simply changed its name to IHR.⁹ Such an approval process normally takes several weeks, and is overseen by the COO — in Brea's case, Duque. The CFO must also approve the contract prior to the CEO's final approval. The CFO at Brea was John Browne, who, along with Duque, was responsible for verifying compliance with Kindred's vendor requirements checklist.¹⁰ Although the checklist included liability and worker's compensation insurance policies, it was apparent on the certificate of insurance El-Abed submitted to the accounting department that IHR had no liability insurance prior to January 1, 2001, and no worker's compensation insurance at all.

El-Abed informed the accounting department that he would be submitting invoices with the new company name, and Duque assured the person responsible for payment of invoices, Tanzmeister, that El-Abed's information was correct.¹¹ Tanzmeister's note forwarding the contract to Narbutas contained the notation, "Cynthia states all OK." Narbutas signed the contract January 8, 2002, although it was deemed effective November 1, 2001.

In mid-December 2001, El-Abed personally met with McCurdy, CEO of Kindred Los Angeles, who agreed to "renew" Tartech's contract under the "new company name."¹² McCurdy told El-Abed that she liked the services performed by Damon, and would do "whatever it takes" to keep him. Although not clear from the record how IHR became a vendor for Kindred Westminster, by late December Tartech had been replaced by IHR, and outstanding invoices for services performed by Tartech as of November 1, 2001, were paid to IHR by Kindred Westminster, Brea, Los Angeles and Ontario. El-Abed offered jobs to Tartech's employees, and by the end of December 2001, most of them were employed by IHR, paid with the money diverted from Tartech. Thereafter, IHR provided the services Tartech had previously provided, using Tartech's equipment and employees, including licensed biomedical technician, Richard Damon.

On December 27, 2001, El-Abed hosted a holiday luncheon for Kindred staff to celebrate his new company. He purchased gifts for them — an iPod for the director of nursing, a Palm Pilot or Blackberry for Narbutas, an expensive pen set for Browne, perfume for Tanzmeister, and for Duque, a cell phone with service included.¹³

Before leaving for his vacation in mid-December 2001, Omari had signed several blank checks and left them with El-Abed to be used for Tartech expenses during his absence. El-Abed admitted writing one of the checks to cash for $3,000 and depositing it into his personal account. When the check was returned due to insufficient funds, the bank telephoned Omari in Israel to inform him that there were no more funds in his account and that several checks had been returned unpaid. Omari called El-Abed, who behaved as though he did not know what was happening, and said it must be a mistake. Omari cut his vacation short and returned.

Once home, Omari discovered El-Abed's fraud. In...