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Catamount Radiology, P.C. v. Bailey

United States District Court, D. Vermont

June 18, 2015

Catamount Radiology, P.C., and Scott D. Smith, M.D., Plaintiffs,
v.
Yvette Bailey, M.D., Defendant. Yvette Bailey, M.D., Counterclaim Plaintiff And Third-Party Plaintiff
v.
Scott D. Smith, M.D.; Catamount Radiology, P.C.; Joseph Woodin; Rebecca O'Berry; and Gifford Medical Center, Inc., Counterclaim Defendants And Third-Party Defendants.

MEMORANDUM AND ORDER (Docs. 12, 16)

GARVAN MURTHA, District Judge.

I. Introduction

This case arises from a dispute between medical service professionals.

On October 9, 2014, Plaintiffs Catamount Radiology, P.C. ("Catamount") and Scott D. Smith, M.D. filed a Complaint against Yvette Bailey, M.D., seeking a declaratory judgment and alleging fraud in the inducement, tortious interference with contract, and breach of good faith and fair dealing. (Doc. 1.)

On December 4, 2014, Defendant Bailey filed an Answer containing Counterclaims and Third-Party Claims. (Doc. 5.) Bailey adds Third-Party Defendants Gifford Medical Center, Inc., Joseph Woodin, and Rebecca O'Berry. Bailey's Counterclaims include breach of fiduciary duty against Smith, fraudulent misrepresentation against Smith, breach of Employment Agreement against Smith and Catamount, breach of Shareholders' Agreement against Smith, breach of implied covenant of good faith and fair dealing against Smith and Catamount, promissory estoppel against Smith and Gifford, unjust enrichment/quantum meruit against Smith, Catamount, and Gifford, negligent misrepresentation against Woodin and Gifford, defamation against O'Berry, and defamation against Smith. (Doc. 5.)

Subsequently, Plaintiffs/Counterclaim Defendants Smith and Catamount moved for judgment on the pleadings (Doc. 12), and Third-Party Defendants Woodin, O'Berry, and Gifford moved for judgment on the pleadings (Doc. 16.). Defendant (and Counterclaim Plaintiff) Bailey opposes both motions. (Docs. 13, 18.)

II. Background

All facts are taken from the Answer and Counterclaims (Doc. 5 (Counterclaims)), which the Court treats as true for the purposes of resolving this motion, and accompanying exhibits.

Dr. Yvette Bailey is a radiologist residing in Connecticut. (Counterclaims ¶ 1.) Dr. Scott Smith is a radiologist residing in Vermont. (Id. ¶ 2.) Before January 1, 2014 Smith was the undisputed sole shareholder of Catamount Radiology, P.C. ("Catamount"), the exclusive radiology services provider for Gifford Medical Center, Inc. ("Gifford"). (Id.)

Until the summer of 2013, Smith had shared ownership in Catamount with another doctor. (Id. ¶ 10.) Following that doctor's departure, Gifford sought a replacement to join Smith at Catamount. (Id. ¶ 11.) In September of 2013, Gifford arranged for Bailey to undergo several interviews with employees of Gifford and with Smith. (Id. ¶ 13.) Bailey informed Smith and Catamount she would have to give up valuable opportunities at her radiology consulting firm and as medical director of an insurance company if she accepted an offer to work at Catamount. (Id. ¶ 18.)

On September 24, 2013, Smith offered Bailey a position at Catamount. (Id. ¶ 19.) Bailey then negotiated the terms of her relationship with Catamount, Smith, and Gifford, speaking primarily with Joseph Woodin, the Gifford CEO. (Id.) Bailey alleges during a conversation with Woodin she agreed to a period of three months as an employee of Catamount, rather than an owner, "only if the hospital will agree [Smith] will not have unilateral power to terminate [her]." (Id. ¶ 21.) Bailey also alleges Smith warranted he would depart Catamount by the summer of 2014, leaving her as the sole shareholder. (Id. ¶ 22.)

On November 17, 2013, Catamount, Smith, and Bailey entered into the Shareholders' Agreement (Doc. 5-2), which provided for a three-month "provisional employment period" for Bailey. (Counterclaims ¶ 24). During this three-month period, their relationship would be governed by the Employment Agreement. (Doc. 5-3). After the three-month period had elapsed, the Shareholder's Agreement would apply retroactively to January 1, 2014. (Doc. 5-2, ¶ 1.6.)

The Shareholders' Agreement provides for 20 shares of stock in Catamount, to be divided between two shareholders. The parties dispute whether Bailey ever acquired stock in Catamount. The Shareholders' Agreement states in a "whereas" clause that "after a three month provisional employment period for Bailey... Smith and Bailey shall each become an owner of fifty-percent of the issued and outstanding shares of capital stock." (Doc. 5-2.) Thus, Bailey argues after three months she automatically became a fifty percent shareholder in Catamount. The Shareholders' Agreement also provides, however, Catamount "shall issue a stock certificate to each Stockholder confirming that said Stockholder owns ten (10) Shares" "[u]pon receipt of payment for shares." (Id. ¶ 1.1) Bailey never paid for shares. Consequently Smith and Catamount argue Bailey never became a shareholder in Catamount.

Bailey started work in December of 2013. Beginning in January of 2014, Smith reduced her wages from $21, 000 to $16, 800 a month. (Counterclaims ¶ 31.) The Employment Agreement provided Catamount pay Bailey $21, 000 per month "for the remainder of 2013" and to pay her "for time covered" after January 1, 2014. (Doc. 5-3, Attachment B.) The Shareholders' Agreement, effective three months after Bailey began working and applicable retroactively to January 1, provided "Smith and Bailey shall receive equal compensation and benefits." (Doc. 5-2, ¶ 1.5.)

During Bailey's time working at Catamount, Smith made several disparaging comments about her work. (Counterclaims ¶ 136.) On February 11, 2014, Smith informed Gifford employees "he was carrying Dr. Bailey's workload" and complained she could not perform mammograms. (Id. ¶ 137.) He did not, however, disclose he was intentionally diverting work from Bailey and he had canceled her training on the Hologic machine, which prevented her from performing mammograms. (Id.) In late March of 2014, Smith told Gifford employees he distrusted her capabilities as a radiologist because she was incapable of distinguishing shades of gray on a DICOM reader. (Id. ¶ 140.) Bailey contends the subtle gray highlight was inadequate to denote a stat case, and in fact the manufacturer changed the color code at her recommendation. (Id. ¶ 139.) In March of 2014, Smith told Gifford administrators Bailey "clearly did not know what she was doing" after she asked him how to use an unfamiliar brand of drainage catheter. (Id. ¶ 141.) Smith also told Gifford administrators Bailey sought to institute changes at the hospital which would waste money, when in fact the suggested changes would have increased efficiency. (Id. ¶ 143.)

On March 20, 2014, Bailey completed her initial three-month term of employment with Catamount. (Id. ¶ 44.) Bailey did not purchase shares under the Shareholders' Agreement. In approximately June of 2014, Smith denied Bailey had ever become a shareholder in Catamount because she had not purchased shares. (Id. ¶ 55.) Bailey refused to participate in mediation proposed by Smith's attorney because Smith refused to disclose what the mediation was designed to resolve, and Smith informed Woodin. (Id. ¶¶ 56-57.) Woodin responded by terminating Gifford's contract with Catamount. (Id.) In a series of emails dated September 12 and 14, 2014 Smith informed Bailey her employment at Catamount was terminated. (Id. ¶ 67.)

After Bailey's termination, she learned Rebecca O'Berry had told Ms. Kristen Bolio she had been terminated for inability to perform the essential functions of her job and because she was a liar. (Id. ¶ 70.) Bailey also alleges O'Berry made these statements to other members of the hospital's staff, and that by spreading these statements O'Berry threatened her professional reputation and impacted her career prospects and earning ability. (Id. ¶ 71.)

III. Discussion

A. Standard of Review

The Court reviews a motion for judgment on the pleadings under the same standard as a motion to dismiss. See Nashef v. AADCO Med., Inc., 947 F.Supp.2d 413, 417 (D. Vt. 2013) (citing Cleveland v. Caplaw Enters., 448 F.3d 518, 521 (2d Cir. 2006)). The Court must "accept as true the complaint's factual allegations and draw all inferences in the plaintiff's favor." Cleveland, 448 F.3d at 521 (citation omitted). The counterclaims should not be dismissed on the pleadings unless it "appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Id. (citation omitted). Accordingly, the Court draws all inferences in Counterclaim-Plaintiff Bailey's favor.

B. Bailey's Relationship with Catamount (Complaint Count I)

Catamount moves for partial judgment on the pleadings as to Count I of their Complaint, which seeks a declaratory judgment as to the legal relations between Catamount and Bailey.[1] The Declaratory Judgment Act provides

In a case of actual controversy within its jurisdiction... any court of the United States, upon the filing of an appropriate pleading, may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought. Any such declaration shall have the force and effect of a final judgment or decree and shall be reviewable as such.

28 U.S.C. § 2201(a). A court must entertain a declaratory judgment action "(1) when the judgment will serve a useful purpose in clarifying and settling the legal relations in issue, or (2) when it will terminate and afford relief from the uncertainty, insecurity, and controversy giving rise to the proceeding." Ins. Co. of N. Am. v. Vt. Mut. Ins. Co., 835 F.Supp. 176, 181 (D. Vt. 1993) (citing Cont'l Cas. Co. v. Coastal Sav. Bank, 977 F.2d 734, 737 (2d Cir. 1992). In the case at hand, a declaratory judgment can resolve the dispute over control of Catamount, and also narrow the counterclaims by disposing of several counts Bailey has pled in the alternative.

The parties dispute whether Bailey became a fifty percent shareholder in Catamount. This depends on interpretation of the Shareholders' Agreement. Bailey contends the Shareholders' Agreement automatically granted her a fifty percent ownership interest after three months, relying on a precatory clause stating "after a three month provisional employment period for Bailey..., Smith and Bailey shall each become an owner of fifty-percent of the issued and outstanding shares of capital stock." (Doc. 5-2.) Smith argues the contract did not grant Bailey a stake in Catamount automatically, but instead gave her an opportunity to purchase shares, citing a purchase price of $16, 000 for ten shares (Id. ¶¶ 1.1-1.2) and language making the purchase of shares optional "In the event either Stockholder wishes to purchase Shares in the Company and meets the conditions above, then the Company shall sell and issue to said Stockholder such shares as may have been approved by the Stockholders of the Company." (Id. ¶ 4.2.) The Shareholders' Agreement also sets out conditions that must be met for stock to be transferred, including notice to Gifford or Catamount (Id. ¶ 6.5) and approval by Gifford or Catamount (Id. ¶ 4.1).

Bailey argues the Shareholders' Agreement is ambiguous, and that therefore the Court may resort to extrinsic evidence to interpret the terms. See Isbrandtsen v. N. Branch Corp., 150 Vt. 575, 577, 556 A.2d 81, 83 (1988) (the parol evidence rule generally bars evidence outside the plain text of an agreement, but if a contract is ambiguous "extrinsic evidence may be used to aid in [its] construction"). In Vermont, "when inquiring into the existence of ambiguity, " a court "consider[s] the circumstances surrounding the making of the agreement" and may find ambiguity "where a writing in and of itself supports a different interpretation from that which appears when it is read in light of the surrounding circumstances." Id. at 579.

In this case, the Shareholders' Agreement is unambiguous as to how Bailey might have become a shareholder.[2] "[I]t is a basic tenet of contract interpretation that specific terms are given greater weight than are general terms." Foti Fuels, Inc. v. Kurrle Corp., 195 Vt. 524, 539, 90 A.3d 885, 895 (2013). Under this rule, general precatory clauses in a contract must give way to specific terms. Thus, the precatory clause Bailey relies upon is best read as expressing the intent of the parties that Bailey become a shareholder by following the procedures set out in the remainder of the contract, not as automatically issuing her shares after three months. Bailey does not allege Smith or Catamount made any complicating representations when the contract was made - the Counterclaims only allege Gifford CEO Woodin negotiated the contracts - and therefore the circumstances surrounding the drafting of the contract do not create ambiguity concerning Bailey's agreement with Smith. Furthermore, if Bailey's interpretation of the contract is correct and the passage of time alone was sufficient to grant her a fifty percent stake in Catamount, then much of the remainder of the contract would be superfluous. See Isbrandtsen, 150 Vt. at 580-81 ("If a contract, though inartfully worded or clumsily arranged, fairly admits of but one interpretation, it may not be said to be ambiguous or fatally unclear.") (citation omitted). Provisions setting out the price of stock and the procedure for purchasing stock would serve no purpose if the contract automatically granted Bailey equity after the mere passage of time.

Bailey ultimately did not purchase shares under ¶ 4.2. See Doc. 5 (Answer of Bailey), at ¶ 21 (admitting Bailey was never issued Catamount stock certificates). Bailey alleges she "requested that Dr. Smith issue her stock certificates, which Dr. Smith wrongly refused to do." (Answer of Bailey, ¶ 21.) Bailey does not, however, allege that she ever tendered $16, 000 for the purchase of shares under ¶ 1.2, that she gave notice to Smith or Catamount consistent with the requirements of ¶ 6.5, or that she or that Catamount ever issued shares under ¶ 4.2.[3] Accordingly, she never became a shareholder in Catamount and remained an employee. Cf. Litchhult v. USTRIVE2, Inc., No. 10-civ-3311, 2013 WL 3491076, at *19 (E.D.N.Y. ...


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