By Damian D. Capozzola, Esq.
The Law Offices of Damian D. Capozzola
Jamie Terrence, RN
President and Founder, Health Care Risk Services
Former Director of Risk Management Services (2004-2013)
California Hospital Medical Center
Morgan Lynch, 2018 JD Candidate
Pepperdine University School of Law
News: A hospital’s chief of staff opposed its acquisition by a holding company, which he believed lacked the financial backing to operate the facility properly. He feared that client safety would be put in jeopardy should the holding company take over. The chief of staff organized protests against the proposed purchase and formed a competing doctor-investor group to purchase the facility. In 2005, the holding company acquired the hospital despite the chief of staff’s efforts. The company defaulted on one of its loans and the chief of staff notified officers of the hospital and other medical staff. The company then filed a suit against the chief of staff, which it lost, and was forced to pay the physician’s attorney fees. Following the appellate hearing, the CEO stated he would “humble” the chief of staff. Shortly thereafter, an anonymous 911 call led police to search the physician’s car, where they found a gun and gloves. The police arrested him, but he was released quickly as there was insufficient evidence to indict him. The chief of staff filed a suit against the holding company and won a $5.7 million verdict for framing him. The verdict was upheld by a four-judge panel in late April 2015.
Background: In 2004, a hospital was put on the market for sale along with three other hospitals. The chief of staff, an infectious disease specialist, opposed its acquisition by a holding company, which he believed lacked the financial backing to operate the facility properly. He feared that client safety would be put in jeopardy should the holding company take over the hospital. He then organized protests against the proposed purchase and formed a competing doctor-investor group to purchase the facility. Despite his efforts, the holding company purchased all four hospitals in 2005. The physician continued speaking out publicly against the holding group and convinced a state senator to conduct public hearings on the acquisition and the quality of healthcare at the hospital. These hearings resulted in an agreement between the holding company and the chief of staff to maintain the quality of healthcare at the hospital.
In May 2005, the holding company received a default notice on one of its loans used to purchase the hospital. The physician sent an email to some of the hospital officers and medical staff alerting them to the notice, and noted a decrease in hospital admissions. The holding company then sued the chief of staff for defamation, breach of contract, and other business torts. That suit ended in favor of the physician with the holding company paying his $150,000 attorney fees.
Following the business tort suit, the CEO of the holding company told the president of the company that he would “humble” the chief of staff. He also said he “could have [things] done to people he was displeased with.” He went on to say he had two police officers on his payroll or in his pocket. The CEO told the company’s president about an individual he knew who does some business that is not so legitimate. He then directed the president to draft a $10,000 contract with that individual’s company to help with their website, which the president questioned, but prepared for his boss anyway.
Several days after this conversation, the chief of staff was approached by two policemen who stated he was seen brandishing a firearm in a heated road rage incident by an anonymous 911 informant. The physician consented to a search of his car, where the police found a gun and gloves. They arrested him despite his protests that he was being framed because he had just defeated the company in court. He was taken to jail, strip searched, and put in a cell that reeked of vomit. The chief of staff was released a few hours later because DNA tests did not link him to the gun or gloves. After the CEO returned from vacation, he told the president, “people don’t know how powerful I am.”
Almost two years later, after the president left the company, he disclosed the information about his interactions with the CEO, which prompted a suit by the chief of staff. At trial, the jury found the CEO acted within the scope of his employment, thus the holding company itself was liable for his actions. The jury awarded the chief of staff $5.7 million for infliction of emotional distress. The trial court reversed this verdict on a motion by the defense, but the appellate court reversed again in April 2015, and the physician was entitled to the full $5.7 million and his costs of the appeal.
What this means to you: This case shows that while illegitimate business practices may pay off in the short term, good business practices tend to be more sustainable than unlawful business, a principle that applies to the business of medicine as much as anywhere else. The chief of staff was concerned over the safety of his patients and acted fairly, and he was successful in multiple court proceedings. The use of unlawful intimidation is prohibited by legislation and the court systems. The CEO left a trail of bread crumbs that easily led to his involvement in the setup. Additionally, because of his intimidation of the president, as well as his failure to compensate him, the CEO found himself at the mercy of his former subordinate’s testimony.
This case also illustrates the virtues of persistence and fighting for good causes. It is imperative the medical community keep in focus the priorities and purposes of the medical profession. It shows how little the holding company cared about its patients by inflicting emotional distress on the chief of staff. Patient health is always more important than earning more money or getting revenge. Along that same vein, it is important to keep the future in mind when making large business decisions like acquiring four hospitals at once. If a company spreads itself too thinly and fails to diversify, it will surely suffer, as well as those that it services.
Another important lesson to be gleaned from this case is to report before it is too late. The president of the holding company knew for two years that the CEO was involved in the framing but failed to disclose that information until he left the company. There are protections in place for employees who report wrongdoings in the workplace. It is prudent to ensure the information disclosed is actually protected, but if the president had reported earlier, he would have saved a lot of grief for the chief of staff. The president indicated he feared for his own safety, especially after incidents involving the vehicles of the chief of staff’s wife and daughter. The failure to report simply served to encourage the CEO’s behavior and put the president at an increased risk of harm. This also continued to put the chief of staff and his family in harm’s way. There is an incentive for companies to encourage employees to report misconduct. This case shows the effect of allowing wrongdoings to fester. The cost of the chief of staff’s emotional distress for the holding company would have been less had it not been overlooked for such an extended period of time.
This case shows the negative effects of conducting business in an immoral way and discourages slothful reporting of professional misconduct. Healthcare companies must maintain proper priorities. Otherwise, criminal activity motivated by greed will continue to thrive, ultimately raising costs, reducing quality, and increasing risks for both providers and patients.
- Court of Appeal of California, Fourth Appellate District, Division Three, Case Number G048413, April 30, 2015.