Comprehensive Neurosurgical, P.C. v. The Valley Hospital, ___ N.J. ___ (2024). As discussed here, the question presented to the Supreme Court in this appeal, which was the subject of today’s unanimous decision by Justice Fasciale, encompassed several important issues. That question, phrased by the Supreme Court Clerk’s office, was ““Should plaintiffs’ claim that defendant breached the implied covenant of good faith and fair dealing have been dismissed because defendant did not breach its bylaws, did defendant waive the attorney-client privilege for communications about the White Paper by relying on the White Paper, and did plaintiffs’ counsel’s statements during summation about transferring patients, when contrary evidence was excluded from trial, require a new trial?” The breadth of this appeal signified that the Court’s eventual decision would be one of the major commercial case decisions of the current Term.
Indeed, it was. Justice Fasciale’s opinion covered over 60 pages, delving in detail into the extensive procedural history and the nuanced facts of the case. In very brief summary, plaintiff, a group of eleven neurosurgeons that had hospital privileges at Valley since 2003, asserted, in a number of different legal claims, that Valley had wronged it by granting exclusive hospital privileges to another neurosurgery group as to certain categories of practice in 2013. That action had the effect of revoking plaintiff’s privileges at Valley in those practice areas. Plaintiff alleged that it had helped Valley expand its programs and facilities, but that once plaintiff obtained privileges at a new hospital that opened just a few miles from Valley, Valley sought to punish plaintiff for being disloyal. Valley contended that it had the right to act as it did because, among other things, plaintiff was diverting patients to the new hospital.
After the case was trimmed on summary judgment, a lengthy trial presented two claims for decision by the jury. The first claim was one for breach of contract, in which plaintiff contended that Valley had breached its own bylaws by failing to conduct a hearing before acting to deprive plaintiff of the privileges. The jury found for Valley on that issue. The second claim, however, which was that Valley had breached an implied covenant of good faith and fair dealing, went in favor of plaintiff. The jury awarded $24.3 million on that claim.
The Appellate Division affirmed in a lengthy unpublished opinion. Valley successfully petitioned for certification, and today the Supreme Court reversed.
Valley’s first argument was that it should have prevailed on the implied covenant claim at summary judgment. Justice Fasciale did not agree. There was “sufficient evidence in the summary judgment record, when viewed in the light most favorable to plaintiffs, to support the notion that the parties had a special relationship — rooted in part in their course of dealings for more than a decade — that gave plaintiffs specific rights and obligations beyond the Bylaws,” so as to support the creation of an implied in fact contract. There was evidence that plaintiff had accepted Valley’s offer of privileges, helped Valley modernize its neurosurgical department with cutting-edge technology, and “stopping the outflow of patients to other hospitals,” in exchange for which Valley impliedly agreed that it would not restrict plaintiff’s practice at the hospital. Plaintiff also relied on a Valley “White Paper” that plaintiff contended was a sham, with a predetermined outcome intended to justify terminating plaintiff.
“Moreover, whether parties’ interactions rise to the level of creating an implied contract is generally a question of fact best resolved by the jury.” The opinion therefore proceeded to address the validity of the trial verdict. Several different flaws combined to lead the Court to void that verdict.
One issue related to jury instructions, the validity of which the Court reviewed de novo. There were several problems. First, the charge explained breach of contract principles in connection with plaintiff’s claim that Valley had acted without a hearing, in violation of Valley’s bylaws. But the most that a bylaw violation afforded was a subsequent hearing, not damages. And the bylaws themselves were not a contract, as they existed before plaintiff affiliated with Valley.
Second, the jury instructions regarding the implied covenant claim, where breach of contract does play a role, did not address breach of contract principles. “Although plaintiffs rightly note that duplicate instructions need not be given, finding the existence of a contract, which in this case had to be one beyond the Bylaws, was an essential element of plaintiffs’ breach of the implied covenant claim. By failing to instruct the jury on contract formation principles in connection to the only claim where that law was applicable, the judge only heightened the potential that the jurors would be led to believe that the Bylaws were a contract that could give rise to the covenant of good faith and fair dealing.” Justice Fasciale also noted that the jury interrogatories accentuated this problem.
Third, based on two prior Supreme Court decisions, “the charge should have included that a hospital’s discretionary healthcare decision is ‘entirely lawful’ when it: (1) genuinely serves a public healthcare objective; (2) is made in the ‘regular course of conducting the affairs of the hospital’; and (3) is based on adequate, reliable, and reasonable information as would be relied upon ‘by professional persons responsibly involved in the [healthcare] field’” [Citation]. As plaintiffs concede, a valid healthcare decision would have nullified their allegation that Valley breached the implied covenant of good faith and fair dealing. The jury was given no law on how to measure Valley’s defense to the implied covenant claim.”
“[T]he uncertainty created by the jury charge was cumulatively exacerbated by two additional errors: the admission into evidence of privileged communications between [Valley’s general counsel] and Valley; and plaintiffs’ attorney’s improper summation comments,” Justice Fasciale said. Valley had inadvertently disclosed those communications in the midst of an intense period of discovery, and the Court found that that did not constitute a waiver of privilege. Among other things, “plaintiffs’ counsel went on to highlight the privileged emails at length in his summation.” The admission of privilege communications was thus not harmless.
The summation of plaintiff’s counsel also implied that Valley had only two instances of patients who transferred elsewhere when, in fact and as plaintiff’s counsel knew, Valley had evidence of sixty such patients. The Law Division had precluded Valley from introducing that evidence, and plaintiff took unfair advantage of that, “exploit[ing] a favorable evidentiary ruling . . . to strike an unfair blow at the defense.”
The combination of those errors called for a new trial on the implied covenant issue only. The jury’s rejection of the breach of contract claim stood and could not be revisited on remand.
Justice Fasciale’s opinion was necessarily dense, detailing as it did the intricate facts and the extensive procedural history that led to today’s result. But it is well worth reading in full, as it contains a wealth of law regarding hospital decisionmaking, good faith and fair dealing, attorney-client privilege, plain error, and a number of other principles.