The Palmetto Medical Group had a “messy divorce.”
Palmetto’s three physicians had settled into “mutual distrust” and got a good distance down the road toward separation by negotiating a Practice Separation Agreement at mediation. The remaining doctor at the practice would buy out the two departees after an appraisal, and they agreed to play nicely in the sandbox together as patients made their own choices about whether to stay with Palmetto or relocate their care to a new practice established by the plaintiffs.
Carolina Med. Partners, PLLC v. Shah, 2023 NCBC 6, resulted when the sandbox became just as messy as the underlying relationship among the physicians.
Nimish Patel and Shephali Patel, who left to form plaintiff Carolina Medical Partners, alleged that Amit Shah breached their agreement “almost immediately” by, among other things, lobbying patients to stay, providing inadequate notice to patients of the Patels’ new practice, and adjusting Palmetto’s scheduling system “so that the Patels’ patients were seen by other providers.” Id. ¶ 9. An action to enforce the physicians’ separation agreement followed, with four counts for breach, a fifth for fraud, and one for unfair and deceptive trade practices centered on Shah’s “lur[ing of] the Patels’ patients to” remain at Palmetto. Id. ¶ 10.
On a motion to dismiss only the purported Chapter 75 claim, the Court observed the plaintiffs couldn’t settle on a supporting theory. On brief, they contended the claim really arose under South Carolina law (which has no Chapter 75 exemption for “professional services”). Then, at hearing, the Court noted the Patels’ “switched course” twice, first claiming the claim was raised, in the alternate, under both states’ laws, and then arguing that both states’ laws applied, distinctly, to the breach claims and to the extracontractual conduct alleged. Id. ¶ 15. Judge Conrad highlighted the awkward search for a theory (Id. ¶ 16):
“It goes without saying that a complaint should not be a moving target. Basic pleading rules make that clear.”
But, even from a judicial vantage of possibly applying either North Carolina or South Carolina law to the “unfair practices” claim, the Court found that “[e]ither way, it is deficient.” Id. ¶ 17.
Under South Carolina law, Judge Conrad simply found there wasn’t any conduct it could be applied to. The separation agreement elected North Carolina law to govern the agreement and the parties conduct under it. Further, the Court found that while South Carolina law might apply to extracontractual conduct, “none is alleged.” Judge Conrad found plaintiffs had consistently styled their allegations as arising from “breach of and to enforce” the separation agreement. Id. ¶¶ 18-19.
Under North Carolina law, the Court had to decide whether the Patels’ allegations of hijinks by Shah to frustrate and impede the aims of the agreement separating their practices was a “rendering of medical service” that would qualify to meet the exception in Chapter 75 that it does not apply to “professional services rendered by a member of a learned profession.” N.C.G.S. § 75-1.1(b). The Court found that “alleged conduct – centered on patient solicitation – “is directly related to providing patient care,” Id. ¶ 25 (quoting Sykes v. Health Network Sols., Inc., 372 N.C. 326, 336 (2019)). That was especially so, Judge Conrad held, where the complaint specifically alleged that Shah sought “to deceive patients into seeking medical service” with Palmetto instead of the Patels. Id.
- It’s certainly true that “[t]his exception for medical professionals has been broadly interpreted.” Shelton v. Duke Univ. Health Sys., Inc., 633 S.E.2d 113, 117 (2006). But Chapter 75 litigants do have some leeway in which to operate. In Hamlet H.M.A., LLC v. Hernandez, 821 S.E.2d 600, 608 (2018), the Court of Appeals paused at finding “that negotiations regarding a business arrangement, even between a physician and a hospital” meet the standard. “The learned profession exception does not cover claims simply because the participants in the contract are medical professionals.”
Brad Risinger is a partner in the Raleigh office of Fox Rothschild LLP.