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February 2017

Gordon & Rees Prevails in Binding Arbitration Awarding Healthcare Management Client $2.2 Million

Gordon & Rees partner Richard Sybert and senior counsel Joni Flaherty represented SmartMed, Inc., a healthcare management consultancy business, in a binding arbitration before the Honorable Stephen J. Sundvold (ret.) of JAMS Arbitration. Partner James Grady and associate Patrick Mulkern along with paralegal Joni Etui assisted the arbitration team. 

SmartMed initiated the arbitration in 2014 after the respondent, FirstChoice Medical Group, terminated the parties’ negotiated Management Services Agreement (MSA) without cause. SmartMed alleged that the termination was not justified by the plain terms of the agreement and the doctors who made up FirstChoice Medical Group had fraudulently schemed to prevent SmartMed and its principal of the monthly fees and bonuses owed by FirstChoice under the agreement. SmartMed had created for FirstChoice a sophisticated and lucrative medical group known as an Independent Physicians Association, or IPA, under which SmartMed was to serve as the IPA’s manager for a term of seven years.  FirstChoice brought unsuccessful counterclaims against SmartMed and its principal for fraud, contending that its principal had fraudulently induced the doctors into entering the MSA by making promises of having HMO contracts accessible to them upon signing. All of FirstChoice’s counterclaims were summarily rejected by the arbitrator.

Gordon & Rees's arbitration team handled the cross-examination of the four primary FirstChoice doctors, along with four third-party witnesses and four expert witnesses. The arbitrator found that the story concocted by the doctors for the purposes of litigation – that SmartMed's principal had made false promises and failed to perform under the MSA – was patently false.  Instead, Judge Sundvold took no merit to these claims, finding that the clear evidence established that FirstChoice schemed to avoid payment to the principal by terminating the MSA under false pretenses.

Following 11 days of arbitration, held in Fresno and Orange County, Judge Sundvold issued a written order that held that FirstChoice’s termination of SmartMed as its manager violated the terms of the MSA. In wholly rejecting the counterclaims brought by FirstChoice Medical Group, Judge Sundvold held that he “finds no merit in the claim by FirstChoice that SmartMed made any misrepresentations about having six HMO contracts upon which they relied in forming the IPA or entering into the MSA.”

The arbitrator awarded SmartMed more than $2 million in compensatory damages, attorneys’ fees, and costs, which reflected the amount owed to SmartMed under the terms of the MSA. The arbitration team will now seek to confirm the award in the Superior Court and work with its client to consider further legal action against FirstChoice and its successor entity. This impressive result further solidifies Gordon & Rees’ commitment to client service and executing sound and effective litigation strategies.

To read the final award issued by the arbitrator, please click here.

Joni B. Flaherty
Patrick J. Mulkern
Richard P. Sybert