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Prospect CharterCare, LLC v. Conklin

Supreme Court of Rhode Island

June 13, 2018

Prospect CharterCARE, LLC
Michael E. Conklin, Jr.

          Superior Court Providence County (PM 16-3911) Richard A. Licht, Associate Justice

          For Plaintiff: William M. Russo, Esq. Attorney(s) on Appeal For Defendant:

          Gina A. DiCenso, Esq. V. Edward Formisano, Esq.

          Present: Suttell, C.J., Goldberg, Flaherty, and Robinson, JJ.


          William P. Robinson III, Justice

         The plaintiff, Prospect CharterCARE, LLC (PCC), appeals from an order of the Providence County Superior Court issued on February 10, 2017, denying PCC's motion to vacate an arbitration award and confirming the award in favor of the defendant, Michael E. Conklin, Jr. On appeal, the plaintiff contends that the arbitrator manifestly disregarded both the law and the provisions of the employment agreement at issue when he awarded the defendant extended severance payments based on his finding that the defendant had been the subject of a "de facto termination"-a critical term in the employment agreement.

         This case came before the Supreme Court pursuant to an order directing the parties to appear and show cause why the issues raised in this appeal should not be summarily decided. After a close review of the record and careful consideration of the parties' arguments (both written and oral), we are satisfied that cause has not been shown and that this appeal may be decided at this time without further briefing or argument. For the reasons set forth herein, we affirm the order of the Superior Court.


         Facts and Travel[1]

         In May of 2010, Mr. Conklin was hired by CharterCARE Health Partners (CHP) as that company's Vice President of Finance and Chief Financial Officer. In view of his duties as Chief Financial Officer, Mr. Conklin was a member of the Senior Leadership Team of CHP. That entity owned and operated two hospitals: Roger Williams Medical Center and Our Lady of Fatima Hospital (Fatima Hospital).[2] In October of 2010, John Fogarty, the then-President and Chief Executive Officer of St. Joseph Health Services of Rhode Island (St. Joseph Health Services) resigned. As a result of that resignation, defendant was directed by CHP leadership to assume responsibility as the "'head of operations' for St. Joseph Health Services * * * and * * * Fatima Hospital" in addition to continuing to perform his duties as CHP's Vice President of Finance and Chief Financial Officer. In light of his assuming responsibility for the operational duties, Mr. Conklin's annual salary was increased by $19, 000; and he received the additional title of "Senior Vice President" as well as an updated job description, which stated that "[t]he position of Senior Vice President and Chief Financial Officer also serves in the capacity of head of operations for St. Joseph Health Services * * *."

         In January of 2012, Mr. Conklin entered into a new employment agreement[3] with CHP, which added to the then-existing severance provision a "De Facto Termination" provision. That provision gave executive employees, such as Mr. Conklin, the right to receive an extended, eighteen-month severance payment in the event that they experienced a "material reduction" in their "material duties" as a result of a "[c]hange in [c]ontrol" of the entity. As the arbitrator observed, this provision was added in anticipation of a future joint venture with a capital partner and was "intended to create a strong safety net for those employees who had faithfully served their organization."

         In March of 2013, CHP signed a letter of intent to enter into a joint venture with Prospect Medical Holdings; that transaction closed in June of 2014, thereby creating PCC as the successor entity, which is the plaintiff in the instant case. Subsequently, PCC hired one Tom Hughes to serve as President and Chief Executive Officer of Fatima Hospital. After Mr. Hughes took office in July of 2014, Mr. Conklin's operational responsibilities at Fatima Hospital ceased, although he continued to receive his full salary and retained his title as Vice President and Chief Financial Officer within PCC.

         On July 10, 2014, Mr. Conklin delivered to his supervisor, Ken Belcher, a letter invoking the "De Facto Termination" provision of the Employment Agreement, contending that he had suffered "a material reduction in [his] duties and authorities as a result of change in effective control." Mr. Belcher relayed Mr. Conklin's request to Thomas Reardon, an executive at PCC, who replied that PCC would not provide Mr. Conklin with extended severance payments. In response to this initial denial of Mr. Conklin's request, Mr. Belcher sent an email to Edwin Santos, the chairman of PCC's Board of Trustees. In that email, Mr. Belcher set out the applicable provisions of the Employment Agreement as well as his interpretation of those provisions; and he then stated:

"The reason [Mr. Reardon] provided [for denying Mr. Conklin's extended severance payments] was that there has been no material change in [his] duties. As you know, this is incorrect and action must be taken to overturn this misguided decision."

         Mr. Belcher's email to Mr. Santos concluded as follows:

"There clearly has been a material reduction in [Mr. Conklin's] duties. With the hiring of a new President of [Fatima Hospital], [Mr. Conklin] is no longer the 'head of operations' * * * and his responsibilities will diminish accordingly.
"[Mr. Conklin] has been as hard working and as loyal to our system as we could ever hope for. His job has changed. The [CHP] Executive Committee thought this might happen and took action to protect the executives. Let's fix this and allow [Mr. Conklin] to move on having been properly treated while here at [PCC]. He deserves nothing less."

         Mr. Belcher's exhortation was unsuccessful; and, on July 22, 2014, Mr. Reardon sent a letter to Mr. Conklin formally denying his request for extended severance. Mr. Reardon's denial was predicated on his assessment that Mr. Conklin had suffered no "material reduction in duties incident to the position of Senior Vice President and Chief Financial Officer of [PCC]."

         On November 5, 2014, Mr. Conklin filed a demand for arbitration, [4] in which he sought to be awarded extended severance benefits pursuant to the "De Facto Termination" provision of the Employment Agreement. In April of 2016, the arbitrator conducted a three-day hearing, and the parties stipulated that the following were the only two issues to be resolved by the arbitrator:

"(a) Whether [PCC] breached the terms and conditions of the Employment Agreement entered into by and between * * * PCC and Michael E. Conklin, Jr. * * * on January 2, 2012;
"(b) Whether [Mr.] Conklin sustained damages as a result of PCC's potentially unlawful conduct."

         At the hearing, PCC contended that Mr. Conklin's responsibilities as "head of operations" at Fatima Hospital were not "material" duties, but rather were more accurately characterized as "time to time" duties. In support of this argument, PCC pointed to clause two of the Employment Agreement, which states that an executive "shall have all of the duties, responsibilities, authorities and powers normally incident to such position, " while further providing that the executive shall also perform "such functions and duties of an executive nature as may from time to time be assigned to him * * *." It was PCC's contention that Mr. Conklin's responsibilities as "head of operations" at Fatima Hospital fell into the category of duties that "may from time to time be assigned to him." PCC further argued that Mr. Conklin had not suffered any "material reduction" in his duties because, after PCC came into existence, he had retained the "same title, same salary, same office space, supervisory authority, and comparable duties requiring similar skills * * *."

         After reviewing the relevant provisions of the contract, summarizing the evidence and the testimony adduced at the hearing, and considering the arguments of the parties, the arbitrator rejected PCC's assertion that Mr. Conklin's duties as "head of operations" at Fatima Hospital were merely "time to time" responsibilities, finding it "implausible that [CHP] would increase his salary by $19, 000 because he was simply doing 'time to time' work." The arbitrator observed that both parties had cited to language in the case of Roberton v. Citizens Utilities Co., 122 F.Supp.2d 279 (D. Conn. 2000), as support for the proposition that a material reduction occurs when an employee's job is "effectively reduced by well more than half." Roberton, 122 F.Supp.2d at 285. The arbitrator also stated that "[Mr.] Conklin's responsibilities as 'head of operations' of St. Joseph Health Services * * * occupied 60% of his work * * *." However, the arbitrator thereafter stated that "[t]he most compelling argument for material reduction in [Mr.] Conklin's duties as both Senior Vice President and Chief Financial Officer is Belcher's emails and testimony that it was just that - a material reduction." The arbitrator found that, "[o]nce these ['head of operations'] responsibilities were cut, [Mr. Conklin] was no longer performing the material duties that were normally incident to his Senior Vice Presiden[t] position." Accordingly, on August 1, 2016, the arbitrator issued a written decision, concluding that Mr. Conklin's "right to terminate the contract under the January 2012 Employment Agreement's de facto termination clause [was] abridged" and that Mr. Conklin was "entitled to the eighteen-month severance proscribed [sic] therein." [5]

         On August 19, 2016, PCC filed a petition to vacate the arbitration award in Superior Court; Mr. Conklin filed a counter-petition to confirm the award on September 9, 2016. On September 14, 2016, PCC filed a motion to vacate the arbitration award as well as an objection to Mr. Conklin's cross-petition to confirm the award. PCC cited three grounds as the bases for its motion to vacate. First, PCC argued that Mr. Conklin had failed to prove that PCC had either assumed or been assigned the employment contracts entered into by CHP prior to the creation of PCC and that, therefore, it was not responsible for payment of the extended severance to Mr. Conklin. Second, PCC argued that the award should be vacated because it was "based upon a concededly erroneous fact" and that, therefore, the arbitrator had committed what "amount[ed] to a manifest disregard of the applicable law" when he relied upon that erroneous fact in his analysis. Specifically, PCC claimed that the arbitrator manifestly disregarded the law when he based his decision on the "material reduction" definition in Roberton, 122 F.Supp.2d at 285, while at the same time erroneously stating that Mr. Conklin's "head of operations duties comprised 60% of his work duties." PCC contended that the arbitrator's just-quoted factual statement was "concededly erroneous" because, PCC notes, "[Mr.] Conklin, himself, clearly testified that his duties were divided approximately '60 percent [Chief Financial Officer] and 40 percent operating duties.'" PCC argued that, but for the arbitrator's misunderstanding about the percentage of time Mr. Conklin spent carrying out his operational duties as compared with his financial duties, "the Award would have been different." Third, PCC alleged that the ...

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