Medi-Cen Corp. v. Birschbach

HARRELL, Judge. The genesis of this appeal is an action brought in the Circuit Court for Montgomery County by H. Robert Birschbach, M.D. Chartered (Dr. Birschbach), appellee, against Medi-Cen Corporation of Maryland (Medi-Cen), appellant. On 8 August 1996, Dr. Birschbach filed a complaint in the circuit court alleging breach of contract and conversion with regard to his share of accounts receivable that Medi-Cen had collected, or was to collect, from medical patients the doctor had treated. ⁷⁶⁸ Following a bench trial on 15 and 16 April 1997, the court entered judgment in favor of Dr. Birschbach in the amount of $81,739.04, plus prejudgment interest and costs. For purposes of the instant appeal, it appears that the $81,739.04 award was composed of two basic amounts: (a) $28,741.91, representing 50% of the face amount ($57,483.82) of uncollected accounts receivable for medical services rendered prior to contract termination (1 May 1996), and (b) $52,997.13, representing Dr. Birschbach’s share of revenues collected, improper withdrawals, and refunds.

As to that judgment, appellant raises in this appeal the following issue which we have rephrased, only as to component (a) of the award: Whether the trial court erred by awarding the sum of 50% of all outstanding, uncollected accounts receivable for services rendered prior to 1 May 1996. FACTS On 29 January 1995, Dr. Birschbach, a physician specializing in internal medicine and gastroenterology, and Medi-Cen, a corporation specializing in administrative billing and marketing services, entered into an Associate Physician Membership Agreement (the Agreement). Pursuant to the Agreement, Medi-Cen was responsible, among other things, for billing and collecting payments from Dr. Birschbach’s patients. 1 Medi-Cen deposited the proceeds collected in a bank account owned by Dr. Birschbach, but accessible by both Dr. Birschbach and Medi-Cen, as provided in the Agreement. As compensation for its performance pursuant to the Agreement, Medi-Cen was entitled to withdraw one-half of the collected funds from the bank account on the fifteenth day of each month.

The remaining funds were Dr. Birschbach’s. In order to enable Medi-Cen to perform its billing and collection undertakings, Dr. Birschbach provided Medi-Cen’s billing service, Health and Quality Management (HQM), with ⁷⁶⁹ the raw data regarding the services and charges applicable to his patients. Dr. Birschbach kept no copies of this data. On 26 March 1996, Dr. Birschbach gave Medi-Cen notice that he intended to terminate the Agreement, effective 1 May 1996.

Medi-Cen accepted the termination. Both Dr. Birschbach and Medi-Cen assumed that, even after the effective date of termination of the Agreement, Medi-Cen would continue its billing and collection efforts for all services Dr. Birschbach had rendered prior to 1 May 1996 and for which he had provided raw data to HQM. For these services, Medi-Cen would continue to collect its 50% share for all of Dr. Birschbach’s accounts receivable accrued, but unpaid, as of 1 May 1996. 2 Although Medi-Cen continued collecting the accounts receivable, it did not remit to Dr. Birschbach the 50% portion to which he was entitled. In fact, Dr. Birschbach did not receive a payment from Medi-Cen after 30 April 1996.

On 8 August 1996, Dr. Birschbach filed a complaint in the Circuit Court for Montgomery County alleging breach of contract and conversion. 3 After conducting a bench trial on 15 and 16 April 1997, the court found that Medi-Cen had “entirely commandeered [the] accounts receivable as theirs, their property to do with whatever they wish[ed].” Although the court acknowledged that “[t]he record is silent as to whether or not [Medi-Cen] ... ever collected any of that [sic] accounts receivable,” the court found that the record was “not silent on the question on the amount of those accounts receivable, which is doubled $28,741.91.” The court entered judgment in favor of Dr. Birschbach in the amount of $81,739.04, plus prejudgment interest and costs. As noted swpra, the $81,739.04 award included $28,741.91, representing 50% of all outstanding ⁷⁷⁰ uncollected accounts receivable ($57,483.82) for services rendered prior to 1 May 1996. 4 STANDARD OF REVIEW Maryland Rule 8-131(c) states: Action tried without a jury. When an action has been tried without a jury, the appellate court will review the case on both the law and the evidence. It will not set aside the judgment of the trial court on the evidence unless clearly erroneous, and will give due regard to the opportunity of the trial court to judge the credibility of the witnesses.

This Court’s standard of review depends upon whether the lower court’s ruling being scrutinized was a finding of fact or a conclusion of law. Himelstein v. Arrow Cab, 113 Md. App. 530, 536 , 688 A.2d 491 (1997), aff'd, 348 Md. 558 , 705 A.2d 294 (1998). “[T]he appellate court should not substitute its judgment for that of the trial court on its findings of fact but will only determine whether those findings are clearly erroneous in light of the total evidence.” Van Wyk v. Fruitrade, 98 Md.App. 662, 669 , 635 A.2d 14 (1994) (quoting $3,11746 U.S. Money v. Kinnamon, 326 Md. 141, 149 , 604 A.2d 64 (1992)). In contrast, the clearly erroneous standard does not apply to the trial court’s determinations of legal questions or to the legal conclusions it draws from its factual findings. Id.

(citing Davis v. Davis, 280 Md. 119, 124 , 372 A.2d 231 (1977)). The appropriate standard of review in these instances is whether the trial court was legally correct. Himelstein, 113 Md.App. at 536 , 688 A.2d 491 . DISCUSSION In order to resolve the parties’ dispute as to whether the trial court’s award to Dr. Birschbach of 50% of the face value of all outstanding, uncollected accounts receivable was correct, ⁷⁷¹ we must examine three issues.

Initially, we must determine a definition of “accounts receivable.” Second, using this definition, we must analyze whether accounts receivable are property subject to conversion. Finally, if accounts receivable are subject to conversion, we must determine if the circuit court properly valued such property for purposes of the instant conversion action. A. We can locate no Maryland cases defining what is an “account receivable.” Accordingly, we have looked abroad for guidance. Black’s Law Dictionary defines accounts receivable as: A debt owed to an enterprise, that arises in the normal course of business dealings and is not supported by negotiable paper.

For example, the charge accounts of a department store. But income due from investments (unless investments are the business itself) is not usually shown in accounts receivable. A claim against a debtor usually arising from sales or services rendered; not necessarily due or past due. Black’s Law Dictionary 18 (6th ed.1990).

Similarly, Webster’s Dictionary describes accounts receivable as “a balance due from a debtor on a current account.” Merriam Webster’s Collegiate Dictionary 8 (10th ed.1993) (emphasis added). In National Bank of Newport v. National Herkimer County Bank, 225 U.S. 178, 32 S.Ct. 633 , 56 L.Ed. 1042 (1912), the U.S. Supreme Court examined accounts receivable in the context of bankruptcy law. There, the Court described accounts receivable as “the amounts owing to [a debtor] on open account.” Id. at 184 , 32 S.Ct. 633 . In Chester v. Jones, 386 S.W.2d 544 (Tex.Civ.App.1965), the Texas Court of Civil Appeals analyzed accounts receivable in calculating the amount owed in an accounting.

The court described accounts receivable as “contractional obligations owing to a person on an open account.” Id. at 547 (citing Valley Nat’l Bank of Phoenix v. Shumway, 63 Ariz. 490 , 163 P.2d 676 (Ariz.1945); West Virgi ⁷⁷² nia Pulp & Paper Co. v. Karnes, 137 Va. 714 , 120 S.E. 321 (1923)). After carefully reflecting upon these definitions, we adopt a definition of “account receivable” as: A balance due from a debtor on an open account, usually for services rendered or goods provided. Such a debt arises in the normal course of business dealings. B. The tort of conversion is generally defined as “the wrongful exercise of dominion by one person over the personal property of another.” Kalb v. Vega, 56 Md.App. 653, 665 , 468 A.2d 676 (1983) (citation omitted).

The measure of damages relating to a conversion is determined by the value of the property at the time of the conversion, plus interest. Id. Whether a conversion has occurred is not necessarily determined by the manner in which the defendant acquires the property, but rather his wrongful exercise of dominion over the property. Id. at 666 , 468 A.2d 676 (citations omitted).

As this Court stated in Allied Investment Corp. v. Jasen, 123 Md.App. 88, 100 , 716 A2d 1085 (1998) (citations omitted): In determining the seriousness of the interference with the plaintiffs rights, the court should consider factors such as (1) the extent and duration of the defendant’s exercise and control; (2) the defendant’s intent to assert a right which is inconsistent with the plaintiffs right of control; (3) the defendant’s good faith or bad intentions; (4) the extent and duration of the resulting interference with the plaintiffs right of control; (5) the harm done to the chattel; and (6) the expense and inconvenience caused to the plaintiff. Although conversion may involve nothing more than the improper withholding of property from the owner, it may occur “when the person in possession destroys, modifies, or sells the property, those acts being inconsistent with the owner’s rights in the property and, at least implicitly, a clear denial of those rights.” Kalb, 56 Md.App. at 666 , 468 A.2d 676 (citations omitted). The question before us in the instant case becomes ⁷⁷³ whether accounts receivable are personal property that are capable of being converted. In Lawson v. Commonwealth Land Title Ins.

Co., 69 Md. App. 476 , 518 A.2d 174 (1986), this Court examined whether the tort of conversion applies to recover a debt arising from an overpayment of money. In Lawson , Commonwealth Land Title conducted a settlement on the refinancing of real estate in which Mr. Lawson had an interest. Id. at 477 , 518 A.2d 174 . Due to its error, Commonwealth overpaid Mr. Lawson $3,966.

Id. Mr. Lawson was paid by check, which he routinely deposited in his personal bank account. Id. Although Commonwealth explained its error to Mr. Lawson, he refused to return the money.

Id. at 478 , 518 A.2d 174 . Subsequently, Commonwealth filed a complaint alleging conversion, unjust enrichment, and breach of an implied contract. Id. Lawson asserted that all three counts were time-barred under the applicable statute of limitations.

Id. After a non-jury trial, the trial court determined that none of the counts were time-barred and entered judgment for Commonwealth in the amount of $3,716. Id. at 478-79 , 518 A.2d 174 . In an unreported opinion, Lawson v. Commonwealth Land Title Ins.

Co., 66 Md.App. 802 (1986), this Court disagreed with the trial court, determining that all counts except for the conversion claim were in fact time-barred. Id. at 479, 518 A.2d 174 . On remand, Lawson claimed “that the tort of conversion does not apply to the wrongful detention of money.” Id. The trial court rejected Lawson’s argument, however, and entered judgment for Commonwealth.

Id. On appeal once again, this Court reversed the judgment of the trial court. 69 Md.App. at 479 , 518 A.2d 174 . In finding that the conversion action was not available for the purpose of recovering a debt, we stated: Most of the commentators agree that the tort [conversion] has, in recent times, made a two-stage leap beyond the bounds of chattels to permit recovery for the loss or deprivation of intangible property as well. In the first stage, the law came to regard the physical document evidencing an ⁷⁷⁴ intangible right — a promissory note, a stock certificate, a bank book, etc. — as itself a chattel capable of conversion.

In the second, it merged the underlying intangible right with the document so that the injured owner could recover not just the nominal value of the document itself that was wrongfully withheld but also the value of the right evidenced or represented by the document. Id. at 480-81 , 518 A.2d 174 . Because “ ‘there [was] no obligation to return the identical money, but only a relationship of debtor or creditor, an action for conversion of the funds representing the indebtedness [did] not lie against the debt- or.’ ” Id. at 482 , 518 A.2d 174 (quoting Lyxell v. Vautrin, 604 F.2d 18, 21 (5th Cir.1979)). In Allied Investment Corp. v. Jasen, 123 Md.App. 88, 93-4 , 716 A.2d 1085 (1998), this Court examined whether a limited partnership interest was subject to conversion.

In that case, DC Bancorp and Allied were originally assigned a partnership interest in Ashmere Partnership by William H. Miller as collateral for a $1,000,000 loan. Id. at 93-94 , 716 A.2d 1085 . Pursuant to a later agreement, however, Miller assigned his partnership interest in Ashmere Partnership to Jasen. Id. at 94 , 716 A.2d 1085 .

Subsequently, a dispute arose over who was properly assigned Miller’s partnership interest. Id. at 94-95 , 716 A.2d 1085 . Allied filed a complaint for declaratory judgment and accounting, asserting “that Jasen’s ‘antagonistic’ claim to Miller’s partnership interest in the Ashmere Partnership and his stock in the Ashmere Corporation ‘clouded title to these assets, thereby impairing the value of Allied’s property interests in Miller’s partnership interest ... and ... stock.’ ” Id. at 95 , 716 A.2d 1085 . The trial court concluded that, although “the principal counts were titled as declaratory judgment claims, they were actually claims for conversion and thus time barred by the statute of limitations.” Id. at 96 , 716 A.2d 1085 .

On appeal, agreeing that Allied’s complaint was one for conversion, this Court examined whether such a claim could be made with respect to the limited partnership interest at issue. Id. at 101-05 , 716 A.2d 1085 . Relying on Lawson, we ⁷⁷⁵ “agree[d] that ‘[t]he process of expansion [of the law of conversion] has stopped with the kind of intangible rights which are customarily merged in, or identified with some document____Id. at 103, 716 A.2d 1085. Examining the limited partnership interest at issue, we determined that it was a Massachusetts limited partnership and “a certificate of limited partnership must be executed and filed in the office of the secretary of the state [of Massachusetts].” Id. at 104 , 716 A.2d 1085 .

Thus, “Miller’s intangible interest in the Ashmere Partnership was identified with and merged in a document, and ... this interest may be the subject of a suit for conversion.” Id. at 105 , 716 A.2d 1085 . Turning to the accounts receivable in the present case, we note from Dr. Birschbach’s direct testimony the following colloquy: Q: Dr. Birschbach, my understanding of the system was that after you saw a patient, you would fill out a billing information sheet that Medi-Cen would pick up from your office by courier and bring to its billing office. Am I correct so far? A: That’s correct.

Q: And then your understanding is that Medi-Cen would then generate a bill to a third-party payor like an insurance company and/or the patients themselves, correct? A: That’s correct. Q: And that the monies that would come as a result of those bills that were generated would then be deposited into an account which you had established in cooperation with Medi-Cen at NationsBank, correct? A: That’s correct.

There were two accounts, but essentially, most of my funds went into the primary account. Later in Dr. Birschbach’s testimony, the following discussion with the trial judge took place: COURT: And so, I don’t know what day of the week April 30, 1996 was, but let us assume it was a weekday. ⁷⁷⁶ Is it your testimony that when on that day whatever patients you had on April [sic] 30, 1996, you took raw data from them, correct? A: Yes, sir. COURT: Which would be the basis for billing?

A: Yes, sir. COURT: And that was collected by somebody, right? A: Prepared by me and sent to HQM for billing through April 30th. During Medi-Cen’s case-in-chief, the following discussion took place between the court and Dr. Clever, the Vice-President of Clinical Affairs for Medi-Cen, during his direct testimony: COURT: Maybe I am missing something here, but I thought that through the date of March 31, 1996, everybody was happy, at least relatively happy, and the thing was working okay.

The doctor would get a patient. He would fill out the raw data. Your guy would come over and collect the raw data for the day, or the week, or whatever. You would send that to the insurance carrier.

The insurance carrier would send a check back. It would go into the doctor’s account, and then you take half and he would take half. Is that right? A: That’s represented on the first line to the bottom [of Defense Exhibit 8] through March of ’96, Medi-Cen balance to Dr. Birschbach.

That’s totally agreed upon. Although Dr. Clever’s answer referred to Defense Exhibit 8, which ultimately was not admitted into evidence, his verbal agreement with the court’s verbal summary of the procedural aspects of the creation and documentation of the accounts receivable indicates that physical “raw data” existed evidencing those accounts, which raw data was compiled in the normal course of business for the purpose of getting paid for the medical services rendered by Dr. Birschbach. Further hard copy evidence of the existence of the accounts receivable is found in Defendant’s Exhibits 2, 3, and 9. During cross-examination, Dr. Birschbach testified that Defendant’s ⁷⁷⁷ Exhibit 2 “is data that I sent regarding previous payments .... ” Upon our examination, Defendant’s Exhibit 2 appears to contain, among other things, a record of claims paid on behalf of patients dating as far back as March 1995.

Dr. Birschbach further testified that Defendant’s Exhibit 3 reflected payments for care rendered prior to 1 May 1996. Within Defendant’s Exhibit 3 are copies of checks paid to Dr. Birschbach on behalf of patients by various health insurance companies. Finally, on direct examination, Dr. Clever testified that Defendant’s Exhibit 9 contained “a general ledger, dated May 13,1996, which is an accounting of checks received, deposits made, on behalf of [Dr. Birschbach].... ” Although the evidence in the instant case does not clearly provide the type of singular “magic bullet” document present in Allied Investment Corp., what does appear in the record strongly suggests the existence of such documents. 5 See Allied Investment Corp., 123 Md.App. at 101-05 , 716 A.2d 1085 (discussing “ ‘intangible rights which are customarily merged in, or identified with some document’ ”); Lawson, 69 Md.App. at 481 , 518 A.2d 174 . This issue, however, was not a focus of the proceedings below.

Nonetheless, it does appear from the record that the accounts receivable were represented by hard copies or electronic data, kept in the normal course of business for that purpose, which would likely fulfill the requirement of Allied Investment Corp.. Because we are reversing and remanding the judgment in this case