Under the Knife: Failed Brain Surgery Joint Venture Results in Large Damages Award for Plaintiff

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Judge Roach issued a rare decision after trial in a business divorce last year that is worth a review, mainly for purposes of understanding damages available in litigation over a failed joint venture. For those interested in doing further research after reading this post, the full name of the case is Advanced Healthcare Mgmt. Servs., LLC v. VHS Acquisition Subsidiary No. 9, Inc.

The Plaintiff, Dr. Sagun Tuli (“Dr. Tuli”), is a well-credentialed spinal neurosurgeon who conceived of a business plan for a Brain & Spine Institute (“the Institute”) which she envisioned to be more efficient and effective than traditional hospital spinal neurosurgery practices. Dr. Tuli entered into a joint venture with Vanguard to carry out her business plan, which was reflected in two written agreements providing for: (1) management of the venture by Dr. Tuli; and (2) a commitment by Vanguard to commit millions of dollars for the purchase of neurosurgery equipment and renovation of its hospital in Natick in order to accommodate the Institute.

Shortly after launching the venture, Vanguard pulled the plug on it, ostensibly because of Dr. Tuli’s failure to recruit a fourth neurosurgeon to join the practice. Prior to Vanguard pulling the plug, Dr. Tuli had a laundry list of complaints about Vanguard’s failure to meet its end of the bargain, each of which the court ultimately held to be a “material” breach of the parties’ contracts. These complaints included Vanguard’s failure to “undertake basic marketing for the Institute,” exercise “best efforts” in establishing an academic affiliation with the Institute, provide basic neurosurgery equipment at the facility that was necessary to perform any neurosurgery, including, an MRI machine available 24/7, train nursing staff in neurosurgery cases, and provide for on-site 24/7 anesthesia coverage.

The court rejected the Defendants’ argument that they were not obligated to make any such commitments or expenditures until the Plaintiff had successfully recruited a fourth neurosurgeon to join the Institute. The Court reasoned, “it defies common sense, medical sense, and business sense to suggest these sophisticated parties would structure an agreement whereby the Defendants would have no obligation whatsoever to provide any specialized equipment for neurosurgeons one, two and three to operate and to serve patients, unless and until neurosurgeon number four signed on.” Although the court resolved the Plaintiff’s breach of contract claim in her favor, it found in the Defendants’ favor on the Plaintiff’s c. 93A claim, not because the parties were involved in a joint venture together, but because the Defendants’ “ineptitude,” “sloppiness,” and even “negligence” did not rise to the level of an unfair or deceptive business practice.

Plaintiff sought damages in three general categories: loss of a management fee for the Institute, lost profits, and lost value of equity interest in the joint venture. The court rejected the lost value of equity component, reasoning that the damages claim rested upon “heaps of inference upon inference,” which was particularly troublesome in the context of a barely-launched startup. The court did award the Plaintiff $3,000,000 in lost profits, however, despite the fact that the venture was so new, based on the agreements’ requirement that the Institute was to run for five years. The court largely accepted Plaintiff’s projections based on increasing numbers of neurosurgeries over those five years. The court awarded approximately $650,000 in management fees for the Plaintiff’s LLC and also awarded the Plaintiff her attorneys’ fees, which the parties’ contract presumably shifted to the non-prevailing party in any suit, and court costs, totaling an additional $1 million.

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