A state court jury has awarded nearly $14 million in damages to a California hospital in a suit charging that two physicians who had been hospital board members built competing facilities and steered patients to them.
A Riverside County Superior Court jury in Indio, Calif., awarded $11.7 million in compensatory damages and $1.8 million in punitive damages to Desert Hospital in Palm Springs.
The suit, filed in October 1991, charged that as board members or members of board committees, Mark A. Smith, M.D., and Erwin C. Demiany, M.D., took advantage of their inside knowledge of the hospital's expansion plans and "established competitive services virtually identical to those previously envisioned by the hospital."
The doctors "usurped opportunities from the hospital by purchasing properties adjacent to the hospital" that the hospital was interested in acquiring and building their own outpatient facilities there, the suit said.
Citing "the refusal of (the) defendants....to heed the biblical injunction against serving two masters," the suit by the 348-bed not-for-profit acute-care facility charged the physicians with breach of fiduciary duty, unfair competition, misappropriation of trade secrets, conspiracy and other violations.
"I'm sure the verdict will have an impact on the way they and other doctors do business. Doctors in this entrepreneurial era still have to compete fairly," said Frederick L. McKnight, who represented the hospital in the trial.
Smith and Demiany, who are on the hospital staff, are no longer board members. Their attorney could not be reached for comment.
The hospital's plans, first drafted in 1985, involved developing various services and facilities "through cooperative partnerships between the hospital and its medical staff," the suit said. Plans called for building an outpatient surgery center, a medical office building, a cancer center, radiology and MRI facilities, and other outpatient facilities.
Smith and Demiany acquired property, built similar facilities and referred their patients to them, the suit said. The doctors also threatened to stop referring patients to hospital staff physicians who considered entering partnerships with the hospital, the suit said.