In drafting recruitment agreements, providers should separate the employment agreement from the other agreements to help diffuse breach of employment agreement arguments as a defense to the repayment of recruitment advances.

Dr. Robert Halterman entered into a recruitment agreement (Recruitment Agreement), a promissory note (Note) and a physician employment agreement (Employment Agreement) with Johnson Regional Medical Center (JRMC) to work as an OB/GYN. Upon execution of the agreements, JRMC advanced Dr. Halterman $50,000 as a “signing advance.” According to the terms of the Recruitment Agreement, the Note’s monthly payments would be forgiven as long as Dr. Halterman continued his employment at JRMC.

Within five months, however, Dr. Halterman had resigned from JRMC citing an injured shoulder as his reason for leaving. After accepting Dr. Halterman’s resignation letter, JRMC terminated his employment and demanded payment of the remaining balance due under the Note. Dr. Halterman failed to make any payments, and several months after his resignation, he began working elsewhere as a hospitalist.

JRMC filed suit against Dr. Halterman alleging that he had failed to pay the balance of the Note when due. In response, Dr. Halterman claimed that all three documents constituted a single contract, and that his performance under the contract was excused by JRMC’s breach of contract, JRMC’s fraudulent inducement related to a misrepresentation of Dr. Halterman’s on-call requirements, and/or the physician’s shoulder injury, which prevented him from fulfilling his duties.

The district court held that the agreements, while executed at the same time, constituted two separate contracts – (1) the Employment Agreement and (2) the Note and Recruitment Agreement – based upon the parties’ intent as reflected in the terms of the agreements, independent merger clauses, differing triggers for termination, and differing promises and obligations.

As for Dr. Halterman’s allegations against JRMC, “Even assuming that [the] contentions are true,” the court held that Dr. Halterman “fail[ed] to explain why any of them would allow him to keep the remainder of the loan proceeds.”

Halterman’s obligation to pay the remaining debt under the Note is not excused by his allegations of fraud or breach of the duty of good faith…. To the contrary, [a party] after discovering the fraud, [can elect to] either perform [the contract] or rescind it, and if with knowledge of the fraud he elects to perform it this is equivalent to his making a new contract, and to permit him, under those circumstances to recover for a fraud would be to do violence to every rule upon which compensatory damages are allowed.

By resigning, thus choosing not to perform, Halterman chose rescission as his option. Consequently, he was obligated to repay the balance due to JRMC.

The district court also held that a contractual provision authorizing attorney’s fees was “enforceable in accordance with its terms independent of [any] statutory authorization providing for attorney's fee.” As a result, the district court granted JRMC’s summary judgment motion and awarded JRMC nearly double the remaining balance ($37,894) of the Note. The judgment totaled $64,931.81 – $37,894.88 in principal owed under the Note, $21,696 in attorney’s fees, $3,849.93 in interest, and $1,491 in costs.

The U.S. Court of Appeals for the Eighth Circuit affirmed the district court’s summary judgment to JRMC.

Johnson Regional Medical Center v. Halterman, No. 16-3068 (8th Cir. 2017).