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REPORTED IN THE COURT OF SPECIAL APPEALS OF MARYLAND No. 27 September Term, 1998

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MEDI-CEN CORPORATION OF MARYLAND

v.

H. ROBERT BIRSCHBACH, M.D., CHARTERED ________________________________ Harrell, Getty, James S. (retired, specially assigned), Ricks, Essom V. Jr. (specially assigned), JJ. ________________________________

Opinion by Harrell, J. ________________________________

Filed:

November 30, 1998

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. 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). among Pursuant other to the for Agreement, billing Medi-Cen and was

responsible,

things,

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. In The remaining funds were Dr. Birschbach's. 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 the raw data regarding the services and charges applicable to his patients. 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. Cen accepted the termination. MediDr.

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 Medi-Cen also provided Dr. Birschbach with various equipment and office supplies pursuant to the contract. 2
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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

The Agreement did not provide a method for determining or estimating when accounts became uncollectible. Dr. Birschbach's complaint also included a request for an accounting with regard to "all funds received by [Medi-Cen] arising from billings generated as a result of services provided by [Dr. Birschbach], and the disposition of such funds." 3
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$81,739.04, plus prejudgment interest and costs.

As noted supra,

the $81,739.04 award included $28,741.91, representing 50% of all outstanding 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

(1997), aff'd, 348 Md. 558 (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 (1994) (quoting $3,417.46 U.S. Money v. Kinnamon, 326 Md. 141, 149 (1992)). In contrast, the

clearly erroneous standard does not apply to the trial court's Although the trial court did not specify whether its judgment was based on breach of contract or conversion, both parties conceded at oral argument before this Court that the trial court granted relief under the conversion count only. 4
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determinations of legal questions or to the legal conclusions it draws from its factual findings. Md. 119, 124 (1977)). instances is whether Id. (citing Davis v. Davis, 280

The appropriate standard of review in these the trial court was legally correct.

Himelstein, 113 Md. App. at 536.

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, we must examine of we three issues. Initially, we must determine using a

definition definition,

"accounts must

receivable." whether

Second, accounts

this are

analyze

receivable

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 5

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 (1912), the U.S. Supreme Court examined accounts receivable in the context of bankruptcy law. There, the Court described accounts receivable as Id. at 184. In

"the amounts owing to [a debtor] on open account."

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 (Ariz. 1945); West Virginia Pulp & Paper Co. v. Karnes, 137 Va. 714 (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.

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B. The tort of conversion is generally defined as "the wrongful exercise of dominion by one person over the personal property of another." omitted). determined Kalb v. Vega, 56 Md. App. 653, 665 (1983) (citation The measure of damages relating to a conversion is by the value of the property at the time of the Id. Whether a conversion has occurred

conversion, plus interest.

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 (citations omitted). As this Court

stated in Allied Investment Corp. v. Jasen, 123 Md. App. 88, 100 (1998) (citations omitted): In determining the seriousness of the interference with the plaintiff's 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 plaintiff's right of control; (3) the defendant's good faith or bad intentions; (4) the extent and duration of the resulting interference with the plaintiff's 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 (citations omitted). 7 The question before

us in the instant case becomes whether accounts receivable are personal property that are capable of being converted. In Lawson v. Commonwealth Land Title Ins. Co., 69 Md. App. 476 (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. Id.

Due to its error, Commonwealth overpaid Mr. Lawson $3,966.

Mr. Lawson was paid by check, which he routinely deposited in his personal bank account. Id. Although Commonwealth explained its Id. at 478.

error to Mr. Lawson, he refused to return the money.

Subsequently, Commonwealth filed a complaint alleging conversion, unjust enrichment, and breach of an implied contract. asserted that all three counts were Id. time-barred Id. Lawson the

under

applicable statute of limitations.

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.

In an

unreported opinion, Lawson v. Commonwealth Land Title Ins. Co., No. 1138, Sept. Term, 1985 (filed 28 Jan. 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. 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. 8

Id. On appeal once again, this Court reversed the judgment of the trial court. 69 Md. App. at 479. 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 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. 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 debtor.'" Id. at 482 (quoting Lyxell v.

Vautrin, 604 F.2d 18, 21 (5th Cir. 1979)). In Allied Investment Corp. v. Jasen, 123 Md. App. 88, 93-4 (1998), this Court examined whether a limited partnership interest was subject to conversion. were originally assigned a In that case, DC Bancorp and Allied partnership interest in Ashmere

Partnership by William H. Miller as collateral for a $1,000,000 loan. Id. at 93-4. Pursuant to a later agreement, however, Miller 9

assigned his partnership interest in Ashmere Partnership to Jasen. Id. at 94. Subsequently, a dispute arose over who was properly Id. at 94-5. Allied filed

assigned Miller's partnership interest.

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. 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.

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. 101-05. Id. at

Relying on Lawson, we "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 . . . .'" partnership interest at Id. at 103. we Examining the limited that it was a

issue,

determined

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]." "Miller's intangible interest in the Id. at 104. Thus, was

Ashmere

Partnership

identified with and merged in a document, and . . . this interest 10

may be the subject of a suit for conversion."

Id. at 105.

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 MediCen would pick up from your office by courier and bring to its billing office. Am I correct so far? That's correct. 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? That's correct. 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? That's correct. There were two accounts, but essentially, most of my funds went into the primary account.

A: Q:

A: Q:

A:

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. 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? 11

A: COURT: A: COURT: A:

Yes, sir. Which would billing? Yes, sir. And that was collected by somebody, right? Prepared by me and sent to HQM for billing through April 30th. be the basis for

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 12

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. cross-examination, Dr. Birschbach testified that During

Defendant's

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

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suggests the existence of such documents.5

See Allied Investment

Corp., 123 Md. App. at 101-05 (discussing "`intangible rights which are customarily merged in, or identified with some document'"); Lawson, 69 Md. App. at 481. of the proceedings below. This issue, however, was not a focus 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 for the reason explained in (C) of our analysis, the parties and court can amplify the documentation issue on remand.6

C. Having defined accounts receivable and determined that such The raw data concerning the accounts receivable in the present case differs from the check present in Lawson because, as we stated in that case, "[w]hen there is 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 will not lie against the debtor." 69 Md. App. at 482. Thus, in Lawson, we had a separate basis for concluding that conversion was inappropriate under its facts. Contrary to Lawson, the instant case does not involve a claim against a debtor for conversion of the funds representing the indebtedness. Although this case involves raw data which was transferred using hard copy, we draw no distinction between hard copy and electronic data retained on disks or other tangible form representing accounts receivable. The intangible interest which is allegedly converted (in this case the accounts receivable), however, must be identified with and merged in a document which is admissible under the Maryland Rules of Evidence. 14
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accounts, if the documentation requirement is met, may be property subject to conversion, we must now examine whether the trial court appropriately valuated them in its award of damages. Medi-Cen

argues that "the trial court awarded Birschbach a sum of money based on the totally speculative assumption that one hundred

percent (100%) would be collected and, by virtue of the judgment rendered and interest accruing immediately thereon, the invalid proposition that it had, in fact, been collected." Because "the

trial judge rendered [his] decision without any evidence or expert testimony of Medi-Cen's past history of accounts receivable

collection or Medi-Cen's prospect for collecting the accounts receivable in the future," Medi-Cen asserts that it "is not a sufficient basis for an award of outstanding accounts receivable." We agree with Medi-Cen's argument. We are persuaded to reach this

position by various foreign authorities, as we could find no Maryland case law on point. Collier on Bankruptcy provides: The courts have identified and utilized different methods of valuation suitable to various types of assets. Thus, notes or accounts receivable are not appraised at their face value but on the basis of prospect at the critical date of their collectibility within a reasonable time, depending on the solvency of the obligors, the presence or absence of a serious dispute over their validity or the availability of other defenses. Collier on Bankruptcy

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