Court of Appeal Upholds $3 Million Judgment in Bad Faith Revocation Case

In its decision released earlier this year in Rosenhek v. Windsor Regional Hospital,[i] the Court of Appeal for Ontario affirmed a $3 million judgment awarded to a doctor in his action against a hospital arising from the denial of hospital privileges to him. The Court concluded that the hospital’s Board of Governors had acted in bad faith in summarily revoking the doctor’s hospital privileges primarily because he didn’t “fit in” with his fellow staff members.

Dr. Rosenhek, a cardiologist, had enjoyed privileges allowing him to admit and treat patients at the defendant hospital for a number of years before those privileges were revoked. These hospital privileges were crucial to his ability to earn a livelihood and had been obtained from the Board through application after proceeding through a series of committees staffed by fellow doctors. The Board’s powers flowed from statute and allowed it to revoke, suspend, and grant hospital privileges, which were usually accorded to doctors for a limited duration. Each time his privileges expired, Dr. Rosenhek would reapply for their renewal. 

From May 1984 until January 1989, Dr. Rosenhek’s privileges were granted and renewed from time to time, although not without some difficulty. While his professional competence and ability to care for patients were never called into question, Dr. Rosenhek was considered by some to be arrogant and demanding. Additionally, his position at the hospital had been predicated on a controversial critical care initiative that many doctors had opposed and that had since failed. As a result, Dr. Rosenhek was ostracized by other staff members and was denied entry into a coverage group that would have allowed him to share his on call duties with other physicians. This meant Dr. Rosenhek had to work very long hours at the hospital and was almost always on call, causing him significant stress and adversely affecting his health. His attempt to have this issue resolved at the Board level was apparently ignored.

In March 1989 – two months after renewing Dr. Rosenhek’s privileges – the Board adopted a committee recommendation and suddenly revoked them. Dr. Rosenhek was ordered to leave the hospital immediately and was escorted out of the building; reasons for the revocation were later provided to him by the Board. Dr. Rosenhek’s appeal to the hospital’s Appeal Board was not heard until years later, in December 1993. Finally, in April 1996, the Appeal Board set aside the Board’s order and restored Dr. Rosenhek’s privileges. Dr. Rosenhek then commenced litigation against the hospital, alleging that its actions amounted to a breach of duty of good faith and to wrongful interference with his economic relations.

At trial, Superior Court Justice Quinn found for Dr. Rosenhek. He adopted the hospital Appeal Board’s findings that Dr. Rosenhek was never advised of the committee meeting that had recommended the revocation of his privileges and that he was never given an opportunity to appear before the Board or to respond to the committee’s recommendation. The Board was acting in a “quasi-judicial manner” when it conducted a hearing that “would affect the livelihood and reputation of Dr. Rosenhek”. The Board’s actions in this instance, Justice Quinn held, constituted a denial of natural justice; they also violated several provisions of the very statute from which the Board’s power to revoke hospital privileges was derived.

Moreover, Justice Quinn ruled that the Board’s decision to revoke Dr. Rosenhek’s privileges was made “because he did not fit in” and ultimately amounted to a bad faith use of its powers. Characterizing the conflict as “a very minor problem…for which Dr. Rosenhek may have been only partially responsible,” Justice Quinn found that the interpersonal clash stemmed in part from controversy over the unsuccessful critical care initiative that had preceded Dr. Rosenhek’s arrival and in which he had played no part. The hospital, he ruled, had taken no steps to intervene in the conflict; instead, it blindly adopted a committee recommendation to rescind his privileges. Combined with the Board’s failure to adhere to the rules of natural justice, the Board had acted in bad faith and was liable for the tort of intentional interference with economic relations. 

Although at trial Dr. Rosenhek could not show the extent of his damages “with anywhere near the degree of specificity required of him,” Justice Quinn recognized that he had sustained a significant loss for which he deserved to be compensated. Prior to the revocation of his privileges, Dr. Rosenhek had a busy and lucrative practice at the hospital; the Board’s decision effectively reduced this practice to walk-in clinics and negatively impacted on his ability to obtain cardiology work at other hospitals in Ontario. By the time they were finally restored, Dr. Rosenhek had been without hospital privileges for over seven years, and it took him more than two years thereafter to return to his pre-revocation income level. In the circumstances, Justice Quinn held that Dr. Rosenhek’s evidence, while deficient, could sustain an award of $3 million in compensation for loss of professional income.      

The hospital appealed the trial decision to the Court of Appeal for Ontario, arguing (among other things) that Justice Quinn erred in finding that the Board had acted in bad faith. The Court dismissed the appeal, holding that the Board “had no basis on which to revoke Dr. Rosenhek’s privileges”. Given the public interest factors in hospital administration, the Board’s powers were public in nature; the exercise of these public powers in bad faith, the Court affirmed, provided a proper foundation for Dr. Rosenhek’s tort claim against the hospital. 

The Court also found that the trial judge’s finding of bad faith was well anchored in evidence. The manner in which Dr. Rosenhek’s privileges had been revoked – as well as the Board’s failure to alert or involve Dr. Rosenhek in this process – properly informed the trial judge’s assessment of bad faith. None of the reasons later advanced by the Board to justify the revocation had merit; indeed, most were “contrary to the factual reality.” The Board’s decision was simply wrong; although a wrong decision does not necessarily amount to bad faith, it may be bad faith where a decision is “so clearly wrong on the merits.” This, the Court held, was the case with Dr. Rosenhek.

The timing of the Board’s decision provided further evidence of bad faith. Dr. Rosenhek’s privileges had been renewed a mere two months earlier and were set to expire the following month; no incidents or occurrences had transpired within this time frame that would give cause for or explain the Board’s decision. The arbitrary nature of this act called into question the legitimacy of the revocation, especially since no concerns were ever expressed regarding Dr. Rosenhek’s competence or the safety of his patients. The fact that his privileges were instantly terminated and that he was forced to leave the hospital at once was also indicative of bad faith. 

Finally, the Court found that the Board’s improper motive supports a finding that its decision was made in bad faith. Dr. Rosenhek’s privileges were revoked because he did not “fit in.” This lack of fit, however, was due in part to Dr. Rosenhek’s lack of coverage which, in turn, flowed from the hospital’s own failed critical care initiative. Rather than take steps to resolve the problem, the Board opted to terminate Dr Rosenhek’s relationship with the hospital. While this admittedly solved the coverage dispute, the Board’s “oblique and improper motive” underscored the bad faith nature of its decision, which was made “for an ulterior purpose and not for the public good.”