B-181734, MAR 7, 1975, 54 COMP GEN 728

B-181734: Mar 7, 1975

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PERSONAL SERVICES - CONTRACTS - LIQUIDATED DAMAGES PROVISION - ENFORCEABLE LIQUIDATED DAMAGE PROVISION OF EMPLOYMENT CONTRACT BETWEEN VETERANS ADMINISTRATION AND PHYSICIAN WHICH REQUIRED PHYSICIAN TO PERFORM PERIOD OF OBLIGATED SERVICE IN RETURN FOR SPECIALTY TRAINING IS FOUND VALID AND ENFORCEABLE. THE PERIOD OF OBLIGATED SERVICE WAS DETERMINED IN ACCORDANCE WITH A FORMULA SET OUT IN THE CONTRACT. IT IS NOW AGREED THAT I SHALL BE OBLIGATED TO PAY TO THE VETERANS ADMINISTRATION. FERMAGLICH WOULD HAVE COMPLETED 3 YEARS OF TRAINING ON NOVEMBER 11. AT WHICH TIME HE WAS SUBJECT TO 2 YEARS OF OBLIGATED SERVICE. THIS CONCLUSION IS DERIVED FROM ITS EXAMINATION OF THE "ARRC FORM 75. THAT IS. IT WAS A VOLUNTARY ACTION ON HIS PART.".

B-181734, MAR 7, 1975, 54 COMP GEN 728

PERSONAL SERVICES - CONTRACTS - LIQUIDATED DAMAGES PROVISION - ENFORCEABLE LIQUIDATED DAMAGE PROVISION OF EMPLOYMENT CONTRACT BETWEEN VETERANS ADMINISTRATION AND PHYSICIAN WHICH REQUIRED PHYSICIAN TO PERFORM PERIOD OF OBLIGATED SERVICE IN RETURN FOR SPECIALTY TRAINING IS FOUND VALID AND ENFORCEABLE. MILITARY SERVICE OF PHYSICIAN SUSPENDED CONTRACT OF EMPLOYMENT OBLIGATIONS AND HIS INDUCTION INTO AIR FORCE DID NOT RESCIND CONTRACT. CERTIFICATION OF NO EXTRA-VA PROFESSIONAL ACTIVITIES FOUND INAPPLICABLE TO ISSUE OF ABROGATION OF CONTRACT.

IN THE MATTER OF AN APPEAL TO SETTLEMENT OF INDEBTEDNESS, MARCH 7, 1975:

THE APPEAL TO SETTLEMENT BY DR. JOSEPH L. FERMAGLICH CONCERNS A CLAIM FOR LIQUIDATED DAMAGES FOR BREACH OF HIS EMPLOYMENT CONTRACT WITH THE VETERANS ADMINISTRATION (VA). THIS CONTRACT, SIGNED NOVEMBER 12, 1963, PROVIDED THAT IN RETURN FOR BEING ACCEPTED FOR SPECIALTY TRAINING IN NEUROLOGY AS A RESIDENT OF THE VA HOSPITAL, EAST ORANGE, NEW JERSEY, AND FOR EMPLOYMENT IN THE DEPARTMENT OF MEDICINE AND SURGERY OF THE VA AS A FULL-TIME PHYSICIAN AT THE REGULAR SALARY OF A FULL-TIME PHYSICIAN, DR. FERMAGLICH AGREED TO RENDER A SPECIFIED LENGTH OF OBLIGATED SERVICE. THE PERIOD OF OBLIGATED SERVICE WAS DETERMINED IN ACCORDANCE WITH A FORMULA SET OUT IN THE CONTRACT. THE CONTRACT ALSO PROVIDED:

*** IN THE EVENT OF MY FAILURE TO PERFORM SUCH OBLIGATED SERVICE, BECAUSE OF THE AMOUNT OF DAMAGES ON BREACH OF THIS AGREEMENT WOULD BE DIFFICULT OF ASCERTAINMENT, IT IS NOW AGREED THAT I SHALL BE OBLIGATED TO PAY TO THE VETERANS ADMINISTRATION, NOT AS A PENALTY BUT AS AGREED LIQUIDATED DAMAGES, THE SUM OF $407.00 FOR EACH MONTH OR PORTION OF A MONTH FOR WHICH I FAIL TO PERFORM THE OBLIGATED SERVICE ASSUMED UNDER THIS AGREEMENT.

PURSUANT TO THE CONTRACT, DR. FERMAGLICH PERFORMED SERVICES FOR THE VA BETWEEN NOVEMBER 12, 1963, AND APRIL 6, 1966, AT WHICH TIME HE ENTERED THE AIR FORCE. AFTER COMPLETION OF HIS MILITARY SERVICE, HE DID NOT RETURN TO THE VA TO PERFORM HIS OBLIGATED SERVICE.

ACCORDING TO A LETTER OF MR. REUBIN COHEN, HOSPITAL DIRECTOR TO THE CHIEF MEDICAL DIRECTOR, DEPARTMENT OF MEDICINE AND SURGERY OF THE VA, DATED MAY 20, 1966, DR. FERMAGLICH WOULD HAVE COMPLETED 3 YEARS OF TRAINING ON NOVEMBER 11, 1966, AT WHICH TIME HE WAS SUBJECT TO 2 YEARS OF OBLIGATED SERVICE.

THE VA TAKES THE POSITION THAT DR. FERMAGLICH BREACHED HIS CONTRACT OF EMPLOYMENT BECAUSE HE VOLUNTARILY ENTERED THE MILITARY SERVICE AND FAILED TO RETURN TO HIS POSITION FOLLOWING HIS TOUR OF ACTIVE DUTY TO COMPLETE HIS OBLIGATED SERVICE WITH THE VA. THE VA CLAIMS THAT DR. FERMAGLICH HAD A CONTINUING CONTRACTUAL OBLIGATION BECAUSE HE VOLUNTARILY ENLISTED IN THE AIR FORCE. THIS CONCLUSION IS DERIVED FROM ITS EXAMINATION OF THE "ARRC FORM 75, EXTENDED ACTIVE DUTY ORDERS, WHICH INDICATES THAT DOCTOR FERMAGLICH PRECIPITATED THE ACTION THAT RESULTED IN HIS INDUCTION IN THE AIR FORCE; THAT IS, IT WAS A VOLUNTARY ACTION ON HIS PART." (LETTER OF M.J. MUSSER, M.D., DEPUTY CHIEF MEDICAL DIRECTOR TO THE HOSPITAL DIRECTOR OF THE VA HOSPITAL, EAST ORANGE, NEW JERSEY, DATED JULY 5, 1966.) ON THE BASIS OF THESE CIRCUMSTANCES, THE VA SEEKS RECOVERY OF THE LIQUIDATED DAMAGES IN THE AMOUNT OF $9,084.35 ($9,768 LIQUIDATED DAMAGES LESS $683.65 ACCRUED ANNUAL LEAVE).

DR. FERMAGLICH HAS CONSISTENTLY DENIED HIS LIABILITY. HE ASSERTS THAT HE DID NOT "VOLUNTARILY" ENTER MILITARY SERVICE BECAUSE HIS DRAFT BOARD HAD ALREADY TAKEN STEPS TO INDUCT HIM. HE SUBMITTED A COPY OF AN ORDER TO REPORT FOR INDUCTION ON FEBRUARY 14, 1966. BASED ON THIS, HE MAINTAINS THAT HIS INDUCTION INTO THE AIR FORCE TERMINATED HIS CONTRACTUAL OBLIGATION, AND THEREFORE THE LIQUIDATED DAMAGES UNDER THE CONTRACT ARE INAPPLICABLE.

THE EVIDENCE IN THE FILE FAILS TO SUPPORT THE ASSERTION OF DR. FERMAGLICH THAT HE DID NOT VOLUNTARILY RESIGN FROM THE VA TO PERFORM MILITARY DUTY. THE ORDER OF INDUCTION SUBMITTED AS EVIDENCE REQUIRES DR. FERMAGLICH TO REPORT ON FEBRUARY 14, 1966. HOWEVER, HE REMAINED WITH THE VA UNTIL APRIL 6, 1966, AT WHICH TIME HE JOINED THE AIR FORCE. THIS WOULD SUGGEST THAT ALTHOUGH DR. FERMAGLICH WAS SUBJECT TO FORCED INDUCTION BY THE SELECTIVE SERVICE, AND THIS THREAT MAY HAVE PROMPTED HIS ENLISTMENT IN THE AIR FORCE, HIS DEPARTURE FROM THE VA WAS NOT THE ACTUAL RESULT OF AN INVOLUNTARY DRAFT CALL OF THE SELECTIVE SERVICE.

IN A LEGAL OPINION TO THE CHIEF MEDICAL DIRECTOR BY THE GENERAL COUNSEL, CONCERNING THE CAREER RESIDENCY AGREEMENT, DATED JUNE 5, 1968, QUOTING AN UNPUBLISHED MEMORANDUM OPINION OF THAT OFFICE DATED OCTOBER 9, 1961, IT IS STATED:

"6. THE DECISION OF THE PRESIDENT OR OF A SERVICE DEPARTMENT TO CALL UP A RESERVIST TO EXTENDED ACTIVE DUTY IS OBVIOUSLY BEYOND THE CONTROL OF EITHER THE INDIVIDUAL CONCERNED OR THE VETERANS ADMINISTRATION. WE ARE OF THE OPINION THAT WHEN SUCH A DECISION HAS BEEN MADE THE RIGHTS AND DUTIES UNDER A CAREER RESIDENCY CONTRACT ARE NOT ABROGATED THEREBY. RATHER, THE CONTRACT IS IN A STATE OF SUSPENSION PENDING THE COMPLETION OF THE RESIDENT'S MILITARY DUTY. ***"

THIS WOULD ESTABLISH THAT IN THE OPINION OF THE VA, THE CONTRACT OF EMPLOYMENT IS NOT BREACHED BY A PHYSICIAN WHO DEPARTS FOR MILITARY SERVICE UNTIL THE PHYSICIAN IS RELEASED FROM ACTIVE MILITARY DUTY AND FAILS TO RETURN TO THE VA TO COMPLETE THE TERMS OF THE CONTRACT OF EMPLOYMENT WHICH HAD BEEN SUSPENDED. IT IS NOTEWORTHY THAT THE VA DOES NOT MAKE A DISTINCTION IN THIS OPINION BETWEEN A VOLUNTARY AND AN INVOLUNTARY INDUCTION INTO THE ARMED FORCES.

THE EVIDENCE INDICATES THAT DR. FERMAGLICH WAS ADVISED THAT THE VA WAS NOT RELEASING HIM FROM THE OBLIGATED SERVICE PORTION OF THE CONTRACT. DESPITE HIS STATEMENT IN A LETTER OF MAY 2, 1969, TO THE CHIEF FISCAL OFFICER THAT HE HAD NEVER BEEN ADVISED THAT HIS RESIDENCY TRAINING AND OBLIGATED SERVICE WOULD BE DEFERRED UNTIL COMPLETION OF MILITARY DUTY, THE FILE CONTAINS A STATEMENT, ENTITLED "AFFIDAVIT" SIGNED BY THE PERSONNEL MANAGEMENT SPECIALIST AND THE ASSISTANT PERSONNEL OFFICER WHICH ESTABLISHES THAT DR. FERMAGLICH STATED AN INTENTION TO RETURN TO THE VA TO COMPLETE HIS CAREER RESIDENCY AND OBLIGATED SERVICE.

THIS EVIDENCE IS SUPPORTED BY A LETTER FROM DR. FERMAGLICH TO THE CHIEF FISCAL OFFICER AT THE VA HOSPITAL IN EAST ORANGE, NEW JERSEY, DATED SEPTEMBER 3, 1969, WHEREIN HE STATES IN PART:

THE VETERANS ADMINISTRATION, WELL AWARE OF THE IMPLICATIONS OF TERMINATING MY RESIDENCY AND EMPLOYMENT STATUS, UNFAIRLY MADE EVERY EFFORT TO COERCE ME INTO COMMITTING MYSELF TO CONTINUED RESIDENCY TRAINING AND OBLIGATED SERVICE FOLLOWING THE CONCLUSION OF MY MILITARY SERVICE. FACT THE PERSONNEL OFFICE PREPARED A DOCUMENT IN MY NAME TO THAT EFFECT, TO WHICH YOU HAVE PREVIOUSLY ALLUDED - REFERENCE UNITED STATES GOVERNMENT MEMORANDUM DATED APRIL 5, 1966, A COPY OF WHICH IS ATTACHED. THIS INSTRUMENT, HOWEVER, WAS NEVER EXECUTED BY ME.

ONE CAN ONLY DEDUCE FROM THIS EVIDENCE TAKEN TOGETHER, THAT THE DOCTOR WAS WELL AWARE THAT THE VA WAS DESIROUS OF HIM COMPLETING HIS CONTRACTUAL OBLIGATION.

THE ADMISSION IN THIS LETTER OF SEPTEMBER 3, 1969, ALSO DISCOUNTS THE DOCTOR'S POSITION THAT HE HAD A RIGHT TO RELY ON HIS INTERPRETATION OF THE CONTRACT AS CONVEYED IN A MEMORANDUM TO THE PERSONNEL DIRECTOR DATED FEBRUARY 7, 1966. IN THAT MEMORANDUM, DR. FERMAGLICH ASKED WHETHER, WHILE SERVING IN THE ARMED FORCES, HE WOULD BE ON MILITARY LEAVE FROM THE VA OR HIS EMPLOYMENT AND/OR TRAINING STATUS WOULD BE TERMINATED. HE CONCLUDED THE MEMORANDUM TO THE EFFECT THAT UNLESS HE WAS ADVISED OTHERWISE, HE WOULD UNDERSTAND THAT HIS SEPARATION WAS A TERMINATION OF THE EMPLOYMENT. CLEARLY, THIS MEMORANDUM ESTABLISHES THAT THERE WAS DOUBT IN DR. FERMAGLICH'S MIND OF HIS STATUS WITH THE VA DURING HIS MILITARY SERVICE AS WELL AS THE OBLIGATION TO PERFORM SERVICES AFTER THE MILITARY DUTY. ALTHOUGH THE FILE DOES NOT REFLECT WHETHER THIS INQUIRY WAS ANSWERED, WE DO NOT FIND THAT THIS SELF SERVING OBLIGATION PLACED ON THE VA IN THE MEMORANDUM IS AN ADEQUATE MEANS IN AND OF ITSELF TO ALTER THE LEGAL OBLIGATION.

NOT TO BE OVERLOOKED IS THE FURTHER EVIDENCE THAT AT THE TIME OF HIS DEPARTURE FROM THE VA, DR. FERMAGLICH SIGNED A MEMORANDUM DATED APRIL 5, 1966, STATING HE DID NOT WISH TO RECEIVE THE LUMP-SUM PAYMENT FOR ACCRUED ANNUAL LEAVE. THE STATEMENT INCLUDES: "IT IS REQUESTED THAT IT REMAIN IN MY ACCOUNT FOR USE AFTER MY RETURN FROM MILITARY SERVICE." THIS FURTHER SUPPORTS THE VIEW THAT DR. FERMAGLICH WAS AWARE OF THE CONTINUING CONTRACTUAL OBLIGATION SUBSEQUENT TO HIS MILITARY SERVICE.

FURTHERMORE, UNDER VA REGULATIONS, THE OFFICIALS DEALING WITH DR. FERMAGLICH WERE NOT AUTHORIZED TO RESCIND THE CONTRACT. SEE VA PERSONNEL POLICY, MP-5, PART II, CH. 9, PARA. 12, DATED JUNE 1, 1964, WHEREIN IT PROVIDES:

PHYSICIANS AND DENTISTS ENGAGED IN TRAINING IN A CAREER RESIDENCY PROGRAM SHALL BE REQUIRED TO ASSUME A PERIOD OF OBLIGATED SERVICE. IF THEY VOLUNTARILY LEAVE THE VA BEFORE FULFILLING THEIR CONTRACT, THEY SHALL BE REQUIRED TO PAY LIQUIDATED DAMAGES AS SPECIFIED IN THE CONTRACT.

DR. FERMAGLICH ALSO POINTS TO THE FACT THAT HE WAS SEPARATED FROM THE VA UNDER VA FORM 5-4652-3. HE APPARENTLY INTERPRETS THE "SEPARATION" AS A RESCISSION OF THE CONTRACT. THE EVIDENCE DOES NOT SUPPORT THIS CONTENTION. IN 5A, CORBIN ON CONTRACTS, PAGE 533, SEC. 1236, 1964, RESCISSION IS DEFINED:

*** AS THE TERM IS USED IN THIS TREATISE, RESCISSION MEANS A MUTUAL AGREEMENT BY THE PARTIES TO AN EXISTING CONTRACT TO DISCHARGE AND TERMINATE THEIR DUTIES UNDER IT. JUST AS IN THE CASE OF THE FORMATION OF A CONTRACT, SO ALSO IN THE CASE OF ITS RESCISSION THERE ARE EXPRESSIONS OF ACCENT BY BOTH PARTIES - USUALLY IN THE FORM OF AN OFFER BY ONE AND AN ACCEPTANCE BY THE OTHER. ***

WHILE IT IS EVIDENT THAT DR. FERMAGLICH CHOOSES TO VIEW THE "SEPARATION" AS AN OFFER OF RESCISSION WHICH HE ACCEPTED, THERE IS NO INDICATION THAT THE VA INTENDED THIS RESULT IN RELEASING THE DOCTOR TO PERFORM MILITARY DUTY. SINCE THERE FAILS TO BE MUTUAL AGREEMENT ON THE EFFECT OF THE "SEPARATION," WE BELIEVE THAT THE CONTRACT WAS NOT RESCINDED.

DR. FERMAGLICH IN THIS LETTER OF MARCH 22, 1973, TO MR. WHITEHEAD OF OUR OFFICE, ALSO RAISES THE ISSUE THAT UNDER VA FORM 10-1015, HE WAS PROHIBITED FROM PERFORMING OUTSIDE MEDICAL SERVICES FOR REMUNERATION, WITHOUT EXCLUSION FOR MILITARY SERVICE. BY BEING ORDERED TO MILITARY DUTY FOR WHICH HE RECEIVED PAY FOR HIS MEDICAL SERVICES, HE APPARENTLY CONTENDS THAT THIS IS FURTHER EVIDENCE THAT HIS CONTRACT WITH THE VA WAS ABROGATED.

THE VA FORM 10-1015 IS A CERTIFICATION THAT THE PERSON IS AWARE AND PROMISES NOT TO ENGAGE IN EXTRA-VA PROFESSIONAL ACTIVITIES IN CONTRAVENTION OF DEPARTMENT OF MEDICINE AND SURGERY POLICIES. THERE IS AN ACKNOWLEDGEMENT THAT THE PERSON IS EMPLOYED 24 HOURS PER DAY, 7 DAYS PER WEEK.

WE FIND NOTHING IN THE CERTIFICATION OR INSTRUCTIONS PERTAINING TO A CONTINGENCY OF THE PHYSICIAN SERVING IN THE ARMED FORCES DURING THE COURSE OF CONTRACTUAL OBLIGATION TO THE VA. THE FORM, HOWEVER, REFERS TO THE ONE SIGNING IT AS A "FULL-TIME PHYSICIAN, DENTIST, NURSE, RESIDENT, OR INTERN OF THE DEPARTMENT OF MEDICINE AND SURGERY." IN THE CASE OF DR. FERMAGLICH WHILE PERFORMING MILITARY DUTY, HE WAS NOT A "FULL-TIME PHYSICIAN" AND THEREFORE THE CERTIFICATION IS INAPPLICABLE.

THE CERTIFICATION IS CLEARLY DESIGNED FOR THE BENEFIT OF THE VA TO ASSURE THAT THE INDIVIDUAL WILL NOT PRACTICE MEDICINE OR OTHERWISE WORK IN DEROGATION OF THE REQUIRED SERVICES TO THE VA. IF THE TERMS OF THE EMPLOYMENT CONTRACT ARE SUSPENDED PENDING THE MILITARY DUTY OF AN INDIVIDUAL, AS WE FIND IN THIS CASE, THERE IS NOTHING INCONSISTENT WITH THAT AND THE CERTIFICATION CONCERNING OUTSIDE PRACTICE.

THIS TYPE OF EMPLOYMENT CONTRACT BETWEEN THE VA AND A PHYSICIAN HAS BEEN JUDICIALLY REVIEWED AND FOUND BINDING. SEE UNITED STATES V. AVERICK, 249 F. SUPP. 236 (N.D. III. 1965). THUS WE FIND THAT THE CONTRACT OF EMPLOYMENT WAS NOT TERMINATED BY THE INTERVENING MILITARY SERVICE OF DR. FERMAGLICH AND THAT IT IS VALID AND ENFORCEABLE. THEREFORE, THE APPEAL IS DENIED AND COLLECTION OF THE CLAIM SHOULD BE PURSUED UNDER THE AUTHORITY OF THE FEDERAL CLAIMS COLLECTION ACT, THE ACT OF JULY 19, 1966, PUBLIC LAW 89-508, 80 STAT. 308, 31 U.S.C. 952.