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Rogers v. Family Practice Associates of Lexington, P.S.C.

Court of Appeals of Kentucky

November 9, 2017

LEO F. ROGERS, M.D. APPELLANT
v.
FAMILY PRACTICE ASSOCIATES OF LEXINGTON, P.S.C., KEITH D. APPLEGATE, M.D., DAVID P. DUBOCQ, M.D., JEFFREY FOXX, M.D., JOSEPH E. GERHARDSTEIN, M.D., DIANA HAYSLIP, M.D., MARY H. HENKEL, M.D., WESLEY W. JOHNSON, M.D., AND JOHN E. REESOR, M.D. APPELLEES AND FAMILY PRACTICE ASSOCIATES OF LEXINGTON, P.S.C., KEITH D. APPLEGATE, M.D., DAVID P. DUBOCQ, M.D., JEFFREY FOXX, M.D., JOSEPH E. GERHARDSTEIN, M.D., DIANA HAYSLIP, M.D., MARY H. HENKEL, M.D., WESLEY W. JOHNSON, M.D., AND JOHN E. REESOR, M.D. CROSS-APPELLANTS
v.
LEO F. ROGERS, M.D. CROSS-APPELLEE

         APPEAL FROM FAYETTE CIRCUIT COURT HONORABLE THOMAS L. CLARK, JUDGE ACTION NO. 13-CI-03767

         CROSS-APPEAL FROM FAYETTE CIRCUIT COURT HONORABLE JAMES D. ISHMAEL, JUDGE ACTION NO. 13-CI-03767

          BRIEFS FOR APPELLANT: Robert E. Maclin, III Lisa English Hinkle Masten Childers, III Lexington, Kentucky.

          BRIEFS FOR APPELLEE: Daniel Hitchcock Lexington, Kentucky.

          BEFORE: KRAMER, CHIEF JUDGE; JONES AND THOMPSON, JUDGES.

          OPINION

          JONES, JUDGE.

         This appeal and cross-appeal arise out of an order of the Fayette Circuit Court granting summary judgment in favor of Appellees/Cross-Appellants. For reasons more fully explained below, we affirm.

         I. Background

         Family Practice Associates of Lexington, P.S.C. ("Family Practice") is a Kentucky medical professional services corporation formed in 1988. All individually named Appellees/Cross-Appellants (the "Physician Shareholders") were shareholders and directors of Family Practice at the time of the events giving rise to this action. Until January of 2013, Appellant, Dr. Leo F. Rogers ("Dr. Rogers"), was employed by Family Practice and was also a shareholder and director of Family Practice.

         As shareholders of Family Practice, all parties to this appeal have entered into various agreements concerning governance of the corporation and shareholder rights and obligations, several of which are relevant to this appeal. The Family Practice Shareholders Agreement, effective as of November 1, 2006, functions as corporate bylaws in that it "resolves certain business and management issues regarding the operation of the Corporation." Among other things, the Shareholders Agreement sets out the composition of the Board of Directors, indicates how to replace Directors, and lists decisions about corporate operations that require a supermajority vote. One such corporate action requiring a supermajority vote of the Board of Directors is "[a]ny change in the shareholders of the Corporation, including without limitation, all decisions involving the issuance, repurchase, redemption and rights to subscribe to the newly issued and reissued shares of the Corporation."

         During his tenure with Family Practice, Dr. Rogers also entered into several stock restriction and purchase agreements with Family Practice and the other shareholders. It was Family Practice's custom to execute a new stock restriction and purchase agreement each time there was a change in shareholders. Accordingly, Dr. Rogers executed and entered into stock restriction and purchase agreements dated: July 1, 1994; January 23, 2001; January 1, 2003; November 1, 2006; and May 1, 2008. A fifth amended and restated stock restriction and purchase agreement was drafted and dated effective September 1, 2009; however, it is now undisputed that Dr. Rogers never executed that agreement. As is relevant to this appeal, the stock restriction and purchase agreements indicated that if a shareholder ceased to be employed by Family Practice, Family Practice "shall purchase from such Shareholder, and the Shareholder shall sell to [Family Practice] at the Contract Price . . . all of the Shareholder's shares." Each agreement sets out how the Contract Price is to be determined should a shareholder sell his shares back to Family Practice. Until the May 1, 2008, agreement (hereafter referred to as the "Fourth Amended Agreement"), "Contract Price" was calculated based on the fair market value of the shares. In 2008, a supermajority of Family Practice's Board of Directors voted to change how the contract price would be calculated. This change was then reflected in the Fourth Amended Agreement, which states that the contract price for all shares of the selling shareholder is the selling shareholder's pro rata share of Family Practice's (i) "Total Capital" less (ii) "Net Property and Equipment" plus (iii) "Cost of Property and Equipment" less (iv) "Undistributed Income."[1] All shareholders executed the Fourth Amended Agreement, with the exception of Dr. Brian Brown.[2]

         In 2009, the Board of Directors voted to make Dr. Diana Hayslip a shareholder of Family Practice. Dr. Rogers was one of the two shareholders who did not vote in favor of adding Dr. Hayslip as a shareholder. The amended stock restriction and purchase agreement dated September 1, 2009 (hereafter referred to as the "Fifth Amended Agreement") was drafted in light of Dr. Hayslip's addition as a shareholder of Family Practice. The Fifth Amended Agreement contains the same methodology for calculating "Contract Price" as the Fourth Amended Agreement. The only significant difference between the two agreements is that Dr. Brown is no longer listed as a shareholder of Family Practice and Dr. Hayslip is added as a shareholder. While the Fifth Amended Agreement purports to have been executed by all of Family Practice's shareholders, in that there are signatures for each shareholder on the document, the course of this proceeding has revealed that only Dr. John Reesor and Dr. Hayslip actually signed the agreement.

         By letter dated November 19, 2012, Family Practice informed Dr. Rogers that he was being terminated from Family Practice, effective January 18, 2013. Dr. Rogers was immediately placed on a paid leave of absence continuing until the official date of his termination. Following Dr. Rogers's termination, Family Practice attempted to repurchase Dr. Rogers's shares in Family Practice; the amount offered for Dr. Rogers's shares was calculated according to the terms set forth in the Fifth Amended Agreement. Dr. Rogers rejected Family Practice's offer to repurchase his shares. He claimed that because he had not executed the Fifth Amended Agreement, it was invalid and unenforceable against him. As such, Dr. Rogers contended that Family Practice was required to pay him the fair market value of his shares as pursuant to KRS[3] 274.095(2) and (4). Family Practice contended that Dr. Rogers's argument was irrelevant, as even if the Fifth Amended Agreement was unenforceable against him, Family Practice was still entitled to purchase Dr. Rogers's shares from him at the Contract Price as stated in the Fourth Amended Agreement.

         On September 12, 2013, Dr. Rogers filed a complaint in Fayette Circuit Court naming Family Practice and the Physician Shareholders, both in his or her individual capacity and capacity as a director of Family Practice, as a defendant. In his complaint, Dr. Rogers asserted the following causes of action: Count I - damages for Family Practice's violation of KRS 274.095;[4] Count II -breach of Family Practice officer fiduciary duties; Count III - breach of Family Practice director fiduciary duties; Count IV - damages for violation of KRS 516.030;[5] Count V - damages for violation of KRS 517.050;[6] and Count VI -damages for violation of KRS 14A.2-030.[7] Family Practice then filed a counterclaim against Dr. Rogers alleging breach of contract and seeking declaratory relief.

         In September of 2014, Dr. Rogers moved to file a first amended complaint to add claims of tortious interference with contract ("Count VII") and negligence per se violation of KRS 311.597[8] ("Count VIII"). Subsequently, Family Practice moved for summary judgment on Counts I-VI of Dr. Rogers's complaint. Dr. Rogers was granted leave to file his first amended complaint on September 22, 2014. Family Practice's motion for summary judgment was denied on October 14, 2014.

         In February of 2015, Dr. Rogers moved to file a second amended complaint. Over the objections of Family Practice, the second amended complaint was filed of record on March 2, 2015. The second amended complaint added Family Practice Properties of Lexington, LLC ("Properties") as a defendant. [9] It also added two new claims: Count IX - damages for violation of KRS 275.170, [10]Properties' operating agreement, and applicable law; and Count X - damages for intentional actions of Properties in attempting to utilize a forged instrument. Subsequently, the Physician Shareholders moved to dismiss Count IX of the second amended complaint, arguing that there was no recognized legal theory in Kentucky under which the directors of a professional services corporation have legal duties imposed on them under limited liability company laws. Family Practice moved to dismiss Count X of the second amended complaint, arguing that Dr. Rogers had failed to set forth with particularity the actions of Family Practice that constituted the alleged fraud and that Dr. Rogers could not meet all the necessary elements of a fraud cause of action. Dr. Rogers moved to withdraw the second amended complaint on April 3, 2015.

         On June 24, 2015, Dr. Rogers moved for partial summary judgment and for sanctions under CR[11] 11. Following a hearing, Dr. Rogers's motion for partial summary judgment was denied on August 6, 2015. On August 4, 2015, the Physician Shareholders and Family Practice, collectively, filed a motion for partial summary judgment as to Count VI of Dr. Rogers's complaint. The following week, the Physician Shareholders and Family Practice filed a joint motion for partial summary judgment as to Count VII and Count VIII of Dr. Roger's complaint. An agreed order was entered on August 21, 2015, dismissing Count VI of the complaint with prejudice. On August 26, 2015, the trial court entered an order granting the motion for summary judgment as to Counts VII and VIII of the complaint, and dismissing those claims.

         Thereafter, Family Practice and the Physician Shareholders made several separate motions for partial summary judgment. On September 15, 2015, defendants moved for summary judgment as to Count V of Dr. Rogers's complaint. On October 26, 2015, the Physician Shareholders moved for summary judgment as to Counts II and III of the complaint; all defendants collectively moved for summary judgment as to Count I of the complaint; and all defendants moved for summary judgment as to Count IV of the complaint. All motions were heard on December 3, 2015. On December 23, 2015, the trial court entered an order granting all motions for summary judgment, which made the following conclusions of law:

1. No genuine issue of material fact exists which would allow the Court to rule in the Plaintiff's favor as to Counts I, II, III, IV and V of the Complaint, and the Defendants are entitled to judgment as a matter of law.
2. The signatures on the Fifth Amended Stock Agreement of those shareholders other than Dr. Reesor and Dr. Hayslip were not valid. In equity and as a matter of law, the Court sets aside and disregards the Fifth Amended Stock Agreement.
3. Dr. Brown's failure to execute the Fourth Amended Stock Agreement does not void said agreement, as eight of the nine then shareholders/directors signed the Fourth Amended Stock Agreement in excess of the 70% needed under the Shareholders Agreement. Even accepting Dr. Rogers [sic] argument that he would not have signed the Fourth Amended Stock Agreement if he had known Dr. Brown would not be signing it, seven of the nine shareholders/directors (77%) signed the Fourth Amended Stock Agreement in excess of the 70% needed under the Shareholders Agreement to bind the practice group. The Plaintiff cannot prevail on Count I of the Plaintiff's Complaint as the 70% requirement was reached and exceeded even if disregarding Dr. Rogers' [sic] signature.
4. The Plaintiff cannot prevail under Counts II and III of the Plaintiff's Complaint as the duties under KRS 271B.8-420 and KRS 271B.8-300 run to the corporation, and no duty is owed thereunder to the individual shareholders.
5. Given the Fifth Amended Stock Agreement is not being enforced, Count IV, forgery/negligence per se, and Count V falsification of a business record/negligence per se, become moot. In addition, there has been no showing of an intent to defraud or ...

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