LEO F. ROGERS, M.D. APPELLANT
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
LEO F. ROGERS, M.D. CROSS-APPELLEE
FROM FAYETTE CIRCUIT COURT HONORABLE THOMAS L. CLARK, JUDGE
ACTION NO. 13-CI-03767
FROM FAYETTE CIRCUIT COURT HONORABLE JAMES D. ISHMAEL, JUDGE
ACTION NO. 13-CI-03767
FOR APPELLANT: Robert E. Maclin, III Lisa English Hinkle
Masten Childers, III Lexington, Kentucky.
FOR APPELLEE: Daniel Hitchcock Lexington, Kentucky.
BEFORE: KRAMER, CHIEF JUDGE; JONES AND THOMPSON, JUDGES.
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.
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.
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."
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." All shareholders executed the Fourth
Amended Agreement, with the exception of Dr. Brian
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.
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
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
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; 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; Count V - damages for violation of KRS
517.050; and Count VI -damages for violation of KRS
14A.2-030. Family Practice then filed a counterclaim
against Dr. Rogers alleging breach of contract and seeking
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 ("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.
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.
also added two new claims: Count IX - damages for violation
of KRS 275.170, 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.
24, 2015, Dr. Rogers moved for partial summary judgment and
for sanctions under CR 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.
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'
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 ...