285 S.E.2d 714 (Ga. 1982), 38037, Sherrer v. Hale

Docket Nº:38037.
Citation:285 S.E.2d 714, 248 Ga. 793
Opinion Judge:HILL, Presiding Justice.
Party Name:Webster A. SHERRER et al. v. Henry A. HALE et al.
Attorney:[248 Ga. 798] John M. Comolli and Dennis S. Mackin, Cohen, Mackin, Pollock, Cooper & Comolli, Atlanta, for Webster A. Sherrer et al. Archer D. Smith, III, Atlanta, for Henry A. Hale et al.
Case Date:January 07, 1982
Court:Supreme Court of Georgia

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285 S.E.2d 714 (Ga. 1982)

248 Ga. 793

Webster A. SHERRER et al.


Henry A. HALE et al.

No. 38037.

Supreme Court of Georgia.

January 7, 1982

Rehearing Denied Jan. 26, 1982.

[248 Ga. 798] John M. Comolli and Dennis S. Mackin, Cohen, Mackin, Pollock, Cooper & Comolli, Atlanta, for Webster A. Sherrer et al.

Archer D. Smith, III, Atlanta, for Henry A. Hale et al.

HILL, Presiding Justice.

This is an appeal from the trial court's grant of an interlocutory injunction, ordering the reversion of Pathology Associates of Marietta, P. C., into a traditional business corporation and the reinstatement of Mr.

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Henry Hale's shareholder interest in that corporation.

Pathology Associates of Marietta, P. C. [hereinafter PAM, P. C.], was incorporated as a professional corporation under Code Ch. 84-54 in 1972 by Dr. Webster A. Sherrer, a licensed physician and specialist in pathology, who acquired all 100 shares of the corporation's stock. The corporation operated a licensed clinical laboratory under the supervision of Dr. Sherrer which performed various tests and microscopic examinations on human tissue and specimens submitted by area physicians. 1 The results of the tests or examinations, and sometimes diagnoses and recommendations, were then made by Dr. Sherrer to the submitting physician.

Due in part to financial difficulties experienced by the company, in May of 1976 Dr. Sherrer amended the articles of incorporation and converted the business from a professional corporation into a traditional business corporation, Pathology Associates of Marietta, Inc. [PAM, Inc.], in order to permit his business advisor, Mr. Henry Hale, a nonphysician, to become a shareholder. 2 Mr. Hale purchased 50 shares of stock from Dr. Sherrer for $3332.00 (one-half of the corporation's book value) and received a bill of sale for the stock. Neither Dr. Sherrer nor Mr. Hale received stock certificates and [248 Ga. 794] neither interest was listed in the corporation's stock records. A shareholder's agreement was executed which empowered Dr. Sherrer to unilaterally repurchase Mr. Hale's stock at any time within four years by paying Mr. Hale one-half of the corporation's book value. Dr. Sherrer was elected president of the corporation and Mr. Hale was elected a director and the corporation's secretary.

Contemporaneous with the conversion of the professional corporation into a business corporation, Dr. Sherrer incorporated a professional corporation in Dalton, Georgia, for tax and pension advantages. Dr. Sherrer then moved to Dalton, executed an exclusive employment agreement with his Dalton corporation and accepted a position with a local hospital. All compensation earned by Dr. Sherrer from the hospital and PAM, Inc., was paid to his Dalton corporation.

In Dr. Sherrer's absence, Mr. Hale assumed the marketing and management responsibilities for PAM, Inc., and Dr. Louis Rodriguez, M. D., was retained to replace Dr. Sherrer in the Marietta laboratory. Dr. Rodriguez continued the practice of sometimes issuing to requesting physicians diagnoses and recommendations based on the laboratory findings. It is unclear whether Dr. Rodriguez was performing as an employee of the corporation or an independent contractor, although the evidence does show that PAM, Inc., had medical malpractice insurance, diagnoses were issued on corporate stationary, and the corporation billed and collected the fees for Dr. Rodriguez's services.

In 1979, Dr. Sherrer left Dalton, returned to Marietta and replaced Dr. Rodriguez at PAM, Inc., continuing to be paid only through his Dalton professional corporation. Although discussions were held between Dr. Sherrer and Mr. Hale concerning the repurchase of Mr. Hale's stock by Dr. Sherrer, Dr. Sherrer's unilateral repurchase rights contained in the shareholder's agreement expired without being exercised.

In January, 1981, Dr. Sherrer retained counsel to assist him in negotiating the repurchase of Mr. Hale's stock. His attorney informed him that, by issuing diagnoses, PAM, Inc., was engaged in the practice of medicine and that a corporation could practice medicine only in the form of a professional corporation. Thus, according to the attorney, the conversion of the company in 1976 into a business corporation was void and it remained a professional

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corporation. Furthermore, advised the attorney, shares in a professional corporation issued or transferred to a person not licensed in the profession being practiced are void. Therefore, according to counsel, Mr. Hale was not legally a shareholder in the corporation.

[248 Ga. 795] Acting on this advice, Dr. Sherrer called meetings of the shareholders and directors of PAM, Inc., on February 4, 1981, without giving Mr. Hale notice. At those meetings, Dr. Sherrer declared Mr. Hale's shareholder's interest void and removed him as secretary of the corporation. On February 5, Dr. Sherrer filed an amendment to the articles of incorporation converting the company back into a professional corporation. Mr. Hale received notice of these actions in a letter from Dr. Sherrer's attorney dated February 6, 1981. Mr. Hale has received no refund or other compensation for his interest in the corporation.

Mr. Hale then filed suit, individually and as a shareholder's derivative action, against Dr. Sherrer and PAM, P. C., seeking, inter alia, an injunction prohibiting interference with his status as a shareholder, director and officer of the corporation. After a hearing, the trial court ruled that equitable relief was necessary to prevent irreparable harm to Mr. Hale and issued an interlocutory injunction declaring Dr. Sherrer's actions at the corporate meetings of February 4, 1981, void and ordering the reversion of PAM, P. C., into...

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