Amsurg Holdings Inc. v. Anireddy

• Decision Date: 29 January 2019
• Docket Number: No. CV-17-04181-PHX-SMB,CV-17-04181-PHX-SMB
• Citation: Amsurg Holdings Inc. v. Anireddy, 364 F.Supp.3d 1018 (D. Ariz. 2019)
• Parties: AMSURG HOLDINGS INCORPORATED, et al., Plaintiffs, v. Divesh ANIREDDY, et al., Defendants.
• Court: U.S. District Court — District of Arizona

364 F.Supp.3d 1018

AMSURG HOLDINGS INCORPORATED, et al., Plaintiffs,

v.Divesh ANIREDDY, et al., Defendants.

No. CV-17-04181-PHX-SMB

United States District Court, D. Arizona.

Signed January 29, 2019

David B. Rosenbaum, Kristin Louise Windtberg, Osborn Maledon PA, Phoenix, AZ, Meredith M. Thompson, Russell E. Baldwin, W. Brantley Phillips, Jr., Bass Berry & Sims PLC, Nashville, TN, for Plaintiffs.

Alexander Poulos, Robert A. Royal, Tiffany & Bosco PA, Phoenix, AZ, Arturo I. Villarreal, Jacqueline Rose Luger, John Steven Garcia, Garcia & Villarreal PLC, Yuma, AZ, for Defendants.

ORDER DENYING DEFENDANTS' MOTION FOR SUMMARY JUDGMENT

Honorable Susan M. Brnovich, United States District Judge

At issue is the motion for summary judgment filed by defendants Anireddy, Esker, Miller, Bryant, Endoscopy Center of Yuma, L.L.C.("ECY"), and Yuma Endoscopy Center, L.L.C.("YEC")(collectively, "Defendants").¹(Doc. 62, "Mot.").

PlaintiffsAmSurg Holdings, Inc.("AmSurg"), and The Yuma AZ Endoscopy ASC, L.L.C. filed a response (Doc. 74, "Resp."), to which Defendants filed a reply (Doc. 86, "Reply").Oral argument was held on January 9, 2019.

I.Background

Defendant ECY is a physician entity located in Yuma, Arizona.DefendantsDivesh Anireddy, M.D., and Alec Esker, M.D., are Members of ECY.AmSurg is a corporation in the business of developing, owning, and operating ambulatory surgery centers in partnership with physicians.Their dispute arises from a joint venture that began in October 2005, when AmSurg bought a 51% share of a surgery center operated by ECY.(DSOF, Ex. 1).Plaintiffs allege they paid $ 6.5 million for their share of the surgery center.(Doc. 46 ¶ 14, "Complaint").To operate the surgery center, AmSurg and ECY formed an LLC called The Yuma AZ Endoscopy ASC, LLC("ASC").(DSOF, Ex. 1).DefendantBeverly Bryant was an administrator at ASC, where defendantSeth Miller, M.D., also performed procedures before starting a competing surgery center, YEC.In their Complaint, Plaintiffs allege Defendants purposely undermined the success of the joint venture in order to operate and develop YEC.(Doc. 46, "Complaint").

AmSurg and ECY signed an operating agreement (the "Agreement") for ASC that states that the purpose of ASC is to own and operate the "Center."(DSOF, Ex. 1).The Center is defined as "the ambulatory surgery center operated by [ASC] and located in Yuma, Arizona, including the real property, or leasehold improvements, furniture, fixtures, the Equipment, books records, supplies, accounts receivable, goodwill, other intangibles and other assets used in its operation."(DSOF, Ex. 1).ECY maintained a 49% stake in the Center, and AmSurg and ECY are the only two members of ASC.(DSOF, Ex. 1).

The Agreement also includes an anti-assignment clause that, among other things, requires all members to approve another member's assignment of its membership interest to a non-party.(DSOF, Ex. 1).An assignment that is inconsistent with the Agreement "shall be void."(DSOF, Ex. 1).The Agreement is governed by Tennessee law, specifically the Tennessee Limited Liability Company Act, Tenn. Code. Ann. §§ 48-201-101 et seq.(DSOF, Ex. 1).

At the time of the Agreement, AmSurg Holdings, Inc. and its parent company, AmSurg Corp., were both corporations organized under Tennessee laws.(DSOF, Ex. 1).In 2014, AmSurg Holdings, Inc.("AmSurg-Tennessee") merged into a newly-created Delaware corporation of the same name ("AmSurg-Delaware").(DSOF ¶ 7).In 2016, AmSurg Corp. also merged into a different Delaware Corporation called New Amethyst, which then merged into Envision Healthcare Holdings, Inc., a Delaware corporation ("Envision").(PASOF ¶ 19).The parent company was not a party to the Agreement.AmSurg-Delaware had no further mergers.

Defendants argue Plaintiffs lacking standing to sue because the mergers violate the Agreement's anti-assignment clause, thus voiding Plaintiff's interest in ASC.(Mot.at 8–17).Plaintiffs, however, characterize the merger as a "routine business decision" meant only to change AmSurg's state of domicile from Tennessee to Delaware.(Resp. at 1, 3;PASOF ¶ 8).They assert the merger did not change "AmSurg's business operations, practices, policies, officers or other personnel,"(Resp. at 3;PASOF ¶ 9), and that the merger was not a traditional assignment but a transfer or assignment by operation of law , which is not a prohibited assignment as contemplated by the agreement.They note AmSurg-Delaware even retained the same IRS Federal Employer Identification Number after the merger.(Resp. at 3;PASOF ¶ 10).Defendants do not present any facts to dispute the assertion that the merger didn't change AmSurg's business operations, practices, policies, officers or other personnel.Defendants, for their part, say Plaintiffs hid the merger from them, (Mot.at 16), and they only "discovered" the merger after discovery began in this litigation.(DSOF ¶ 12).Plaintiffs respond by noting the merger was a public transaction filed with the Tennessee and Delaware Secretaries of State.(Resp. at 2;PASOF ¶ 7).Plaintiffs also argue that equity compels the court to reject Defendants' motion.

Defendants' motion asks for summary judgment on all causes of action alleged in the Complaint arguing that Plaintiffs have no standing to sue.(Mot.at 2).

II.Legal Standard

Summary judgment is appropriate when "there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law."Fed. R. Civ. P. 56(a).Under this standard, "[o]nly disputes over facts that might affect the outcome of the suit under governing [substantive] law will properly preclude the entry of summary judgment."Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202(1986).A "genuine issue" of material fact arises only "if the evidence is such that a reasonable jury could return a verdict for the non-moving party."Id.

In considering a motion for summary judgment, the court must regard as true the non-moving party's evidence if it is supported by affidavits or other evidentiary material.Celotex Corp. v. Catrett , 477 U.S. 317, 324, 106 S.Ct. 2548, 91 L.Ed.2d 265(1986);Eisenberg v. Ins. Co. of N. Am. , 815 F.2d 1285, 1289(9th Cir.1987).The non-moving party may not merely rest on its pleadings; it must produce some significant probative evidence tending to contradict the moving party's allegations, thereby creating a question of material fact.Anderson , 477 U.S. at 256-57, 106 S.Ct. 2505(holding that the plaintiff must present affirmative evidence in order to defeat a properly supported motion for summary judgment);First Nat'l Bank of Ariz. v. Cities Serv. Co. , 391 U.S. 253, 289, 88 S.Ct. 1575, 20 L.Ed.2d 569(1968).

III.Analysis

Defendants move for summary judgment on the grounds that the entities they contracted with, AmSurg-Tennessee and AmSurg Corp., ceased to exist when they merged into different corporations and the anti-assignment clause prevents any rights the original entities had from transferring to the new corporations AmSurg-Delaware and Envision.Therefore, Plaintiffs do not have standing to sue.For the reasons that follow, Defendants' arguments are unpersuasive.

1.The ASC's anti-assignment clause

The anti-assignment clause is found in Section 12 of the Agreement.Defendants argue Plaintiffs only have standing to sue if the original entities assigned their membership interest to the new entities consistent with Subsection 12.3, the portion of the Agreement that governs assignments to "any person who is not a member."(Mot.at 5).The relevant portions of the Agreement are as follows:

12.1.Assignment of Membership Interests.No assignment of all or any part of a Membership Interest in the LLC (including any Financial Rights, Governance Rights or other rights pertaining to a Membership Interest) shall be made except as follows:

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12.1.2.Subject to the provisions of Section 12.3 hereof, a Member may assign such Member's Membership Interest to any person who is not a Member;

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12.1.5.The LLC need not recognize any assignment of all or any part of a Membership Interest other than an assignment described in Sections 12.1.1 through 12.1.4 hereof.Any other assignment or attempted assignment shall be void.No assignment shall be effective until written notice thereof has been provided to the LLC and any other applicable requirements set forth in this Agreement, the Articles of Organization or the Act have been satisfied.

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12.3.Assignment of Membership Interest with Consent of Other Members.A Member may assign all or any part of such Member's Membership Interest to a person not theretofore a Member in accordance with Section 12. l.2 hereof if (a) the assignor first gives written notice to the other Member(s) and the LLC of the proposed assignment, giving the name, address and social security or taxpayer identification number of the proposed assignee and describing the terms of the assignment, (b) the proposed assignee executes a copy of this Agreement and agrees in writing to be bound by the terms hereof, (c) the assignment is approved in writing by the other Members, and (d) the assignment is permitted under Section 12.5 hereof....The approval by the Members of an assignment pursuant to this Section 12.3 shall constitute consent to the continuation of the existence and the business of the LLC pursuant to the Act.

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12.5.Restrictions on Assignment.No Member shall be permitted to assign such Member's Membership Interest, Financial Rights or Governance Rights if such assignment would result in the LLC being taxed for federal income tax purposes as an association taxable as a corporation or would constitute a violation of any applicable federal or state law.Each of the Members hereby agrees and acknowledges that the restrictions on assignment contained in this Article 12 are not unreasonable in view of the nature of the parties and their relationships to one another and the nature of

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