Dorsch v. Family Medicine, Inc.

• Decision Date: 25 January 2005
• Docket Number: No. WD 63050, No. WD 63058.
• Citation: 159 S.W.3d 424
• Parties: Stephen DORSCH, Appellant-Respondent, v. FAMILY MEDICINE, INC., et al.; Larry Legler, Gregory Markway, Marvin Steiner, Respondent-Appellants.
• Court: Missouri Court of Appeals

159 S.W.3d 424

Stephen DORSCH, Appellant-Respondent, v. FAMILY MEDICINE, INC., et al.; Larry Legler, Gregory Markway, Marvin Steiner, Respondent-Appellants.

Nos. WD 63050, WD 63058.

Missouri Court of Appeals, Western District.

January 25, 2005.

Motion for Rehearing and/or Transfer Denied March 1, 2005.

Application for Transfer Denied April 26, 2005.

David W. Whipple, Kansas City, MO, for appellant-respondent.

Mark A. Olthoff, Kansas City, MO, for respondent-appellants.

Before: LISA WHITE HARDWICK, P.J., ROBERT G. ULRICH and THOMAS H. NEWTON, JJ.

Motion for Rehearing and/or Transfer to Supreme Court Denied March 1, 2005.

ROBERT G. ULRICH, Judge.

Stephen Dorsch, M.D., appeals the judgment of the trial court finding for Respondents Family Medicine, Inc. (FMI), a Missouri Corporation, and physicians and medical doctors, Larry Legler, Gregory Markway, and Marvin Steiner in his suit seeking a writ of mandamus and an accounting and asserting claims of breach of contract and fraud against his former employer and fellow stockholders. Dr. Dorsch also sought money damages for amounts that he claimed should have been paid him according to the Corporate Stock Agreement, wage-continuation payments according to the Employment Agreement between himself and FMI and Schedule A to the Employment Agreement, and incentive compensation according to the Employment Agreement and Schedule A.

The trial court determined that Dr. Dorsch failed to present supporting evidence for his claims for a writ of mandamus, accounting and fraud (counts I, II, and IV). The trial court also determined that Dr. Dorsch was not entitled to recovery for breach of contract under either the Employment Agreement or Appendix A of the agreement. The court entered judgment for the Respondents and against Dr. Dorsch on all counts. Despite Dr. Dorsch's request for a jury trial, the trial court heard both equitable and legal claims as the trier of fact, applying the equitable clean-up doctrine.

Both Dr. Dorsch and Respondents appeal. Dr. Dorsch appeals the trial court's judgment. Respondents cross-appeal the trial court's order sanctioning their failure to provide discovery as directed and the court's award to Dr. Dorsch for additional expenses incurred because of Respondent's failure to disclose financial documents.

The judgment of the trial court is affirmed. The trial court's order of sanctions is reversed.

Facts

Dr. Stephen Dorsch was hired by FMI¹ in October of 1986. Dr. Dorsch's initial Employment Agreement outlined that he would be paid a base salary plus "incentive compensation"² based upon his individual adjusted gross billings. The practice of FMI was to allow individual physicians to become shareholders in the corporation after a period of time — usually after one year. By becoming a shareholder, physicians in the corporation were entitled to significant benefits, including improved income potential and patient access.

At the time that Dr. Dorsch was hired, the corporation's 1000 shares of stock were entirely owned by Dr. Larry Legler. On January 31, 1987, Dr. Legler sold 500 of these shares to Dr. Greg Markaway at a price of $1 per share. Until discovery was conducted in this action, the price paid by Dr. Markaway for his shares of FMI stock was never revealed to Dr. Dorsch.

In December of 1986, Dr. Dorsch began discussing the prospect of becoming a shareholder in FMI with Doctors Legler and Markaway. In May 1987, at the end of FMI's fiscal year, Dr. Dorsch became aware that a shareholder agreement was forthcoming. The arrangement was solidified on September 1, 1987, at which time four separate documents were signed. Dr. Dorsch read and executed a Corporate Stock Sale Agreement, a [Stock] Subscription Agreement, an Employment Agreement, and "Schedule A," an addendum to the Employment Agreement. He was sold 333 1/3 shares of FMI at a price of $87.21 per share, at a total purchase price of $27,240.00. FMI's accountant, Paul Dooley, determined the price for the stock. Dr. Dorsch was made both a shareholder in the company and a member of its board of directors.

"Schedule A" of the Employment Agreement outlined two forms of compensation. The Agreement provided for both a base salary and the potential for incentive compensation based upon the performance of an individual doctor's "department." Incentive compensation was only awarded if a doctor's department remained profitable after the deduction of shared expenses. Incentive compensation was to be computed by FMI's board of directors, at least once, following the close of a fiscal year.

In January of 1992, Dr. Marvin Steiner was hired by FMI. On February 1, 1993, he became a shareholder in the corporation. Dr. Steiner purchased 250 total shares of FMI for a price of $130.90 per share, with a purchase price totaling $32,724.00. The shares were purchased in equal amounts from Doctors Legler, Markway, and Dorsch, resulting in each of the four doctors owning 25% of the total company stock.

The relationship between Dr. Dorsch and Respondents began to deteriorate in the late 1990's. For reasons unrelated to this appeal, Dr. Dorsch was notified of his termination at a Board of Director's meeting on August 26, 1999. Dr. Dorsch was officially terminated by FMI effective October 25, 1999. The Corporate Stock Sale Agreement signed by Dr. Dorsch provided specific terms for the repurchase of stock by the company in the event of termination. On January 10, 2000, FMI attempted to purchase Dr. Dorsch's remaining 250 shares for a price of $1,422.53, at a value of approximately $5.69 per share.

Dr. Dorsch brought this suit against FMI on June 13, 2000. His petition sought four separate claims for relief: (1) a writ of mandamus ordering FMI to allow Dr. Dorsch access to the company's books; (2) an accounting of the book value of FMI stock, as well as income and expenses attributable to Dr. Dorsch; (3) a claim for breach of contract; and (4) a claim for fraud. The parties appeared for trial on April 22, 2002, and the case was tried to the court. The trial court dismissed three counts of the petition at the close of the plaintiff's evidence. Only the breach of contract claim survived the motion, and the trial court heard evidence from the defendants on that issue alone. On April 29, 2003, the trial court entered its judgment in favor of FMI and the named defendants as to all four counts. The court also ordered sanctions against the defendants for failure to make complete discovery. This appeal and cross-appeal followed.

I. Equitable Clean Up

Dr. Dorsch's first three points on appeal address the propriety of the trial court's decision to apply the "equitable clean up doctrine" to resolve his claims. At the onset of trial, counsel for Dr. Dorsch requested a jury trial on all issues before the court. The court observed that each count of the action (including the fraud and contract claims) called for some form of equitable relief and that the underlying claims for damages were incidental to the equitable relief sought. Counsel for Dr. Dorsch then requested a jury trial as to the legal issues, and requested that the court limit its own factual findings to the claims for equitable relief. The court proceeded to try the entire case itself, while allowing the potential for impaneling a jury if during the trial there appeared to be "a sufficient separation between the issues of liability and damages to justify the seating of a jury in connection with the damage claims."

Under then existing case law, the rationale applied by the trial court was carefully and appropriately applied. However, while this appeal was pending, the Missouri Supreme Court issued a ruling that clarified Missouri's position on the "equitable clean up doctrine." In State ex rel. Leonardi v. Sherry, the Missouri Supreme Court recently ruled that

Missouri trial courts have jurisdiction to try cases involving requests for equitable relief and damages in one proceeding. The trial court has discretion to try such cases in the most practical and efficient manner possible, consistent with Missouri's historical preference for a litigant's ability to have a jury trial of claims at law. Unless circumstances clearly demand otherwise, trials should be conducted to allow claims at law to be tried to a jury, with the court reserving for its own determination only equitable claims and defenses, which it should decide consistently with the factual findings made by the jury.

137 S.W.3d 462, 473 (Mo. banc 2004). Based upon this ruling, the court should have impaneled a jury to hear Dr. Dorsch's legal claims. "Trying incidental claims at law to the court... should be the exception and not the rule." Id. at 474. Neither party disputes the appropriateness of the trial court's resolution of the claims for equitable relief.

While this ruling certainly informs the issues presented, it does not completely decide them, and the clarification of law does not entirely resolve the questions posed by this appeal. Even though a trial by jury would have been proper, the question remains whether denial of a jury trial regarding the legal issues is reversible. Before trial court error is reversible, the appellant must demonstrate that the error materially affects the outcome of the action. RSMo 512.160.2 (2000); Rule 84.13(b). While the trial court may have been erroneous in its conclusion that no jury was required, the underlying fraud and breach of contract claims were decided — in one fashion or another — as matters of law. If these decisions were in fact correct, the ultimate decisions would still have rested with the trial court, and not with the jury.³ Consequently, determining whether Dr. Dorsch was prejudiced by the court's decision requires examination of appellant's points four and five. FMI also raised the alternative question of whether the right to a jury trial was waived.

II. Fraud Claim

In his fourth point on appeal, Dr. Dorsch contends the trial...