Internal Medicine Alliance, LLC v. Budell

• Decision Date: 10 March 2008
• Docket Number: No. A07A2357.,A07A2357.
• Citation: 659 S.E.2d 668,290 Ga. App. 231
• Parties: INTERNAL MEDICINE ALLIANCE, L.L.C. et al. v. BUDELL.
• Court: Georgia Court of Appeals

290 Ga. App. 231

659 S.E.2d 668

290 Ga.App. 231

INTERNAL MEDICINE ALLIANCE, L.L.C. et al. v. BUDELL.

No. A07A2357.

Court of Appeals of Georgia.

March 10, 2008.

R. Keegan Federal Jr., John P. Marinan, Atlanta, for appellants.

Wilson, Morton & Downs, Robert E. Wilson, Debra A. Golymbieski, Decatur, for appellee.

BERNES, Judge.

Following a bench trial in this action involving a business dispute, defendants Internal Medicine Alliance, LLC ("IMA"), Izabella Verbitsky, M.D., and Alex Goldstein appeal from the final order and judgment entered in favor of plaintiff J. William Budell, M.D. Appellants contend that the superior court erred by vacating a consent order incorporating a settlement agreement purportedly reached by the parties; by declining to take account of a lease obligation as an accrued liability in valuing Budell's ownership interest in IMA; and by holding that Verbitsky alone should be held legally responsible for the lease obligation. Appellants further contend that there was insufficient evidence to support Budell's claims for breach of fiduciary duty, conversion, punitive damages, and attorney fees under OCGA § 13-6-11. We reverse the superior court's judgment entered in favor of Budell's claims for conversion and punitive damages and remand for a new trial on those counts. Additionally, we vacate the attorney fees award and remand for the fees to be limited to those incurred by Budell in prosecuting his successful claims. We affirm in all other respects.

"On appeal from the entry of judgment in a bench trial, the evidence must be viewed in the light most favorable to the trial court's findings of fact." Realty Lenders v. Levine, 286 Ga.App. 326, 326-327, 649 S.E.2d 333 (2007). So viewed, the record reflects that Verbitsky and Budell are physicians who practice internal medicine. In early 2005, they organized IMA as a limited liability company ("LLC") for the purpose of operating a medical practice together. The articles of organization filed with the Secretary of State of Georgia stated that IMA was to be a manager-managed LLC. Notably, Verbitsky and Budell never entered into a written operating agreement for IMA. They agreed, however, that they would each hold a 50 percent ownership interest in IMA, would share equally in the profits and losses, and would jointly manage IMA. While they were both practicing at IMA, neither Verbitsky nor Budell received any salary, compensation, draw, distribution, or any other money in return for participating in the practice.

Verbitsky and Budell made capital contributions to IMA in the amount of $70,000 and $70,199.21, respectively. The capital contributions were pooled together and used for startup expenses, including the purchase of computer hardware and software, phone equipment, furniture, and office space construction. As part of the startup of the practice, IMA entered into a seven-year lease for office space in the LaVista Office Park in DeKalb County. Under the lease agreement, Verbitsky and Budell both agreed to serve as guarantors of $70,000 in costs associated with the construction of the office space.

Problems developed before IMA opened for business when Verbitsky's husband, Goldstein, threatened Budell that the medical practice would break up if he was not made a member of IMA. Goldstein was not a physician, and Budell would not agree to Goldstein becoming a member. After IMA opened on July 5, 2005, the tensions between Verbitsky, Goldstein, and Budell continued to escalate to the point that Goldstein threatened Budell with physical violence.

Eight days after IMA opened, the parties met to discuss how to separate their medical practices. Initially, the parties agreed that Verbitsky would leave IMA and move her practice elsewhere, while Budell would stay at IMA and become the sole manager and member of the practice. A week later, Goldstein approached Budell and informed him, "No, we are staying. You are going." In order to avoid further hostility, Budell agreed to leave IMA and form his own practice by the end of 2005. It was understood by the parties that once Budell left at the end of 2005, he would be entitled to redeem his 50 percent ownership interest in IMA and then would cease to be a member of IMA. Despite their agreement, tensions between the parties continued to escalate during the interim period before Budell left IMA. As a result, Budell filed the present lawsuit in September 2005 in the Superior Court of DeKalb County in which he sought, among other things, the value of his 50 percent ownership interest and attorney fees under OCGA § 13-6-11.

On October 3, 2005, the parties appeared at a hearing before the superior court to argue various motions. During the hearing, the parties asked for a recess so that they could discuss a possible settlement. After the parties concluded their discussion and the court reconvened the hearing, the parties took turns stating and attempting to clarify on the record the terms of the agreement they purportedly had reached. They specifically noted that "[e]verything in [the] case [would] remain[] active" until all financial issues were resolved, and that only upon resolution of those issues would the case be dismissed with prejudice. The superior court then pronounced that the alleged settlement agreement that had been placed on the record would serve as an order binding on all parties.

Both parties subsequently filed motions for contempt based on alleged noncompliance with the consent order. On November 21, 2006, the contempt motions came on for hearing before a different superior court judge to whom the case had been reassigned. After reviewing the October 3 transcript, the superior court ruled sua sponte that there had been no "meeting of the minds" and no enforceable consent order that could serve as a predicate for the contempt motions. Accordingly, the superior court vacated the purported consent order and ruled that the matter would proceed to a bench trial at a later date if the parties could not resolve their differences.

Budell spent his last work day at IMA on December 16, 2005. Following his departure, Verbitsky by her own admission was the sole member "running" the IMA practice. At the time he left IMA, Budell had generated over $40,000 in accounts receivable owed to IMA. But, under Verbitsky's management after Budell's departure, only a small portion of this amount was ultimately collected from insurance providers for the benefit of IMA. During this same period, Verbitsky reimbursed herself for her $70,000 capital contribution out of IMA's bank account, but chose not to reimburse Budell for his $70,199.21 capital contribution.

In the ensuing weeks, the parties were unable to resolve their remaining disputes, and Budell filed an amended complaint adding claims for breach of fiduciary duty, conversion and punitive damages.¹ A bench trial was subsequently held on Budell's claims in late January 2006.

At the bench trial, both parties agreed that Budell was entitled to redeem his 50 percent ownership interest in IMA, but they disagreed over the value of that interest measured as of December 31, 2005. Specifically, Budell presented expert testimony that based on 2005 business records, the value of IMA's net assets, on a cash basis, totaled $143,915 and the value of IMA's accounts receivable totaled $139,536. Based on these combined figures, Budell's valuation expert testified that IMA was worth $283,451 at the end of 2005, and that Budell's 50 percent ownership interest thus was worth $141,725.50. In contrast, while appellants' valuation expert substantially agreed with the numbers utilized by Budell's expert, he went on to testify that the future lease obligation of IMA had to be included in the valuation as an accrued liability. According to the appellants' expert, if the lease obligation was properly included, the value of IMA would be -$19,749, and Budell's interest would be worth -$9,874.

Also at the bench trial, Budell contended that Verbitsky breached her fiduciary duty to IMA and Budell by failing to have the accounts receivable for his patients properly processed and collected from insurance providers. He further contended that Verbitsky was liable for conversion for not reimbursing him for his capital contribution made to IMA. Finally, Budell asserted a claim for punitive damages predicated on his conversion claim and sought attorney fees under OCGA § 13-6-11.

After hearing all the evidence, the superior court entered a final order and judgment containing detailed findings of fact and conclusions of law. Declining to include the lease obligation in the valuation of IMA, the superior court credited Budell's expert valuation and found that his 50 percent ownership interest in IMA was worth $141,725.50. The superior court further concluded that Verbitsky was liable for breach of fiduciary duty and conversion, granted punitive damages based on the conversion claim, and awarded Budell his attorney fees and expenses.

1. Appellants contend that the superior court erred by vacating the October 3, 2005 order that incorporated a settlement agreement allegedly reached by the parties. Appellants' sole argument in this regard is that the superior court to whom the case had been reassigned lacked subject matter jurisdiction to vacate the previously entered order when it heard the contempt motions. Their argument is without merit.

"Jurisdiction of the subject matter is the power to deal with the general abstract question, to hear the particular facts in any case relating to this question, and to determine whether or not they are sufficient to invoke the exercise of that power." (Citations and punctuation omitted.) Williams v. Fuller, 244 Ga. 846, 849(3), 262 S.E.2d 135 (1979). Here, the superior court clearly had subject matter jurisdiction over this action involving a business dispute. See Ga. Const. 1983, Art. VI, Sec. IV, Par. I; OCGA § 15-6-8. Likewise, the superior...