Keane v. Lowcountry Pediatrics, P.A., 4199.

Citation641 S.E.2d 53
Decision Date29 January 2007
Docket NumberNo. 4199.,4199.
CourtCourt of Appeals of South Carolina
PartiesTimothy E. KEANE and Karen L. Keane, Respondents, v. LOWCOUNTRY PEDIATRICS, P.A.; Beaufort Pediatrics, P.A.; Francis E. Rushton, Jr.; Joseph H. Floyd; Lawrence R. Coleman, and Christine T. Chiaviello, Appellants.

James S. Gibson, Jr. and Mary B. Lohr, both of Beaufort, and William L. Howard, Sr., of Charleston, for Appellants.

Robert V. Mathison, Jr. of Hilton Head Island, for Respondents.

HEARN, C.J.:

In this legal and equitable action, Lowcountry Pediatrics, P.A., and Drs. Francis E. Rushton, Joseph H. Floyd, and Lawrence R. Coleman (collectively "Lowcountry"), appeal the trial court's order awarding damages to Drs. Timothy and Karen Keane. Lowcountry contends the trial court erred in: (1) including goodwill in its valuation of Lowcountry; (2) awarding prejudgment interest; and (3) awarding punitive damages. We reverse.

FACTS

On September 1, 1986, Dr. Rushton and Dr. Floyd organized Lowcountry Pediatrics. Rushton and Floyd later added Dr. Coleman to the practice, and the three became the senior physicians and shareholders of Lowcountry. Eventually, the Keanes and Dr. Christine Chiavello joined the practice, and all three became shareholders of Lowcountry.1

Upon the admission of each new member into Lowcountry, the doctors amended the shareholder agreement to reflect the current value of a withdrawing shareholder's stock. The shareholder agreement provided that upon a shareholder's withdrawal from the practice that shareholder's shares of stock would be bought back by Lowcountry at an agreed upon price. The shareholder agreement indicated the purchase price for the withdrawing shareholder's stock would remain in effect until a new value was agreed upon, in writing, following the end of each fiscal year. Between 1989 and 1998, the doctors amended the shareholder agreement on three different occasions, and each amendment occurred after Lowcountry received an appraisal to calculate its fair market value. The 1998 amendment was the final amendment prior to this controversy. Article 3.1 of the 1998 revision to the shareholder agreement stated:

Value of shares of stock: For the purpose of this Third Amendment to Shareholders Agreement, the value of each share of issued stock . . . of the Agreement . . . is $15.30. This value has been agreed upon by the shareholders as representing the fair value of each share of stock, including goodwill of the Association.

According to this amendment to the shareholder agreement, the Keanes owned a combined thirty percent of the shares in Lowcountry.2

Some time after the third amendment to the shareholder agreement, the senior physicians began to contemplate the end of Lowcountry, complaining about the lack of physical space in the office as well as their differing views with the Keanes about the proper management of the practice. As a result, on December 20, 1999, the senior physicians sent a letter to the Keanes notifying them of their desire to "split up Lowcountry Pediatrics." The Keanes, however, had no desire to dissolve the practice, and despite the senior physicians' repeated attempts to discuss dissolution, the Keanes declined to withdraw from the practice.

Because no agreement could be reached to "split-up" Lowcountry, the senior physicians called a shareholder meeting. At the shareholder meeting, the doctors were to vote on, among other items, removing the non-complete agreement and obtaining an appraisal to value the shares of Lowcountry in order to effectuate the buy-out of the Keanes and Chiaviello.3 At the meeting, the senior physicians voted in favor of removing the non-compete clause from the employment agreement. The Keanes and the senior physicians disagreed on the appraisal. The Keanes wanted the individual physicians' goodwill included in the valuation of Lowcountry, but the senior physicians did not. As a result of this disagreement, the senior physicians and Chiaviello voted to obtain an appraisal of Lowcountry by Webster, Rogers and Company with the Keanes abstaining from the vote. A "draft" appraisal was subsequently undertaken, and the appraisal indicated a value of $22.95 per share for the Lowcountry stock, excluding the individual physicians' goodwill, with a total value of stockholders' equity of $229,500.

Based on this valuation, the senior physicians offered to purchase the Keanes' shares for $68,850. Alternatively, the senior physicians gave notice of their intentions to withdraw from Lowcountry, offering to sell their shares to the Keanes for the same per share price. The senior physicians provided the Keanes with sixty days to respond or Lowcountry would be dissolved pursuant to the shareholder agreement. In June of 2000, the senior physicians increased their purchase offer to $100,000 for the Keanes' interest in Lowcountry. The Keanes, however, continued to refuse to withdraw from the practice. Lowcountry continued operating as a practice until July 24, 2000, sixty days after which the offer to buy or sell the senior physicians' shares had expired.

At this time, the senior physicians filed the articles of dissolution; changed the locks on the building; and opened their own practice, Beaufort Pediatrics, at the same location.4 All of the assets of Lowcountry, including the equipment, supplies, patient records, and bank accounts were utilized by Beaufort Pediatrics. However, the accounts receivable of Lowcountry had been collected and distributed to the Keanes in proportion to their interest in Lowcountry. The senior physicians also paid Lowcountry for the use of the fixed assets, rent, and supplies. This money was also placed into the account for Lowcountry and distributed according to the interest of the shareholders, including the Keanes.

On September 22, 2000, the Keanes brought this action against Lowcountry alleging numerous causes of action, including a derivative action, a declaratory judgment action, and a claim pursuant to sections 33-14-310 and 320 of the South Carolina Code (Supp.2000) to determine the fair market value of Lowcountry. To this end, the Keanes obtained an appraisal of Lowcountry performed by Louis Fleishman.5 Using the discounted future cash flow method, which included the individual physicians' goodwill, Fleishman valued Lowcountry at $1,319,200. Fleishman valued the tangible assets at a total of $401,344, with $42,344 in fixed assets, $18,000 for supplies, and $341,000 for accounts receivable. He valued the general intangibles, including the individual physicians' goodwill, at $917,856.

The master-in-equity: (1) determined the value of Lowcountry was $1,319,200; (2) found the Keanes were only entitled to thirty percent of the $917,856 intangible value of Lowcountry as they had already received their thirty percent interest in the tangible assets of Lowcountry; (3) awarded the Keanes $275,296 for their thirty percent interest in Lowcountry; (4) ordered prejudgment interest on the $275,296 award; (5) found the senior physicians had willfully and wantonly violated their fiduciary duties to the Keanes; and (6) awarded $50,000 in punitive damages to the Keanes.6 This appeal followed.

STANDARD OF REVIEW

This appeal involves both equitable and legal causes of action. When both equitable and legal causes of action are maintained in one suit, each must be analyzed separately according to its own identity as legal or equitable. Jordan v. Holt, 362 S.C. 201, 205, 608 S.E.2d 129, 131 (2005); Future Group, II v. Nationsbank, 324 S.C. 89, 97, 478 S.E.2d 45, 49 (1996).

A corporate dissolution is an action in equity. Jordan, 362 S.C. at 205, 608 S.E.2d at 131. An action for shareholder oppression is also one in equity. McDuffie v. O'Neal, 324 S.C. 297, 303, 476 S.E.2d 702, 705 (Ct.App.1996). In addition, an action to determine the fair market value of stocks owned by a dissenting shareholder constitutes a proceeding in equity to be tried by a judge without a jury. Defender Props., Inc., v. Doby, 307 S.C. 336, 338, 415 S.E.2d 383, 384 (1992). In an action in equity referred to a master, the appellate court may view the evidence to determine facts in accordance with its own view of the preponderance of the evidence, though it is not required to disregard the findings of the master. Friarsgate, Inc. v. First Fed. Sav. & Loan Ass'n, 317 S.C. 452, 456, 454 S.E.2d 901, 904 (Ct.App. 1995).

The determination of the appropriateness of an award of pre-judgment interest, on the other hand, is a question of law because the right to relief is entirely statutory. See, e.g., Harvey v. S.C. Dep't of Corrections, 338 S.C. 500, 507, 527 S.E.2d 765, 769 (Ct.App.2000) (finding "where the relief sought is entirely statutory . . . the action is one at law."). Likewise, an action for punitive damages arising from a breach of fiduciary duty is a question of law. Jordan, 362 S.C. at 205, 608 S.E.2d at 131. "In an action at law, on appeal of a case tried without a jury, the findings of fact of the judge will not disturbed upon appeal unless found to be without evidence which reasonably supports the judge's findings." Townes Assocs. v. City of Greenville, 266 S.C. 81, 86, 221 S.E.2d 773, 775 (1976).

LAW/ANALYSIS
I. Calculation of Fair Market Value

Lowcountry argues the trial court erred in including the value of the physicians' individual professional goodwill in the calculation of the fair market value of the association. We agree.

While both parties correctly point out that no South Carolina authority specifically addresses the propriety of the inclusion of the physicians' individual professional goodwill in the context of a dissolution of a professional association, we believe the cases of Donahue v. Donahue, 299 S.C. 353, 384 S.E.2d 741 (1989), and Weinberg v. Wallace, 314 S.C. 183, 442 S.E.2d 211 (Ct.App.1994), are illustrative.

In Donahue, Wife sought an interest in Husband's professional dental practice as part of the...

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