Orthopaedics of Jackson Hole v. Ford

• Decision Date: 21 March 2011
• Docket Number: No. S–09–0136.,S–09–0136.
• Citation: 250 P.3d 1092,2011 WY 50
• Parties: ORTHOPAEDICS OF JACKSON HOLE, P.C., d/b/a Teton Orthopaedics, Appellant (Defendant),v.Michael J. FORD, M.D., Appellee (Plaintiff).
• Court: Wyoming Supreme Court

250 P.3d 1092

2011 WY 50

ORTHOPAEDICS OF JACKSON HOLE, P.C., d/b/a Teton Orthopaedics, Appellant (Defendant),

v.Michael J. FORD, M.D., Appellee (Plaintiff).

No. S–09–0136.

Supreme Court of Wyoming.

March 21, 2011.

Representing Appellant: Gary R. Scott of Hirst Applegate, LLP, Cheyenne, Wyoming.Representing Appellee: Paul J. Hickey and O'Kelley H. Pearson of Hickey & Evans, LLP, Cheyenne, Wyoming; and Joel M. Vincent of Vincent & Vincent, Riverton, Wyoming. Argument by Mr. Vincent.Before KITE, C.J., and GOLDEN, HILL, VOIGT,^* and BURKE, JJ.GOLDEN, Justice.

[¶ 1] Orthopaedics of Jackson Hole, P.C., (hereinafter referred to as OJH) is a professional organization founded by five orthopedic surgeons in 1998. Michael Ford is an orthopedic surgeon who joined OJH in 2000, at which time he received one share of stock in OJH. In 2005, Dr. Ford left OJH. The parties could not agree on the value of the one share of stock, prompting Dr. Ford to commence the instant legal action.

[¶ 2] Dr. Ford brought a petition for a declaratory judgment as to the value of the stock as well as other causes of action. OJH counterclaimed that Dr. Ford, in leaving OJH at the time he did, breached his fiduciary duty to the organization. OJH also brought a promissory estoppel counterclaim against Dr. Ford, asserting it incurred extra costs based on an alleged promise by Dr. Ford, made in 2004, to continue working for OJH for five to ten years.

[¶ 3] After a bench trial, the district court accepted the valuation of the stock as presented by Dr. Ford. The district court also denied all OJH's counterclaims. We reverse the district court's decision as to the valuation of the stock and remand for further proceedings on the issue. We affirm the district court's denial of the counterclaims brought by OJH.

ISSUES

[¶ 4] OJH presents multiple issues:

1. Did the trial court err when it found that [Ford] signed a 1998 OJH shareholder's agreement, and thus that it was that agreement that was the relevant agreement for purposes of valuing [Ford's] one share of OJH stock?

2. Did the trial court err when it then reformed the 1998 shareholder's agreement and failed to apply the valuation formula contained in that agreement?

3. Did the trial court err when it failed to apply the valuation formula agreed to by [Ford] in a shareholders' meeting in August 2003?

4. Did the trial court err when it denied [OJH's] Motion in Limine, and allowed [Ford] on the eve of trial to change the theory of his case as to the relevant valuation formula?

5. Did the trial court err when it found that [OJH] failed to prove by a preponderance of the evidence its counterclaims for promissory estoppel and breach of fiduciary duty?

FACTS

[¶ 5] OJH was formed in 1998 by a group of five orthopedic surgeons. They were each issued one share of stock. The OJH Shareholder's Agreement (1998 Agreement) stated that the stock was not intended as an investment but rather was issued as evidence of ownership in OJH and consequent governing rights and obligations. In the event one of the shareholders wanted to sell his/her share, and in the absence of an agreement as to the value of the company, the value of the company would be determined by OJH's certified public accountant according to generally accepted accounting principles (GAAP). The agreement provided that all future shares that might be issued would be subject to the agreement. The agreement also provided it could only be amended by unanimous vote of all shareholders.

[¶ 6] Shortly after OJH was established, OJH signed two contracts with a medical office management company, Ortholink Physicians Corporation (Ortholink). One contract was an Asset Purchase Agreement, whereby Ortholink purchased all assets of OJH except the accounts receivable (AR). The other contract was a Service Agreement. Under the Service Agreement Ortholink essentially took over the business aspects of OJH, for instance assuming OJH building leases and providing OJH with equipment, supplies, support personnel, management and financial advisory services. The Service Agreement also provided for Ortholink to monthly purchase OJH's AR for an amount it determined based on OJH billing and historical collection rates. Ortholink reduced the amount by its expenses on behalf of OJH and a fifteen percent service fee, then paid the remaining to OJH. Ortholink was to maintain all financial records in accordance with GAAP.

[¶ 7] In 2001, the Service Agreement between OJH and Ortholink was amended to essentially return the day-to-day responsibilities of office management from Ortholink back to OJH. In return, the service fee charged by Ortholink was reduced. In 2003, the Service Agreement was again amended. The Second Amended Service Agreement provided that Ortholink would no longer handle OJH's AR. OJH would repurchase its AR already purchased by Ortholink and the administration of all future AR would be OJH's responsibility. It also provided that OJH would pay Ortholink a certain monthly amount for its use of capital assets owned by Ortholink. As each capital asset used by OJH was depreciated off Ortholink's books, Ortholink would issue a bill of sale to OJH for the item for no further consideration. In general, OJH would be responsible for purchasing all future capital assets for use in its practice. For its part, Ortholink agreed to continue to provide limited financial services at an again reduced service fee.

[¶ 8] In order to repurchase its AR from Ortholink, OJH borrowed approximately $1.13 million. This and the fact that OJH would now be purchasing its own capital assets precipitated revisiting the terms of the Shareholders Agreement. At a shareholders meeting in August 2003, the shareholders, by a vote of eight to one, approved a change to the language of the OJH Shareholders Agreement relating to the valuation of shares. The new language, as reported in the minutes, read:

For a Shareholder redemption in the event of death or termination, Shareholder's individual AR continues to pay the Shareholder less a 10% collection fee and any of the collection rate less any liability associated with acquiring the shareholder's AR from Ortholink in the 2003 restructuring.

Fixed assets less liabilities for fixed assets divided by the number of Shareholders will be the calculation for the balance of the valuation.

Further, the language addressing the value of patient records is to be deleted.

(Hereinafter referred to as the 2003 Formula.)

[¶ 9] OJH did not formally execute a new Shareholders Agreement until March 2005. At that time a document entitled “Amended and Restated Shareholders Agreement” was created and signed by all but one shareholder (hereinafter referred to as the 2005 Agreement). The valuation formula contained in the 2005 Agreement stated:

The Corporation's value as of the Valuation Date shall be equal to the Corporation's fixed assets less its liabilities for fixed assets divided by the number of shareholders, based upon the Corporation's most recent regularly prepared balance sheet. The value of the Corporation as so determined shall then be divided by the number of shares of stock of the Corporation issued and outstanding and multiplied by the number of shares being transferred. The result shall be the purchase price for the offered shares....

It is agreed that the lack of language referring to AR is a mistake. Rather, the valuation language of the 2005 Agreement was intended to correspond to the 2003 Formula.

[¶ 10] Dr. Ford is an orthopedic surgeon who had practiced in Riverton for approximately 26 years. In 1998, Dr. Ford began attempts to build an outpatient surgical center, displeasing Riverton Memorial Hospital. In response, the hospital actively recruited other orthopedic surgeons to open practices in Riverton, in direct competition with Dr. Ford. Among those contacted by the hospital was OJH. OJH was interested in expanding its territory and referral base into Fremont County. It felt it was in its best interest, however, to work with Dr. Ford, with his established client base, instead of against him.

[¶ 11] To this end, negotiations began between Dr. Peter Rork, shareholder and then president of OJH, and Dr. Ford regarding the possibility of Dr. Ford joining OJH. As part of the negotiations, Dr. Rork advised Dr. Ford that OJH would help recruit a second orthopedic surgeon to the Riverton office so Dr. Ford would not have to run a solo practice and also that some of the OJH subspecialists would establish limited clinic time at the Riverton office. Of critical importance to Dr. Ford, Dr. Rork offered him an opportunity to become affiliated with Teton Outpatient Services (“TOPS”), an established outpatient surgery center in Jackson. Dr. Ford insisted he be allowed to purchase an interest in TOPS as a prerequisite to joining OJH.

[¶ 12] As a result of the negotiations, Dr. Ford was allowed to buy an interest in TOPS and subsequently, effective January 1, 2000, Dr. Ford joined OJH. Upon joining, Dr. Ford was issued one share of OJH stock. He was given a packet of papers which contained the 1998 Agreement. As it had with the other members of OJH, Ortholink purchased from Dr. Ford all assets related to Dr. Ford's practice. Ortholink paid Dr. Ford in cash and Ortholink stock. As part of receiving the stock, Dr. Ford signed a shareholder agreement with Ortholink. Dr. Ford sold his Ortholink shares back to Ortholink shortly thereafter.

[¶ 13] As part of OJH's strategic plan to establish a presence in Fremont County, it employed another orthopedist, Dr. John Harp, to practice with Dr. Ford in Riverton and established a satellite office in Lander. Subspecialists from OJH in Jackson would occasionally hold clinic hours in Riverton.

[¶ 14] At the time he joined OJH, Dr. Ford's office was in a building commonly referred to as the 12th Street Medical Building. New owners bought the building in 2000 and OJH entered into a five year lease with them. Although...