Parrish v. Schroering
| Decision Date | 16 April 2021 |
| Docket Number | NOS. 2019-CA-0634-MR AND 2019-CA-0692-MR,S. 2019-CA-0634-MR AND 2019-CA-0692-MR |
| Citation | 636 S.W.3d 133 |
| Parties | KENNETH D. PARRISH, DMD, PH.D., P.S.C.; and Kenneth D. Parrish, DMD, Ph.D., Appellants/Cross-Appellees v. Robert SCHROERING, DMD; and Advanced Implant Center, P.S.C., Appellees/Cross-Appellants |
| Court | Kentucky Court of Appeals |
BRIEFS FOR APPELLANTS/CROSS-APPELLEES: Charles J. Cronan, IV, Chadwick A. McTighe, Michael W. Oyler, Ridley M. Sandidge, Jr., Louisville, Kentucky.
ORAL ARGUMENT FOR APPELLANTS/CROSS-APPELLEES: Chadwick A. McTighe, Louisville, Kentucky.
BRIEFS FOR APPELLEES/CROSS-APPELLANTS: Gregg Y. Neal, Taylor P. Sorrels, Shelbyville, Kentucky, Kevin C. Burke, Jamie K. Neal, Louisville, Kentucky.
ORAL ARGUMENT FOR APPELLEES/CROSS-APPELLANTS: Gregg Y. Neal, Shelbyville, Kentucky.
BEFORE: CLAYTON, CHIEF JUDGE; GOODWINE AND KRAMER, JUDGES.
Kenneth D. Parrish DMD, Ph.D, P.S.C., and Kenneth D. Parrish DMD, Ph.D, ("Parrish") bring this appeal from the Jefferson Circuit Court's trial order and judgment in a lawsuit against Robert Schroering, DMD, and Advanced Implant Center, P.S.C. ("Schroering"). Parrish and Schroering were business partners in a dental implant
practice. When Schroering sought to retire in 2009, a lengthy and complex legal dispute ensued, culminating in a trial in 2018. The primary issue on appeal concerns the buyout price Parrish was required to pay to Schroering for his share of the practice under the terms of their Partnership Agreement ("Agreement"). The Agreement provided for the price to be based on the average of the closest two of three expert evaluations. The jury found that the two closest appraisals, which when averaged resulted in a negative value, were based on a demonstrable mistake of fact and awarded $787,000 to Schroering. Parrish argues that the valuation method set forth in the Agreement was unambiguous and binding and the trial court erred in allowing the appraisals to be assessed by the jury. On cross-appeal, Schroering argues that the trial court erred in allowing the jury independently to calculate the buyout price rather than adopting the price set by the third appraiser. He further argues that the trial court erred in granting a directed verdict on his claims of breach of good faith and fair dealing and breach of fiduciary duty. Other disputed issues include the amount of attorney's fees, pre- and post-judgment interest, and a monthly allocation specified in the Agreement. Having reviewed the record and the arguments of counsel, we reverse and remand Appeal No. 2019-CA-0634-MR and affirm Cross-Appeal No. 2019-CA-0692-MR.
In 1993, Schroering started a dental practice, Advanced Implant Center, P.S.C., specializing in dental implant
surgery and periodontics. In 2004, Schroering advertised for an associate and ultimately hired Parrish, who became a partner in 2005. Parrish purchased fifty percent of the practice for $800,000 and assumed some short-term debt for approximately $180,000. Their partnership was governed by the lengthy (82-page) and complex Agreement.
Article 8 of the Agreement contains the provisions governing the retirement of a partner. A partner wishing to retire is required to provide two years’ written notice. At the end of that period, the remaining, non-retiring party is immediately required to purchase all "Practice Interest" of the retiring party. Section (E) of Article 8, which is entitled Buyout Prices (Including Revalued Buyout Prices) Defined, sets the Buyout Price to be used to purchase the retiring partner's Practice Interests at $975,000. Additionally, the retiring partner is entitled to recover the fair market value of his interests in any Practice Interest acquired after the date of retirement, as determined by a certified public accounting firm. The final two sentences of the paragraph provide as follows:
A key point of contention in the subsequent litigation was whether this ban on the consideration of goodwill applies only to the calculation of the fair market value of the increase in Practice Interest acquired after retirement or if it applies to any Buyout Price, including the Revised Buyout Price detailed in the next paragraph.
The next paragraph states: "In supplement, and limitation" to the foregoing provisions of Section (E), "it is further agreed that any Buyout Price, as to any retiring Party, and its Shareholder, provided for hereinabove" shall be disregarded if the retiring party does not sell its Practice Interests to a third party. "In such event, the number of Parties and Shareholders shall be reduced, resulting in an unanticipated reduction in the value of the practice and Partnership, necessitating a revaluation of the Buyout Price[.]" In such an eventuality, the non-retiring party can choose to pay the Buyout Price of $975,000 or have the Buyout Price revalued. To arrive at the Revalued Buyout Price, the parties can agree on a single appraiser to revalue the practice or they can each retain their own appraiser to perform a valuation. These two appraisers will choose a third appraiser to perform a third valuation. The two closest appraisals of the three will be averaged to arrive at the Revalued Buyout Price. The Agreement describes the task of the appraisers as follows:
Such Appraiser, if mutually agreed upon and selected, and all of such Appraisers, if three (3) such Appraisers are so selected, shall utilize all documentation which may be deemed appropriate, as well as the expertise and experience of such Appraiser, or Appraisers, as well as the written and oral opinions and statements of others, as such Appraiser, or Appraisers, may deem appropriate, and may also utilize, rely upon, and consider published information, as such Appraiser, or Appraisers, may determine to be applicable, and, shall consider the effect of associates practicing in the practice, and especially any associates retained, employed, or otherwise engaged to practice in the practice, for the Partnership, or any of the Parties, within ninety (90) days of the retirement of the retiring Party, and its Shareholder, or otherwise retained, employed or engaged, specifically to replace the retiring Party, and its Shareholder, and, also shall especially consider the future earning potential, from the practice, as to the other Parties and Shareholders, subsequent to the retirement of the retiring Party and its Shareholder.
If the non-retiring party does not immediately pay the retiring party the Buyout Price or the Revalued Buyout Price, the Agreement provides the retiring party with "the right immediately monthly thereafter to continue to receive, as sole consideration and compensation, the retiring Party's Share of the Ownership Allocation ... hereinafter called ‘Monthly Share,’ which shall continue to be paid, for a period of ten (10) years subsequent to the date of the retirement." The "Ownership Allocation" is defined in the Agreement as fifteen percent of the total Practice Collections; hence, the retiring party in this case would receive 7.5 percent of the total Practice Collections. The Agreement specifies that the retiring party will continue to receive the Monthly Share either until the relevant buyout price is paid or ten years have elapsed.
On June 9, 2009, Schroering gave written notice to Parrish that he planned to retire, with a retirement date of June 9, 2011, in accordance with the Agreement. Schroering continued working in the practice and sought interested buyers for his interest. According to Schroering, Parrish discouraged and rejected these potential buyers. The relationship between Schroering and Parrish deteriorated, and Schroering decided to rescind his retirement notice. He sent Parrish a notice of rescission on December 9, 2009 and continued practicing in the partnership.
Then, on January 24, 2011, Schroering sent Parrish a second notice of retirement, which would have made his effective retirement date January 24, 2013. He continued to seek a purchaser for his interest in the partnership. According to Schroering, Parrish persisted in obstructing his candidates by treating them as inferiors and assigning them all the "lower work."
On March 28, 2011, Parrish notified Schroering that he intended to hold him to the June 9, 2011 retirement date. According to Schroering, at no time before that had Parrish informed him that he would not accept the notice of rescission.
On June 13, 2011, Schroering filed a complaint against Parrish in Jefferson Circuit Court, seeking an accounting of the inventory of the practice. The complaint claimed that Parrish had rejected each potential third-party purchaser and, consequently, the method set forth in the Agreement (of using an appraiser or appraisers) would be used to calculate a Revalued Buyout Price. The complaint claimed that Parrish had prevented Schroering from conducting a physical inventory of their offices, and it sought a restraining order or temporary injunction to prevent Parrish from removing any assets from the offices.
Not surprisingly, Schroering and Parrish were unable to agree on a single appraiser and embarked upon the three-appraiser process prescribed by the Agreement. Schroering hired Harold Martin; Parrish hired David Fister. Fister and Martin, at the recommendation of Martin, selected James Lloyd as the third appraiser. The appraisers began the evaluation process in February 2012 and produced their final reports in July 2013.
There was a wide disparity in the valuations due to the different approaches used by the appraisers. Parrish's evaluator Fister and the third appraiser Lloyd used the asset approach of valuation, which calculates the difference...
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