Price v. UPPER CHESAPEAKE HEALTH

• Decision Date: 27 May 2010
• Parties: John C. PRICE, et al. v. UPPER CHESAPEAKE HEALTH VENTURES, et al.
• Court: Court of Special Appeals of Maryland

995 A.2d 1054

192 Md. App. 695

John C. PRICE, et al. v. UPPER CHESAPEAKE HEALTH VENTURES, et al.

No. 2261, September Term, 2008.

Court of Special Appeals of Maryland.

May 27, 2010.

Stuart H. Levine of Baltimore, MD, for Appellant.

Joseph W. Hovermill and Dwight Stone (John C. Celeste and Dennis Robinson Jr., on the brief) of Baltimore, MD, for Appellee.

Panel: ZARNOCH, GRAEFF and KEHOE, JJ.

ZARNOCH, J.

In this appeal, we consider whether the Circuit Court for Harford County properly dismissed a purported derivative lawsuit filed on behalf of a Maryland limited liability company ("LLC") whose rights to do business in Maryland and to use its name were forfeited. On September 20, 2007, Dr. John C. Price and Dr. Alan H. Shikani, appellants, filed a complaint against fellow members of The Surgery Pavilion, LLC (sometimes referred to in this opinion as "the company") and members of the company's management committee, alleging that the company and appellants were harmed by the company's 2004 sale of substantially all of its assets. The complaint asserted one count of breach of fiduciary duty against all of the defendants, and four other counts against particular members of the management committee. The defendants, now appellees, were divided into two groups, each represented by separate counsel. Each group moved to dismiss the complaint on various grounds. Although appellants originally asserted their claims individually and derivatively on behalf of the company, they later conceded that they could not sue in their individual capacity. Consequently, the circuit court was called upon to determine only whether to dismiss appellants' derivative lawsuit.

On October 29, 2008, the court dismissed the suit. On November 25, 2008, appellants timely noted an appeal. For reasons set forth below, we shall affirm.

FACTS AND PROCEDURAL HISTORY

In January 2000, Upper Chesapeake Health Ventures, Inc. ("Upper Chesapeake") and a group of physicians, including appellants, formed The Surgery Pavilion, LLC for the purpose of operating an ambulatory surgical center in Harford County. Pursuant to the company's "Amended and Restated Operating Agreement," executed on December 31, 2002, the members appointed a management committee to govern the business and affairs of the company. At all relevant times, the members of the management committee were Upper Chesapeake, four individuals the complaint labeled as agents of Upper Chesapeake—Stephanie Dinsmore, Robin Luxon, Dr. Peggy Vaughan, and Russel Frank—and three physicians who were also members of the company, Drs. Thomas E. Jordan, David L. Zisow, and Jonathan Seidenberg. The other members of the company, who were not part of its management committee, were appellees Drs. C. Winfred Gehris, Robert Hoofnagle, Seidenberg Protzko Eye Associates, P.A.¹; and non-parties Eric P. Suan and Northern Chesapeake Anesthesia Associates.

In September 2004, the management committee approved an agreement to sell substantially all of The Surgery Pavilion's assets to Upper Chesapeake. The agreement provided that, in consideration of the purchase, Upper Chesapeake would pay $936,000 cash, assume the company's $106,253 debts to third parties, discharge the company's $629,489 debt to Upper Chesapeake, and terminate Upper Chesapeake's preferred interest in the company, valued at $2.4 million. The management committee recommended that the company's members ratify the sale. On September 24, 2004, by a six to four vote, the sale was ratified.² Appellants, along with Dr. Suan and Northern Chesapeake Anesthesia Associates, did not consent to the sale.

On October 6, 2006, The Surgery Pavilion's "right to do business in Maryland and the right to the use of its name" were forfeited pursuant to Maryland law because the company failed to file a tangible personal property tax report for tax year 2005. See Maryland Code (1975, 2007 Repl. Vol.), § 4A-911(d) of the Corporations and Associations Article ("C & A").

On September 20, 2007, appellants filed a complaint in the circuit court against all members of the management committee and the members of the company who ratified the sale. The complaint alleged that the asset sale was "made below fair value."³ It claimed that both the management committee and members of the company were not provided with, and failed to request, sufficient information from which they could prudently determine that the sale was in the best interests of the company and its members. It further alleged that Upper Chesapeake and "its agents" concealed certain facts from and falsely represented the company's value to the other members of the company's management committee and the company's members.

The complaint consisted of five counts. Count one, breach of fiduciary duty, was asserted against all appellees and alleged that the members of the management committee and the members of the company who ratified the sale breached their fiduciary duties to the company and its members. Counts two through four—fraud, intentional misrepresentation, and intentional concealment, respectively—were asserted against Upper Chesapeake and its agents Luxon, Dinsmore, Vaughan, and Frank. Count five, unjust enrichment, was alleged only against Upper Chesapeake. Each count sought $5 million in compensatory damages, plus interest and costs. In addition, the breach of fiduciary duty claim sought a recision of the sale.

One group of defendants (the "Upper Chesapeake appellees") included Upper Chesapeake, which was named in all counts, and its "agents," Luxon, Dinsmore, Vaughan, and Frank, who were named in counts one through four. The other group was comprised of Drs. Jordan, Gehris, Zisow, Hoofnagle, Seidenberg, and Seidenberg Protzko Eye Associates (the "Physician appellees"), against whom only count one—breach of fiduciary duty—was alleged. Each group moved to dismiss, pursuant to Maryland Rule 2-322(b)(2), for failure to state a claim upon which relief could be granted.

Both sets of appellees argued that appellants could not maintain a derivative action on behalf of the company for the following reasons: (1) the company itself lacked power to sue since its rights to do business in Maryland and to use its name were forfeited⁴; (2) a derivative suit may only be filed by members of the company, and since the company was defunct, according to appellees, appellants were no longer members; (3) appellants did not satisfy the statutory prerequisite of a derivative suit that they adequately represent the interests of the company's members, see C & A § 4A-801(c); and (4) prior to filing suit, appellants failed to demand that the management committee bring the action, as required by statute, see C & A § 4A-801(b). All appellees further argued that the breach of fiduciary duty claim should be dismissed because Maryland does not recognize an independent cause of action for breach of fiduciary duty. Finally, all appellees argued that appellants could not sue in their individual capacity because they suffered no personal injury, an assertion appellants conceded.

Each set of appellees offered other arguments for dismissal. The Physician appellees asserted that even if breach of fiduciary duty—the one count filed against them—was a valid cause of action, it should be dismissed because, under the company's operating agreement, they could be held liable only for actions that were fraudulent or undertaken in bad faith or with gross negligence, and the complaint did not allege any of these elements with respect to them. They further contended that the members who were not on the management committee owed no fiduciary duties to appellants. Finally, they argued that, even if they owed a fiduciary duty to appellants, they justifiably relied on the representations of Upper Chesapeake and its agents and therefore breached no duty.

The Upper Chesapeake appellees argued that appellants failed to properly plead the elements of the fraud, intentional misrepresentation, and fraudulent concealment claims. They also contended that the unjust enrichment claim against Upper Chesapeake could not be maintained because (a) appellants personally did not confer a benefit on Upper Chesapeake; (b) any benefit conferred was governed by an express contract; and (c) the enrichment was not "unjust" because it was consistent with the company's operating agreement.

On October 29, 2008, the circuit court dismissed the suit. In an accompanying Memorandum Opinion, the court explained that it (1) dismissed the breach of fiduciary duty count because Maryland law does not recognize it as a cause of action; (2) dismissed all counts, holding that appellants could not bring a derivative suit because the company had "ceased to legally exist" and appellants were no longer members of the defunct company; and (3) dismissed the individual claims. Appellants now challenge the first two holdings. Appellees counter that the court's reasons for dismissal were correct and argue that there are also alternative grounds for dismissing the case.

QUESTIONS PRESENTED

We rephrase and reorder appellants' questions as follows⁵:

I. Did the circuit court err when it held that appellants could not maintain a derivative suit on behalf of a limited liability company whose rights to do business in Maryland and use its name were forfeited?

II. Did the circuit court err when it dismissed the count of breach of fiduciary duty?

Answering the first question in the negative, we affirm the decision of the circuit court without reaching the second issue.

DISCUSSION

Standard of Review

We review de novo a trial court's grant of a motion to dismiss. Gasper v. Ruffin Hotel Corp. of Md., Inc., 183 Md.App. 211, 226, 960 A.2d 1228 (2008). When reviewing the decision, we "assume the truth of all well-pleaded facts and allegations in the complaint, as well as all inferences that can be reasonably drawn from them," and we view "all well-pleaded facts and the inferences from those facts in a...