Wright v. Reid
| Decision Date | 16 May 2023 |
| Docket Number | E2021-01258-COA-R3-CV |
| Parties | CLIFTON W. WRIGHT, JR., in his capacity as Executor of the Estate of MICHAEL H. DAVIS, Deceased, v. JOSEPH K. REID, II, ET AL. |
| Court | Tennessee Court of Appeals |
Session November 29, 2022
Appeal from the Chancery Court for Washington County No. 42964 John C. Rambo, Chancellor
This case arises from the demise of a short-lived business venture. For three years, two of the parties owned and operated a wellness center from the same location as an existing medical clinic. When disputes arose, the plaintiff (co-owner of the wellness center) sued the defendants asserting twelve counts in his complaint and seeking judicial dissolution of the company. The plaintiff died during the course of the proceeding, and the executor of his estate was substituted as the plaintiff. A special master held a three-day hearing regarding fifteen issues, and the trial court adopted the majority of his findings. The trial court then held a seven-day bench trial. Ultimately, the trial court ruled in favor of the defendants on all counts and judicially dissolved the company upon agreement of the parties. The plaintiff appeals, raising very limited issues regarding his claims for unjust enrichment, breach of fiduciary duty, and judicial dissolution. We affirm and remand for further proceedings.
Tenn R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court Affirmed and Remanded
Mark S. Dessauer, Kingsport, Tennessee, for the appellant, Clifton W. Wright, Jr.
Rick J. Bearfield and Karissa H. Range, Johnson City, Tennessee for the appellees, Joseph K. Reid, II, Trisha M. Reid, and Genesis Family Healthcare, PLLC.
Carma Dennis McGee, J., delivered the opinion of the court, in which D. Michael Swiney, C.J., and Thomas R. Frierson, II, J., joined.
Joseph K. Reid, II is a "physician assistant certified." In August 2008, he and his wife, Trisha, jointly purchased a residence in Johnson City, Tennessee, and converted it to a medical building. Mr. Reid formed Genesis Family Healthcare, PLLC, ("Family Healthcare") and began operating as a family practice clinic in January 2009. He also purchased gym equipment for a workout area at the facility. In connection with this endeavor, Mr. Reid formed a separate limited liability company, Genesis Wellness Center, LLC, in February 2010.
In March 2010, Mr. Reid met plaintiff Michael Davis when Mr. Davis sought treatment at Family Healthcare for low testosterone. Mr. Davis was so pleased with the results of his treatment that he approached Mr. Reid about opening a business that would offer hormone replacement therapy. Mr. Davis proposed, "I'll put up the money, you give me the customers, and let's build a business[.]" After several meetings, Mr. Reid and Mr. Davis decided to operate a wellness center from the same building as Family Healthcare and offer various services, including hormone replacement therapy, weight loss services, personal training, an aesthetician, and massage therapy.
Although the parties consulted with different attorneys, they never signed a written contract memorializing all of the terms of their agreement. As Mr. Davis described it, this was "mostly a handshake agreement." Before the trial court, however, the parties agreed that they had formed an enforceable oral agreement with several key terms. First, Mr. Davis had agreed to pay for the construction of an addition to the existing clinic and all expenses for operating the wellness center. In return, Mr. Reid agreed to recommend that his patients at Family Healthcare who were eligible for hormone replacement therapy and weight loss treatment go to the new wellness center part of the building for treatment there. The revenue generated from the wellness center would first be used to pay its operating expenses, and any profits would go to repay Mr. Davis's capital advances. Mr. Reid would also convey to Mr. Davis a fifty percent interest in the limited liability company that would operate the wellness business.
Mr. Davis had no experience in the wellness business, but he believed that this was "a crackerjack business" and "a gold mine," such that the parties would soon be able to franchise the business and have locations across the nation. As Mr. Davis put it, "I knew we were going to make a profit." He would later describe various stages of their planning by stating "[w]e were just kind of winging it" and "I admit it was blind faith."
Construction on the addition began in January 2011. In August 2011, Mr. Reid and Mr. Davis executed an "Assignment of Membership Interest," in which Mr. Reid conveyed a fifty percent interest in his limited liability company, Genesis Center for Wellness, LLC, to Mr. Davis, such that each owned one half of the wellness business ("Genesis Wellness") thereafter.[1] Mr. Reid also amended the operating agreement for the company to reflect that he and Mr. Davis were equal owners.
Genesis Wellness began operating in September 2011. The two sides of the building were separated by a door. Family Healthcare and Genesis Wellness had separate employees, so it was "basically just like two totally separate companies" in regard to the office functions. Mr. Reid served as medical director for Genesis Wellness. He provided advice to Mr. Davis and the staff of Genesis Wellness, mostly regarding medical issues, but Mr. Reid generally treated patients on the Family Healthcare side of the practice. Another physician assistant who worked at the building saw patients for both sides of the practice. Mr. Davis was primarily responsible for the operations of Genesis Wellness and was, at least initially, at the business on a daily basis. He reportedly held himself out as the boss of Genesis Wellness, and its employees reported to him.
Initially, Genesis Wellness accepted only cash and did not accept insurance. However, Genesis Wellness did not have many cash-paying customers coming in for treatment. By all accounts, patients were unwilling to pay out of pocket for a service that their insurance companies would cover. After a few months, the parties agreed to start billing insurance for the services provided at Genesis Wellness that were covered by insurance, such as hormone replacement therapy. Specifically, they agreed that the billing company for Family Healthcare would begin billing third party payors on behalf of Genesis Wellness for the services rendered there. However, all of the services would be billed by Family Healthcare under its name and tax identification number. When the third-party payors sent payments to Family Healthcare for all of the claims submitted, the billing company would calculate how much of that amount Family Healthcare owed to Genesis Wellness. Mrs. Reid, who did the bookkeeping for Family Healthcare, would then write a check to Genesis Wellness for the amount calculated by the billing company.
There were ongoing issues regarding how the billing was to be divided and the accuracy of the calculations of the monthly insurance reimbursement payments, requiring annual audits and adjustments at the end of the year. Still, the monthly reimbursement payments were calculated consistently and paid on a monthly basis in 2012 and 2013. The year-end audits for 2012 and 2013 revealed that Family Healthcare had overpaid Genesis Wellness. For each year, the overpayment that was calculated was then offset as a credit and subtracted from the next monthly amount due to Genesis Wellness.
By the fall of 2013, two years after Genesis Wellness began operating, Mr. Davis had stopped going to the building on a daily basis. Around this time, Mr. Davis became frustrated with the amount of patients receiving hormone replacement therapy on the family practice side of the business, as he believed that all of these patients should have been treated on the wellness side of the practice. However, he did not, at that time, approach Mr. Reid about the issue.
In March 2014, Mr. Davis and Mr. Reid abruptly decided to terminate the contract of the billing company that was providing billing services to Family Healthcare and Genesis Wellness, effective immediately. This move ultimately proved to be a disaster, as the parties were admittedly unprepared for the aftermath of this decision. According to the testimony at trial, implementing a new medical practice management system generally takes sixty to ninety days, as "it takes a long time to get a company set up within a database and get their claims going out the door and money coming back in." In addition, the witness explained, it generally took Family Healthcare forty-five days to "turn a claim" and get it paid, so if it went a month with no claims "going out," it would soon experience a corresponding period of no revenue coming in from third party payors. Even so, the decision was made to terminate the billing company abruptly without any real plan in place for the transition. Mr. Reid and Mr. Davis hired another billing company on a month-to-month contract, but it had a very difficult time "getting claims out the door." In addition, the new billing company never contacted the former billing company for assistance with the transition. In April 2014, Mrs. Reid sent an email to Mr. Davis indicating that she was "in an awful transition . . . with the old billing company" and "at the point where I am concerned." She explained that Family Healthcare could not pay or split any utility bills with Genesis Wellness for the time being because her "hands [were] tied until everything catches up."
Despite all of the turmoil after the first change in billing companies, Mr. Reid and Mr. Davis were dissatisfied with the second billing company and terminated it after...
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