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O'Connor v. Kadrmas

Appeals Court of Massachusetts, Plymouth

October 18, 2019

DANIEL J. O'CONNOR & another [1]

          Heard: December 5, 2018.

         Civil actions commenced in the Superior Court Department on September 20, 2013, and January 11, 2016. The cases were heard by Angel Kelley Brown, J., on motions for summary judgment.

          Timothy J. Perry for Eddie F. Kadrmas.

          Russell J. Fleming for Kadrmas Eye Care New England, P.C.

          Brian H. Lamkin for Daniel J. O'Connor & another.

          Present: Green, C.J., Wolohojian, & Wendlandt, JJ.

          WOLOHOJIAN, J.

         These two cases arise out of the unhappy breakup of an ophthalmology practice.[3] Only two issues are before us. The first is whether, in no. 18-P-177 (which we shall call the common law case), summary judgment was properly entered against Eddie F. Kadrmas on his counterclaims for breach of fiduciary duty and breach of contract against Daniel J. O'Connor. The second is whether, in no. 18-P-178 (which we shall call the Wage Act case), summary judgment was properly entered in favor of O'Connor on his Wage Act and breach of contract claims.[4] In the common law case, we reverse the ruling on Kadrmas's breach of fiduciary duty claim because there are genuine issues of material fact sufficient to go to a jury, and affirm the dismissal of Kadrmas's contract claim because he has not shown damages. In the Wage Act case, we conclude that compensation due under paragraph V(a) of the stock agreement does not constitute "wages" within the meaning of G. L. c. 149, § 148 (Wage Act), and therefore reverse summary judgment in O'Connor's favor on his Wage Act claim. Also in the Wage Act case, we affirm the entry of summary judgment in O'Connor's favor on his contract claim because Kadrmas failed to raise any genuine issue of disputed fact.

         Factual background.

         On August 8, 2005, Charles T. Post, Kadrmas, and O'Connor entered into a stock agreement whereby Kadrmas, at O'Connor's and Post's invitation, joined them in their ophthalmology practice in Plymouth, which was renamed Post, O'Connor & Kadrmas Eye Centers, P.C. (POK).[5]The stated objectives of the stock agreement were to "provide for the continuity and maintenance of the proficient management, control and operation of the business of the [c]orporation," and to "restrict the transfer of the shares of the [c]orporation and . . . the disposition of the shares of a deceased or retiring [s]hareholder." Consistent with this, most of the agreement deals with matters of corporate governance and share ownership, transfer, and disposition.

         However, one paragraph of the stock agreement (paragraph V) concerns the shareholders' professional responsibilities to POK, and the compensation they were to receive as shareholders. In broad summary, paragraph V provides (1) that each shareholder "agrees to devote his full time and attention ... to performing medical services on behalf" of POK, (2) that POK agrees to provide all necessary office, administrative, medical, and other supplies and support, and (3) a formula for calculating each shareholder's entitlement to the net profit of POK. That formula calculated each shareholder's entitlement to POK's net profit based on his percentage contribution to the entire "net collections" of the three shareholders.[6] Thus, to illustrate, if a particular shareholder's practice generated five percent of the "net collections" of the three shareholders collectively, then that shareholder would receive five percent of the net profit of the entire corporation. Had the parties not arranged matters in this way, the net profit of the corporation would instead have been distributed in thirds, consistent with each shareholder's percentage ownership of the shares in the corporation, which was a Subchapter S corporation (S corporation).[7]

         The parties thereafter profitably operated POK under the stock agreement, with O'Connor acting as president, Post as treasurer, and Kadrmas as secretary. POK had nine physicians and optometrists and a number of other employees. POK also had a relationship with Plymouth Laser and Surgical Center, P.C. (PLSC), which was owned by O'Connor and Post (but not Kadrmas). PLSC provided ophthalmic laser and surgical services, and granted operating privileges to physicians (including Kadrmas). PLSC was located in the same building as POK, and the two entities shared certain costs, although there was no written agreement to share expenses.

         Beginning in 2008, O'Connor, Post, and Kadrmas began discussing a possible merger of POK with Ophthalmic Consultants of Boston, Inc. (OCB), an ophthalmology practice that was interested in expanding into the Plymouth market. By the spring of 2011, Post and O'Connor favored a deal with OCB, but Kadrmas did not -- at least in part because OCB refused to hire his (Kadrmas's) wife as part of the deal. O'Connor and Post decided (secretly, Kadrmas alleges) to try to move forward without Kadrmas but, in August 2011, OCB stated it was not interested in a merger until the three shareholders had resolved their differences.

         On June 20, 2012, Candescent Partners -- an unrelated entity -- made an offer to acquire both POK and PLSC for $7 million and to employ O'Connor and Kadrmas. Post, who planned to retire, was in favor of this deal. However, the proposed compensation for O'Connor and Kadrmas would be less than what they received from POK; thus O'Connor and Kadrmas did not favor the deal, and POK rejected Candescent's offer.

         Not long thereafter, on July 10, 2012, OCB notified O'Connor, Post, and Kadrmas that its board of directors had voted to terminate merger discussions. OCB, however, continued with its plan to enter the Plymouth market and, to that end, hired Kathleen Murphy, the longtime administrator of POK, who had close and longstanding ties to O'Connor and Post, to help set up a Plymouth operation. O'Connor then contacted OCB to reinitiate discussions about himself alone becoming affiliated with OCB. OCB agreed to discuss this option, provided O'Connor remove himself from POK after giving one year's notice as required under the stock agreement.

         On November 16, 2012, O'Connor gave notice of his intent to terminate his services, sell his shares in accordance with the stock agreement, and resign as an officer, director, and shareholder of POK. Not until five months later, however, did O'Connor disclose that he intended to leave POK in order to go to OCB. In response to the information that O'Connor intended to leave for a direct competitor, Kadrmas demanded to know O'Connor's departure date and stated that "[i]t is not in the best interests of the practice for us to simply allow you to plan to go into competition with POK, lay the groundwork for that competition, keep us guessing at your departure date and then walk out the door when a competing entity is set to go." He continued:

"I am glad that you finally stated the obvious in your email, i.e, that it is your 'intent is [sic] to join OCB' after you depart. Your prior lawyers had denied you were negotiating with OCB even after it became clear that that denial was not true. The fact that you are planning to join our direct competitor is not consistent with furthering the best interests of POK. Because of this, I believe it only makes sense that you resign your position as a shareholder during the pendency of your planned exit -- i.e. immediately. Otherwise, you have an impermissible and irresistible conflict of interest."[8]

         Kadrmas further stated that he would not allow O'Connor to solicit POK employees or doctors.

         Over Kadrmas's protests, O'Connor, Post, and Murphy continued with their plans to join OCB. Accordingly, on June 28, 2013, O'Connor signed "term sheets" concerning his future affiliation with OCB. On the same day, O'Connor and Post executed a term sheet for the sale of some PLSC shares to certain members of OCB. On August 1, 2013, Post sold twenty percent of his PLSC shares, and PLSC merged with OCB. Kadrmas's surgical privileges at PLSC were not renewed, thus leaving him no convenient venue for performing surgeries.

         Relations between the three shareholders, which were already acrimonious, deteriorated further as O'Connor's and Post's departures solidified and approached. On October 4, 2013, Post notified O'Connor and Kadrmas that he wished to retire and gave his one-year notice under the stock agreement; he asked whether they would buy his shares immediately. O'Connor was set to depart on or before March 1, 2014. Murphy began employment with OCB on January 1, 2014, and immediately began to help with the process of filling positions for OCB's new office, which was located in the same office complex as POK.

         On January 29, 2014, the pictures and biographies of six POK doctors appeared on OCB's website, where they were seen by a patient who informed Kadrmas. All six were still employees of POK. Kadrmas's counsel immediately e-mailed O'Connor's counsel and demanded that the information be taken off the website and that O'Connor cease and desist from soliciting POK physicians and other employees. O'Connor was still the president of POK when this occurred but took no action to remove the information from the website. However, the pictures and biographies were removed the same day.

         Less than one month before O'Connor's departure date, on what came to be referred to as "D-day," February 12, 2014, twelve POK employees (who included some, but not all, of the doctors who had previously appeared on OCB's website, as mentioned above) gave written notice of their resignation from POK, effective at the end of February or early March. This mass departure was timed to coincide with O'Connor's departure from POK, which occurred on February 28, 2014. All twelve employees left to join O'Connor at OCB, [9]and began working at OCB the first week of March 2014.

         In a supplemental response to an interrogatory seeking disclosure of experts and their opinions, Kadrmas identified three experts and their expected testimony regarding (1) Kadrmas's loss of income on and after December 31, 2013, as caused by the actions of O'Connor and others, and (2) the fair market value of Kadrmas's one-third interest in POK at different points in time. In summary, the experts' opinion was that, as a consequence of the departures of O'Connor and other POK doctors and staff, Kadrmas lost $1, 990, 000 in income for 2014 through 2016. Further, the experts opined that POK's fair market value as of June 19, 2012 (the date of Candescent's offer to purchase POK) was $3, 262, 000, and Kadrmas's one-third interest was accordingly valued at $1, 087, 333.33. As of December 31, 2016, however, POK had a value of negative $210, 000, and Kadrmas's one-third interest had no value. In reaching this conclusion, the experts pointed to (among other things): (1) Kadrmas had received virtually no compensation for three years after December 31, 2013, despite there being no diminishment in his collections or workload, (2) there was no market for an ophthalmology practice operating in this manner, where the industry expectation was a thirty-five percent return on billable collections, and (3) there had been no offers to purchase POK or its stock since the mass departure of O'Connor and others.

         Pertinent procedural background.[10]

         1. The common law case.

         O'Connor and OCB brought the common law case against Kadrmas asserting a variety of claims in order to resolve various patient and practice separation issues that the parties could not resolve among themselves.[11] In response, Kadrmas asserted numerous counterclaims, only two of which are currently at issue: O'Connor breached his fiduciary duty as a shareholder in a close corporation, and O'Connor breached the terms of the stock agreement. Kadrmas's breach of fiduciary duty counterclaim rested on three theories: first, that O'Connor breached the duties of full disclosure and fidelity with respect to his dealings with OCB; second, that O'Connor breached the duty to promote POK's interests and those of his fellow shareholders over his own self-serving interests; and third, that O'Connor failed to refrain from self-dealing at the expense of POK and Kadrmas. Kadrmas's breach of contract counterclaim did not specifically ...

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