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Retina Associates of Greater Philadelphia, Ltd. v. Retinovitreous Associates, Ltd.

Superior Court of Pennsylvania

December 7, 2017

RETINA ASSOCIATES OF GREATER PHILADELPHIA, LTD., JONATHAN B. BELMONT, M.D., ROBERT C. KLEINER, M.D. Appellant
v.
RETINOVITREOUS ASSOCIATES, LTD. D/B/A MID ATLANTIC RETINA, WILLIAM BENSON, M.D., JAY L. FEDERMAN, M.D., GARY C. BROWN, M.D., MITCHELL S. FINEMAN, M.D., DAVID H. FISCHER, M.D., SUNIR J. GARG, M.D., ALLEN C. HO, M.D., RICHARD KAISER, M.D., ALFRED C. LUCIER, M.D., JOSEPH I. MAGUIRE, M.D., J. ARCH MCNAMARA, M.D., CARL H. PARK, M.D., CARL D. REGILLO, M.D., ARUNAN SIVALINGAM, M.D., WILLIAM TASMAN, M.D., JAMES F. VANDER, M.D., AND JASON HSU, M.D.

         Appeal from the Order Dated July 2, 2010 In the Court of Common Pleas of Montgomery County Civil Division at No(s): 09-32182

          BEFORE: DUBOW, J., SOLANO, J., and FORD ELLIOTT, P.J.E.

          OPINION

          SOLANO, J.

         Appellants Retina Associates of Greater Philadelphia, Ltd. ("Retina"), and two of its physicians - its President, Jonathan B. Belmont, M.D. and Vice President, Robert C. Kleiner, M.D. (together, "Retina Physicians") - appeal from the order sustaining preliminary objections in the nature of a demurrer filed by Appellees William Benson, M.D., Jay L. Federman, M.D., Gary C. Brown, M.D., Mitchell S. Fineman, M.D., David H. Fischer, M.D., Sunir J. Garg, M.D., Allen C. Ho, M.D., Richard Kaiser, M.D., Alfred C. Lucier, M.D., Joseph I. Maguire, M.D., J. Arch McNamara, M.D., Carl H. Park, M.D., Arunan Sivalingam, M.D., William Tasman, M.D., James F. Vander, M.D., and Jason Hsu, M.D. (collectively, "Mid Atlantic Physicians"), all of whom are alleged to be "members and/or employees" of Appellee Retinoviteous Associates, Ltd., doing business as Mid Atlantic Retina ("Mid Atlantic"). We reverse.

         Because the trial court disposed of this case on preliminary objections, we adopt the facts as alleged in Appellants' amended complaint and its exhibits. Khawaja v. RE/MAX Central, 151 A.3d 626, 630 (Pa. Super. 2016).

         Retina and Mid Atlantic are competing practices of retina specialists who have staff privileges at Wills Eye Hospital in Philadelphia. In 2000, several retina specialists formed Retina Diagnostic & Treatment Associates, LLC ("RDTA"), a limited liability company that entered into contracts with Wills Eye to provide its members - who ultimately included both the Retina Physicians and the Mid Atlantic Physicians - with special privileges at Wills Eye's facilities. [1] Pursuant to RDTA's operating agreement, each RDTA member owned an equal 5.263% interest in the company. The operating agreement provided that RDTA would be run by up to six managers, [2] each of whom had to be a member of RDTA and one of whom had to be "the physician who is the then Director of the Retina Service of Wills Eye Hospital." Third Am. and Restated Limited Liability Co. Operating Ag. of RDTA, 1/1/2006, at 10. Appellants alleged that at the time the amended complaint was filed, Appellee Brown held the position of Director and Appellees Fischer and Sivalingam were Co-Directors of the Wills Eye Retina Service. Am. Compl. ¶¶ 14-15.

         Although the operating agreement provided that RDTA would be run exclusively by its managers, it contained provisions for some extraordinary decisions to be made by RDTA's members. Section 6.06 of the agreement stated:

         Certain Company Matters Requiring Member Approval.

(a) Specific Matters. Notwithstanding anything in this Agreement to the contrary, the approval of the following matters shall require the affirmative vote of the Members by a Majority Vote:
. . .
(v) The sale, exchange or transfer of all; or substantially all, of the assets of the Company.
. . .
(viii) The dissolution of the Company pursuant to Section 10.01(i). . . .

Third Am. and Restated Limited Liability Co. Operating Ag. of RDTA, at 15.

         On March 31, 2009, fifteen of the Mid Atlantic Physicians (all but Appellees Benson and Park), acting as members of RDTA, adopted a resolution titled "Written Consent of the Members Holding a Majority of the Percentage Interests." Am. Compl. ¶ 27 & Ex. D. The fifteen signers "collectively held a majority of the percentage interests in RDTA." Id. ¶ 27. By their resolution, the signers provided for RDTA to sell substantially all of its assets to Mid Atlantic and then to liquidate and dissolve. The two Retina Physicians did not vote on the resolution (which did not contain signature lines for either of them), and Appellant Belmont was not given notice of it. Id. ¶¶ 27-28 & Ex. D.

         Pursuant to the resolution, Mid Atlantic then acquired RDTA's assets, including its rights under contracts, leases, and other agreements with Wills Eye, for $353, 494, a price that allegedly is below the assets' fair market value. Am. Compl. ¶¶ 31-35. RDTA also entered into agreements to purchase services from Mid Atlantic in connection with winding up RDTA's affairs, the cost of which, $107, 829, would be offset against the purchase price owed to RDTA by Mid Atlantic. Id. ¶¶ 37-39.

         Appellants instituted this action by filing a complaint on October 7, 2009. In an amended complaint, Appellants purported to state a claim for, among other things, breach of fiduciary duties by the Mid Atlantic Physicians, who "in the aggregate controlled the majority interest in RDTA." Am. Compl. ¶ 43. They alleged that, "[a]s controlling majority members, the [Mid Atlantic Physicians] owe [Appellants] a duty of utmost good faith and fair dealing" and "a quasi-fiduciary duty . . . not to use their power for selfish or personal interests or in such a way as to exclude [Appellants] from their due share of the benefits accruing from the existence and operation of RDTA." Am. Compl. ¶¶ 43-45. The pleading continued:

46. Despite these duties and obligations of utmost good faith and fair dealing imposed upon them by law, some or all of the [Mid Atlantic Physicians] breached these duties and acted exclusively in their self-interests by:
a. Excluding [Appellants] from meaningful participation in the decisions related to the [asset purchase agreement with Mid Atlantic], sale of RDTA's assets to [Mid Atlantic], and termination of [Retina's agreements with Wills Eye];
b. Self-dealing and directly or indirectly making a profit at [Appellants'] financial and professional expense by transferring and selling RDTA's assets to [Mid Atlantic] of which all [Mid Atlantic Physicians] are members and/or employees, thereby excluding [Appellants] from the benefits they enjoyed through their ownership or relationship to RDTA;
c. Failing to act in good faith and for the benefit of [Appellants], Belmont and Kleiner, and RDTA in all matters involving the sale of RDTA's assets to [Mid Atlantic];
d. Excluding [Appellants] from their rightful participation in and enjoyment of the benefits of their ownership in RDTA, including, but not limited to, the agreements with Wills Eye and the profits derived therefrom;
e. Causing [Appellants] to suffer and to continue to suffer substantial financial harm by terminating [Retina's agreements] with Wills Eye and depriving [Appellants] of sufficient access to WillsEye to treat patients at the Wills Eye facility; and
f. Failing to act solely in the best interests of all owners and RDTA, which has caused [Appellants] to suffer and continue to suffer financial harm.
47. The actions of the [Mid Atlantic Physicians] . . . constitute a breach of their duty of utmost good faith and fair dealing owed to [Appellants], as well as a breach of their quasi-fiduciary duty owed to [Appellants], as minority, or de facto minority owners of RDTA.
48. Further, the actions of the [Mid Atlantic Physicians] . . . constitute a breach of their fiduciary duties to RDTA by entering into a sales transaction for, upon information and belief, substantially less than fair market value.
49.Some or all of [Mid Atlantic Physicians] harmed [Appellants], Belmont and Kleiner, by acting in derogation of [Appellants'] rights in RDTA, including [Appellants'], Belmont and Kleiner, rights to their respective share of the benefits accruing from the existence and operation of RDTA.
50. Moreover, Defendants' substantial undervaluation of RDTA has deprived [Appellants of] their fair market share of the assets, contracts, agreements, equipment, inventory, supplies, and goodwill.
51.Some or all of [Mid Atlantic Physicians'] intentional and self-serving conduct is outrageous in that it represents a wanton and willful disregard of [Appellants'] interests and rights as well as blatant self-dealing of the most egregious kind.
52. Some or all of [Mid Atlantic Physicians] purposefully transferred all assets to [Mid Atlantic] with a reckless indifference and wanton and willful disregard of [Appellants'] financial and beneficial interests in RDTA without justification or privilege.

Am. Compl. at ¶¶ 46-52.

         The trial court described the subsequent procedural history as follows:

[Mid Atlantic Physicians] filed preliminary objections to the amended complaint. Their arguments included that they did not owe a fiduciary duty to [Appellants]. They cited 15 Pa.C.S.A. § 8943(b)(2) for the proposition that members of limited liability companies do not owe fiduciary duties to each other.
After briefing and oral argument, this court issued an Order dated July 2, 2010, sustaining the preliminary objections in part and overruling them in part. Specifically, this court dismissed the breach of fiduciary duty claim against the [Mid Atlantic Physicians] and permitted the remaining claims to move forward.
[Appellants] filed a motion for partial reconsideration, which this court denied in an Order dated August 9, 2010. Approximately six years later the case was ordered on the standby trial list for the month of October 2016. [Appellants] voluntarily dismissed their remaining claims on September 29, 2016.

Trial Ct. Op., 12/6/16, at 2-3. Appellants then filed this timely appeal from the order sustaining the Mid Atlantic Physicians' preliminary objection to the breach of fiduciary duty claim. See Pa.R.A.P. 341 (appeal may be filed after entry of order disposing of all claims against all parties).

         In response to a court order, Appellants filed a Pa.R.A.P. 1925(b) Statement that listed, among other errors that they planned to appeal -

2. The Trial Court erred in determining, as a matter of law and/or based on the averments of the Amended Complaint and Exhibits attached thereto, that managers of a manager-managed Pennsylvania LLC do not owe a fiduciary duty to the minority members of said LLC and dismissing Count I (Breach of Fiduciary Duty) of the Amended Complaint as to the Physician Defendants/ Appellees.
. . .
4. The Trial Court erred in determining, as a matter of law and/or based on the averments of the Amended Complaint and Exhibits attached thereto, that it is not a breach of fiduciary duty for the managers of a manager-managed Pennsylvania LLC to intentionally and willfully sell substantially all of the assets and contractual rights of said LLC to a separate entity owned or controlled by the majority members of the LLC that excludes the minority members of the LLC and dismissing Count I (Breach of Fiduciary Duty) of the Amended Complaint as to the Physician Defendants/ Appellees.

Pa.R.A.P. 1925(b) Statement, at 1-2 (emphasis added). The Mid Atlantic Physicians objected to Appellants' inclusion in their Rule 1925(b) statement of questions regarding breach of their fiduciary duties as managers (as opposed to majority members) of RDTA, arguing that the amended complaint never stated a claim against any of them based on a status as RDTA managers. Mid Atlantic Physicians' Joint Objs. to Retina's Rule 1925(b) Statement, 11/2/16, at 1-2. They observed that the amended complaint "literally does not contain the word 'manager.'" Id. at 2. The trial court did not rule on the Mid Atlantic Physicians' objection to Appellants' Rule 1925(b) Statement.

         On December 6, 2016, the trial court issued a Rule 1925(a) opinion that explained its decision as follows:

The issues raised by [Appellants], when read together, challenge this court's conclusion that the individual members of the limited liability company did not owe fiduciary duties to each other. The challenge lacks statutory and decisional support.
. . .
Pursuant to [the Limited Liability Company Law, ] 15 Pa. C.S.A. § 8943(b)(2), "[a] member [of a limited liability company] who is not a manager shall have no duties to the company or to the other members solely by reason of acting in his capacity as a member." [Appellants] argued the individual defendants owed a fiduciary duty because they collectively held a majority of the interests in RDTA. . . . The plain language of Section 8943, however, does not provide support for [Appellants'] claim that the individual defendants owed them a fiduciary duty. Thus, this court properly sustained the individual defendants' preliminary objections to the breach of fiduciary duty claim.

Trial Ct. Op., 12/6/16, at 5-6 (citation and footnotes omitted).[3]

         In their appellate brief, Appellants now raise the following issues:

1. Whether the lower court erred in determining, as a matter of law, that managers of a manager-managed Pennsylvania LLC do not owe a fiduciary duty to the minority members of said LLC and dismissing Count I (Breach of Fiduciary Duty) ...

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