This opinion will be unpublished and
may not be cited except as provided by
Minn. Stat. § 480A.08, subd. 3 (1998).
STATE OF MINNESOTA
IN COURT OF APPEALS
Conrad S. Butwinick, M.D., et al.,
Minnesota Oncology Hematology, P.A., et al.,
Filed August 1, 2000
Hennepin County District Court
File No. CT973625
Joseph W. Anthony, Norman J. Baer, Douglas L. Elsass, Fruth & Anthony, P.A., 3750 IDS Center, 80 South Eighth Street, Minneapolis, MN 55402 (for respondents)
Richard G. Wilson, Mary R. Vasaly, Richard A. Kempf, R. Christopher Sur, Maslon, Edelman, Borman & Brand, LLP, 3300 Norwest Center, 90 South Seventh Street, Minneapolis, MN 55402 (for appellants)
Considered and decided by Randall, Presiding Judge, Lansing, Judge, and Willis, Judge.
U N P U B L I S H E D O P I N I O N
Minnesota Oncology Hematology, P.A., and 21 of its present and former shareholders appeal from the district court’s denial of their motion for judgment notwithstanding the verdict or, in the alternative, a new trial on damages. We affirm as modified.
Appellant Minnesota Oncology Hematology, P.A. (“MOHPA”), is a closely held Minnesota corporation formed in February 1995 as the result of the merger of three medical practices comprising 23 doctors. Twenty-one of the doctors were oncologists, and two, respondents Dr. Conrad Butwinick and Dr. Averial E. Nelson, Jr., were internists. Upon forming MOHPA, the 23 doctors, who were MOHPA’s sole shareholders, each signed a compensation agreement, a deferred-compensation agreement, and a stock-purchase agreement.
In May 1995, a representative of Physician Reliance Network, Inc. (“PRN”), a company specializing in medical-practice management, and the chief executive officer of MOHPA, Jeffrey Schackor, met to discuss a possible management agreement between the two entities. PRN proposed to acquire MOHPA’s assets and enter into a long-term management contract whereby it would employ all non-physician employees of MOHPA, leaving MOHPA and its shareholders to focus on the practice of medicine.
In November 1995, respondents met with Schackor to discuss the future of the practice of internal medicine with MOHPA. According to Schackor’s notes of this meeting, he stated that there “was no future for internal medicine within MOHPA especially if we go forward with the PRN deal" but that “it would be inherently fair that [respondents] do need to share in substantial portions of this particular deal.” In December 1995, the president of MOHPA, Dr. Burton Schwartz, wrote to respondent Nelson stating, “I also understand your concerns as MOHPA moves forward. However I assure you and [respondent Butwinick] that we will be fair to both of you.”
Respondents began to look for new employment. By April 1996, both had received job offers, and they told MOHPA that they would resign effective May 31, 1996, later postponed to June 30, 1996.
Meanwhile, MOHPA and its shareholders negotiated actively with PRN. PRN proposed that the transaction be structured as two agreements, an asset-purchase agreement and a service agreement. Under the asset-purchase agreement, MOHPA would sell to PRN its accounts receivable and all assets used in the operation of MOHPA. Under the service agreement, MOHPA would receive, immediately upon approval of the transaction, $6.65 million, with additional quarterly payments of $463,996 to be paid through July 1, 2000. MOHPA would also receive shares of PRN common stock. In return, MOHPA would pay to PRN 25% of MOHPA’s annual earnings, before interest expenses and taxes, and reimburse PRN for all expenses PRN incurred in the operation of MOHPA over the next 40 years. Additionally, MOHPA would “amortize” the payments it received under the service agreement by paying PRN approximately $534,000 annually over the 40-year period.
Before the PRN transaction was presented to MOHPA’s shareholders for their approval, MOHPA’s finance committee determined that the payments of cash and stock to MOHPA by PRN should be distributed among MOHPA’s shareholders. The committee proposed that over five years MOHPA would pay to each oncologist $300,000, plus an additional amount determined by considerations such as seniority, productivity, and years to retirement. The proposed payments to the oncologists ranged from $796,873 to $1,507,682 each. The committee proposed paying $282,900 to respondent Butwinick and $262,238 to respondent Nelson.
MOHPA’s shareholders were to meet on June 27, 1996, to consider and vote on approval of the PRN transaction and the proposed distribution schedule. Just before the start of the June 27 meeting, respondents delivered a letter to the president of MOHPA notifying him that, if the PRN transaction and proposed distribution schedule were approved, they would “demand the fair value of the [MOHPA] shares” they owned. The shareholders cancelled the vote and continued the meeting until July 8, 1996.
Twenty oncologist shareholders, or their proxies, met at 6:30 p.m. on July 8. Respondent Nelson later testified that he and respondent Butwinick were not invited to or allowed to attend this meeting. The minutes of the shareholder meeting do not specify what was discussed or at what time the meeting was suspended. But the meeting was reconvened at 8:10 p.m. with the respondents present and all 21 oncologist shareholders present or represented by proxy. In addition to the PRN transaction, a revised distribution schedule was introduced for approval under which MOHPA would pay less than $20,000 to respondent Butwinick and respondent Nelson would pay $805 to MOHPA. The resolution authorizing the PRN transaction and the revised distribution schedule passed on a vote of 21 to 2, with respondents casting the two dissenting votes.
In August 1996, respondents filed a complaint against MOHPA and its oncologist shareholders, alleging numerous wrongs, including breach of fiduciary duty, the one count that eventually reached the jury. In April 1999, a jury found that appellants had breached their fiduciary duty to respondents and awarded damages of $984,000 to respondent Butwinick and $987,000 to respondent Nelson. Appellants moved the district court, in part, for judgment notwithstanding the verdict (JNOV) or, alternatively, a new trial on damages. The district court denied appellants’ motion in its entirety, and they appeal.
I. Denial of JNOV.
In reviewing denial of a motion for JNOV, this court will affirm “if there is any competent evidence reasonably tending to sustain the verdict.” Rettman v. City of Litchfield, 354 N.W.2d 426, 429 (Minn. 1984) (citation omitted). We will affirm unless we determine that “the evidence is practically conclusive against the verdict.” Seidl v. Trollhaugen, Inc., 305 Minn. 506, 507, 232 N.W.2d 236, 239 (1975).
The relationship among the shareholders of a closely held corporation is analogous to that of partners in a partnership. Pedro v. Pedro, 489 N.W.2d 798, 801 (Minn. App. 1992) [hereinafter Pedro II], review denied (Minn. Oct. 20, 1992). A minority shareholder in a closely held corporation is in a vulnerable position and must rely on the good faith of his fellow shareholders to protect his interests. See Pedro v. Pedro, 463 N.W.2d 285, 288-89 (Minn. App. 1990), review denied (Minn. Jan. 24, 1991). Thus, the law imposes on shareholders in a closely held corporation a fiduciary duty to one another. Pedro II, 489 N.W.2d at 801. This duty includes dealing “openly, honestly and fairly with other shareholders.” Evens v. Bleisi, 345 N.W.2d 775, 779 (Minn. App. 1984) (citation omitted), review denied (Minn. June 12, 1984). “Whether shareholders [have] breached their fiduciary duty to other shareholders is generally a question of fact.” Miller Waste Mills, Inc. v. Mackay, 520 N.W.2d 490, 496 (Minn. App. 1994), review denied (Minn. Oct. 14, 1994).
Appellants argue that because MOHPA did not breach any of its contractual obligations to respondents under their compensation agreements, deferred-compensation agreements, and stock-purchase agreements, respondents cannot prove that they suffered any damages as the result of a breach of fiduciary duty. But the attorney for MOHPA who drafted these three agreements testified that MOHPA’s receipt of PRN stock and significant cash payments resulting from the PRN transaction was not contemplated by the agreements. And appellants, after alleging that the three agreements set forth the manner in which the PRN payments “could” have been distributed, concede that by approving the revised distribution schedule the oncologist shareholders “decided to adopt an alternative distribution formula.” The oncologist shareholders of MOHPA owed a fiduciary duty to deal openly, honestly, and fairly with respondents in distributing the PRN payments. See Evens, 345 N.W.2d at 779; see also Pedro II, 489 N.W.2d at 801 (stating that shareholders of closely held corporations are bound by the “highest standards of integrity and good faith in their dealings with each other” (citation omitted)).
There was evidence that respondents were excluded from that part of the July 8 shareholder meeting that started at 6:30 p.m. and were allowed to participate in the meeting only after the other shareholders had revised the proposed distribution schedule. And the record is replete with evidence showing that respondents were owed a portion of the PRN payments as a matter of fairness, in contrast with the revised distribution schedule in which respondent Nelson, for example, was found to owe MOHPA $805. We conclude that there is competent evidence reasonably tending to sustain a conclusion that MOHPA and its shareholders breached their duty to deal openly, honestly, and fairly with respondents with regard to the distribution of the PRN payments.
II. Denial of new trial on damages.
A new trial may be granted when a verdict is contrary to law or not supported by the evidence, or when damages are excessive and appear to have been awarded under the influence of passion or prejudice. Minn. R. Civ. P. 59.01 (e), (g). The discretion to grant a new trial on the ground of excessive damages rests with the district court, and its denial of a motion for a new trial will be overturned only for an abuse of that discretion. Advanced Training Sys. v. Caswell Equip. Co., 352 N.W.2d 1, 11 (Minn. 1984). A verdict must stand unless it is “manifestly and palpably contrary to the evidence, viewed in a light most favorable to the verdict.” ZumBerge v. Northern States Power Co., 481 N.W.2d 103, 110 (Minn. App. 1992) (citation omitted), review denied (Minn. Apr. 29, 1992).
The jury awarded respondent Butwinick $984,000. We conclude from the record that the jury reached this number by awarding respondent Butwinick the then-present value of 1/23rd of the PRN payments as calculated by respondents’ expert, or $942,785, and additional damages reflecting respondent Butwinick’s claim that he was unfairly undercompensated in 1995 and 1996. The jury awarded respondent Nelson $987,000. Similarly, it is apparent that the jury reached this number by adding 1/23rd of the then-present value of the PRN payments to damages awarded on respondent Nelson’s claim that he was unfairly undercompensated in 1995 and 1996.
Appellants argue that the parts of the jury’s verdict awarding full 1/23rd shares of the PRN payments to respondents are unsupported by the evidence because the awards fail to take into account the fact that MOHPA has future obligations to PRN and that because respondents no longer work for MOHPA they will not contribute to payment of those obligations. Appellants also argue that damages arising from allegedly unfair compensation are inappropriate because the contracts between MOHPA and respondents established the basis for their compensation and those contracts were not breached. In denying appellants’ motion for a new trial on damages, the district court concluded that the damage awards were supported by the evidence but did not directly address appellants’ argument regarding past compensation.
Appellants argue that because the jury’s award to respondents of a portion of the PRN payments fails to account for future MOHPA obligations to PRN, the award is unsupported by the evidence. But MOHPA’s payments to PRN are to be made over the next 40 years and are corporate obligations. It is clear, as appellants argue, that PRN expects a return on its investment. But while the PRN payments were to be made to MOHPA, the shareholders of the corporation voted to distribute the funds to 21 of 23 of the then-existing shareholders. Appellants do not argue, nor does the record show, that any of those shareholders would be obligated to return any part of his or her distribution of the PRN payments upon leaving MOHPA. Rather, the record shows that the oncologist shareholders decided to divide the PRN payments, characterized by various appellants as a “windfall” or a “signing bonus,” among themselves in amounts ranging from approximately $800,000 to $1.5 million while effectively denying respondents, who were equal shareholders, any of the proceeds.
Respondents’ expert testified that the present value of 1/23rd of the PRN proceeds at the time of trial was $942,785. We do not find that the jury’s damage award with respect to the distribution of the PRN payments was manifestly and palpably contrary to the evidence, viewed in a light most favorable to the verdict.
Appellants argue that the evidence is insufficient to sustain the jury’s award of damages for allegedly unfair compensation paid to respondents in 1995 and 1996. The sole issue before the jury was whether appellants breached their fiduciary duty to respondents and what damages resulted from any such breach. Thus, regarding respondents’ compensation in 1995 and 1996, the jury was to determine whether respondents proved by a preponderance of the evidence that appellants breached their fiduciary duty to respondents in determining that compensation. See Pedro II, 489 N.W.2d at 801; Evens, 345 N.W.2d at 779.
Respondent Nelson testified that he did not claim that MOHPA failed to pay him the amount he was due under the written compensation agreement. Rather, Nelson testified that his compensation was lower than he expected because his accounting firm incorrectly estimated MOHPA’s overhead expenses before he joined MOHPA. Respondent Butwinick also testified that his compensation was lower than he expected because of expenses incurred during the start-up of MOHPA. And both respondents testified that MOHPA paid them all the compensation that was due to them under their contracts with MOHPA.
1. Affirming that part of the jury’s verdict awarding $942,785 to each respondent.
2. Adding to each respondent’s award $5,682.54, the interest on $942,785 at the statutory annual rate of four percent from the date of the jury’s verdict on April 15, 1999, until the entry of judgment on June 9, 1999. See Minn. Stat. § 549.09, subd. 1 (1998); Minn. R. Civ. P. 54.04 historical notes.
3. Affirming that part of the June 25, 1999, amended judgment awarding $2,732.85 in costs to each respondent.
Thus, we modify the June 25, 1999, amended judgment to award $951,200.39 to respondent Butwinick and $951,200.39 to respondent Nelson, including interest and costs.
Affirmed as modified.