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Lynd v. Marshall County Pediatrics, P.C.

Supreme Court of Alabama

April 27, 2018

Tara Lynd
v.
Marshall County Pediatrics, P.C.

          Appeal from Marshall Circuit Court (CV-15-900158)

          MENDHEIM, JUSTICE.

         Tara Lynd, a physician ("Dr. Lynd"), appeals from a summary judgment entered by the Marshall Circuit Court in favor of Marshall County Pediatrics, P.C. ("MCP"), in her action seeking a judgment declaring the proper valuation of her shares in MCP. We reverse and remand.

         I. Facts

         In July 1978, John M. Packard, M.D. ("Dr. Packard"), filed articles of incorporation forming MCP, a medical practice specializing in pediatrics in Guntersville. At the same time, MCP adopted bylaws. Those bylaws reference a separate "stockholder agreement, " but one was never executed. Over time, Dr. Packard hired other physicians to work with him in MCP. In 2005, Dr. Packard hired Dr. Lynd as a pediatrician to work for MCP.

         On July 1, 2013, Dr. Packard retired from practice, and he sold MCP to four other physicians who were then working for MCP: Dr. David Chupp, Dr. Don Jones, Dr. Sarah Rhodes, and Dr. Lynd. On July 31, 2013, each of the four physicians executed separate agreements pursuant to which each physician purchased 25 percent of Dr. Packard's shares in MCP -- each agreeing to pay him $25, 000 -- for a total purchase price of $100, 000. At the time of sale, each physician paid Dr. Packard $1, 000, with the understanding that he or she would pay Dr. Packard the remaining amount due for his or her shares, with interest, over a period of several years.

         At the time the four physicians acquired MCP from Dr. Packard, they accepted the bylaws without alteration. They did not execute a stockholder agreement. Dr. Rhodes stated in an affidavit that the physicians had "no intent or purpose to avoid" executing a stockholder agreement among themselves; she stated that they "simply never got it done."

         At a meeting of the shareholders held on August 27, 2013, following Dr. Packard's retirement, each of the four physicians, including Dr. Lynd, was elected as a director of MCP. Dr. Lynd was also elected secretary of MCP.

         On March 2, 2014, Dr. Lynd telephoned each of the other physicians to inform him or her that she would be leaving MCP to go to Oklahoma to care for her mother, whose health was declining. On April 3, 2014, Dr. Lynd provided written notice to the other physicians that she was leaving the practice effective June 30, 2014. However, following a meeting of the shareholders on May 7, 2014, Dr. Lynd determined that she could no longer work at MCP, and she issued a resignation letter and severed her employment with MCP on May 16, 2014. At a shareholder meeting specially called on December 29, 2014, the other three physicians officially voted to remove Dr. Lynd as a director and an officer of MCP. In an affidavit submitted in the trial court, Dr. Lynd stated that she was no longer licensed to practice medicine in Alabama.

         Dr. Rhodes testified in her affidavit that, upon Dr. Lynd's severance from MCP, the other three physicians did not dispute that Dr. Lynd was owed her portion of the receivables/production bonuses generated by MCP. According to Dr. Rhodes, MCP paid Dr. Lynd $43, 783.60 in receivables/production bonuses. Dr. Rhodes also stated that, as of the date Dr. Lynd severed her employment with MCP, Dr. Lynd had personally paid Dr. Packard $1, 000 and that, through the practice, Dr. Lynd had paid an additional $11, 261.40 toward the $25, 000 purchase price for her shares of stock in MCP.

         Dr. Lynd demanded, based on the bylaws, that MCP purchase her shares in the practice at "fair value." Article VI, § 4, of MCP's bylaws provides:

"If any shareholder of the corporation for any reason ceases to be duly licensed to practice medicine in the state of Alabama, accepts employment that, pursuant to law, places restrictions or limitations upon his continued rendering of professional services as a physician, or upon the death or adjudication of incompetency of a stockholder or upon the severance of a stockholder as an officer, agent, or employee of the corporation, or in the event any shareholder of the corporation, without first obtaining the written consent of all other shareholders of the corporation shall become a shareholder or an officer, director, agent or employee of another professional service corporation authorized to practice medicine in the State of Alabama, or if any shareholder makes an assignment for the benefit of creditors, or files a voluntary petition in bankruptcy or becomes the subject of an involuntary petition in bankruptcy, or attempts to sell, transfer, hypothecate, or pledge any shares of this corporation to any person or in any manner prohibited by law or by the By-Laws of the corporation or if any lien of any kind is imposed upon the shares of any shareholder and such lien is not removed within thirty days after its imposition, or upon the occurrence, with respect to a shareholder, of any other event hereafter provided for by amendment to the Certificates of Incorporation or these By-Laws, then and in any such event, the shares of this [c]orporation of such shareholder shall then and thereafter have no voting rights of any kind, and shall not be entitled to any dividend or rights to purchase shares of any kind which may be declared thereafter by the corporation and shall be forthwith transferred, sold, and purchased or redeemed pursuant to the agreement of the stockholders in [e]ffect at the time of such occurrence. The initial agreement of the stockholders is attached hereto and incorporated herein by reference[;] however, said agreement may from time to time be changed or amended by the stockholders without amendment of these By-Laws. The method provided in said agreement for the valuation of the shares of a deceased, retired or bankrupt stockholder shall be in lieu of the provisions of

         Title 10, Chapter 4, Section 228 of the Code of Alabama of 1975." (Emphasis added.)

         Dr. Lynd and the other three physicians disagreed as to the method of valuation for Dr. Lynd's shares in MCP. Dr. Lynd insisted that the valuation should be based on the "fair value" of the shares, pursuant to the method for valuing stock provided in § 10A-4-3.02, Ala. Code 1975. The relevant subsections of § 10A-4-3.02 provide:

"(a) Upon the death of a shareholder of a domestic professional corporation or if a shareholder of a domestic professional corporation becomes a disqualified person or if shares of a domestic professional corporation are transferred by operation of law or court decree to a disqualified person, the shares of the deceased shareholder or of the disqualified person may be transferred to a qualified person and, if not so transferred, shall be purchased or redeemed by the domestic professional corporation to the extent of funds which may be legally made available for the purchase.
"(b) If the price for the shares is not fixed by the governing documents of the domestic professional corporation or by private agreement, the domestic professional corporation, within six months after the death or 30 days after the disqualification or transfer, as the case may be, shall make a written offer to pay for the shares at a specified price deemed by the domestic professional corporation to be the fair value thereof as of the date of the death, disqualification or transfer. ..."

(Emphasis added.) Based on a valuation pursuant to § 10A-4-3.02, Dr. Lynd calculated her shares to be worth $230, 000.

         Conversely, the other three physicians insisted that the valuation should be based on the "book value" of the shares, pursuant to the method provided in former § 10-4-228, Ala. Code 1975 (repealed in 1980), referenced in the bylaws, which stated, in pertinent part:

"The articles of incorporation may provide for the purchase or redemption of the shares of any shareholder upon the death or disqualification of such shareholder, or the same may be provided in the bylaws or by private agreement. In the absence of a provision for the same in the articles of incorporation or the bylaws or by private agreement, the professional corporation shall purchase the shares of a deceased shareholder or a shareholder no longer qualified to own shares in such corporation within 90 days after the death of the shareholder or disqualification of the shareholder, as the case may be. The price for such shares shall be the book value as of the month immediately preceding the death or disqualification of the shareholder. Book value shall be determined from the books and records of the professional corporation in accordance with the regular method of accounting used by such corporation. ..."[1]

(Emphasis added.) Based on a valuation pursuant to § 10-4-228, the other three physicians calculated Dr. Lynd's shares to be worth $6, 275.

         On April 21, 2015, Dr. Lynd sued MCP in the Marshall Circuit Court, asserting a claim of breach of contract and seeking specific performance of MCP's obligation to purchase her stock as well as a judgment declaring that she was entitled to the "fair value" of those shares from MCP. MCP filed an answer to the complaint.

         On September 20, 2016, Dr. Lynd filed a motion for a summary judgment along with a brief and exhibits in support of the motion. On October 3, 2016, MCP filed a motion for a summary judgment along with a brief and exhibits in support of its motion. Following a hearing on the motions, the parties submitted supplemental briefs.

         On December 27, 2016, the trial court entered an order granting MCP's summary-judgment motion and denying Dr. Lynd's summary-judgment motion. In pertinent part, the order stated that "[t]he value of stock rights of Dr. Lynd is set at book value on [the] date she left the practice."

         On January 9, 2017, Dr. Lynd filed a motion to alter, amend, or vacate the trial court's December 27, 2016, order in favor of MCP. MCP filed a reply to the motion on March 28, 2017. Following a hearing on the motion, the trial court entered an order on March 31, 2017, denying Dr. Lynd's motion. The order stated, in pertinent part:

"The Court's Order of December 27, 2016, is hereby affirmed, denying [Dr. Lynd's] Motion for Summary Judgment and all relief requested by [Dr. Lynd] and [MCP's] Motion for Summary Judgment is granted in full, thereby confirming the finding that the value of [Dr. Lynd's] stock is 25% of book value, $6, 275.00. All other relief not granted herein is denied."

Dr. Lynd appeals.

         II. ...


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