Fogartie v. Edrington

2017 NCBC 104

JAMES E. FOGARTIE, JR. and STEVEN KAGAN, individually and derivatively on behalf of Carolina Vascular Surgery and Diagnostics, P.A., Plaintiffs, v. R. DAVID EDRINGTON, GEORGE T. CLARK III, CHRISTOPHER R. LONGO, Defendants, and CAROLINA VASCULAR SURGERY AND DIAGNOSTICS, P.A. Nominal Defendant.

No. 17 CVS 12698

Superior Court of North Carolina, Wake

November 17, 2017

ORDER ON PLAINTIFFS' MOTION FOR PRELIMINARY INJUNCTION

GREGORY P. MCGUIRE SPECIAL SUPERIOR COURT JUDGE

THIS MATTER comes before the Court upon Plaintiffs' Motion for Preliminary Injunction (the "Motion"). (ECF No. 5.)

THE COURT, having considered the Motion, the briefs in support of and in opposition to the Motion, the arguments of counsel at the hearing, the record evidence filed by the parties, and other appropriate matters of record, FINDS and CONCLUDES, in its discretion, that the Motion should be DENIED for the reasons set forth below.

FACTUAL AND PROCEDURAL BACKGROUND

1. The Court finds facts solely for purposes of deciding the Motion and such findings are not binding in any subsequent proceedings. Daimlerchrysler Corp. v. Kirkhart, 148 N.C.App. 572, 578, 561 S.E.2d 276, 282 (2002).

2. Plaintiffs James E. Fogartie, Jr. ("Fogartie") and Steven Kagan ("Kagan") (Fogartie and Kagan are referred to collectively as "Plaintiffs") and Defendants R. David Edrington ("Edrington"), George T. Clark III ("Clark"), and Christopher R. Longo ("Longo") (Edrington, Clark, and Longo are referred to collectively as "Defendants") are vascular surgeons (collectively, Plaintiffs and Defendants are referred to as "the five surgeons"). The five surgeons are the only shareholders of Nominal Defendant Carolina Vascular Surgery and Diagnostics, P.A. ("CVSD"), a North Carolina professional corporation formed in 2002. The five surgeons each own 20% of CVSD's common stock, and each are directors on CVSD's Board of Directors. (Verified Complaint, ECF No. 3 at ¶¶ 13-14.) The five surgeons also are employed by CVSD. (ECF No 3 at ¶ 12.)

3. CVSD is a vascular surgery practice located in Raleigh. (ECF No. 3 at ¶ 11.) In addition to the five surgeons, CVSD employs between 15 and 20 full-time and part-time employees. (ECF No. 3 at ¶ 19.)

4. CVSD adopted corporate By-Laws ("By-Laws") that provide for governance by simple majority vote. (CVSD By-Laws, ECF No. 21.2.) The By-Laws further provide that: "the business and affairs of [CVSD] shall be managed by the Board of Directors" (Id. at Art. III, § 1); "a majority of the Directors … shall constitute a quorum for the transaction of business" (Id. at Art. III, § 4); and "the act of the majority of the Directors present at a meeting at which a quorum is present shall be the act of the Board of Directors." (Id. at Art. III, § 5.) The holders of the majority of CVSD shares constitute a quorum for purposes of shareholder action, and shareholder action requires a vote of the majority of the shares present in a quorum. (Id. at Art. II, § 7.) Directors may only be removed by "a vote of shareholders holding a majority of the share entitled to vote . . . ." (Id. At Art. III, § 4.)

5. On February 9, 2009, the five surgeons entered into the Shareholders' Buy-Sell Agreement. (ECF No. 3, at Ex. R; the "Buy-Sell Agreement.") Under the Buy-Sell Agreement, if a Shareholder transfers their stock ownership for any reason, "the Net Purchase Price for the shares of Common Stock owned by the Shareholder shall be determined in the discretion of the … Board of Directors" using one or more of more suggested methods for valuing the corporation. (ECF No. 3, at Ex. R § 1.11.1.)

6. CVSD's revenue has declined in recent years due to a variety of factors. As a result the five surgeons explored relationships with other medical providers in pursuit of an alternate business model. (Kagan Aff., ECF No. 6.2 at ¶¶ 4-5; Edrington Aff., ECF No. 15.2 at ¶¶ 3, 7-8, 10-14; Clark Aff., ECF No. 15.3 at ¶¶ 4, 6-7; Longo Aff., ECF No. 15.4 at ¶¶ 4, 6-8.) On October 26, 2016, the five surgeons met with Duke University Health System, Inc. ("Duke") to discuss potential options for a business relationship. (ECF No. 6.2 at ¶ 5.)

7. On or about July 6, 2017, Duke made offers of employment to each of the five CVSD physicians. (Id.)

8. The five surgeons also held meetings with WakeMed Physicians Practice/WakeMed Health and Hospitals ("WakeMed"). (Nathan Aff., ECF No. 6.3 at ¶¶ 2-4; ECF No. 15.2 at ¶¶ 11-12.) The five surgeons met with WakeMed on July 20, 2017, and advised WakeMed that they were interested in receiving proposals for a business relationship with WakeMed. (ECF No. 15.2 at ¶¶ 12-13; ECF No. 15.3 at ¶ 18; ECF No. 15.4 at ¶¶ 11-14.)

9. On July 25, 2017, prior to receiving a proposal from WakeMed, Defendants notified Plaintiffs that they had accepted Duke's offers of employment. (ECF No. 15.2 at ¶ 17; ECF No. 15.3 at ¶ 25; ECF No. 15.4 at ¶ 17.) Plaintiffs did not accept the offers of employment from Duke. Instead, Plaintiffs "intend to continue practicing at CVSD . . . and they have told Defendants of those intentions." (ECF No. 3 at ¶ 23.)

10. Plaintiffs allege that Defendants intend to open their new Duke-affiliated office less than one-half mile from CVSD's office in April of 2018, and that Defendants' practice will directly compete with CVSD for patients. (ECF No. 3 at ¶¶ 21-22.)

11. After Defendants accepted employment with Duke, WakeMed ceased discussions with Plaintiffs regarding the potential business relationship. (ECF No. 6.3 at ¶ 5; ECF No. 3 at ¶ 67.) WakeMed will not resume negotiations with CVSD until "it has assurance that the people involved in any negotiations have authority to speak and act for CVSD, " and "until assured that the terms of any proposed arrangement will be held confidentially by such members and acted upon in the best interest of any WakeMed and CVSD arrangement." (ECF No. 6.3 at ¶¶ 6-7.)

12. In the weeks following Defendants' commitment to enter into employment with Duke, the atmosphere at CVSD became tense. (ECF No. 15.2 at ¶ 25.) In August 2017, Edrington sent emails to Clark and Longo stating, inter alia:

I've been reading our buy sell agreement. Thankfully it is explicit.

. . .

It is therefore imperative to drive up the price of the stock to make it somewhat painful. I don't expect to be paid until the very last day of the contract requirement but it might still be painful to come up with say $300, 000 to pay out, especially when at the same time [Fogartie] will be approaching his exit and he will most certainly want the same deal we got! Can't wait to see how [Kagan] deals with that! and, I have now looked at both the Buy Sell and Bylaws and I see no wiggle room.

The three of us can meet as a quorum with or without [Plaintiffs]. At that meeting we can set the stock price to include three months (sic) salary, goodwill and a proportion of the corporation assets. We can elect to have these amounts given to us in cash on the day we surrender our stock.

(ECF No. 3 at ¶¶ 59-60; Ex. S.)

13. The evidence, however, shows that despite Edrington's statements to Clark and Longo in the emails, he attempted to bring about an agreement between Defendants and Plaintiffs regarding an appropriate method for implementing the Buy-Sell Agreement, including proposing that Plaintiffs and Defendants each retain attorneys to work out details of a buyout of Defendants' interests in CVSD. (ECF No. 15.2 at ¶¶ 29-36, Exs. B and C.) The parties subsequently retained attorneys and had preliminary discussions regarding resolution of their disagreements. (Id. at ¶¶ 35-36, Ex. C.) Apparently, these discussions ceased.

14. Currently, Defendants Edrington, Clark, and Longo are still employed with CVSD, and remain shareholders and directors of CVSD. (ECF No. 3 at ¶ 24.) Plaintiffs allege that, as three of the five directors and a majority of the shareholders, Defendants "collectively control CVSD." (Id. at ¶ 52.) Plaintiffs further contend that Defendants' "loyalties now lie with Duke, " but "Defendants have refused to relinquish their collective control of CVSD." (Id. at ¶ 53.) Plaintiffs allege that Defendants "each began working on Duke's behalf in direct competition with CVSD while still serving as directors of CVSD, " (Id. at ¶ 27) by taking the following actions:

a. In August 2017, Longo communicated with Duke to facilitate entry into a training agreement that would allow the Defendants to train Duke fellows after Defendants entered employment with Duke. (Id. at ¶ 28.)

b. Clark provided Duke with a list of equipment used in CVSD's angiography suite. (Id. at ¶ 30.)

c. On September 14, 2017, Defendants interviewed a candidate for a position in Duke's division of vascular surgery Dr. Joe Salfity^[1], even though CVSD was also recruiting Dr. Salfity. Edrington told Duke that CVSD was recruiting Dr. Salfity and would likely offer him a contract. In an email to Dr. Salfity after the interview, Edrington did not encourage Dr. Salfity to join CVSD, but instead encouraged Dr. Salfity to "try to work out a position with WakeMed." (Id. at ¶¶ 31- 33; Ex. G.)

d. In September 2017, Edrington facilitated communication between a part-time CVSD employee, Catherine Morgan ("Morgan"), and Duke, for the purpose of discussing "future employment opportunities" with Duke. (ECF No. 3 at ¶¶ 34-37.) Edrington also communicated with Duke emphasizing Morgan's value as an employee, and suggested that Duke rely on her knowledge "regarding the steps necessary to open the new vascular practice." (Id. at ¶¶ 36, 38-40.) Upon learning of Edrington's attempt to recruit Morgan to Duke, CVSD offered Morgan full-time employment on October 9, 2017, but Morgan tendered a letter of resignation the following day. (Id. at ¶ 50.) Morgan subsequently reconsidered, and she remains employed

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