Opinion
BCD-CIV-2021-00019
04-03-2023
MEGAN J. LUCIER, Plaintiff, v. MARK S. LUCIER, et. al., Defendants.
Plaintiff: Megan J. Lucier Gene Libby, Esq. Libby O'brien Kingsley & Champion LLC Defendant: Mark S. Lucier Children's Dentistry of Sanford, PLLC Patrick Bedard, Esq Law Office Bedard & Bobrow
Plaintiff:
Megan J. Lucier
Gene Libby, Esq.
Libby O'brien Kingsley & Champion LLC
Defendant:
Mark S. Lucier
Children's Dentistry of Sanford, PLLC
Patrick Bedard, Esq
Law Office Bedard & Bobrow
ORDER FOLLOWING BENCH TRIAL
MICHAEL A. DUDDY JUDGE
As the Court has indicated in prior Orders, this case arises from a business dispute between two dentists (and their related dental practices) who are trying to separate their business interests. The case was tried to the Bench on February 22, 2023, and March 6, 2023. Plaintiff Megan Lucier ("Megan") and Defendant Mark Lucier ("Mark") were both present and represented by counsel. For the reasons set forth below, the Court determines that (1) Megan does not have a contractual right to audit the Sanford practice for 2018; (2) Mark did not violate the contractual requirement to cooperate with the independent auditor for the 2019 audit; and (3) the independent auditor wrongly disallowed certain expenses as a result of the 2019 audit Megan is awarded some financial relief, based primarily on the stipulations of the parties before trial. The Court further determines that Megan is not a prevailing party and therefore not entitled to an award of attorney fees.
The parties have the same last name. So as to prevent confusion, the Court refers to the parties by their first names.
FACTS
The Court makes its findings of fact by a preponderance of the evidence. Many of the relevant facts are set forth in the Stipulation of the Parties which is incorporated as if fully set forth in this Order. The Court determines other facts from the evidence presented at the trial. In brief, the parties are licensed dentists and were previously married. While they were married, they jointly owned dental practices in Dover, New Hampshire, and Sanford, Maine. The parties were divorced on June 8, 2018, and on that same day signed an Agreement Regarding Operation of Separate Dental Practices (the "Partition Agreement"). Pursuant to the Partition Agreement, the parties continued to own and operate the two dental practices together, but Megan worked primarily at the Dover, practice, and Mark worked primarily at the Sanford practice. On December 23, 2019, the parties entered into a Mutual Buyout Agreement (the "Buyout Agreement"). Pursuant to the Buyout Agreement, the parties separated the two dental practices, with each party buying out the other party's interests in the respective practices. Megan became the owner of the Dover practice, and Mark became the owner of the Sanford practice. The Closing Date for the Buyout Agreement was December 30, 2019, and the Partnership Termination Date was the following day, December 31,2019. As of that latter date, the parties no longer operated dental practices together.
By letter dated February 27, 2020, Megan's attorney informed Mark that Megan was exercising her right under the Buyout Agreement to engage Eric Purvis ("Purvis") to audit the Sanford practice for 2019. Megan's attorney noted that pursuant to the Buyout Agreement, Mark had a duty to cooperate with Purvis during his audit. In that same letter, Megan's attorney asserted that Megan also had a right under the Buyout Agreement's indemnification provisions to audit the Sanford practice for 2018, and that Mark had breached the terms of the Partition Agreement.
Additional findings of fact will be made and discussed as pertinent to each of the claims.
DISCUSSION
The Complaint in this matter asserts two counts. Count I alleges breach of contract for failure to cooperate. Count II seeks specific performance to redress the alleged failure to cooperate. By apparent consent, however, the parties tried three issues: (1) whether Megan has a contractual right to audit the Sanford practice for 2018; (2) Mark's alleged failure to cooperate, which is described in Count I and for which specific performance is sought in Count II; and (3) whether the Independent Auditor properly disallowed certain expenses as a result of the 2019 audit. Following the lead of the parties, the Court begins its analysis by addressing the question of the 2018 audit.
2018 Audit
The parties agree that if Megan has a right to audit the Sanford practice for 2018, that right must be established by the Partition Agreement or the Buyout Agreement, operating separately or in concert: In construing these agreements, the Court applies ordinary contract law principles. In the absence of ambiguity, an agreement is interpreted according to the plain meaning of its provisions and extrinsic evidence is not considered. Green v. Lawrence, 2005 ME 90, ¶ 7, 877 A.2d 1079. When interpreting an agreement, the court will view it as a whole and a construal "that would render any particular provision in the contract meaningless should be avoided." McCarthy v. U.S.I Corp., 678 A.2d 48, 52 (Me. 1996). It is only appropriate for the factfinder to consider extrinsic evidence of the parties' intention if the language is ambiguous. Hilltop Comty. Sports Ctr., Inc. v. Hoffman, 2000 ME 130, ¶ 21, 755 A.2d 1058. In this case, as discussed below, the Court finds no ambiguity in the Partition Agreement or the Buyout Agreement, operating independently or in concert.
The Court first considers the Partition Agreement. Section III(A)(4) of the Partition (Agreement provides that profits from the two dental practices will be divided between the parties 50%-50% for 2018, and for each year thereafter 60% to Mark and 40% to Megan. Section III(A)(5) of the Partition Agreement provides as follows:
Accounting. The Partners shall engage a mutually-agreed upon independent certified public accountant to perform accounting services for the Practices. The accountant shall have access to all accounts associated with the Practices. At any time, at either Partner's sole discretion, the account for either or both Practices may be audited, and a report produced, by the . independent certified public accountant. The audit report shall be made available to the Partners for inspection.
The parties engaged Mark Rosen of Rosen &Associates, LLP ("Rosen") to provide accounting services for the two practices. Following the conclusion of 2018, profits were divided 50%-50% between Megan and Mark as specified. Rosen did not perform an audit of 2018.
The Buyout Agreement, which became effective a year and half later, expressly terminates the Partition Agreement. Section 12(p) of the Buyout Agreement provides as follows:
The Partition Agreement is hereby terminated and shall be of no further force and effect as of the Partnership Termination Date; provided, however, that except as may be modified by this Agreement, the parties shall continue to operate the Sanford Partnership and the Dover Partnership in accordance with the Partition Agreement between the Closing Date and the Partnership Termination Date.
Thus, as of December 31, 2019, the Partition Agreement was no longer operative.
The Buyout Agreement is a comprehensive seventeen page, fully integrated contract. Section 13(d) of the Buyout Agreement provides in relevant part:
This Agreement constitutes the sole and entire agreement of the parties with respect to the matters contained herein, and any representation, inducement, promise, or agreement whether oral or written, which pertains to such matters and is not embodied herein shall be of no force or effect, except as may otherwise be provided in the documents executed by the parties in accordance with the terms hereof.
The terms of the Buyout Agreement do not expressly address 2018. Instead, the Buyout Agreement is focused on 2019. For instance, Section 7(e) provides as follows:
The parties agree that Mark, Inc., is entitled to 60% of profits and that Megan, Inc. is entitled to 40% of the profits of the Sanford Partnership for 2019. The parties further agree that business expenses made on behalf of, the Sanford Partnership shall be of a nature and in amounts consistent with the practice's usual course of business, consistent with past practice, properly documented with reasonable evidence provided upon [] request of any of the parties, and that any expenditures made outside of the usual course of business or personal expenses Megan or Mark may have run through the Sanford Partnership in 2019 shall not be treated as a business expense, but rather shall be allocated and applied to his or her respective share of the Sanford Partnership's profits.
Similarly, Section 12(e) provides in relevant part as follows:
Megan and Mark hereby agree that at any time from the Partnership Termination Date through a date which is ninety (90) days following Rosen & Associates, LLP's final reconciliation of amounts and filing of 2019 tax returns for the Dover Partnership and the Sanford Partnership, either of them may, in their sole and absolute discretion and initially at their personal expense, engage Eric Purvis, CPA, CVA or his designee (the "Independent CPA") to review or, if deemed necessary, audit the financial statements, bank and deposit statements, expense records, and other relevant documentation of the Dover Partnership and the Sanford Partnership to confirm that the 2019 profits distributions were declared and made as prescribed by this Agreement and that neither Mark, nor Megan engaged in any material accounting improprieties in his or her capacity as operating partner of the Sanford Partnership and the Dover Partnership respectively.
The Buyout Agreement lacks any similar provisions addressing 2018. Indeed, the Buyout Agreement is silent with respect to profit distributions or audits for 2018. There is no ambiguity in the terms of the Buyout Agreement. Since the Buyout Agreement terminates the Partition Agreement and does not contain any express provisions giving Megan a contractual right to audit the Sanford practice for 2018, Megan has no such right.
Because there is no ambiguity in the agreement, the Court does not consider parole or other extrinsic evidence of the parties' intent. See In re Ross Family Trusts, 2002 ME 89, ¶¶ 5-7, 797 A.2d 1268.
Megan argues for a contrary conclusion based on the Buyout Agreement's indemnification provisions. Section of 11(a)(v) of the Buyout Agreement provides in pertinent part:
Mark hereby indemnifies, defends and holds Megan harmless from and against any and all known or unknown claims, demands, liabilities (including, but not limited to, any transferee liabilities imposed by law), obligations, losses, fines, penalties, damages, assessments, judgments, costs, expenses (including, but not limited to, reasonable attorneys' fees, court costs and other costs and expenses incurred in investigating, preparing or defending against any litigation, claim, action, suit, proceeding or demand of any kind or character or in enforcing this Section 11.a. accruing from and after the Closing Date and directly or indirectly arising from or relating to ... (v) Mark's actions and omissions as operating partner of the Sanford Partnership prior to the Closing Date under the Agreement Concerning Operation of Separate Dental Practices dated June 8, 2018, by and between Megan and Mark (the "Partition Agreement").
The Buyout Agreement is not concerned solely with Mark; the Buyout Agreement contains a reciprocal provision regarding Megan's actions and omissions as operating partner of the Dover practice.
According to Section 11(c): "The provisions of this Section 11 shall survive the execution of this Agreement and the Closing of the transactions contemplated hereunder, including, without limitation, the termination of the Sanford Partnership and the Dover Partnership." According to Megan, Section 11(a)(v) gave her the right to have Eric Purvis audit the Sanford practice for 2018, and this right was not terminated by the Buyout Agreement.
Megan, however, reads too much into the plain language of Section 11(a)(v). The provision by. its very terms does not give Megan the affirmative right to hire a third party to audit the Sanford practice for 2018, with all the invasiveness that such a process entails, especially in the absence of any third-party claim. Section 11(a)(v) does not refer back to or explicitly reference Section III(A)(5) of the Partition Agreement. As a matter of contract interpretation, it makes no sense that with all the explicit audit language contained in the Buyout Agreement as to 2019, that the Buyout Agreement should be interpreted to convey.
to Megan a similar audit right as to 2018, despite the Buyout Agreement's complete silence, on the subject. Such an expansive reading of Section 11(a)(v) would conflict with the express language of Section 12(p) terminating the Partition Agreement and specifying that the Partition Agreement has no continuing force or effect. Accordingly, the Court is not persuaded by Megan's Section 11(a)(v) argument. Megan has no right to audit the Sanford practice for 2018. To the extent the parties have consented to trying a breach of contract claim based on Megan's demand for a 2018 audit, the Court enters judgment in favor of Mark Lucier.
Duty to Cooperate with Eric Purvis
Pursuant to the Buyout Agreement, the parties agreed to engage Eric Purvis as the independent CPA to conduct an audit of the Sanford practice for 2019. Section 12(e) of the Buyout Agreement provides in relevant part that: "Megan and Mark covenant and agree that they each shall provide their full cooperation to the Independent CPA during the course of his review and to permit access to any and all business records that may be requested by the Independent CPA to complete his work." Megan argues that Mark breached this covenant to cooperate with Purvis.
Mark met with Purvis on three occasions (October 20, 2020, September 13, 2021, and November 1, 2021). On each occasion, Mark fully cooperated with Purvis, and gave Purvis access to anything Purvis requested. Mark ultimately gave Purvis access to Dentrix records, through a third party whom Purvis engaged for the purpose. Mark never refused to give Purvis anything Purvis asked Mark to provide, to the extent Mark had the material. The Court finds as a matter of fact that Mark fully cooperated with Purvis and concludes as a matter of law that Mark did not breach the covenant to cooperate with Purvis.
Megan resists this conclusion on the grounds that Mark did not respond, or did not timely respond, to a series of letters her attorney sent Mark and a subpoena her attorney served on Mark. However, in pressing this argument, Megan conflates Mark's contractual obligation to cooperate with Purvis as the Independent CPA, with a duty to cooperate with her attorney who was advocating on her behalf. Megan's attorney did not represent Purvis, was not acting in an independent and neutral capacity, and thus Mark had no contractual duty to cooperate with Megan's attorney.
On February 27, 2020, Megan's attorney sent Mark a letter advising Mark that Megan was exercising her right to engage Purvis to conduct an audit of the Sanford practice for 2019, and reminding Mark that he had a duty to cooperate with Purvis. The attorney's letter did not ask Mark to produce any documents. Moreover, the letter did not stop with a neutral call to cooperation. Instead, the letter asserted that Megan also had a right to a 2018 audit (a claim which this Court has rejected), and informed Mark that Megan had reason to believe Mark had breached the Partition Agreement in seven different respects. Megan's attorney did not purport to represent Purvis, and to the contrary by the attorney's terms and tone made it clear that Megan's attorney was representing her in an adversarial fashion, contrary to Mark's interests.
Megan's attorney wrote to Mark again on March 16,2020, this time enclosing a list of documents purportedly requested by Purvis. The letter stated that Mark was "obligated to provide the attached information promptly." Mark had no contractual obligation to respond to a letter from Megan's legal advocate, especially after the attorney had earlier made it clear that Megan was asserting Mark had breached the Partition Agreement. On August 6,2020, Megan's attorney wrote to Mark's attorney, threatening legal action and a request for attorney fees unless Mark complied with the attorney's demands to provide the attorney with the documents he requested. On September 2, 2020, Megan's attorney filed a Complaint in Superior Court. In December 2020, Megan's attorney served a subpoena on Mark, demanding inspection of documents by the attorney at the attorney's office. Through counsel, Mark responded with a Motion to Quash, as was his right to do under the Maine Rules of Civil Procedure. M.R. Civ. P. 45(c)(3)(A).
The covenant to cooperate by its plain terms ran to Purvis, not Megan or Megan's attorney. Purvis voiced no dissatisfaction with Mark's cooperation. From the outset, Megan's attorney engaged Mark in an adversarial manner, not impartially asking that certain documents be provided to Purvis, but instead making claims and asserting demands against Mark not supported by the Partition Agreement or the Buyout Agreement. While Mark had an obligation to fully cooperate with Purvis, and did so, Mark did not have an obligation to cooperate with the demands of Megan's attorney. The Court enters judgment, in favor of Mark Lucier on Megan's Count I claim for breach of contract. Since Megan has not prevailed on Count I, it follows that the Court must enter judgment in favor of Mark Lucier on Megan's Count II claim for specific performance.
Disallowed Expenses
There is no dispute that under Section 12(e) of the Buyout Agreement, Megan was entitled to have Purvis audit the Sanford practice for 2019. Section 7(e) establishes the audit standard, and provides in relevant part as follows:
The parties further agree that business expenses made on behalf of the Sanford Partnership shall be of a nature and in amounts consistent with the practice's usual course of business, consistent with past practice, properly documented with reasonable evidence provided upon by request of any of the parties, and that any expenditures made outside of the usual course of business or personal expenses Megan or Mark may have run through the Sanford Partnership in 2019 shall not be treated as a business expense, but rather shall be allocated and applied to his or her respective share of the Sanford Partnership's profits.
As a result of his 2019 audit, Purvis determined that there was no material discrepancy, with Mark's reporting of revenue. However, Purvis made audit adjustments disallowing $55,565.05 of expenses. Mark does not contest $37,573.51 of the disallowed expenses. Mark does contest the remaining disallowed expenses, which the Court takes up one at a time.
1. Pay raise to Nicole Gendreau Gagne ($2,307.97). The pay raise to Nicole Gendreau was consistent with the practice's usual course of business, consistent with past practice, and properly documented with reasonable evidence. The only reason Purvis disallowed the expense was because it was incurred without Megan's consent, and pursuant to Section III(B)(2) of the Partition Agreement business, expenses greater them $500 required the consent of both parties. However, the Buyout Agreement terminated the Partition Agreement, and specified that the Partition Agreement was of no further force or effect. The 2019 audit was conducted pursuant to the terms of the Buyout Agreement-not the Partition Agreement-and it was thus error for Purvis to make adjustments based on audit criteria contained in the Partition Agreement. The audit provision of the Buyout Agreement does not require the consent of both parties to constitute a valid business expense. Accordingly, the pay raise to Nicole Gendreau was improperly disallowed.
2. Outside Services Payment to Nicole Gendreau ($1,000). The payment to Nicole Gendreau for outside services lacked proper documentation and was thus properly disallowed.
3. Gift Cards for Employees ($3,000). The provision of gift cards to employees was consistent with the practice's usual course of business, consistent with past practice, and properly documented with reasonable evidence. The only reason Purvis disallowed the expense was because it was incurred without Megan's consent, which as discussed above was erroneous. Accordingly, payment for gift cards was improperly disallowed.
4. Advertising and Promotion ($1,500). The payment for website design and upgrade was consistent with the practice's usual course of business, consistent with past practice, and properly documented with reasonable evidence. The only reason Purvis disallowed the expense was because it was incurred without Megan's consent, which as discussed above was erroneous. Accordingly, the payment for advertising and promotion was improperly disallowed.
5. Dental Supplies ($2,557.97). At or before trial, Mark withdrew his challenge to this disallowance, so the Court treats the $2,557.97 adjustment as properly disallowed.
6. Entertainment ($1,470). The payment to the Cliff House for employees' holiday spa treatment was consistent with the practice's usual course of business, consistent with past practice, and properly documented with reasonable evidence. The only reason Purvis . disallowed the expense was because it was incurred without Megan's consent, which as discussed above was erroneous. Accordingly, the payment for entertainment was improperly disallowed.
7. Netflix Account ($120.50), The payment was for Megan's Netflix account, which Mark also used. The payment was not a business expense and was thus properly disallowed.
8. Postage ($2,350). The payment for postage lacked proper documentation and was thus properly disallowed.
9. Repairs and Maintenance ($7,526.42). The payment for repairs and maintenance, including services by Christopher Griffiths, lacked proper documentation and was thus properly disallowed.
10. Propane Expense for Pool Heater ($2,087.10). The payment was for propane to fuel the pool heater. The pool was very infrequently used by employees, and expenses related to the pool cannot be justified as a business expense. Accordingly, the expense was properly disallowed.
The parties have stipulated that even if there was no audit of the Sanford dental practice for 2019, Mark owes Megan $66,607 from the profits for 2019. The parties have further stipulated that for any expenses the Court agrees Purvis properly disallowed in his 2019 audit, Mark is additionally required to pay Megan 40% of the disallowed expenses.
As discussed above, Mark does not contest $37,573.51 of disallowed expenses, and of that amount Mark owes Megan 40%, which is $15,029.40. The Court has determined that of the contested adjustments, Purvis properly disallowed (or Mark withdrew his objection to) $15,641.99 in expenses. Forty percent of $15,641.99 is $6,256.80. Adding $66,607 plus $15,029.40 plus $ 6,256.80 amounts to $87,893.20. In other words, Mark owes Megan $87,893.20 from the profits of the Sanford practice for 2019.
RECONCILIATION
The parties have also stipulated that Megan owes Mark $48,113 from the profits of the Dover practice for 2019, and that sum must be deducted from any amount Mark owes Megan. Thus, making the necessary calculation to reconcile the profits from the two practices for 2019, Mark owes Megan the amount of $39,780.20.
Mark agrees that he is also required to reimburse Megan for the cost of the 2019 audit of the Sanford practice. As found earlier, that amount is $23,732.40. Megan has paid Purvis in full, so Mark owes Megan $23,732.40. Adding this amount to the profit reconciliation, Mark owes Megan a total of $63,512.60.
The parties have stipulated that this amount, as determined by the Court, shall bear interest "from and including the Partnership Termination Date to but excluding the date of payment at a rate per annum equal to five percent (5.0%). Such interest shall be calculated on a basis of a 360-day year and the actual number of days elapsed, without compounding." See Section 12(d) of the Buyout Agreement.
ATTORNEY FEES
Megan seeks an award of attorney fees pursuant to the Buyout Agreement. Section 12(o)(iv) of the Buyout Agreement provides as follows:
Prevailing Party. In the event that a dispute proceeds to arbitration, the prevailing party shall be entitled to receive from the other party its reasonable fees and costs. The prevailing party shall be determined based upon an assessment of which party's arguments or positions could fairly be said to have prevailed over the other party's arguments or positions on major disputed issues in the arbitration. Such assessment shall include evaluation of the following: (1) the primary issues disputed by the parties; (2) the relief sought and the relief awarded; and (3) the most recent settlement positions of the parties.
In this case, Megan did not seek to arbitrate her claims, choosing instead to file a complaint with the Court. Accordingly, the Section 12(o)(iv) prevailing party provision does not apply, and Megan is not entitled to an award of attorney fees.
Even if Section 12(o)(iv) did apply to this case, Megan would still not be entitled to an award of attorney fees because she is not the prevailing party. Mark's arguments have prevailed on all three major disputed issues in the litigation: the 2018 audit, the failure to cooperate, and the disputed 2019 audit adjustments. The Court has entered judgment in favor of Mark on the 2018 audit. The Court has also entered judgment in favor of Mark on the cooperation issue contained in Courts I and II of the Complaint. As to the 2019 audit adjustments, the Court has agreed with Mark's argument that Megan's consent was not required to claim business expenses in 2019, and the Court has reversed all the adjustments disallowed for lack of consent. Almost all of the relief Megan is being awarded is the result of stipulations Mark agreed to without the need for trial. Accordingly, Megan is not a prevailing party in this litigation and is not entitled to an award of attorney fees or of costs. Both parties are responsible for their own attorney fees, and the Court awards to Mark Lucier his costs of litigation.
The Court acknowledges that it has not considered the third factor mentioned by Section 10(o)(iv), which is the most recent settlement position of the parties. Since the Court has determined that Section 10(o)(iv) does not apply at all, the Court is not required to consider the settlement positions of the parties. Even if Section 10(o)(iv) does apply, it is unlikely that consideration of the parties most recent settlement positions will change the attorney fee analysis, since Mark has prevailed on all the major issues in the litigation, . Nevertheless, if the parties wish to file a post-trial submission describing the most recent settlement positions of the parties, the Court will consider the information.
CONCLUSION
For all of the foregoing reasons, the Court enters judgment in favor of Mark Lucier on all claims stemming from the 2018 audit. The Court enters judgment in favor of Mark Lucier on Counts I and II of the Complaint. The Court enters judgment in part for both parties with respect to the 2019 audit adjustments. Based upon the determinations of the Court along with the parties' stipulations, the Court orders Mark Lucier to pay Megan Lucier the amount of $63,512.60, with prejudgment interest in the amount of 5% per annum (without compounding) from December 31, 2019. The Court awards to Mark Lucier his costs of litigation.
SO ORDERED..
Pursuant to M.R. Civ. P. 79(a), the Clerk is instructed to incorporate this Order by reference on the docket for this case.