Opinion
NO. 2015-CA-001557-MR
09-29-2017
LEO F. ROGERS APPELLANT v. FAMILY PRACTICE PROPERTIES OF LEXINGTON, LLC APPELLEE
BRIEFS FOR APPELLANT: Robert E. Maclin, III Lisa English Hinkle Masten Childers, III Lexington, Kentucky BRIEF FOR APPELLEE: Daniel Hitchcock Lexington, Kentucky
NOT TO BE PUBLISHED APPEAL FROM FAYETTE CIRCUIT COURT
HONORABLE THOMAS L. CLARK, JUDGE
ACTION NO. 15-CI-00659 OPINION
AFFIRMING
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BEFORE: KRAMER, CHIEF JUDGE; JONES AND THOMPSON, JUDGES. JONES, JUDGE: Appellant, Dr. Leo F. Rogers, appeals from an order of the Fayette Circuit Court declaring that the operating agreement of Appellee, Family Practice Properties of Lexington, LLC ("Properties"), gave Properties the option to purchase Dr. Rogers's membership interest in Properties once Dr. Rogers ceased to be employed by Family Practice Associates of Lexington, PSC ("Associates"). After careful review, we affirm.
I. BACKGROUND
Until January of 2013, Dr. Rogers was employed by Associates as a physician. Dr. Rogers became a shareholder of Associates through his employment with it and is currently still a shareholder of Associates. Properties is a limited liability company that owns the real property where Associates operates its medical practice. The current members of Properties include Dr. Rogers, other physicians employed by Associates who are also shareholders of Associates, and a few non-physician employees of Associates.
Properties' Operating Agreement indicates certain situations that will trigger Properties' right to purchase a Member's membership interest from him or her. Those situations are set out in Article 16.6 of the Operating Agreement, which provides in pertinent part as follows:
In the event that (a) a Member is no longer employed by [Associates], or (b) in the case of any Members who are shareholders in [Associates], such Member is no longer a shareholder in [Associates] (hereinafter "Termination of Family Practice Employment or Ownership"), then unless the remaining Members holding 75% or more of the Participating Percentages approve the Termination of Family Practice Employment or Ownership, then such Member shall be deemed to have granted [Properties] the option to purchase such Member's interest at 75% of the Contract Price and [Properties] may purchase that Member's interest accordingly.The Operating Agreement defines "Member(s)" in its recitals by naming each individual Member of Properties. Article 16.8 of the Operating Agreement states that the "Contract Price" "shall equal the fair market value of the transferring Member's Interest as of the date of the event triggering the transfer" and sets out the process by which the Members should ascertain the fair market value of a membership interest. Under Article 16.8, the parties are to attempt to agree to an appraiser to determine the fair market value of the ousted Member's membership interest. If no agreement can be reached, the ousted Member and Properties are each to select a qualified appraiser. Those two appraisers are to then select a third appraiser. The appraiser selected by the ousted Member and the appraiser selected by Properties will then each prepare appraisals of the fair market value and present those values to the third appraiser who will act as an arbitrator.
On November 19, 2012, Associates informed Dr. Rogers that it was terminating his employment with it, effective January 18, 2013. Thereafter, on February 19, 2013, the members of Properties held a meeting, without Dr. Rogers, where they voted to exercise their option to purchase Dr. Rogers's membership interest in Properties under Article 16.6(a) of the Operating Agreement. Properties and Dr. Rogers were unable to agree on an appraiser to determine the fair market value of Dr. Rogers's membership interest. Properties obtained an appraiser and submitted the appraised fair market value of Dr. Rogers's membership interest in July of 2013. In September of 2014, Dr. Rogers submitted his own appraisal of his membership interest; this appraisal was later amended in February of 2015. Despite written correspondence from Properties to Dr. Rogers requesting that Dr. Rogers instruct his appraiser to cooperate with its selected appraiser in selecting the third appraiser to act as arbitrator, Dr. Rogers refused to do so. Instead, Dr. Rogers took the position that Properties has no right to purchase his membership interest from him.
On February 24, 2015, Properties filed the present action. The complaint asserted breach of contract under the Operating Agreement and a declaratory action claim. Dr. Rogers moved to dismiss the complaint, alleging that Properties' claims were compulsory counterclaims in a separate action filed by Dr. Rogers against Associates. Properties responded to the motion contending that its claims against Dr. Rogers could not be compulsory counterclaims to his claims against Associates, as the claims did not rise out of the same transaction or occurrence. Further, Properties noted that it had not been made a party to Dr. Rogers's action against Associates until March 2, 2015, after Properties filed this action against Dr. Rogers. Properties additionally moved to either transfer this action to the same division where Dr. Rogers's claim against Associates was being heard or to consolidate it with Dr. Rogers's claim against Associates in the interest of judicial economy. Following a hearing at which Dr. Rogers verbally moved to withdraw his motion to dismiss, the court entered an order withdrawing the motion.
On April 3, 2015, Dr. Rogers filed his answer and counterclaim to Properties' complaint, a motion for leave to file a third-party complaint against the individual members of Properties, his response to the motion to transfer or consolidate, and a motion for partial summary judgment. In support of his motion for partial summary judgment, Dr. Rogers argued that the Operating Agreement is plain and unambiguous and that the word "or" as used in Article 16.6 of the Operating Agreement is disjunctive. Accordingly, Dr. Rogers argued that the correct interpretation of Article 16.6 is that a member of Properties who is not a shareholder of Associates could be involuntarily bought-out of Properties once that member's employment with Associates was terminated, but a member of Properties who is also a shareholder of Associates could only be involuntarily bought-out when that member ceased to be a shareholder of Associates. In his motion for leave to file a third-party complaint against the individual members of Properties, Dr. Rogers alleged that the Members were falsely and fraudulently attempting to force Dr. Rogers to sell his membership interest, which "clearly entitled [him] to assert claims against the Properties Members, who are also shareholders in [Associates]." Properties responded to both of Dr. Rogers's motions on April 7, 2015. Properties contended that the motion for partial summary judgment should be denied because, not only was the motion improperly filed, Dr. Rogers's interpretation of the Operating Agreement ran directly contrary to its express language. Properties argued that the trial court should not permit Dr. Rogers to file a third-party complaint because the proposed third-party complaint was incompliant with CR 14.01 and failed to allege sufficient facts to establish that the Members were secondarily liable to Dr. Rogers.
Kentucky Rules of Civil Procedure.
The trial court held a hearing on all pending motions on April 8, 2015, at which the motion to transfer was denied, the motion to file a third-party complaint was granted, and a ruling on the motion for partial summary judgment was reserved. Dr. Rogers filed his third-party complaint against the individual members of Properties who are also shareholders in Associates on April 10, 2015. In his third-party complaint, Dr. Rogers sought a declaration of right under KRS 418.040, requesting that the trial court declare that Article 16.6(b) is the only operative provision of the Article 16.6 applicable to him. Additionally, Dr. Rogers alleged the following counts of action: breach of contract; breach of the duties of good faith, care and loyalty, and fair dealing under KRS 275 and other applicable law; damages for the Members' violation of KRS 14A.2-030 by filing its annual report, in which it did not list Dr. Rogers as a member of Properties, with the Kentucky Secretary of State; damages for the Members' violation of KRS 516.030 by misinterpreting the Operating Agreement and attempting to utilize a forged instrument against him with an intent to deceive; damages for the Members' violation of KRS 517.050 by falsifying documents and attempting to use them against him; and damages for the intentional actions of Properties and the Members in attempting to utilize a forged instrument. Further, Dr. Rogers alleged that he was entitled to a restraining order and temporary and permanent injunctions preventing and enjoining Properties and the Members from misinterpreting the Operating Agreement and/or attempting to use a forged instrument to affect the purchase of Dr. Rogers's interest in Properties.
Kentucky Revised Statutes.
Forgery in the second degree.
Falsifying business records.
The alleged forged and falsified document to which Dr. Rogers refers in his third-party complaint is the subject of Dr. Rogers's suit against Associates and its shareholders, also pending on appeal before this Court. In that action, Dr. Rogers claims that his signature on a stock restriction and purchase agreement entered into between him, other physician shareholders, and Associates is a forgery. Upon Dr. Rogers's termination from Associates, Associates attempted to purchase Dr. Rogers's shares in Associates from him for a price calculated pursuant to that stock restriction and purchase agreement. Dr. Rogers contended that he was not bound by that agreement because of the forgery. His third-party complaint in this action asserts many of the same claims that are brought in his other suit. As noted earlier in this opinion, many of the members of Properties are also shareholders of Associates; however, Properties and Associates are two separate entities. --------
Properties filed a supplemental response to Dr. Rogers's motion for partial summary judgment on April 20, 2015. Therein, Properties contended that Dr. Rogers's motion for partial summary judgment must be denied because accepting Dr. Rogers's interpretation of the Operating Agreement would require the trial court to modify that agreement; the express terms of the Operating Agreement dictate that Properties has the right to purchase Dr. Rogers's membership interest; Dr. Rogers is estopped by his own conduct from preventing Properties from purchasing his membership interest; and that, as Associates is not a party to this action, the trial court lacked jurisdiction to rule on issues related to it, agreements that Dr. Rogers may have entered into with it, and Dr. Rogers's status as a shareholder of Associates. On April 23, 2015, Properties moved the court to dismiss Dr. Rogers's counterclaim. The Members of Properties moved to dismiss Dr. Rogers's third-party complaint on May 1, 2015. Dr. Rogers's counterclaim and his claim concerning Properties' Secretary of State filings were dismissed by agreed order on August 19, 2015.
On September 14, 2015, the trial court issued an opinion and order denying Dr. Rogers's motion for partial summary judgment. The trial court's order agreed with Dr. Rogers that the Operating Agreement was unambiguous; however, it found that the ordinary meaning of the Operating Agreement's terms allowed for Properties to purchase Dr. Rogers's membership interest when his employment with Associates was terminated. The trial court explained that the plain meaning of the word "or" as used in Article 16.6 worked to provide Properties with a choice for purchasing a member's interest - either when the member ceased to be employed by Associates or when the member was no longer a shareholder in Associates. Dr. Rogers then filed his notice of appeal.
II. STANDARD OF REVIEW
When hearing a motion for summary judgment, a trial court must view the record "in a light most favorable to the party opposing the motion for summary judgment and all doubts are to be resolved in his favor." Steelvest, Inc. v. Scansteel Serv. Ctr., Inc., 807 S.W.2d 476, 480 (Ky. 1991). Summary judgment is appropriate only if "it appears impossible in a practical sense for the respondent to prevail at trial." Haugh v. City of Louisville, 242 S.W.3d 683, 686 (Ky. App. 2007). On appeal, "[t]he standard of review . . . of a summary judgment is whether the circuit judge correctly found that there were no issues as to any material fact and that the moving party was entitled to a judgment as a matter of law." Cantiff v. CSX Transp., Inc., 438 S.W.3d 368, 372 (Ky. 2014) (quoting Pearson ex rel. Trent v. Nat'l Feeding Sys. Inc., 90 S.W.3d 46, 49 (Ky. 2002)). "Because summary judgments involve no fact finding, this Court reviews them de novo, in the sense that we owe no deference to the conclusions of the trial court." Blevins v. Moran, 12 S.W.3d 698, 700 (Ky. App. 2000).
III. ANALYSIS
The sole issued presented in this appeal is the proper interpretation of the Operating Agreement. Dr. Rogers contends that Article 16.6 of the Operating Agreement creates two distinct classes of Members, each of which can only be involuntarily bought-out of Properties if an event specific to the class occurs. Under Dr. Rogers's interpretation, Article 16.6(a) is applicable only to a Member who is not a shareholder of Associates. Article 16.6(b) applies only to Members who are shareholders of Associates. Because Dr. Rogers is a Member who is also a shareholder of Associates, he contends that under the plain language of the Operating Agreement, Properties can only purchase his membership interest from him once he ceases to be a shareholder in Associates.
Properties contends that accepting Dr. Rogers's interpretation would require the Court to impermissibly modify the terms of the Operating Agreement. Specifically, Properties argues that the Court would have to either modify the definition of "Member" in the Agreement or insert an additional clause to Article 16.6(a) for the Operating Agreement to have the meaning that Dr. Rogers says it does. Properties' interpretation of Article 16.6 is that it sets out two distinct scenarios under which Properties can purchase a Member's membership interest in Properties. Article 16.6(a) has no qualifier, making it applicable to all Members of Properties. Article 16.6(b) does have a qualifier, "any Members who are shareholders in [Associates]," and therefore excludes Members who are not shareholders in Associates. While Dr. Rogers is a shareholder in Associates, it is undisputed that he is a Member as defined in the Operating Agreement. Therefore, Properties contends, it has the right to purchase his membership interest from him under Article 16.6(a).
"An unambiguous written contract must be strictly enforced according to the plain meaning of its express terms and without resort to extrinsic evidence." Caddleway Props., Inc. v. Bayview Loan Servicing, LLC, 338 S.W.3d 280, 286 (Ky. App. 2010) (citing Allen v. Lawyers Mut. Ins. Co. of Kentucky, 216 S.W.3d 657 (Ky. App. 2007)). "To determine if an ambiguity truly exists, we must evaluate whether the provision in question is susceptible of contradictory interpretations." Elmore v. Commonwealth, 236 S.W.3d 623, 627 (Ky. App. 2007) (citing Trans. Ins. Co. v. Ford, 886 S.W.2d 901, 905 (Ky. App. 1994)). "The fact that one party may have intended different results, however, is insufficient to construe a contract at variance with its plain and unambiguous terms." Abney v. Nationwide Mut. Ins. Co., 215 S.W.3d 699, 703 (Ky. 2006) (quoting Cantrell Supply, Inc. v. Liberty Mut. Ins. Co., 94 S.W.3d 381, 385 (Ky. App. 2002)).
While reaching different results, neither party has contended that the Operating Agreement is ambiguous, and we do not find that it is. Therefore, our interpretation of the Operating Agreement is limited to the plain meaning of its express terms. Caddleway Props., 338 S.W.3d at 286. The express terms of the Operating Agreement support Properties' interpretation. As given above, Article 16.6 states, in pertinent part:
In the event that (a) a Member is no longer employed by [Associates], or (b) in the case of any Members who are shareholders in [Associates], such Member is no longer a shareholder in [Associates] (hereinafter "Termination of [Associates] Employment or Ownership") . . . then such Member shall be deemed to have granted [Properties] the option to purchase such Member's interest . . . .(Emphases added).
"In common and natural usage the word 'or' is disjunctive and expresses an alternative as between either of two or more separate subjects or conditions and implies an election or choice as between them." Bd. of Nat. Missions of Presbyterian Church in U.S. of Am. v. Harrel's Tr., 286 S.W.2d 905, 907 (Ky. 1956) (citing 67 C.J.S., Or, p. 512). As used in Article 16.6, the word "or" denotes that there are two alternatives, either of which will give Properties the option to purchase a Member's interest. Dr. Rogers is undisputedly a Member of Properties, as defined in the recitals of the Operating Agreement. Therefore, Properties has the option to purchase his membership interest from him when either his employment with Associates or his ownership interest in Associates is terminated. Dr. Rogers was terminated from Associates effective January 18, 2013, triggering Properties' right to exercise its option under Article 16.6(a).
Adopting Dr. Rogers's interpretation of the Operating Agreement would require the Court to add a qualifier to Article 16.6(a), specifying that it is only applicable to Members who are employees of Associates, but not shareholders. This we cannot do. "The Court cannot read words into the contract which it does not contain." Perry v. Perry, 143 S.W.3d 632, 633 (Ky. App. 2004) (quoting Golf v. Blackburn, 299 S.W.164, 165 (Ky. 1927)). If the drafters of the Operating Agreement had intended to add such limitation to Article 16.6(a), they were free to do so. They did not. Therefore, Properties has the right to exercise its option to purchase Dr. Rogers's membership interest under the plain terms of the Operating Agreement.
IV. CONCLUSION
In light of the above analysis, we affirm the order of the Fayette Circuit Court.
ALL CONCUR. BRIEFS FOR APPELLANT: Robert E. Maclin, III
Lisa English Hinkle
Masten Childers, III
Lexington, Kentucky BRIEF FOR APPELLEE: Daniel Hitchcock
Lexington, Kentucky