Jay M. Friedman, Md v. Steve H. Kim

CourtCourt of Appeals of Washington
DecidedMay 28, 2019
Docket76927-8
StatusUnpublished

This text of Jay M. Friedman, Md v. Steve H. Kim (Jay M. Friedman, Md v. Steve H. Kim) is published on Counsel Stack Legal Research, covering Court of Appeals of Washington primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Jay M. Friedman, Md v. Steve H. Kim, (Wash. Ct. App. 2019).

Opinion

IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON

STEVE H. KIM, M.D., an individual, ) ) No. 76927-8-I Respondent, ) ) DIVISION ONE v. ) ) JAY M. FRIEDMAN, M.D., an ) individual and his marital property ) UNPUBLISHED OPINION thereof; PACIFIC RETINA ) SPECIALISTS, P.S., a ) Washington professional services ) corporation; and JENNIFER ) FRIEDMAN, an individual and her ) marital property thereof, ) ) Appellants, ) ) and ) ) STEVE H. KIM, M.D., and WENDY ) YEUNG KIM, a marital community, ) ) FILED: May 28, 2019 Respondents. ) ________________________________ )

LEACH, J. — Jay Friedman appeals the trial court’s dismissal of his claims

against Steve Kim for breach of fiduciary duty, breach of contract, and tortious

interference. Friedman does not have standing to pursue these claims. His

claims are derivative of his status as a shareholder of Pacific Retinal Specialists No. 76927-8-I / 2

(PRS) and do not fall within an exception to the shareholder standing doctrine.

We affirm.

FACTS

Dr. Steve Kim and Dr. Jay Friedman are ophthalmologists. Friedman

formed Pacific Retina Specialists P.S. (PRS) in 1997.1 It provided medical and

surgical treatment of retinal disease. Friedman later hired Kim as an associate

physician. In 2008, Friedman offered Kim the opportunity to become a PRS

shareholder. After Kim agreed, they signed four agreements establishing their

relationships with PRS and between themselves: a buy-sell agreement (BSA),2 a

shareholder agreement, a stock purchase agreement, and individual shareholder

physician employment agreements (SPEAs). After they signed these

agreements, Friedman and Kim each owned 50 percent of the shares in PRS.

PRS later experienced financial difficulties that led to this litigation.

Buy-Sell Agreement Provisions

The BSA addressed buyout rights, procedures for voluntary dissolution,

and governance. It named Friedman president of PRS with “the broadest

discretion possible in the management of the business and affairs of the

Corporation.” The parties agreed that because Friedman founded PRS’s

1From 1994 to 1997, prior to incorporation, PRS was called “Jay M. Friedman, M.D., P.S.” PRS was incorporated under chapter 18.100 RCW. 2 The stock purchase agreement, executed at this time, states that the

BSA had to be executed first. -2- No. 76927-8-I / 3

practice, upon any corporate dissolution, he would be entitled to receive, after

payment of all corporate debts and costs of sale, certain key assets, including the

noncompete provisions restricting each shareholder.

The BSA had a noncompete clause that prohibited any shareholder from

“engag[ing] in any activity that competes with the interests of Corporation within

King, Snohomish, Skagit, or Whatcom counties or any other county in which

Corporation maintains a medical office that is in operation during the term of [the

BSA]” during his employment or for three years after it ended. This restriction

protected PRS, “any affiliate or other related entity,” and any successor to PRS’s

rights and liabilities. Except as stated in the BSA, this restriction survived the

termination of the BSA.

The BSA states that it terminates “upon the occurrence of the earliest of

the following events, or as otherwise provided by law; (i) The dissolution, Chapter

7 bankruptcy or receivership of the Corporation; (ii) The Corporation ceases to

conduct any business operation; (iii) The written consent of all Shareholders.”

Shareholder Physician Employment Agreement Clauses

The SPEAs between each doctor and PRS established their relationship

as “an employment relationship [that] shall not be construed to create any

relationship of partnership or joint venture.” Each SPEA included a noncompete

clause nearly identical to the BSA noncompete provision. The SPEA

-3- No. 76927-8-I / 4

noncompete clauses survived the termination of the agreement and/or the

corporate dissolution of SPR. If a corporate dissolution of SPR occurred, the

noncompete clauses automatically transferred to the entity acquiring the key

assets of PRS, as provided in the BSA. And PRS could assign the noncompete

clauses to a purchaser or successor in interest to its medical practice without the

employee’s consent.

Procedural History

In the years after Kim became a shareholder, PRS ran into serious

financial difficulties. Kim and Friedman each blamed the other for these

problems. They could not agree how to best manage PRS.

In December 2014, Kim sued Friedman and PRS for breach of fiduciary

duties and asked the court to dissolve PRS under RCW 23B.14.300(2)(a). He

also asked the court to appoint a receiver under RCW 7.60.025(1)(a) and

23B.14.310(3) and to void his noncompetition agreements with PRS. In

response, Friedman sued Kim. Among other requests, he asked the court to

declare that PRS could enforce the noncompete clauses against Kim.

Then Kim asked the court to appoint a general receiver pending the entry

of an order of judicial dissolution. In April 2015, the trial court denied this request

and appointed a custodial receiver to maintain the status quo and create a

-4- No. 76927-8-I / 5

“successful debt repayment plan.” It also ordered the parties to mediate their

dispute.

In June 2015, the custodial receiver asked the court for guidance,

modification of the receivership order, and/or termination of the receivership. He

said that PRS was not a viable business and was unlikely to change into one in

the future. He did not anticipate that mediation would “serve a meaningful

purpose or lead to any resolution of the issues.” He believed the receivership

could not fulfill its purpose and asked for the court’s guidance.

Later that month, the trial court ordered the parties to participate in

mediation “for the limited purpose of determining how to best liquidate the assets

of the business, handle its debts and wind it down.” If they failed, they were to

return for a court-imposed resolution.

In July 2015, the trial court ordered a court-supervised dissolution of PRS

pursuant to RCW 7.60.025(t), RCW 7.60.025(u), and RCW 23B.14.300. It

appointed a general receiver to wind up PRS’s business with the power and

authority identified in RCW 7.60.060. It retained jurisdiction over PRS pursuant

to RCW 7.60.055. It instructed Kim and Friedman to continue practicing with

PRS until July 15, 2015. It suspended the noncompete clauses in the BSA and

-5- No. 76927-8-I / 6

the SPEAs for 60 days starting on July 2, 2015.3 The suspension applied only to

existing patients.

At the end of July 2015, Kim asked the trial court to declare the

noncompete clauses of the BSA and the SPEAs unenforceable. The trial court

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