Lisa Hastetter v. Commonwealth Pain Specialists, Pllc

• Court: Court of Appeals of Kentucky
• Decided: August 2, 2024
• Docket: 2023-CA-0072
• Status: Published

Opinion

RENDERED: AUGUST 2, 2024; 10:00 A.M. TO BE PUBLISHED

Commonwealth of Kentucky Court of Appeals NO. 2023-CA-0072-MR

LISA HASTETTER; BOBBY STURGEON; INNOVATIVE PRACTICE SOLUTIONS, LLC; INTERVENTIONAL PAIN & SPINE SPECIALISTS, LLC; KMA MEDICAL GROUP, LLC; MEDICAL BILLING CONSULTANTS, LLC; AND TYLER BURKE APPELLANTS

APPEAL FROM FRANKLIN CIRCUIT COURT v. HONORABLE THOMAS D. WINGATE, JUDGE ACTION NO. 20-CI-00343

COMMONWEALTH PAIN SPECIALISTS, PLLC AND DR. RICHARD A. LINGREEN, M.D. APPELLEES

OPINION AFFIRMING

** ** ** ** **

BEFORE: THOMPSON, CHIEF JUDGE; ACREE AND A. JONES, JUDGES.

ACREE, JUDGE: Appellants challenge the Franklin Circuit Court’s January 11,

2023 Order and Final Judgment confirming an arbitration award in favor of Appellees, Dr. Richard Lingreen and Commonwealth Pain Specialists, PLLC

(CPS). Appellants argue that the Arbitrator exceeded his authority by assigning

joint and several liability to individual Appellants Hastetter, Burke, and Sturgeon.

They also argue the Arbitrator’s final order was so flawed as to demonstrate his

partiality. We disagree with both arguments and affirm.

BACKGROUND

Appellant Innovative Practice Solutions (IPS) is a management

services company, and Appellants Hastetter, Burke, and Sturgeon are its members.

Appellee Commonwealth Pain Specialists (CPS) is a medical practice in Frankfort,

and Appellee Dr. Lingreen is its sole member. IPS was specifically created to

manage CPS.

IPS and Dr. Lingreen entered a series of contracts. Central to this

appeal is the Management Services Agreement (MSA) between CPS and IPS,

which became effective March 1, 2018. These contracts also include an Employee

Lease Agreement between CPS and KMA Medical Group (KMA), a company that

Hastetter owned and which would lease physicians and other staff to CPS. Dr.

Lingreen and KMA entered an Employment Agreement guaranteeing Dr. Lingreen

an annual salary. As Appellants describe them, these contracts placed management

of CPS into the hands of IPS, leaving Dr. Lingreen free to focus on practicing

-2- medicine while remaining CPS’s only shareholder. The practice grew, opening

locations in Lexington, Louisville, and Bowling Green.

The MSA contains an arbitration clause which places no restriction on

the scope of the authority of an arbitrator. Clause 25 of the MSA is titled

“Arbitration” and states as follows:

Any controversy, dispute or disagreement arising out of or relating to this Agreement, or the breach thereof, shall be settled exclusively by binding arbitration with one (1) arbitrator, which arbitration shall be conducted in Frankfort, Kentucky in accordance with the American Health Lawyers Association Alternative Dispute Resolution Service Rules of Procedure for Arbitration, and judgment on the arbitration award may be entered in any court having jurisdiction thereof.

Like the MSA, the Employee Lease Agreement provided for

arbitration. The arbitration clause instructed how the arbitrator was selected, the

manner of proceeding, and the requirement that the arbitrator enter findings of fact

and conclusions of law, among other requirements. It also prohibited the arbitrator

from awarding punitive damages or damages in excess of the amounts provided by

the agreement. The arbitration clause did not place a limit on the scope of the

subject matter of arbitration.

The parties’ relationship became contentious and now express

contrasting characterizations of their history and the nature of their relationship.

-3- According to Appellants, Dr. Lingreen exhibited a pattern of

incompetence and poor judgment necessitating the business arrangement in the

first place, but also resulting ultimately in its termination. Appellants describe

CPS as a failing business that became profitable because of their efforts. They

accuse Dr. Lingreen of behaving unprofessionally and inappropriately toward staff

and patients.

Appellees describe CPS as a successful business, but its rapid growth

and outstanding debt obligations led to management difficulties. Dr. Lingreen

discussed his concerns with Burke and Hastetter, which yielded the MSA.

Appellees believe the stiff management fees – fifty percent of CPS’s gross receipts

– caused the enterprise to be unprofitable.

Hastetter discussed termination of the arrangement with Dr. Lingreen,

which would require payment of hundreds of thousands of dollars in management

fees to IPS. Termination would also involve transfer of all CPS locations, except

the Frankfort office, to a new medical practice, Appellant Interventional Pain &

Spine Specialists (IPSS). Hastetter also sought transfer of CPS’s patient files to

IPSS, despite the parties’ agreement that the patient files would remain the

property of CPS.

Dr. Lingreen’s salary was subsequently reduced from $300,000

annually to $100,000. Appellants claim this reduction was due, among other

-4- reasons, to Dr. Lingreen failing to meet performance benchmarks and for his

operation of a medical practice outside CPS, while Appellees claim the reduction

was retaliation for Dr. Lingreen not cooperating with a request to transfer patient

files.

By January 1, 2020, all other doctors at CPS had left to join IPSS. Dr.

Lingreen was the sole remaining physician at CPS, and Frankfort was its last

location. IPS terminated the MSA with CPS on April 4, 2020.

Appellees filed suit in the Franklin Circuit Court, asserting a variety

of tort and contract claims. The circuit court ordered the parties to arbitration

pursuant to the arbitration clauses of both the MSA between IPS and CPS and the

Employee Lease Agreement between KMA and CPS. The Dispute Resolution

Service of the American Health Lawyers Association (AHLA) appointed the

Arbitrator. In addition to IPS, Hastetter, Burke, and Sturgeon were respondents to

the arbitration.

Appellees submitted their statement of claims to the Arbitrator that

included a broad array, many of which were specifically directed at the individual

Appellants. Among other claims, Appellees alleged: violations of the Racketeer

Influenced and Corrupt Organizations Act (RICO), 18 U.S.C.1 §§ 1961-1968,

against all respondents; RICO conspiracy against all respondents; common law

1 United States Code.

-5- fraud against Hastetter, Burke, and IPS; misappropriation of trade secrets against

all respondents; breach of contract against IPS; breach of duty of good faith and

fair dealing against IPS; theft by unlawful taking against Hastetter and IPS; breach

of fiduciary duty against Hastetter and IPS; conversion against all respondents; and

common law conspiracy against all respondents.

Before the final hearing, the Arbitrator granted partial summary

judgment in favor of Appellees as to IPS’s counterclaim – breach of contract for

Appellees’ nonpayment of management fees – concluding the claim of more than

five million dollars in fees to be unconscionable and contrary to law.

The arbitration hearing began on November 8, 2021. The Arbitrator

held an additional hearing on April 8, 2022, regarding calculation and

apportionment of damages. After the hearing but prior to entry of the award,

Appellants petitioned the AHLA Review Board for removal of the Arbitrator.2

The AHLA Review Board denied the motion.

The Arbitrator served the parties with the award on May 3, 2022.

Therein, the Arbitrator granted judgment for Appellees for the following claims:

2 Appellants argued in their petition that, due to his age, the Arbitrator was physically and mentally impaired to a degree that he was unable to perform his role as an arbitrator. They alleged the Arbitrator had trouble staying awake, had difficulty walking, and was often confused and forgetful during the hearing. They also alleged that, due to the Arbitrator’s condition, he relied on a nonlawyer – a third-year law student – to render the award. However, nothing about the Arbitrator’s award demonstrates he did not review the briefing, exhibits, and testimony presented before him before making his ruling. The allegations contained in Appellants’ motion to disqualify the Arbitrator have no bearing in the current appeal.

-6- breach of fiduciary duty, theft by unlawful taking, misappropriation of trade

secrets, breach of contract and good faith and fair dealing as related to the MSA,

breach of the Employment Agreement, and conversion. The Arbitrator granted in

part and denied in part Appellees’ fraudulent inducement claim. The Arbitrator

awarded Appellees $2,892,856.44, holding Appellants – including Hastetter,

Sturgeon, and Burke – jointly and severally liable.

Appellees filed a motion to confirm the award with the circuit court.

Appellants filed a motion to vacate or modify the award. The circuit court denied

Appellants’ motion on January 3, 2023, and entered its order and final judgment

confirming the award on January 11, 2023. Appellants now appeal.

ANALYSIS

A high level of deference is afforded to arbitration awards, and the

grounds available for vacating them are limited. “Generally, courts may not

review an arbitrator’s award.” Don Booth of Breland Grp. v. K&D Builders, Inc.,

626 S.W.3d 601, 606-07 (Ky. 2021) (citing Taylor v. Fitz Coal Co., Inc., 618

S.W.2d 432, 432 (Ky. 1981)). Not even errors of law or fact warrant setting aside

an arbitration award. Id. at 607 (citation omitted). The sufficiency of the evidence

supporting the award is also nonreviewable. Taylor, 618 S.W.2d at 432 (citation

omitted).

-7- Our deferential review is rooted in the notion that “‘[t]he decision by

the arbitrator is considered an extension of the parties’ voluntary agreement to

arbitrate.’” Id. (citing M. DOMKE, THE LAW AND PRACTICE OF COMMERCIAL

ARBITRATION SECS. 33.01-34.02 (1968 & Cum.Supp. 1979)). Additionally, “when

a court examines the evidence and imposes its view of the case it substitutes the

decision of another tribunal for the arbitration upon which the parties have agreed,

and in effect sets aside their contract.” Id. at 433 (citing Firemen’s Fund Ins. Co.

v. Flint Hosiery Mills, 74 F.2d 533 (4th Cir. 1935), cert. denied 295 U.S. 748, 55

S. Ct. 826, 79 L. Ed. 1692 (1935)).

The Kentucky Uniform Arbitration Act (KUAA) supplies five

exclusive grounds upon which a court may vacate an arbitration award:

(1) Upon application of a party, the court shall vacate an award where:

(a) The award was procured by corruption, fraud or other undue means;

(b) There was evident partiality by an arbitrator appointed as a neutral or corruption in any of the arbitrators or misconduct prejudicing the rights of any party;

(c) The arbitrators exceeded their powers;

(d) The arbitrators refused to postpone the hearing upon sufficient cause being shown therefor or refused to hear evidence material to the controversy or otherwise so conducted the hearing, contrary to

-8- the provisions of KRS[3] 417.090, as to prejudice substantially the rights of a party; or

(e) There was no arbitration agreement and the issue was not adversely determined in proceedings under KRS 417.060 and the party did not participate in the arbitration hearing without raising the objection; but the fact that the relief was such that it could not or would not be granted by a court is not ground for vacating or refusing to confirm the award.

KRS 417.160(1). “[A]ll arbitration awards arising from agreements entered into

after the effective date of the [KUAA] may only be set aside by a court pursuant to

those grounds listed in the [KUAA].” 3D Enters. Contracting Corp. v. Lexington-

Fayette Urb. Cnty. Gov’t, 134 S.W.3d 558, 563 (Ky. 2004).

Appellants first argue the Arbitrator exceeded his authority by holding

Hastetter, Burke, and Sturgeon jointly and severally liable under the arbitration

award and, therefore, the Arbitrator exceeded his powers per KRS 417.160(1)(c).

“In reviewing whether an arbitrator exceeded his powers, ‘a court should look to

whether the award was fairly and honestly made within the scope of the issues

submitted for resolution or whether the arbitrators acted beyond the material terms

of the contract.’” Wagner v. Drees Co., 422 S.W.3d 281, 283 (Ky. App. 2013)

(quoting 3D Enters. Contracting Corp., 134 S.W.3d at 561).

3 Kentucky Revised Statutes.

-9- It is a difficult task indeed to demonstrate an arbitrator exceeded his

authority. In Don Booth of Breland Group v. K&D Builders, Inc., the purchaser of

residential real estate sought to vacate an arbitration award, arguing the arbitrator

exceeded his power under KRS 417.160(1)(c). 626 S.W.3d at 604-06. The

purchaser argued the arbitrator exceeded his authority by applying the merger

doctrine to conclude any discrepancies in the seller’s disclosure ultimately merged

into the deed; this decision extinguished the purchaser’s claims for breach of

contract and recission. Id. at 606-08. Because this issue was before the arbitrator

and because the arbitrator’s decision to apply the merger doctrine was an

application of law, the Supreme Court of Kentucky concluded the arbitrator did not

exceed his authority. Id. at 608. “Even if incorrect, a reviewing court’s

disagreement with the arbitrator’s application of law does not support vacating the

award under KRS 417.160, if the issue presented was within his proper scope and

the award was fairly and honestly made.” Id. at 608-09.

Even an arbitrator’s misapplication of the KUAA itself does not

constitute an excessive exercise of power. In Wagner v. Drees Company, the

purchasers of a home asked the circuit court to vacate an arbitrator’s order

dismissing their case on statute of limitations grounds. 422 S.W.3d at 282. They

argued the arbitrator exceeded his power under KRS 417.160(1)(c) because the

arbitration agreement did not provide for dispositive motions and because the

-10- KUAA granted the purchasers the right to a hearing. Id. A panel of this Court

determined the arbitrator did not exceed his authority, first because the arbitrator

was granted full authority to resolve the parties’ dispute, and so his decision to

dismiss the purchasers’ claims upon a motion to dismiss was within the scope of

this authority. Id. at 283. Second, we determined the arbitrator acted within his

powers when he would not afford the purchasers a hearing because the KUAA’s

guarantee of a right to be heard can be affected and even superseded by the

arbitration agreement. Id.

Additionally, although acting beyond the material terms of an

arbitration agreement is generally grounds to find the arbitrator abused his power,

our jurisprudence is so deferential that, in one opinion at least, the Supreme Court

found no fault with the arbitrator’s disregard of contractual provisions particular to

that case. In 3D Enterprises Contracting Corporation v. Lexington-Fayette Urban

County Government, a contractor sought additional compensation following delays

occurring during a project to improve a public swimming pool, despite the contract

including a “no-damages-for-delay” clause. 3D Enters. Contracting Corp., 134

S.W.3d at 559-60. The delays were a result of Lexington-Fayette’s own health

department requiring modifications to the project after construction already

commenced. Id. at 560. The Kentucky Supreme Court determined a panel of

arbitrators did not exceed their power in declining to enforce the no-damages-for-

-11- delay provision. Id. at 561. Quoting and adopting the reasoning of this Court, the

Kentucky Supreme Court stated:

The applicability of the no-damages-for-delay clause and the change orders was squarely presented to the arbitrators. They heard evidence on exceptions to the enforceability of the clause and rendered a decision based on the evidence. We disagree with the circuit court’s view that the arbitrators exceeded their powers by failing to enforce the no-damages-for-delay clause.

Id.

These opinions demonstrate arbitrators hold expansive power. We

conclude the Arbitrator in the instant case acted within the scope of his authority

and did not abuse his power under KRS 417.160(1)(c) by holding the individual

Appellants joint and severally liable alongside IPS. The MSA’s arbitration clause

did not limit the authority of the Arbitrator to decide the parties’ dispute, and only

designated the location of arbitration and how an arbitrator is selected. As in

Wagner, the Arbitrator was afforded full authority to resolve their dispute under

the MSA.

The issue of whether to assess damages against the individual

Appellants, like the no-damages-for-delay clause in 3D Enterprises, was before the

Arbitrator for his consideration. Several of the claims in Appellees’ statement of

claims were directed at all respondents to the arbitration, including the individual

Appellants. The Arbitrator’s legal reasoning or his factual findings are beyond the

-12- reach of our review, so the quality of the Arbitrator’s factual or legal bases for

assigning joint and several liability are of no consequence to this appeal. The issue

of whether liability should be assessed against the individual Appellants was

submitted to the Arbitrator, which is sufficient for us to conclude he did not exceed

the scope of his authority.

Appellants also argue the Arbitrator’s award should be vacated

because he exhibited partiality under KRS 417.160(1)(b). They argue the

Arbitrator so manifestly disregarded the law that his misapplication of the law

demonstrates his bias. We agree with Appellees that Appellants cannot, under the

guise of an accusation of bias, present their legal arguments to this Court. “‘The

alleged partiality must be direct, definite, and capable of demonstration, and the

party asserting it must establish specific facts that indicate improper motives on the

part of the arbitrator.’” Meers v. Semonin Realtors, 525 S.W.3d 545, 550 (Ky.

App. 2017) (quoting Dawahare v. Spencer, 210 F.3d 666, 669 (6th Cir. 2000)).

Appellants do not direct us to any aspect of the Arbitrator’s final order

or the arbitration proceedings which meets this definition. Instead, Appellants

attempt to demonstrate bias indirectly. Appellants hope we draw the inference of

bias based on the Arbitrator’s alleged incorrect legal analysis, as well as the fact

his award heavily favored Appellees. This is insufficient to demonstrate bias. As

Appellees note, the Arbitrator did not find in favor of Appellees on every one of

-13- their claims, including their RICO claim. However, even if the Arbitrator had

found in Appellees’ favor on all their claims, this would not demonstrate bias and

would not warrant vacating the award. We will not, as Appellants hope, engage in

an impermissible review of the Arbitrator’s legal analysis under the pretext of

alleged bias.

CONCLUSION

Based on the foregoing, we affirm the Franklin Circuit Court’s

January 11, 2023 Order and Final Judgment.

ALL CONCUR.

BRIEFS FOR APPELLANTS: BRIEF FOR APPELLEE:

David S. Kaplan Brian M. Johnson Casey L. Hinkle Logan J. Mayfield William R. Adams Lexington, Kentucky Louisville, Kentucky

J. Guthrie True Phillip C. Lawson Frankfort, Kentucky

-14-