Nat’l Surgery Ctr. Holdings, Inc. v. Surgical Inst. of Viewmont, LLC, 2016 NCBC 37.
STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE SUPERIOR COURT DIVISION CATAWBA COUNTY 16 CVS 1003
NATIONAL SURGERY CENTER HOLDINGS, INC.,
Plaintiff,
v.
SURGICAL INSTITUTE OF ORDER ON PLAINTIFF’S MOTION VIEWMONT, LLC, NUETERRA FOR TEMPORARY RESTRAINING HEALTHCARE MANAGEMENT, LLC, ORDER DR. DAVID E. MELON, DR. WILLIAM M. GEIDEMAN, and ROSS SCIMECA, Defendants.
1. THIS MATTER is before the Court on Plaintiff National Surgery Center Holdings,
Inc.’s (“Plaintiff”) Motion for Temporary Restraining Order (the “Motion”) in the above-captioned
case.
2. Having considered Plaintiff’s Motion, the briefs in support of and in opposition to the
Motion, the Verified Complaint, appropriate evidence of record, and the arguments of counsel for
the parties at a hearing held on Plaintiff’s Motion on May 5, 2016, the Court hereby GRANTS the
Motion, and FINDS and CONCLUDES, solely for the limited purposes of this Motion,1 as
follows:
FINDINGS OF FACT
I. Procedural History
3. Plaintiff filed its Complaint and Motion for Temporary Restraining Order against
Defendants Surgical Institute of Viewmont, LLC (“Viewmont”), Nueterra Healthcare
1 “It is well settled that findings of fact made during a preliminary injunction proceeding are not binding upon a court at a trial on the merits.” Lohrmann v. Iredell Mem'l Hosp., Inc., 174 N.C. App. 63, 75, 620 S.E.2d 258, 265 (2005) (citing Huggins v. Wake Cnty. Bd. of Educ., 272 N.C. 33, 40–41, 157 S.E.2d 703, 708 (1967)). Management, LLC (“Nueterra”), Dr. David E. Melon, Dr. William M. Geideman, and Ross
Scimeca (collectively, “Defendants”) on April 21, 2016, alleging claims for declaratory relief,
breach of contract, and injunctive relief.
4. The case was designated a complex business case on April 22, 2016 and was assigned
to the undersigned on April 25, 2016.
5. Plaintiff filed its brief in support of the Motion and supporting documents on April 26,
2016, and Defendants filed a brief in opposition to the Motion and supporting documents on May
4, 2016. The Court held a hearing on the Motion on May 5, 2016, at which all parties were
represented by counsel.
II. Relevant Facts
6. Viewmont is the owner and operator of Viewmont Surgery Center, a free-standing
ambulatory surgery center in Hickory, North Carolina. In 2003, Frye Regional Medical Center,
Inc. (“FRMC”), Nueterra, and a number of local surgeons (the “Practitioner Members”) entered a
joint venture to form Viewmont.
7. Viewmont’s organizational structure is governed by Viewmont’s Operating Agreement
(the “Operating Agreement”). Prior to the transaction at issue in this case, FRMC was the
“Founding Member” of Viewmont, as that term is defined in the Operating Agreement. Under the
Operating Agreement, Viewmont’s Board of Managers (the “Board of Managers”) is comprised
of five individuals: two representatives of the Founding Member, two representatives of the
Practitioner Members, and one representative of Nueterra.
8. Prior to June 16, 2015, FRMC owned approximately 55% of Viewmont’s equity
interest. On June 16, 2015, FRMC transferred all of its ownership interest in Viewmont to HCN Surgery Center Holdings, Inc., a subsidiary of Tenet Healthcare Corporation. Subsequently, HCN
Surgery Center Holdings, Inc. transferred the same ownership interest in Viewmont to Plaintiff.
9. On February 23, 2016, Defendants met and voted to exercise an option to repurchase
Plaintiff’s ownership interest in Viewmont.2 Plaintiff alleges that this vote was in contravention
of section 6.6 of the Operating Agreement and invalid under sections 2.2(b)(i) and 6.6 of the
Operating Agreement.
10. On March 11, 2016, Defendants sent a letter, on behalf of Viewmont, to Plaintiff
indicating Defendants’ view that FRMC’s transfer of its ownership interest to Plaintiff was not
authorized or permitted by the Operating Agreement, and that the transfer constituted a
Terminating Event under section 12.1(a)(iv) of the Operating Agreement. Included with the letter
was (i) a check in the amount of $180,759.00 representing ten percent of FRMC’s capital account
balance, and (ii) a promissory note for the remaining ninety percent of the balance, each,
Defendants contend, as provided in section 12.4.
11. Attorney Scott C. Palecki, purportedly on behalf of Viewmont and Nueterra, has sent
letters to third-parties, including Viewmont’s in-network insurance providers, stating, among other
things, that Plaintiff and its affiliated entities no longer have any ownership interest in Viewmont,
and, in so doing, has attempted to alter existing contractual relationships between Plaintiff and
these third parties.
12. Section 9.5 of the Operating Agreement provides that “[t]he Founding Member . . .
may assign all or any portion of its interest in [Viewmont] to an Affiliate . . . without the consent
2 As explained herein, Defendants contend that FRMC only assigned its rights to receive distributions and profits to Plaintiff because FRMC failed to obtain the written consent of the Board of Managers to the transfer. As a result, Defendants contend FRMC’s ownership interest was not transferred to Plaintiff and thus that Viewmont purchased the ownership interest from FRMC, not Plaintiff. Plaintiff contends that FRMC transferred all of its rights in its Member Units to Plaintiff because Section 9.5 of the Operating Agreement permitted the transfer to Plaintiff as FRMC’s “Affiliate.” of the Members.” Affiliate is defined under the Operating Agreement as “any person or entity that
directly or indirectly controls, is controlled by, or is under common control with the referenced
person or entity . . . .”
13. Section 9.1 of the Operating Agreement provides:
A Member’s interest in the Company may not be sold, transferred, assigned, conveyed, pledged, encumbered or otherwise disposed of, voluntarily or involuntarily, by operation of law or otherwise (a “Disposition”) without the written consent of the Board of Managers. An assignee of any interest in the Company shall become a substituted Member only in accordance with Sections 9.2 and 9.3 below. Any assignee who does not become a substituted Member . . . shall have no right to . . . vote on any of the matters as to which a Member would be entitled to vote hereunder. An assignee who does not become a substituted Member shall be entitled only to receive the share of the profits or other compensation by way of income, or the return of capital contribution, to which his or her assignor would otherwise be entitled. If the assignee does not become a substituted Member, the assignor shall continue to be a Member and owner of the Unit(s).
14. Sections 9.2 and 9.3 of the Operating Agreement provide that an assignee shall have
the right to become a substituted Member only if, among other things, “the Board of Managers . . .
consents to the assignee’s becoming a substituted Member[.]”
15. Section 2.1 of the Operating Agreement provides that “[t]he term ‘Member’ or
‘Members’ includes the Founding Member and all Members.”
16. Section 12.1 of the Operating Agreement provides Viewmont with the option to
purchase all of the Units of that Member upon a number of “Terminating Events.” One of the
Terminating Events is defined as “[a]ny gift, distribution, dividend, transfer or other Disposition
of Units by a Member not specifically authorized by or in accordance with this Agreement[.]”
17. Section 6.6 of the Operating Agreement provides that “[t]he Members and the Board
of Managers shall have no right or authority to remove the Founding Member.”
18. Plaintiff seeks a temporary restraining order (“TRO”) to prevent Defendants from
selling or otherwise disposing of the membership interest in Viewmont that Viewmont contends it has repurchased from FRMC, from communicating to third parties that Viewmont has repurchased
the FRMC membership interest, or to take any action to encourage third parties to alter their
contractual relationship concerning Viewmont.
CONCLUSIONS OF LAW
19. The purpose of a TRO is to preserve the status quo between the parties until such time
as a motion for preliminary injunction can be properly heard. See Lambe v. Smith, 11 N.C. App.
580, 582, 181 S.E. 2d 783, 784 (1971) (stating that a TRO is utilized “to preserve the status quo
until the motion for preliminary injunction can . . . be brought for hearing and decision.”).
20. The issuance of a TRO “is a matter of discretion to be exercised by the hearing judge
after a careful balancing of the equities.” A.E.P. Indus., Inc. v. McClure, 308 N.C. 393, 400, 302
S.E.2d 754, 759 (1983) (citation omitted). Immediate injunctive relief “will be issued only (1) if
a plaintiff is able to show likelihood of success on the merits of his case and (2) if a plaintiff is
likely to sustain irreparable loss unless the injunction is issued, or if, in the opinion of the Court,
issuance is necessary for the protection of a plaintiff’s rights during the course of litigation.” Id.
at 401, 302 S.E.2d at 759–60 (citation omitted).
21. As to the first question, our Supreme Court has explained that likelihood of success on
the merits means a “reasonable likelihood.” Id. at 404, 302 S.E.2d at 761. As to the second
question, “the trial court’s . . . inquiry is not limited to the question of irreparable injury. The
injunction will issue if, in the opinion of the Court, issuance is necessary for the protection of a
plaintiff’s rights during the course of litigation.” Id. at 405, 302 S.E.2d at 761–62 (emphasis
removed) (internal quotation marks and citation omitted).
22. North Carolina courts have held that in assessing the TRO or preliminary injunction
factors, the trial judge “should engage in a balancing process, weighing potential harm to the plaintiff if the injunction is not issued against the potential harm to the defendant if injunctive
relief is granted. In effect, the harm alleged by the plaintiff must satisfy a standard of relative
substantiality as well as irreparability.” Williams v. Greene, 36 N.C. App. 80, 86, 243 S.E.2d 156,
160 (1978).
23. A party may show that it will suffer “irreparable injury” for which it has no adequate
remedy at law where damages are difficult and cannot be ascertained with certainty. See,
e.g., A.E.P. Indus., 308 N.C. at 406–07, 302 S.E.2d at 762 (“[O]ne factor used in determining the
adequacy of a remedy at law for money damages is the difficulty and uncertainty in determining
the amount of damages to be awarded for defendant's breach.”). The burden is on the moving
party to establish its right to a temporary restraining order, and the remedy “should not be lightly
granted.” Old Battleground Props. v. Cent. Carolina Surgical Eye Assocs., P.A., 2015 NCBC
LEXIS 19, at *18 (N.C. Super. Ct. Feb. 25, 2015) (citations and quotations omitted).
24. Plaintiff alleges that, as a result of FRMC’s June 16, 2015 transfer, which Plaintiff
contends was to an “Affiliate” and thus permitted without consent of the Board, Plaintiff became
the Founding Member of Viewmont, and assumed all of the rights and interests of the Founding
Member under the Operating Agreement. Accordingly, Plaintiff alleges that Defendants have
violated the Operating Agreement by, among other things, voting to exercise the option to
repurchase Plaintiff’s alleged membership interest in Viewmont. Plaintiff points to section 6.6 of
the Operating Agreement, which specifically states, as outlined above, that neither the Members
nor the Board of Manager shall have the “right or authority to remove the Founding Member.”
25. Defendants contend in response that they followed the structure of the Operating
Agreement precisely. According to Defendants, FRMC purported to assign its interest in
Viewmont to Plaintiff without the consent of Viewmont’s Board of Managers, in violation of section 9.1 of the Operating Agreement. As a result, Defendants argue that such transfer caused a
“Terminating Event” under section 12.1, and a majority of the Board of Managers thereafter
properly voted to exercise Viewmont’s option to repurchase FRMC’s ownership interest under
sections 12.1 and 12.2. Further, according to Defendants, while Plaintiff was an “assignee” of
FRMC’s interest in Viewmont, Plaintiff did not become a “substituted Member” of Viewmont
under the express terms of the Operating Agreement, and therefore only retained an interest in
Viewmont’s distributions and profits.
26. As an initial matter, the Court notes that there is considerable tension in the terms of
the Operating Agreement as those terms apply to Defendants’ actions against the Founding
Member here.
27. Section 2.1 of the Operating Agreement expressly states that the Founding Member is
a Member of Viewmont, and section 9.1 states without qualification that a Member’s interest in
Viewmont “may not be sold, transferred, assigned, conveyed, pledged, encumbered or otherwise
disposed of, voluntarily or involuntarily, by operation of law or otherwise (a “Disposition”)
without the written consent of the Board of Managers.” It is undisputed that FRMC did not obtain
the written consent of the Board to assign or transfer its interest in Viewmont.
28. The Operating Agreement further recognizes that an assignee of a Member’s interest
will simply obtain an interest in Viewmont’s distributions and profits unless the terms of sections
9.2 and 9.3 are satisfied such that the assignee becomes a “substituted Member.” One of the
requirements of section 9.2 and 9.3 is that the Board consent to the assignee becoming a
“substituted Member.” Again, it is undisputed that the Board did not consent to Plaintiff becoming
a “substituted Member” under the Operating Agreement. 29. Accordingly, it would appear from a focused review of sections 2.1, 9.1, 9.2, and 9.3
that FRMC’s disposition of its interest to Plaintiff was in violation of the Operating Agreement,
and thus that section 12.1 permitted Viewmont to purchase FRMC’s ownership interest, effectively
removing FRMC from Viewmont.
30. Section 9.5—relied upon by Plaintiff and which permits the Founding Member to
“assign all or any portion of its interest in the Company to an Affiliate . . . without the consent of
the Members”—does not change this analysis. First, although the Court recognizes that Plaintiff’s
status as an “Affiliate” apparently will be vigorously contested, the Court nonetheless concludes
that, based on the evidence presented, Plaintiff has established a reasonable likelihood of success
in showing that Plaintiff was an “Affiliate” of FRMC under section 2.1 of the Operating
Agreement. Therefore, the Court concludes for present purposes that FRMC was entitled to assign
its interest to Plaintiff without the consent of Viewmont’s Members. Section 9.5 does not provide,
however, that such an assignment was permitted “without the consent of the Board of Managers,”
and thus does not clearly exempt the Founding Member from sections 9.1, 9.2 and 9.3, as argued
by Plaintiff.
31. Section 6.6 of the Operating Agreement, however, states unequivocally that “[t]he
Members and the Board of Managers shall have no right or authority to remove the Founding
Member.” The Operating Agreement does not contain language such as “except as otherwise
provided herein,” “except as provided under section 12.1,” or “subject to the occurrence of a
‘Terminating Event,’” and instead contains numerous provisions that contemplate the ongoing,
active participation of the Founding Member in Viewmont. For example, section 2.2(a)
contemplates that the Founding Member will have two representatives on the Board of Managers,
and section 2.2(b) provides that the Board of Managers cannot undertake certain significant company actions without the affirmative vote of at least one of the Founding Member’s
representatives. Section 14 provides the Founding Member a unilateral right to declare in good
faith that a “substantial or material legal risk” exists and thereby compel the repurchase of Member
Units. Section 15.4 provides the Founding Member a unilateral right to amend the Operating
Agreement in certain situations. Section 15.15 permits the Founding Member to take all actions
necessary to require Viewmont to comply with Tenet Healthcare Corporation’s corporate
compliance policies and procedures. Indeed, Defendants’ counsel acknowledged at the hearing
that FRMC's removal from Viewmont through Defendants’ actions will require the Operating
Agreement to be amended, a result not identified or forecasted within the four corners of the
Operating Agreement from the application of its terms and a tacit recognition that the participation
of the Founding Member is fundamental to Viewmont’s structure.
32. Accordingly, based on the record currently before the Court, it appears that section 6.6
of the Operating Agreement is the clearest statement of the intent of the contracting parties as it
relates to the specific conduct at issue here. While Defendants’ proffered construction certainly
appears consistent with the terms of the Operating Agreement, the Court concludes that only
section 6.6 directly and specifically addresses Defendants’ specific challenged action—the
removal of the Founding Member—and section 6.6 expressly and unequivocally states that the
Members and the Board of Managers do not have authority to accomplish the specific action
implemented by Defendants here. See generally Wood-Hopkins Contracting Co. v. N.C. State
Ports Auth., 284 N.C. 732, 738, 202 S.E.2d 473, 476 (1974) (“[W]hen general terms and specific
statements are included in the same contract and there is a conflict, the general terms should give
way to the specifics.”); Restatement (Second) of Contracts § 203(c) (“specific terms and exact
terms are given greater weight than general language”). 33. Accordingly, the Court concludes, based on the record before the Court and in the
exercise of its discretion, that Plaintiff has demonstrated a reasonable likelihood of success on the
merits on its claims for declaratory judgment and breach of contract.
34. It further appears to the Court that, based on the evidence and other submissions of
record, a TRO is necessary for the protection of Plaintiff’s rights, to prevent irreparable harm to
Plaintiff, and to maintain as nearly as possible the status quo until Plaintiff’s Motion for
Preliminary Injunction may be heard by the Court.
35. The Court has engaged in a balancing process, weighing potential harm to Plaintiff if
this TRO is not issued against the potential harm to Defendants if injunctive relief is granted, and
finds that the potential harm to Plaintiff outweighs that to Defendants, the balance of the equities
and the ends of justice support granting this TRO, and a TRO in this case is not adverse to the
public interest.
36. The Court therefore concludes that a TRO should issue and, accordingly, that the
Motion for TRO should be granted.
37. Pursuant to Rule 65(c) of the North Carolina Rules of Civil Procedure, and as a
condition of this Order, the Court concludes that a bond of $25,000 is a proper security in
connection with Plaintiff’s request for and the Court’s grant of a temporary restraining order,
without prejudice to either party’s right to request that the bond be increased or decreased for good
cause shown.
38. WHEREFORE, the Court GRANTS the Motion and enters the following Temporary
Restraining Order as follows:
a. During the term of this Order, Defendants, and those acting on their behalf, shall
not: i. advertise, offer for sale, negotiate for the sale of, or otherwise take any
actions to sell the membership interest in Viewmont that is at issue in this
litigation, to wit, the membership interest that Viewmont purports to have
repurchased from FRMC;
ii. communicate to any third-parties the position that Plaintiff’s (or FRMC’s)
membership interest in Viewmont has been repurchased and Plaintiff (or
FRMC) is no longer a Member of Viewmont; or
iii. take any action to request or otherwise encourage any third party person or
entity to alter the terms of their contractual relationships with respect to
Viewmont.
b. Pursuant to the provisions of Rule 65(c), and as a condition of this Order, Plaintiff
shall post security in the amount of $25,000.00 in the form of cash, check, surety
bond or other undertaking satisfactory to the Catawba County Clerk of Superior
Court.
c. The terms and conditions of this Order shall be in force and take effect immediately
upon Plaintiff’s posting of security as provided herein.
d. This TRO will expire at 5:00 PM on May 23, 2016 unless modified, extended, or
dissolved by the Court. Absent a showing of undue prejudice, the Court presently
anticipates exercising its discretion under Rule 65(b) to extend the TRO for a
further 10-day period by separate order, thus extending the TRO through and
including 5:00 PM on June 2, 2016.
e. Unless otherwise ordered, the parties shall appear before this Court at 2:00 PM on
June 1, 2016, in Courtroom 6370 at the Mecklenburg County Courthouse, 832 East Fourth Street, Charlotte, North Carolina 28202 to determine whether this Order
should be converted into a preliminary injunction, and if so, whether the terms
should be modified in any respect.
f. The Court directs the parties to (i) cooperate in proposing alternative dates and
times for the hearing on Plaintiff’s motion for preliminary injunction should other
dates and times be more convenient to counsel, (ii) offer by May 16, 2016 a
proposed schedule for further briefing on the motion, and (iii) consider an extension
by consent of the TRO pending the Court’s resolution of Plaintiff’s motion for
preliminary injunction.
SO ORDERED, this the 12th day of May, 2016.
/s/ Louis A. Bledsoe, III Louis A. Bledsoe, III Special Superior Court Judge for Complex Business Cases