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HomeMy WebLinkAbout2006-2727 Civil TED KOSENSKE, M.D., Plaintiff IN THE COURT OF COMMON PLEAS OF CUMBERLAND COUNTY, PENNSYLVANIA v. CIVIL ACTION - LAW BLUE MOUNTAIN ANESTHESIA ASSOCIATES, P.C., Defendant NO. 06-2727 CIVIL TERM IN RE: DEFENDANT'S PRELIMINARY OBJECTIONS TO PLAINTIFF'S COMPLAINT BEFORE OLER and GUIDO, JJ. ORDER and OPINION OF COURT OLER, 1., February 21,2007. In this civil case, a physician stockholder/employee of a professional corporation has sued the corporation for breach of contract and violation of Pennsylvania's Wage Payment and Collection Law. The suit arises out of Plaintiffs withdrawal from the practice.l For disposition at this time are preliminary objections filed by Defendant to certain aspects of Plaintiff s claim under Pennsylvania's Wage Payment and Collection Law? For the reasons stated in this opinion, Defendant's preliminary objections will be denied. STATEMENT OF FACTS The facts alleged in Plaintiffs complaint may be summarized as follows: Plaintiff is Ted Kosenske, M.D., an adult individual residing in Mechanicsburg, Cumberland County, Pennsylvania. 3 Defendant is Blue Mountain Anesthesia Associates, P.C., a Pennsylvania professional corporation engaged in the practice 1 Plaintiffs complaint, filed May 12,2006. 2 Defendant's preliminary objections, filed June 2, 2006. 3 Plaintiffs complaint, para. 1. of anesthesiology and having its principal place of business in Mechanicsburg, Cumberland County, Pennsylvania.4 Plaintiff and Defendant entered into an employment agreement on October 1, 1998, whereby Plaintiff was hired as an anesthesiologist by Defendant.5 With respect to compensation, the agreement provided, inter alia, as follows: BMA shall compensate Employee, for Employee's services to BMA, as follows: A. BMA shall pay Employee an annual salary, commencing with the first day of Employee's employment with BMA and continuing through the term of this agreement unless modified by the mutual agreement of the parties, of Two Hundred Thousand ($200,000.00) Dollars. Such compensation shall be monthly and BMA is authorized to deduct or withhold customary employment, income, and other taxes and assessments. B. BMA shall pay Employee such cash bonuses and other cash compensation as BMA, in its sole discretion, deems appropriate. C. BMA shall make such contributions to any employee-benefit plans BMA, in its sole discretion, deems to operate for the benefit of its employees, including, but not limited to, any pension or retirement plan, profit- sharing plan, or the like. Nothing in this subparagraph shall obligate BMA to create or maintain such programs but, to the extent that BMA does have such programs available for the benefit of its employees, it shall make participation in such programs available to Employee on the same basis as BMA's other professional employees. D. Employee shall receive eight (8) compensated weeks of vacation, conference, or educational time each year to be taken at such times as is mutually convenient to BMA and to Employee. Regular meetings of BMA or the medical staffs at any of the facilities at which BMA operates shall not be charged against Employee's vacation, conference, or education time. E. Such medical, hospital, and other insurance, and such other non-cash compensation or employee benefits as BMA makes available to its other professional employees, 4 Plaintiffs complaint, para. 2. 5 Plaintiffs complaint, para. 4 and Exhibit A. 2 on the same basis as such benefits are available to its other professional employees. . . .6 With respect to the term of the agreement, the contract provided as follows: The term of this agreement shall be one (1) year from its date. The agreement, however, shall automatically renew at the expiration of each successive term unless that agreement is terminated at any time pursuant to [another provision of the agreement]. 7 With respect to termination of employment, the agreement provided, III pertinent part, that "[ e ]mployee may terminate this agreement, at any time and for any reason, by giving BMA six (6) months' notice of such termination. . . .,,8 With respect to payment of Plaintiff by Defendant in the event of such termination, the agreement provided as follows: [U]pon. . . termination of Employee's employment by Employee. . . , BMA shall pay to Employee any and all accrued salary or other cash compensation then due to Employee and Employee shall, in exchange for such payment, deliver his written release of all claims against BMA for any reason arising out of his employment or the termination of that employment. 9 A year later, Plaintiff, other stockholders, and Defendant entered into a stockholders' agreement, reciting the desirability of an orderly transfer of stock in the corporation upon the occurrence of certain events.lO According to Defendant's brief in support of its preliminary objections, "[t]he 1999 Stockholders Agreement [was] essentially identical to agreements signed by the stockholders throughout the existence of the corporation. Each time a new physician was admitted as a shareholder they simply signed new agreements, on precisely the same terms, including the new physician as a party."ll However, there is nothing of record to support this statement. 6 Plaintiffs complaint, Exhibit A. 7 Plaintiffs complaint, Exhibit A. 8 Plaintiffs complaint, Exhibit A. 9 Plaintiffs complaint, Exhibit A. 10 Plaintiffs complaint, para. 5 and Exhibit B. 11 Brief of Defendant in Support of Preliminary Objections to Plaintiffs Complaint, at 2 n.l. 3 The agreement provided for the sale of stock by a shareholder/employee to the corporation, in the event of a termination of his employment. 12 The terms of the sale were specified as follows: The purchase price of... shares of any Stockholder sold or transferred to BMA in accordance with the terms of this agreement shall be determined by multiplying the net book value of BMA on the date that the "triggering event" . . . by a fraction, the denominator of which shall be all of the shares of stock of BMA outstanding on the date of such triggering event and the numerator of which shall be the number of shares of stock owned by the Stockholder whose stock is being transferred. "Net book value" shall be defined and calculated as follows: A. All of the assets of BMA shall be valued. Any real estate owned by BMA shall be appraised by a qualified real estate appraiser selected by the accountant regularly serving BMA on the date of the triggering event. Any tangible personal property reasonably capable of appraisal shall be appraised by a qualified appraiser selected by the said accountant. All other assets, tangible and intangible (excluding accounts receivable and good will) shall be valued as shown on BMA's balance sheet at the end of the last accounting period for which a balance sheet was prepared by BMA's accountant. B. The total value of all assets (excluding accounts receivable and goodwill) shall then be reduced by all of BMA's liabilities owed on the date of the triggering event, provided, however, that if the liabilities of BMA exceed the value of its assets on the date of the triggering event, the purchase price for the Stockholder shall be set at zero; that is, there shall be no negative value calculated for such Stockholder's stock and he shall not be obligated to pay to BMA any sum as a result of such negative value. C. There shall be no allowance for or value set upon the accounts receivable of BMA or any goodwill for BMA in the determination of net book value. In determining the net book value for purposes of this paragraph, BMA's accountant shall use the same accounting methods used in the preparation of similar balance sheets for BMA for prior accounting periods and the determination of such accountant shall be final, conclusive, and binding on all parties; provided, however, that any and all accounts receivable owed to BMA, whether or not shown on BMA 's balance sheets or other financial statements in prior accounting periods, and goodwill shall not be included 12 Plaintiffs complaint, Exhibit B. 4 as an asset of BMA and shall be excluded entirely from the calculation of the purchase price for stock under this agreement. 13 Paragraph 5 of the agreement, entitled "Procedure for Purchase," provided, in pertinent part, as follows: Upon [the termination of a stockholder's employment], BMA or Stockholder Stockholder's representative shall give notice to the other parties to this agreement of the occurrence of such event in writing. BMA shall cause its accountant or auditor to calculate the purchase price of the stock to be acquired by BMA from the Stockholder affected by such . . . event and provide copies of such calculations to the parties to this agreement within thirty (30) days of the said notice. Within sixty (60) days following such calculation by BMA's accountant or auditor, BMA shall tender to the Stockholder affected by the . . . event, or the representative of such Stockholder, payment in full of the purchase price as calculated by the said accountant or auditor. Contemporaneous with the tender of such payment, BMA shall provide its written indemni[t]y to the affected Stockholder or his or her representative of all debts and liabilities of BMA which the affected Stockholder may have assumed or may otherwise be liable for, and the affected Stockholder or his or her personal representative shall make, execute, acknowledge and deliver all stock certificates and other documents reasonably required, in the opinion of BMA's counsel, to transfer all of the affected Stockholder's interest in or claim against BMA to BMA or its assigns. 14 Paragraph 7 of the stockholders' agreement, entitled "Transfer of Stock to BMA," provided as follows with respect to accounts receivable: In the event that the shares of any Stockholder are sold or transferred to BMA in accordance with the terms of this agreement, BMA shall pay to such Stockholder . . . , in addition to the payment of his or her stock as provided. . . hereinabove, cash compensation for that Stockholder's proportionate interest in BMA's accounts receivable on the date of the triggering event. BMA shall pay to such Stockholder, or his or her personal representative, a sum determined by multiplying BMA's Net Accounts Receivable (as hereinafter defined) by a fraction, the denominator of which shall be the number of physicians then employed by BMA who are Stockholders of BMA and the numerator of which shall be one. "Net Accounts Receivable" shall be determined by multiplying the total accounts receivable shown on BMA's financial records at the end of the month preceding the date of the triggering event (and "net accounts receivable" shall only include work for which the Corporation has submitted bills and shall not include unbilled work, work in progress, or the like) by the average percentage of accounts receivable actually collected by BMA during the first six months of the twelve-month period immediately preceding the date of such termination, minus billing costs on 13 Plaintiffs complaint, Exhibit B (emphasis added). 14 Plaintiffs complaint, Exhibit B. 5 net receivables and minus a sum necessary to equalize corporate expenses for direct benefits to professional employees. The amount so determined ("Net Receivables") shall be divided into two parts, Fund A and Fund B, and paid or held as follows: A. An amount estimated by the accountant then regularly employed by BMA to be the maximum amount which would be deposited into the account of the Stockholder within any profit-sharing, pension, or other employee benefit plan operated by Corporation for the year of the triggering event shall constitute Fund A. Fund A shall be reserved and held by BMA until the contribution to such plan is made for the fiscal year of the triggering event following which BMA shall pay over to Stockholder any amount in Fund A, including any accrued interest, which exceeds the amount deposited into the Stockholder's said account for that fiscal year. Any remainder in Fund A shall be paid to the Stockholder within thirty (30) days after BMA makes the contribution to such plan. B. The balance of Net Receivables shall constitute Fund B, which shall be paid to the Stockholder in twelve (12) equal monthly installments, without interest, the first said installment being due on the first day of the month following the transfer of the Stockholder's stock as required by Paragraph 5 hereof and the payment shall continue on the first day of twelve consecutive months thereafter. For tax purposes, the Stockholder and BMA shall both treat such payments as compensation, which shall be fully taxed to the Stockholder and deducted by BMA and BMA shall be entitled to withhold such income and other tax payments and assessments as may be required by law or may be otherwise reasonably necessary for BMA to comply with all tax laws, regulations, and the like; provided, however, that the payment from Fund B shall not be considered compensation or salary for purposes of calculating the deposit into any profit-sharing, pension, or other employee benefit plan then operated by BMA or in calculating the payments from or vesting of the Stockholder's account within said plan. IS In 2005, Plaintiff notified Defendant of his intention to terminate his employment. 16 The parties agreed that Plaintiff s last day of work for Defendant IS Plaintiffs complaint, Exhibit B. 16 Plaintiffs complaint, paras. 6-7. 6 would be September 23, 2005, with vacation days to accrue through October 12, 2005.17 By letter dated October 10, 2005, Defendant's accountant provided the calculations contemplated by the stockholders' agreement.18 According to these calculations, Plaintiff was to receive $85.25 for his stock and $36,063.00 for his share of the accounts receivable.19 In addition, the accountant in his letter indicated the following: Although a bonus is not required as part of your Stockholders Agreement or Employment Agreement[], the group has decided to pay a bonus to reduce the corporation's stockholders' equity to the point that there would be little gain or loss to [Plaintiff] for his stockholders' equity at this time. The initial calculation ofthe bonuses paid on September 30 is shown below: Initial Cal culati on $ 69,402 15.638 $ 85,040 -------=':2. Divisible Income per Doctor $ 17,008 Cash Distribution Kosenske Sidesheet Items Divisible Income Divisible Income Side sheet Item 9/30 Bonus Alster ~ $ 17,008 $ 17,008 Kosenske $ 17,008 (15.638) $ 1,,370 Chess ~ Total $ 17,008 $ 17,008 $ 85,040 _ (15.638) $ 17,008 $ 17,008 $ 69,40220 $ 17,008 $17,008 To calculate the bonus for each doctor, I added [Plaintiff] side sheet items for the year totaling $15,638 to the total $69,402 cash distribution. Since the other stockholders were not submitting their personally paid sidesheet items at the present time, I only utilized [Plaintiff] side sheet items in determining the September 30 bonus for all of you. This resulted in the $15,638 of [Plaintiff] side sheet items for the first nine months of 2005, which included $9,871 for medical insurance and $5,767 of personally paid expenses reimbursed to him, being subtracted from his bonus. This resulted in [Plaintiff] receiving a bonus of $1,.370, which was $15,638 less than the $17,008 the other four of you received. Upon reflection I realized that the calculation should have considered those sidesheet items, which were already paid for the other four doctors in determining the bonus. Ifthose expenses had not already been paid by the corporation, the amount of stockholders' equity available to be distributed would have been greater. Therefore, the chart below shows the revised calculation of the bonus taking into consideration all sidesheets items paid for all ofthe doctors in the practice for the first nine months of2005: Revised Calculation Cash Distribution 1/1-9/30/05 Side sheet Items Paid Divisible Income $ 69,402 $ 54.492 $ 123,894 -0-5 $ 24,779 Divisible Income per Doctor 17 Plaintiffs complaint, para. 7 and Exhibit C. 18 Plaintiffs complaint, para. 21 and Exhibit D. 19 Plaintiffs complaint, para. 22 and Exhibit D. 20 Plaintiffs complaint, Exhibit D. 7 Divisible Income Side sheet Items Revised Bonus 9/30 Bonus Difference Alster ~ Kosenske $ 24,779 $ 24,779 $ 24,779 (10.681) (8.431) (15.638) $ 14,098 $ 16,348 $ 9,141 17.008 17.008 1.370 $ (2,910) $ (660) $ 7,771 Chess Kapoor $ 24,779 $ 24,779 (9.871) (9.871) $ 14,908 $ 14,908 17.008 17.008 $ (2,1 00) $ (2,1 00) Total $ 123,895 (54.492) $ 69,403 69.402 $ I When the $69,402 of cash distributed is added to the $54,492 of sidesheet items for all five doctors, a total of divisible income of $123,894 is calculated. This is an average divisible income of $24,779 per doctor. When each of your sidesheet items is subtracted from it, the revised bonuses which should have been paid are recalculated between $9,141 for [Plaintiff] and $16,348 for Ivan. The amount of bonus each of you received is subtracted from that. [Plaintiff] should be paid an additional bonus of $7,771 to equalize this. The other four of you have been paid between $660 and $2,910 more than you were paid with the initial bonus calculation. I suggest adjusting the bonus differences among you when the year end bonus is paid at December 3121 Notwithstanding his demand, Plaintiff has not received these amounts from Defendant. 22 In addition to these amounts, Plaintiff in the present action claims, inter alia, an additional statutory "liquidated damages" figure of 25% of $43,919.25 ($7,771.00 bonus plus $85.25 stock buy-out plus $36,063.00 accounts receivable), as well as attorney's fees, in accordance with provisions of Pennsylvania's Wage Payment and Collection Law.23 Defendant has filed preliminary objections to the complaint in the form of motions to strike, contending that the stock buy-out payment ($85.25) and the accounts receivable payment ($36,063.00) provided for in the stockholders' agreement do not represent wages under the Wage Payment and Collection Law, as a result of which Defendant could not be subjected to liability for statutory "liquidated damages" and attorney's fees in relation thereto?4 21 Plaintiffs complaint, Exhibit D. 22 Plaintiffs complaint, paras. 26-27. 23 Plaintiffs complaint, Count I; Act ofJuly 14,1961, PL. 637,43 P.S. ~~260.l et seq. 24 Defendant's preliminary objections, para. 9. Defendant apparently does not contend that the "bonus" referred to in the accountant's letter would not be "wages" under the act. See Brief of Defendant in Support of Preliminary Objections to Plaintiffs Complaint, at 3 n.2 ("Kosenke's complaint raises claims under the statute for other amounts he claims to be due as "wages", including bonus, vacation, and other pay. Although BMA denies it breached the agreement between the parties and is obligated for any of the penalty payments under the statute, it does not dispute that those items constitute "wages" within the meaning of the statute, and did not file preliminary objections to those claims.") 8 These issues were argued on January 24,2007. DISCUSSION Demurrer. On a preliminary objection which challenges the legal sufficiency of a complaint, a court "must accept all material facts set forth in the complaint as well as all the inferences reasonably deducible therefrom as true." Powell v. Drumheller, 539 Pa. 484, 489, 653 A.2d 619, 621 (1995) (citations omitted). A preliminary objection of this type should be sustained only when, "on the facts averred, the law says with certainty that no recovery is possible." Id at 489, 653 A.2d at 621. Wage Payment and Collection Law-General. The purpose and focus of Pennsylvania's Wage Payment and Collection Law have been summarized by the Pennsylvania Superior Court in Hartman v. Baker, 2000 PA Super. 140,766 A.2d 347, as follows: Pennsylvania enacted the WPCL to provide a vehicle for employees to enforce payment of their wages and compensation held by their employers. The underlying purpose of the WPCL is to remove some of the obstacles employees face in litigation by providing them with a statutory remedy when an employer breaches its contractual obligation to pay wages. The WPCL does not create an employee's substantive right to compensation; rather, it only establishes an employee's right to enforce payment of wages and compensation to which an employee is otherwise entitled by the terms of an agreement. Id, ,-r13, 766 A.2d at 352 (citations omitted). The civil provisions of the act are to be liberally construed to effect its purpose. Id, ~14, 766 A.2d at 353; Act of December 6, 1972, P.L. 1339, S3(c), 1 Pa. C.S. S1928(c). Under the act, "wages" are defined to include: all earnings of an employe, regardless of whether determined on time, task, piece, commission or other method of calculation. The term "wages" also includes fringe benefits or wage supplements whether payable by the employer from his funds or from amounts withheld from the employes' pay by the employer. Act of July 14, 1961, P.L. 637, S2.l, as amended, 43 P.S. s260.2a. "Fringe benefits or wage supplements" are defined to include: 9 all monetary employer payments to provide benefits under any employe benefit plan, as defined in section 3(3) of the Employee Retirement Income Security Act of 1974, 29 U.S.c. ~ 1001 et seq.; as well as separation, vacation, holiday, or guaranteed pay; reimbursement for expenses; union dues withheld from the employes' pay by the employer; and any other amount to be paid pursuant to an agreement to the employe, a third party or fund for the benefit of employes. Act of July 14, 1961, P.L. 637, S2.l, as amended, 43 P.S. s260.2a. It has been noted that "the courts of Pennsylvania have had little opportunity to apply the above-mentioned definitions," and that federal decisions on the statute can thus be particularly instructive. 25 Repurchase of stock. In Bowers v. NETI Technologies, Inc., 690 F. Supp. 349 (E.D. Pa. 1988), a founder/major stockholder/employee of a corporate defendant sued the defendant under the Wage Payment and Compensation Law for failure to honor a stock repurchase obligation that was contained in an "employment agreement." The facts and holding, on a motion for judgment on the pleadings, of the federal court in Bowers have been summarized by the Pennsylvania Superior Court as follows: [T]he plaintiff had entered into a stock repurchase agreement with his former employer. At trial, the employer argued that the stock repurchase agreement did not constitute "wages" as set forth in the WPCL. In rejecting the employer's argument, the district court stated the following: Like other fringe benefits, which are offered to employees when they first join a company, the stock repurchase payments were not provided to the employees on a weekly basis. Nevertheless, they were certainly "wages" within the broad definition of the WPCL[,] in that they were payments pursuant to agreement, and they were offered to plaintiff[] as [an] employee[], and not for some reason entirely unrelated to [his] employment. . . ?6 In Hartman v. Baker, 2000 PA Super. 140, ,-r2l, 766 A.2d 347, 355, the Pennsylvania Superior Court affirmed a trial court's conclusion following trial that payment provided for in a stock repurchase agreement constituted "wages" under 2S Hartman v. Baker, 2000 PA Super 140, ~15, 766 A.2d 347,353. 26 Hartman v. Baker, 2000 PA Super. 140 ~15, 766 A.2d 347,353. 10 the Wage Payment and Collection Law, where the employee accepted the stock arrangement in return for a reduction in his pay structure. Id In the present case, if the facts alleged in Plaintiff s complaint are true, the stock repurchase payment was "pursuant to an agreement." Whether the payment can be said to be "for some reason entirely unrelated to [Plaintiff s] employment" is difficult to determine on the basis of the undeveloped record before the court. Given the case law related above, including the principle of liberal construction, it would appear to be premature at this stage of the proceedings to hold with certainty that the proposed payment to Plaintiff employee of $85.25 for his stock in Defendant employer is beyond the scope of the Wage Payment and Collection Law. Accounts receivable payment. If Plaintiff s complaint is to be credited, the accounts receivable payments provided for in the parties' stockholders agreement are also "pursuant to an agreement." Neither payment comprises part of the "purchase price" for Plaintiff s stock under the agreement alleged by Plaintiff. The payment provided for in paragraph 7 A of the alleged agreement is to be computed on the basis of the cost of employee fringe benefits. The payment provided for in paragraph 7B is, according to its terms, to be considered "as compensation, which shall be fully taxed to the [Plaintiff] and deducted by [Defendant] and [Defendant] shall be entitled to withhold such income and other tax payments and assessments as may be required by law or may be otherwise reasonably necessary for [Defendant] to comply with all tax laws, regulations, and the like. . .." Given the liberal construction to be applied to the civil provisions of Pennsylvania's Wage Payment and Collection Law, it would be premature at this stage of the case to hold with certainty that the proposed payments to Plaintiff employee relating to accounts receivables are beyond the scope of the act.27 27 It would also, in the court's view, be premature to hold, as Defendant argues in its brief, that Plaintiff is barred from recovery on the ground that he failed to tender his stock to Defendant. See Brief of Defendant in Support of Preliminary objections to Plaintiffs Complaint, at 7. The 11 F or the foregoing reasons, the following order will be entered: ORDER OF COURT AND NOW, this 21st day of February, 2007, upon consideration of Defendant's preliminary objections to Plaintiff s complaint, and for the reasons stated in the accompanying opinion, the preliminary objections are denied. BY THE COURT, s/ 1. Wesley Oler, Jr. 1. Wesley Oler, Jr., 1. David H. Martineau, Esq. Suite 1 354 Alexander Spring Road Carlisle, PA 17015 Attorney for Plaintiff Samuel L. Andes, Esq. P.O. Box 168 Lemoyne, P A 17043 Attorney for Defendant record is silent on this point, nor was the issue included in Defendant's preliminary objections. Defendant's reliance upon Kafando v. Erie Ceramic Arts Co., 2000 PA Super. 377, 764 A.2d 59 (holding that an employee in breach of an agreement allegedly within the purview of the Wage Collection and Payment Law can not prevail under the act), is similarly premature. 12 13 TED KOSENSKE, M.D., Plaintiff IN THE COURT OF COMMON PLEAS OF CUMBERLAND COUNTY, PENNSYLVANIA v. CIVIL ACTION - LAW BLUE MOUNTAIN ANESTHESIA ASSOCIATES, P.C., Defendant NO. 06-2727 CIVIL TERM IN RE: DEFENDANT'S PRELIMINARY OBJECTIONS TO PLAINTIFF'S COMPLAINT BEFORE OLER and GUIDO, JJ. OPINION OF COURT AND NOW, this 21st day of February, 2007, upon consideration of Defendant's preliminary objections to Plaintiff s complaint, and for the reasons stated in the accompanying opinion, the preliminary objections are denied. BY THE COURT, 1. Wesley Oler, Jr., 1. David H. Martineau, Esq. Suite 1 354 Alexander Spring Road Carlisle, PA 17015 Attorney for Plaintiff Samuel L. Andes, Esq. P.O. Box 168 Lemoyne, P A 17043 Attorney for Defendant