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HomeMy WebLinkAbout2004-2982 Civil ALFRED R. LEAL, M.D., Plaintiff IN THE COURT OF COMMON PLEAS OF CUMBERLAND COUNTY, PENNSYLVANIA v. CENTRAL PENNSYLVANIA HEMATOLOGY & MEDICAL ONCOLOGY ASSOCIATES, P.C., JOHN D. CONROY, D.O., MICHAEL E. KLEIN, M.D., SCOTT G. BARNES, D.O., and LI MINN ISAAC L1U, M.D. Defendants. 04-2982 CIVIL IN RE: DEFENDANTS' PRELIMINARY OBJECTION TO PLAINTIFF'S AMENDED COMPLAINT BEFORE HESS. OLER and EBERT. JJ. ORDER OF COURT AND NOW, this 2nd day of June, 2006, upon consideration of Defendants' Preliminary Objections to Count II of Plaintiff's Amended Complaint, and for the reasons stated in the accompanying opinion, it is ordered and directed as follows: 1. Defendants' Preliminary Objection is sustained in part, dismissing Count II of Plaintiff's Amended Complaint as to Individual Defendants Michael E. Klein, M.D., Scott G. Barnes, D.O., and Li Minn Isaac Liu, M.D. 2. In all other respects, Defendants' Preliminary Objection is denied and Defendants are directed to file their Answer to Plaintiff's Amended Complaint within 30 days of the date of this Order. By the Court, M.L. Ebert, Jr., J. Paige Macdonald-Matthes, Esquire Attorney for Plaintiff Serratelli, Schiffman, Brown & Calhoun, P.C. 2080 Linglestown Road Harrisburg, PA 17110 Steven M. Williams, Esquire Attorney for Defendants 508 North Second Street P.O. Box 845 Harrisburg, PA 17108-0845 ALFRED R LEAL, M.D., Plaintiff IN THE COURT OF COMMON PLEAS OF CUMBERLAND COUNTY, PENNSYLVANIA v. CENTRAL PENNSYLVANIA HEMATOLOGY & MEDICAL ONCOLOGY ASSOCIATES, P.C., JOHN D. CONROY, D.O., MICHAEL E. KLEIN, M.D., SCOTT G. BARNES, D.O., and LI MINN ISAAC L1U, M.D. Defendants. 04-2982 CIVIL IN RE: DEFENDANT'S PRELIMINARY OBJECTION TO PLAINTIFF'S AMENDED COMPLAINT BEFORE HESS. OLER and EBERT. JJ. OPINION AND ORDER OF COURT EBERT, J., June 2,2006. For disposition in this employment termination case is a preliminary objection pursuant to Pa. RC.P. 1028(a)(4), regarding legal insufficiency of Plaintiff's Amended Complaint. Arguments were heard on May 17, 2006. For the reasons stated in this opinion, Defendants' preliminary objection will be sustained in part and denied in part. STATEMENT OF FACTS The allegations of Plaintiff's Amended Complaint, in pertinent part, may be summarized as follows: Plaintiff, Alfred R Leal, M.D. ("Dr. Leal"), is a physician specializing in hematology and medical oncology who resides at 143 Fieldstone Drive, Carlisle, Cumberland County, Pennsylvania. Dr. Leal was previously employed by Defendant Central Pennsylvania Hematology & Medical Oncology Associates, P.C. ("CPHMOA"), a Pennsylvania Professional Corporation incorporated under the laws of Pennsylvania and having a registered address and principal place of business located at 50 North 12th Street, Lemoyne, Cumberland County, Pennsylvania. CPHMOA provides hematology and medical oncology services in Cumberland County, Pennsylvania.1 Defendants John D. Conroy, Jr., D.O. ("Dr. Conroy"), Michael E. Klein, M.D. ("Dr. Klein"), Scott G. Barnes, D.O. ("Dr. Barnes") and Lin Minn Isaac Liu, M.D. ("Dr. Liu") are each adult individuals, officers and shareholders of CPHMOA.2 Dr. Conroy is the President of the corporation and the majority shareholder, holding 51 % of CPHMOA shares.3 On or around December 31, 1995, Dr. Leal entered an "Employment Agreement" with CPHMOA. The Employment Agreement is not signed by any officer of the corporation. An amendment to the agreement was made on January 1, 1999, modifying the amount of compensation. The amendment was signed by Dr. Leal and by Defendant John D. Conroy, Jr., M.D., as President of CPHMOA.4 Pursuant to the terms of the Employment Agreement, Dr. Leal's compensation, in return for the performance of services as a physician, was to consist of a base salary, discretionary bonuses, and an option to purchases shares of CPHMOA beginning January 1, 1998.5 Dr. Leal purchased CPHMOA shares on January 1, 1998, entering a "Shareholders Agreement" which included an agreement to pay a departing shareholder a termination bonus in accordance with the shareholder's compensation model. Plaintiff avers that this Agreement was drafted at the direction of Dr. Conroy, and that Dr. Leal did not tender a cash payment to CPHMOA in exchange for the shares but was provided an ownership interest by Dr. Conroy in exchange for his service to CPHMOA.6 The Shareholders Agreement is signed by Dr. Conroy as President, then by each of the four shareholders, including Dr. Leal. 7 On September 30, 2003, Dr. Leal provided a written letter of resignation to Dr. Conroy, effective December 31, 2003, at which time he also entered a Resignation Agreement in which 1 Amended Complaint, n 1-2, 9, filed February 17, 2006 (hereinafter CompI. _). 2 CompI. ~~ 3-6. 3 Plaintiff's Reply To New Matter of Defendant, n 35-36, filed September 22,2004 (hereinafter Reply _). 4 CompI. Exhibit "A". 5 CompI. ~~ 10-11, Exhibit "A". 6 Reply n 30-31. 7 CompI. Exhibit "B". At the time of the Shareholders Agreement, the four shareholders were Dr. Comoy, Dr. Leal, Dr. Klein, and Mary A. Simmonds. At the time of this action, Dr. Liu had replaced Simmonds as the fourth shareholder. he was terminated as a CPHMOA employee, shareholder and director.8 Dr. Leal alleges that at the time of his effective date of termination, he was entitled to a termination bonus in an amount in excess of $218,735 in accordance with the terms of both the Shareholder and Resignation Agreements, and that CPHMOA has failed and continues to refuse to remit payment of this bonus despite the terms of the agreement.9 In Count I of his Amended Complaint, filed only against CPHMOA, Dr. Leal has alleged that he is entitled to the termination bonus under the same theory as he asserted in his Complaint. Count II of Dr. Leal's Amended Complaint alleges a violation of the Pennsylvania Wage Payment and Collection Law ("WPCL") against both CPHMOA and Individual Defendants, John D. Conroy, D.O. ("Dr. Conroy"), Michael E. Klein, M.D. ("Dr. Klein"), Scott G. Barnes, D.O. ("Dr. Barnes"), and Lin Minn Isaac Liu, M.D. ("Dr. Liu"). Each of the Individual Defendants is an officer and shareholder of CPHMOA, with Dr. Conroy as the majority shareholder.1O Plaintiff avers in his Reply To New Matter that Dr. Conroy "made all business decisions regarding CPHMOA... as evidenced by [his] retention of an approximate 51 % controlling share of CPHMOA.,,11 Paragraph 47 of the Amended Complaint avers that "[a]1I defendants, and each of them individually, took an active role in the decision not to pay the monies owed to Plaintiff.,,12 Depositions of each of the Individual Defendants were taken as part of preliminary discovery in this matter and excerpts from each are attached to the Amended Complaint.13 Those excerpts show that Drs. Barnes, Klein and Conroy believe that the salary CPHMOA paid to Dr. Leal through his last day of employment with the practice, together with the year end 8 CompI. ~~ 21,23, Exhibits "c" and "D". 9 CompI. ~~ 26, 28. 10 CompI. ~ 6. 11 Reply ~ 36. 12 CompI. ~ 47. 13 See Amended Complaint Exhibits "E", "G", "L", "M", and "N". bonus Dr. Leal had earned, satisfied the Defendants' contractual obligation to Dr. Leal.14 Dr. Liu testified in his deposition that although Dr. Leal had been compensated when he left the practice, he definitely "needed some other things" in terms of monetary compensation.15 Of procedural relevance, the original Complaint in this case was filed on June 25, 2004 and an Answer With New Matter was filed on September 2, 2004. Plaintiff filed a Reply to New Matter of Defendant on September 22, 2004. Leave to file an Amended Complaint and to join additional defendants was granted by this Court on February 3, 2006, and the Amended Complaint was filed February 17, 2006. On March 8, 2006, Defendants filed a Preliminary Objection pursuant to Pa.R.C.P. 1 028(a)(4) for failure to state a claim or cause of action in Count II against the Individual Defendants for which relief can be granted, and asking this Court to dismiss Count II as to the Individual Defendants. Briefs were submitted and the parties appeared for Argument on May 17,2006. DISCUSSION Preliminary objections pursuant to Rule 1028(a)(4) test the legal sufficiency of the claim alleged. When evaluating the merits of such a preliminary objection, all well-pled material facts in the Plaintiff's Amended Complaint, as well as all reasonable inferences deducible therefrom, are accepted as true. Yocca v. Pittsburgh Stee/ers Sports, Inc., 854 A.2d 425 (2004). The Court may not consider as true any legal conclusions, unwarranted factual inferences, allegations that constitute argument, or mere opinion. Comm. v. Percudani, 825 A.2d 743,745 (Pa. Cmwlth. 2003). The Court's rule is to determine whether, on the face of the complaint, the law allows for recovery. Cohen v. City of Philadelphia, 806 A.2d 905 (Pa. Cmwlth. 2002). The WPCL provides employees with a statutory remedy when an employer breaches a contractual obligation to pay earned wages. 43 P.S. s260.1 et seq., Obemeder v. Link 14 Exhibit "L" at 72-73 Exhibit "M" at 79 Exhibit "N" at 110 15 Exhibit "E" at 54 57 ' . , . Computer Corp., 674 A.2d 720 (Pa. Super. 1996), affirmed 696 A.2d 148 (Pa. 1997). To state a claim under the WPCL, an employee must allege that his employer has failed to pay wages that it was contractually obligated to pay. Sullivan v. Chartwelllnvestment Partners, L.P., 873 A.2d 710,716 (Pa. Super. 2005). In this case, we must determine whether, or which of, the Individual Defendants fall within the definition of "employer" for purposes of the WPCL claim. The WPCL defines "employer" to include: "every person, firm, partnership, association, corporation, receiver or other officer of a court of this Commonwealth and any agent or officer of any of the above-mentioned classes employing any person in this Commonwealth." Our Courts have held that an individual is not an "employer," and is not subject to personal liability under the WPCL, simply because he is a shareholder, director or officer of the corporation. The current test for extending liability to an individual is not the mere holding of corporate office but whether there is "some indication that [the individual] exercised a policy- making function in the company." Mohney v. McClure, 568 A.2d 682, 686 (Pa. Super. 1990), affirmed 604 A.2d 1021 (Pa. 1992), citing Central Pennsylvania Teamsters Pension Fund v. Burton, 634 F.Supp. 128 (E.D. Pa. 1986). In Mohney, the Court held that an individual who was the attorney for the corporation was included in the corporation's hospitalization plan, owned shares of common stock, took minutes at each corporate meeting and had authorization to sign checks on the corporate checking account was not involved in the policy-making decisions of the corporation. Id. Without indication that he "actively participated in decisions or gave advice regarding payor compensation," there was no basis for his liability. Id. More recently, the Court in Intemat'l Assoc. of Theatrical Stage Employees v. Mid- Atlantic Promotions, Inc. found evidence that an individual who agreed to contract terms, hired and supervised workers, coordinated their work schedule and led [the employee] to believe that he would be paid still felt short of the Mohney requirement to show a policy making function. 856 A.2d 102, 106 (Pa. Super. 2004). Accepting the material facts pled by the Plaintiff as true, only Dr. Conroy meets this standard of holding a "policy-making function" within CPHMOA. Count II is properly dismissed against the other Individual Defendants. 1. Count II Dismissed as to Defendants Michael E. Klein, M.D., Scott G. Barnes, D.O., and Li Minn Isaac Liu, M.D. Exhibits "E" through "N" attached to the Amended Complaint are excerpts from the depositions of each of the Individual Defendants. These deposition excerpts offer little more than the status of the Individual Defendants as shareholders and their opinions regarding whether they agreed with the decision made concerning Dr. Leal's compensation, the compensation they would expect upon their own terminations, and whether they felt Dr. Leal was entitled to more than he received. Furthermore, these opinions are given with regard to one specific decision of the corporation - that of Dr. Leal's contractual rights. Notably absent are indicia that they "actively participated" in the policy-making decisions of CPHMOA as a whole including, but not limited to, the decision on Dr. Leal's compensation. This could have included the part of a CPHMOA Policy Manual stating the explicit function of the directors and officers, or the minutes of the board of directors and executive committee meetings to indicate that each of the Individual Defendants acted as "decision-makers and policymakers at different times." Yatron v. Lydon, 20 Pa. D&C 4th 251 (Pa. Com. PI. Berks 1993). Dr. Leal argues that because the case is still "in the discovery phase," it would be premature to determine that he will be unable to satisfy his burden of proof. That discovery has already yielded depositions of all four Individual Defendants, and that any indication of a policy- making function necessary for a prima facie case against Drs. Klein, Barnes and Liu is still lacking, seems only to emphasize its absence. The Amended Complaint, on its face, is legally insufficient to allow for recovery as against these three Defendants. 2. Defendant John D. Conroy, D.O. Properly Included Dr. Conroy's signature appears on both the Shareholders Agreement and the Amendment to the Employment Agreement, in his capacity as President of CPHMOA. Dr. Leal avers that the Shareholders Agreement was also drafted at the direction of Dr. Conroy, and that Dr. Conroy "provided" the shares that Dr. Leal received in exchange for services, not a payment of money. Furthermore, Dr. Leal's resignation letter was addressed to - and accepted by - Dr. Conroy. The Resignation and Stock Purchase Agreement between Dr. Leal and CPHMOA is also signed by Dr. Conroy as President. In Dr. Leal's Reply to New Matter of Defendant, filed in response to Defendants' Answer to the original Complaint, he avers that Dr. Conroy "made all business decisions regarding CPHMOA, as evidenced by Dr. Conroy's retention of an approximate 51 % controlling share of CPHMOA." Unlike the individuals at issue in Mohney and Mid-Atlantic, Dr. Conroy was the majority shareholder in a closely-held corporation. That he retained a controlling share in a corporation with only four shareholders suggests not only the intent but the ability to control the policy and decision-making of CPHMOA. If Plaintiff's averment that Dr. Conroy "made all business decisions regarding CPHMOA" is true, Dr. Conroy is properly included as a Defendant. Furthermore, Count II is properly dismissed as to the other Individual Defendants, who could have had no policy-making function where Dr. Conroy made "all" CPHMOA business decisions. 3. Purpose of IncludinQ Individuals as "Employers" Courts have noted that the Legislature had "some purpose" for including an agent or officer of a corporation employing persons in the Commonwealth within the definition of "employer," which was to subject those persons to liability in the event that a corporation or similar entity failed to make wage payments. Mohney, 568 A.2d at 685. However, the Court went on to state that decisions dealing with "personnel matters and the expenditure of corporate funds are made by corporate officers and it is far more likely that the limited funds of an insolvent corporation will be used to pay wages... if personal liability is imposed on the persons who make those decisions." (emphasis added) Id. There is nothing on the Record in this case to suggest that CPHMOA was or is insolvent or nearing insolvency, or to explain why any funds claimed could not be paid in full from CPHMOA only. In other words, this is not a situation where any of the Individual Defendants, whether they served a policy-making function or not, acted to improperly channel limited corporate funds away from what Dr. Leal was contractually owed. While insolvency is not a requirement for subjecting individuals to liability under the WPCL as "employers," the rationale for including the Individual Defendants in this case, where there is no evidence to suggest that CPHMOA is financially incapable of payment, is less than clear. Regardless, while Count II is properly dismissed against Drs. Klein, Barnes and Liu, Dr. Conroy meets the "policy-making function" requirement of Mohney and is therefore properly included in this action. ORDER OF COURT AND NOW, this 2nd day of June, 2006, upon consideration of Defendants' Preliminary Objections to Count II of Plaintiff's Amended Complaint, and for the reasons stated in the accompanying opinion, it is ordered and directed as follows: 1. Defendants' Preliminary Objection is sustained in part, dismissing Count II of Plaintiff's Amended Complaint as to Individual Defendants Michael E. Klein, M.D., Scott G. Barnes, D.O., and Li Minn Isaac Liu, M.D. 2. In all other respects, Defendant's Preliminary Objection is denied and Defendants are directed to file their Answer to Plaintiff's Amended Complaint within 30 days of the date of this Order. By the Court, M.L. Ebert, Jr., J. Paige Macdonald-Matthes, Esquire Attorney for Plaintiff Serratelli, Schiffman, Brown & Calhoun, P.C. 2080 Linglestown Road Harrisburg, PA 17110 Steven M. Williams, Esquire Attorney for Defendants 508 North Second Street P.O. Box 845 Harrisburg, PA 17108-0845