Plaintiff Badrudin Kurwa (Dr. Kurwa), on behalf of himself and derivatively on behalf of Trans Valley Eye Associates,
The trial court determined that Dr. Kislinger owed no fiduciary duty to Dr. Kurwa or to the corporation, and that Dr. Kurwa had no standing to sue Dr. Kislinger for breach of fiduciary duty or an accounting, and so dismissed those causes of action. After the parties voluntary dismissed without prejudice their causes of action for defamation, the trial court entered judgment in favor of Dr. Kislinger, from which Dr. Kurwa appeals.
We first determine that the judgment entered was final, notwithstanding that the defamation claims had been dismissed without prejudice. We then conclude that the court erred in ruling that Dr. Kurwa could not establish a fiduciary duty on the part of Dr. Kislinger, and that he lacked standing to prosecute this action. Consequently, we reverse the judgment.
Prior to 1992, Drs. Kurwa and Kislinger each maintained his own ophthalmology/optometry medical practice in the San Gabriel Valley and were not affiliated in any way. In 1992, a third party, Dr. Reginald Friesen, introduced the doctors and proposed that they create a joint venture in order to enter into and perform "capitation agreements." That is to say, HMO's would pay the joint venture a monthly per capita fee, based on the number of participating members of the HMO, in consideration for the joint venture's agreement to provide the HMO's members ophthalmology and optometry services. At the time, this was a novel arrangement for the provision of medical services through HMO's.
Drs. Kurwa and Kislinger agreed that they would together pursue this new business model. They signed a handwritten "Agreement between Bud and Mark" in which they outlined the structure within which they would jointly solicit the capitation business and share its profits. They agreed to incorporate a professional medical corporation to operate their joint venture business. Thus, Trans Valley was formed. Unfortunately, the articles of incorporation of Trans Valley did not "contain a specific statement that the corporation is a
The joint venture entered into several capitation agreements, which served approximately 200,000 participating patients in three health maintenance organizations in the San Gabriel Valley and environs (the HMO's). From 1992 through 2003, Trans Valley provided ophthalmology services through three HMO's, earning revenues in the neighborhood of $2 million in the year prior to the joint venture's demise.
By an order of the Medical Board of California, Dr. Kurwa was suspended from the practice of medicine for 60 days beginning on September 26, 2003, and was placed on five years' probation. Shortly thereafter, Dr. Kislinger effectively ended the joint venture. After Dr. Kislinger consulted with his attorney, the latter wrote a letter on Dr. Kislinger's behalf (the Solicitation Letter), addressed to the president of Physician Associates of the Greater San Gabriel Valley (Physician Associates), the largest of the HMO's to contract with Trans Valley. We quote the letter in full:
"This office represents Mark Kislinger, M.D. We are writing to you on his behalf on a matter that involves the continuity of patient care.
"At the present time, there exists a provider agreement between Physician Associates and Trans Valle[y] Eye Associates. As you know, one of the two co-owners of Trans Valley, Dr. Badrudin Kurwa has had his license to practice medicine suspended in the State of California. Pursuant to the agreement between you and that entity, his participation in the provider agreement is automatically terminated. Moreover, we believe the corporate status of Trans Valley is inappropriate for the practice of medicine.
"To solve these problems, we have formed a new appropriate medical corporation for Dr. Kislinger. This new corporation will hire substantially all of the employees and will contract physicians of the previous entity, so there will be no interruption of services to patients or any noticeable change to anyone. To facilitate this transfer, we would request that PA transfer its provider agreement from Trans Valley to Mark Kislinger, M.D., Inc. Dr. Kurwa, because of his suspension, will not be a part of the new corporation.
"We would appreciate having the transfer take place as soon as possible to maintain continuity and quality of patient care, and to avoid any improper entanglement with Dr. Kurwa, whose license is suspended at the present time.
"I would appreciate discussing this matter with you to effectuate this change as smoothly as possible. Your cooperation is appreciated."
In 2004, Dr. Kurwa filed suit against Dr. Kislinger, alleging that the foregoing conduct on the part of Dr. Kislinger constituted, among other things, a violation of the latter's fiduciary duties to Dr. Kurwa and to Trans Valley, and seeking an accounting of his interest in the joint venture. Dr. Kurwa also sued Physician Associates for breach of the capitation contract.
Prior to the commencement of trial on the remaining causes of action against Dr. Kislinger, the latter filed several motions in limine. He sought to preclude the introduction of certain evidence at trial, including evidence with respect to Dr. Kislinger's fiduciary duty, the capitation agreement between Trans Valley and Physician Associates, the handwritten notes dated July 1992 signed by Drs. Kurwa and Kislinger regarding the creation of their joint venture, and an additional 1997 writing concerning the doctors' further understanding regarding the terms of the joint venture. The trial court granted these motions, based on its conclusions that (1) because the doctors created a corporation to carry on the capitation business, they did not owe each other a fiduciary duty as partners or joint venturers, and thus Dr. Kurwa's cause of action for breach of fiduciary duty failed as a matter of law and (2) because Trans Valley was not properly formed as a medical corporation, it could not sue, derivatively through its shareholder Dr. Kurwa, for breach of fiduciary duty. The court also ruled that the capitation agreements between Trans Valley and the HMO's were not admissible based on this court's ruling that they were void ab initio, and that the handwritten notes containing the
Based on those rulings, Dr. Kurwa conceded that he could not proceed on his derivative and individual causes of action for breach of fiduciary duty, nor for an accounting based on such a breach, and the trial court dismissed those three causes of action. Dr. Kurwa also abandoned his causes of action for fraud, breach of contract, and breach of the contractual duty of good faith and fair dealing, and noted that his cause of action for removal of a director was moot. The court dismissed these causes of action with prejudice, "based upon plaintiff's lack of a desire to pursue [them] at this period of time." The doctors orally agreed to dismiss their causes of action for defamation without prejudice and to waive the applicable statute of limitations, which dismissal the court entered on the record. The court subsequently entered judgment in favor of Dr. Kislinger, from which Dr. Kurwa appeals.
Dr. Kislinger contends that the dismissal without prejudice of the parties' defamation causes of action, coupled with a waiver of the statute of limitations, renders the judgment interlocutory, as it leaves open the possibility that the parties may litigate those claims in the future. We do not agree, as we explain.
In Morehart, supra, 7 Cal.4th 725, a land use case, the trial court ordered the causes of action for a writ of mandate, declaratory relief and injunctive relief to be tried separately from the causes of action seeking damages for
The trial court entered judgment on August 23, 2010, stating: "Good cause appearing, it is hereby ordered, adjudged and decreed that plaintiff Badrudin Kurwa, shall take nothing by reason of his Complaint herein and that Judgment shall enter in favor of defendant and cross-complainant, Mark Kislinger, and defendants Mark B. Kislinger, Ph.D., M.D., Inc. and Mark Kislinger, M.D., Inc. and against Plaintiff Badrudin Kurwa." On its face, this is a final, appealable judgment. Each cause of action was adjudicated, and there is nothing to be decided in the trial court. Unlike the trial court in Morehart, the court below no longer had jurisdiction in this matter.
We acknowledge that a line of appellate opinions, beginning with Don Jose's Restaurant, Inc. v. Truck Ins. Exchange (1997) 53 Cal.App.4th 115 [61 Cal.Rptr.2d 370], reaches a different conclusion on similar facts. (See Jackson v. Wells Fargo Bank (1997) 54 Cal.App.4th 240 [62 Cal.Rptr.2d 679]; Four Point Entertainment, Inc. v. New World Entertainment, Ltd. (1997) 60 Cal.App.4th 79 [70 Cal.Rptr.2d 82]; Hill v. City of Clovis (1998) 63 Cal.App.4th 434 [73 Cal.Rptr.2d 638]; Hoveida v. Scripps Health (2005) 125 Cal.App.4th 1466 [23 Cal.Rptr.3d 667].) These cases hold that a cause of action dismissed without prejudice remains "pending" within the meaning of Morehart. Don Jose's Restaurant, Inc. v. Truck Ins. Exchange characterized the dismissed causes of action as existing "in a kind of appellate netherworld" (Don Jose's Restaurant, Inc. v. Truck Ins. Exchange, supra, 53 Cal.App.4th at p. 118), while Hill v. City of Clovis described them as "undecided and legally alive" (Hill v. City of Clovis, supra, 63 Cal.App.4th at p. 445). Accordingly, these cases hold that a judgment entered following a dismissal without prejudice is not final, and the orders of the trial court subsumed in the interlocutory judgment are not appealable unless and until the dismissed causes of action are subsequently revived and adjudicated on the merits. (Id. at p. 446.)
As noted above, Dr. Kurwa's lawsuit was dismissed as a result of the trial court's legal conclusion that, based on the allegations of the complaint, he had no standing to sue, and that Dr. Kislinger owed him no fiduciary duty. Consequently, we review the rulings de novo, giving the complaint a reasonable interpretation, and accepting as true all material facts properly pleaded. (Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 966-967 [9 Cal.Rptr.2d 92, 831 P.2d 317]; accord, Zelig v. County of Los Angeles (2002) 27 Cal.4th 1112, 1126 [119 Cal.Rptr.2d 709, 45 P.3d 1171].)
In its motions in limine, Dr. Kislinger maintained that, as a consequence of our ruling in the earlier appeal of the dismissal of Physician Associates, "Dr. Kurwa's 1992 and 1997 agreements with Dr. Kislinger [which] also stated that Trans Valley was to provide medical services . . . were also void ab initio, pursuant to law of the case." Dr. Kislinger argued that, because all of Dr. Kurwa's causes of action against him were based on one of these two agreements, he had no standing to bring any actions against Dr. Kislinger, either individually or derivatively on behalf of Trans Valley.
Initially, we reject the argument that the law of the case has any application to the issues presented on this appeal. The sum and substance of our holding in the prior appeal was simply that, for the reasons stated, Trans Valley could not enforce the capitation agreement against Physician Associates. Dr. Kurwa is not attempting to enforce the capitation agreement against Dr. Kislinger.
Dr. Kislinger's suggestion that the writings between the doctors evidencing the terms of their joint venture were void ab initio based on the law of the case is without merit. When entering the joint venture, the parties did not, as Dr. Kislinger avers, have "an unlawful purpose, namely to provide Trans Valley with payments for medical services." Rather, they had the lawful
The gist of Dr. Kurwa's complaint against Dr. Kislinger is that the two formed a joint venture to exploit the market for HMO ophthalmology capitation agreements in the San Gabriel Valley, and that, in causing his attorneys to send the Solicitation Letter to Physician Associates, Dr. Kislinger unilaterally terminated the joint venture and appropriated to himself, without any compensation to Dr. Kurwa, the very successful business which had been conducted by the joint venture for the prior 11 years. The fact that the doctors chose to conduct the joint venture in corporate form, and that they failed to include in the articles of incorporation the particular language which was required to create a professional medical corporation in compliance with Corporations Code section 13400 et seq., has no bearing on the question of whether Dr. Kislinger must account to Dr. Kurwa for appropriating the latter's equity interest in the joint venture.
In Persson v. Smart Inventions, two individuals began a business as partners. The venture was a success, and after several years, they incorporated the business, each partner receiving 50 percent of the shares and acting as directors and officers of the corporation. Several years thereafter, the two decided to terminate their relationship, and did so through a stock purchase agreement. The selling shareholder later claimed that the buying shareholder had concealed material facts regarding the corporation's prospects, facts which he was obligated to disclose based on his fiduciary duty to his partner. The Court of Appeal rejected this argument, stating: "We are persuaded that, in the usual case and in this case, a partnership does not continue to exist after the formation of a corporation." (Persson v. Smart Inventions, Inc., supra, 125 Cal.App.4th at p. 1157.)
This is not "the usual case" as described in Persson v. Smart Inventions. In that case, as well as in the cases upon which it relied (Cavasso v. Downey (1920) 45 Cal.App. 780 [188 P. 594]; Kloke v. Pongratz (1940) 38 Cal.App.2d 395 [101 P.2d 522]), individuals who originally conducted business as a partnership, and thereafter incorporated the partnership business, were deemed to no longer be partners. We have no quarrel with the general
However, such were not the facts alleged in the second amended complaint. First, Drs. Kurwa and Kislinger were never partners. Rather, prior to 1992, the two doctors conducted the business of medicine independently of each other, not in partnership together. In 1992, they undertook a new venture separate from their ongoing medical practices—to provide medical services to HMO patients under capitation agreements. The fact that they chose to conduct their joint venture in corporate rather than partnership form does not change the fact that they were joint venturers. (Elsbach v. Mulligan (1943) 58 Cal.App.2d 354, 370 [136 P.2d 651].)
Here, the complaint alleges that Drs. Kurwa and Kislinger formed a joint venture to provide medical services to HMO patients by entering into capitation agreements with local medical groups. The doctors incorporated the joint venture, and issued shares of stock to the two principals. Dr. Kislinger induced the HMO's to terminate their contracts with the corporation and to enter into capitation agreements exclusively with his medical corporation. These facts state a cause of action for breach of fiduciary duty owed by one joint venturer to another.
Finally, Dr. Kislinger cites the California Code of Regulations which provides that "Where there are two or more shareholders in a professional corporation and one of the shareholders ... [¶] ... [¶] ... [b]ecomes a disqualified person[
The judgment is reversed. Dr. Kurwa is to recover his costs of appeal.
Mosk, J., concurred.
KRIEGLER, J., Dissenting.
I respectfully dissent. The dismissal without prejudice and waiver of the statute of limitations on the cause of action for defamation leads to the inescapable conclusion the judgment did not dispose of the entirety of the action. Multiple authorities conclude that an appeal in the circumstances of this case violates the one judgment rule. (Hoveida v. Scripps Health (2005) 125 Cal.App.4th 1466, 1468-1469 [23 Cal.Rptr.3d 667]; Hill v. City of Clovis (1998) 63 Cal.App.4th 434, 442-445 [73 Cal.Rptr.2d 638]; Four Point Entertainment, Inc. v. New World Entertainment, Ltd. (1997) 60 Cal.App.4th 79, 83 [70 Cal.Rptr.2d 82]; Jackson v. Wells Fargo Bank (1997) 54 Cal.App.4th 240, 243-245 [62 Cal.Rptr.2d 679]; Don Jose's Restaurant, Inc. v. Truck Ins. Exchange (1997) 53 Cal.App.4th 115, 116-119 [61 Cal.Rptr.2d 370].) There is no contrary authority supporting my colleagues' position on the issue of appealability. The appeal should be dismissed.