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Wall v. Bryan

Court of Appeals of Louisiana, Second Circuit

June 27, 2018

FORREST P. WALL, M.D., F.A.C.S. Plaintiff-Appellee
v.
GREGORY W. BRYAN, DPM, MICHELLE R. RITTER, M.D., R. BLAIR DRUMMOND, DPM, JANNA CRUEY-ROARK AND AMBULATORY SURGERY CENTER OF LOUISIANA, L.L.C. Defendant-Appellant

          Appealed from the First Judicial District Court for the Parish of Caddo, Louisiana Trial Court No. 584344 Honorable Michael A. Pitman, Judge

          AYRES, SHELTON, WILLIAMS, BENSON & PAINE By: Lee H. Ayers Jody Todd Benson Stacey Smith Melerine Counsel for Appellant

          BRADLEY, MURCHISON, KELLY By: David Richard Taggart Judith Wilkinson Giorlando Brittany Jaudon Walker Counsel for Appellee

          Before MOORE, STONE, and STEPHENS, JJ.

          STEPHENS, J.

         Defendants, Gregory W. Bryan, DPM, Michelle R. Ritter, M.D., R. Blair Drummond, DPM, Janna Cruey-Roark, and Ambulatory Surgery Center of Louisiana, L.L.C., appeal judgments by the First Judicial District Court, Parish of Caddo, State of Louisiana, determining the valuation method and price to be paid to plaintiff, Forrest P. Wall, M.D., F.A.C.S., for his ownership interest in Ambulatory Surgery Center of Louisiana, L.L.C. Plaintiff has answered the appeal and appeals the judgment determining the price to be paid. For the following reason, we affirm the trial court's judgments.

         FACTS AND PROCEDURAL HISTORY

         Forrest P. Wall, M.D., F.A.C.S., brought suit against Gregory W. Bryan, DPM, Michelle R. Ritter, M.D., R. Blair Drummond, DPM, Janna Cruey-Roark, and Ambulatory Surgery Center of Louisiana, L.L.C. ("ASC"[1]), in connection with his imminent disqualification as a member of ASC and the forced sale of his ownership interest in ASC that would follow.

         ASC is a limited liability company medical practice. At the outset of this litigation, Dr. Wall, Dr. Bryan, Dr. Ritter, and Dr. Drummond were members of ASC's medical staff as well as ASC's board, and Ms. Roark was an employee and the administrator of ASC. In 2007, the members entered into an agreement entitled Operating Agreement of Ambulatory Surgery Center of Louisiana, L.L.C. ("the Operating Agreement"), which governed the management of ASC. It mandated that in order to maintain ownership in ASC, a person must maintain full and unrestricted privileges on ASC's professional staff. Dr. Wall was subsequently suspended from ASC on April 15, 2015. Pursuant to the Operating Agreement, this suspension not only disqualified Dr. Wall from membership in ASC but also barred him from owning any interest in ASC. The Operating Agreement contemplated several scenarios for valuing a withdrawing member's interest, and each of these scenarios required the value of the interest to be calculated in accordance with either "book value" or "computed value."

         Following his suspension from ASC, Dr. Wall filed suit seeking damages and injunctive relief to prevent ASC from denying him privileges. A temporary restraining order was issued barring ASC from taking any adverse action against Dr. Wall. Thereafter, the attorneys for the parties signed an agreement, the Confidential Agreement in Principal[2] ("the Agreement in Principle"), which specifically contemplated the execution of final settlement agreements by the parties. The Agreement in Principle provided in pertinent part that "the value of Dr. Wall's interest [is to be] determined in accordance with the ASC Operating Agreement provisions for Voluntary Separation." Voluntary Separation was one of the scenarios contemplated in the Operating Agreement in which either book value or computed value was to be used to value a withdrawing member's interest.

         The parties subsequently signed an agreement, the Confidential Settlement and Release ("Settlement Agreement"), pursuantto which Dr. Wall's suspension was rescinded and expunged and all ancillary disputes between the parties were settled except for one: the price to be paid to Dr. Wall for his 24.75% ownership interest in ASC. The Settlement Agreement further provided that in the event the parties were not able to agree on a price, they would seek a determination by the trial court. However, the Settlement Agreement did not specify the method for calculating the value of Dr. Wall's interest, thus triggering the applicability of La. R.S. 12:1325(C), which requires the use of fair market value to determine the value of a withdrawing member's interest when no method is otherwise specified.

         A hearing was subsequently held to determine which written agreement between the parties should dictate the valuation method used to calculate the price to be paid Dr. Wall for his ownership interest in ASC. ASC contended that the Operating Agreement and/or Agreement in Principle controlled the method of valuation, which would result in a book or computed value. Dr. Wall asserted the Settlement Agreement controlled, and, therefore, in accordance with La. R.S. 12:1325(C), fair market value was the appropriate method of valuation. A fair market value of Dr. Wall's interest would be substantially higher than a book or computed value.

         Ultimately, the trial court concluded that the Settlement Agreement superseded all prior agreements between the parties, specifically, the Agreement in Principle and the Operating Agreement. The trial court reasoned that the following language of the Settlement Agreement was clear and unambiguous and left no room for an alternative interpretation: "This agreement supersedes all prior understandings, negotiations, and agreements between and among the parties." The court further concluded that since the Settlement Agreement did not specify the method for calculating the value of Dr. Wall's interest in ASC, the value should be fair market, in accordance with the requirements of La. R.S. 12:1325(C).

         Another hearing was held to determine the fair market value of Dr. Wall's 24.75% interest in ASC. Dr. Wall presented expert testimony from Benjamin C. Woods while ASC presented expert testimony from Stuart Neiberg. Woods is a certified public accountant, a certified valuation analyst, and accredited in business valuation. He testified that approximately 90% of his work consists of business valuation of closely-held businesses, and over the last four or five years, he has valued roughly 18 to 20 medical-field organizations, including five or six surgery centers or related entities. Here, Woods stated his assigned objective was to determine the fair market value of a 24.75% interest in ASC as of April 2015. He testified that in doing so, he considered three different valuation approaches: the asset approach, the income approach, and the market approach. He explained that he determined the income approach was the most appropriate method in this case. Woods also calculated the value using the market approach to use a "self-check" on the income approach. He chose not to calculate the asset approach at all, stating it rarely represented intangible assets. Woods' opinion was that the fair market value of Dr. Wall's interest was $873, 146.00. He did not apply any discounts to this value. Regarding whether or not Dr. Wall's interest should be subjected to any discounts, Woods gave the following testimony:

I am aware that Louisiana courts and different courts have different interpretations of what is equitable in the court of law. My assignment is [to] determine the fair market value to a hypothetical buyer and seller on an open market, with both having knowledge of the facts. And then, you know, the courts can apply what we do in any way they choose, that's their discretion.

         However, while not a stated "minority discount," Woods did apply an embedded adjustment when initially calculating the value of Dr. Wall's 24.75% interest. Woods testified that this embedded minority discount[3] accounted for the fact that Dr. Wall's interest was a noncontrolling interest in ASC, and the embedded discount was necessary in order to arrive at a fair market value rather than just a fair value. Additionally, he testified that the 15% minority discount applied by Neiberg was reasonable.

         Regarding the applicability of a lack of marketability discount, Woods testified his research showed this type of minority interest in ambulatory surgery centers sells readily in the marketplace as there are numerous physician-owned entities like ASC in existence and several big companies that are consolidating these interests, as well as hospitals and other physicians creating the market-a unique situation from other closely-held entities. Accordingly, Woods elected not to apply a lack of marketability discount. He testified that a typical lack of marketability discount is usually 30-35% and the 25% lack of marketability discount applied by Neiberg was not egregious; rather, it was just in error because there actually is a market for minority interests in surgical centers. However, Woods did acknowledge that an investment in any closely-held company contains a greater degree of risk than one in publicly traded stocks due to lack of marketability, size, diversity, and other factors. Notably, part of the research relied on by ...


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