On appeal from Superior Court of New Jersey, Chancery Division, Monmouth County, Docket No. C-24-08.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Before Judges A.A. Rodriguez, Grall and C.L. Miniman.
This appeal concerns a contract dispute among the members of a medical practice respecting their rights and obligations under employment and shareholder agreements. This dispute arose when plaintiff Bindoo Rughani-Shah, M.D., left the practice. Defendants Golam G. Noaz, M.D. (Noaz), Paul R. Farrell, M.D. (Farrell), and Ocean Pediatric Group, P.A. (Ocean), appeal from orders denying their requests to compel plaintiff to sell her shares in Ocean to defendants and to require plaintiff to adhere to the post-employment restrictive covenant in her employment agreement;*fn1 requiring Noaz and Farrell to purchase plaintiff's share in Ocean for the sum of $218,685; requiring Noaz, Farrell, and Ocean to pay plaintiff the sum of $6892.56 for overpayments they took from corporate monies; requiring them to pay plaintiff $11,686.44 in lieu of health benefits;*fn2 denying defendants' motion for a new trial as to damages; and awarding counsel fees to plaintiff as a sanction defendants' violation of litigant's rights pursuant to Rule 1:10-3. Plaintiff cross-appeals contending that the judge erred by denying her motion for leave to file an amended complaint stating additional causes of action dismissing her claims for relief as an oppressed minority shareholder, N.J.S.A. 14A:12-7. We now affirm in all respects.
Noaz formed Ocean in 1975; DeGroote joined the practice as a partner one year later and was in charge of Ocean's bookkeeping. Farrell joined the practice in 1978 and became a partner in 1990. The building in which defendants practiced medicine in Brielle was owned by a real-estate partnership formed in the mid-1980s by Noaz, DeGroote, and Farrell.*fn3 Ocean also had a satellite office in Eatontown, but that building was not owned by the real-estate partnership.
In 1993, Noaz, DeGroote and Farrell entered into a shareholders agreement, which provided that termination of employment for any reason would be treated as an offer to sell the shares held by the departing shareholder to the remaining shareholders. Paragraph 6 of the agreement established the methodology for determining the purchase price for such shares as follows:
a. Purchase Price In All Events. The purchase price in all events shall be determined by multiplying the selling shareholders percent of ownership by book value of all of the stock of the Company. Book value when used throughout this Paragraph 6 shall be as determined as of the date of the event creating the offer to sell by using the accrual method of accounting,*fn4 excluding goodwill (except when previously carried on the books of the Company) and insurance proceeds on policies purchased for the purpose of funding this Agreement, but including any cash value on such policies subject, however, to the adjustments hereinafter provided.
(3) Accounts Receivable. Accounts receivable shall be reduced by fifteen (15%) percent to allow for uncollectability and administration in collection.
Goodwill not previously carried on the books was excluded in order to protect Ocean's value.
Plaintiff became an employee of Ocean in July 1994. She signed an employment contract which gave her an opportunity to become a partner after three years of satisfactory performance.
Effective January 1, 1998, the shareholders amended their agreement to lower the reduction in Paragraph 6(a)(3) for bad debt in the accounts receivable from fifteen to ten percent. Those figures were derived from the then-existing proportion of bad debt to collectible debt.
That year, plaintiff purchased an interest in Ocean for $160,375. The first component of that amount was $11,250 for a twenty-five percent interest in the tangible assets of Ocean. The second component was $149,125 for a twenty-five percent interest in Ocean's goodwill.*fn5 Of the total sum, $25,000 was to be paid presently and was allocated for the purchase of twenty-five percent of Ocean's issued and outstanding stock held by Noaz, DeGroote, and Farrell, and the balance of the purchase price was to be paid by a salary adjustment. Additionally, the existing stockholders would be entitled to withdraw $108,000 in salary adjustments for Ocean's then-existing good accounts receivable. Various adjustments were to be made for interest and tax differentials. Thus, the total compensation paid to Noaz, DeGroote, and Farrell upon plaintiff's purchase was $268,375. The parties signed the amended shareholders agreement giving plaintiff a twenty-five percent interest in Ocean, and plaintiff agreed to be bound by the original agreement. They also signed a stock-purchase agreement, a salary-memorandum agreement, a severance-pay agreement, individual deferred-compensation agreements, and a side agreement relating to deferred compensation. Plaintiff also executed a promissory note in the amount of $8,333.33 to be paid in 60 monthly installments of $171, which included interest at eight and one-half percent per annum.
Pursuant to the salary-memorandum agreement, the four shareholders received annual base salaries of $130,000 and twenty-five percent of Ocean's net distributable income. Noaz, DeGroote, and Farrell received annual seniority pay of $20,043 for a five-year term. From plaintiff's salary, the sum of $60,129 was deducted to pay the purchase price of her interest in Ocean. At the time the document was prepared, it was anticipated that plaintiff's total buy-in figure including interest would be $275,535. However, plaintiff claimed that she actually paid $330,000 for the buy-in.
Noaz claimed that the deferred-compensation agreement was the vehicle by which a departing shareholder was paid for goodwill, although the stated purpose of the agreement was "to induce [plaintiff] to continue in the employ of [Ocean] and to utilize h[er] best efforts to maintain and enhance the business of [Ocean]." The agreement required plaintiff to work fifteen years before becoming eligible for the deferred compensation upon two years disability or retirement at age forty-five.
On May 6, 2004, Noaz, DeGroote, and Farrell issued a stock certificate to plaintiff indicating that as of that date the buyout amount for her twenty-five percent interest in Ocean was $150,000. Plaintiff claimed that she was not given the opportunity to buy into the real-estate partnership. However, DeGroote claimed that he offered plaintiff a chance to do so when she became a shareholder but she responded that she was not interested. He further claimed that plaintiff declined to buy his share in the real-estate partnership when he left Ocean in 2005. Farrell confirmed this testimony.
DeGroote first indicated his intention to resign at the end of 2003. The other partners offered DeGroote various buyout proposals, including one where he would be paid $200,000 over five years, which he rejected because, under the terms of the proposed agreement, he would have been prevented from practicing. DeGroote actually stopped working at the practice in early 2005. In 2006, he agreed to a lump sum buyout of $77,500 less one car payment of $500 because he was tired of the hassling. The buyout did not include goodwill. An agreement for the sale of his one-quarter interest in Ocean for $77,500 was eventually signed on August 31, 2006. The buyout was paid, in part, through a $75,000 loan from Sun Bank. Plaintiff was asked to sign the loan.
In the meantime, Noaz asked plaintiff to take over the bookkeeping duties from DeGroote in early 2005. DeGroote and plaintiff's husband, Sanjeev Shah, a systems analyst who worked for a financial company, helped her become familiar with the computer accounting program. At the request of Ocean's accountant, the accounting program was changed from Peachtree to QuickBooks.
Upon taking over the bookkeeping, plaintiff discovered that Ocean owed the real-estate partnership $67,528.54. She stated that she was shocked by this discovery because her partners had kept her in the dark about this liability. Shah discussed the matter with Noaz and Farrell, who did not know from where the figure came. Farrell stated that he did not learn about the liability until a meeting with plaintiff and Shah in late 2005 or early 2006. DeGroote did not learn about the liability until after this litigation had commenced. Defendants stipulated at trial that Ocean did not owe the real-estate partnership $67,528.54.
Ocean was paying $5000 a month in rent for the 2037-square-foot office to the real-estate partnership in 2005. Plaintiff and Plaintiff's husband believed that was too high because Ocean was paying $4800 at its other office in Eatontown even though that office had nearly 2000 more square feet. Plaintiff also thought it was unfair that the other partners were receiving rental payments while she was not receiving payments in lieu of the rent. Plaintiff expressed her concern to the other partners, as well as her desire to receive in-lieu payments retroactive to when she became a partner in 1998; Noaz and Farrell agreed to let her take an extra $500 per paycheck in the future to compensate for the excessive rent payments.
Plaintiff received health coverage through Ocean; Noaz and Farrell did not. Instead, they received $500 per paycheck in lieu of that coverage. Farrell further stated that the three would take, on average, $500 to $2000 in net profit each year. At the end of 2005, plaintiff determined, with the aid of Ocean's accounting firm, that there was a bonus pool of $10,000, $6000 of which was distributed to Farrell and $4000 to plaintiff. Noaz did not get a bonus, according to plaintiff, because his expenses far outweighed any possible bonus. The expenses included items such as credit cards and automobiles. Noaz expressed his unhappiness to plaintiff regarding the bonus distribution. He believed that he was shortchanged by $3000 because of the expenses plaintiff charged to him.
In late 2006, plaintiff paid $25,000 to Sun Bank as a prepayment on the loan Ocean took to buy DeGroote's shares. She did so because she believed that Ocean had just had a very profitable year and she wanted to reduce Ocean's debt. Plaintiff did not consult with Noaz or Farrell before making the payment. Deborah Mathis, who was executive director of CG Healthcare Solutions, the company that provided billing services to Ocean, told plaintiff and plaintiff's husband at the year-end meeting in 2006*fn6 that paying down the Sun Bank loan was not tax deductible but rather would generate taxable income resulting in a tax of $10,500. The shareholders' relationship began to sour after this unauthorized payment, and Ocean began to unravel.
Noaz and Farrell were unhappy when they found out about the payment to Sun Bank. Noaz was also dissatisfied over the application of his benefits and in-lieu payments to offset his 2006 year end distribution. As a result, Noaz and Farrell called a meeting in February 2007 to express their dissatisfaction to plaintiff. Noaz and Farrell thought that plaintiff's husband's involvement was unnecessary and objected to the $9000 charges assessed against each of them without their consent for the rent payments they received in 2006. Plaintiff viewed this as a "fair and equitable solution to the excessive payment of rent" to the other two partners. They told her that if she continued to do the books in the manner she had been doing, they would take the responsibility away from her. Plaintiff, who was very upset, told them they were welcome to do that.
On March 29, 2007, plaintiff received a letter from Noaz in which he demanded that Ocean pay him $20,000 and pay Farrell $10,000 for 2005 and 2006. Plaintiff described herself as in a "state of shock" upon receiving this letter and was unsure about to what the payment demands related. Although she was "disgusted," in April 2007 plaintiff issued checks from Ocean to Noaz and Farrell for $10,000 each and in 2008 issued another check to Noaz for $10,000 in order to "keep peace."*fn7
Following receipt of this letter, according to plaintiff, "things went downhill tremendously. Every communication was shut down except for patient care related issues." This was particularly true with respect to Noaz. In one incident, plaintiff heard Noaz tell plaintiff's staff that they better realize who the bosses were. After that, plaintiff noticed a change in the attitude of the staff towards her. In another incident, when plaintiff and Noaz were seeing sibling patients, Noaz came into the room where plaintiff was and asked the mother to come into the other room. Plaintiff felt "disrespect[ed]" and "humiliated." Also in 2007, plaintiff claimed that Noaz prevented the disciplining of an employee who had called plaintiff a "bitch."
Plaintiff claimed that, prior to 2007, she was consulted about hiring and firing decisions. However, in 2007 Noaz terminated two employees and promoted another without consulting her. Noaz also purchased equipment for the office without consulting her. Additionally, plaintiff claimed that she was not consulted in 2007 when Noaz and Farrell offered another physician in the office an opportunity to become a partner in Ocean. She also learned from Rosemary Maringola, Ocean's office manager, that Noaz and Farrell were having meetings without her.
Noaz admitted that he and Farrell did not consult with plaintiff before they (1) hired a new company, Cowan Gunteski, in June 2007 to do Ocean's billing; (2) purchased new equipment; (3) fired two employees; and (4) offered a position to a physician.*fn8 An outside company was hired, according to Farrell, because in-house billing management had been a "disaster," as plaintiff knew.
Farrell testified that it was customary for one partner to purchase equipment when there was an immediate need and Noaz was primarily in charge of hiring and firing. Farrell stated that he too did not find out about the firing of the two employees, and the rehiring of the other, until after the fact. In addition, Farrell stated that he switched corporate bank accounts late in 2007 and informed plaintiff of the change.
Maringola began having difficulties with some of the people in the Brielle office in 2007. She fired an employee for theft, but Noaz rehired her. This led to friction between Maringola and Noaz. In another incident, an employee called Maringola and plaintiff a "bad word." Maringola ...