Facts

Plaintiffs and defendant Richard J. Kelly were physicians who practiced together in a group that provided anesthesia services to a hospital in Monterey. Plaintiffs filed suit against their former fellow member in relation to the group and his share ownership.

Kelly filed a cross-complaint for alleged contract interference

PLAINTIFF'S CONTENTIONS:
In forming the group, Kelly, an attorney and physician, put all the corporate shares in his name and elected himself as sole director and officer without the knowledge or consent of the other members of the group. The group eventually found out about Kelly's share ownership, and Kelly promised the group members that he would transfer shares to them, but he never did.

The group was to be managed by a three-person executive committee, and Kelly led the group members to believe that the executive committee was in control. Unbeknownst to the other members of the group, Kelly never actually created an executive committee during the operation of the group. Kelly frequently overrode the decisions of the so-called executive committee when he disagreed with its decisions or he acted unilaterally.

At the end of the group's three-year term with the hospital, the members of the group gave Kelly an opportunity to cure the problems he created, but he refused. The members then resigned upon the expiration of the three-year contract term with the hospital. The hospital awarded the contract to the other members of the group, and not to Kelly. After the contract terminated, Kelly still controlled the finances of the group, including about $1 million in cash, which he paid to himself and to his attorneys in defending the complaint and pursuing his cross-complaint for alleged contract interference.

Plaintiffs claimed Kelly and his affiliated companies breached their fiduciary duties, converted plaintiffs' funds, and breached their contracts.

DEFENDANT'S CONTENTIONS:
Dr. Kelly and Carmel Healthcare Anesthesia Medical Providers Inc. contended that while plaintiffs were under contract with Carmel Healthcare, the contract prohibited plaintiffs from soliciting business away from Carmel Healthcare. In addition, while plaintiffs were being paid to provide medical services to Carmel Healthcare's major client, a Monterey hospital, plaintiffs aided and abetted two of the leaders of plaintiffs, who were performing management responsibilities for Carmel Healthcare, to compete with Carmel Healthcare. Dr. Kelly and Carmel Healthcare contended plaintiffs formed a new medical corporation to divert Carmel Healthcare's major hospital client to plaintiffs newly formed medical corporation.

Dr. Kelly contended plaintiffs' efforts to divert business from Carmel Healthcare to their new company while they were under contract with Carmel Healthcare and being paid by Carmel Healthcare was unlawful. Additionally Dr. Kelly contended that a major purpose of plaintiffs' actions was to unlawfully prevent Dr. Kelly from continuing to practice medicine at the hospital that was Carmel Healthcare's major client. Dr. Kelly and Carmel Healthcare consequently cross-complained against plaintiffs claiming that plaintiffs breached their contracts with Carmel Healthcare and to Dr. Kelly not to interfere with Carmel Healthcare and with Dr. Kelly's prospective economic opportunities and for interference with plaintiffs' contract with Carmel Healthcare and Carmel Healthcare's contract with the hospital.

Dr. Kelly also denied all of plaintiffs' claims, including plaintiffs' claims for fraud and for punitive damages, on the basis that plaintiffs were paid in accord with their contracts with Carmel Healthcare.

Result

Judgment for plaintiff in the amount of $1,385,683 for breach of fiduciary duty, conversion and breach of contract. Judgment for cross-defendant on the cross-complaint for contract interference. The case was decided by a single arbitrator. The arbitrator rejected plaintiffs' claims for fraud against Dr. Kelly and refused to award any punitive damages against Dr. Kelly.