Doctors Weren’t Liable for Self-dealing, Conversion

    By Health Care

    A Richmond Circuit Court jury has rejected a contention that two former officers of an anesthesiology practice breached their fiduciary duties to the group by secretly paying themselves far more than other members of the group.

    Instead, the jury found that Anesthesiology Associates of Richmond Inc. should pay $1 million in deferred compensation to one of those officers, Dr. Francis Perera, and $400,000 in deferred compensation to another physician, Dr. Paul E. Franks.

    The jury reached those conclusions during a week-long trial at the end of October. Post-trial motions, including a request for attorneys’ fees by Perera and Franks, and a contention that some jury instructions were erroneous, are pending before Judge Randall G. Johnson.

    Perera began working at AAR in 1977 and was president of the corporation from 1988 until 2001.

    Another physician with the group, Dr. Kang Rah, was vice president and chairman of the anesthesiology department at Henrico Doctors Hospital during much of Perera’s tenure. The group had, and has, an exclusive contract to provide anesthesiology services for the hospital.

    The other physicians in the group forced out Perera and Rah in 2002 after they discovered that they had approved salaries and bonuses for themselves of more than $1 million in some years, while no one else in the practice was paid more than $404,000 annually during those years, according to William H. Shewmake, the attorney for AAR. The group sought $10 million from Perera and Franks.

    Shewmake contended that the disparity in pay and the absence of corporate formalities in authorizing the larger salaries and bonuses amounted to conversion of the group’s assets and a breach of fiduciary duty to the corporation and the other physician shareholders. Rah and AAR settled cross claims for deferred compensation and breach of fiduciary before trial.

    Kevin D. Holden and David Shane Smith, the attorneys for Perera and Franks, responded that there was a valid explanation for the disparity in pay – Perera’s development of the practice and the long relationship with Henrico Doctors and Rah’s long tenure and position as chairman of the anesthesiology department at the hospital, in addition to their administrative duties.

    They also contended that the accepted practice was for the president and vice president of the corporation to set salaries and bonuses and that the other members of the group were aware of the disparities, which the attorneys contended were exaggerated.

    Moreover, Holden and Smith said, the pay was lower for two members of the practice as an incentive for them to become board-certified. Board certification for all members of the group was a condition of the exclusive contract with the hospital, although the provision was not enforced.

    Shewmake said he expects to appeal to the Supreme Court of Virginia if Johnson affirms the jury’s verdict. He said he will contend that the judge erred in placing the burden of proof on the practice rather than placing that burden on Perera and Franks once he had established a prima facie case of self-dealing.

    Shewmake said he also questions an instruction on the conversion count. He contended that he had only to show that the higher pay and bonuses were without corporate authorization. Proof of intent to steal was not required in the civil context, he said.

    The contents of this publication are intended for general information only and should not be construed as legal advice or a legal opinion on specific facts and circumstances. Copyright 2023.