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Physician Specialists in Anesthesia PC v. MacNeill

Because the parties made no effort to pre-estimate their loss in the event of a breach, the liquidated damages provision of their shareholder's agreement was an unenforceable penalty.

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The issues in this case revolve around the departure of three physician shareholders from Physician Specialists in Anesthesia, P.C. “PSA”, a group medical practice specializing in anesthesiology, critical care, and pain management. The three doctors, appellees/cross-appellants Randy Rizor, Charles A. MacNeill, Jr., and John G. Porter “Physicians”, filed suit to recover deferred compensation allegedly owed to them pursuant to a Shareholders’ Agreement “Agreement” entered into on May 17, 1993, between PSA and its thirteen physician shareholders. PSA defended on the ground that it is entitled to retain the deferred compensation as liquidated damages because the Physicians breached various restrictive covenants when they formed a competing medical practice. PSA also counterclaimed, alleging the Physicians breached their fiduciary duty to PSA, tortiously interfered with PSA’s contractual and business relationships, and breached the Agreement’s implied covenant of good faith and fair dealing.

The voluminous record reveals a myriad of disputed and undisputed facts relevant to this appeal. We present them chronologically as follows: Prior to 1990, only Drs. Stanley Mogelnicki and Donn Chambers were shareholders in PSA. All other physicians in PSA, including the plaintiffs, were employees. In 1990, Drs. Mogelnicki and Chambers sold shares of stock to ten physician employees, including the plaintiffs, and the shareholders executed an agreement.

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