AmSurg Holdings Incorporated et al v. Anireddy et al

Filing 133

ORDER denying 62 Motion for Summary Judgment. Signed by Judge Susan M Brnovich on 1/29/2019. (TCA)

1

WO

2
3
4
5
6

IN THE UNITED STATES DISTRICT COURT

7

FOR THE DISTRICT OF ARIZONA

8
9

AmSurg Holdings Incorporated, et al.,

10

Plaintiffs,

11

v.

12

No. CV-17-04181-PHX-SMB
ORDER DENYING DEFENDANTS’
MOTION FOR SUMMARY
JUDGMENT

Divesh Anireddy, et al.,

13

Defendants.

14
15

At issue is the motion for summary judgment filed by defendants Anireddy, Esker,

16

Miller, Bryant, Endoscopy Center of Yuma, L.L.C. (“ECY”), and Yuma Endoscopy

17

Center, L.L.C. (“YEC”) (collectively, “Defendants”).1 (Doc. 62, “Mot.”). Plaintiffs

18

AmSurg Holdings, Inc. (“AmSurg”), and The Yuma AZ Endoscopy ASC, L.L.C. filed a

19

response (Doc. 74, “Resp.”), to which Defendants filed a reply (Doc. 86, “Reply”). Oral

20

argument was held on January 9, 2019.
I.

21

Background

22

Defendant ECY is a physician entity located in Yuma, Arizona. Defendants Divesh

23

Anireddy, M.D., and Alec Esker, M.D., are Members of ECY. AmSurg is a corporation in

24

the business of developing, owning, and operating ambulatory surgery centers in

25

partnership with physicians. Their dispute arises from a joint venture that began in October

26

2005, when AmSurg bought a 51% share of a surgery center operated by

27
28

1

Defendant Digestive Diseases Center, L.L.C., was also party to the motion for summary
judgment, but the parties have since stipulated to its dismissal. (Doc. 70).

1

ECY. (DSOF, Ex. 1). Plaintiffs allege they paid $6.5 million for their share of the surgery

2

center. (Doc. 46 ¶ 14, “Complaint”). To operate the surgery center, AmSurg and ECY

3

formed an LLC called The Yuma AZ Endoscopy ASC, LLC (“ASC”). (DSOF, Ex. 1).

4

Defendant Beverly Bryant was an administrator at ASC, where defendant Seth Miller,

5

M.D., also performed procedures before starting a competing surgery center, YEC. In their

6

Complaint, Plaintiffs allege Defendants purposely undermined the success of the joint

7

venture in order to operate and develop YEC. (Doc. 46, “Complaint”).

8

AmSurg and ECY signed an operating agreement (the “Agreement”) for ASC that

9

states that the purpose of ASC is to own and operate the “Center.” (DSOF, Ex. 1). The

10

Center is defined as “the ambulatory surgery center operated by [ASC] and located in

11

Yuma, Arizona, including the real property, or leasehold improvements, furniture, fixtures,

12

the Equipment, books records, supplies, accounts receivable, goodwill, other intangibles

13

and other assets used in its operation.” (DSOF, Ex. 1). ECY maintained a 49% stake in the

14

Center, and AmSurg and ECY are the only two members of ASC. (DSOF, Ex. 1).

15

The Agreement also includes an anti-assignment clause that, among other things,

16

requires all members to approve another member’s assignment of its membership interest

17

to a non-party. (DSOF, Ex. 1). An assignment that is inconsistent with the Agreement

18

“shall be void.” (DSOF, Ex. 1). The Agreement is governed by Tennessee law, specifically

19

the Tennessee Limited Liability Company Act, Tenn. Code. Ann. §§ 48-201-101 et seq.

20

(DSOF, Ex. 1).

21

At the time of the Agreement, AmSurg Holdings, Inc. and its parent company,

22

AmSurg Corp., were both corporations organized under Tennessee laws. (DSOF, Ex. 1).

23

In 2014, AmSurg Holdings, Inc. (“AmSurg-Tennessee”) merged into a newly-created

24

Delaware corporation of the same name (“AmSurg-Delaware”). (DSOF ¶ 7). In 2016,

25

AmSurg Corp. also merged into a different Delaware Corporation called New Amethyst,

26

which then merged into Envision Healthcare Holdings, Inc., a Delaware corporation

27

(“Envision”). (PASOF ¶ 19). The parent company was not a party to the Agreement.

28

AmSurg-Delaware had no further mergers.

-2-

1

Defendants argue Plaintiffs lacking standing to sue because the mergers violate the

2

Agreement’s anti-assignment clause, thus voiding Plaintiff’s interest in ASC. (Mot. at 8–

3

17). Plaintiffs, however, characterize the merger as a “routine business decision” meant

4

only to change AmSurg’s state of domicile from Tennessee to Delaware. (Resp. at 1, 3;

5

PASOF ¶ 8). They assert the merger did not change “AmSurg’s business operations,

6

practices, policies, officers or other personnel,” (Resp. at 3; PASOF ¶ 9), and that the

7

merger was not a traditional assignment but a transfer or assignment by operation of law,

8

which is not a prohibited assignment as contemplated by the agreement. They note

9

AmSurg-Delaware even retained the same IRS Federal Employer Identification Number

10

after the merger. (Resp. at 3; PASOF ¶ 10). Defendants do not present any facts to dispute

11

the assertion that the merger didn’t change AmSurg’s business operations, practices,

12

policies, officers or other personnel. Defendants, for their part, say Plaintiffs hid the merger

13

from them, (Mot. at 16), and they only “discovered” the merger after discovery began in

14

this litigation. (DSOF ¶ 12). Plaintiffs respond by noting the merger was a public

15

transaction filed with the Tennessee and Delaware Secretaries of State. (Resp. at 2; PASOF

16

¶ 7). Plaintiffs also argue that equity compels the court to reject Defendants’ motion.

17
18
19

Defendants’ motion asks for summary judgment on all causes of action alleged in
the Complaint arguing that Plaintiffs have no standing to sue. (Mot. at 2).
II.

Legal Standard

20

Summary judgment is appropriate when “there is no genuine dispute as to any

21

material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P.

22

56(a). Under this standard, “[o]nly disputes over facts that might affect the outcome of the

23

suit under governing [substantive] law will properly preclude the entry of summary

24

judgment.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A “genuine issue”

25

of material fact arises only “if the evidence is such that a reasonable jury could return a

26

verdict for the non-moving party.” Id.

27

In considering a motion for summary judgment, the court must regard as true the

28

non-moving party’s evidence if it is supported by affidavits or other evidentiary material.

-3-

1

Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986); Eisenberg v. Ins. Co. of N. Am., 815

2

F.2d 1285, 1289 (9th Cir. 1987). The non-moving party may not merely rest on its

3

pleadings; it must produce some significant probative evidence tending to contradict the

4

moving party’s allegations, thereby creating a question of material fact. Anderson, 477 U.S.

5

at 256-57 (holding that the plaintiff must present affirmative evidence in order to defeat a

6

properly supported motion for summary judgment); First Nat’l Bank of Ariz. v. Cities Serv.

7

Co., 391 U.S. 253, 289 (1968).

8

III.

Analysis

9

Defendants move for summary judgment on the grounds that the entities they

10

contracted with, AmSurg-Tennessee and AmSurg Corp., ceased to exist when they merged

11

into different corporations and the anti-assignment clause prevents any rights the original

12

entities had from transferring to the new corporations AmSurg-Delaware and Envision.

13

Therefore, Plaintiffs do not have standing to sue. For the reasons that follow, Defendants’

14

arguments are unpersuasive.

15

1. The ASC’s anti-assignment clause

16

The anti-assignment clause is found in Section 12 of the Agreement. Defendants

17

argue Plaintiffs only have standing to sue if the original entities assigned their membership

18

interest to the new entities consistent with Subsection 12.3, the portion of the Agreement

19

that governs assignments to “any person who is not a member.” (Mot. at 5). The relevant

20

portions of the Agreement are as follows:

21
22
23
24
25
26
27
28

12.1. Assignment of Membership Interests. No assignment of all or any
part of a Membership Interest in the LLC (including any Financial Rights,
Governance Rights or other rights pertaining to a Membership Interest) shall
be made except as follows:
…
12.1.2. Subject to the provisions of Section 12.3 hereof, a Member
may assign such Member’s Membership Interest to any person who is
not a Member;
…
12.1.5. The LLC need not recognize any assignment of all or any part
of a Membership Interest other than an assignment described in
Sections 12.1.1 through 12.1.4 hereof. Any other assignment or

-4-

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

attempted assignment shall be void. No assignment shall be effective
until written notice thereof has been provided to the LLC and any
other applicable requirements set forth in this Agreement, the Articles
of Organization or the Act have been satisfied.
…
12.3. Assignment of Membership Interest with Consent of Other
Members. A Member may assign all or any part of such Member’s
Membership Interest to a person not theretofore a Member in accordance
with Section 12. l.2 hereof if (a) the assignor first gives written notice to the
other Member(s) and the LLC of the proposed assignment, giving the name,
address and social security or taxpayer identification number of the proposed
assignee and describing the terms of the assignment, (b) the proposed
assignee executes a copy of this Agreement and agrees in writing to be bound
by the terms hereof, (c) the assignment is approved in writing by the other
Members, and (d) the assignment is permitted under Section 12.5 hereof. …
The approval by the Members of an assignment pursuant to this Section 12.3
shall constitute consent to the continuation of the existence and the business
of the LLC pursuant to the Act.
…
12.5. Restrictions on Assignment. No Member shall be permitted to assign
such Member’s Membership Interest, Financial Rights or Governance Rights
if such assignment would result in the LLC being taxed for federal income
tax purposes as an association taxable as a corporation or would constitute a
violation of any applicable federal or state law. Each of the Members hereby
agrees and acknowledges that the restrictions on assignment contained in this
Article 12 are not unreasonable in view of the nature of the parties and their
relationships to one another and the nature of the business of the LLC.
The crux of the issue is whether AmSurg-Tennessee’s merger into AmSurg-Delaware is a
prohibited assignment contemplated by the Agreement. Defendants contend that the
merger was a “transfer by operation of law,” which is barred by the Agreement and
AmSurg-Delaware is nothing more than an “imposter” without a claim to any of the
contractual rights previously possessed by AmSurg-Tennessee. (Mot. at 10–11) (quoting
Freeman Mgmt. Corp. v. Shurgard Storage Centers, Inc., No. 3:06cvo736, 2007 WL
1541877, at 4* (M.D. Tenn. May 23, 2007)). Plaintiffs agree the merger is “an assignment
by operation of law” or a “transfer by operation of law,” but argue an assignment by
operation of law is a legal term of art that is fundamentally different than an assignment as
contemplated by the Agreement. (Resp. at 4–9). See also Tenn. Code Ann. § 48-244-5-

1

104(c)(1), (2) (The effect of a merger is that every entity “other than the surviving entity

2

ceases to exist,” and “all property . . . owned by each of the merged entities vests in the

3

surviving or resulting entity.”)

4

2. Tennessee statutes do not provide a definitive answer.

5

AmSurg-Tennessee, AmSurg-Delaware, AmSurg Corp, New Amethyst, and

6

Envision are all corporations. Mergers of for-profit business corporations are governed by

7

Tenn. Code. Ann § 48-21-108. It provides that when a merger is effective, “The

8

Corporation or eligible entity that is designated in the plan of merger as an entity surviving

9

the merger shall survive, and the separate existence of every other corporation or eligible

10

entity that is a party to the merger shall cease.” Tenn. Code Ann. § 48-21-108(a)(1)

11

(emphasis added). Further, “All property owned by, and every contract right possessed by,

12

each corporation or eligible entity that is merged into the survivor shall be vested in the

13

survivor without revision or impairment.” Id. at § 48-21-108(a)(2). Therefore, when

14

AmSurg-Tennessee merged into AmSurg-Delaware, AmSurg-Tennessee ceased and all

15

property owned by it “vested in” AmSurg-Delaware “without reversion or impairment.”

16

The same goes for AmSurg Corp.’s merger into New Amethyst and then Envision.

17

Defendants argue that the party they originally did business with has ceased to exist

18

and the “vesting” of AmSurg-Tennessee’s interest in the ASC into AmSurg-Delaware is

19

an assignment in violation of Tenn. Code. Ann. § 48-218-102, which sets the default rules

20

for assignment of membership interests in Limited Liability Companies. Section 48-218-

21

102(b)(2)(A) governs an assignment to a non-member:

22

Except as provided in subdivisions (b)(2)(B) and (C), any other assignment
of any governance rights is effective only if all the members, other than the
member seeking to make the assignment, approve the assignment by
unanimous consent or if the articles or operating agreement so permit, the
assignment is approved in accordance with, if the assignment is approved in
accordance with § 48-232-102.2

23
24
25
26
27
28

2

Section 48-232-102 governs the admission of new members to a Limited Liability
Company.
-6-

1

Subsection f provides the outcome of an assignment that is not consistent with the statute:

2

6

(f) CONSEQUENCES OF INEFFECTIVE ASSIGNMENT. If any
purported or attempted assignment of governance rights is ineffective for
failure to obtain the consent required in subsection (b):
(1) The purported or attempted assignment is ineffective in its
entirety; and
(2) Any assignment of financial rights that accompanied the purported
or attempted assignment of governance rights is void.

7

What is conspicuously absent from the statutes cited by Defendants is whether the

8

statute that vested AmSurg-Tennessee’s property into AmSurg-Delaware when those

9

corporations merged is an “assignment.”3 Additionally, subsection (b)(1) of the same

10

statute the defendants cited allows parties to contract around the default rules. Tenn. Code.

11

Ann. § 48-218-102(b)(1). And, as previously noted, Plaintiffs concede that courts have

12

interpreted a merger to be an assignment by operation of law or a transfer, but they argue

13

the Agreement should be interpreted as unambiguously allowing a merger because it is a

14

legal term of art, categorically different than the generic “assignment” used in the

15

Agreement. That is, the Agreement was never intended to prevent assignments by

16

operation of law. Defendants argue otherwise, pointing to case law that has barred transfers

17

of property after a merger.

3
4
5

3. Case law does not provide a definitive answer.

18
19

Defendants argue that a merger is a “transfer by operation of law,” Freeman, 2007

20

WL 1541877 at *4, which constitutes an assignment. In their view of the Agreement, if the

21

parties meant to exclude transfers by operation of law from the broader prohibition on

22

assignments, the Agreement would have explicitly stated so. See PPG Indus., Inc. v.

23

Guardian Indus. Corp., 597 F.2d 1090, 1095 (6th Cir. 1979) (“If the parties had intended

24

an exception [to the anti-assignment clause] in the event of a merger, it would have been a

25

simple matter to have so provided in the agreement.”). In support of this interpretation,

26
27
28

3

Additionally, Section 48-21-108(b) provides that property and contract rights owned by
a ceasing entity is vested in the surviving corporation without reversion or impairment. It
is hard to imagine a more significant impairment of the rights owned by the ceasing entity
in this case, AmSurg-Tennessee, than the remedy requested by Defendants.
-7-

1

Defendants largely rely on PPG Industries, Freeman, L & L Trucking, Inc. v. Hewlett, Nos.

2

01-A-01-9105-BC00159, 1992 WL 69635 (Tenn. Ct. App. 1992), and Mapco Petroleum,

3

Inc. v. Basden, 774 S.W.2d 598 (Tenn. 1989).

4

In all four cases a transfer of property was barred after a merger, but Defendants

5

overstate the applicability of those cases to this one. The facts of the cases are

6

distinguishable, as is the legal reasoning that animates them. In Mapco, the Tennessee

7

Supreme Court held that a permit to sell beer did not pass to a succeeding corporation by

8

merger. 774 S.W.2d at 660. The Court noted that it had previously held that a permit is not

9

assignable even when a purchaser buys a location that previously held a valid permit, and

10

that the purpose of the beer permitting statute was to “evaluate the qualifications and the

11

moral character” of the person or entity seeking a permit. Id. at 599–600. Therefore, a

12

surviving entity must apply for a new permit to sell beer. Id. at 600. L & L Trucking presents

13

a similar problem for Defendants. There, a trucking company sought to transfer a certificate

14

of convenience and necessity that had been abandoned by its previous holder through a

15

merger. L & L Trucking, 1992 WL 69635, at *4. The court held that there was no reversion

16

or impairment of the previous entity’s rights because of the abandonment, and the transfer

17

by merger would have been subject to a state law that prohibited transfers of such

18

certificates without review by a state regulator. Id. Here, there is no overarching public

19

safety or regulatory scheme preventing AmSurg-Tennessee’s interest from being

20

assignable to the successor entity. In fact, Tennessee State law specifically allows parties

21

to contract around the default rules for assignments of membership interest. Tenn. Code.

22

Ann. § 48-218-102(b)(1).

23

Defendants’ reliance on Freeman is also misplaced. There, the agreement at issue

24

contained an anti-assignment clause that specifically forbade assignments by operation of

25

law. Freeman, 2007 WL 1541877 at *2, 5. The agreement forbade an assignment

26

“voluntarily or by operation of law (herein sometimes collectively called a ‘transfer’).” Id.

27

at *2. Additionally, in that case, allowing the merger would have resulted in a competitor

28

becoming partners with the plaintiff, thus “forcing the [plaintiffs] to accept as a partner a

-8-

1

person with which they did not consent to become partners.” Id. at *8. Here, the Agreement

2

lacks the specificity of the Freeman agreement, as it does not explicitly forbid assignments

3

by operation of law or even the more generic term “transfer.” Furthermore, believing

4

Plaintiffs’ statement that AmSurg’s “operations, practices, policies, officers, or other

5

personnel” remained unchanged after the merger, which the Court is required to do at this

6

stage, avoids the Freeman court’s concerns about forcing Defendants into an agreement

7

with a stranger.

8

PPG Industries is also distinguishable. There, the 6th Circuit considered whether a

9

patent license is transferable in a merger when the anti-assignment clause stated it was

10

“non-transferrable” and “personal” to the licensee. PPG Ind., 597 F.2d at 1092. They held

11

the anti-assignment clause prevented assignment by operation of law because, “if the

12

parties had intended an exception” to the anti-assignment clause in the case of a merger,

13

“they would have included it in the agreement.” Id. at 1095. Again, this is factually distinct

14

from the case at bar, which uses “assignment” without such specificity. Furthermore, PPG

15

Industries was not interpreting Tennessee law, and other courts have declined to follow

16

PPG Industries on the grounds that it is too “mechanical[].” Star Cellular Telephone Co.,

17

Inc. v. Baton Rouge CGSA, Inc., Civ. A. No. 12507, 1993 WL 294847, at *6 (Del. Ch.

18

Aug. 2, 1993). Delaware cases, such as Star Cellular, are particularly persuasive on issues

19

of corporate law. Athlon Sports Comm., Inc. v. Duggan, 549 S.W.3d 107, 125 (Tenn. 2018)

20

(“[I]n matters of corporate law, Tennessee courts often look to Delaware law.”). Therefore,

21

while it is certainly possible that the anti-assignment clause prohibits transfers by merger,

22

it is not plain and unambiguous from case law.

23

Plaintiffs rely on Star Cellular as the leading case. Star Cellular interpreted a very

24

similar anti-assignment clause. It provided that a “General Partner may transfer or assign

25

its General Partner’s Interest only after written notice to all the other Partners and the

26

unanimous vote of all the other Partners to permit such transfer . . . .” 1993 WL 294847 at

27

*3. Star Cellular acknowledged that some courts, in interpreting anti-assignment clauses,

28

treat transfers that occur “by express voluntary act” differently than “those that occur by

-9-

1

operation of law.” Id. at *6. The court saw that “existing uncertainty” as proof that the word

2

“transfer” did not have a “generally prevailing” meaning at the time of the contract. Id. at

3

*7. While the plaintiffs in Star Cellular urged the “broadest possible construction” of

4

“transfer,” id. at *4, the court held that the uncertainty in the law when the agreement was

5

drafted prevented it from holding that a transfer by operation of law was a type of transfer

6

prohibited by the anti-assignment clause. Id. at *7. Furthermore, the parties easily could

7

have provided language addressing mergers or transfers by operation of law. Id. By failing

8

to do so, it was “not plain[] and unambiguous[]” that mergers were included “within the

9

category of prohibited ‘transfers.’” Id. Star Cellular also explains the rationale behind anti-

10

assignment clauses: they “are normally included in contracts to prevent the introduction of

11

a stranger into the contracting parties’ relationship and to assure performance by the

12

original contracting parties.” 1993 WL 294847 at *8.

13

Similar to Star Cellular, Defendants here have not pointed to Tennessee authority

14

clearly establishing a merger that changes nothing but the domicile of an entity by

15

operation of law is a type of assignment “plainly and unambiguously” prohibited by a

16

generic anti-assignment clause. If the parties wanted to plainly and unambiguously prohibit

17

assignments by operation of law, they could have done so like the parties in Freeman did.

18

Unfortunately, Plaintiffs and Defendants, like the parties in Star Cellular, did not include

19

language addressing what would happen if a member transferred its interest by operation

20

of law. Therefore, the Court is unable to determine a clear intent with regard to whether

21

the anti-assignment clause applies to transfers by operation of law. Accordingly, both

22

Plaintiffs’ and Defendants’ readings of the anti-assignment clause are a reasonable

23

interpretation of it, and, therefore, the clause is ambiguous.

24

4. The ambiguity precludes summary judgment because it is a material issue of fact.

25

In interpreting contracts, a court’s goal “is to ascertain and give effect to the intent

26

of the parties.” Allmand v. Pavletic, 292 S.W.3d 618, 630 (Tenn. 2009). To determine the

27

parties’ intent, a court first looks “at the plain meaning of the words in a contract.” Id. If

28

the plain meaning is unambiguous, the inquiry ends and that meaning is applied. Id. If,

- 10 -

1

however, the “words are ambiguous, i.e., susceptible to more than one reasonable

2

interpretation, the parties’ intent cannot be determined by a literal interpretation of the

3

language.” Id. When a contract’s language is ambiguous, the court applies “established

4

rules of construction to determine the intent of the parties.” Id. (quoting Allstate Ins. Co. v.

5

Watson, 195 S.W.3d 609, 611 (Tenn. 2006)).

6

Here, both Defendants and Plaintiffs have reasonable interpretations of the clause.

7

Under Defendants’ theory “assignment” is given a broad reading, essentially including any

8

transfer of interest. The clause, however, does not mention mergers or even use the word

9

“transfer,” and the statute explaining the effect of a merger refers to property “vest[ing]”

10

in the new entity rather than the former entity transferring or assigning property to the

11

surviving entity. Nevertheless, contracting parties are “presumed to know the law,” Dick

12

Broadcasting Co., Inc. v. Oak ridge FM, Inc., 395 S.W.3d 653, 660 (Tenn. 2013), and case

13

law refers to mergers as “transfer[s] by operation of law,” see, e.g., PPG Industries, 597

14

F.32d 1090; Star Cellular, 1993 WL 294847, and “assignment[s] by operation of law,”

15

Subcontracting concepts, LLC v. Creative Ins. Managers, Inc., Civil Action File No. 1:13-

16

CV-02973-HLM, 2014 WL 12013431, at *2 (N.D. Ga. Jan. 3, 2014) (collecting Delaware

17

cases).

18

Because the Agreement is ambiguous, the Court looks to extrinsic evidence to

19

determine the intent of the parties. Bourland, Heflin, Alvarez, Minor & Matthews, PLC v.

20

Heaton, 393 S.W.3d 671, 676 (Tenn. App. 2012). If ambiguity with regard to a material

21

fact continues to exist after considering extrinsic evidence, it is a genuine issue of fact

22

precluding summary judgment. Id. “[P]arol evidence ‘regarding the relations existing

23

between the parties, the facts surrounding them at the time when they entered into the

24

agreement, and also their acts subsequent thereto’ may be considered by the court when

25

interpreting an ambiguous contractual provision.” Dog House Investments, LLC v. Teal

26

Properties, Inc., 448 S.W.3d 905, 913 (Tenn. Ct. App. 2014) (quoting Faulkner v. Ramsey,

27

158 S.W.2d 710, 711 (1942)).

28

The Parties have provided little information with regard to what Dog House directs

- 11 -

1

courts to consider when ambiguities in contracts are found. Defendants have not shown

2

how AmSurg-Tennessee merging into AmSurg-Delaware has harmed them, though they

3

allege that doing business with AmSurg-Tennessee was a “material inducement” because

4

of “its assurances of the services it could provide, the people behind the corporation, and

5

the overall business model,” and the merger “destroyed the original intent of doing business

6

with the exact corporation and people that originally convinced us and ECY to go into

7

business with them to form the ASC.” (Affidavits of Divesh R. Anireddy, M.D., Doc. 64 ¶

8

13, and Alec H. Esker, M.D., Doc.65 ¶ 13). Plaintiffs counter that the merger “did not

9

affect business operations, practices, policies, or other personnel.” (Declaration of Justin

10

Page, Doc. 75, Ex. A). While perhaps more information regarding the relations between

11

the parties and the facts surround the agreement may exist to resolve the ambiguity, at this

12

point in the litigation, the Court does not have enough information to reach a conclusion

13

and, at a minimum, this creates a factual dispute that precludes summary judgment.

14

5. Equitable principles also compel denial of Defendants’ motion.

15

The Tennessee Limited Liability company Act invites courts to apply equitable

16

principles when enforcing an LLC operating agreement. Tenn. Code Ann. § 48-206-102(c)

17

(“A court of equity may enforce an operating agreement by injunction or by such other

18

equitable relief as the court in its discretion determines to be fair and appropriate in the

19

circumstances.”). To be sure, the merger of AmSurg-Tennessee into AmSurg-Delaware

20

resulted in a different legal entity owning the member interest in ASC, but this technical

21

change does not overwhelm the substance of the Agreement.

22

“[E]quity looks not to the outward form but to the inward substance of every

23

transaction.” Halco Fin. Servs., Inc. v. Foster, 770 S.W.2d 554, 556 (Tenn. App. 1989)

24

(quoting Bond v. Jackson, 4 Tenn. 189, 189 (1817). Here, the substance was a $6.5 million

25

investment in an ambulatory surgery center in exchange for a 51% share in it. A simple

26

formal change in domicile by AmSurg accomplished through a merger without Defendant

27

providing any evidence of damages from the merger cannot equitably result in Plaintiffs

28

forfeiting their interest in ASC. Therefore, Plaintiffs have standing to sue.

- 12 -

1

6. ASC is a proper plaintiff.

2

Defendants contend that the ASC is not a proper plaintiff because AmSurg-

3

Delaware is an imposter without standing after the merger. As discussed above, the Court

4

is not persuaded that the merger resulted in AmSurg-Delaware forfeiting AmSurg-

5

Tennessee’s 51% interest in ASC. Accordingly, AmSurg-Delaware still has a controlling

6

stake in ASC, and ASC is a proper plaintiff.

7

IV.

Conclusion

8

Defendants seek summary judgment on all counts on the grounds that the merger of

9

AmSurg-Tennessee into AmSurg-Delaware was an assignment prohibited by the

10

Agreement that deprived Plaintiffs standing to bring suit. Because it is ambiguous whether

11

a transfer by operation of law is forbidden by the Agreement and there is a dispute of

12

material facts, Defendants’ motion must be denied.

13

Accordingly, IT IS ORDERED that:

14

1. The motion for summary judgment by Defendants is DENIED.

15
16

Dated this 29th day of January, 2019.

17
18
19
20
21
22
23
24
25
26
27
28

- 13 -