Four doctors practiced in reproductive medicine together in Vancouver, pursuant to a shareholders’ agreement. The shareholders’ agreement contained a “shotgun clause,” requiring the other shareholder not invoking the clause to either sell their shares in Genesis or buy out the remaining shares. In this case, three shareholders evoked this clause. The fourth shareholder, who had only recently joined Genesis, elected to buy out the other three shareholders rather than sell her shares. There was then a 60-day period during which the purchase was to complete.
The central issue in this case was whether the three departing physicians could take steps during this 60-day period to be able to continue their practices in competition with Genesis after the 60-day period had completed. Genesis claimed that they could not, and seeks damages as a result. The plaintiffs also sought damages for breach of contract, breach of the duty of honest performance, conversion and civil conspiracy, all of which were rejected by the trial judge.
The trial judge found that only certain of the actions taken by the “Departing Physicians” were in breach of their fiduciary duties and the duty of confidence owed to Genesis. This included the use of confidential information obtained by a member of Genesis’ senior management and provided to the Departing Physicians. At paragraph 291 of the decision, the trial judge held as follows:
 I have found that the Departing Physicians breached their fiduciary duty to Genesis to act fairly in the following ways:
a) By entering into employment agreements with Ms. Wylie and Ms. St. Pierre and other Genesis employees while the Departing Physicians continued to be directors of Genesis without making proper disclosure of that fact to Genesis
b) By utilizing confidential information of Genesis in the preparation of Olive’s business plan
c) By utilizing confidential information of Genesis in connection with hiring Genesis employees
One of the complicating factors in this case was that doctors have duties to their patients that may take precedence over the fiduciary duties they might otherwise owe. The trial judge noted that the jurisprudence recognizes that the nature of the fiduciary duties owed in a corporation must be modified to accommodate the fiduciary and other ethical duties owed to patients and the ethical responsibilities of professionals. So while many of the actions complained of by Genesis may have otherwise been breaches (in another field wherein the additional ethical duties were not owed), the trial judge found the Departing Physicians not to have breached those duties.
With respect to damages, at paragraph 277 the trial judge reiterated that a plaintiff that establishes breaches of fiduciary duty and breach of confidence is entitled to compensation, either as damages for losses incurred or by an order requiring the defendant to account for any gains wrongfully obtained. The trial judge also found that the Departing Physicians had the right to set up a competing clinic within which to practise and that the benefit they obtained came from that lawful activity.
The trial judge determined that the authorities make it clear that “the court must therefore fashion a remedy that is appropriate to the wrong established.” While the plaintiffs sought disgorgement of all benefits earned by the defendants for a period of two years, at paragraphs 313 to 314, the trial judge found that “[this] ignores the contractual rights of the Departing Physicians to compete with Genesis” and that it “fails to recognize that the defendants are only required to disgorge any benefits they received from their breach of duty. They are not required to disgorge any benefits they obtained from lawful activity on their part.”
While the plaintiffs advanced a claim for damages ranging from $1,071,949 to $1,278,050 for losses attributable to the defendants’ wrongful conduct, it was awarded equitable compensation totaling $187,000, which amount was primarily made up of a $100,000 award for disruption to Genesis and a breach of confidence.
Also of note is the trial judge’s comments at paragraph 295, wherein he states that “Genesis was the only entity to which any of the defendants owed a fiduciary duty. The plaintiffs have conflated the various duties owed and thereby seek remedies that are not available to them.”
This case illustrates the importance of properly framing a claim and ensuring the proper parties are proceeding against the alleged wrongdoers.
Lindsay Kenney LLP – Vancouver Office
This article is intended to be an overview of the law and is for informational purposes only. Readers are cautioned that this article does not constitute legal or professional advice and should not be relied on as such. Rather, readers should obtain specific legal advice in relation to the issues they are facing.