Houston, Texas – Nichols Brar Weitzner & Thomas LLP (“NBWT”) recently achieved an outstanding result for the general partner of an orthopedic-focused surgery center limited partnership, its manager, and several related parties, in a contentious derivative shareholder dispute brought by two physician limited partners, individually and on behalf of the partnership. The claimants alleged that NBWT’s clients breached the limited partnership agreement; breached their fiduciary duties of loyalty, care, and good faith; and grossly mismanaged the surgery center in numerous respects over a period of thirteen years. NBWT’s clients counterclaimed against the claimants for breach of the limited partnership agreement and breach of their own fiduciary duty of loyalty.
After nearly two years of litigation, NBWT litigation partners, Scott Nichols and Zach Thomas, along with co-counsel Mike Kerensky of Mike Kerensky, PLLC, tried the case via Zoom to a panel of three American Arbitration Association arbitrators (including two former Harris County District Court judges) over a period of six days. NBWT associate Greg Flores provided invaluable research and drafting assistance throughout the life of the case.
At trial, the claimants sought $27,796,114.54 in damages, $1,942,101.50 in attorneys’ fees, and $425,532.40 in costs from NBWT’s clients. Prior to trial, NBWT successfully moved to exclude two of the claimants’ experts, as well as certain expert opinions from a third expert seeking to add new liability theories and more than $3 million in additional damages.
In a 58-page opinion, the Panel awarded only 8.5% of the derivative damages sought by the claimants on behalf of the limited partnership, against only one of the four respondent parties—and no individual damages, attorneys’ fees, or costs. Significantly, the Panel found no evidence of breach of contract, fraud, bad faith, negligence or gross negligence, corporate waste, or conspiracy; no basis for individual liability against the surgery center manager; no grounds for joint and several liability; and no grounds for judicial dissolution and winding up of the limited partnership. The Panel found that the claimants’ main expert–whom Mr. Thomas cross-examined for the first time at trial–was “overall … not credible.”
“It was such a pleasure to work with these clients and their staff,” said Mr. Nichols. “They are truly lovely people, and I’m so happy we were able to achieve this result for them. They are vindicated.”
On the counterclaims asserted by NBWT’s clients, the Panel found that both of the claimants breached their own obligations under the limited partnership agreement. According to the Panel, there was “no credible evidence” of “patient safety issues” at the surgery center that justified the claimants’ and certain other physician limited partners’ decision to effectively walk out on the center. As a result, the Panel declared that the claimants’ limited partnership interests (once valued at more than $300,000 each) were properly terminated and redeemed for $0 in accord with the limited partnership agreement.
The cherry on top was that the Panel awarded the surgery center limited partnership $180,450 in damages against one of the claimants due to his breach of non-compete and breach of his own fiduciary duty of loyalty. This counterclaim award all but wipes out his small pro-rata portion of the derivative award.