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Sisters of Providence in Washington v. A.A. Pain Clinic12/19/2003
lost profits to the plaintiffs?
In connection with their antitrust claims for restraint of trade, Chandler and Borrello requested damages in the form of lost profits and lost income, respectively, resulting from the exclusive contract between Providence and the Group. They relied on their expert, economist Dr. Bradford Tuck, to estimate the extent of three sources of loss: (1) losses stemming from Borrello's exclusion from Providence and/or his inability to freely treat patients there; (2) losses resulting from a loss of pain management patient referrals due to interference by Providence; and (3) losses resulting from the referral of only Medicare, Medicaid and other low paying or nonpaying patients.
After two failed directed verdict motions and a jury verdict in favor of Borrello and Chandler with regard to the lost profits claim, the defendants moved for j.n.o.v. The court again rejected defense arguments. The court did however inquire as to the correct measure of corporate profits for professional corporations, i.e., whether or not to consider employee/shareholder salaries and other compensation as income or expenses. Noting a split in authority, the court sided with plaintiffs' measure, reasoning "if a professional corporation could not prove lost profits via salary compensation, then it would never be able to prove damages for lost profits if the wrongful act of another caused it harm."
Providence and the Group renew all of their arguments on appeal.
They first argue that Tuck did not calculate "lost profits" for Chandler's corporation A.A. Pain correctly. They point out that while A.A. Pain's total income increased by seventy-two percent between 1995 and 1998, its corporate profits decreased each of those years because the doctors were receiving increased salaries and other compensation. They argue that damages should have been assessed according to the average profit margin over the four years, here approximately 1.06%, a figure which would have greatly reduced Chandler's measure of damages.
Chandler's witness Tuck utilized a different margin, one that included the salaries and "other compensation" of the doctors in the corporate profits/losses category. Chandler argues that this was appropriate under the circumstances because, like most professionals who are both shareholders of their professional corporation and employees of that same corporation, he avoids double taxation by compensating himself with a salary taken from the corporation's pre-tax revenues. In this way corporate net income is kept to a minimum and only Chandler personally is taxed. But Chandler contends that this unnaturally low figure would not be a good basis for his damages award because it does not reflect the corporation's actual financial condition.
No Alaska authority effectively deals with this issue. In examining other jurisdictions, it is apparent that there is a split in authority. Anesthesiologists Associates of Ogden v. St. Benedict's Hospital effectively represents Providence's argument that salaries in a professional corporation should be treated as saved expenses for purposes of lost profits. There the Supreme Court of Utah held that shareholders of a professional organization make a choice to reap the many benefits of incorporation, such as limited liability. "In so doing, they [assume] all the attendant advantages as well as the disadvantages of the corporate form. One of the disadvantages of doing business as a corporation is that losses suffered by individual doctors cannot be recovered by the corporation." In essence, then, this line of authority refuses to treat professional corporations as different from other corporations.
Bettiu
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