SW Legal Educational Publishing

Doctors Pay High Price for Cutting Partner's Fees
Description Nevada high court upholds judgment for breach of fiduciary duty and punitive damages imposed by a jury against four physicians who secretly cut the profit share given another physician who was supposed to receive an equal share of profits in a corporation that was treated as if it were a partnership.
Topic Business Organizations
Key Words Fiduciary Duty, Punitive Damages, Partners
C A S E   S U M M A R Y
Facts Five physicians formed a preferred provider organization called NNP. They incorporated NNP for tax and legal reasons, but operated it as if it were a partnership, having agreed to split profits equally. After several years, one doctor, Lubritz, withdrew from participation in managerial oversight of NNP but continued to provide physician services. The other doctors cut Lubritz's share of the profits, but did not tell him. He discovered this fact after several years and sued for breach of fiduciary duty, claiming he was owed an equal share.
District Court Decision Jury awarded Lubritz $200,000 compensatory damages for breach of contract and breach of fiduciary duty, $200,000 punitive damages, and $75,000 attorney's fees. Other doctors appealed.
Supreme Court Decision Affirmed. This corporation was treated as if it were a partnership in which the partners were to share equally in the gains. When Lubritz's share was cut without his knowledge, this was a breach of the contractual agreement and the fiduciary duty the doctors had to each other. The punitive damage award can be justified because there was malice; the other doctors hid the truth about the profit sharing from Lubritz.
Citation Clark v. Lubritz, ---P.2d--- (1997 WL 545862, Sup. Ct., Nev.)or
944 P. 2d 861 (Sup. Ct., Nev. 1997)

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