Physicians’ Dialysis Center Inc. v. The Credit Valley Hospital et al.
COURT FILE NO.: CV-15-0665-00 / CV-15-1892-00
DATE: 2022 06 21
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
PHYSICIANS’ DIALYSIS CENTER INC. Plaintiff
- and -
THE CREDIT VALLEY HOSPITAL AND TRILLIUM HEALTH CENTER and DAVID PERKINS Defendants
AND B E T W E E N:
DAVID PERKINS Plaintiff by Counterclaim
- and –
PHYSICIANS’ DIALYSIS CENTER INC., GEORGE WU, and GORDON K. T. WONG Defendants by Counterclaim
ARTURO WADGYMAR and DONALD KIM Defendants by Counterclaim
AND B E T W E E N:
PHILIP BOLL Plaintiff
- and -
PHYSICIANS’ DIALYSIS CENTER INC. TRILLIUM HEALTH PARTNERS, GEORGE WU, and GORDON K.T. WONG Defendants
ARTURO WADGYMAR and DONALD KIM Defendants
COUNSEL:
Douglas Christie, for the Plaintiff
Michael McWilliams and Ryan Wilson, for the Defendants
Michael McWilliams and Ryan Wilson, for the Plaintiff by Counterclaim
Douglas Christie for the Defendants by Counterclaim
Mark A. Ross for the Defendants by Counterclaim
Michael McWilliams and Ryan Wilson, for the Plaintiff
Douglas Christie for the Defendants
Mark A. Ross for the Defendants
HEARD: May 9-13, 16-18, 20 and 24, 2022
REASONS FOR JUDGMENT
MANDHANE J.
OVERVIEW
[1] In 2013, Doctors Perkins, Boll, Wu, Wong, Wadgymar, and Kim were all partners (“Partners”) in a nephrology practice located in “Suite 501” at 2300 Eglinton Avenue West, Mississauga (“the Building”). The sign on the door read “Credit Valley Nephrology Associates” (“CVNA”) and the Doctors provided a full range of nephrology services. Alongside their practice in Suite 501, the Doctors also treated patients at Trillium Health Partners and its satellite community clinics (“The Hospital”).
[2] Wu, Wong, and Wadgymar founded the CVNA Partnership (“Partnership”) in 1997. Kim became a partner in 2004, Perkins joined in July 2006, and Boll joined in July 2010. Wong exclusively managed the Partnership. The Partners did not always see eye-to-eye on matters of business, but they managed to run a successful practice together, and trusted and respected one another as nephrologists.
[3] The Doctors each contributed towards CVNA expenses, including rent for Suite 501, clerical support, office supplies, computer, and telephone equipment, and so on (together, “Overhead”). In 2013, for example, the Partners each contributed between $60,000 and $80,000 towards Overhead based on their proportionate interest in the Partnership. In terms of their compensation, the Partners generally received some combination of Ontario Health Insurance Plan (“OHIP”) billings and profits from CVNA. By all accounts, they made a good living.
[4] On April 25, 2013, in a meeting with Hospital management, Perkins and Boll learned that the Hospital had been flowing funds (“the Funds”) to a corporation called Physicians Dialysis Centre Inc. (“PDC”).
[5] Between 2006 and 2013, a total of $1,616,404 flowed from the Hospital to PDC according to the formula set out in a 2005 Memorandum of Understanding signed by the Hospital and Wu (“MOU”). The funding formula was driven by the total number of nephropathy services provided by CVNA out of Suite 501 (“Funding Formula”). Wu, Wong, and Wadgymar were the sole shareholders of PDC, which distributed the Funds in varying proportions to Wu, Wong, Wadgymar, and Kim as “management bonuses.” Perkins and Boll never received any of the Funds.
[6] On or around May 27, 2013, as part of a competitive hiring process, Perkins replaced Wu as the head of the Renal Program at the Hospital.
[7] At a partnership meeting on June 20, 2013, Perkins and Boll demanded a share of the Funds. Wu stated they were not entitled to any portion of the monies, whether retroactively or going forward, because the Hospital had paid the Funds to PDC solely to cover the costs, risks, and liabilities associated with the lease of Suite 501.
[8] The partnership was dissolved on August 15, 2013, at which time the Partners held the following partnership interests: Wu, 24.4%; Wong, 23.5%; Wadgymar, 19.8%; Kim 16.9%; and Perkins, 15.4% (Boll was a “junior partner” and therefore not yet entitled to share in profits, though he did contribute to Overhead.)
[9] Wu, Wong, and Wadgymar terminated the MOU with the Hospital effective December 31, 2013. The Hospital refused to pay PDC the amounts owed under the MOU for 2013 until the Doctors resolved their dispute (“2013 MOU Funds”). They were not able to do so without resorting to the courts.
THE PROCEEDINGS
[10] On February 10, 2015, PDC launched an action (CV-15-0665) against the Hospital and Perkins seeking $346,291 (i.e., the 2013 MOU Funds). PDC argued that the Hospital breached its contractual obligations under the MOU, and Perkins abused his position to induce the Hospital to do so.
[11] The Hospital delivered its Statement of Defence on March 13, 2015. By interpleader Orders dated December 4, 2015, the Hospital’s liability was extinguished after it paid $345,484.44 into court (i.e., 2013 MOU Funds).
[12] On March 17, 2015, Perkins delivered his Statement of Defence and crossclaim, and counterclaimed against Wu, Wong, Wadgymar, and Kim.
[13] On April 21, 2015, Boll commenced an action against PDC, the Hospital, Wu, Wong, Wadgymar, and Kim (CV-15-18920) seeking substantially similar relief to Perkins in his counterclaim.
[14] In February 2022, Perkins and Boll entered into a partial settlement agreement with Wadgymar and Kim, under which they received $62,500 each. Wadgymar and Kim still maintain their entitlement to the 2013 MOU Funds.
[15] Perkins and Boll (“the Plaintiffs”), and PDC, Wong, and Wu (“the Defendants”) appeared before me for a 10-day trial. Counsel for Wadgymar and Kim made opening and closing submissions but did not call any evidence at trial.
ISSUES
[16] The issues that I must determine are:
i. Are the Plaintiffs’ claims time-barred?
ii. Were the Defendants unjustly enriched?
iii. Did Perkins induce the Hospital to breach its contract with the Defendants, or otherwise interfere in the economic relationship between the Defendants and the Hospital?
iv. What is the appropriate damage award?
SHORT CONCLUSION
[17] The Plaintiffs’ claims are not time-barred. They crystallized in May 2013, after the Plaintiffs received a copy of the MOU and discovered the flow of Funds from the Hospital to PDC. They commenced their action within two years of discovering their claim.
[18] As Partners, the Plaintiffs provided both nephropathy services and paid a portion of the Overhead and were entitled to a portion of the Funds flowing from the Hospital to PDC. The Defendants were unjustly enriched through the flow of the Funds from the Hospital to PDC.
[19] There was no legal basis for Wu, Wong, Wadgymar, and Kim to retain the Funds for their exclusive benefit.
[20] Perkins did not engage in any wrongdoing.
[21] The Plaintiffs are entitled to both compensatory and punitive damages.
ANALYSIS
[22] The background facts are complex and helpfully set out in a comprehensive Agreed Statement of Fact, which is reproduced at Appendix A herein. In this section, I focus only on the factual findings necessary to determine the legal issues.
Are either of the actions time-barred?
[23] The Limitations Act, 2002, S.O. 2002, c. 24, Sched. B, ss. 4 and 5, require the Plaintiffs to have commenced their actions within two years of “discovering” their claims. According to s. 5(1), a claim is “discovered” on the earlier of (a) the day that they discovered that the loss or damage occurred, and (b) the day on which a reasonable person with the abilities and in the circumstances of the Plaintiffs first ought to have known that the loss or damage occurred.
[24] In Crombie Property Holdings Limited v. McColl-Frontenac Inc. (Texaco Canada Limited), 2017 ONCA 16, 406 D.L.R. (4th) 252, at para 35, the Court of Appeal for Ontario described the application of section 5(1) succinctly as follows: “The prospective plaintiff must have known or ought reasonably to have known of the material facts necessary for the claim.”
[25] Working backwards from the dates of their respective pleadings, Perkins must have discovered his claim sometime after March 17, 2013, while Boll must have discovered his claim sometime after April 21, 2013.
Did the Plaintiffs discover their claims in 2012?
[26] The Defendants say that the Plaintiffs’ actions are time-barred because they discovered their claims sometime in 2012 during a conversation with Kim at Suite 501. I disagree; the conversation with Kim in 2012 did not trigger the running of the clock. Applying the test in Crombie Property Holdings Limited, at para. 35, the Plaintiffs did not know the materials facts necessary for their claim in 2012.
[27] Kim recalled a meeting occurring sometime in 2012, though he admitted that he was not sure about the date or even the month. Kim testified he told the Plaintiffs that Wu was paying him monies that he believed were being paid by the Hospital for use of Suite 501. Kim himself admitted under cross-examination that, at the time of the conversation, he did not know about the existence of the MOU or PDC, and that he was “totally in the dark” about the nature and flow of the Funds.
[28] Kim testified he told Perkins that he was also entitled to some of the money, but that Wu took a different view. Kim said that the Plaintiffs were upset and felt that Wu and Wong got “caught with their hands in the cookie jar.” Kim said that he recalled Boll mentioning the term “fiduciary duty”, which he looked up afterwards.
[29] Both Perkins and Boll remembered Kim telling them that he was receiving cheques from Wu, and that there were monies flowing from the Hospital to some of the Partners. They both testified that Kim himself did not seem to the understand why he was receiving the money but speculated that it was related to his ongoing dispute with Wadgymar.
[30] Perkins said he didn’t think much of the conversation because there was a lack of specifics. The Plaintiffs both testified that Kim did not share any details regarding the nature or purpose of the Funds, the amounts, the existence of an MOU, or the existence of PDC. Perkins denied under cross-examination that Kim referred to the payments as “reimbursement payments”.
[31] While Boll admitted that, at first, the conversation made him think something “fishy” might be going on, he quickly dismissed any possible “funny business” because he trusted Wong and Wu’s leadership and felt there were no other “red flags”. He said that the conversation with Kim “didn’t stay on [his] radar.” Boll denied mentioning the term “fiduciary duty” during the 2012 conversation with Kim, stating that he only learned the term in 2013 after consulting with a lawyer.
[32] As will be discussed below, the Plaintiffs’ claims centre on the proper interpretation of the MOU in the context of the CVNA partnership agreement. In 2012, neither Kim nor the Plaintiffs knew anything about the source of the Funds such that there was no way for the Plaintiffs to ascertain any legal rights to them. Indeed, a reasonable person in the same circumstances of the Plaintiffs would have been unlikely to have commenced legal proceedings based on office gossip.
When did the Plaintiffs discover their claim?
[33] In my view, the Plaintiffs’ claim crystallized after they received the MOU, sometime in May 2013. Perkins’ claim was launched in March 2015, and Boll’s claim was launched in April 2015, both within the two-year limitation period based on the discoverability date of May 3, 2013.
[34] The Plaintiffs say that the earliest date on which they could have known the “material facts necessary for their claim” was sometime after April 25, 2013. That was the day that Dr. Dante Morra told them that there was money flowing from the Hospital to “a corporation controlled by the doctors” and asked them whether they were receiving any of the money. Morra said that the Plaintiffs seemed surprised and concerned about the MOU.
[35] The Plaintiffs both testified that they didn’t know what Morra was talking about during the meeting and asked him to send them a copy of the MOU. All the Partners testified that Wu was the director of the Renal Program at the Hospital and the exclusive liaison with the Hospital on matters related to the services provided by CVNA out of Suite 501. As such, I accept that Perkins and Boll had no prior dealings with the Hospital on matters related to the MOU or the flow of Funds.
[36] Perkins received the MOU by email on April 27, 2013. Between April 29 and May 3, 2013, Perkins exchanged emails with Hospital staff to ascertain further details regarding the flow of Funds between the Hospital to PDC. Perkins forwarded the MOU and related information to Boll in May 2013.
Were the Defendants unjustly enriched?
[37] The test for unjust enrichment is whether: (1) there was an enrichment of the Defendants; (2) a corresponding deprivation to the Plaintiffs; and (3) no juristic reason for the benefit and corresponding detriment: Moore v. Sweet, 2018 SCC 52, [2018] 3 S.C.R. 303, at paras. 35 to 59, 63, and 83. At the first and second stage, the question is largely economic, while the third stage engages relevant legal and policy issues: Moore v. Sweet, at para. 41.
Were the Defendants enriched at Plaintiffs’ expense?
[38] The requirement to show an enrichment and a corresponding deprivation are closely related, being “the same thing from different perspectives” and “essentially two sides of the same coin”: Moore v. Sweet, at para. 41.
[39] The Supreme Court of Canada has been clear that the acid test is whether the defendant becomes richer in circumstances where the plaintiff becomes poorer: Moore v. Sweet, at para. 44. The concept of “loss” therefore captures a benefit that was never in the plaintiff’s possession but that the court finds would have accrued for their benefit had it not been received by the defendant instead: Citadel General Assurance Co. v. Lloyds Bank Canada, 1997 CanLII 334 (SCC), [1997] 3 S.C.R. 805, at para. 30.
[40] Between 2006 and 2013, the Hospital paid PDC $1,616,404, pursuant to the terms of the MOU. PDC distributed the Funds in varying amounts to Wu, Wong, Wadgymar, and Kim. PDC’s financial statements noted the incoming Funds as “professional fees”, and the outgoing payments as “management bonuses”. Neither Perkins nor Boll received any of the Funds.
[41] The Funds reflected the number of patient visits conducted by each Plaintiff and the Overhead necessary to provide such services. All the witnesses agreed that the flow of Funds from the Hospital was governed by the MOU and premised on two key inputs: (1) provision of nephropathy services, and (2) payment of the Overhead. Only nephrologists could provide the clinical services at the heart of the Funding Formula, and only Partners paid for the Overhead.
[42] The Defendants’ receipt of the Funds from the Hospital was causally connected to the Plaintiffs’ contributions to Overhead and provision of nephropathy services. Put differently, but for the Plaintiffs’ contributions, the Defendants would have received less money from the Hospital and retained less of the Funds for themselves. The Defendants were enriched at the Plaintiffs’ expense. The Plaintiffs contributed to Overhead and provided services but, unlike the Defendants, did not receive any Funds to defray their costs.
Is there a juristic reason for the benefit and deprivation?
[43] Having found an enrichment, I now consider whether the Defendants can justify retaining the Funds, at the expense of Plaintiffs, based on any of the established categories of juristic reasons: a contract, a disposition of law, a donative intent, or other valid common law, equitable, or statutory obligation: Moore v. Sweet, at para. 57.
[44] The Defendants say that they should be entitled to retain the Funds pursuant to the MOU “Regarding the Provision of Nephropathy Clinic at: Suite 501, 2300 Eglinton Avenue West, Mississauga, Ontario, L5M 2V8.”
[45] There were two signatories to the MOU: Wu and Hospital Vice President David Rowe. Wu signed the MOU in his capacity as Medical Director of the Renal Program at the Hospital. He admitted that none of the other Partners were involved in the negotiations and that they never saw a copy of the MOU. Wu could not recall the specifics about the 2005 negotiations, except that he largely dealt with Helen Anderson, the Administrative Director of the Renal Program, and only met Rowe once. Anderson negotiated and drafted the MOU, while Wu and Rowe signed it.
[46] The MOU identified “the Nephrologists” and “Credit Valley Hospital” as the parties to the understanding and defined their roles as follows:
Nephrologists:
❖ The Nephrologists will provide office space for the Nephropathy Clinic.
❖ The Nephrologists will provide space for the Registered Nurses providing Nephropathy Clinic support.
❖ The Nephrologists will be responsible for clerical support, office supplies and computer/telephone equipment.
❖ The Nephrologists will provide monthly statistics of Nephropathy Clinic workload to Finance and the Administrative Director - Renal Programme.
The Credit Valley Hospital:
❖ The Credit Valley Hospital will compensate the Nephrologist group 30% of generated Nephropathy Clinic workload reimbursement.
❖ The Credit Valley Hospital will ensure all Nephropathy Clinic statistics are submitted to the Ministry of Health/ Long Term Care.
[47] Anderson gave clear and persuasive evidence about the essential quid pro quo that lay at the heart of the MOU. She said that the Hospital decided to flow the Funds to the nephrologists because they were providing nephropathy services and paying Overhead at Suite 501. David Rowe said that the flow of Funds was fair because the nephrologists were covering the Overhead associated with services provided out of Suite 501, which would have usually been covered by the Hospital had the services been provided onsite.
[48] The parties could not agree on the proper interpretation of the term “nephrologists” in the MOU. Wu said that he interpreted nephrologists to be limited to lessees of Suite 501, while Rowe testified that he interpreted nephrologists to refer to those nephrologists paying the Overhead. Anderson said that she used the term to refer to all the nephrologists that had privileges at the Hospital, and specifically denied using the term to refer only to the Partners of CVNA.
[49] In any event, what is clear is that “nephrologists” did not refer to PDC. PDC was not a party to the MOU, did not provide nephropathy services, and did not pay the Overhead. The only reason that the MOU Funds flowed to PDC was because Wu asked the Hospital to make their cheques payable to PDC, which had been incorporated by Wu, Wong, and Wadgymar for tax purposes. Anderson had no knowledge about the nature of PDC’s business. PDC had no legal entitlement to the Funds.
[50] In my view, the term “nephrologists” in the MOU must be interpreted to refer to the CVNA Partners. The parties all agree that only the Partners provided the two essential requirements of nephrologists under the MOU, namely, contribution to the Overhead and provision of nephropathy services.
[51] There is simply no cogent evidence to suggest that the MOU Funds related exclusively to the lease of Suite 501. Wu admitted that, during the MOU negotiations, the Hospital never asked once about the ownership of Suite 501. Anderson said that she never asked about the lease because she was “not interested in who held the title.”
[52] In fact, none of the Partners held the lease for Suite 501. A numbered corporation, 642642115 Ontario Limited (“642”), held it. Wu, Wong, and Wadgymar were all shareholders in 642, amongst others. All the 642 shareholders, including Wu, Wong and Wadgymar, were listed as indemnifiers on the Lease. There was no “sub-lease” between PDC and 642.
[53] I reject Wu and Wong’s assertion that they received a portion of the Funds as shareholders of 642. If that was the case, why did Kim receive Funds despite not being a 642 shareholder, and why did other 642 shareholders not receive a cent? There was no relationship between the Funds and 642. As 642 shareholders, Wong, Wu, and Wadgymar received benefits and compensation in the form of dividends and increased share values.
[54] The inescapable conclusion is that Wu received the Funds from the Hospital on behalf of the Partners in CVNA. The partnership agreement itself clearly states the Partners’ intention to share their pooled assets (including leases and shares), and to share in the profits flowing into CVNA, including monies from hospitals: see Sections 2.8 and 4.2(b). While not all the Doctors were required to formally sign the partnership agreement, they all agreed that they acted consistently with the agreement and believed themselves to be bound by it. Kim testified that he told Wu that the Funds should be shared with the other Partners pursuant to the partnership agreement, but that Wu told him that he and the other partners (i.e., Wong and Wadgymar) did not agree.
[55] Finally, there are no other factors that favour allowing the Defendants to retain a greater portion of the Funds compared to the other Partners. For example, the renovations to Suite 501, completed in 2003, are hardly relevant to the flow of Funds from 2006 and 2013. Moreover, given overall findings, I refuse to give any financial credit to Wong for “managing” the partnership or to Wu for developing a practice-management software. Both of these contributions were too remote when considered against the essential requirements for “nephrologists” under the terms of the MOU.
Did Perkins induce the Hospital to breach its contract with the Defendants or otherwise interfere in the Defendants’ economic relations with the Hospital?
[56] For this argument to succeed, the Defendants must first convince me that they had a contract with the Hospital, or that they had an economic interest in the Funds that flowed from the Hospital to PDC.
[57] They have not. As discussed above, the Defendants did not have any exclusive entitlement to the Funds. A proper interpretation of the MOU makes it clear that the Funds were to benefit all the Partners. Indeed, given my finding that the Defendants were unjustly enriched by the flow of Funds, there could be nothing improper about Perkins alerting the Hospital to his claim to the Funds.
What is the appropriate remedy?
Compensatory damages
[58] The Plaintiffs are entitled to damages to compensate them for the portion of the Funds to which they would have been entitled as Partners. Given my findings regarding the essential quid quo pro at the heart of the MOU, I find that damages should be calculated based on each partners’ proportionate contribution to Overhead. Notably, on this model for calculating damages, Boll only receives a portion of the Funds in the years when he provided clinical services and contributed towards Overhead (i.e., from 2010 onwards), while Dr. Lipscombe (who is not a party to the actions) would have received a portion of the Funds in 2013 only.
[59] For the specific calculations, I rely on the Plaintiffs’ unchallenged expert report which calculates the “total amounts allocable to each party based on reimbursement to Nephrology Clinic costs” from 2006 to 2013. That amount is $210,000 for Perkins, and $123,077 for Boll.
[60] Accounting for the settlement monies they have already received ($62,500 each), Perkins is entitled to $147,500 and Boll is entitled to $60,577 in compensatory damages.
Punitive damages
[61] The Plaintiffs ask me to award punitive damages in the range of $50,000 each. To obtain an award of punitive damages, they must, first, show that the Defendants’ conduct is "malicious, oppressive and high-handed" and "a marked departure from ordinary standards of decent behaviour”: Whiten v. Pilot Insurance Co., 2002 SCC 18, [2002] 1 S.C.R. 265, at para. 36. Second, they must show that a punitive damages award, when added to any compensatory award, is rationally required to punish the Defendant and to meet the objectives of retribution, deterrence, and denunciation.
[62] On the first branch of the test, I agree with the Plaintiffs that punitive damages are warranted. Wu abused his position of trust and authority as Medical Director of the Renal Program at the Hospital to direct public Funds from the Hospital to PDC. Indeed, it is likely that the Hospital felt comfortable transferring over one million doctors to a shell corporation based on little more than an “understanding” precisely because Wu was medical director of the Renal Program. I also find that Wong abused his position of trust and authority as the de facto manager of CVNA to breach his fiduciary obligations to the other Partners. The Plaintiffs clearly trusted Wong to fairly manage CVNA right up until their discovery of the MOU.
[63] On the second branch, I find that a punitive damage award is necessary in this case. A compensatory award alone risks sending the message that the worst-case scenario for people who abuse their authority for personal financial gain is that they will be ordered to repay funds that were never rightfully theirs to keep in the first place. Such an outcome would not adequately discourage similar conduct, especially amongst self-regulated professionals entrusted with public funds. The only way to meet the objectives of retribution, deterrence, and denunciation is to award punitive damages in addition to any compensatory award. The Plaintiffs shall be entitled to an addition $50,000 each in punitive damages.
[64] Finally, based on the clean-hands doctrine and the equitable nature of the relief sought, I refuse to grant Wu and Wong any portion of the 2013 Funds being held by the Court. Moreover, based on the amount received by Kim and Wadgymar (as outlined in the ASF), I am satisfied that they have received their fair share of the Funds, when considering the accrued interest over the relevant time period.
ORDER
[65] PDC, Wu and Wong shall be jointly and severally liable to pay the Plaintiffs as follows:
i. Perkins, $197,500, plus applicable pre-and post-judgment interest, and
ii. Boll, $110,577, plus applicable pre-and post-judgment interest.
[66] The amounts previously paid into court by the Hospital shall be used to satisfy the amounts owed to the Plaintiffs pursuant to paragraph 65. Any funds remaining shall remain with the Court pending my decision on Costs.
MANDHANE J.
APPENDIX A
Agreed Statement of Facts
Physicians’ Dialysis Center Inc. (“PDC”), Dr. George Wu, Dr. Gordon Wong, Dr. David Perkins, and Dr. Philip Boll in these proceedings (Court File No.: CV-15-0665-00 and Court File No.: CV-15-1892-00) agree that the facts set out below are not at issue.
There are six nephrologists who were parties to this litigation, Dr. Wu, Dr. Wong, Dr. Perkins, Dr. Boll, Dr. Arturo Wadgymar and Dr. Donald Kim. Each doctor is licensed to carry on the practice of medicine in the Province of Ontario and are specialists in nephrology.
Dr. Perkins and Dr. Boll have entered into a partial settlement agreement with Dr. Wadgymar and Dr. Kim, under which Dr. Wadgymar paid Dr. Perkins and Dr. Boll the sum of $125,000.00.
These proceedings concern funds paid by the Credit Valley Hospital and Trillium Health Partners, located in Mississauga, Ontario, (collectively referred to as the “Hospital”) under an understanding (“Understanding”) and a memorandum of understanding (the “MOU”). These funds (“MOU Funds”) were received by only some of the parties.
Dr. Wu, Dr. Wong, Dr. Wadgymar, and Dr. Kim received varying portions of the MOU Funds.
Dr. Perkins and Dr. Boll never received a share of the MOU Funds.
The origin of the nephrology practice
In 1985, Dr. Wu and Dr. Kim were recruited by the chief of medicine at the Credit Valley Hospital to open a division of nephrology and dialysis program for the Hospital (“Nephrology Division”). Dr. Wu was appointed as the chief of the nephrology division. Dr. Wu and Dr. Kim began practicing as nephrologists in the Hospital together and shared the costs and income of the practice.
On the north side of the Hospital was a building owned by Credit Valley Professional Building Inc., located at 2300 Eglinton Avenue West, Mississauga, Ontario (“Premises”).
Around 1989, the department of medicine decided to acquire a block of offices on the 4th and 5th floors of the Premises using a corporation it had set up, 642115 Ontario Limited (“642”).
642 owned shares of Credit Valley Professional Building Inc. and entered into leases with the Credit Valley Professional Building Inc. for space in the Premises. The lease dated April 2, 2008 listed, among other individuals, Dr. Wu, Dr. Wong and Dr. Wadgymar as indemnifiers. Dr. Wu and Dr. Kim acquired shares in 642 and were assigned suites 501 and 502 respectively for their use as a nephrology office and clinic (“Clinic”). Dr. Wu and Dr. Kim renovated the space into a single office and moved their practice into the Clinic.
Credit Valley Professional Building Inc. was the owner and landlord of the Premises. 642 was a tenant of a portion of the Premises, including the Clinic. Dr. Wu and Dr. Kim were shareholders of 642 and also subtenants of the Clinic.
As subtenants of the Clinic, Dr. Wu and Dr. Kim paid rent to 642.
As shareholders of 642, Dr. Wu and Dr. Kim received dividend payments approximately twice a year.
In 1992, Dr. Wadgymar joined Dr. Wu and Dr. Kim’s nephrology practice as an associate. In or around 1994, Dr. Kim left the practice on a one-year leave of absence to work in South Korea. Dr. Kim arranged for Dr. Vas Poulopoulos to join the practice as a locum. Dr. Vas Poulopoulos’ locum ended after two years.
Dr. Kim’s leave was extended for another year after which Dr. Kim decided to stay in South Korea and take a fulltime position there.
From about 1996, Dr. Kim ceased being a partner in the Partnership. Also in 1996, Dr. Kim and Dr. Wadgymar arranged for Dr. Wadgymar to take over Dr. Kim’s practice and acquired his shares in 642. Dr. Wu and Dr. Wadgymar were then subtenants of 642.
In or around 1996, after Dr. Kim’s departure, Dr. Wu and Dr. Wadgymar recruited Dr. Wong as an associate.
On or about October 6, 1997, Dr. Wu, Dr. Wong and Dr. Wadgymar registered the partnership Credit Valley Nephrology Associates (“Partnership”) and each were partners. Dr. Wong was responsible for the management of the Partnership.
On March 24, 1999, Dr. Wu, Dr. Wadgymar and Dr. Wong incorporated Physicians’ Dialysis Center Inc. (“PDC”). Dr. Wu, Dr. Wadgymar and Dr. Wong were each shareholders. Dr. Wong was appointed as president, Dr. Wadgymar was appointed as secretary, and both were appointed as directors. Dr. Wong was responsible for the finances of PDC. Dr. Wu was not a director or officer of PDC and was not involved in its management.
Dr. Wu, Dr. Wadgymar and Dr. Wong incorporated PDC to receive tax benefits relating to revenues from dialysis treatments and research projects.
PDC did not have a proprietary interest in the Premises or the Clinic and was not a beneficial owner. PDC was not a party to any lease or agreement with 642 or Credit Valley Professional Building Inc. PDC did not own any shares in these corporations. Dr. Wu, Dr. Wong, Dr. Wadgymar and Dr. Kim did not sublet the Clinic to PDC. PDC did not pay rent for the Clinic. PDC did not receive any of the amounts paid as dividends from 642. PDC did not list the Premises on its financial statements.
There was no relationship between the Partnership and PDC.
Rent for the Clinic was paid in full by the partners of the Partnership.
The understanding between the Nephrologists and the Hospital
In or around 1999, the Ministry of Health and Long-Term Care announced that it would fund a nephropathy clinic at the Hospital. The Hospital did not have space in its facility for a nephropathy clinic.
The nephropathy clinic operated within the space of the Clinic.
The Understanding was negotiated by Helen Andersen, the administrative director of the medicine and renal programs of the Hospital, and Dr. Wu, who at the time was the head of the Nephrology Division. David Rowe, the Senior Vice President of the Hospital, approved the Understanding on behalf of the Hospital.
The nature of the Understanding and the MOU
- The terms of the Understanding and MOU included that:
“The following points define this Memorandum of Understanding:
Nephrologists:
❖ The Nephrologists will provide office space for the Nephropathy Clinic.
❖ The Nephrologists will provide space for the Registered Nurses providing Nephropathy Clinic support.
❖ The Nephrologists will be responsible for clerical support, office supplies and computer/telephone equipment.
❖ The Nephrologists will provide monthly statistics of Nephropathy Clinic workload to Finance and the Administrative Director - Renal Programme.
The Credit Valley Hospital:
❖ The Credit Valley Hospital will compensate the Nephrologist group 30% of generated Nephropathy Clinic workload reimbursement.
❖ The Credit Valley Hospital will ensure all Nephropathy Clinic statistics are submitted to the Ministry of Health/ Long Term Care.”
The term "nephropathy clinic workload reimbursement" in the MOU refers to payments that the Ministry of Health and Long-Term Care would make to the Hospital based on the number of pre-dialysis consults, pre-dialysis follow ups and nephropathy visits provided by the nephrologists working at the nephropathy clinic. To obtain the reimbursement, the hospital had to disclose the number of patients visiting the nephropathy clinic to the Ministry of Health and Long-Term Care.
The Understanding provided that the Credit Valley Hospital would compensate 11.4% of the generated “nephropathy clinic workload reimbursement.”
The amount of the MOU Funds was directly proportional to and calculated by the number of nephropathy visits, pre-dialysis consults and pre-dialysis follow-ups performed by the nephrologists, each of which had a reimbursement rate.
The formula to calculate the MOU Funds was to multiply the reimbursement rate of the specific medical service (e.g., nephropathy visits, pre-dialysis consults or pre-dialysis follow-ups) by the number of times the specific medical service was performed and by 11.4% under the Understanding (1999-2005) or 30% under the MOU (2005 onwards).
From 2006 to 2013, the reimbursement rate of pre-dialysis consults and pre-dialysis follow ups was $241.40.
Distribution of the funds under the Understanding and MOU
Once received, PDC distributed the funds under the Understanding to Dr. Wu, Dr. Wong, Dr. Wadgymar, and Dr. Kim in varying amounts.
In 2000, Dr. Wong purchased shares in 642 and acquired a large meeting room adjoining the Clinic, which was then encompassed into the Clinic. In this manner, Dr. Wu, Dr. Wadgymar and Dr. Wong all paid rent and were subtenants to 642 for the Clinic.
Dr. Wong received funds pursuant to the Understanding that were generated before he acquired the meeting room and purchased shares in 642.
In 2001, Dr. Kim returned from South Korea and joined the Partnership, initially as an associate.
Dr. Perkins was hired as an associate of the Partnership in July of 2003, after the Hospital and the nephrologists had entered into the Understanding, but before the MOU was signed on August 25, 2005.
In 2006, Dr. Kim became a senior partner of the Partnership. In July of 2006, Dr. Perkins became a junior partner. The MOU Funds, the MOU and PDC were not disclosed to Dr. Perkins.
In 2006, Dr. Kim began receiving a share of the MOU Funds from PDC. Dr. Kim was not a party to any lease or agreement with 642 or Credit Valley Professional Building Inc. Dr. Kim did not own any shares in these corporations. Dr. Wu, Dr. Wong and Dr. Wadgymar did not convey any of their shares in 642 to Dr. Kim. 642 did not sublet a portion of the 5th floor of the Premises to Dr. Kim. Dr. Kim did not receive any of the amounts paid as dividends from 642.
In 2007, Dr. Boll was hired as an associate of the Partnership and became a junior partner in July of 2010. The MOU Funds, the MOU and PDC were not disclosed to Dr. Boll.
Up until 2013, the Hospital paid PDC the MOU Funds. PDC distributed the MOU Funds only to four of the nephrologists, being Dr. Wu, Dr. Wadgymar, Dr. Kim and Dr. Wong.
The MOU Funds were paid to Dr. Wadgymar in the following amounts on the dates indicated:
| Year | Date of cheque payment | Amount of payment |
|---|---|---|
| 2006 | June 28, 2006 | $27,000.00 |
| September 1, 2006 | $135,000.00 | |
| 2007 | October 4, 2007 | $24,860.00 |
| 2008 | May 6, 2008 | $28,809.60 |
| 2009 | May 1, 2009 | $31,535.43 |
| 2010 | January 6, 2010 | $44,000.00 |
| 2011 | May 26, 2010 | $31,584.55 |
| Total | $322,789.58 |
- The MOU Funds were paid to Dr. Kim in the following amounts on the dates indicated:
| Year | Date of cheque payment | Amount of payment |
|---|---|---|
| 2006 | August 1, 2006 | $15,671.17 |
| November 7, 2006 | $465.35 | |
| 2007 | October 4, 2007 | $18,500.00 |
| 2008 | May 6, 2008 | $21,607.20 |
| 2009 | May 1, 2009 | $23,651.57 |
| 2010 | May 26, 2010 | $23,688.41 |
| 2011 | May 10, 2011 | $20,821.71 |
| 2012 | June 9, 2012 | $19,775.92 |
| Total | $144,181.33 |
Dr. Perkins and Dr. Boll never received any of the MOU Funds.
Dr. Wu, Dr. Wong, Dr. Wadgymar, Dr. Kim, Dr. Perkins and Dr. Boll all contributed to the costs of the Clinic and the nephropathy clinic by way of monthly payments towards the expenses. The costs of the Clinic and the nephropathy clinic included the support, supplies and equipment referenced in the MOU, comprised of:
a) rent for the nephropathy clinic and space for the registered nurses providing nephropathy clinic support;
b) clerical support;
c) office supplies; and,
d) computer/telephone equipment.
Dr. Wu, Dr. Wong, Dr. Wadgymar, Dr. Kim, Dr. Perkins and Dr. Boll all contributed to the nephropathy clinic workload and completed nephropathy visits, pre-dialysis consults and pre-dialysis follow-ups.
Dr. Wu, Dr. Wong, Dr. Wadgymar, Dr. Kim, Dr. Perkins and Dr. Boll all contributed to the costs of providing monthly statistics of nephropathy clinic workload to Finance and the Administrative Director - Renal Programme.
The dissolution of the partnership
On June 20, 2013, after discovering the existence of the MOU, Dr. Perkins brought his and Dr. Boll’s concerns about the allocation of the MOU Funds to the attention of Dr. Wu, Dr. Wong, Dr. Wadgymar and Dr. Kim at a senior partner meeting. Dr. Perkins produced the MOU. This was the first time Dr. Kim had seen the MOU. Dr. Kim did not know about the existence of the MOU until June 20, 2013, when Dr. Perkins brought it to his attention.
On or about August 15, 2013, Dr. Wu delivered a notice of dissolution to the other partners to dissolve the Partnership on December 31, 2013.
On or about September 30, 2013, Dr. Wu, Dr. Wong and Dr. Wadgymar sent a letter to the Hospital to terminate the MOU, effective as of December 31, 2013.
As a result of the disagreement between the nephrologists about the allocation of the MOU Funds, the Hospital withheld the MOU Funds for part of 2012 and 2013.
The beginning of litigation
On February 10, 2015, PDC commenced an action, bearing Court File No. CV-15-0665-00, against the Credit Valley Hospital and Trillium Health Center and Dr. Perkins for, among other things, special damages in the amount of $346,291.00, representing the amount of MOU Funds for part of 2012 and 2013 (“Perkins Action”).
On March 17, 2015, Dr. Perkins delivered his statement of defence, counterclaim and crossclaim.
On April 21, 2015, Dr. Boll commenced a related action against PDC, Trillium Health Partners, Dr. Wu, Dr. Wadgymar, Dr. Wong and Dr. Kim bearing Court File No. CV-15-1892-00 (“Boll Action”).
Dr. Perkins and Dr. Boll claimed for, among other things, damages for unjust enrichment, breach of fiduciary duty, breach of contract and conversion for a proportionate amount of the MOU Funds they are entitled to in law or in equity.
The Hospital sought an interpleader order to pay into Court the MOU Funds that it withheld for part of 2012 and 2013. By interpleader Orders, dated December 4, 2015, in the Perkins action and the Boll Action, the Court ordered that, among other things:
a) the Hospital pay into Court the amount of $346,291.00 plus pre-judgment interest, subject to costs; and,
b) on paying this amount into Court, any liability of the Hospital in respect of the MOU Funds is extinguished.
- The Hospital paid the sum of $345,484.44 into Court (after taking into account interest and its costs).
[END]
COURT FILE NO.: CV-15-0665-00 / CV-15-1892-00
DATE: 2022 06 21
ONTARIO
SUPERIOR COURT OF JUSTICE
PERKINS, BOLL
– and –
PHYSICIANS’ DIALYSIS CENTER INC., GEORGE WU, GORDON WONG
REASONS FOR JUDGMENT
MANDHANE J.
Released: June 21, 2022