Strohmyer v. Papillion Family Medicine, 296 Neb. 884

Background

Three physicians (Strohmyer, Naegele, Mantler) formed Papillion Family Medicine, P.C. (PFM) in 2000; disputed bylaws (an unsigned draft with a “Buy Out” clause dated Oct. 16, 2000, and other bylaws documents) and corporate formalities were central to the litigation.
Strohmyer gave notice he would leave effective March 31, 2014, and sued when PFM did not pay postdeparture buyout/director compensation he claimed under the bylaws; PFM counterclaimed for breaches (including failure to work agreed hours and treating Medicaid patients).
The district court concluded PFM was not a valid professional corporation, valued Strohmyer’s shares at roughly $104,720, awarded Strohmyer unpaid compensation of $9,389.27, denied employee-wage recovery under the Nebraska Wage Payment and Collection Act, found no goodwill, and awarded PFM $30,673 for an alleged fiduciary breach related to Medicaid patients.
On appeal the Nebraska Supreme Court reviewed equitable questions de novo, affirmed most of the district court’s holdings (valuation, goodwill, reliance on eBay values, non-employee under the Act), but reversed the award to PFM for Medicaid-related fiduciary breach based on ratification by PFM of Strohmyer’s conduct.
The Supreme Court remanded for further proceedings consistent with its opinion (vacating the $30,673 damages award) but left intact other valuations and holdings.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Valuation of PFM stock and fixed assets	Trial court miscalculated; should use plaintiff’s expert and not average overlapping exhibits	Use trial court’s adjusted figures and eBay-based replacement costs as more persuasive	Court found minor calculation errors but affirmed overall valuation (~$104,720); used exhibit 113 (adjusted) and accepted eBay-based replacement cost credibility weight
Goodwill / intangible value of practice	Strohmyer claimed ~$165,000 in identifiable intangibles	PFM argued no distributable goodwill because patients/staff left with departing physician	Court held goodwill depends on continued presence of physician; substantial evidence showed patients and staff followed Strohmyer, so no compensable goodwill to divide
Nebraska Wage Payment & Collection Act (employee status; attorney fees/director fees)	Strohmyer argued he was an employee entitled to wages, attorney fees, and director fees	PFM argued physicians set own schedules, lacked employment contracts and were not employees	Court held physicians were not employees under the Act (free from control), denied wage/attorney-fee recovery; court’s factual finding that Strohmyer was not entitled to director fees for lack of participation was sustained
Fiduciary duties: treating Medicaid patients and alleged duty to work 4 days/week	Strohmyer: he did not breach fiduciary duty; any restrictions were not enforced	PFM: oral agreements and board instructions required cessation of Medicaid patients and 4-day commitment; breach caused damages	Court vacated damages for Medicaid-related breach because PFM ratified/failed to disaffirm Strohmyer’s conduct for years; court also held there was no fiduciary breach for failing to work 4 days/week (no enforceable obligation/evidence of enforcement)

Key Cases Cited

Rauscher v. City of Lincoln, 269 Neb. 267, 691 N.W.2d 844 (Neb. 2005) (standard for appellate review of factual issues in equity)
Trieweiler v. Sears, 268 Neb. 952, 689 N.W.2d 807 (Neb. 2004) (director fiduciary duties to corporation and shareholders)
Taylor v. Taylor, 222 Neb. 721, 386 N.W.2d 851 (Neb. 1986) (distinguishing marketable business goodwill from personal-professional goodwill)
Detter v. Miracle Hills Animal Hosp., 269 Neb. 164, 691 N.W.2d 107 (Neb. 2005) (existence/value of professional goodwill is factual)
Thomas v. Marvin E. Jewell & Co., 232 Neb. 261, 440 N.W.2d 437 (Neb. 1989) (clients/files and client retention determine allocation of goodwill on dissolution)
D & J Hatchery, Inc. v. Feeders Elevator, Inc., 202 Neb. 69, 274 N.W.2d 138 (Neb. 1979) (corporate ratification by silence/inaction)
First Baptist Church v. State, 178 Neb. 831, 135 N.W.2d 756 (Neb. 1965) (market value opinion standards)
Bellino v. McGrath North, 274 Neb. 130, 738 N.W.2d 434 (Neb. 2007) (directors/officers must refrain from acts inconsistent with corporate duties)