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The Pennsylvania Superior Court has rejected the arguments of five radiologists — majority shareholders in a local corporation — who allegedly froze out the corporation’s minority shareholder radiologists and who claimed that the change was unrelated to the minority group’s winning a hospital contract for radiology services that the corporation as a whole had lost. In Kessler v. Broder, a three-judge panel last week affirmed a rarely issued mandatory preliminary injunction that would force the majority shareholders to resume sending the minority shareholders one-third of the MRIs, or magnetic resonance images, generated by the corporation’s MRI service centers and referred to the doctor radiologists for analysis. “This decision puts our clients back to work,” said Dion G. Rassias of Elliott Reihner & Siedzikowski in Blue Bell, Pa., who represented the minority shareholders. Howard D. Scher of Buchanan Ingersoll, who represented the majority shareholders, was unavailable for comment. In November 2002, the majority shareholders — who own five-eighths of the corporation’s shares and are employed by the Broder Group — had reduced the portion of MRI “reads” they allocated to the minority shareholders, employed by the Kessler Group, for analysis from one-third to less than 15 percent, according to the opinion. By the end of that year, the majority shareholders stopped sending the Kessler Group MRI reads altogether. The Kessler Group sued, claiming among other things that the majority shareholders had breached their fiduciary duties. The Kessler Group alleged it had an oral contract with the majority shareholders to allocate one-third of the reads generated by the commonly owned MRI centers — an allocation that was in rough proportion to the shareholders’ ownership interests in the corporation, according to the opinion. The Kessler Group, arguing that it could suffer an impending loss of business opportunity or market advantage, petitioned the court for a rarely issued mandatory preliminary injunction, according to the opinion. Such an injunction would command the Broder Group to restore what had been the status quo prior to November 2002 when it sent a third of its MRI reads to the Kessler Group. The MRI analyses, Senior Judge Patrick R. Tamilia explained, were a way for the Kessler and Broder groups to bring in revenue, and so the Kessler Group suffered a loss when the Broder Group ceased sending the reads. “Interestingly,” Tamilia noted, also in November 2002, the Kessler Group was awarded a contract to provide radiology services for Jeanes Hospital in Philadelphia — a contract the corporation at large had previously held. (In a related lawsuit, the majority shareholders have sued the Kessler Group, claiming it improperly obtained a competitive advantage over them, according to the opinion.) The medical director of the Broder Group of majority shareholders, Michael R. Clair, testified before Philadelphia Common Pleas Judge Albert W. Sheppard Jr. last year that his group had lost about 40 percent of its revenue, or $40 million, as a result of losing the Jeanes Hospital contract, according to the opinion. About this time, the Broder Group voted the Kessler Group off the boards of directors of the corporations on which they served and stopped sending monthly financial distributions to the minority shareholders, Rassias said. Still, Clair testified that “while all of the actions corresponded chronologically to the Kessler Group’s acquisition of the Jeanes Hospital contract, they were unrelated to it,” Tamilia wrote. “As a result of losing the contract, Dr. Clair explained that the Broder Group can focus its time on the MRI reads, and simply has no need to allocate reads to the Kessler Group.” But Rassias contended there was no good-faith basis or sufficient business purpose for the Broder Group’s refusal to send MRI reads to his clients. Both Sheppard and the Superior Court refused Clair’s explanation for the change. Tamilia quoted Sheppard: “‘There’s more of a nexus between whatever went down when [the Kessler Group] got a little too close to [the Broder Group] competitively with Jeanes.’” Thus, the Superior Court concluded there was “substantial and credible evidence that Dr. Clair’s decision to allocate zero reads to the Kessler Group was made in the interest of the Broder Group and not for the good of all shareholders,” Tamilia wrote. “That evidence indicates the majority shareholders have acted to ‘freeze out’ the minority shareholders for their own benefit. Doing so is a breach of the majority shareholders’ fiduciary duty.” By establishing breach of fiduciary duty, the Superior Court concluded, the minority shareholders had proved they were likely to prevail on the merits of their case — a prerequisite for a preliminary injunction. The Superior Court went on to affirm Sheppard’s finding that the minority shareholder radiologists had also established the other prerequisites necessary for the issuance of a preliminary injunction. Such an injunction is necessary to prevent immediate and irreparable harm that cannot be “adequately compensated” by damages, Tamilia explained. “Significantly,” the groups were in competition with each other for some time, and Kessler Group’s inability to analyze any MRIs “could hinder its future capacity to compete in the market, hence providing the Broder Group with a market advantage,” he wrote. And a “greater injury” would result from the court’s refusing the preliminary injunction and granting it would not substantially harm the Broder Group, the Superior Court decided. “In sum,” Tamilia wrote, “we conclude this is one of the rare instances in which a mandatory preliminary injunction is appropriate.” President Judge Joseph A. Del Sole and Judge John L. Musmanno joined Tamilia in the decision. Rassias was assisted in the litigation by his Elliott Reihner colleagues, Marvin Wilenzik and Eric Wilenzik. Scher was assisted at Buchanan Ingersoll by Steve Bizar and Eliot Long.

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