Court Opinion

ID: 4524884
Source: CourtListenerOpinion
Date Created: 2020-04-13 20:18:24.893212+00
Date Added: 2024-06-11T09:25:42.671145
License: Public Domain

IN THE COURT OF APPEALS FOR THE STATE OF WASHINGTON

KING AND MOCKOVAK EYE                             No. 79290-3-I
CENTER, INC., P.S., a Washington
professional service corporation; and             DIVISION ONE
CLEARLY LASIK, INC., a Nevada
corporation,                                      UNPUBLISHED OPINION

                          Respondents,
       v.

MICHAEL MOCKOVAK, M.D., an
individual,

                          Appellant.

      LEACH, J. — Michael Mockovak appeals the trial court’s valuation of his shares of

cancelled stock in King & Mockovak Eye Center (KMEC). For the first time on appeal,

he claims the trial court should not have considered off-book surgical fees as debt in

this valuation. But, even had Mockovak preserved this claim for review, substantial

evidence supports the trial court’s findings that the off-book surgical fees were a debt

and the shares had a negative value. These findings support its conclusion that KMEC

did not owe Mockovak anything for his shares. We affirm.

     Citations and pincites are based on the Westlaw online version of the cited material.
No. 79290-3-I / 2

                                         FACTS 1

       Joseph King and Michael Mockovak practiced Lasik eye surgery together. By

2009, they held equal shares in several corporations, including KMEC, a Washington

professional service corporation, Clearly Lasik, Inc. (CLI), a Nevada corporation, and a

third corporation organized under the laws of British Columbia.        KMEC owned and

operated three practices in Renton, Vancouver, and Kennewick, Washington.              “The

other corporations owned and operated eye surgery practices in Canada.” Christian

Monea became the chief executive officer for KMEC and CLI in 2008.

       The practices struggled during the 2008 and 2009 recession. To resolve conflict

between them, King and Mockovak scheduled an arbitration to divide the business

assets in late December 2009. On November 12, 2009, the FBI arrested Mockovak for

trying to arrange King’s murder. While released on bail, Mockovak withdrew $100,000

from the KMEC bank account, leaving the practices unable to pay their staff and bills.

After his arrest, Mockovak never practiced again and never contributed any funds to pay

the debts of KMEC and CLI.          The Washington State Medical Quality Assurance

Commission (Commission) suspended his license in January 2010. In 2011, a trial

court convicted and sentenced Mockovak for attempted murder, attempted theft, and

other crimes. The Commission permanently revoked his license in March 2012.

       1  This opinion adopts facts from the trial court’s unchallenged findings of fact. An
appellate court treats unchallenged findings as true on appeal. Nelson v. Washington
State Dept. of Labor and Industries, 175 Wn. App. 718, 723, 308 P.3d 686 (2013). It
also adopts facts from King & Mockovak Eye Ctr., Inc., P.S. v. Mockovak, No. 74544-1-I
slip op. at 26 (Wash. Ct. App. October 30. 2017) (unpublished)
http://www.courts.wa.gov/opinions/pdf/745441.PDF, rev. denied King & Mockovak Eye
Ctr., Inc., P.S. v. Mockovak,190 Wn. 2d 1020, 418 P.3d 794 (2018).

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No. 79290-3-I / 3

         After Mockovak’s arrest, King was KMEC’s only practicing surgeon. In January

2010, King stopped performing surgeries for KMEC and formed King Lasik. He was its

only shareholder. He used revenue from King Lasik to pay down KMEC and CLI’s

debts.

                                      Procedural History

         In November 2009, KMEC and CLI sued Mockovak, alleging, among other

things, breach of fiduciary duty.      Mockovak counterclaimed and asserted third-party

claims against King and Monea for fraud. On behalf of CLI and KMEC, Mockovak also

asserted derivative claims of breach of fiduciary duty, conversion, unjust enrichment,

and conspiracy against King, Monea, and King Lasik.

         The trial court made the following pretrial rulings:

         (a) Mockovak and King each owned 50 percent of the shares in KMEC, (b)
         with the suspension of his medical license, Mockovak became ineligible to
         continue owning his shares in KMEC, and (c) Mockovak was to be paid
         the fair value of his cancelled shares as of January 27, 2011 (i.e., one
         year and one day after Mockovak’s medical license was suspended).

Mockovak did not challenge these decisions on appeal.

           The trial court dismissed Mockovak’s derivative claims on behalf of KMEC on

partial summary judgment. It also dismissed King’s counterclaim of intentional injury to

others and King Lasik’s claim of unjust enrichment on partial summary judgment.

Finally, the trial court denied Mockovak’s request that the court bifurcate the trial and

value his cancelled KMEC shares before the jury considered the rest of the case.

           The trial started in November 2015. The jury heard Mockovak’s claims of

fraud, conversion, unjust enrichment, and conspiracy, and KMEC and CLI’s claim of

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No. 79290-3-I / 4

breach of fiduciary duty. The trial court granted Mockovak’s motion to dismiss King’s

breach of contract claim, in part, as barred by the statute of frauds. 2

           Both parties called expert witnesses to testify about the value of Mockovak’s

cancelled KMEC shares. King called Doug McDaniel, a forensic accountant and expert

in business valuation.      He reviewed financial records, market transactions, and

depositions of other experts, owners, or buyers. He also interviewed Monea and King.

           McDaniel used two valuation dates for KMEC. The first date was January 27,

2011, which was the statutory date of valuation. The second date was December 31,

2009, which was just after Mockovak’s arrest. McDaniel described the “net asset,”

“income,” and “market” approach methods used in business valuations. He testified he

used the “net asset” approach, which he considered “the only applicable approach,”

because KMEC was a “severely impaired business” and was not a going concern.

McDaniel included the off-book unpaid surgery fees accruing in 2009 because “they

were acknowledged as debt by . . . King and everyone that [McDaniel] had talked to”

including Monea. He valued KMEC at negative $474,110 on December 31, 2009. He

valued KMEC at negative $467,168 on January 27, 2011. Mockovak did not object to

McDaniel’s testimony.

           On cross-examination, McDaniel testified about the good will component of the

valuation, “King had good will and . . . Mockovak was arrested and became a felon, and

so there was no good will.” And, he said that if “you take [ ] King out of it, the only value

related to those practices is net asset value.” McDaniel said he reviewed whatever was

       2The court allowed King to try to prove the existence and termination of a
partnership with Mockovak but did not allow him to request an award of damages for
breach.

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No. 79290-3-I / 5

“considered to be an asset of the company . . . in the financial statements, or

acknowledged” to be an asset.

          Mockovak called Lorraine Barrick, a forensic and certified public accountant,

and an expert in business valuation.      She reviewed case pleadings, depositions,

financial information for the practices and holding companies, King’s tax returns,

publicly available sales documents for comparable practice and private transactions,

and communications between the parties and other third parties.           Barrick also

conducted industry and economic research, interviewed King, and reviewed other

valuations.

          Barrick used the “income” and “market” approaches to value the shares. She

calculated the value of Mockovak’s half-share in the combined businesses at

$2,103,244 on December 31, 2009, and $2,441,290 on October 31, 2012. She valued

Mockovak’s half-share in KMEC at December 31, 2009 at $845,186. She considered

“cash flow from King LASIK” in her analysis of the value of the business. She did not

include the off-book surgical fees because she did not “feel like the owners treated

[them] as liabilities of the company.” Barrick also calculated accrued interest at 5.25

percent on the value for Mockovak’s shares from February 28, 2011 through the date of

trial resulting in $209,340.

          Barrick did not value the KMEC shares as of the statutory date of January 27,

2011 because “there were no actual results for KMEC after December 31, 2009.”

Barrick’s work papers show KMEC’s net income in 2010 at negative $106,185.28. She

admitted on cross-examination that the legal entity known as KMEC had no positive

income.

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No. 79290-3-I / 6

                                 Verdict and Post-verdict

           On its special verdict form, the jury concluded that: (1) Mockovak “breached

one or more fiduciary duties” to KMEC and CLI but awarded no damages for the

breach, (2) a partnership existed and that Mockovak made it “not reasonably practicable

to carry on the business in partnership” or he engaged “in wrongful conduct that

adversely and materially affected the partnership business,” and (3) the value of

Mockovak’s shares in KMEC as of January 27, 2011 was negative $233,584. The jury

rejected all of Mockovak’s individual claims and his derivative claims on behalf of CLI.

           After the trial court entered a final judgment, Mockovak appealed and King

cross-appealed. On appeal, this court decided the trial court should not have allowed

the jury to determine the value of the shares because RCW 23B.13.300 requires the

court to do this.    We ordered the trial court on remand to determine the value of

Mockovak’s cancelled KMEC shares based upon the evidence already presented at

trial.

         On remand, the trial court entered findings of fact and conclusions of law. It

found that the “fair value of Mockovak’s cancelled KMEC shares, as of January 27,

2011 was negative $233,584.” It concluded “KMEC [was] not required to make any

payment to Mockovak to purchase the cancelled shares. Nor [was] there any interest

due on the unpaid purchase price.”

         King voluntarily dismissed his breach of contract claim and asked the court to

enter a second amended final judgment. The court granted his request and entered a

second amended final judgment on November 20, 2018.

         Mockovak appeals.

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No. 79290-3-I / 7

                                   STANDARD OF REVIEW

       An appellate court considers unchallenged findings as true on appeal. 3 When a

party challenges findings of fact and conclusions of law, the appellate court limits its

review to determining whether substantial evidence supports the trial court’s findings

and whether those findings support its legal conclusions. 4 “Substantial evidence exists

if a rational, fair-minded person would be convinced by it.” 5 Though the trier-of-fact is

free to believe or disbelieve any evidence presented at trial, “Appellate courts do not

hear or weigh evidence, find facts, or substitute their opinions for those of the trier-of-

fact.” 6 This court reviews conclusions of law, “including those mistakenly characterized

as findings of fact, de novo.” 7

                                        ANALYSIS

       Mockovak contends the trial court did not correctly value his shares in KMEC.

But, his entire argument relies upon a challenge to evidence considered by the trial

court that he did not object to in the trial court. Under RAP 2.5(a), appellate courts

generally decline to review issues raised for the first time on appeal. 8 “The reason for

this rule is to afford the trial court an opportunity to correct any error, thereby avoiding

unnecessary appeals and retrials.” 9     To preserve an evidentiary issue for appellate

       3 Nelson v. Washington State Dep’t. of Labor and Indus., 175 Wn. App. 718, 723,
308 P.3d 686 (2013).
      4 Panorama Village Homeowners Ass’n v. Golden Rule Roofing, Inc., 102 Wn.

App. 422, 425, 10 P.3d 417 (2000).
      5 In re the Estate of Palmer, 145 Wn. App. 249, 265, 187 P.3d 758 (2008).
      6 Quinn v. Cherry Lane Auto Plaza, Inc., 153 Wn. App. 710, 717, 225 P.3d 266

(2009) (citing Thorndike v. Hesperian Orchards, Inc., 54 Wn.2d 570, 572, 343 P.2d 183
(1959)).
      7 In re Estate of Haviland, 162 Wn. App. 548, 561, 255 P.3d 854, 861-62 (2011).
      8 Roberson v. Perez, 156 Wn.2d 33, 39, 123 P.3d 844 (2005).
      9 Smith v. Shannon, 100 Wn. 2d 26, 666 P.2d 351 (1983).

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No. 79290-3-I / 8

review, the party must have objected at trial. The specific objection made at trial must

be the basis of a party’s assignment of error on appeal. 10

       In an unchallenged finding, the trial court stated that King’s expert, McDaniel,

testified “that as of January 27, 2011, KMEC had a negative value of $467,168.” In

findings challenged for the first time here, the trial court determined that McDaniel’s

analysis “took into account the proper valuation factors and applied the appropriate

valuation method” and that the expert properly included “the surgical fees owed to King

and Mockovak in the net asset valuation calculation” because it was “a debt

acknowledged by the interested parties.” The court, also in an unchallenged finding,

stated that Barrick’s valuation was “not helpful to the court.” In a finding challenged

here, the trial court determined based on this analysis, that the fair value of Mockovak’s

cancelled KMEC shares was negative $233,584, which is 50 percent of the negative

$467,168 identified by McDaniel as the value of all of the shares. In its challenged

conclusion of law, the trial court determined that KMEC was “not required to make any

payment to Mockovak to purchase the cancelled shares” and that there was no interest

due.

       Mockovak primarily challenges the court’s findings and conclusions based on

McDaniel’s testimony. But, Mockovak did not object to or move to strike this testimony.

Because Mockovak did not object to the testimony at trial, we affirm without considering

the merits of his arguments. His arguments also lack merit.

       10   State v. Guloy, 104 Wn.2d 412, 422, 705 P.2d 1182 (1985).

                                           -8-
No. 79290-3-I / 9

              The Trial Court Did Not Err in its Valuation of KMEC Shares

       If we consider the merits of Mockovak’s claim, that the trial court should not have

considered unpaid surgeon fees when valuing KMEC, it fails. And, he does not show

that the trial court erred in concluding that KMEC did not owe Mockovak anything for his

cancelled shares.

       If a shareholder becomes ineligible to own shares in a Washington professional

service corporation, the corporation must transfer, cancel, or redeem the shares within

12 months. 11 If the corporation does not do this, the shareholder is deemed to have

exercised the right to dissent under 23B.13 RCW. 12 The shareholder is then entitled to

payment of fair value for those shares under RCW 23B.13.250. 13 If the corporation

does not pay the shareholder, a court will determine the fair value of the shares. 14

       Mockovak challenges the court’s findings of fact identifying the unpaid surgical

fees as debts for purposes of valuation. Mockovak contends these findings of fact are

actually conclusions of law that this court should review de novo.             He asserts,

alternatively, that substantial evidence does not support the findings of fact.         We

disagree.

       In Clark v. Clark, the court identifies the determination of whether a party owes a

debt to an individual as a question of fact in appellate court reviews for substantial

evidence. 15 Mockovak cites no persuasive authority to the contrary. 16 So, we conclude

       11RCW 18.100.116.
       12RCW 18.100.116(2).
      13 RCW 18.100.116(2).
      14 RCW 23B.13.280, RCW 23B.13.300.
      15 Clark v. Clark, 72 Wn. 2d 487, 491-92, 433 P.2d 687 (1967), M.P.M.

Enterprises, Inc. v. Gilbert, 731 A2.d 790, 797-98 (1999).

                                           -9-
No. 79290-3-I / 10

these are findings and review them to determine whether they are supported by

substantial evidence from the record.

      Mockovak challenges all but the final seven words of the finding stating “Coming

out of the 2008-2009 global recession, KMEC and the other corporations were

collectively more than $2.8 million in debt. They owed King and Mockovak almost $1.4

million in unpaid surgical fees and owed third parties more than $1.47 million.” He also

challenges the finding stating, “Inclusion of the surgical fees owed to King and

Mockovak in the net asset valuation calculation was proper because this was a debt

acknowledged by the interested parties.”

      Exhibit 35 listed the fees owed each surgeon for July 2008 to October 2009, the

last full month Mockovak operated on patients.        According to this spreadsheet, in

October 2009, the corporations owed Mockovak $487,873 and King $907,489.

McDaniel testified that the surgical fees “were acknowledged as debt by . . . King and

everyone that [McDaniel] had talked to” including Monea. King testified, “The debt that

was paid down to outside creditors was balanced essentially in the amount that was

owed to the surgeons.” Monea testified he believed the surgical fees were “considered

to be . . . debt” because “the idea was [they were] going to be paid at some point

      16   Mockovak relies on an 1887 South Carolina case as authority for his assertion
that the question of whether or not something is a debt presents a question of law.
Lowry v. Jackson, 3 S.E. 473, 476-77 (1887). In that case, the Supreme Court of South
Carolina focused, in part, on what the plaintiffs had to assert in the pleadings to survive
the defendant’s demurrer. Lowry, 3 S.E. at 476-77. The court did not conduct a broad
analysis of whether a debt’s existence was an issue of law or fact. Lowry, 3 S.E. at 476-
77. Mockovak also cites a Washington State case addressing the question of whether
an action cured a breach presented a question of fact or law. Moulden & Sons, Inc. v.
Osaka Landscaping, 21 Wn. App. 194, 197, 584 P.2d 968 (1978). But, whether a cure
is sufficient under a contract presents a much different question than whether or not
parties considered something to be a debt. These cases do not persuade us of the
correctness of Mockovak’s assertions.

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No. 79290-3-I / 11

hopefully.” Although the fees were not shown on the books, Monea testified that they

were a long-term obligation of the corporation that he would disclose to an auditor. In

an email exchange, Monea said he would “keep track of each of [their] surgical earnings

based upon 10% revenue” and that he would “At the end of 2009, I will true up the

amount.” This would allow him to identify the “payable due” from each surgeon and the

“amount due to each.” He recommended paying third party loans and obligations first

and then the surgical earnings. In a later email, Mockovak stated that his understanding

was that “[a]fter we have eliminated these obligations [on the part of the corporations]

we will begin to pay both [King] and [Mockovak] for the surgical fees on the spreadsheet

for which they have not been paid.”

      The surgical fees totaled $1,395,362, which is “almost $1.4 million in unpaid

surgical fees.” Mockovak does not challenge the final seven words of that finding, that

KMEC and the other corporations “owed third parties more than $1.47 million,” and $1.4

plus $1.47 is “more than $2.8.” So, substantial evidence supports the finding stating,

“Coming out of the 2008-2009 global recession, KMEC and the other corporations were

collectively more than $2.8 million in debt. They owed King and Mockovak almost $1.4

million in unpaid surgical fees and owed third parties more than $1.47 million.” And,

because Monea, King, and Mockovak all stated at some point that the corporations

would pay the fees when able, substantial evidence supports the finding stating,

“Inclusion of the surgical fees owed to King and Mockovak in the net asset valuation

calculation was proper because this was a debt acknowledged by the interested

parties.” Substantial evidence supports these challenged findings.

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No. 79290-3-I / 12

      Mockovak also challenges the finding stating, “The valuation performed by King’s

expert took into account the proper valuation factors and applied the appropriate

valuation method.” He also challenges the finding stating “The fair value of Mockovak’s

cancelled KMEC shares, as of January 27, 2011 was negative $233,584.”         Finally, he

challenges the conclusion of law stating “Because Mockovak’s cancelled KMEC shares

had a negative fair value (i.e., negative $233,584) as of January 27, 2011, KMEC is not

required to make any payment to Mockovak to purchase the cancelled shares. Nor is

there any interest due on the unpaid purchase price.”

      Like the findings about debt, he asserts that these findings are actually

conclusions of law. But, “[p]roperty valuation is a determination to be made by the trier

of fact.”17 And, the trial court looks to “[t]he facts of the case [to] determine which

factors are relevant and which valuation methods are appropriate.” 18 So, we consider

these statements about valuations to be findings of fact and review them for substantial

evidence.

      Unchallenged finding of fact 47 states that “Because KMEC was not a going

concern as of January 27, 2011, the net asset approach [was] the appropriate method

      17  Eagleview Technologies, Inc. v. Pikover, 192 Wn. App. 299, 309, 365 P.3d
1264 (2015) (citing Worthington v. Worthington, 73 Wn.2d 759, 762, 440 P.2d 478
(1968)).
       18 Eagleview Technologies, Inc., 192 Wn. App. at 310 (citing Bell v. Kirby Lumber

Corp., 413 A.2d 137 (Del. 1980)). Mockovak cites to a footnote in Robblee v. Robblee,
68 Wn. App. 69, 74, 841 P.2d 1289 (1992) (stating that two findings of fact, one finding
that majority shareholder “did not engage in oppressive actions” towards the minority
shareholder and the other finding that the price per share was $32.17, were “arguably
conclusions of law.”) The issues the Robblee court analyzed de novo were (1) what are
considered, under the law, oppressive actions between a majority and minority
shareholder, and (2) when is it appropriate for a court to apply a fair market value
discount. Robblee, 68 Wn. App at 76-80. Neither of these provide a parallel to the
questions before the court here.

                                         - 12 -
No. 79290-3-I / 13

to value the company.” McDaniel used the “net asset” approach. He included the off-

book unpaid surgery fees accruing in 2009 as debts in his valuation. As discussed

above, substantial evidence supports the trial court’s findings that the off-book surgical

fees were debts. Based on this method, McDaniel determined, that as of January 27,

2011, the value of KMEC shares was negative $467,168.                  One-half of negative

$467,168 is negative $233,584.        So, substantial evidence supports the trial court’s

finding that McDaniel appropriately valued the company. And, substantial evidence

supports the finding that Mockovak’s shares were worth negative $233,584.              The

conclusion of law stating KMEC owed Mockovak nothing for his 50 percent cancelled

shares and that no interest accrued on the negative value of the shares flows from

these findings. So, the trial court did not err in this conclusion of law.

       Mockovak also asserts that the inclusion of “off-book” liabilities was legally

improper when using the net assets method to value the shares of a closely held

corporation. But, he provides no persuasive authority for this contention. He relies on

Bank of California v. First Mortgage Company 19 where the appellate court reviewed a

trial court’s valuation in the case of a deceased majority shareholder in the context of a

stockholder buy-out agreement. 20        The appellate court affirmed the trial court’s

adjustment upward of the company value because the most recent year’s balance

sheets incorporated a downward adjustment in value that the company’s previous

balance sheets did not reflect. 21 The court decided that the valuation based upon this

       19 6 Wn. App. 718, 721, 495 P.2d 1057 (1972).
       20 Bank of California, 6 Wn. App. at 719.
       21 Bank of California, 6 Wn. App. at 721.

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No. 79290-3-I / 14

adjustment was not uniform or predictable. 22           Mockovak does not allege that the

surgeon fees were unpredictable or non-uniform. And, because this case does not

address whether a statutory valuation may incorporate off-book debts, it does not help

Mockovak. His claim fails.

                                         Attorney Fees

       Mockovak requests attorney fees. Because he does not prevail, we deny his

request.

                                        CONCLUSION

       We affirm. Mockovak failed to preserve his claims. And, substantial evidence

supports the challenged findings of fact. Because the conclusion of law flows from

these findings, the trial court did not err.

WE CONCUR:

       22   Bank of California, 6 Wn. App. at 721.

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