Court Opinion

ID: 5165519
Source: CourtListenerOpinion
Date Created: 2022-01-02 03:30:10.058669+00
Date Added: 2024-06-11T13:57:12.219848
License: Public Domain

I dissent for the reasons stated in Judge Orme's opinion for the Utah Court of Appeals in Anesthesiologists Associates ofOgden v. St. Benedict's Hospital, 852 P.2d 1030 (Utah Ct.App.),cert. granted, 860 P.2d 943 (Utah 1993). The court of appeals held that remuneration to employee-shareholders of a professional corporation should not be treated as a saved expense but as lost profits for calculating contract damages. Under that holding, remuneration from other sources should be considered as mitigation of damages. Unlike the court of appeals, the majority of this Court rules that the plaintiff did not suffer damages for remuneration to employee-shareholders because that is a saved expense. Consequently, mitigation is not a consideration under the majority's approach. As a practical matter in this case, mitigation would affect only compensation to Dr. Wilcox, who retired, and possibly Dr. Merrill. In other cases, however, the differences in the two approaches may result in great injustice.
The Utah Court of Appeals relied heavily upon a decision of the United States Court of Appeals for the Fourth Circuit,Bettius Sanderson, P.C. v. National Union Insurance Co.,839 F.2d 1009 (4th Cir. 1988). The court below stated that Bettius
held
 that it would be unfair to force a professional corporation "to use the same formula as a commercial corporation if that formula does not accurately or adequately reflect its profits," and therefore compensation paid to the professional corporation's principals is relevant evidence of actual profit and not merely an expense which will reduce the net profit otherwise recoverable.
852 P.2d at 1038 (quoting Bettius, 839 F.2d at 1014).
The court of appeals laid out some of the significant differences that exist between professional corporations and business corporations as they pertain to the method of earning profits and of taxation. The court of appeals stated:
 Because of . . . fundamental structural differences, professional corporations "calculate their net incomes with different goals in mind" when compared to business corporations. [Quoting Bettius, 839 F.2d at 1013.] While business corporations pay employees as an expense and generate net profit in order to distribute dividends and create capital, professional corporations primarily pay employee-shareholders based on professional services they provide. Thus, a professional corporation functions essentially as a partnership in which professionals earn their salaries providing professional services while taking advantage of the corporate form in largely incidental ways. A professional corporation distributes virtually all of its income as salaries to its shareholders and thus avoids the double-taxation scenario, where the corporation pays tax on its income and shareholders pay tax on their dividends. Because virtually all income is paid in salaries, a professional "corporation's net income for tax purposes is almost always at or near zero." Id. at 1013. Nonetheless, "it is unrealistic to suggest that the corporation is not earning a profit." Id. Merely because the legislature allowed professionals to participate in corporate advantages, one cannot conclude "that in an action to recover lost profits the professional *Page 1242 
corporation must also prove damages in the same manner as any other corporation and end up in almost every case with little or no recovery. Id. at 1013-14.
Anesthesiologists Assoc., 852 P.2d at 1038-39; see also Berrettv. Purser Edwards, 876 P.2d 367, 371 (Utah 1994) (Stewart, Assoc. C.J., dissenting).
This Court's opinion in effect gives parties who contract with professional corporations the right to breach their contract in a number of cases without being liable for damages.