Kurwa v. Physician Associates etc. CA2/5 filed 8/19/26

Filed 8/19/26 Kurwa v. Physician Associates etc. CA2/5
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION FIVE

BADRUDIN KURWA,

Plaintiff and Appellant,

v.

PHYSICIAN ASSOCIATES OF THE GREATER SAN GABRIEL VALLEY et al.,

Defendants and Respondents.

B341588

(Los Angeles County
Super. Ct. No.
KC045216)

APPEAL from a judgment of the Superior Court of Los Angeles County, Christian R. Gullon, Judge. Affirmed.
Law Office of Robert S. Gerstein and Robert S. Gerstein; Ferguson Case Orr Paterson, Wendy C. Lascher and John A. Hribar for Plaintiff and Appellant.
Harrington, Foxx, Dubrow & Canter and Daniel E. Kenney for Defendants and Respondents.
________________________

Plaintiff and appellant Badrudin Kurwa, on behalf of himself and derivatively on behalf of Trans Valley Eye Associates, Inc. (Trans Valley), appeals from a judgment following a bench trial in favor ofdefendants and respondents Mark Kislinger, Mark B. Kislinger, Ph.D., M.D., Inc., and Mark Kislinger, M.D., Inc. (collectively Kislinger), in this action for breach of fiduciary duty. On appeal, Kurwa contends several of the trial court’s findingsare not supported by substantial evidence. We conclude substantial evidence supports the trial court’s findings in connection with the issueof unclean hands, and therefore, we affirm.

FACTS

Prior to 1992, Kurwa and Kislinger had separate ophthalmology practices. In late 1991 or early 1992,Dr.Reginald Friesenintroduced Kurwa and Kislingerand suggested they form a corporation to enter into “capitation agreements” with physicianassociations.Thecorporation would receive a monthly per capita fee, based on the number of participating members, in exchange for ophthalmology and optometry services.
Kislinger found an attorney to put together documentsto incorporate Trans Valley. Kurwa and Kislinger each owned 50 percent of the shares of Trans Valley and were the sole directors.Both were also named as officers of the corporation. Trans Valley filed tax returns as a corporation, never as a partnership or joint venture.Trans Valley was successful and profitable.
Between 1990 and 1995, Kurwa used a Medicare billing code for approximately 49patients that he saw in his independent medical practice, not Trans Valley patients,which did not accurately describe the service performed. When a patient needs cataract surgery, the ophthalmologist conducts a test to ensure the operation will be safe. The test can be performed with equipment that includes photography, or it can be performed with a different device that does not include photography. Kurwa did not own the equipment that provides a photograph; he used a device that was not equipped for photographs. The Medicare billing code that Kurwa usedexplicitly referred to photography. Kurwa’s office administrator reported the billing issue to Medicare under a whistleblower program. Kurwa did not notify Kislinger that he was being investigated, although the matter was reported in several newspapers. Kurwa had employees create new chart notes for certain patients. Medicare resolved the matter in 1997, requiring a payment from Kurwa of $375,000.
In 2000, Physician Associates purchased a provider group that contracted with Trans Valley. Trans Valley entered into new capitation agreement with Physician Associates.
In 2000 or 2001, the Medical Board of Californiafiled an accusation against Kurwa based on the eventsin the Medicare investigation. Kurwa did not inform Kislinger that the Medical Board was investigating him, or that the result could have an impact on Kurwa’s ability to see patients.
In September 2002, two Trans Valley employees accused Kurwa of sexual assault. He was charged with two misdemeanor counts of sexual battery. He entered into a civil compromisewith the employees under which he paid a sum of money, whichresolved the criminal matter in August 2003.
On August 12, 2003, the Medical Board issued a decisioncontaining the following findings. When Kurwa realized the Medicare auditors were investigating his use of the billing code at issue, hedirected employees to create a new form and he rewrote the charts for 49 patients. He did not inform the auditors that the recordswere rewritten or created after Kurwa became aware of the audit.The Medical Board found it was notestablished, however, that Kurwa did not perform the underlying test or that the findings summarized on the new forms were false.The forms were created to look like original chart pages, however, and portrayed the patients to be in greater need of cataract surgery than the original notes.
The Board concluded Kurwa’s creation and use of the new form, and his revision of patient charts, constituted acts of dishonesty. Further, the Board concluded cause existed to discipline Kurwa’s medical license for acts involving dishonesty and unprofessional conduct, which were substantially related to the qualifications, duties, and functions of a physician and surgeon. The Medical Board considered evidence in mitigation and rehabilitation, but concluded that Kurwa engaged in multiple acts of dishonesty over an extended time, his intentional misconduct was serious, and he had not displayed any contrition. The Medical Board ordered Kurwa’s medical license revoked, but the revocation was stayed and he was placed on probation for five years under certain conditions, including thathe was suspendedfrom the practice of medicine for 60 days, effective September 10, 2003.
On September 5, 2003, one of the female employees involved in the criminal case filed a civil action for sexual battery against Kurwa, Trans Valley, and Kislinger. Kislinger was eventually dismissed from the lawsuit, and after a few years of litigation, the plaintiff dismissed the entire lawsuit without receiving any payment.
On September 11, 2003, Kurwa notified Physician Associates that he would be suspended for 60 daysbeginning on September 26, 2003, but had hired a new doctor who could see patients of Physician Associates and other Trans Valley patients.
Kislinger contacted attorney Dale Goldfarb for advice. Goldfarb, through his review, learnedTrans Valley had not been incorporated as a professional medical corporation.To continue as a properly constituted entity, Trans Valley would have needed to become a professional corporation. Nondoctors cannot share in profits from a medical corporation. On October 1, 2003, Goldfarbsent a letter on Kislinger’s behalf to Physician Associates as follows:
“This office represents Mark Kislinger, M.D. We are writing to you on his behalf on a matter that involves the continuity of patient care.
“At the present time, there exists a provider agreement between Physician Associates and Trans Valle[y] Eye Associates. As you know, one of the two co-owners of Trans Valley, Dr. [Badrudin] Kurwa has had his license to practice medicine suspended in the State of California. Pursuant to the agreement between you and that entity, his participation in the provider agreement is automatically terminated. Moreover, we believe the corporate status of Trans Valley is inappropriate for the practice of medicine.
“To solve these problems, we have formed a new appropriate medical corporation for Dr. Kislinger. This new corporation will hire substantially all of the employees and contract physicians of the previous entity, so there will be no interruption of services to patients or any noticeable change to anyone. To facilitate this transfer, we would request that [Physician Associates] transfer its provider agreement from Trans Valley to Mark Kislinger, M.D., Inc. Dr. Kurwa, because of his suspension, will not be a part of the new corporation.
“We would appreciate having the transfer take place as soon as possible to maintain continuity and quality of patient care, and to avoid any improper entanglement with Dr. Kurwa, whose license is suspended at the present time.
“I would appreciate discussing this matter with you to effectuate this change as smoothly as possible. Your cooperation is appreciated.”
Kislinger’s October 1, 2003 letter caused Physician Associates to investigate, seek legal advice, and terminate its contract with Trans Valley.On October 31, 2003, Physician Associates provided notice to Trans Valley that it was terminating the capitation agreement effective November 30, 2003, on the ground that Trans Valley could not perform because it was not organized as a professional medical corporation or registered with the Medical Board of California.If Trans Valley had reconstituted as a professional medical corporation, Physician Associates would have considered rescinding its termination of the agreement. If Physician Associates had known of the criminal claims against Kurwa,however, even if Trans Valley had reformed as a medical corporation, Physician Associates would very likely have ended its association with Trans Valley.
Physician Associates solicited proposals for a new provider.Several proposals were received and considered. Physician Associates awarded the contract to the new professional corporation that Kislinger formed. Physician Associates would not have accepted a proposal or awarded a contract to someone with significant sexual battery or assault claims made against him. Physician Associates could also terminate a doctor as a provider for engaging in Medicare billing irregularities, dishonesty, and corruption.
After Kurwa’s suspension ended on November 24, 2003, it wasbetween two and six months before he regained his hospital privileges at certain hospitals. Trans Valley had two remaining capitation agreements, one of which was terminated by the provider in January 2004 and one of which was transferred to Kislinger’s new professional corporation in May 2004.

PROCEDURAL HISTORY

Kurwa filed his original complaint in 2004.On April7, 2005, he filed the operative second amended complaint against several defendants, including Kislinger. After a lengthy litigation odyssey,the causes of action remaining for trial against Kislinger were a derivative cause of action for breach of fiduciary duty owed to Trans Valley, breach of fiduciary duty owed to Kurwa individually based on an alleged partnership agreement, and an accounting claim.
After a bench trial, the trial court issued a statement of decision on August 9, 2024. First, the court found that no joint venture was formed prior to the creation of the Trans Valley corporation.The court’s finding was based on the following facts. When Friesan sought local doctors to provide services under a “capitation” agreement, Kurwa and Kislinger agreed to provide services for feeson a trial basis to evaluate whether they could manage the patient pool, but Kurwa and Kislingerwere free todecide not to proceed with the capitation agreement. After each doctor individually determined that he wanted to proceed with the capitation agreement, Friesan advised them that the first step was to incorporate their business. There was no evidence Kurwa and Kislinger reached any agreement with each other prior to the advice to incorporate. From the inception of the business, Kurwa was an officer, director, and shareholder of Trans Valley. The parties took advantage of Trans Valley’s corporate status in contracting with third parties, claiming expenses on state and federal tax returns, hiring employees, obtaining worker’s compensation insurance, and limiting the corporation’s liability for the acts of other professionals rendering services to patients. There was no evidence that either party disregarded corporate formalities. No writing established a partnership at any time. And Kurwa failed to show the parties shared profits and losses, or shared equal control, in an alleged joint venture.
With respect to the derivative cause of action for breach of fiduciary duty owed to Trans Valley, the trial court concludedKislinger did not have a fiduciary duty to properly form a professional medical corporation when he learned Trans Valley was improperly formed for the purpose of a capitation agreement,because it was an impossibility to amend Trans Valley as a properly formed medical corporation while Kurwa was still under suspension. Kislinger’s duty was to the corporation, and altering the corporate status to involve a non-licensed doctor would improperly form a corporation and cause irreparable harm to the corporation.The evidence also showed that Physician Associates would not have awarded a contract to Kurwa, or to a corporation in which Kurwa was involved, so the alleged breach of duty did not cause Kurwa damages. Furthermore, Kurwa owed a fiduciary duty not to tarnish the goodwill of Trans Valley, which he breached through his fraudulent billing practices and alleged sexual assault of employees.As a result, the court found “the defense of uncleanhands applies.”
As to the cause of action for breach of fiduciary duty owed to Kurwa, Trans Valley could not contemporaneously operate as both a corporation and a joint venture, and Kurwa did not prove the elements of a joint venture. There was no enforceable writing that created a joint venture and no evidence of who allegedly formed the joint venture. Kurwa also failed to show that he and Kislinger shared profits and losses, or shared joint control, of any joint venture. Even if a joint venture had existed, there was no breach of any fiduciary dutyfor the same reasons as in the derivative action. As to an accounting, the court found that without a medical corporation or a joint venture, there was no basis for an accounting claim.
On September 4, 2024, the trial court entered judgment in favor of Kislinger. Kurwa filed a timely notice of appeal.

DISCUSSION

Kurwa contends there is no substantial evidence to support the trial court’s findings in connection with the applicationof unclean hands. We disagree.
“The defense of unclean hands arises from the maxim, ‘“ ‘He who comes into Equity must come with clean hands.’ ”’ [Citation.] The doctrine demands that a plaintiff act fairly in the matter for which he seeks a remedy. He must come into court with clean hands, and keep them clean, or he will be denied relief, regardless of the merits of his claim. [Citations.] The defense is available in legal as well as equitable actions.” (Kendall-Jackson Winery, Ltd. v. Superior Court (1999) 76 Cal.App.4th 970, 978 (Kendall-Jackson).)
The unclean hands doctrine protects the integrity of the judicial system by precluding recovery that would create doubts about fairness, and it promotes justice by holding plaintiffs accountable for their own misconduct in the action. (Ibid.)
“Not every wrongful act constitutes unclean hands. But, the misconduct need not be a crime or an actionable tort. Any conduct that violates conscience, or good faith, or other equitable standards of conduct is sufficient cause to invoke the doctrine.” (Kendall-Jackson, supra, 76 Cal.App.4th at p. 979.)“The misconduct that brings the clean hands doctrine into play must relate directly to the cause at issue. Past improper conduct or prior misconduct that only indirectly affects the problem before the court does not suffice. The determination of the unclean hands defense cannot be distorted into a proceeding to try the general morals of the parties.[Citation.] Courts have expressed this relationship requirement in various ways. The misconduct ‘must relate directly to the transaction concerning which the complaint is made, i.e., it must pertain to the very subject matter involved and affect the equitable relations between the litigants.’ [Citation.]‘[T]here must be a direct relationship between the misconduct and the claimed injuries . . . “‘ so that it would be inequitable to grant [the requested] relief.’”’ [Citation.] ‘The issue is not that the plaintiff’s hands are dirty, but rather “‘“that the manner of dirtying renders inequitable the assertion of such rights against the defendant.”’”’[Citation.] The misconduct must ‘“‘prejudicially affect . . . the rights of the person against whom the relief is sought so that it would be inequitable to grant such relief.’ ”’ [Citation.]” (Ibid.)
A three-pronged test derived from these principles is appliedto determine the effect of the plaintiff's conduct. (Kendall-Jackson, supra, 76 Cal.App.4th at p. 979.)Whether the misconduct at issue bars the relief being sought“depends on (1) analogous case law, (2) the nature of the misconduct, and (3) the relationship of the misconduct to the claimed injuries.” (Ibid.)
The standard of review has been expressed in various ways depending on the procedural context on appeal. (Padideh v. Moradi (2023) 89 Cal.App.5th 418, 437−438 (Padideh).)In this case, in which the trial court exercised its equitable power to determine the issue of unclean handsafter a trial, the first prong(i.e., analogous caselaw) presents a legal issue which is reviewed independently on appeal. (Ibid.)Thetrial court’s rulings on the remaining prongsare reviewed for an abuse-of-discretion, and in that context, we applythe substantial evidence test to thecourt’s resolution of factual issues. (Ibid.)
In this case, on the issue of analogous cases, Kurwa concedes that the doctrine of unclean hands is applicable to a stockholder’s derivative action.(Rosenfeld v. Zimmer (1953) 116 Cal.App.2d 719, 722; DeGarmo v. Goldman (1942) 19 Cal.2d 755, 764−765.) He contends, however, that the trial court’s findings with respect to the remaining prongs are not supported by substantial evidence: although he admits that he engaged in“billing fraud,” he asserts his misconduct was insufficiently related to Kislinger’s “total abandonment of Trans Valley” and caused no harm to Kislinger or Trans Valley
We conclude substantial evidence supports the trial court’s findings based on the nature of the misconduct and the relationship of the misconduct to the injuries. Kurwa engaged in conduct that breached his own duties as a director and officer of Trans Valley. While he was a director, officer, and provider for Trans Valley, Kurwa engaged inacts involving dishonesty and unprofessional conduct. Although Kurwa did so in connectionwith his independent practice and patients who were not Trans Valley patients, that misconductadversely impacted hisqualifications, duties, and functions asa physician and surgeon. Kurwa’s misconduct also had an impact on Kislinger and Trans Valley. Kurwa did not inform Kislinger or Trans Valley of the Medical Board’s investigation of his conduct, even though it could potentially lead to suspension or revocation of his medical license, which would have a dramatic impact on Trans Valley’s ability to perform under the capitation agreements. Trans Valley had no opportunity to plan for contingencies.When Kislinger learned that Trans Valley had not been properly incorporated as a professional medical corporation, he could not form a professional medical corporation with Kurwa’s participation, because Kurwa’s medical license had been suspended as a result of his dishonest conduct. Kurwa’s own breach of his fiduciary duty to Trans Valleycreatedthe situationthat he claims was a breach of Kislinger’s fiduciary duty, namely, failing to amend Trans Valleyas a professional medical corporation. Substantial evidence supports the trial court’s findings, and therefore, no abuse of discretion has been shown in the court’s application of unclean hands.

DISPOSITION

The judgment is affirmed. Respondents Mark Kislinger, Mark B. Kislinger, Ph.D., M.D., Inc., and Mark Kislinger, M.D., Inc.,are awarded their costs on appeal.
NOT TO BE PUBLISHED.

MOOR, J.

WE CONCUR:

BAKER, Acting P. J.

KIM (D.),J.