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Weiss Medical Complex, Ltd. v. Kim





APPEAL from the Circuit Court of Cook County; the Hon. GEORGE J. SCHALLER, Judge, presiding.


Rehearing denied August 13, 1980.

Plaintiff, Weiss Medical Complex, Ltd., brought this action to enforce a restrictive covenant provision contained in the employment contracts of defendants, Drs. Sun C. Kim and Chusak Ladpli. Following a hearing, the trial court found that the restrictive covenant in Kim's contract was cancelled by virtue of both an oral agreement with a representative of plaintiff and an action of plaintiff's board of directors. The court further concluded that the restrictive covenant in Ladpli's contract was not eliminated by oral agreement but was cancelled by the aforementioned corporate action. Accordingly, the trial court entered an order denying plaintiff's motion for a preliminary injunction. Plaintiff's interlocutory appeal challenges the finding that the board of directors' action removed the restrictive covenants. Plaintiff does not, however, contest the court's ruling that an oral agreement rescinded Kim's restrictive covenant. Since Kim admittedly is not bound by the restrictive covenant at issue, the trial court correctly denied plaintiff's request for a preliminary injunction as to him.

Plaintiff, an Illinois corporation, is a medical clinic located in Harvey, Illinois. Defendants are physicians licensed to practice medicine in Illinois. On October 10, 1972, and April 11, 1973, Kim and Ladpli, respectively, entered into employment agreements with plaintiff. Each contract contained the following pertinent provisions:

"You agree to be employed by [plaintiff] for a period of one year * * *. After the one-year period, your employment and this understanding will be automatically renewed upon the same understanding as contained in this letter unless either [plaintiff] or you give notice in writing to the other not less than 90 days prior to the end of the year.

You recognize that the services which you will render to [plaintiff] are of unique and extraordinary character and you agree not to perform medical services individually or in connection with any other person, firm, association or corporation within a ten mile radius of the business location of [plaintiff], both during your employment and for one year after the expiration of your employment and for the same period you agree not to solicit, correspond or contact any patient except for the benefit of [plaintiff]. In the event it is necessary to continue treating any patients after termination of your employment, the value of your services performed after termination will be fairly determined by [plaintiff]. * * * Since we are sure you recognize your uniqueness to [plaintiff], if this paragraph is violated, [plaintiff] at its option shall be entitled, in addition to any other rights, to enjoin you."

Defendants resigned from the clinic on May 31, 1979, but remained affiliated with plaintiff on a part-time basis until September 24, 1979. During June through September 1979, defendants also performed medical services in their own offices in Park Forest, Illinois.

On October 29, 1979, plaintiff filed a verified complaint for injunctive and other relief alleging that defendants breached their post-employment restrictive covenant by treating plaintiff's patients without plaintiff's knowledge or consent and by rendering treatment within a 10-mile radius of the facility after leaving the clinic. Defendants filed a verified answer and motion to strike asserting, in pertinent part, that the employment agreements containing the restrictive covenant were cancelled by corporate action of plaintiff's board of directors on February 3, 1977.

On November 16, 1979, a hearing commenced on plaintiff's motion for preliminary injunction and the following relevant evidence was adduced: Beginning in 1972, newly hired physicians entered into written employment contracts with plaintiff which contained the foregoing restrictive covenant and provided for a fixed salary. Because this salary arrangement was not successful financially, plaintiff adopted an "incentive pay plan," effective November 1, 1976, under which physicians were paid on a commission basis with a minimum salary "draw." In February 1977, plaintiff's bylaws provided that the number of directors on the board should be an odd number not less than the number of shareholders. There were 12 shareholders at the time, of whom seven were elected directors.

All seven directors were present at the meeting of the board of directors on February 3, 1977. Four of these directors, including Ladpli, had written employment contracts containing the restrictive covenant at issue. Thomas Maloney, business administrator of the clinic, also attended the meeting. The corporate minutes of the meeting read in relevant part:

"After some discussion, to make it easier for physicians being `eased out' of the clinic under the incentive system to leave and to make it easier for future physician recruitment, it was unanimously decided that the `restrictive covenant' on all existing contracts be removed. Mr. Maloney also stated that new employment agreements are being worked on by Jerry Biederman [plaintiff's corporate counsel]."

Witnesses offered different accounts of who initiated the discussion about the restrictive covenants as well as the reasons underlying the board's decision. Dr. Oleg Prozorovsky, then chairman of the board, testified that there was discussion concerning the fact that some doctors were drawing relatively high salaries unjustified by their production. There was also discussion that removal of the restrictive covenants would make it easier for doctors who were not producing sufficiently to leave the clinic and would facilitate the hiring of new physicians. He did not recall who introduced the topic of restrictive covenants. Dr. Constante F. Vallejos, another director, testified that Maloney indicated some doctors were dissatisfied with the incentive program and might sue plaintiff for their salaries. Vallejos also related that something was mentioned about easing out nonproductive doctors by removing restrictive covenants. Vallejos and Prozorovsky, neither of whom had restrictive covenants, testified that deletion of the covenants was in plaintiff's best interest. Ladpli testified that Maloney initiated the discussion concerning the restrictive covenants. Ladpli had no knowledge, however, of any particular doctor being eased out. Maloney, who prepared the minutes, did not remember who presented the subject of restrictive covenants, and did not recall any discussion about plaintiff's intent to eliminate any doctors.

After reviewing the minutes, Mr. Biederman sent a memorandum to Dr. Robert Gloss, president of the clinic, expressing reservations about the vote to terminate restrictive covenants. Biederman explained that the resolution might be void or voidable, and that the directors, being on both sides of the contractual arrangement, may have breached their fiduciary duties. Gloss wrote back to Biederman stating that the board of directors had passed a "preliminary resolution removing the `restrictive covenant' on all existing contracts." Biederman informed Gloss that the proper way to remove the restrictive covenant and to protect the directors was to obtain shareholder approval. Biederman advised Gloss to meet with Dr. Frederick Weiss, the majority shareholder, to find out if he were amenable to deleting the restrictive covenant from the employment contracts.

On June 6, 1977, a shareholders' meeting was held at which Weiss, among others, was present. The minutes provide, ...

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