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Carter-Shields v. Alton Health Institute

November 03, 2000


Appeal from the Circuit Court of Madison County. No. 97-MR-52 Honorable Lewis E. Mallott, Judge, presiding.

The opinion of the court was delivered by: Presiding Justice Goldenhersh

Vera E. Carter-Shields, M.D. (plaintiff), filed a declaratory judgment action against Alton Health Institute (AHI), seeking to have her employment contract, referred to by the parties as a physician service agreement (agreement), with AHI declared invalid. After AHI allegedly assigned all of its physician service agreements, including plaintiff's agreement, to Community Primary Care Physicians (CPCP), that entity intervened and is also a defendant herein. AHI and CPCP (defendants) filed a counterclaim for breach of the agreement, seeking injunctive relief and monetary damages. The trial court denied plaintiff's request for declaratory relief, granted a partial summary judgment in favor of defendants on the issues of breach of contract and injunctive relief, and enjoined plaintiff from practicing medicine for a period of two years within 20 miles of AHI's office, pursuant to a restrictive covenant contained in the agreement. Thereafter, on the motion of plaintiff, the trial court modified its partial summary judgment order, interpreting the 20-mile radius described in the restrictive covenant as driving distance instead of a straight line on the map. Plaintiff appeals the trial court's entry of the partial summary judgment, arguing as follows: (1) the agreement is void and unenforceable, (2) AHI has no legal and protectable interest in preventing plaintiff from engaging in the private practice of medicine, (3) the agreement between AHI and plaintiff was unassignable, (4) the trial court erred in finding the restrictive covenant valid and enforceable, (5) the trial court erred in granting defendants' motion for a partial summary judgment on the factual issue of breach of contract, and (6) the enforcement of the restrictive covenant prevents plaintiff from fulfilling her ethical and professional obligations to her patients and is, therefore, void as a matter of public policy. Defendants cross-appeal based on the court's modifications of the restrictive covenant. We reverse.


Plaintiff is a board-certified family-practice physician licensed to practice medicine in Illinois. Plaintiff graduated from Tulane School of Medicine in New Orleans, Louisiana, in 1982, and she completed her internship and residency with the army. Plaintiff continued to practice medicine with the army until March 1995. AHI is a not-for-profit corporation organized and existing under the Illinois General Not for Profit Corporation Act of 1986 (805 ILCS 105/101.01 et seq. (West 1996)). St. Anthony's Health Systems, a not-for-profit, tax- exempt corporation wholly owned by the Sisters of St. Francis of the Martyr St. George, owns 50% of AHI stock. The other 50% is owned by Alton Health Care Partnership (Partnership). The Partnership is an entity of physician groups, mainly, but it also includes a nonphysician (a physical therapist). The Partnership does not have tax-exempt status. The president of AHI is William Kessler. Mr. Kessler is also the president of St. Anthony's Health Systems. Mr. Kessler is not a physician, nor does he hold a medical license.

On January 4, 1995, plaintiff and AHI entered into the agreement in question, which became effective April 1, 1995, the first day plaintiff worked for AHI. Under the contract, plaintiff was compensated at an annual rate of $127,000 in 1995. In 1996, plaintiff's compensation was adjusted to $127,000 plus the percentage increase in the consumer price index. In 1997, and thereafter, plaintiff's compensation was to be decided by a compensation committee. Committee members were to consider numerous factors in making a determination, including compensation in previous years, market compensation levels, AHI's performance, and the status of health care reform. Bonuses were also available to plaintiff throughout the term of her contract. AHI was to provide plaintiff with, inter alia, office space, equipment, furnishings, supplies, and personnel, both medical and non-medical, to operate the office.

The agreement was for an initial term of three years and was automatically renewable, unless otherwise terminated. The agreement gave AHI the right to terminate for cause upon the occurrence of certain events outlined in the agreement and gave both parties the right to terminate, with notice, for a failure of the other party to cure a material breach. The agreement also included the following two-year, 20-mile radius, non-competition provision:

"5.2 Non-Competition Covenant. During the term of this Agreement and for a period of two (2) years from the date this Agreement is terminated for any reason (the 'Protected Period'), Physician agrees that he or she will not, without the prior written consent of [AHI], directly or indirectly (i) provide[] or become associated with any other hospital group or other entity of any type engaged in the provision of medical or health care services or related administrative services within the medical practice area, which for purposes of this Agreement is the area within a twenty (20) mile radius of the Office; (ii) solicit, divert, take away, interfere with, or contract to provide or render medical services to patients treated by Physician during the term of this Agreement; or (ii) [sic] solicit any person who is now or is hereafter an employee of [AHI] or is now or hereafter engaged as an independent contractor of [AHI] to become an employee or to be engaged as an independent contractor of a hospital medical group or any other entity that is competitive with [AHI] (collectively the 'Non-Competition Covenant')." (Emphasis omitted.)

Plaintiff's relationship with AHI was strained almost from the outset. For example, on October 6, 1995, plaintiff sent the president of AHI a five-page letter detailing her complaints about working conditions with AHI and problems that had arisen from the time she signed the agreement. On July 15, 1996, plaintiff's attorney wrote a letter to the attorney for AHI in an attempt to work out a separation agreement and to modify the non-competition clause to describe an area "exceedingly close" to plaintiff's AHI office. The issues were never resolved to the parties' satisfaction.

On January 1, 1997, AHI assigned all of its physician service agreements, including the instant agreement, to the other defendant herein, CPCP, an Illinois medical services corporation organized as a limited partnership. CPCP is owned by George L. Tucker, a licensed medical doctor. Plaintiff did not sign a new contract with CPCP, but she continued to work under the original agreement between plaintiff and AHI. On January 31, 1997, plaintiff initiated litigation by filing a declaratory judgment action against AHI, seeking to have the agreement declared invalid. The litigation was not actively pursued while the parties waited for our supreme court's decision in Berlin v. Sarah Bush Lincoln Health Center, 179 Ill. 2d 1, 688 N.E.2d 106 (1997), which considered whether the corporate-practice-of-medicine doctrine prohibits a hospital from employing physicians to provide medical services.

On April 3, 1997, plaintiff's attorney sent a letter to Mr. Kessler and the board of directors of AHI with the express purpose of providing notice of plaintiff's intent to terminate the agreement for alleged ongoing material breaches. The agreement allowed either party to terminate the agreement if the other party failed to cure a material breach, but only if notice was given in the following manner:

"6.3 Termination Upon Failure to Cure a Material Breach. Either party may terminate this Agreement upon ten (10) days' prior written notice to the other upon the breaching party's failure to cure a breach of a material provision of this Agreement *** within thirty (30) days following receipt of written notice of such breach from the non[]breaching party ***." (Emphasis omitted.)

In a letter dated April 17, 1997, the attorney for defendants responded to plaintiff's attorney's letter. The reply letter explained that plaintiff's intention to terminate the agreement was not communicated in the manner provided for in the contract and that the April 3, 1997, letter, therefore, constituted an anticipatory breach of the agreement. The letter went on to state that if plaintiff took any actions consistent with prematurely terminating the agreement, CPCP intended to pursue all its remedies under the agreement, including the covenant not to compete. Throughout the remainder of 1997, the parties attempted to resolve the issues between them.

Plaintiff continued to work under the agreement until January 15, 1998, when she sent a letter to Mr. Kessler. The letter stated, "I am terminating any relationship I may have with [AHI or CPCP] effective the close of business today." Shortly thereafter, plaintiff set up a new practice in Alton, but she later moved to Godfrey, both of which are within the non-competition area set forth in the agreement. In response, on February 2, 1998, AHI filed an amended counterclaim for injunctive relief, seeking to enforce the restrictive covenant. The record does not reflect an order allowing CPCP to intervene in the suit, but it is clear that CPCP was allowed to participate in the lower court's proceedings and was referred to by the trial court as an "intervenor."

On December 14, 1998, the trial court resolved plaintiff's original claim for declaratory relief when it issued an order finding that the agreement was valid and enforceable. Plaintiff filed a motion to certify for interlocutory appeal the issue of whether the agreement was a valid contract. The trial court denied plaintiff's motion to certify. Defendants moved for a partial summary judgment on their counterclaim for injunctive relief and ...

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