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Carter-Shields v. Alton Health Institute

September 19, 2002


The opinion of the court was delivered by: Chief Justice McMORROW

Docket No. 90767-Agenda 28-September 2001.

Plaintiff, Dr. Vera E. Carter-Shields, entered into an employment agreement with defendant, Alton Health Institute (AHI), a non-licensed, general not-for-profit corporation, to provide services as a primary care physician. The employment agreement contained a restrictive covenant stating that plaintiff could not practice medicine within a 20-mile radius of AHI for two years after her separation from AHI. As a result of numerous disputes between plaintiff and AHI, plaintiff filed a complaint for declaratory judgment in the circuit court of Madison County, alleging that her employment agreement with AHI violated the prohibition against the corporate practice of medicine and, therefore, was illegal and unenforceable. During the pendency of her action, plaintiff resigned her position with AHI and opened her own medical office within the non-competition area. Thereafter, the circuit court denied plaintiff's request for declaratory judgment. Relying upon this court's decision in Berlin v. Sarah Bush Lincoln Health Center, 179 Ill. 2d 1 (1997), the circuit court held that the employment agreement between AHI and plaintiff was valid and enforceable because it fell within an exception to the prohibition against the corporate practice of medicine. The circuit court also granted partial summary judgment in favor of defendants on their subsequently filed counterclaim requesting injunctive relief against plaintiff on the basis that plaintiff breached her employment contract by improperly resigning her position. In accordance with the restrictive covenant contained within the employment agreement, the circuit court enjoined plaintiff from practicing medicine for a period of two years within a 20-mile radius of AHI's office. The appellate court reversed, holding that under the corporate practice of medicine doctrine and this court's ruling in Berlin, the employment agreement between plaintiff and AHI was void and unenforceable. 317 Ill. App. 3d 260. The appellate court further held that, in any event, the non-competition covenant contained within the employment agreement constituted "an unreasonable restraint of trade and is unenforceable on public-policy grounds." 317 Ill. App. 3d at 271. For the reasons that follow, the judgment of the appellate court is affirmed in part, and vacated in part.


The following facts are not in dispute. Plaintiff is a board-certified, family-practice physician who holds an Illinois license to practice medicine. Plaintiff practiced medicine with the United States Army from 1982, when plaintiff graduated from medical school, until 1995, when plaintiff relocated to the Alton area.

On January 4, 1995, plaintiff entered into a "Physician Services Agreement" (agreement) with Alton Health Institute (AHI). AHI is a non-licensed, not-for-profit corporation organized under the General Not For Profit Corporation Act of 1986 (805 ILCS 105/101.01 (West 1996)). Two entities share equal ownership of AHI. AHI is 50% owned by St. Anthony's Health Systems (St. Anthony's). St. Anthony's is a tax-exempt, not-for-profit corporation which is wholly owned by the Sisters of St. Francis of the Martyr St. George. St. Anthony's is not licensed as a hospital or medical services corporation. However, St. Anthony's does control two licensed hospitals located in the Alton area: St. Anthony's Hospital and St. Clare's Hospital. The president of St. Anthony's is William Kessler, who is also the president of AHI. Kessler is not a physician, and he does not hold a medical license. The remaining 50% of AHI is owned by Alton Health Care Partnership (partnership). The partnership does not have tax-exempt status. Although the partnership is composed primarily of physician groups, it includes at least one nonphysician member.

The agreement entered into between plaintiff and AHI provided that plaintiff was to be employed by AHI on a full-time basis as a primary-care physician, that plaintiff was to receive an annual salary from AHI, and that plaintiff would be eligible for certain bonuses. The agreement outlined plaintiff's duties as a physician in AHI's employ. For example, the agreement set forth AHI's expectations with respect to the productivity of plaintiff's practice, including the number of weekly patient appointments plaintiff was required to schedule, as well as guidelines plaintiff was expected to follow in requesting time off. The agreement also outlined the obligations of AHI as plaintiff's employer. For example, the agreement stated that AHI was to provide plaintiff with office space and was to furnish plaintiff with the equipment, services, supplies, and personnel that AHI "reasonably determines necessary" for the operation of plaintiff's medical practice.

By its terms, the agreement was valid for an initial period of three years and was to automatically renew for an additional three-year period unless it was terminated in accordance with conditions specified within that document. The agreement provided that AHI had the right to immediately terminate the agreement for cause, as defined in the contract. In addition, the agreement provided that upon either party's failure to cure a breach of a material provision of the agreement within 30 days following receipt of written notice from the non-breaching party, the non-breaching party could terminate the agreement upon an additional 10 days' written notice. The agreement also contained a nonassignment clause, which provided that the agreement "may not be amended or revised except with the written consent of the parties thereto, and may not be assigned by any party except with the written consent of [the] other party; provided, however, [that AHI] may assign this Agreement to a subsidiary or affiliate without the prior written consent of Physician."

In addition, the agreement contained a non-competition clause, which prohibited plaintiff from practicing medicine within 20 miles of AHI's offices for two years after her employment with AHI ended. This clause provided as follows:

"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 (iii) 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]."

The agreement between plaintiff and AHI became effective on April 1, 1995, when plaintiff began her employment as an AHI physician. However, relations between plaintiff and AHI soon became strained. On October 6, 1995, plaintiff sent a five-page, single-spaced letter to William Kessler, president of AHI. In this letter, plaintiff informed Kessler that she wanted to bring "certain issues concerning my employment with [AHI]" to his attention, and stated that she had discussed these matters on several occasions with AHI's practice manager but that the issues had not been resolved. Plaintiff then set forth, with specificity, five separate complaints with respect to her employment with AHI: (1) that, contrary to earlier assurances made by AHI that plaintiff would be able to fulfill her obligations to perform Army reserve duty without negative repercussions, she was subsequently informed that she would be forced to use vacation time or take unpaid leave; (2) that plaintiff's attendance at mandatory meetings set up by AHI reduced the amount of office time she could spend with patients; (3) that AHI failed to provide plaintiff with adequate staffing to set up and operate her medical practice; (4) that plaintiff had a dispute with AHI as to whether AHI had the right to compensation received by plaintiff as a result of her outside activity as a nursing home medical director; and (5) that although plaintiff had been assured by AHI that it would establish a retirement plan, she was concerned that AHI had taken no action to set up such a plan. In her letter, plaintiff stated that AHI's interpretation of her employment contract was "vastly different from the understanding I reached with AHI for the job of which I was recruited," and she requested that she be "involved in issues and decisions involving my office that relate to the practice."

Over nine months later, on July 15,1996, plaintiff's attorney sent a letter to counsel for AHI stating that representations made to plaintiff by AHI at the time plaintiff entered into the agreement "have never been fulfilled." According to the letter, plaintiff's concerns with respect to inadequate staffing had "not been heard" by AHI, and that plaintiff's patients "have voiced their concern" upon observing plaintiff performing routine office duties such as "setting up rooms, giving shots, and taking care of their needs when others are sitting around." In light of this situation, counsel for plaintiff proposed to negotiate an "equitable [s]eparation [a]greement" with AHI. To this end, plaintiff's counsel stated that plaintiff would remain in the employ of AHI until September 9, 1996, and requested that the non-competition provision of the agreement "be modified to allow my client to practice medicine everywhere, including Alton, Illinois except exceedingly close to [AHI]." These issues were never resolved to the satisfaction of the parties.

In April 1996, our appellate court rendered its decision in Berlin v. Sarah Bush Lincoln Health Center, 279 Ill. App. 3d 447 (1996). A divided panel of the appellate court held that a restrictive covenant contained within an employment agreement between a surgeon and a licensed hospital was unenforceable because the hospital, through its employment agreement, was practicing medicine in violation of the prohibition against the corporate practice of medicine. Shortly thereafter, we agreed to review the decision of the appellate court in Berlin and granted the hospital's petition for leave to appeal. Berlin v. Sarah Bush Lincoln Health Center, 168 Ill. 2d 582 (1996).

On January 1, 1997, AHI assigned all of its physician service agreements, including that of plaintiff, to Community Primary Care Physicians, Ltd. (CPCP), the other defendant at bar. CPCP is a medical services corporation, organized under the Medical Corporation Act (805 ILCS 15/1 et seq. (West 1996)) and incorporated on December 9, 1996. The sole shareholder of CPCP is a licensed medical doctor, George Tucker. *fn1 The record reflects that plaintiff never consented in writing to the assignment of the agreement to CPCP. Shortly after the purported assignment, CPCP tendered a new employment agreement to plaintiff. Plaintiff did not sign the agreement tendered to her by CPCP and continued to work under the terms of her original agreement with AHI.

On January 31, 1997, plaintiff brought an action in the circuit court of Madison County seeking a declaratory judgment that the employment agreement she entered into with AHI was invalid. In support of her position, plaintiff relied on the appellate court's opinion in Berlin and alleged that the provisions contained within the agreement, including the non-competition clause, were not enforceable because AHI, through its employment agreement with her, was practicing medicine in violation of the prohibition against the corporate practice of medicine. The record reflects that the parties refrained from actively pursuing ...

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