Find Legal Information

PRESIDING JUSTICE GOLDENHERSH delivered the opinion of the court:

Vera E. Carter-Shields, M.D. (plaintiff), filed a declaratory judgment action againstAlton Health Institute (AHI), seeking to have her employment contract, referred to by theparties as a physician service agreement (agreement), with AHI declared invalid. After AHIallegedly assigned all of its physician service agreements, including plaintiff's agreement,to Community Primary Care Physicians (CPCP), that entity intervened and is also adefendant herein. AHI and CPCP (defendants) filed a counterclaim for breach of theagreement, seeking injunctive relief and monetary damages. The trial court denied plaintiff'srequest for declaratory relief, granted a partial summary judgment in favor of defendants onthe issues of breach of contract and injunctive relief, and enjoined plaintiff from practicingmedicine for a period of two years within 20 miles of AHI's office, pursuant to a restrictivecovenant contained in the agreement. Thereafter, on the motion of plaintiff, the trial courtmodified its partial summary judgment order, interpreting the 20-mile radius described inthe restrictive covenant as driving distance instead of a straight line on the map. Plaintiffappeals the trial court's entry of the partial summary judgment, arguing as follows: (1) theagreement is void and unenforceable, (2) AHI has no legal and protectable interest inpreventing plaintiff from engaging in the private practice of medicine, (3) the agreementbetween AHI and plaintiff was unassignable, (4) the trial court erred in finding therestrictive 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) theenforcement of the restrictive covenant prevents plaintiff from fulfilling her ethical andprofessional 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. Wereverse.

Plaintiff is a board-certified family-practice physician licensed to practice medicinein 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 continuedto practice medicine with the army until March 1995. AHI is a not-for-profit corporationorganized 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 includesa nonphysician (a physical therapist). The Partnership does not have tax-exempt status. Thepresident of AHI is William Kessler. Mr. Kessler is also the president of St. Anthony'sHealth 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'scompensation was adjusted to $127,000 plus the percentage increase in the consumer priceindex. In 1997, and thereafter, plaintiff's compensation was to be decided by acompensation committee. Committee members were to consider numerous factors inmaking a determination, including compensation in previous years, market compensationlevels, AHI's performance, and the status of health care reform. Bonuses were also availableto 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 nonmedical,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 uponthe occurrence of certain events outlined in the agreement and gave both parties the right toterminate, with notice, for a failure of the other party to cure a material breach. Theagreement also included the following two-year, 20-mile radius, noncompetition provision:

"5.2 Non-Competition Covenant. During the term of this Agreement and fora 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 priorwritten consent of [AHI], directly or indirectly (i) provide[] or become associatedwith any other hospital group or other entity of any type engaged in the provision ofmedical or health care services or related administrative services within the medicalpractice 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 toprovide or render medical services to patients treated by Physician during the termof this Agreement; or (ii) [sic] solicit any person who is now or is hereafter anemployee 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 ahospital medical group or any other entity that is competitive with [AHI] (collectivelythe '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 hercomplaints about working conditions with AHI and problems that had arisen from the timeshe signed the agreement. On July 15, 1996, plaintiff's attorney wrote a letter to the attorneyfor AHI in an attempt to work out a separation agreement and to modify the noncompetitionclause to describe an area "exceedingly close" to plaintiff's AHI office. The issues werenever resolved to the parties' satisfaction.

On January 1, 1997, AHI assigned all of its physician service agreements, includingthe instant agreement, to the other defendant herein, CPCP, an Illinois medical servicescorporation organized as a limited partnership. CPCP is owned by George L. Tucker, alicensed medical doctor. Plaintiff did not sign a new contract with CPCP, but she continuedto 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 tohave the agreement declared invalid. The litigation was not actively pursued while theparties waited for our supreme court's decision in Berlin v. Sarah Bush Lincoln HealthCenter, 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 providemedical services.

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

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

In a letter dated April 17, 1997, the attorney for defendants responded to plaintiff's attorney'sletter. The reply letter explained that plaintiff's intention to terminate the agreement was notcommunicated 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 statethat if plaintiff took any actions consistent with prematurely terminating the agreement,CPCP intended to pursue all its remedies under the agreement, including the covenant notto compete. Throughout the remainder of 1997, the parties attempted to resolve the issuesbetween them.

Plaintiff continued to work under the agreement until January 15, 1998, when shesent a letter to Mr. Kessler. The letter stated, "I am terminating any relationship I may havewith [AHI or CPCP] effective the close of business today." Shortly thereafter, plaintiff setup a new practice in Alton, but she later moved to Godfrey, both of which are within thenoncompetition area set forth in the agreement. In response, on February 2, 1998, AHI filedan 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 clearthat CPCP was allowed to participate in the lower court's proceedings and was referred toby the trial court as an "intervenor."

On December 14, 1998, the trial court resolved plaintiff's original claim fordeclaratory relief when it issued an order finding that the agreement was valid andenforceable. Plaintiff filed a motion to certify for interlocutory appeal the issue of whetherthe 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 reliefand for a summary judgment on plaintiff's claims for injunctive relief. Memorandums insupport thereof were also filed.

On April 28, 1999, the trial court granted defendants' motion for a partial summaryjudgment, finding that defendants were entitled to a summary judgment on the issue ofbreaches of the agreement. The trial court found that defendants had a valid, protectableinterest in enforcing the noncompetition clause, and the court enjoined plaintiff frompracticing medicine within a 20-mile radius of the offices of AHI. Plaintiff filed anemergency motion for stay and a motion to reconsider. The trial court modified its originalorder by giving plaintiff additional time to make arrangements for the patients she wastreating and to give her time to move her equipment. The trial court also modified itsinterpretation of the noncompetition clause to reflect driving distance instead of a straightline on a map. Plaintiff filed a timely notice of appeal, and defendants filed a cross-appealbased on the trial court's modification of the noncompetition clause.

The first issue we are asked to consider is whether the agreement is valid andenforceable. Plaintiff contends that because AHI does not and cannot obtain a license topractice medicine, it had no legal authority to enter into the agreement with plaintiff and that,therefore, AHI is a corporation practicing medicine in violation of the Medical Practice Actof 1987 (225 ILCS 60/1 et seq. (West 1996)) and the corporate-practice-of-medicinedoctrine. Plaintiff argues that Berlin v. Sarah Bush Lincoln Health Center, 179 Ill. 2d 1, 688N.E.2d 106 (1997), is inapplicable to the instant case because it created an exception to thecorporate-practice-of-medicine doctrine only for licensed hospitals, not entities such as AHI. Defendants, on the other hand, reply that AHI, a not-for-profit health care institute, fitssquarely within the rationale of Berlin and that the trial court did not err in holding that theagreement was valid and enforceable.

In Berlin, our supreme court addressed the issue of whether the corporate-practice-of-medicine doctrine prohibits a licensed hospital from employing physicians to providemedical services. In that case, a physician filed a complaint for declaratory judgment inwhich he sought to have his employment agreement, which included a restrictive covenant,declared void. The employer was the Health Center, a nonprofit corporation duly licensedunder the Hospital Licensing Act (210 ILCS 85/1 et seq. (West 1994)). The restrictivecovenant covered a 50-mile radius for a period of two years following the physician'sdeparture from the Health Center. The physician argued that the agreement was voidbecause by employing physicians, the hospital was violating the corporate-practice-of-medicine doctrine. See Berlin, 179 Ill. 2d at 9, 688 N.E.2d at 110. The hospital, on theother hand, argued that there was no statutory prohibition on the corporate employment ofphysicians, that no judicial determination existed that prohibited hospitals from employingphysicians, and that public policies behind such a prohibition are inapplicable to licensedhospitals, particularly nonprofit hospitals. See Berlin, 179 Ill. 2d at 8-9, 688 N.E.2d at 109.

The Berlin court reviewed the history of the corporate-practice-of-medicine doctrineand the application of the doctrine in Illinois. Berlin, 179 Ill. 2d at 10-13, 688 N.E.2d at110-11. The review included an analysis of People ex rel. Kerner v. United MedicalService, Inc., 362 Ill. 442, 200 N.E. 157 (1936), which held that a low-cost health clinic inwhich all medical services were rendered by duly licensed physicians was illegally engagedin the practice of medicine in violation of the Medical Practice Act (Ill. Rev. Stat. 1935, ch.91,