Atkins v. Robbins, Salomon & Patt, Ltd.
97 N.E.3d 210
Ill. App. Ct.2018Background
- Dr. Edward Atkins was sole shareholder and officer of a medical professional corporation (Atkins, M.D., S.C.) that provided anesthesia services to outpatient surgical centers, including River North Same Day Surgery (River North).
- Two employed anesthesiologists (Gay and Sukhani) left and formed a competing company that was awarded the River North contract in 2007; their employment agreements lacked postemployment restrictive covenants.
- Atkins sued his prior law firm (Robbins) and attorney Wolf for legal malpractice, alleging they negligently failed to include restrictive covenants and that the omission caused lost profits to the Corporation.
- The Corporation’s Form 1120 tax returns (2003–2007) showed little or no taxable income because the Corporation paid large officer compensation/bonuses to avoid double corporate/individual taxation; Dr. Atkins personally received high compensation.
- At a bench trial, the court admitted some evidence but had limited or excluded expert damages testimony; after the plaintiff rested, the court granted defendants’ directed finding on damages, ruling as a matter of law that an unprofitable corporation cannot recover lost profits where officer compensation eliminates corporate taxable profit.
- The appellate court reversed and remanded, holding the trial court misapplied the law by treating corporate tax-driven distributions as dispositive and directing the trial court to weigh the evidence and determine whether the Corporation provided a reasonable basis for lost-profits calculation (limited to a two-year period if damages are awarded).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether an unprofitable professional corporation (due to officer compensation) can prove lost profits | Corporation: Officer compensation is tax-driven and does not reflect operational profitability; compensation may be considered when computing net profit for lost-profits damages | Defendants: Corporation chose C-corp form and tax treatment; year-end taxable income (net of officer compensation) is the proper measure so no corporate profit → no lost profits | Court reversed trial judge: professional-corp compensation can be relevant; trial court erred as matter of law to bar recovery solely because corporate taxable income was zero; remanded for factfinding |
| Admissibility and sufficiency of damages evidence (expert and other financial proofs) | Corporation: offered testimony and stipulated expert proofs to approximate lost profits from the River North contract; operational revenue/expense evidence supports a reasonable basis | Defendants: damages evidence speculative, untimely expert report excluded, tax returns show no profit, and plaintiff failed to provide reliable calculation | Court: did not decide sufficiency on merits; found trial court improperly resolved legal issue instead of weighing evidence; remanded for the court to determine whether plaintiff met burden of reasonable certainty |
| Whether plaintiff could rely on Dr. Atkins’s personal compensation as basis for corporate lost profits | Corporation: compensation to shareholder-principals of professional corps often reflects disguised distribution and is probative of the corporation’s economic gain | Defendants: plaintiff cannot ignore corporate form; officer compensation cannot be used to assert corporate lost profits | Court: allowed consideration of such compensation as relevant (adopting Bettius approach); trial court erred to treat compensation as conclusively defeating damages |
| Temporal scope of any lost-profits award | N/A (defendants sought limitation) | Defendants: damages, if any, limited to two years (length of the omitted restrictive covenants) | Court: upheld limiting damages to two years on remand if damages proven |
Key Cases Cited
- Tri-G, Inc. v. Burke, Bosselman & Weaver, 222 Ill. 2d 218 (Ill. 2006) (elements of legal malpractice and standard for lost-profits damages)
- Bettius & Sanderson, P.C. v. Nat’l Union Fire Ins. Co., 839 F.2d 1009 (4th Cir. 1988) (professional-corp principals’ compensation is probative of the corporation’s net income for lost-profits analysis)
- Anesthesiologists Assocs. of Ogden v. St. Benedict’s Hosp., 884 P.2d 1236 (Utah 1994) (rejecting Bettius; held shareholder-employee compensation cannot be used to prove corporate lost profits)
- Sisters of Providence in Washington v. A.A. Pain Clinic, Inc., 81 P.3d 989 (Alaska 2003) (followed Bettius; concluded treating compensation as relevant better reflects actual losses of a professional corporation)
- Sterling Freight Lines, Inc. v. Prairie Material Sales, Inc., 285 Ill. App. 3d 914 (Ill. App. 1996) (lost-profits measure tied to net profit—gross revenue less expenses)
- Neeson v. Sangamon County Mining Co., 316 Ill. 397 (Ill. 1925) (historic formulation of net profit)
- Bevelheimer v. Gierach, 33 Ill. App. 3d 988 (Ill. App. 1975) (corporation and sole shareholder are distinct entities; caution against disregarding corporate form)