Baptist Physicians Lexington, Inc. v. New Lexington Clinic, P.S.C., 436 S.W.3d 189

Background

Three physicians (McKinney, Cooper, Winkley), who were NLC board members and employees, resigned in early 2008 and began practicing at a nearby Baptist-operated clinic.
NLC alleges the physicians, while still directors, used confidential corporate information and recruited NLC staff and patients to enable Baptist to hire them, causing corporate harm; Baptist was sued for aiding and abetting.
The physicians’ employment agreements permitted termination on 60 days’ notice and contained noncompete/confidentiality provisions; two physicians paid liquidated-damages “opt-outs” to avoid geographic restrictions.
Trial court granted summary judgment dismissing NLC’s common-law fiduciary-duty claims, reasoning KRS 271B.8-300 supplanted those claims; Court of Appeals reversed and remanded.
Kentucky Supreme Court held KRS 271B.8-300 governs actions taken in a director’s corporate-governance capacity (business-judgment context) but does not displace common-law fiduciary claims for preparing for/participating in a competing venture while still a director.
Because factual disputes remain (including causation and damages, and the effect of employment agreements on recoverable damages), the case is remanded for further proceedings consistent with the opinion.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Does KRS 271B.8-300 displace common-law fiduciary-duty claims against directors who prepare for/enter competing ventures?	NLC: statute does not apply because the alleged conduct was individual competition, not acts taken “as a director.”	Physicians/Baptist: statute controls all director duty claims and plaintiff forfeited statutory claim by disavowing it.	KRS 271B.8-300 applies only to actions/inactions taken in a director’s corporate-governance capacity; it does not abrogate common-law claims for extra-corporate competition.
Were NLC’s pleadings insufficient under Kentucky pleading rules?	NLC: pleadings adequately alleged fiduciary breach; refined legal theory should be allowed.	Defendants: plaintiff failed to invoke the statute and thus cannot pursue it.	Court declines to treat pleading-stage statutory invocation as forfeiture; CR favors liberal construction—pleading error not fatal here.
Could the alleged fiduciary breaches have caused recoverable damages?	NLC: breaches caused loss (employees, patients, revenue).	Defendants: no causal proof; employment agreements authorized competition or provided liquidated-damages remedies, limiting recoverable harm.	Remand for damages discovery; disputed factual issues remain and contractual rights limit recoverable damages to injuries actually caused by fiduciary breaches.
Are injunctive/monetary remedies barred by KRS 271B.8-300’s heightened standards?	NLC: statute inapplicable to the alleged extra-corporate misconduct.	Defendants: statute requires clear-and-convincing proof of willful misconduct or wanton/reckless disregard for monetary damages.	Where statute applies (directorial acts), it imposes higher burdens for monetary relief; but it does not bar common-law relief for competition-based breaches outside director role.

Key Cases Cited

Urban J. Alexander Co. v. Trinkle, 224 S.W.2d 923 (Ky. 1949) (recognizes directors’ fiduciary relation and duty of utmost good faith)
Aero Drapery Co. v. Engdahl, 507 S.W.2d 166 (Ky. 1974) (director/officer cannot plan/execute competing enterprise while still a fiduciary; common-law duty applies)
Steelvest, Inc. v. Scansteel Service Ctr., Inc., 807 S.W.2d 476 (Ky. 1991) (planning a competing business while employed may breach duty of loyalty; summary judgment improper where facts support breach)
Simmons v. Miller, 544 S.E.2d 666 (Va. 2001) (statutory business-judgment protection applies only to acts taken in director capacity; organizing a competitor fell outside statute)
Ballard v. 1400 Willow Council of Co-Owners, Inc., 430 S.W.3d 229 (Ky. 2013) (statutory conduct standards construed as duties owed to the corporation)