425 P.3d 1253
Kan.2018Background
- CKMC (d/b/a St. Rose) is a Kansas nonprofit that held an ambulatory surgical center (ASC) license and employed Dr. Stanley Hatesohl under a two-year contract to provide 40 hours/week of family medicine at St. Rose.
- The employment agreement included one-year postemployment covenants (50-mile noncompete, nonsolicitation, nonuse of confidential information).
- On contract expiration, Hatesohl began working across the street at Great Bend Regional Hospital’s clinic; CKMC sued him and his new employers for breach and tortious interference.
- Defendants moved for summary judgment, arguing the contract was unenforceable because it violated Kansas’s corporate practice of medicine doctrine (a corporation may not employ physicians to provide medical services the corporation is not licensed to provide).
- The district court granted summary judgment for defendants, concluding (1) St. Rose’s ASC license did not authorize family medicine clinic services and (2) the contract was therefore illegal; the Court of Appeals reversed, extending St. Francis to ASCs; the Kansas Supreme Court granted review.
Issues
| Issue | Plaintiff's Argument (CKMC) | Defendant's Argument (Hatesohl/GBRH) | Held |
|---|---|---|---|
| Whether a licensed ASC may hire physicians under the St. Francis exception | St. Francis exception for licensed hospitals should extend to ASCs; statutes/regulations allow ASCs to provide non‑surgical services | A corporate practice bar applies unless the facility is licensed to provide the specific medical service; ASC license is limited in scope | An ASC license can permit hiring physicians, but only for services within the ASC license scope (affirming a limited exception) |
| Whether Hatesohl’s family medicine practice fell within CKMC’s ASC license scope | ASC licensing and ancillary‑service rules allow ASCs to offer family medicine; nothing expressly forbids it | Hatesohl provided primary care unrelated to St. Rose’s surgical purpose and had no surgical privileges; family medicine is outside ASC scope | Hatesohl’s family medicine practice fell outside the ASC’s scope; contract was unenforceable under the corporate practice doctrine |
| Whether the contract’s postemployment covenants are enforceable if the underlying contract is illegal | Covenants enforceable as reasonable restraints protecting CKMC interests | Covenants unenforceable because underlying employment contract is illegal and courts will not enforce illegal agreements | Postemployment covenants unenforceable because the employment contract violated public policy and is void |
| Proper judicial remedy when a corporation practices outside its license | CKMC sought injunctive relief, damages, and to enforce covenants | Defendants sought dismissal/summary judgment and costs | Summary judgment for defendants affirmed; illegal contract doctrine bars judicial aid to either party and makes remedies unavailable |
Key Cases Cited
- Winslow v. Bd. of Dental Examiners, 115 Kan. 450 (court held corporations may not practice dentistry through employed licensed dentists)
- Early Detection Ctr., Inc. v. Wilson, 248 Kan. 869 (1991) (general corporations cannot provide medical services through licensed practitioners; such contracts unenforceable)
- St. Francis Regional Med. Ctr., Inc. v. Weiss, 254 Kan. 728 (1994) (recognized statutory exception: a corporation licensed as a hospital may contract for physician services)