Idbeis v. Wichita Surgical Specialists, No. 91,442.

• Citation: 112 P.3d 81
• Decision Date: 03 June 2005
• Docket Number: No. 91,442.
• Parties: Badr IDBEIS, M.D., Gary S. Benton, M.D., Robert H. Fleming, M.D., and John D. Rumisek, M.D., Appellants/Cross-appellees, v. WICHITA SURGICAL SPECIALISTS, P.A., Appellee/Cross-appellant.
• Court: United States State Supreme Court of Kansas

Page 81

112 P.3d 81

Badr IDBEIS, M.D., Gary S. Benton, M.D., Robert H. Fleming, M.D., and John D. Rumisek, M.D., Appellants/Cross-appellees, v. WICHITA SURGICAL SPECIALISTS, P.A., Appellee/Cross-appellant.

No. 91,442.

Supreme Court of Kansas.

June 3, 2005.

COPYRIGHT MATERIAL OMITTED

Christopher A. McElgunn, of Klenda, Mitchell, Austerman & Zuercher, L.L.C., of Wichita, argued the cause, and Gary M. Austerman, of the same firm, was with him on the briefs for appellants/cross-appellees.

Gary L. Ayers, of Foulston Siefkin LLP, of Wichita, argued the cause, and Martha Aaron Ross, of the same firm, was with him on the briefs for appellee/cross-appellant.

The opinion was delivered by LUCKERT, J.:

The plaintiffs, Badr Idbeis, M.D., Gary S. Benton, M.D., Robert H. Fleming, M.D., and John D. Rumisek, M.D., are thoracic, cardiothoracic, and cardiovascular surgeons who filed this action seeking a restraining order and injunction prohibiting their employer, defendant Wichita Surgical Specialists, P.A. (WSS), from enforcing restrictive covenants contained in their employment agreements with WSS and seeking a declaration that those covenants are unenforceable.

Upon the filing of the petition, the trial court granted the plaintiffs a temporary restraining order (TRO). A hearing was conducted after WSS filed a motion to vacate that restraining order and requested its own TRO enforcing the restrictive covenants. The trial court granted a temporary injunction in favor of Drs. Benton, Fleming, and Rumisek and prohibited WSS from enforcing the restrictive covenants in their employment agreements. As to Dr. Idbeis, the court granted a temporary injunction in favor of WSS, requiring Dr. Idbeis to begin making payments of liquidated damages pursuant to the formula set forth in his employment agreement or to cease practicing medicine in Sedgwick County, Kansas, as required by the geographic restriction in his employment agreement.

Approximately 1 year later, after conducting discovery, the parties tried the case to the court after which the trial court verbally ruled that the restrictive covenants in the employment agreements of Drs. Benton Fleming, and Rumisek were enforceable. However, the trial court granted these plaintiffs their alternative request that they be allowed the option of paying liquidated damages. As to Dr. Idbeis, the trial court ruled that the restrictive covenant in his employment agreement was enforceable and that he must pay a liquidated damage award or cease practicing medicine in Sedgwick County, Kansas.

WSS filed a timely motion to amend the district court's judgment pursuant to K.S.A. 2004 Supp. 60-252(b) asking the court to change the liquidated damages formula. The court entered an order amending the final judgment by changing the liquidated damages formula. Plaintiffs filed a timely notice of appeal, and WSS filed a timely notice of cross-appeal. This court granted a motion by WSS to transfer the case to this court pursuant to K.S.A. 20-3017.

Factual Background

Wichita Surgical Group, P.A. (WSG) was originally founded in 1969. WSG did not initially require restrictive covenants in its employment agreements. However, as it grew, WSG began requiring restrictive covenants for the purposes of improving the quality of the group, protecting the strength and viability of the group, and protecting the group's referral base.

The structure and ownership of WSG changed in 1994, resulting in the formation of WSS, a professional corporation organized and authorized to do business in Kansas. Although WSS formed a single entity for tax purposes, it organized five divisions each of which was managed by its own division council and through shareholder votes. This structure allowed each division to maintain a distinct existence and independently manage its own affairs, including employment decisions. WSS had a board of directors comprised of representatives of each of the divisions; those directors were members of their individual division councils.

The surgeons specializing in thoracic and cardiovascular surgery were members of the division known as the WSS division. The WSS division required restrictive covenants, although some other divisions did not. With some exceptions, if a surgeon from outside the Wichita area joined WSS, the employment agreement included a restrictive covenant with time and geographic restrictions. If a surgeon from an existing Wichita practice joined WSS, the employment agreement included a restrictive covenant with time and geographic restrictions but also a liquidated damages or "buyout" clause. If a surgeon brought a new specialty to WSS, no restrictive covenant was required. For new surgeons, WSS provided a guaranteed minimum salary for the first 2 years while the surgeons developed their referral base.

When Dr. Idbeis, who is board certified in general and thoracic surgery, joined WSG in December 1988, he signed an employment agreement which contained a covenant not to compete. In October 1994, he signed a new agreement with WSS. Because Dr. Idbeis had an existing practice in Wichita for 8 years before joining WSG, his employment agreement with WSS contained a 2-year geographic restrictive covenant and a liquidated damages provision:

"9. Restrictive Covenant. During the term of this Agreement and for a period of two (2) years after the termination of this Agreement for whatever reason, Doctor will not, without the prior consent of Employer, directly or indirectly engage in the practice of medicine and/or surgery, nor own, manage, operate, control, be employed by, invest in, participate in, advise, consult with, or be connected with the ownership, management, operation or control of any business engaged in the practice of medicine and/or surgery within 75 miles of the city of Wichita, Kansas.

"In the event that Doctor does engage in the practice of medicine in violation of this covenant, then Doctor shall pay to Employer, as liquidated damages, five annual payments in an amount equal to 20% of the total taxable compensation received by Doctor from Employer for the twelve month period immediately preceding the termination of Doctor's employment. Such annual payments will commence upon termination of this agreement and continue on each anniversary thereof until five annual payments have been made."

The other plaintiffs' contracts did not contain the liquidated damages provision and had different geographic limitations.

Dr. Rumisek was new to Wichita when he joined WSG, although he had extensive experience. He completed his general and vascular surgical residency training in 1979 and his cardiothoracic surgical residency training in 1983, after which he was awarded a fellowship in pediatric surgery at Children's Hospital of Philadelphia, University of Pennsylvania. Before coming to Wichita, Dr. Rumisek, who is board certified in general and thoracic surgery, served as Assistant Chief of Cardiothoracic Surgery Service at Walter Reed Army Medical Center, Washington, D.C., and worked as an Associate Professor of Surgery at the University of Florida. He joined WSG in 1989 at which time he signed an employment agreement which was later assigned to WSS. The employment agreement stated, in part:

"9. Restrictive Covenant. During the term of this Agreement and for a period of two (2) years after the termination of this Agreement, Doctor will not, within Sedgwick County, Kansas, without the prior written consent of Employer, directly or indirectly, engage in the practice of medicine and surgery or own, manage, operate, control, be employed by, invest in, participate in, advise, consult with, or be connected with the ownership, management, operation, or control of any business engaged in the practice of medicine and surgery."

Both Drs. Benton and Fleming started their private practice experience with WSG. Dr. Benton completed his residency training in 1989 and additional training through a cardiothoracic fellowship from 1989 to 1992, during which time he obtained certification in general surgery. He joined WSG in 1992 and secured his board certification in thoracic surgery in 1993. His employment agreement contained the same covenant not compete as was included in Dr. Rumisek's agreement, restricting competition for a 2-year period with the geographic restriction covering Sedgwick County, Kansas.

Dr. Fleming joined WSG 2 years after Dr. Benton. He had completed his residency training in 1992 and had additional training through a cardiothoracic fellowship from 1992 to 1994. He secured his board certification in general surgery in 1993 and his board certification in thoracic surgery in 1995. Because WSS's market broadened geographically during the 2 years between when Drs. Benton and Fleming began their respective practices, the restrictive covenant in Dr. Fleming's employment agreement contained a slightly different 2-year geographic restriction which prohibited him from practicing within 75 miles of Wichita. In all other respects the covenant was the same as those of Drs. Rumisek and Benton.

By August 2000, the WSS division council began discussing whether the restrictive covenants in its physicians' employment contracts should be amended. Dr. Benton was appointed to a subcommittee to consider possible alternatives and recommend options to the shareholders.

In November 2000, the WSS division shareholders met and voted 14-2 against eliminating restrictive covenants altogether. All four plaintiffs in this case voted against eliminating restrictive covenants. The shareholders then voted 14-9 to approve a modification of the restrictive covenant. The minutes state: "[T]he restrictive covenants will be changed to provide financial restrictions after five years of geographic restrictions." The departing physician would pay 80 percent of the previous year's net income in payments made over a 4-year period. The intent was to allow each physician to choose whether to add this...