Isles Wellness v. Progressive

Decision Date07 December 2006
Docket NumberNo. A-04-486.,No. A-04-489.,No. A-04-488.,No. A-04-485.,No. A-04-487.,A-04-485.,A-04-488.,A-04-486.,A-04-489.,A-04-487.
PartiesISLES WELLNESS, INC., n/k/a Minneapolis Wellness, Inc., et al., Appellants, v. PROGRESSIVE NORTHERN INSURANCE CO., a Delaware corporation doing business in the State of Minnesota, Respondent, Allstate Indemnity Company, a Delaware corporation doing business in the State of Minnesota, Defendant.
CourtMinnesota Supreme Court

Michael J. Weber, Weber Law Office, Minneapolis, MN, for Appellants.

Richard S. Stempel, Stempel & Doty, PLC, Hopkins, MN, for Respondent.

Heard, considered, and decided by the court en banc.

OPINION

MEYER, Justice.

This case presents the question whether operating a chiropractic clinic in violation of the corporate practice of medicine doctrine voids all contracts between the client and its patients' insurers as a matter of public policy. On remand from our decision holding that the corporate practice of medicine doctrine applies to chiropractors, the court of appeals ruled that the clinics' outstanding claims for chiropractic services were void as against public policy. We reverse and remand to the district court for resolution of the remaining issues.

Jeanette Couf is the sole shareholder of three clinics, Isles Wellness, Inc., n/k/a Minneapolis Wellness, Inc., MN Licensed Physical Therapists, Inc., n/k/a A Licensed Physical Therapy, Inc., and Licensed Massage Therapists, Inc., n/k/a Twin Cities Licensed Massage Therapy, Inc. (collectively the clinics or Wellness). The clinics were incorporated as general business corporations under the Minnesota Business Corporation Act, Minn.Stat. ch. 302A (2004) and operated from 2000 to 2003. Couf is not a licensed chiropractor; however, the services provided by her clinics were provided by licensed chiropractors.

The clinics provided $300,000 worth of chiropractic, massage, and physical therapy services to 49 patients (collectively referred to as the patients) as part of the patients' economic loss benefits available under the Minnesota No-Fault Insurance Act. Although Progressive Northern Insurance Co. and Allstate Indemnity Co. (collectively the insurers) initially paid for services provided by the clinics, the insurers stopped paying for the clinics' services in 2002. Eventually, each of the 49 patients assigned their claims against the insurers to the clinics.

This litigation began in 2003 when the clinics, after acquiring the claims assigned by their patients, filed five complaints against the insurers alleging breach of contract and unfair claims practices. The insurers counterclaimed alleging, among other things, that the clinics were operating in violation of the corporate practice of medicine doctrine. This case is a consolidation of five cases brought by the clinics for unpaid services. The outcome of this consolidated case will resolve all claims the 49 patients have against the insurers.

The district court granted the insurers' motion for partial summary judgment on the issue of the corporate practice of medicine doctrine. Relying on Granger v. Adson, 190 Minn. 23, 250 N.W. 722 (1933), the district court concluded that because the clinics were operating in violation of the corporate practice of medicine doctrine, Wellness's contracts were illegal, against public policy, and void. The district court then concluded that the insurers were not obligated to pay any outstanding bills to Wellness.

On appeal, the court of appeals reversed the district court, concluding that the corporate employment of chiropractors, massage therapists, and physical therapists did not violate the corporate practice of medicine doctrine. Isles Wellness, Inc. v. Progressive N. Ins. Co., 689 N.W.2d 561, 565 (Minn.App.2004). We then determined that the corporate practice of medicine doctrine did apply to chiropractors, but not to massage therapists or physical therapists. Isles Wellness, Inc. v. Progressive N. Ins. Co., 703 N.W.2d 513, 524 (Minn. 2005) (Isles Wellness I). We remanded this case to the court of appeals to determine whether the insurers were required to pay the outstanding amounts billed for chiropractic services provided by Wellness. Id.

On remand, the court of appeals determined that outstanding claims for chiropractic services were void as against public policy.1 Isles Wellness, Inc. v. Progressive N. Ins. Co., No. A04-485, etc., order op. at 2-3 (Minn.Ct.App. Feb. 23, 2006). We granted review to determine whether operating a chiropractic clinic in violation of the corporate practice of medicine doctrine voids all contracts between the plaintiffs and the insurers as a matter of public policy.

This case presents a question of law. When the issue presented is purely an issue of law, we review the question de novo. Karst v. F.C. Hayer Co., 447 N.W.2d 180, 181 (Minn.1989); A.J. Chromy Constr. Co. v. Commercial Mech. Servs., Inc., 260 N.W.2d 579, 582 (Minn. 1977).

Not every illegal contract must be voided in order to protect public policy. Hart v. Bell, 222 Minn. 69, 75, 23 N.W.2d 375, 379 (1946); see also Dick Weatherston's Assoc. Mech. Servs., Inc. v. Minn. Mut. Life Ins. Co., 257 Minn. 184, 191, 100 N.W.2d 819, 824 (1960) ("Justice and sound public policy do not always require the literal and arbitrary enforcement of a licensing statute."); Hollister v. Ulvi, 199 Minn. 269, 280, 271 N.W. 493, 498-99 (1937) (recognizing that "`the power of the courts to declare a contract void for being in contravention of sound public policy is a very delicate and undefined power, and like the power to declare a statute unconstitutional, should be exercised only in cases free from doubt.'") (quoting Cole v. Brown-Hurley Hardware Co., 139 Iowa 487, 117 N.W. 746, 747 (Iowa 1908)). Rather, we examine each contract to determine whether the illegality has so tainted the transaction that enforcing the contract would be contrary to public policy. Hart, 222 Minn. at 75, 23 N.W.2d at 379. As a general rule, "a contract is not void as against public policy unless it is injurious to the interests of the public or contravenes some established interest of society." In re Estate of Peterson, 230 Minn. 478, 483, 42 N.W.2d 59, 63 (1950).

The question in this case is whether enforcing the contract between the insurers and Wellness would be contrary to public policy. We have recognized several public policy reasons for the corporate practice of medicine doctrine. Isles Wellness I, 703 N.W.2d at 517. Among the public policy considerations in applying the corporate practice of medicine doctrine are "concerns raised by the specter of lay control over professional judgment, commercial exploitation of health care practice, and the possibility that a health care practitioner's loyalty to a patient and an employer will be in conflict." Id. The Granger court emphasized these public policy considerations when it stated, "[w]hat the law intends is that the patient shall be the patient of the licensed physician, not of a corporation or layman. The obligations and duties of the physician demand no less. There is no place for a middleman." Granger, 190 Minn. at 27, 250 N.W. at 723; see In re Otterness, 181 Minn. 254, 257, 232 N.W. 318, 319 (1930) (stating that "neither a corporation nor a layman not admitted to practice can practice law nor indirectly practice law by hiring a licensed attorney to practice law for others for the benefit or profit of such hirer."). But, in affirming the underlying public policy reasons for the corporate practice of medicine doctrine in Isles Wellness I, we expressed some doubt about the continued viability of the underlying public policy rationale, stating, "[w]e agree with the clinics that some of the policy considerations originally supporting the corporate practice of medicine doctrine need re-examination." 703 N.W.2d at 524.

The insurers contend that the corporate practice of medicine doctrine voids all contracts as a matter of public policy. To support this argument, the insurers maintain that under Granger and Otterness violating the corporate practice of medicine doctrine per se renders all contracts void as a matter of public policy. The insurers contend that allowing Wellness to receive payment in spite of its violation of the corporate practice of medicine doctrine would render the doctrine ineffectual because it would allow clinics to incorporate in violation of the corporate practice of medicine doctrine, provide services, receive retrospective payment, and improperly re-incorporate to continue the process.

The clinics maintain that fairness prevents the invalidation of their contracts because the clinics provided reasonable and necessary services by licensed chiropractors. Further, they argue that at the time services were rendered it was not clear whether the corporate practice of medicine doctrine existed in Minnesota. The clinics also assert that Granger is distinguishable from this case because Granger involved an unlicensed individual serving clients, whereas in this case only licensed healthcare professionals actually provided services. Wellness maintains that because it substantially complied with Minnesota law by hiring licensed professionals to provide services, their contracts should not be voided, noting that Minnesota law permits this court to uphold contracts made in violation of the law if fairness permits.

This court's jurisprudence does not support creating a per se rule, which would void all contracts entered into in violation of the corporate practice of medicine doctrine as a matter of public policy. Neither Granger nor Otterness definitively addresses whether the corporate practice of medicine doctrine voids all contracts entered into as part of the illegal corporate practice by licensed individuals. The Granger court voided Granger's contracts as a...

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