Abay v. Abay Neuroscience Ctr., L. L.C.
Decision Date | 06 March 2015 |
Docket Number | 109,876. |
Citation | 344 P.3d 396 (Table) |
Parties | Eustaquio O. ABAY, II, M.D., and E A 2, P.A., a Kansas Professional Association, Appellees/Cross-appellants, v. ABAY NEUROSCIENCE CENTER, L.L.C., a Kansas Limited Liability Company, Appellant/Cross-appellee. |
Court | Kansas Court of Appeals |
Carrie E. Josserand, of Lathrop & Gage, of Overland Park, and Jean Paul Bradshaw, II, of Lathrop & Gage, of Kansas City, Missouri, for appellant/cross-appellee.
Jay F. Fowler, Holly A. Dyer, and Paige D. Pippin, of Foulston Siefkin L.L.P., of Wichita, for appellees/cross-appellants.
Before HILL, P.J., McANANY, J., and BURGESS, S.J.
Eustaquio Abay, II, M.D. and E A 2, P.A, the professional association under which Dr. Abay practices neurosurgery (collectively referred to as Dr. Abay), brought this action against Abay Neuroscience Center, LLC (ANC), for breach of contract and for tortious interference with prospective business advantage. ANC counterclaimed for breach of contract and breach of fiduciary duty.
The jury found in favor of Dr. Abay on his tortious interference claim and assessed Dr. Abay's actual damages. The jury also found in favor of Dr. Abay on his breach of contract claim, but assessed damages significantly less than sought by Dr. Abay under his theory that he was entitled to annual guaranteed compensation for his professional services.
The jury rejected ANC's breach of fiduciary duty counterclaim but determined Dr. Abay had breached the contract with ANC and determined the actual damages sustained by ANC as a result. The court awarded punitive damages of $875,000 on Dr. Abay's tortious interference claim. ANC appealed, and Dr. Abay cross-appealed.
ANC's points of error on appeal focus on the awards of actual and punitive damages. ANC also claims the court erred in admitting evidence and instructing the jury on the tortious interference claim. In his cross-appeal, Dr. Abay points to claimed erroneous rulings by the court related to ANC's breach of contract claim which was based on his contention that he was entitled to guaranteed annual compensation from ANC.
An extensive recitation of facts well known to the parties is unnecessary for purposes of these appeals. The same can be said for the procedural history of the case. The following will suffice.
Dr. Abay, the founder of the Spine Hospital, began his successful practice of neurosurgery in Wichita in 1986. Over time other doctors joined the practice. In July 2004 the doctors, all of whom were equal owners in the practice, executed a working agreement whereby Dr. Abay served as manager of the practice with a fixed salary of $60,000. As compensation each doctor, including Dr. Abay, was paid quarterly based on a formula which calculated gross receipts less direct expenses attributable to the particular doctor and less a share of common expenses. None of the doctors was subject to a covenant not to compete.
More doctors joined the practice, and in April 2005 the practice was converted to a limited liability company named Abay Neuroscience Center, LLC. Dr. Abay continued as manager of the practice. The doctors signed a new operating agreement with terms similar to those of the earlier agreement. It provided for “Guaranteed Compensation,” which was defined as “the compensation which a Member is required to receive under such Member's employment agreement with Company, if any.” Compensation was calculated under the same type of formula used before for the members of the LLC. New associates in their first 2 years of practice were guaranteed a fixed salary.
Dr. Abay entered into annual services agreements with ANC that defined his compensation. In the August 2007 services agreement, Dr. Abay was engaged by ANC as a physician and agreed to use his “best efforts to provide the Services as required.” The agreement further provided: “In consideration for Contractor's Services hereunder, Abay shall pay Contractor compensation of Four Hundred Twenty–Five Thousand Dollars ($425,000) (‘Guaranteed Compensation’), payable in monthly installments.” Dr. Abay contended that under these provisions he was guaranteed annual compensation of $425,000.
Over the years Dr. Abay reduced his patient load. He stopped taking trauma calls, doing brain surgeries, and taking pediatric cases. He decided to focus on building the spine program at the Spine Hospital. Dr. Abay's gross patient revenues fell significantly in 2006 and 2007. By November 2007, Dr. Abay's expenses exceeded his revenues. Though this deficit was corrected over later months, a similar deficit arose in October 2008. Dr. Abay's revenue production continued to deteriorate. In 2011, ANC drafted proposed revisions to Dr. Abay's services agreement, but Dr. Abay refused to sign them.
On May 16, 2011, Dr. Abay's impending departure from the practice was announced. ANC staff was told that Dr. Abay planned to move his individual practice to ANC's old address on East Douglas Avenue in Wichita.
Dr. Abay moved his practice in June 2011. On June 3, 2011, ANC's telephone operator sent an e-mail to all ANC staff which listed the new phone number for Dr. Abay's relocated practice, which would be conducted under the name “Abay Neurosurgery.” Dr. Abay spoke to his physician's assistant, to ANC's scheduler, and to ANC's care coordinator about referring patients to his new location. But when Dr. Abay left, ANC's administrator, Earle Brown, met with ANC's schedulers and told them to tell patients that Dr. Abay was no longer with ANC and they did not know what Dr. Abay was going to do. Brown told one employee not to give any information to patients calling for Dr. Abay because they did not have his contact information or know his whereabouts. She was told to schedule those patients with ANC's other physicians, which she did.
On June 21, 2011, ANC sent a mailer to over 2,000 physicians, stating that Dr. Abay had left ANC “to pursue other interests” and wished Dr. Abay luck. All of this led to a substantial drop in referrals to Dr. Abay at his new location and, ultimately, to this suit.
Following the trial, the district court awarded punitive damages to Dr. Abay on the tortious interference claim in the amount of $875,000.
On appeal, ANC argues that the award of punitive damages was grossly excessive in violation of the Due Process Clause under the Fourteenth Amendment of the United States Constitution.
Our review of this issue is unlimited. But we defer to the district court's findings of fact unless they are clearly erroneous. Hayes Sight & Sound, Inc. v. ONEOK, Inc., 281 Kan. 1287, 1307, 136 P.3d 428 (2006).
The Due Process Clause of the Fourteenth Amendment of the United States Constitution prohibits states from imposing grossly excessive punitive damage awards on tortfeasors. BMW of North America, Inc. v. Gore, 517 U.S. 559, 562, 116 S.Ct. 1589, 134 L.Ed.2d 809 (1996). In Gore, 517 U.S. at 574–75, the Supreme Court identified three standards for considering the propriety of a punitive damage award: (1) the degree of reprehensibility of the defendant's conduct, the most important factor; (2) the disparity between the harm or potential harm suffered by the plaintiff and the punitive damage award, i.e., the ratio of punitive damages to actual damages; and (3) the difference between the punitive damage award and the civil penalties authorized or imposed in comparable cases. See State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S 408, 418–428, 123 S.Ct. 1513, 155 L.Ed.2d 585 (2003). Here, there is no provision for civil penalties for tortious interference claims, so there are no facts with which to consider this third standard.
With respect to the reprehensibility of the defendant's conduct, many of the findings justifying the district court's punitive damages award were made by the jury, which found that ANC's acts were intentional and malicious and that ANC ratified the acts of its employees. ANC points to a laundry list of ways Dr. Abay contributed to the rough start of his new practice, but those contributions speak to the reasonableness of his compensatory damages and do not mitigate ANC's wrongful acts in regard to punitive damages, which are meant to punish and deter such conduct.
While Dr. Abay was hardly impoverished at the time of ANC's misconduct, ANC's misconduct was undertaken at a time when Dr. Abay's compensation had been cut and he was entering a new and inherently less stable professional situation. ANC repeatedly gave patients and referring physicians false information about Dr. Abay and misled referring physicians by sending out a mailer saying he had left the practice to pursue other interests. In doing so, ANC caused delays for patients trying to contact Dr. Abay and to exercise their right to choose their own doctor. ANC's actions were motivated by its own pecuniary interests, not the interests of patients.
There is no bright-line ratio which a punitive damages award may not exceed. But the Supreme Court has noted that few awards exceeding a single-digit ratio between punitive and compensatory damages will satisfy due process. State Farm, 538 U.S. at 424–25. Here, the punitive/actual damages ratio was 8.6 to 1. Under the facts of this case, we do not find this award of punitive damages to be excessive.
Next, ANC argues that the district court erred in allowing Dr. Abay to bring a claim for punitive damages because Dr. Abay did not comply with the statutory requirements for doing so. Dr. Abay filed a motion to amend his petition before the pretrial conference, as required by statute, but failed to submit supporting affidavits until after the conference. ANC contends that the district court erred in finding good cause for this late filing.
K.S.A. 60–3703 governs the procedure for amending a petition to claim punitive damages. Normally, a district court's ruling regarding an amendment for punitive damages is reviewed for an abuse of discretion. Adamson v. Bicknell, 295...
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