Cleveland Hair Clinic, Inc. v. Puig, 96 C 3560.

• Decision Date: 22 November 1996
• Docket Number: No. 96 C 3560.,96 C 3560.
• Citation: 968 F.Supp. 1227
• Parties: CLEVELAND HAIR CLINIC, INC., Plaintiff, v. Carlos J. PUIG, et al., Defendants.
• Court: U.S. District Court — Northern District of Illinois

968 F.Supp. 1227

CLEVELAND HAIR CLINIC, INC., Plaintiff, v. Carlos J. PUIG, et al., Defendants.

No. 96 C 3560.

United States District Court, N.D. Illinois, Eastern Division.

November 22, 1996.

COPYRIGHT MATERIAL OMITTED

Alan S. Rutkoff, McDermott, Will & Emery, Chicago, IL, for plaintiff.

Thomas Brejcha and Juris Kins of Abramson & Fox, Chicago, IL, for Dr. Carlos Puig, pPuig Medical Group, S.C.

Thomas Ging of Hinshaw & Culbertson, Chicago, IL, for Dr. Rodney Haenschen.

MEMORANDUM OPINION AND ORDER

SHADUR, Senior District Judge.

This action by Cleveland Hair Clinic, Inc. ("Cleveland Hair") against Dr. Carlos Puig ("Puig") and Puig Medical Group, S.C. ("Puig Group") (those two defendants are collectively termed "Puig Defendants") and Dr. Rodney Haenschen ("Haenschen") has had an extraordinarily active five-month life. There have been a surfeit of motions and two evidentiary hearings, and this Court has been compelled to issue several opinions of greater or lesser length. Now at issue is Cleveland Hair's motion for preliminary injunctive relief under Fed.R.Civ.P. ("Rule") 65, on which the three-day duration of the evidentiary hearing ("Hearing") belies its complexity (some thousands of pages of depositions as well as the numerous bulky exhibits have had to be considered along with the witnesses' incourt testimony).

After the Hearing each of the parties has submitted proposed findings of fact and conclusions of law, and those have been reviewed in detail in conjunction with the Hearing evidence. What follows are this Court's findings of fact ("Findings") and conclusions of law ("Conclusions") in accordance with Rules 52(a) and 65. To the extent (if any) that the Findings as stated may be deemed conclusions of law, they shall also be considered Conclusions. In the same way, to the extent (if any) that matters later expressed as Conclusions may be deemed findings of fact, they shall also be considered Findings.

Background Facts

1. Cleveland Hair is a corporation organized under the laws of Ohio, where it also has its principal place of business (Leonhard Dep. 5-10). It is in the business of operating hair transplant facilities located in Rosemont, Illinois; Waltham, Massachusetts; Washington, D.C.; Union, New Jersey; and King of Prussia, Pennsylvania. At those facilities patients are counseled for, and frequently contract for and receive, hair transplant surgery, other surgical procedures and other forms of treatment with the objective of remedying baldness (collectively "hair transplant procedures") (Leonhard Dep. 17-19).

2. Puig is a Texas citizen (Puig Dep. 20). He is a doctor of osteopathic medicine who specializes in hair transplant procedures (id. 46, 51).

3. Puig Group is an Illinois corporation having its principal place of business in Illinois (Amended Complaint ¶ 3 and Answer ¶ 3). It is a professional service corporation formed in about 1993 by Puig, its sole shareholder, to engage in the practice of medicine (Puig Dep. 64-65).

4. Haenschen is an Illinois citizen (Haenschen Dep. 4). Like Puig, he too is a doctor of osteopathic medicine who performs hair transplant procedures (id. 8, 11). He renders services to Puig Group under a written contract that characterizes him as an independent contractor (id. 31 and Ex. 2).

Pre-Termination Relationships Among the Parties

5. Puig and Haenschen began performing hair transplant procedures at Cleveland Hair facilities in the mid-1970s, shortly after each had completed his osteopathic training and Cleveland Hair started its business (Puig Dep. 51; Haenschen Dep. 10-11). At that time both Puig and Haenschen were in the military service, and both started working at Cleveland Hair on a part-time basis. Neither had any training or experience in performing hair transplant procedures, any office or equipment or any patients (Puig Dep. 46-51; Haenschen Dep. 7-11). Cleveland Hair's president arranged for a doctor to train Puig, and shortly thereafter Puig demonstrated the procedure for Haenschen (Puig Dep. 52-57, 147).

6. Those arrangements continued until late 1993 without any written agreement between Cleveland Hair on the one hand and Puig and other physicians on the other. Although the physicians were referred to collectively as the "Puig Medical Group," they were neither incorporated nor otherwise part of any formal entity.

7. During that pre-1993 period Puig became Cleveland Hair's Medical Director as well as a corporate director and shareholder. Puig's responsibilities included engaging other doctors who, like Puig and Haenschen, worked at Cleveland Hair's facilities as independent contractors.

8. On October 1, 1993 Cleveland Hair and the recently-incorporated Puig Group entered into a written agreement for the first time ("Agreement," App. Ex. 6¹). It provided for a 10-year term ending September 30, 2003. During that term Puig Group has the exclusive right to perform hair transplant procedures at Cleveland Hair's facilities, while in turn Cleveland Hair has the right to manage the facilities at which Puig Group and its doctors perform all such procedures (with limited exceptions that not relevant to the current motion, such as a facility that Puig operates in Houston, Texas without Cleveland Hair).

9. Under the Agreement Cleveland Hair is required to lease, furnish and equip the facilities; to employ all of the persons who work at the facilities other than the doctors; and to perform all of the services necessary to manage and support the facilities, including marketing, advertising and promotion of the Puig Group doctors who work at the facilities. Thus Cleveland Hair and not Puig Group is the owner or lessee of the facilities operated by Cleveland Hair, is the employer of the individuals who work there and is obviously responsible to pay for those obligations and to carry out substantial other obligations without regard to the compensation it receives from Puig Group.

10. Puig and Cleveland Hair caused the Agreement to be drafted carefully to avoid "fee splitting": any sharing by Puig Group with Cleveland Hair, a corporation that is not permitted to and does not practice medicine, of fees that Puig Group receives for medical services (Puig Dep. 63). Thus Cleveland Hair's remuneration under the Agreement is based on compensation for the services that it renders and the expenses that it incurs, without regard to the number of patients or revenues that it generates for Puig Group or any other measure of its success.

11.² Without practicing medicine as such, Cleveland Hair employs nurses, surgical assistants and consultants, all of whom play an integral role in the provision of hair transplant procedures rendered to patients at Cleveland Hair's facilities. Indeed, in 1990 Puig awarded Cleveland Hair's Rosemont manager, non-doctor Richard Malmin ("Malmin"), a certificate of merit to recognize his "steadfast devotion to high quality patient care" and for "enhancing hair replacement surgical technology" (CH Ex. 8).³

12. In the manner by which the conduct of the hair transplant business has been carried out by Cleveland Hair and Puig Group (an arrangement developed with Puig's active participation and guidance), the physician plays a very limited role aside from actually performing the physical hair transplant procedure. For instance, the physician typically does not meet the patient or see the patient's file until the day of the procedure (Puig Dep. 167, 187). Even then the Cleveland Hair consultant who was responsible for the patient's consultation remains heavily involved (Malmin Tr. 9/17/96;⁴ Puig Dep. 182 ("When I'm talking to the patients, I encourage the managers to come in whenever I'm talking to a patient and designing their treatment plan")).

13. Cleveland Hair personnel schedule the hair transplant procedures and designate which Puig Group doctor is available on the day that the patient desires to have the procedure (Puig Dep. 162-67; Haenschen Dep. 161). No doctor participates in making those arrangements.

14. Although a typical hair transplant procedure lasts from 3 to 8 hours, the treating physician usually spends a very small part of that time during the entire procedure (some of the testimony placed it at about 25 minutes — and though the witnesses' versions varied somewhat, there is no question that the actual doctor-patient contact is quite brief). During the balance of the time Cleveland Hair personnel administer the anesthetics, perform the necessary procedures and work with the patient. Thus a physician is present at the facility, but he is not actually present in the operating room except during a small portion of the procedure (Malmin Tr. 9/17/96).

15. Both before and after the doctor's performance of his phase of the procedure, Cleveland Hair personnel also perform important and necessary functions such as obtaining patient medical information, applying and changing bandages, removing sutures, giving post-operative check-ups and shampoos, answering patient inquiries, dispensing pre-surgical instructions and remedying postsurgical problems (Puig Dep. 177-79, 201-05; see also App. Ex. 26; Puig Dep. 171-74; Haenschen Dep. 96-104). Cleveland Hair personnel are also responsible for maintenance of the patients' files and, in fact, make most of the notes and other entries contained in those files (App. Ex. 26; Puig Dep. 175-78; Malmin Dep. 174-75; Haenschen Tr. 9/19/96).

16. Cleveland Hair consultants also prepare proposed treatment plans for prospective patients. While the proposed plans prepared by those consultants are subject to review and approval by a doctor, they are almost always the final versions. In other words, Puig Group almost always concurs with the proposed plan prepared by the Cleveland Hair consultant (Puig Dep. 180-81).

17. Proposed treatment plans usually contemplate multiple procedures, but they do not provide that all procedures will be performed by the same doctor, and no commitment to that effect is...