Early Detection Center, Inc. v. Wilson
| Decision Date | 24 May 1991 |
| Docket Number | No. 65328,65328 |
| Citation | 811 P.2d 860,248 Kan. 869 |
| Parties | EARLY DETECTION CENTER, INC., Appellant, v. Dr. Marvin H. WILSON, Appellee, and Lou A. Standiferd and Advanced Diagnostic Center, Defendants. |
| Court | Kansas Supreme Court |
Syllabus by the Court
1. K.S.A. 17-2706 et seq. allows physicians, surgeons, or doctors of medicine to form professional corporations to provide medical services. Both the person and the professional corporation must be licensed.
2. A professional corporation may only issue shares of its stock to a "qualified person." A "qualified person" under the professional corporation act is any natural person licensed to practice the same type of profession which any professional corporation is authorized to practice or the trustees of certain employee pension trusts.
3. The legislative enactment of K.S.A.1989 Supp. 17-2708 does not authorize the practice of medicine by a general corporation or allow a general corporation to provide professional services under the supervision of a licensed practitioner.
4. A general corporation is prohibited from providing medical services or acting through licensed practitioners; therefore, there can be no contract between the general corporation and third parties to perform medical services.
5. Where parties enter into an agreement that cannot be enforced, the courts will not aid either party to the prohibited contract and will ordinarily leave the parties where it finds them.
Jeffrey L. Baxter, of Chapman, Waters and Baxter, Leavenworth, argued the cause and was on the briefs, for appellant.
Deanne Watts Hay, of Sloan, Listrom, Eisenbarth, Sloan & Glassman, argued the cause and Arthur A. Glassman, of the same firm, was with her on the brief, Topeka, for appellee.
Early Detection Center, Inc. (EDC) appeals from the decision of the trial court granting summary judgment to Dr. Marvin H. Wilson. EDC filed this action against Dr. Marvin H. Wilson, an incorporator, officer, director, 30% shareholder, and employee of EDC, alleging that Dr. Wilson, after having been removed as president of EDC, breached his fiduciary duty to the corporation by forming a competing business with Lou A. Standiferd, which business was known as Advanced Diagnostic Center (ADC). The trial court dismissed EDC's claims against Standiferd and ADC. That decision is not an issue in this appeal. EDC's appeal was transferred to this court pursuant to K.S.A. 20-3018(c).
Dr. Wilson and Dr. Benson Powell, who are licensed to practice medicine and surgery in Kansas, formed a partnership in 1977. In 1983 the partnership was incorporated as Vascular Diagnostic Center, P.A., a professional corporation. The articles of incorporation and the certificate issued by the Kansas State Board of Healing Arts were filed with the Kansas Secretary of State. The articles of incorporation restricted the directors and ownership of the corporation stock to persons licensed to practice medicine or professional nursing in the State of Kansas. All stock certificates issued by the corporation were required to state that "the ownership and transfer of this stock and the rights and obligations of stockholders are subject to the limitations and provisions of the professional corporation law of Kansas."
In 1985, relying on advice of counsel, Dr. Wilson and Dr. Powell, filed Restated Articles of Incorporation as a general corporation with the secretary of state and changed the name of the corporation to Early Detection Center, Inc. The articles of incorporation were amended to allow individuals not licensed to practice medicine to be directors and own stock in the corporation. Dr. Powell and Dr. Wilson sold 40% of their stock to C.W. Hicks and Harvey Doud. Neither Hicks nor Doud were licensed to practice medicine.
Since 1986, EDC's only business consisted of providing noninvasive vascular testing medical services.
On January 9, 1987, Wilson was removed as president and CEO of EDC because of disagreement by the other directors with Wilson's management policies. He remained a 30% shareholder, a director, and co-medical director of EDC. On January 29, 1987, Wilson submitted to the corporation a letter of resignation effective immediately. On February 3, 1987, EDC rejected Wilson's resignation. Wilson was later removed from the Board of Directors on March 27, 1987.
Beginning in February 1987, Wilson started contacting hospitals served by EDC and suggesting they utilize the services of ADC. Subsequently, EDC noted an absence of requests for testing from these hospitals.
In April 1987, EDC filed this action, alleging Wilson breached his contract not to compete and interfered with EDC client hospitals by contracting with the hospitals on behalf of ADC to allow ADC to perform noninvasive vascular diagnostic services. Dr. Powell left EDC's employment on May 3, 1988, leaving EDC without a physician employed or affiliated with it. EDC has not conducted business since Powell left.
Both parties filed motions for summary judgment. The trial court found (1) EDC could not legally provide healing arts services, (2) EDC had no legitimate claim to profits derived from the practice of the healing arts, and (3) Dr. Wilson owed no fiduciary duty to EDC. The court dismissed EDC's other claims against Wilson and granted Dr. Wilson's motion for summary judgment.
A moving party is entitled to summary judgment if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact. The record must also reflect that the moving party is entitled to judgment as a matter of law. Peoples Nat'l Bank & Trust v. Excel Corp., 236 Kan. 687, Syl. p 5, 695 P.2d 444 (1985). The burden of proving that no genuine issue of material fact exists is on the moving party. The record is viewed in the light most favorable to the party against whom the motion is directed. The granting of summary judgment is improper where there are genuine issues of material fact which are undetermined. Willard v. City of Kansas City, 235 Kan. 655, 657, 681 P.2d 1067 (1984). If factual issues do exist, they must be material to the case to preclude summary judgment. Bacon v. Mercy Hosp. of Ft. Scott, 243 Kan. 303, 307, 756 P.2d 416 (1988).
EDC asserts a general corporation can lawfully provide medical services by employing licensed physicians. It concludes that if a general corporation can lawfully provide medical services, then Dr. Wilson breached his fiduciary duty to EDC.
EDC's articles of incorporation state its business is "[t]o render two types of professional services, nursing and the practice as physicians, surgeons, or doctors of medicine." Its 1986 annual report stated the nature of its business is "[m]edical services performing noninvasive peripheral vascular testing, echocardiography testing and general ultrasound testing". The 1987 and 1988 annual report described the business is to provide "[m]edical services, diagnosis and treatment."
The practice of healing arts includes
"any system, treatment, operation, diagnosis, prescription, or practice for the ascertainment, cure, relief, palliation, adjustment, or correction of any human disease, ailment, deformity, or injury, and includes specifically but not by way of limitation the practice of medicine and surgery; the practice of osteopathic medicine and surgery; and the practice of chiropractic." K.S.A. 65-2802(a).
The Kansas Healing Arts Act prohibits any person from engaging in the practice of any branch of the healing arts, unless the person obtains a license. K.S.A. 65-2803.
The Kansas Healing Arts Act authorizes any person of legal age, who successfully completes an examination, to obtain a license. K.S.A. 65-2804 and K.S.A. 65-2831. Applicants taking the examination must file their name, age, place of birth, school, and date of graduation, and demonstrate ability to take the examination. K.S.A. 65-2808, K.S.A. 65-2824, K.S.A. 65-2825, and K.S.A. 65-2827. Since the enactment of R.S. 1923 § 65-1001, which required examination and registration of doctors of medicine and surgery, only individuals can be licensed to practice the healing arts.
In Winslow v. Board of Dental Examiners, 115 Kan. 450, 452, 223 P. 308 (1924) the Board revoked Winslow's license to practice dentistry for practicing under the name of another. Winslow, a licensed dentist, was employed by a foreign corporation authorized to do business in Kansas. The corporation paid Winslow a salary and commissions for his dental work on the corporation's clients. The Winslow court noted that The court approved the Board's revocation of Winslow's license to practice.
In State ex rel. Beck v. Goldman Jewelry Co., 142 Kan. 881, 884, 51 P.2d 995 (1935), it was determined that a corporation could not lawfully practice optometry.
In State ex rel. Fatzer v. Zales Jewelry Co., 179 Kan. 628, 638, 298 P.2d 283 (1956), the court determined that, although a general corporation employs a licensed person to provide professional services, this does not grant the corporation the ability to engage in the practice of that profession without a license. The corporation was enjoined from the unlawful practice of optometry even though the optometry was performed by a licensed employee of the corporation.
EDC claims cases decided prior to the enactment of the Kansas Healing Arts Act in 1957 (K.S.A. 65-2801 et seq.), the adoption of the Professional Corporation Law of Kansas in 1965 (K.S.A. 17-2606 et seq.) and the General Corporation Code in 1972 (K.S.A. 17-6001 et seq.) are inapplicable. EDC argues any prohibition against a corporation's practice of the healing arts...
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