Schmidt v. Ottawa Medical Center, P.C.

• Decision Date: 06 August 2001
• Docket Number: No. 00 C 7973.,00 C 7973.
• Parties: Dr. Richard A. SCHMIDT, M.D., Plaintiff, v. OTTAWA MEDICAL CENTER, P.C., a corporation, Defendant.
• Court: U.S. District Court — Northern District of Illinois

155 F.Supp.2d 919

Dr. Richard A. SCHMIDT, M.D., Plaintiff, v. OTTAWA MEDICAL CENTER, P.C., a corporation, Defendant.

No. 00 C 7973.

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

August 6, 2001.

Gary Robert Garretson, Morris, IL, for plaintiff.

Michael Terence Reagan, Herbolsheimer, Lannon, Henson, Ducan & Reagan, Ottawa, IL, for defendant.

MEMORANDUM OPINION AND ORDER

BUCKLO, District Judge.

Dr. Richard A. Schmidt, M.D., alleges that Ottawa Medical Center ("OMC") violated the Age Discrimination in Employment Act (ADEA), 29 U.S.C. § 621 et seq., because he was compensated less than younger and less experienced physicians, he was expected to adhere to an on-call schedule that was difficult for him to meet because of his age, and OMC refused to fully fund profit sharing and retirement programs that benefitted him. OMC moves for summary judgment, claiming that Dr. Schmidt, as a shareholder of a professional corporation, is not an employee entitled to protection under the ADEA. I grant the motion.

I.

Dr. Schmidt has maintained a family practice with OMC since 1966. From 1966 to 1967, he was merely an employee of OMC. He became an partner in 1967, and has been a shareholder since 1969, the year of incorporation. OMC currently employs a total of 77 people, including eight physicians who are shareholders, three physicians who are not shareholders, one nurse practitioner who is not a shareholder, and 65 other employees, none of whom is a shareholder.

Throughout the years, Dr. Schmidt has served as an officer of OMC. He served as Vice President from 1988 to 1991, and as Secretary from 1994 to 1997. On March 13, 2000, OMC amended its bylaws and made all shareholders directors of the corporation, so Dr. Schmidt is currently a director.

On December 1, 1976, Dr. Schmidt entered into an employment agreement with OMC. It states that Dr. Schmidt is:

employed as a physician and surgeon by the Corporation, and shall devote all of his professional time, knowledge, and skill to his employment and shall perform such duties and occupy such positions and offices as the Board of Directors of the Corporation may from time to time determine, including ... the treatment and diagnosis of those patients assigned to him by the Corporation.

For compensation, the employment agreement states that Dr. Schmidt shall receive a basic salary of $3700 per month, and in addition, "shall be eligible to receive additional compensation in forms and amounts as the Corporation deems appropriate." The corporation retains "all proceeds received by the Employee for professional services, from whatever source derived." Dr. Schmidt is currently being paid solely his base salary of $3700 per month, or $44,400 per year.

All physician shareholders of OMC are compensated pursuant to the Shareholder Compensation Plan ("the Plan"). All eight shareholders have the opportunity to participate in the revision process and vote on the Plan. The new plan was adopted by a vote of a majority of the shareholders. The Plan, which was adopted on December 13, 1999, calculates the shareholder's salary by taking the professional fees generated by a physician, and deducting the corporation's overhead, as well as certain benefits. OMC claims that Dr. Schmidt's generation of professional fees does not qualify him for any additional compensation under the Plan, other than his base salary. Dr. Schmidt does not dispute this, so I must accept it as true.

II.

Summary judgment should only be granted when there is no genuine issue as to any material fact and the moving party is entitled to a judgment as a matter of law. Fed.R.Civ.P. 56(c). In deciding the motion for summary judgment, I must construe all facts in a light most favorable to the non-moving party as well as view all reasonable inferences in the party's favor. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).

The only issue in this case is whether Dr. Schmidt's status as a shareholder in a professional corporation prohibits him from claiming status as an "employee" within the meaning of the ADEA. OMC argues that because Dr. Schmidt is a shareholder, he is not protected under the ADEA. The definitions in the ADEA are unhelpful, defining "employee" as "an individual employed by an employer," 29 U.S.C. § 630(f), and "employer" as "a person engaged in an industry affecting commerce who has twenty or more employees ...," 29 U.S.C. § 630(b). The Seventh Circuit has held that true partners in an accounting firm cannot be regarded as employees under 42 U.S.C. § 2000e(f), because of their unique status as business owners and managers, and their share in the losses and profits. Burke v. Friedman, 556 F.2d 867, 869 (7th Cir.1977) (Title VII). The Seventh Circuit extended this reasoning in E.E.O.C. v. Dowd & Dowd, 736 F.2d 1177 (7th Cir.1984), in which it held that shareholders in a professional corporation engaged in the practice of law are not "employees" for purposes of determining whether the corporation was an "employer" under Title VII. Id. at 1178. The court applied an "economic reality" test of the employment relationship, and viewed the role of "a shareholder in a professional corporation to be far more analogous to a partner in a partnership than it is to the shareholder of a general corporation." Id. at 1177-78. The court reasoned that "[t]he economic reality of the professional corporation in Illinois is that the management, control, and ownership of the corporation is much like the management, control, and ownership of a partnership," so there is "no reason to treat the shareholders of a professional corporation differently for purposes of Title VII actions than we did partners of the accounting firm in Burke." Id. at 1177.

Dr. Schmidt argues that I should not rely on Dowd & Dowd, and refers to Hyland v. New Haven Radiology Assocs., 794 F.2d 793 (2d Cir.1986), in which the Second Circuit rejected Dowd & Dowd, and held that shareholders of a professional corporation were employees of the corporation for purposes of the ADEA. Id. at 798. Unfortunately for Dr. Schmidt, "[t]his court simply is not free to choose sides in the debate between the Seventh and Second Circuits on this issue." Smith v. Deitsch and Royer MD, Inc., No. IP99-1123-C-H/G, 2000 WL 1707964, at *2 (S.D.Ind. Aug. 23, 2000) (granting summary judgment on the basis that two physician shareholders in a professional corporation were not to be counted as "employees" for purposes of determining whether the corporation was an employer under the ADEA). The Seventh Circuit precedent controls in this jurisdiction, so unless this case is distinguishable from Dowd & Dowd, I must follow it. The issue in Dowd & Dowd was the number of employees for jurisdictional purposes, but the same test should be used to determine who is an employee regardless of whether the inquiry is coverage or the right to sue because the ADEA only contains one definition of "employee," and Dr. Schmidt gives no reason why a different test should be used. Wells v. Clackamas...