St. Francis Regional Medical Center, Inc. v. Weiss

• Citation: 869 P.2d 606,254 Kan. 728
• Decision Date: 04 March 1994
• Docket Number: No. 68845,68845
• Court: United States State Supreme Court of Kansas
• Parties: ST. FRANCIS REGIONAL MEDICAL CENTER, INC., Appellee/Cross-Appellant, v. Marlon K. WEISS, M.D., Appellant/Cross-Appellee.

Page 606

869 P.2d 606

254 Kan. 728

ST. FRANCIS REGIONAL MEDICAL CENTER, INC., Appellee/Cross-Appellant, v. Marlon K. WEISS, M.D., Appellant/Cross-Appellee.

No. 68845.

Supreme Court of Kansas.

March 4, 1994.

Syllabus by the Court

In an action brought by a hospital against a physician to enforce the liquidated damages provision of an employment contract and on a counterclaim brought by the physician for payment of unused vacation and a salary increase, the record is examined and it is held: The district court did not err: (1) in denying summary judgment based upon a finding that the hospital may enter into, and enforce, the employment contract with a physician; (2) in excluding evidence of an unexecuted employment agreement form; and (3) in granting a setoff for salary increases. The district court did err in denying the hospital prejudgment interest on the liquidated damages judgment and in granting a setoff for unused vacation.

Dennis D. Webb, of Shultz, Webb & Lonker, Chartered, Wichita, argued the cause and was on the briefs for appellant/cross-appellee.

David G. Seely, of Fleeson, Gooing, Coulson & Kitch, L.L.C., Wichita, argued the cause and was on the briefs for appellee/cross-appellant.

William H. Pitsenberger, general counsel, was on the brief for amicus curiae Blue Cross and Blue Shield of Kansas, Inc.

James D. Griffin and H. Steven Walton, of Blackwell Sanders Matheny Weary & Lombardi, Overland Park, were on the brief for amicus curiae VHA Mid America, Inc.

Charles R. Hay and Catherine M. Walberg, of Goodell, Stratton, Edmonds & Palmer, Topeka, were on the brief for amicus curiae Kansas Hosp. Ass'n.

ALLEGRUCCI, Justice:

The plaintiff, St. Francis Regional Medical Center, Inc., brought this action against the defendant, Marlon K. Weiss, M.D., to enforce their employment contract. Weiss appeals from the district court's denial of his motion for summary judgment and from the entry of judgment against him based on the jury's verdict on the main claim. St. Francis cross-appeals from the rulings of the district court which allowed Dr. Weiss' counterclaim for unused vacation time and unpaid salary increase to be submitted to the jury and from the resulting judgment in his favor on the counterclaim. St. Francis also appeals the district court's denial of an award of prejudgment interest. The appeal was transferred to this court pursuant to K.S.A. 20-3018(c).

On July 14, 1989, a Physician Employment Agreement between Physicians Clinic of Kansas, P.A., (PCK) and Marlon Weiss, M.D., was signed. The contract expressly provided for assignment to St. Francis Medical Center, Inc., (St. Francis, although, where the contract is quoted, the hospital corporation is referred to as "the Medical Center"). The contract further provided that upon assignment, "the Medical Center hereby employs the Physician and the Physician accepts employment with the Medical Center, as an employee of the Medical Center and as a member of a physician division of the Medical Center, to render full-time medical services for the Medical Center." The assignment occurred on August 7, 1989.

In late October or early November of 1989, concerns were raised with Dr. Weiss about the quality of his care of patients. At that time he was working in Wichita in the Southeast Health Care MOD, i.e., medical office division, of St. Francis. On November 10, 1989, a memorandum was prepared which documented St. Francis' decision to transfer Dr. Weiss from Wichita to the Snyder Clinic in Winfield on or before January 1, 1990. The administrator for the physicians employed by St. Francis testified that Dr. Weiss' skills did not match "the pace" of the Wichita clinic, and the November 10 memorandum states that the transfer would allow him to be under the guidance of a certain doctor and further enhance his practice skills.

In the fall of 1990 and again in January 1991, Dr. Weiss traveled to Fort Dodge, Iowa, and visited the Fort Dodge Medical Center. During that period, Dr. Weiss was working out the details of an employment contract with the Fort Dodge Medical Center.

On March 17, 1991, Dr. Weiss requested in writing "a performance review as detailed in Exhibit A, section 2.1 of my contract." That paragraph provides in pertinent part:

"2.1 Annual Base Salary.

"Medical Center shall pay physician an annual base salary, the initial amount of which shall be $52,000. The annual base salary may be increased or decreased by Medical Center prospectively on a semi-annual basis effective as of January 1st and July 1st of each year, based on a regularly-conducted, performance review."

Sometime during "the first part of April" 1991, the administrator of the Snyder Clinic met with each of its physicians, including Dr. Weiss. Dr. Weiss was offered an increase to $85,863 from $83,990, retroactive to January 1. Dr. Weiss considered the proposed increase to be "a slap in the face." In a note, which is dated April 9, 1991, the administrator of the Snyder Clinic wrote to the administrator of St. Francis' Physician Division that Dr. Weiss was seeking an increase of $4,030 "per pay period."

On May 21, 1991, Dr. Weiss wrote to the executive director of St. Francis:

"I hereby give you notice of default as required under section 7.3-3 of my contract. You have breached your duty to perform a proper and timely performance review, in spite of my letter of March 17 specifically bringing this lapse to your attention."

Section 7.3-3 provides:

"Termination On Notice of Default. In the event either party shall give written notice to the other that such other party has substantially and materially defaulted in the performance of any other obligation under this Agreement, and such default shall not have been cured within 60 days following the giving of such notice, the party giving such notice shall have the right to terminate this Agreement at any time thereafter upon 30 days written notice of such termination to the other party."

In a letter dated May 31, 1991, the executive director responded that there was no default:

"It is my understanding that after receiving your letter of March 17, 1991 requesting a performance review, the review was conducted on April 9, 1991. If it is your position the review was not conducted, please let me know as our records would indicate the review was conducted in accordance with the Employment Agreement."

On June 6, 1991, Dr. Weiss gave written notice to St. Francis of his resignation, which was to be effective July 10, 1991. He stated that his "letter of May 21, 1991, was your notice that 60 days had expired per paragraph 7.3-3." He also asserted that the " 'attempt' to conduct a review on or about April 9" was not in compliance with the terms of the contract and that the salary increase which he had been promised had not "been reflected" in his paycheck.

Section VII, Paragraph 7.1 of the employment agreement provided that it would be effective for an initial period of five years. Section VII, Paragraph 7.5 provided: "Liquidated Damages for Failure of Consideration. In the event of termination of this Agreement by Physician's election, breach, or default, Physician shall pay to Medical Center the amounts set forth in Exhibit E." Exhibit E is titled "Liquidated Damages." It provides in part:

"In the event of a termination by Physician under the provisions of Section 7.5, Physician shall pay the following amounts, determined according to the date on which employment actually terminates, to the Medical Center:

1. If terminated during the first year of the Initial Term of this Agreement, an amount equal to $67,996."

The amount to be paid if termination occurs during either the second or third years is $51,996, during either the fourth or fifth years is $25,998, and during any extension term is $1,000.

On July 12, 1991, St. Francis filed suit against Dr. Weiss, alleging that his July 10, 1991, termination breached the employment agreement which had been entered into on August 7, 1989. St. Francis sought actual damages, liquidated damages in the amount of $51,996, and prejudgment interest.

Dr. Weiss denied that he had breached the agreement and asserted the defense that the liquidated damages provision of the agreement is unenforceable under K.S.A.1993 Supp. 17-2708 and Early Detection Center, Inc. v. Wilson, 248 Kan. 869, 811 P.2d 860 (1991). In a counterclaim, Dr. Weiss alleged that St. Francis had breached the agreement by not paying certain benefits to him.

Dr. Weiss filed a motion for summary judgment on the ground that the contract was unenforceable. Two arguments were made why the contract was void: First, a general corporation cannot contract for the provision of medical services; and second, the agreement violates 42 U.S.C. § 1320a-7b(b) (1988 and Supp. III 1991), the "Medicare Anti-Kickback" statute. At the hearing on Dr. Weiss' motion for summary judgment, his counsel withdrew that portion of the motion based on the federal anti-kickback provision. He conceded that St. Francis correctly stated that in certain circumstances the employee/employer relationship was exempted "from the applicability of those provisions and ... my brief ... is not adequate to reduce that to a question of law. In other words, there are some questions of fact remaining. I think we're gonna have to go to trial to resolve that."

On the remaining ground, the district court reasoned that the rule from Early Detection Center did not apply to the agreement between Dr. Weiss and St. Francis because St. Francis is a nonprofit charitable corporation rather than a general corporation. The district court, therefore, concluded that the agreement was enforceable.

St. Francis filed a motion in limine requesting that "any evidence or reference with respect to [Dr. Weiss'] theory that the subject agreement violates the 'Medicare Anti-Kickback' statute be heard by the Court outside the presence of the jury." Dr. Weiss' counsel agreed "that shouldn't be in the...