Two recent cases are reminders of the need for care in drafting agreements with physicians and providers of similar services. In both cases, the courts ruled in favor of the "employing" practice group and the practitioner-employee was found to have breached the agreement.
In yet another breach of physician employment contract case from the state of Kansas (see article by this author on Braun v. Promise Regional Medical Center-Hutchison Inc., which appeared in Volume II, Issue 2, of this Newsletter), the United States District Court for the District of Kansas found that as a result of the breach by an interventional cardiologist of a "no moonlighting" clause in his employment agreement, the practice group's termination of the agreement "for cause" was justified and the physician should account to the employer for the over $300,000 he received from these extracurricular services during his employment by the practice group.
After a recruitment effort that resulted in his relocation from New York to Wichita, Kansas, Dr. Philip Totonelly entered into a five-year employment agreement with Galichia Medical Group, P.A. (GMED) to provide full-time services for the practice group (defined in the agreement as not less than 40 hours per week). With a limited exception (services as an expert or pertaining to litigation), the agreement provided that unless GMED "agreed in advance in writing that Doctor [Totonelly] may retain such payment [for moonlighting services], Doctor shall immediately pay such amount to Employer [GMED]". Shortly after joining GMED's employment, Dr. Totonelly began to review and report on cardiac nuclear studies for his former employer in New York. Soon after finding out about these activities (slightly over one year into the five year term of the employment agreement), GMED terminated Totonelly's employment for cause and demanded in writing that he account to GMED for the fees he had received from moonlighting. Dr. Totonelly did not respond to this letter, but instead moved back to New York within a week after he received the letter.
Dr. Totonelly filed suit in Kansas federal court against GMED and asked the court to find that GMED should not have terminated his employment and that he was entitled to unpaid compensation and other payments contemplated by the employment agreement. In defense, GMED filed for summary judgment and asked the District Judge to rule that as a matter of law, Dr. Totonelly's moonlighting activities constituted a breach of his employment agreement that justified GMED's termination of his employment for cause. In granting GMED's motion, the federal judge found that the uncontroverted facts showed that the cardiologist had breached his employment agreement with GMED by engaging in prohibited outside work. The court further indicated that the one exception to the anti-moonlighting clause (litigation support and expert testimony) had been carefully negotiated by counsel to the parties and that there was no intention in the agreement that the services of the type provided by Dr. Totonelly to his former employer in New York were to be covered by the exception.
In another case, the Supreme Court of Montana found that payments under a partnership agreement should be reduced to three psychologists who were formerly partners of the practice but who separated from a multi-specialty medical practice. Under the group's partnership agreement, a partner who departed from the practice group was entitled to receive certain payments that included the partner's share of operational profits and capital contributions. However, the amount of this payment was subject to a reduction for certain separations, including those in which the departing partner engaged in "the practice of medicine" within three years from the departure either in the county in which the partner primarily practiced while a group partner or in any contiguous county.
At issue in the case decided by the Montana Supreme Court is whether this payment reduction provision applied to the three psychologists who separated from the group and continued to practice psychology within the restricted geographic area specified in the partnership agreement. The psychologists had initiated legal action against the practice group in Montana state court and sought a declaratory judgment that the payment reduction did not apply to them in that as practicing psychologists, they were not engaged in the "practice of medicine" after separating from the partnership.
The Montana high court upheld the trial judge's grant of summary judgment in favor of the practice group and reasoned that in the context of the partnership agreement, which only used the phrase in question once and did not make distinctions between physicians and psychologists, the phrase unambiguously applied to psychologists and that as a result, the payment reduction should apply to the three plaintiffs in the case. Although the parties could have referred to in their partnership agreement a technical definition of the term "practice of medicine" that was provided by statute in Montana, they chose not to. Accordingly, the phrase in question needed to be understood in its ordinary and popular sense rather than in its technical sense. The court concluded that "[t]he ordinary and common usage of the term 'practice of medicine' is thus broad enough to include the practice of medicine".
These two cases indicate that care should be taken in drafting agreements with physicians and other service providers. In the Totonelly case, the parties to the physician's employment agreement included provisions that not only required the physician to work full time not less than a specified number of hours per week, but that also specifically addressed moonlighting for third parties during the term of the agreement. Even though a dispute arose after termination of the physician's employment, these specifically negotiated and carefully drafted provisions enabled the District Court to grant summary judgment in favor of the terminating employer GMED without a lengthy and expensive trial on the merits of the case. By contrast, in the partnership agreement that was construed by the Montana Supreme Court, there was no distinction between physicians and psychologists, a fact relied upon by the court in reaching its decision that the parties did not intend to distinguish between the two sets of healthcare professionals. If care had been taken in drafting the partnership agreement for this multipractice specialty group that took into account the diverse practices of the existing and potential new members of the practice, perhaps litigation by the departing psychologists could have been avoided.
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