An anesthesiology practice will have a second chance to argue that its law firm cost it profits by not including restrictive clauses in employment contracts, leaving two anesthesiologists free to form a competing practice and take a profitable client with them, after a state appeals panel said their lawsuit should not be precluded over tax accounting decisions.
Cook County Circuit Judge Brigid Mary McGrath had granted a directed finding in the case to Chicago-based law firm Robbins, Salomon & Patt Ltd. and attorney Alan Wolf, finding that a seemingly unprofitable business cannot claim lost profits.
On appeal before the Illinois First District Appellate Court in Chicago, however, plaintiff Edward Atkins MDSC, a multi-physician practice formed by anesthesiologist Edward Atkins, argued the only reason the business showed zero profit on its end-of-year balance sheet is because all profits were paid out to employees as end-of-year bonuses to avoid corporate tax liability.
The corporation is structured so that Atkins does not pay taxes twice, once as a corporation and once as an individual, according to court documents.
Justice Eileen O'Neill Burke Illinoiscourts.gov
“Professional corporations should be allowed to operate themselves in a tax-efficient manner and still be able to pursue claims for lost profits based on alleged torts, breaches of contract and other civil wrongs,” the appellate justices wrote.
Atkins formed his practice in 1984, providing anesthesia services to medical centers. By the early 2000s, he owned an interest in several outpatient surgical centers, including River North Same Day Surgery LLC, and had multiple anesthesiologists and nurse anesthetists on staff.
In 2004, Atkins sold his interests in River North and four other surgical centers to United Surgical Partners International, but arranged to continue providing anesthesia services to the centers. In 2007, USPI terminated the contract, but invited Atkins’ company to bid on a new one-year contract. The bid was eventually awarded to a company founded by doctors Robert Gay and Radha Sukhani, both of whom had previously worked at River North while employed by Atkins’ company.
According to court documents, it was supposed to be standard practice for employees of Atkins’ company to have a postemployment restrictive clause in their contracts prohibiting them from working as an anesthesiologist for two years after leaving the company. Neither Gay’s nor Sukhani’s contracts contained such a clause. Atkins initially sued Gay and Sukhani for tortious interference with prospective economic advantage, then sued his law firm, Robbins, and attorney, Wolf, for legal malpractice.
Over the course of three years, from 2012 through 2015, the two sides conducted discovery and filed motions, attempting, in part, to define the amount of potential damages. Initially, the company said it suffered damages in excess of $50,000, the profits it lost by losing the business of River North. It also used Atkins’ salary as a barometer to measure potential lost revenue, as a highly paid employee of the company.
When it asked for a directed finding, the Robbins firm argued that Atkins’ personal compensation could not be considered evidence of lost profits and that the company had to base its alleged lost profits on year-end income – which, because of its tax structure, was $0. The circuit court – which, the appellate justices noted, seemed to struggle with the decision – agreed, finding that lost profits had “to be proved with reasonable certainty” and could not be “remote or speculative.”
While not ruling on the merits of the case or the weight of the evidence, the appellate court reversed that finding and remanded the case to the circuit court for further proceedings.
The opinion was delivered by Justice Eileen O’Neill Burke. Justices Robert E. Gordon and Margaret McBride concurred.
According to Cook County court records, the Atkins company has been represented by attorney David A. Novoselsky, and the Robbins firm defendants are represented by the firm of Donohue Brown Mathewson & Smyth, of Chicago.