Ashley Clinic v. Coates

545 P.3d 1020

ASHLEY CLINIC, LLC, Appellee/Cross-Appellant,

v.Scott COATES, M.D., and Labette County Medical Center d/b/a Labette Health, Appellants/Cross-Appellees.

No. 125,528

Court of Appeals of Kansas.

Oral Argument Held September 19, 2023.

Opinion Filed March 15, 2024.

Syllabus by the Court

1. When a verdict is attacked on the ground it is contrary to the evidence, appellate courts do not reweigh the evidence or reassess the credibility of the witnesses. Appellate courts will not disturb the jury’s verdict if the evidence and all reasonable inferences drawn from the evidence, considered in the light most favorable to the successful party, support the jury’s findings.

2. Kansas courts presume that written contracts are valid and supported by adequate consideration. The jury is entitled to presume that a written contract is valid unless the party contesting its validity proves it is not.

3. Continued employment can be sufficient consideration to support an employment contract, including one that adds a covenant not to compete.

4. A party claiming tortious interference with a contract must show that the offending party knew of an existing contractual relationship and nevertheless intentionally induced one of the contracting parties to breach that agreement, causing damages to the claimant. A person intentionally induces a breach when they act with actual or legal malice.

5. Legal malice is the intent to do harm without any reasonable justification or excuse.

6. Interference with a contract may be justified—and thus not tortious—in certain instances, including if the interference occurs for a legitimate business purpose. Whether such a justification exists turns on several factual questions, including the defendant's motives, the proximity of the defendant’s conduct to the interference, and the means employed.

7. Damages need not be established with absolute certainty. Instead, a party claiming that it has been injured as a result of another’s wrongful acts must show the extent of its injury—that is, the amount of damages it suffered—with reasonable certainty, This requires some reasonable basis for computation that will enable the jury to arrive at an approximate estimate of the damages.

8. To succeed on a claim for unjust enrichment, a person must show that they have conferred a benefit upon another party; that the other party knew of or appreciated that benefit; and that the circumstances surrounding the benefit make it inequitable for the other party to retain it without payment for its value.

9. The Kansas Tort Claims Act, K.S.A. 75-6101 et seq., distinguishes between traditional governmental functions—such as legislative, judicial, and executive enforcement actions—and other circumstances when a governmental entity is carrying out actions that could also be performed by private individuals.

10. The Kansas Tort Claims Act, K.S.A. 75-6101 et seq., applies to a claim of tortious interference with a contract against a county hospital.

11. The Kansas Tort Claims Act’s damages limitations, including K.S.A. 75-6105(a)’s cap on total damages and K.S.A. 75-6105(c)’s prohibition of punitive damages, do not violate the right to a jury trial enshrined in section 5 of the Kansas Constitution Bill of Rights.

12. Kansas law does not prohibit a district court from awarding duplicative damages against separate defendants based on different conduct and different theories of recovery. But Kansas law prohibits a party from recovering duplicative damages from separate defendants where the damages arise from the same injury or loss.

Appeal from Neosho District Court; Robert J. Fleming, judge.

Mark A. Cole, Barry L, Pickens, and Anna G. Schuler, of Spencer Fane LLP, of Overland Park, for appellants/cross-appellees.

Frankie J. Forbes and Quentin M. Templeton, of Forbes Law Group, LLC, of Overland Park, and Brandon J.B. Boulware, of Boulware Law LLC, of Kansas City, Missouri, for appellee/cross-appellant.

Before Coble, P.J., Malone and Warner, JJ.

Warner, J.:

This case concerns the application and effect of a noncompete clause in an employment agreement between Dr. Scott Coates and his former workplace, Ashley Clinic, LLC. After a six-day trial, a jury found that Coates had breached that employment agreement when he went to work for Labette County Medical Center and that Labette tortiously interfered with Coates’ employment agreement with Ashley Clinic. Labette and Coates now challenge many aspects of that trial. In a cross-appeal, Ashley Clinic challenges the district court’s enforcement of the damage cap in the Kansas Tort Claims Act as well as the district court’s denial of an equitable claim for unjust enrichment. After carefully reviewing the record and the parties’ arguments, we affirm the district court’s judgment.

Factual and Procedural Background

The dispute at the heart of this case involves Coates’ decision to end his relationship with Ashley Clinic and to work for Labette. Labette is a county hospital organized under K.S.A. 19-4601 et seq. It is based in Parsons but operates a healthcare center in Montgomery County and a clinic in Neosho County (in Chanute).

Coates' professional relationship with Ashley Clinic

After finishing his medical training in general surgery, Coates moved to southeast Kansas to work for Ashley Clinic in 2001. Although Ashley Clinic’s principal office is in Chanute, the clinic requested that Coates establish his practice in Iola. After a few years, Coates transitioned much of his practice from Iola to Chanute.

Ashley Clinic initially hired Coates as a salaried employee for its surgery practice. A couple of years later, Coates became a member of Ashley Clinic. In doing so, he became a party to the clinic’s operating agreement, which set forth the rules and regulations about management and business of the clinic, the rights and privileges of the members, and various other mutual covenants.

In 2006, Coates—along with the other members of the clinic—signed an amended employment agreement. This agreement, which was motivated in part by a physician’s decision to leave the clinic and open a competing practice, stated that Coates agreed he would not provide "medical services, especially the practice of General Surgery, within Neosho, Allen, Woodson, Wilson, Montgomery or Labette Counties" for two years after leaving the clinic. (These six counties are where the clinic’s patients are generally located.) Because the extent of injuries stemming from the violation of this provision would be difficult to ascertain, the agreement provided that any breach of the restriction would lead to liquidated damages "in an amount equal to [200%] of the salary and bonus that was paid to [Coates], prior to any breach."

In 2016, Ashley Clinic and its members executed an amended operating agreement. Unlike the previous operating agreement, which did not contain any specific limitations on competition, the 2016 operating agreement stated that no member would engage in any business that could "jeopardize any business relationship the [clinic] has with any customer, client, patient, vendor or supplier of the [clinic]." Coates signed this agreement.

Coates' departure from Ashley Clinic

After working at Ashley Clinic for several years, Coates started looking for a different position. Since his family was in Chanute, he hoped to find a job in the area so he could raise his own family nearby. He sent letters to multiple local hospitals explaining his situation, including a letter to Brian Williams, the CEO at Labette. Coates narrowed his search to three hospitals: Neosho Memorial, Coffey Health, and Labette.

Eventually, Labette extended an offer to Coates. During conversations leading up to this offer, Williams and Coates discussed the noncompete provision in Coates’ 2006 employment agreement with Ashley Clinic. Labette’s attorney analyzed this provision and concluded that it prevented Coates from practicing within the six-county region, which included Labette’s medical offices in Neosho County, Labette County, and Montgomery County.

Coates signed an employment contract with Labette in June 2019. This contract included a $125,000 "Legal Allowance" to pay legal expenses arising from his decision to leave Ashley Clinic and work at Labette. It also included an indemnity clause, stating:

"[Labette] Medical Center acknowledges that at the time of signing of this Agreement that [Coates] is subject to covenants against competition and non-solicitation covenants pursuant to his current Employment Agreement with the Ashley Clinic, LLC, and other agreements with the Ashley Clinic, LLC and its affiliates that restrict [Coates] from entry into and full performance of Physician’s obligations pursuant to this Agreement. Accordingly, [Labette] assumes the full risk to it of any and all losses, damages, costs expenses and attorneys’ fees it may incur that arise from any claim, action, or proceeding of any kind or nature that may be brought against [Labette] by the Ashley Clinic."

Later that month, Coates notified Ashley Clinic that he would be leaving the clinic in August.

Ashley Clinic's lawsuit against Coates and Labette

Ashley Clinic filed suit against Coates and Labette. It sought an injunction preventing Coates from practicing medicine in the area and damages relating to breach of the noncompete provision in Coates’ employment agreement, Ultimately, Ashley Clinic raised 12 claims against Coates and Labette. Relevant here, Ashley Clinic argued:

• Coates breached the noncompete provision in the 2006 employment agreement by practicing general surgery at Labette’s clinics in Chanute and Independence, as well as at its hospital in Parsons.

• Coates breached a 2008 confidentiality agreement by disclosing confidential information to multiple third parties.

• Labette tortiously interfered with the 2006 employment agreement between Coates and Ashley Clinic by intentionally inducing Coates to breach the noncompete clause in that agreement.

• Labette...