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Baptist Physicians Lexington, Inc. v. New Lexington Clinic, P.S.C.

Supreme Court of Kentucky

December 19, 2013

BAPTIST PHYSICIANS LEXINGTON, INC.; BAPTIST HEALTHCARE SYSTEM, INC.; MICHAEL MCKINNEY, M.D.; GREGORY COOPER, M.D.; AND JAMES WINKLEY, M.D., APPELLANTS
v.
THE NEW LEXINGTON CLINIC, P.S.C., APPELLEE

Page 190

ON REVIEW FROM COURT OF APPEALS. CASE NOS. 2010-CA-001128-MR, 2010-CA-001129-MR, 2010-CA-001182-MR AND 2010-CA-001183-MR. FAYETTE CIRCUIT COURT NOS. 08-CI-01004 AND 09-CI-06390.

COUNSEL FOR APPELLANTS BAPTIST PHYSICIANS LEXINGTON, INC., AND BAPTIST HEALTHCARE SYSTEM, INC.: Winifred Bryant Becker, Anne Adams Chesnut, Theodore R. Martin.

COUNSEL FOR APPELLANT MICHAEL MCKINNEY, M.D.: Gregg E. Thornton, Licha Hannah Farah, Jr., Ashley Kristen Brown.

COUNSEL FOR APPELLANTS GREGORY COOPER, M.D. AND JAMES WINKLEY, M.D.: Benjamin Kessinger, III, Adrian M. Mendiondo.

COUNSEL FOR APPELLEE: Thomas W. Miller, David Thomas Faughn.

OPINION

Page 191

ABRAMSON, JUSTICE.

Appellants Michael McKinney, M.D, Gregory Cooper, M.D. and James Winkley, M.D. (the " Physicians" ) are former employees of The New Lexington Clinic (" NLC" ) who resigned from that medical practice in early 2008 to practice at a nearby facility opened by Baptist Healthcare System, Inc. through its subsidiary Baptist Physicians Lexington, Inc. (collectively " Baptist." ) Although the Physicians' employment agreements allowed for their departure on sixty days' notice and, subject to certain conditions, even their competition with their former employer, NLC brought actions against all three men for breach of fiduciary duties owed in their capacity as members of the NLC board of directors. NLC alleged that the Physicians used confidential information and recruited NLC personnel while still serving as NLC directors. Baptist was joined as a defendant on the grounds that it aided and abetted the Physicians' breaches. The trial court granted summary judgment dismissing the complaints on the ground that neither complaint[1] properly invoked Kentucky Revised Statute (KRS) 271B.8-300, a statute that court considered controlling as to all actions involving breach of a Kentucky corporate director's duties. The Court of Appeals agreed that the statute controlled but found the complaints sufficient to state a cause of action under Kentucky's liberal pleading standards and, thus, remanded for further proceedings.

Contrary to the lower courts' conclusions, KRS 271B.8-300 does not abrogate common law fiduciary duty claims against directors in Kentucky but essentially codifies a standard of conduct and standard of liability for directors that is derived from

Page 192

business judgment rule principles. As it explicitly states, the statute applies to " any action taken as a director" and " any failure to take any action as a director." Preparing for and participating in a competing venture does not constitute the type of internal corporate governance conduct addressed in KRS 271B.8-300 and consequently the statute does not apply. Accordingly, NLC properly pled common law fiduciary duty claims on these alleged facts and this action must be remanded. As for the trial court's alternative ground for granting summary judgment, the absence of any damages flowing from the alleged breaches, there remain issues of material fact as to what damages, if any, were caused by the alleged breaches. However, the Physicians and Baptist are correct that, given the rights accorded the Physicians under their employment agreements, NLC has overstated the scope of the injuries that can fairly be said to flow from the alleged breaches of fiduciary duty.

RELEVANT FACTS

NLC is a Kentucky professional services corporation with its principal place of business in Lexington. Since at least 1997, NLC, through its staff of doctors and other medical personnel, has provided medical care to individual patients at its facility in Lexington referred to as Veteran's Park. NLC also provides medical services at facilities in several other Kentucky communities. Beginning, respectively, in 1997, 2001, and 2003, NLC employed Drs. McKinney, Cooper, and Winkley at the Veteran's Park clinic. All three physicians also served on the corporation's board of ...


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