Riggs v. Woman to Woman, Obstetrics & Gynecology, P.C.

No. 2--03--1434

______________________________________________________________________________

IN THE

APPELLATE COURT OF ILLINOIS

SECOND DISTRICT

________________________________________________________________

______________

MARY T. RIGGS, ) Appeal from the Circuit

) Court of McHenry County.

Plaintiff and Counter- )

defendant-Appellee, )

)

v. ) No. 02--MR--266

)

WOMAN TO WOMAN, OBSTETRICS )

AND GYNECOLOGY, P.C.,

)

) Honorable

Defendant and Counter- ) Maureen P. McIntyre,

plaintiff-Appellant. ) Judge, Presiding.

______________________________________________________________________________

JUSTICE BYRNE delivered

the

opinion of

the

court:

This matter comes before the court as an interlocutory appeal brought pursuant to Supreme Court Rule 308 (155 Ill. 2d R. 308). Plaintiff, Dr. Mary T. Riggs, filed the underlying action seeking,

inter

alia

, a declaration that she was not required to abide by

a

contractual obligation, including a covenant not to compete, contained in her physician agreement with

defendant

, Woman to Woman Obstetrics and Gynecology, P.C. Plaintiff claimed that defendant

's failure to register as a professional corporation with

the

Illinois Department of Professional Regulation (IDPR) pursuant to section 12 of

the

Professional Service Corporation Act (the Act) (805 ILCS 10/12 (West 2002))

rendered

the

agreement void

ab

initio

. Defendant counterclaimed, seeking enforcement of

plaintiff

's covenant. The trial court granted

plaintiff

's motion for summary judgment on count I of her complaint and dismissed

defendant

's counterclaim. The court found

: (1) as a matter of law,

the

Act

was intended to be regulatory for

the

protection of

the

public health and safety in

the

practice of medicine;

(2) defendant

explicitly represented, untruthfully, that it was licensed as a professional corporation under

the

Act; and (3) as a result,

defendant

was not authorized to engage in

the

practice of medicine under

the

Act. Accordingly,

the

court held that

the

agreement between

the

parties was void

ab

initio

.

Finding that there was substantial ground for difference of opinion regarding

its

legal conclusion

and that an immediate appeal could materially advance

the

ultimate termination of

the

litigation

, the trial court granted

plaintiff

's motion for certification pursuant to Supreme Court Rule 308 (155 Ill. 2d R. 308)

. T

he

trial court certified

the

following questions for our review:

"(1) Whether

the

Act's licensing requirements for medical corporations is intended to protect

the

public's health, safety, or welfare[.]

(2) Whether

defendant

's failure to comply with

the

Act's certificate of registration requirement rendered

the

employment agreement

void

ab

initio

[.]

"

We answer both in

the

negative.

BACKGROUND

Plaintiff filed

the

instant lawsuit

after she discovered that

defendant

allegedly had engaged in a fraudulent accounting scheme designed to reduce

plaintiff

's compensation by expensing monies, which defendant

received from Centegra Health Systems, directly to her. P

laintiff

also learned that

defendant

was not a licensed professional corporation, even though it had given plaintiff prior assurances that

it

was properly registered. According to

plaintiff

, to induce

her

to join its medical practice,

defendant

expressly represented in writing that

the

"Corporation [was] registered to practice medicine in

the

State of Illinois." B

ased on this and other oral and written representations made by

defendant

to

plaintiff

,

plaintiff

entered into

an employment agreement with

defendant

on September 22, 2000. She

commenced working for

defendant

‛s practice on October 23, 2000.

Plaintiff resigned from

defendant

's employ on December 20, 2002. On that same date, she filed this suit against

defendant

, based on

various breaches and misrepresentations allegedly made by

defendant

. Relevant to this appeal is count I of

plaintiff's complaint, in which she sought a declaratory judgment

that

the

employment agreement was void

ab

initio

because

defendant

failed to register for a certificate with

the

IDPR, pursuant to

the

Act, to practice as a professional corporation. Defendant counterclaimed to enforce

the

agreement.

The facts pertaining to

defendant

's lack of a certificate of registration from

the

IDPR are undisputed. Defendant was originally formed as a professional corporation in July 1999. At that time,

defendant

's legal counsel requested that

the

IDPR issue a certificate of registration for

the

corporation. Although

defendant

did not

realize it at

the

time,

the

IDPR followed up on

defendant

's application by requesting that some minor, technical changes be made in

the

application. However,

defendant

never received

the

letter from

the

IDPR with respect to those defects because

IDPR sent

the

letter to

the

wrong address. Around November 2002,

the

IDPR again sent a letter to

defendant

to

the

wrong address.

This time, however,

the

letter was forwarded to

defendant

's office. In that notice, dated November 12, 2002,

the

IDPR explained that

defendant

's application for a certificate of registration had expired and, therefore, was denied. Defendant later determined that its original application for registration was defective because

the

IDPR required

that a

suite number be added to

the

address and that

the

statement of purpose for

the

corporation be modified to remove

the

phrase "rendering

the

profession of obstetrics and gynecology."

As soon as

defendant

discovered

the

circumstances relating to its original application, it promptly proceeded to file a new application and pay

the

necessary $50 fee for registering with

the

IDPR. Ultimately, a certificate of registration was issued to

defendant

by

the

IDPR, effective January 14, 2003, after

the

suit was filed. The IDPR has not fined

defendant

, conducted any investigation, or otherwise taken any action, except to issue

the

new certificate of registration to

defendant

as a result of

the

inadvertent expiration of

defendant

's initial application. At all times, every physician-employee of

defendant

has been duly licensed by

the

IDPR

to practice medicine in the State of

Illinois.

On May 16, 2003,

plaintiff

filed three motions to dismiss

defendant

's counterclaim. She also filed a motion for summary judgment with respect to her claim for declaratory relief in count I of her complaint. Among

the

contentions asserted by

plaintiff

in support of her motions was that

defendant

's failure to possess a certificate of registration from

the

IDPR, contrary to

the

requirements of

the

Act, precluded

defendant

, as a matter of law, from enforcing

the

covenant against her.

On September 26, 2003,

the

trial court entered an order granting

plaintiff

's motion for summary judgment as to count I of her complaint and dismissing

defendant

's counterclaim seeking to enforce

the

agreement. The trial court held that

the

Act was intended to be regulatory for

the

protection of

the

health, safety, and welfare of

the

public.

The court further found that

defendant

had explicitly represented to

plaintiff

that

it

was properly registered by

the

State to practice as a professional corporation, when this representation was not true. As a consequence of

defendant

's failure to adhere to

the

Act

,

the

trial court declared

the

agreement void

ab

initio

.

However, finding that there were substantial grounds for differences of opinion and that immediate appeal would materially advance the litigation, the court certified the questions for interlocutory appeal.

ANALYSIS

This court's examination in an interlocutory appeal is strictly limited to the questions certified by the trial court and, as with all questions of law, is a

de

novo

review.

In re Consolidated Objections to Tax Levies of School District No. 205

, 306 Ill. App. 3d 1104 , 1107 (1999), citing

Lanxon v. Magnus

, 296 Ill. App. 3d 377, 379 (1998).

The first question we are called upon to answer is whether

the

Act's licensing requirements for medical corporations is intended to protect

the

public's health, safety, or welfare. We must

begin our analysis

by looking at the language of the relevant sections of

the

Act. The language of a statute is often

the

most reliable evidence of

the

legislature's intent.

Pullen v. Mulligan

, 138

Ill. 2d

21, 46 (1990).

Here,

the

legislature specifically has included in

the

Act

a section

regarding its intent. It states:

"It is

the

legislative intent to provide for

the

incorporation of an individual or group of individuals to render

the

same professional service or related professional services to

the

public for which such individuals are required by law to be licensed or to obtain other legal authorization, while preserving

the

established professional aspects of

the

personal relationship between

the

professional person and those he serves professionally." 805 ILCS 10/2 (West 2002).

The trial court found that

the

Act was intended for

the

protection of

the

public. We find nothing in

this section or

in any other section of

the

Act that leads to this conclusion.

It is clear, based on a reading of

the

entire Act, that the function of

the

Act is primarily permissive, allowing professionals, who would otherwise not be entitled to enjoy

the

benefits of incorporating, to establish corporate entities for their professional practices.

We find nothing in

the

Act that signifies that it was enacted for

the

protection of

the

public. Section 12 requires a corporation to pay an annual fee

to renew its registration, but there are no civil or criminal penalties for noncompliance. 805 ILCS 10/12 (West 2002). "Such criminal or civil penalties would indicate that

the

licensing requirements were enacted because they have a significant impact on public health or safety."

Joseph P. Storto, P.C. v. Becker

, 341

Ill. App. 3d

337, 344 (2003)

.

T

he Act assigns only minor, administrative functions to

the

IDPR, whose tasks are more ministerial than regulatory. See,

e.g.

,

805 ILCS 10/8 (West 2002)

.

The only enforcement authority provided to

the

IDPR under

the

Act is the ability to suspend or revoke a certificate of registration (805 ILCS 10/13 (West 2002)

), or to collect an additional $100 fee when a registrant's certificate lapses and it continues to practice without a certificate (805 ILCS 10/12.1 (West 2002)).

It is generally recognized that professional service corporation legislation,

similar to

the

Act, arose "out of

the

desire of professional groups to realize

the

tax benefits open to employees under

the

qualified pension, profit-sharing, and annuity plan provisions of

the

Internal Revenue Code." J. Rydstrom,

Practice by Attorneys & Physicians as Corporate Entities or Associations Under Professional Service Corporation Statutes,

4 A.L.R. 3d 383 , 385 (1965)

; see also 18 Am. Jur. 2d,

Corporations

§37 (2003). In addition to providing certain tax breaks, incorporation under

the

Act reduces potential civil liability.

See 805 ILCS 10/8 (West 2002). C

learly,

the

intent of

the

legislature here is

not to advance

the

public welfare but to allow professionals to incorporate in order to enjoy certain tax benefits and to reduce their potential civil liability.

Plaintiff argues that,

upon an application

for registration

under section 12

, the

IDPR

must investigate

the

corporation, and

no certificate will issue if

the

incorporators, officers, directors, and shareholders are not

licensed

under

Illinois law to engage in

their

particular profession. Plaintiff asserts that this licensing requirement signifies

the

legislature's intent to protect

the

health, safety, or welfare of

the

public. We agree that

licensing statutes like

the

Medical Practice Act of 1987 (225 ILCS 60/1

et

seq

. (West 2002))

are designed to protect

the

health, safety, or welfare of

the

public.

W

e believe that the

Act's requirement that

the

incorporators, officers, directors, and shareholders are licensed to practice in their profession merely

ensures that

those individuals who intend to incorporate

under

the

Act are organized solely for

the

purpose of rendering one category of a professional service

. 805 ILCS 10/3.4 (West 2002). Professional service corporations differ from ordinary business corporations in that only licensed professionals can be members or shareholders. While its individual members are subject to

supervision by

the

IDPR under different regulations, we

find nothing in

the

Act that otherwise

benefits

the

public's health, safety, or welfare.

Furthermore, statutes that have been interpreted as necessary for

the

public safety are those that have been enacted to provide assurance of adequately trained professionals,

such as those

statutes requiring licenses for doctors or lawyers.

See,

e.g.

,

Tovar v. Paxton Community Memorial Hospital

, 29

Ill. App. 3d

218, 220 (1975).

Indeed,

the

Act does not include any of

the

indicia of such regulatory intent, including examinations for competency. Our supreme court in

People v. Brigham

, 151

Ill. 2d

58 (1992), determined that a lawyer's failure to pay his registration fee did not prevent him from providing competent legal advice.

Brigham

, 151

Ill. 2d

at 70-71. Similarly, we do not believe that a medical corporation's failure to pay its corporate registration fees would undermine

the

public's trust that its licensed doctors can practice medicine competently. See

Brigham

, 151

Ill. 2d

at 70-71;

Storto

, 341

Ill. App. 3d

at 344.

Plaintiff appears to equate

the

lack of a certificate of registration under

the

Act to practice as a professional corporation with

the

lack of a license to practice medicine.

Clearly, there is a difference.

As stated above, those statutes requiring licenses to practice a profession are necessary for

the

public safety because they have been enacted to provide assurance of adequately trained professionals. A violation of

the

Act does not necessarily mean that

the

doctors lack

the

requisite medical skills to practice medicine.

In all of

the

licensing cases cited by

plaintiff

,

the

statutes clearly were enacted for

the

protection of

the

public. See,

e.g.

,

Tovar

, 29

Ill. App. 3d

at 220 (the purpose of

the

Medical Practice Act is to "protect

the

public by assuring them of adequately trained physicians");

Kaplan v. Tabb Associates, Inc.

, 276

Ill. App. 3d

320, 323 (1995) (Illinois Architecture Practice Act of 1989 (225 ILCS 305/21 (West 1992)) expressly declared that

the

practice of architecture affects

the

public health, safety, and welfare);

Waterford Executive Group, Ltd. v. Clark/Bardes, Inc.

, 261

Ill. App. 3d

338, 346 (1994) (Private Employment Agency Act (225 ILCS 515/1

et seq.

(West 1992)) was "designed to correct and prevent abusive practices by employment agencies");

Management Recruiters of O'Hare, Inc. v. Process & Environmental Equipment Unlimited, Inc.

, 137

Ill. App. 3d

513, 521 (1985) (the purpose of

the

Private Employment Agencies Act (Ill. Rev. Stat. 1983, ch. 11, par. 901

et seq.

) "like that in

Tovar

, appears to be primarily

the

protection of

the

public");

Rabin v. Prenzler

, 116

Ill. App. 3d

523, 529 (1983) (Real Estate Brokers and Salesmen License Act (Ill. Rev. Stat. 1977, ch. 111, par. 5701

et seq.

) is remedial).

Accordingly,

we find plaintiff

's reliance on

the

licensing cases to be inapposite.

We

find that the

analysis set forth in

Storto

, 341

Ill. App. 3d

337, supports our decision. In that case, a client of a professional firm of lawyers attempted to avoid its contractual obligations by arguing that

the

firm was not properly registered with

the

Illinois Supreme Court pursuant to Rule 721 (166 Ill. 2d R. 721). We concluded that

the

registration requirements of Rule 721, which did not impose civil or criminal liability for

the

failure to register, were not enacted for

the

protection of

the

public safety.

Storto

, 341

Ill. App. 3d

at 344. We observed that a law firm "generally does not incorporate to benefit its clients or to advance

the

public welfare. [Citation.]

Rather, a law firm incorporates to enjoy certain tax benefits and to reduce its potential civil liability."

Storto

, 341

Ill. App. 3d

at 344.

The only case in Illinois addressing

the

effect of

the

failure of a medical professional corporation to register with

the

IDPR is

the

case of

Brockett v. Davis

, 325

Ill. App. 3d

727 (2001). In that case,

an alleged tortfeasor argued that, because his victim's doctors did not have a certificate of registration under

the

Act, he should not be liable for any of those medical bills.

The

Third District Appellate Court

concluded that

the

tortfeasor

, who did not have a contractual relationship with

the

medical corporation and was not directly affected by

the

lack of registration, did not have standing to assert

the

nonregistration as a defense to that element of

the

damages claim.

Brockett

, 325

Ill. App. 3d

at 731. Despite its determination that

the

defendant

lacked standing to raise

the

issue of whether

the

bills for services were void because of

the

corporation's failure to obtain

the

certificate of registration required by

the

Act,

t

he court noted that, "unlike

the

licensing requirement for a doctor under

the

Medical Practice Act,

the

certificate of registration required by

the

Medical Corporation Act does not appear to be designed to protect

the

public by assuring it of adequately trained physicians."

Brockett

, 325

Ill. App. 3d

at 731.

Accordingly, because we find nothing

that signifies

that the

Act was enacted for

the

benefit of

the

health, safety, or welfare of

the

public, we answer

the

first question in

the

negative.

The second question we are called upon to answer is whether

defendant

's failure to comply with

the

Act's certificate of registration requirement rendered

the

employment agreement

void

ab

initio

.

The general rule that guides our conclusion was stated in

Ransburg v. Haase

, 224

Ill. App. 3d

681, 684-85 (1992)

: "[C]ourts will not enforce a contract involving a party who does not have a license called for by legislation that expressly prohibits the carrying on of the particular activity without a license where the legislation was enacted for the protection of the public, not as a revenue measure".

Cases involving

the

unenforceability of contracts in violation of licensing statutes afford guidance here.

For example, in

Tovar

,

the

plaintiff

claimed wrongful termination of his employment contract as a physician with

the

defendant

. Both parties knew that

the

plaintiff

was not licensed to practice medicine in Illinois, as required by

the

Medical Practice Act, which also barred an unlicensed physician from maintaining an action for fees or services. The court noted that

the

purpose of

the

statute was to assure

the

public of adequately trained physicians and that

the

statute prohibited any agreement designed to induce a breach of

the

licensing provisions. Although

the

plaintiff

's action was not to recover for services rendered,

the

court reasoned by analogy that, as

the

contract of employment was in violation of

the

statute,

the

agreement was unenforceable.

Tovar

, 29

Ill. App. 3d

at 220.

In

Storto

, the

defendant

argued that

the

contract she entered into with

the

plaintiff

was void as a matter of public policy. H

owever, we held that Rule 721(c) was not enacted for

the

protection of

the

public safety and, therefore,

the

contractual obligations owed to a corporation not properly registered under Rule 721(c) could not be voided absent a showing of prejudice resulting from

the

failure to register.

Storto

, 341

Ill. App. 3d

at 342-44. We would not excuse

the

client from a contractual obligation without a demonstration of how she was harmed by

the

law firm's failure to register with

the

supreme court. We noted that, absent prejudice, allowing

the

client to escape her contractual obligations would be disproportionate to

the

wrong committed by

the

law firm

.

Storto

, 341

Ill. App. 3d

at 343.

Recently, in

Ford Motor Credit Co. v. Sperry

, 344

Ill. App. 3d

1068, 1072 (2003), this court held that an award of attorney fees pursuant to a claim of consumer fraud was void because

the

attorneys, a professional corporation, had failed to register with

the

supreme court in violation of Rule 721(c). Unlike

Storto

, however,

Sperry

did not involve an attempt by a party to avoid performing his or her contractual obligations.

Sperry

, 344

Ill. App. 3d

at 1071.

We recognize that

the

plaintiff

's action in

Storto

involved recovery for services rendered to a client. However, like

the

plaintiff

in

Storto

,

plaintiff

here also attempts to be excused from her contractual obligations due to

defendant

's failure to register as a corporation

. Plaintiff, no doubt, enjoyed certain corporate benefits

when she was employed by

defendant

.

As we concluded in

Storto

,

absent any prejudice, to excuse

plaintiff

from her contractual obligations due to

defendant

's failure to register would be disproportionate to

the

wrong committed by

defendant

. See

Storto

, 341

Ill. App. 3d

at 343.

Plaintiff cannot be excused from a contractual obligation without demonstrating how she was harmed by

defendant

's failure to register.

Therefore, absent prejudice, we hold that

the

lack of a certificate under

the

Act did not render

the

agreement void

ab

initio

. See

Brockett

, 325

Ill. App. 3d

at 732. Accordingly, we answer the second question in the negative.

Defendant contends that, assuming

arguendo

that

the

Act was regulatory and designed for

the

protection of

the

public health and welfare, the

de

minimis

and inadvertent violation of

the

Act

did not warrant undermining

the

parties' contractual obligations. Defendant asserts that

the

trial court should have weighed

the

benefit to

the

public welfare of declaring a party's contractual rights unenforceable against

the

detrimental effect of allowing a party to use such a violation to avoid his or her contractual obligations. Defendant asserts that its inadvertent failure to register should not excuse

plaintiff

from performing under

the

agreement and that

the

relevant policy considerations clearly establish that

the

trial court's punishment did not fit

defendant

's minor mistake.

However, because we find that

the

Act is not regulatory, we need not address this issue.

Plaintiff further asserts that

the

supreme court's recent opinion in

Carter-Shields v. Alton Health Institute

, 201

Ill. 2d

441 (2002)

,

which held that a corporation's failure to comply with

the

licensing requirement rendered

the

physician's contract void

ab

initio,

affirms

the

importance of strict compliance with public health licensing regulations.

I

n

Carter-Shields

, the

plaintiff

, a doctor, entered into an employment agreement with

the

defendant

, a not-for-profit corporation. As a result of numerous disputes, she filed a complaint for declaratory judgment, alleging that her employment agreement with

the

defendant

violated

the

prohibition against

the

corporate practice of medicine and, therefore, was illegal and unenforceable. Unlike

defendant

here, however,

the

defendant

in

Carter-Shields

was not a professional or medical service corporation and, thus, was not expressly sanctioned by

the

legislature to employ physicians. See

Carter-Shields

, 201

Ill. 2d

at 451.

Because

the

defendant

was an entity that could not lawfully hire a physician or assign

the

agreement to an entity that could,

the

supreme court held that

the

employment agreement was void and unenforceable from its inception.

Carter-Shields

, 201

Ill. 2d

at 460-61.

The supreme court also based its decision upon

the

public policy concerns of "lay control over professional judgment and

the

division of a physician's loyalties which underpin

the

prohibition against

the

corporate practice of medicine"

.

Carter-Shields

, 201

Ill. 2d

at 461.

Those concerns do not apply to a professional corporation such as

defendant

, which is owned and operated by licensed medical professionals. We agree with

defendant

that

Carter-Shields

is "miles removed from

the

situation at issue in

the

present case."

Plaintiff argues that

Carter-Shields

overruled

Brockett

. We disagree. As stated above,

Carter-Shields

did not involve a professional corporation or

the

failure of a professional corporation to obtain a certificate of registration under

the

Act. That decision provides no guidance on

the

questions presented in this case. The only mention of medical corporations made in

Carter-Shields

was

the

acknowledgment that such corporations were sanctioned by

the

legislature to employ physicians and, thus, are not subject to

the

corporate practice of medicine doctrine.

Carter-Shields

, 201

Ill. 2d

at 451.

Certified questions answered.

BOWMAN and KAPALA, JJ., concur.