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In re Rockhill Pain Specialists, P.A.

Court of Appeals of Kansas

December 22, 2017

In re Rockhill Pain Specialists, P.A., Daniel R. Kloster, M.D., Appellee,
Dan L. Hancock, M.D., Appellant.


         1. The restrictions regarding dissemination of reports and records of public health care licensing agencies contained in K.S.A. 65-4925 are a statutory exception to the general rule contained in K.S.A. 60-407 that all relevant evidence is admissible.

         2. A strict or narrow interpretation is applied to statutory exceptions to the rule contained in K.S.A. 60-407 that all relevant evidence is admissible.

         3. The plain language of K.S.A. 65-4925 does not prohibit the admission into evidence of the ultimate result of investigations by public health care licensing agencies.

         4. The good-faith immunity provided under K.S.A. 65-2898 for persons that report information regarding incidents of malpractice, or the qualifications, fitness or character of, or disciplinary action taken against, a person licensed, registered or certified by the board of healing arts adequately protects the public interest in encouraging reporting of unfitness.

         5. Unless otherwise limited by court order, parties may obtain discovery regarding any nonprivileged matter that is relevant to a party's claim or defense and proportional to the needs of the case.

         6. A privilege is a rule of evidence that allows a person to shield confidential communications or information from compelled disclosure during litigation.

         7. Because they are exceptions to the general rule that parties may obtain discovery regarding any matter that is relevant to a party's claim or defense, evidentiary privileges are to be strictly construed.

         8. The fact that a statute identifies information as confidential does not necessarily mean that the statute has created an evidentiary privilege.

         9. The trial court is vested with broad discretion in supervising the course and scope of discovery.

         10. In discovery proceedings when a claim of privilege, confidentiality, or irrelevance is raised by a litigant, the court has a duty to conduct an in camera inspection to permit discovery of only relevant documents to protect against unnecessary and damaging disclosure of irrelevant confidential material. The court must balance the interests of the litigants as well as the public interest in maintaining the confidentiality of the material.

         11. Findings and other records submitted to or generated by hospital peer review committees or officers are privileged and are not subject to discovery. But by statute, the holder of the privilege is the hospital peer review officer or committee creating or initially receiving the record, not the individual doctors or medical professionals submitting the record.

         12. A doctor's responses to a Kansas Board of Healing Arts investigation are confidential but not privileged under K.S.A. 65-2839a(d).

         13. Damages recoverable for defamation cannot be presumed but must be proven.

         14. Defamation is not a personal injury action as contemplated by K.S.A. 2016 Supp. 60-19a02(a).

         15. Failure to request an itemization of noneconomic damages prior to the discharge of the jury waives any claim to apply the caps on noneconomic damages in K.S.A. 2016 Supp. 60-19a02.

         16. A verdict for actual damages will not be disturbed merely because the court cannot definitely ascertain the precise method by which the jury arrived at the exact amount of its verdict when such an amount is reasonably within the range of the evidence.

         Appeal from Johnson District Court; James Charles Droege, judge.

          Eric G. Kraft, of Eric Kraft Law, LLC, of Olathe, for appellant.

          Timothy R. West and Nick J. Kurt, of Berkowitz Oliver LLP, of Kansas City, Missouri, for appellee.

          Before Arnold-Burger, C.J., Pierron and Green, JJ.

          Arnold-Burger, C.J.

         This case represents a tragic story of two highly gifted and respected physicians, Dr. Dan Hancock and Dr. Daniel Kloster, who specialize in pain management care. They maintained a highly successful practice and each made over a half million dollars a year. They were like brothers to each other, until a dispute over money sent their friendship and their practice into a death spiral.

         Following a dispute over the proposed distribution of income, Hancock began broadcasting complaints regarding Kloster's patient care to several state agencies, hospitals, and ultimately-when he believed the other entities were not responding quickly enough or in the manner he hoped-to the Kansas City Star. He alleged that Kloster was either killing or hastening the death of his patients. None of the complaints bore fruit. After hundreds of hours defending his reputation Kloster successfully sued Hancock for defamation, breach of fiduciary duty, fraud, and conversion. Hancock appeals that verdict.

          On appeal, Hancock argues that the district court misapplied the statutory privilege in K.S.A. 65-4925, which provides that reports and records of state licensing agencies are confidential, by admitting evidence that two state agencies had cleared Kloster of any wrongdoing. Although we find that the district court did not err in admitting evidence that the state licensing agencies cleared Kloster of wrongdoing, it did err in holding that Kloster's submissions to the state licensing agencies were privileged. However, the error was harmless because Hancock had other ways of discovering the information. Hancock also argues that there was insufficient evidence to support the jury's damages awards for Kloster's defamation and nondefamation claims. But, the jury had a sufficient evidentiary basis to support its award of damages on all claims. Finally, Hancock argues that the damages for Kloster's defamation claim should have been capped under K.S.A. 2016 Supp. 60-19a02(b), which provides a statutory cap of $250, 000 for noneconomic damages in personal injury cases. However, defamation is not a personal injury action. Additionally, he did not object to the jury's failure to itemize damages, a failure that is fatal to his claim. Accordingly, we affirm.

         Factual and Procedural History

         Dr. Daniel Kloster and Dr. Dan Hancock are anesthesiologists specializing in pain management. They formed Rockhill Pain Specialists, P.A. (Rockhill) in 2001. Their practice included, among other pain management procedures, the implantation of pain pumps in terminally ill cancer patients for end-of-life pain management. At that time, they were "good friends, like brothers." Rockhill was an S-corporation, and as Kloster and Hancock were the only two shareholders of Rockhill they split all profits evenly. Kloster brought in about two-thirds of the patients while Hancock brought in the other third. Hancock handled Rockhill's business, and served as Rockhill's president, director, and compliance officer.

         The doctors' relationship began deteriorating in 2011. The doctors had different ideas about why this occurred. Hancock maintained that he was concerned about Kloster's patient care. Kloster argued that the doctors had a monetary dispute sparked by a job offer he received from a company called Assured Pharmacy.

         In 2011, Assured Pharmacy approached Kloster about a potential position as its national medical director. Kloster described the position as a business advisory role. The position entailed about 35 to 40 hours of work per month. Kloster thought he would not be expected to split profits from this position with Hancock because their agreement was only to split money earned in the practice of medicine. Hancock, however, thought that the position entailed the practice of medicine because the employment contract specified that the employee had to be a licensed physician and anesthesiologist who specialized in pain management. Kloster asked Rockhill's corporate counsel, Randy Schultz, whether he would have to share profits from the Assured Pharmacy position with Hancock. Schultz told him that he would not have to share because the position was unrelated to the practice of medicine.

         Kloster and Hancock went out to dinner in December 2011. They continued to disagree over whether Kloster's earnings from Assured Pharmacy should go to Kloster or to Rockhill. Kloster said he would look at Rockhill's books and discuss the issue again with Hancock at a later point in time. Kloster had not looked at Rockhill's books before because that aspect of the business was managed by Hancock. When Kloster looked at Rockhill's books, he realized that he had brought in twice as much business as Hancock had for the previous five years.

         The doctors met for another dinner in January 2012. Kloster alleges that Hancock "just went off" and started screaming at him. Kloster said that Hancock accused him of working with Schultz to deprive Rockhill of the Assured Pharmacy money and that Hancock screamed, "Oh, you're going down. Randy [Schultz] is going down." Hancock denied threatening Kloster or Schultz at this meeting, and said that Kloster actually threatened him by saying he would kill Hancock if he did anything to injure Kloster's wife or children.

         The parties met again briefly in March or April of 2012. Kloster asked Hancock if he would be open to a different compensation system where, instead of splitting profits evenly, they would split profits based on production. Hancock refused.

         Due to the parties' disagreement on compensation, Kloster recommended that they cease receiving any distributions from Rockhill beyond their base pay. Direct deposits of $15, 000 per month were given to Kloster during this time period, just like Hancock, but Kloster returned them to the corporation. Hancock continued to take distributions from Rockhill. Schultz instructed Rockhill's bookkeeper to cease making distributions until the doctors could agree on a compensation model. But Hancock emailed the bookkeeper and said that "as president of Rockhill Pain Specialists, I am instructing you to make the monthly distributions for May as you have every month for the past 4-5 years."

         On June 14, 2012, Kloster called a special meeting of Rockhill's board of directors. Kloster, Hancock, and Schultz attended. Kloster and Hancock each brought a private attorney as well. Kloster raised the issue of distributions again, but Hancock continued to receive them. The parties also discussed a production-based compensation arrangement, and Kloster's attorney agreed to "prepare a proposed compensation arrangement that was partially based upon a production formula while taking into consideration any special administrative duties being provided by the parties."

         After discussing compensation, Hancock raised the issue of Rockhill's billing and coding practices. The special meeting minutes state that Hancock requested a third-party review of Rockhill's billing and coding activities. The minutes also state that Hancock agreed to provide Schultz with the names of two to three physicians who could conduct an independent review of Rockhill's practice. During the trial, Hancock denied that he agreed to do this. At the time of the special shareholder's meeting, neither Kloster nor Schultz knew why Hancock raised an issue with Rockhill's billing.

         Although he did not disclose it at the special shareholder's meeting, Hancock had been investigating Rockhill's billing practices for several months. Hancock testified that he began having concerns with Kloster's patient care in 2011. Hancock's primary concern was with Kloster's implantation of intrathecal pain pumps in patients. These pumps are about the size of a hockey puck and are inserted under a patient's skin. Pumps provide a powerful way to deliver medicine into patients with severe pain. Hancock thought that patients receiving pumps were dying at a faster rate than usual. He thought Kloster was "either choosing patients that [were] inappropriate to receive pumps or that the concoction that he was using was hastening their demise."

         Hancock was also concerned with the pain pump issue from a compliance standpoint. Medicare asks doctors to certify that they have a reasonable certainty that a patient will survive for 90 days after implantation of a pump. Hancock thought that if Kloster was selecting inappropriate patients for pump procedures that Rockhill might be subject to a Medicare audit or sanction.

         In January 2012, shortly after the doctors' monetary dispute began, Hancock met Vicki Myckowiak at a conference in Scottsdale, Arizona. Myckowiak is an expert in fraud and abuse in medical billing. Hancock told Myckowiak that he had concerns over Rockhill's billing practices and Kloster's use of pain pumps. Hancock hired Myckowiak on behalf of Rockhill to conduct a review of some of Rockhill's files. Hancock sent Myckowiak records from 12 patients of Kloster's who had died within 90 days of their pump placements. These were records that Rockhill maintained for billing purposes, and did not include operating room notes or nursing notes.

         On June 6, 2012, Hancock provided Kloster with a peer review reference. Hancock certified that he would recommend Kloster without reservations. Hancock strongly agreed that Kloster provided appropriate patient assessments, evaluations, and surgical procedures.

         Shortly after the June 2012 special shareholder meeting, Myckowiak hired Dr. Andrea Trescot as an expert to conduct additional review of the records. After reviewing the records, Trescot prepared an expert report. She stated that "[a]lthough these were cancer patients, presumably with a limited life span, I am seriously concerned that the medicines that Dr. Kloster chose for the pump hastened if not caused these patients' deaths." She also said that "[r]eview of these cases force[s] me to conclude that an emergency suspension of pump implantations is necessary to protect patient welfare."

         Hancock did not contact Schultz throughout his consultations with Myckowiak or Trescot. He also did not discuss Trescot's findings with Kloster. Hancock testified that he raised concerns regarding the pain pumps with Kloster as early as August 2011. He said that Kloster told him "that he could justify all of the pumps that he put in, that [Hancock] needed to be more aggressive in patient treatment and that [Hancock] should not be lecturing him about how to treat pump patients." Hancock testified that he discussed the issue with Kloster again in December 2011 or January 2012 to reinforce his previous concern that Kloster was choosing the wrong patients or being too aggressive in his treatment. Hancock alleged that Kloster said, "I'm telling you that these patients are going to die anyway and I'm going to make as much money off of them before they die as I can." At trial, Kloster denied that Hancock ever expressed any concerns over his patient care.

         On August 8, 2012, Myckowiak filed complaints against Kloster with the Kansas State Board of Healing Arts and Missouri Board of Registration for the Healing Arts. These complaints stated that she was writing "on Dr. Hancock's request to provide you with information showing that his partner, Daniel L. Kloster, M.D. is providing services to patients . . . that are below the standard of care and which, it appears, caused the death of at least one patient." The primary concern in the complaints regarded the implantation of intrathecal pain pumps.

         Later that month, Hancock sent letters to several people at Menorah Medical Center and Research Medical Center, including the CEOs, credentials committees, and peer review committees regarding his concerns over Kloster's patient care. Hancock asked Myckowiak to send complaints to the attorneys general and governors of Missouri and Kansas, the federal Drug Enforcement Administration, the Missouri Bureau of Narcotics and Dangerous Drugs, and the Kansas Bureau of Investigation. Hancock also made an anonymous call to the Overland Park Police Department.

         Kloster began thinking about dissolving Rockhill when Hancock lodged complaints against him. The doctors' business dispute continued, with Hancock accepting distributions and Kloster continuing to reject them. This led to Hancock accruing approximately $100, 000 more than Kloster by September 2012. At that time, Kloster's attorney wrote a letter informing Hancock that his acceptance of the distributions breached his fiduciary duty to Rockhill and put Rockhill's S-corporation status at risk. Kloster also discovered that Hancock had used Rockhill funds to pay his personal attorney, Myckowiak, and Trescot. Kloster asked Hancock to reimburse those funds, and Hancock refused. In early 2013, Kloster withdrew $38, 515.15 to equalize the doctors' distributions. Hancock responded by taking an equal amount out of Rockhill's account. Kloster responded to this by withdrawing about $42, 830.13 from Rockhill-some to equalize distributions and the rest for routine expenses like gasoline and continuing medical education credits.

         Throughout the business dispute, Hancock continued investigating Kloster's patient care. Hancock provided Trescot with 33 more of Kloster's patient billing records to review. Trescot issued a second opinion in January 2013. She concluded: "This review identifies multiple cases of treatment below the standard of care, probable Medicare fraud, and, I am afraid, possibly manslaughter. In my many years of reviewing medical cases, I have rarely seen a magnitude of cases this egregious." Hancock sent Trescot's second report to the state licensing agencies to supplement his complaints against Kloster.

         In March 2013, Kloster filed suit against Hancock. Kloster sued for breach of fiduciary duty, fraud, fraud through silence, conversion, defamation, and invasion of privacy by false light. Kloster also asked for judicial dissolution of Rockhill as well as an accounting and appointment of a receiver. Hancock counterclaimed for breach of fiduciary duty. Later that month the district court appointed Craig Chance as receiver for Rockhill for the pendency of the dissolution. Chance's duty was to preserve Rockhill's assets during the winding down of the company. Chance was also tasked with determining whether Kloster or Hancock made inappropriate disbursements of Rockhill funds.

         At the end of March 2013, Hancock began talking to a reporter from the Kansas City Star. Hancock was frustrated when he talked to the reporter because none of the state licensing agencies, hospitals, or other parties to whom Hancock had transmitted complaints about Kloster had taken action. Hancock deemed this a "government failure" and thought that he needed to "alert the general public" to the dangers posed by Kloster's patient care. The Kansas City Star published an article titled, "When doctors divorce, the breakup can be as messy as a marital split" in June 2013. The article begins, "It sounds like the lead-in to any of 101 divorces. One partner is accused of outrageous misconduct, the other of not doing his share. There are threats, maybe shouting. The silent treatment. And underneath it all, a simmering dispute over money." The article goes on to discuss Hancock's allegations that Kloster was "practicing so far below the standard of care that two of his patients died through massive overdoses of pain medications." It also contained Hancock's allegations that patients were dying too quickly after implantation of pain pumps.

         Eventually, both the Missouri and Kansas licensing agencies concluded their investigations of Kloster and found that he did not violate the standard of care. In May 2014, Hancock made a motion to compel discovery responses from Kloster. Hancock sought "Kloster's written responses to the different medical boards and regulatory boards of the various hospitals and the boards of health for [the] states of Kansas and Missouri." Kloster objected, arguing that the records were confidential. The district court agreed with Kloster and held that Kloster's responses to the licensing agencies were confidential.

         A couple of weeks before trial, Hancock filed a motion in limine asking the court to exclude "[e]vidence, testimony, exhibits, and/or statements regarding the conclusions, results, or any other determinations of Dr. Kloster's conduct or practice methods from any peer review process of any hospital, the Kansas Board of Healing Arts, or the Missouri State Board of Registration for the Healing Arts." Hancock argued that the conclusions of the investigations were confidential and inadmissible in court. Kloster replied, arguing that Hancock waived any right to the privilege of confidentiality in the content of the administrative proceedings when Hancock publicized the proceedings in ...

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