No Discipline v. Dr. for Corp.'s `No Contest' Plea.(Brief Article)

CASE ON POINT: Con. & Ind. Svcs. Dept. v. Shah, 600 N.W.2d 406 - MI (1999)

ISSUE: The law has created corporations to afford legitimate individuals legitimate means of limiting their exposure to liability for the acts or negligence of others. One of the most widely used vehicle for this in the business and professional world is the creation of the corporate entity (or similar entities depending upon the laws of the particular state or states in which one does business or practices his or her profession. However in one Michigan case a corporation which was wholly owned by one physician pleaded no contest to several charges of fraudulently billing a health care insurer. When the State's department of professional regulation attempted to pursue the physician and take appropriate disciplinary action the department was thwarted in its efforts. The authorities at all levels found that the individual physician could not be held responsible for the acts of the corporation notwithstanding the fact that it was wholly owned and operated by him. The court refused to allow authorities to pierce the corporate veil.

CASE FACTS: The Department of Consumer and Industry Services (Department) alleged that Dr. Dineschandra Shah and his solely owned professional corporation, Cardiology Group of Lansing, P.C. (PC) fraudulently billed .Blue Cross and Blue Shield of Michigan (BCBSM) for cardiology services not actually rendered. After a separate criminal proceeding, in which the PC pleaded no contest to altering a medical record, the Department charged Dr. Shah with personally violating seven sections of Michigan's Public Health Code. None of the charges alleged that Dr. Shah injured his patients or rendered inappropriate care in any way. Following a hearing, a hearing referee issued a proposal for a decision recommending that all charges against Dr. Shah be dismissed. On December 23, 1997, the disciplinary subcommittee adopted the hearing referee's recommendation and dismissed the charges against Dr. Shah. The Department appealed. The court recognized the issue in the case to be whether the entry of a plea of no contest by the PC for a violation of state law should be imputed to the physician who was the sole owner, stockholder and officer of the corporation. In fact, he "was" the corporation. The Department argued vigorously that the physician should be held responsible for the fraud charges to which the corporation had pleaded no contest. The physician argued that there was no indication that the state legislature intended that a conviction of any person or entity, other than a licensee, be attributed to the licensee for the purpose of disciplinary action.

COURTS OPINION: The Court of Appeals of Michigan affirmed the judgment of the referee. The court held that the Department was an aggrieved party and thus was entitled to appeal the final order. However the court found that the corporation's no contest plea could not be imputed to the physician personally. The court held that for the purposes of the disciplinary statute, the ...