Summary:
Virginia Supreme Court reversed dismissal in Sentara Medical Group v. Klena concerning sovereign immunity.
Court established a totality of circumstances framework to determine immunity for subsidiaries of state entities.
Key factors include corporate structure, relationship with immune entity, governmental control, and necessity to governmental function.
A subsidiary created by a state entity may be entitled to sovereign immunity in an employment dispute depending on a review of the totality of circumstances, the Supreme Court of Virginia has ruled unanimously, reversing and remanding for consideration the relevant factors.
Dr. James Klena, a cardiovascular surgeon, was employed by Sentara Medical Group, a subsidiary of Hampton Roads health care system Sentara Health. When Sentara learned that Klena was planning on accepting a position with a competitor, Chesapeake Regional Medical Group (CRMG), it sued pursuant to an employment agreement Klena had signed.
CRMG objected, arguing that it was entitled to sovereign immunity because it was a subsidiary of the legislatively created Chesapeake Hospital Authority,
a public body.
The circuit court granted the motion and dismissed the lawsuit, but the state’s highest court reversed that, establishing a framework for determining whether a corporate agent shares in the immunity of its principal.
“In conducting this totality of the circumstances review, the nature and structure of the corporate agent; its relationship with the immune entity; the degree of control the immune entity or other governmental actor exerts over the corporate agent; and whether the corporate agent was necessary or merely convenient to the performance of a governmental function if the immune entity is a municipal corporation all will be relevant, albeit non-dispositive,
considerations,” Justice Wesley G. Russell Jr. wrote.
The 14-page opinion is Sentara Medical Group v. Klena (VLW 026-6-010).
Appellate attorney Juli M. Porto of Blankingship & Keith in Fairfax said the “significant” decision has two practical takeaways for attorneys.
“First, if you represent a corporate entity claiming derivative sovereign immunity, you have to prove it through the James factors, and that means putting on evidence,” she said. “Second, if you’re the plaintiff suing one of these subsidiary entities, this opinion is a powerful tool.”
The court confirmed that there is no automatic pass-through of immunity, Porto explained, and it has identified the kinds of facts that matter: the corporate agent’s nature and structure, its relationship with the immune entity, the degree of governmental control, and whether the agent was necessary — as opposed to merely convenient — to a governmental function.
“That ‘necessary versus convenient’ language is worth watching,” she added. “It suggests that the court may take a hard look at whether these corporate subsidiaries are truly essential to the governmental mission or are simply the way the entity chose to organize its business operations.”
Johan Conrod Jr. of Cicala Wackerly
Conrod, the attorney who represented Klena and CRMG, said the decision was “a bit [of a] step forward,” with the court’s recognition that a corporate agent can take advantage of sovereign immunity, “a positive development not only for my client but public entities through the commonwealth.
“Any time the Supreme Court provides clarity in a previously unaddressed area of the law, that is good for everybody,” he added. “Now there is a road map to guide all parties when it comes to litigation involving these entities.”
Richmond attorney Brendan D. O’Toole of Williams Mullen, who represented Sentara, declined to comment on the decision.
Doctor switches employers
Klena started working for Sentara in December 2022, when he signed an employment agreement that included several restrictive covenants, including a noncompete clause prohibiting him from rendering medical services within a 25-mile geographic radius for a one-year period after leaving Sentara.
After learning that Klena was planning on accepting a position with CRMG, Sentara sent him a letter warning that accepting employment with CRMG would violate the terms of his agreement. Klena did not reply, ended his employment at Sentara on June 17, 2024, and began working for CRMG.
Sentara sued Klena for breaching his employment contract and sued CRMG for tortiously interfering with its contract with Klena.
CRMG filed a plea of sovereign immunity in response. CRMG argued that because the authority is entitled to the protection of sovereign immunity and the authority created CRMG as a subsidiary, CRMG shares in the authority’s entitlement to immunity as a matter of law.
Sentara did not contest the authority’s immunity but took the position that CRMG does not share in it.
The circuit granted the plea and dismissed the action against CRMG with prejudice.
Sentara appealed.
Immunity possible
Although not the absolute blanket of protection afforded to the Commonwealth, its agencies and counties, in certain circumstances sovereign immunity provides protection to other entities, the court explained, including municipal corporations as well as agents and employees of immune entities.
In a 1980 decision, James v. Jane, the state’s highest court held that the entitlement to immunity will depend on the specific facts and circumstances, delineating four factors for courts to consider in determining whether a state employee is entitled to immunity.
“Taken together, these cases establish a sliding scale of sovereign immunity from the ‘absolute’ immunity of the Commonwealth and its agencies to the ‘qualified’ immunity of other entities, agents, and employees,” the court wrote. “The fact that a municipal corporation was either chartered or created by the General Assembly does not automatically entitle that entity to the protections of sovereign immunity; rather, such an entity is only entitled to the protection of sovereign immunity if it is engaged in a governmental function.”
In effect, the further away a person or entity is from the sovereign, the less likely it is that the person or entity will be entitled to immunity, and the entitlement to immunity, if any, for agents and employees necessarily will depend on the specific facts and circumstances, the court said.
More information needed
The parties agreed that the authority is entitled to the protections of sovereign immunity but diverged on whether CRMG enjoys derivative immunity as a result of being its subsidiary.
Lacking a prior decision directly on point, the court determined the James framework was an appropriate starting point for determining whether a corporate agent shares in the immunity of its principal, even though it was formulated to address the status of individuals.
“We stress that the determination requires a review of all of the facts and circumstances and rarely will a single factor or circumstance prove dispositive,” the court said. The review should include the nature and structure of the corporate agent, its relationship with the immune entity, the degree of control the immune entity or other governmental actor exerts over the corporate agent and whether the corporate agent was necessary or merely convenient to the performance of a governmental function if the immune entity is a municipal corporation.
“Furthermore, the type of claim asserted will also color the analysis because a corporate agent that ‘acts beyond the scope of’ its agency and ‘exceeds [its] authority and discretion’ is not entitled to share in the immunity of its principal,” the court added.
Lacking sufficient information about CRMG — such as details about its creation, operation or the degree of control exercised by the authority or another governmental entity over its composition, functions and operations — the court reversed and remanded.
“In the absence of such evidence, it is impossible for any court to determine whether or not CRMG is immune from Sentara’s claim against it,” the court wrote. “Because CRMG bore the burden of proving its entitlement to immunity, the circuit court erred in sustaining CRMG’s plea of sovereign immunity.”
