Med Law Blog

There have been many articles written about the negotiation and enforceability of physician restrictive covenants, but there are just a few fundamental concepts crucial to understanding and successfully navigating these issues.

1.         The Myth of Unenforceability. Many physicians either completely ignore or dismiss the significance of restrictive covenants because of the mistaken belief that restrictive covenants are unenforceable. Except in those states which statutorily ban restrictive covenants, such as California and Kentucky, this is simply not true.

2.         Suspect Enforceability. It is true the courts in many states look with disfavor upon restrictive covenants; courts often search for exceptions and methods to invalidate restrictive covenants, because of the significant impact upon the individuals involved. However, this attitude does not make restrictive covenants unenforceable. It simply means that courts respond favorably to the arguments of making sure that the restrictive covenants are reasonable both in time and scope. However, that is certainly no reason for any individual to believe that a court will find a way to minimize the potential harm or impact of a restrictive covenant. 

3.         Injunctions and Liquidated Damages. Restrictive covenants are often enforced through injunctions, which are court orders specifically prohibiting a physician from violating the terms of a restrictive covenant, i.e. preventing practice within the time and area described by the contract. Injunctions in these matters are issued routinely. Some contracts include liquidated damages provisions, which gives the practice the option of seeking money damages instead of an injunction. If the liquidated damages are fairly low, that might actually be a benefit to the physician, who can argue that the parties have already agreed upon the damages so that an injunction is not necessary. Although the presence of a liquidated damages clause in a restrictive covenant might benefit the physician, it would be a gamble to rely upon that argument.

4.         Unenforceability and Breach. The restrictive covenant is part of a contract between the practice and the physician. If the practice breaches its agreement, it is logical and reasonable for the physician to believe that he would not be bound by a contract and a restrictive covenant that have been breached by the practice. That is a legitimate and a reasonable outcome, but it necessarily depends on proving the antecedent breach.

5.         Negotiation of Options. The harm and impact of the restrictive covenant is twofold, not only does it prohibit certain practice activities, but it provides the practice overwhelming leverage in future negotiations. Your initial negotiation strategy should always include an attempt to limit the scope of the restrictive covenant so that the physician will later have some reasonable practice alternatives that limit the leverage in this situation. 

| Posted By Michael Cassidy In Restrictive Covenants | 1 Comments | Permalink

In Spines, Sports and Pain Medicine P.C. v. Nolan, the Indiana State Court of Appeals ruled that restrictive covenants or non-compete agreements written to be determined in relation to the office locations of medical practices or employers do not apply to offices opened after the separation or termination of the physician. 

Although the facts in this case were particularly egregious, one would not think that decision would be a surprise. In this case, Dr. Nolan announced his resignation to be effective as of February 9, 2009. On February 10, 2009 Dr. Nolan’s counsel sent a letter to the practice advising the practice that Dr. Nolan intended to open an office in Warsaw, Indiana. On February 16, 2009, the practice leased space in Warsaw, Indiana and treated four patients there, which patients had originally scheduled to be treated at the practices’ offices in Ft. Wayne, Indiana. The practice then claimed that Dr. Nolan is prohibited from practicing within a 25 mile radius of the Warsaw, Indiana practice, in addition to the practice’s other offices. 

Although one would hope this decision would not be a surprise to anyone, the mere fact that it ended up at an appellate level of litigation emphasizes the need for clear drafting of non-complete agreements and restrictive covenants. 

| Posted By Michael Cassidy In Restrictive Covenants , Contract Review | 0 Comments | Permalink

A recent Allegheny County Court Case clearly establishes that the enforceability of restrictive covenants is not an urban myth; they are enforceable and vigorously litigated.  In Allegheny Specialty Practice Network and the West Penn Allegheny Health System v. Joseph J. Colella, M.D., ASPN and WPAHS obtained a preliminary injunction prohibiting Dr. Colella from practicing within Allegheny County as an employee of UPMC.  A detailed lengthy opinion cogently explains the facts and rationale for the enforcement of restrictive covenants in this particular case and in Pennsylvania in general. 

In issuing the preliminary injunction, the Court preliminarily enjoined Dr. Colella from entering into or fulfilling the terms of any employment agreement or any other contract of any type to provide medically related services with Allegheny County, Pennsylvania for any other hospital, healthcare provider or surgery center outside the West Penn Allegheny Health System for a two- year period, as well as prohibiting Dr. Colella from soliciting plaintiff's employees or sharing any confidential information.  In doing so the Court made the following conclusions of the law:

1.         Plaintiff has established the immediate and irreparable harm requirement for preliminary injunctive relief. 

2.         Greater injury would result from refusing the injunction than from granting it and the issuance of an injunction would not substantially harm Dr. Colella.

3.         A preliminary injunction will properly restore the parties to the status quo as it existed immediately prior to the wrongful conduct.

4.         Plaintiff is likely to prevail on the merits regarding the claim of breach of contract to enforce restrictive covenants in the employment agreement.

5.         A preliminary injunction is reasonably suited to address the wrong plead and proven.

6.         A preliminary injunction will not adversely affect the public interest.

The Court recognized in healthcare situations that the public interest will be adversely affected if the injunction would adversely affect the general availability of physician to treat patients, although no jurisdiction has recognized the public interest in assuring the unrestricted ability of a particular patient in continuity of care with a single physician.  Accordingly, in the rare cases where Pennsylvania Courts have invoked the public interest in declining to enforce covenants not to compete against the physician, the evidence clearly established there was a legitimate shortage of practitioners in the relevant area.  The Court found that not to be the case in the present situation.

Category:  Restrictive Covenants

Tags:  UPMC, WPAHS, "Physician Restrictive Covenants" "Joseph Colella" ASPN

| Posted By Michael Cassidy In Restrictive Covenants | 0 Comments | Permalink

RESTRICTIVE COVENANT UNENFORCEABLE

BY SURVIVING SPOUSE 

The Virginia Supreme Court ruled that a medical practice corporation, ownership of which had transferred from the deceased sole physician shareholder to his spouse and which was converted to a business corporation by state law, could not enforce a restrictive covenant because it could not practice medicine and had no enforceable interest. This same result could apply in Pennsylvania because it has the same combination of corporate practice of medicine and professional corporation laws. The Virginia case is Parikh v. Family Care Center and the case is available at: http://op.bna.com/hl.nsf/id/psts-6z2sn8/$File/parkikh.pdf. Although liquidated damages would prejudice your injunction rights, liquidated damages would be an effective resolution for this problem.

RADIOLOGIST DENIED ANTI-TRUST RELIEF

DESPITE PROVING CONSPIRACY

Dr. Saskia V. W. Hilton failed to demonstrate that “competition in the market for pediatric radiology services” was injured despite producing evidence that would have supported finding of an anti-competitive conduct by this hospital and its existing pediatric radiologist. The classic position is that the law protects competition not competitors.

See: http://op.bna.com/hl.nsf/id/psts-6z8qrp/$File/hilton.pdf 

CALIFORNIA PHYSICIAN NOT DAMAGED

BY BOARD CERTIFICATION REQUIREMENT

A California physician lost his medical staff privileges when he failed to meet the hospital’s new board certification requirements was found not to be entitled to pursue an action in court for damages relating to the termination of his clinical privileges because the court rule that the decision of the hospital, under California law, was a quasi legislative act of general application, in the form of the adoption of minimum qualification standards for clinical privileges, which did not create an individual cause of action. See: Tran vs. MissionHospitalRegionalMedicalCenter at:

http://op.bna.com/hl.nsf/id/thyd-9prg/$File/Tran%20v%20Mission%20Hospital.pdf

| Posted By Michael Cassidy In Credentialing and Peer Review , Restrictive Covenants , Physicians' Contracts | 0 Comments | Permalink

The District Court of Appeal of the State of Florida affirmed a lower state court holding that certain aspects of a restricted covenant were not enforceable. In Florida Hematology and Oncology v. Rambabu Tummala, M.D., the Practice had terminated Dr. Tummala allegedly after he began questioning certain billing practices. Although Dr. Tummala was subject to a restrictive covenant prohibiting competition for two years within fifteen (15) miles of any office of the Practice, Dr. Tummala immediately opened a competing practice within the proscribed area. The Practice sought an injunction forcing the restrictive covenant. 

| Posted By Michael Cassidy In Restrictive Covenants | 2 Comments | Permalink

In MurfreesboroMedical Clinic vs. Udom, the Tennessee Supreme Court ruled that restrictive covenants are not enforceable against physicians, unless specifically prescribed by law. In handing down this decision, the Court overturned an appellate court decision enforcing the restrictive covenant. Although restrictive covenants are otherwise enforceable in Tennessee, the Court found that interfering with patient freedom of choice was sufficient justification to reject enforcement.

| Posted By Michael Cassidy In Restrictive Covenants | 0 Comments | Permalink

In WellSpan Health v. Bayliss, the WellSpan Health System, the primary components of which are York Hospital and Gettysburg Hospital, attempted to enforce a restrictive covenant against a physician in all counties listed in the non-compete section of an employment contract, despite the fact that WellSpan had no physical presence in three of the counties. The trial court enforced the restrictive covenant by enjoining Dr. Bayliss from practicing in York and Adams counties, but not Lancaster County. The Superior Court affirmed the trial court, affirmed that restrictive covenants are enforceable when reasonably designed to protect identifiable interests, but also acknowledged the necessity to balance the public interest involved.

| Posted By Michael Cassidy In Restrictive Covenants | 0 Comments | Permalink