33 F.3d 840 (7th Cir. 1994), 93-2792, Vencor, Inc. v. Webb

Docket Nº:93-2792.
Citation:33 F.3d 840
Party Name:VENCOR, INCORPORATED, Plaintiff-Appellant, v. David O. WEBB, Defendant-Appellee.
Case Date:August 31, 1994
Court:United States Courts of Appeals, Court of Appeals for the Seventh Circuit
 
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Page 840

33 F.3d 840 (7th Cir. 1994)

VENCOR, INCORPORATED, Plaintiff-Appellant,

v.

David O. WEBB, Defendant-Appellee.

No. 93-2792.

United States Court of Appeals, Seventh Circuit

August 31, 1994

        Argued Nov. 2, 1993.

Page 841

[Copyrighted Material Omitted]

Page 842

        Michael M. Conway (argued), David B. Goroff, Adam M. Kingsley, Hopkins & Sutter, Chicago, IL, for plaintiff-appellant.

        John A. Simon, Asst. Atty. Gen., Thomas Campbell (argued), Michael D. Murphy, Richard Michael Duffy, Gardner, Carton & Douglas, Chicago, IL, for defendant-appellee.

        Before WOOD, Jr., CUDAHY, and MANION, Circuit Judges.

        CUDAHY, Circuit Judge.

        Vencor, Incorporated sought to enjoin a former employee, David O. Webb, who had served as an assistant administrator of finance at one of the company's hospitals, from working for one of Vencor's chief competitors, Transitional Hospital Corporation (THC). The district court denied Vencor's motion for a preliminary injunction, finding the covenant not to compete unreasonable, and therefore unenforceable. Vencor now appeals.

       I.

        Vencor is a Delaware corporation with its principal place of business in Louisville, Kentucky. It owns and operates twenty-six hospitals, most of which are certified to provide long-term, acute-care to chronically ill patients. Certification is required in order for the hospitals to receive medicare reimbursements. Vencor considers itself a leader in the area of long-term, acute care, with this field comprising substantially all of its business. It was the first corporation to establish this particular type of hospital in 1986, and now it owns and operates similar facilities in twelve states, which serve patients from twenty-two different states.

        The field of long-term, acute care primarily involves the provision of care to the chronically ill who require lengthy recovery periods and life support systems. Due to the varying regulations governing Medicare and insurance reimbursement for this category of patients, long-term, acute care is relatively distinct, for most hospitals are unable to provide this type of care. Vencor has three principal competitors, including THC, that operate long-term, acute-care hospitals. Currently, THC has three hospitals that are awaiting certification, two of which are located in the same metropolitan areas as Vencor's facilities.

        In May, 1990, Vencor personnel developed an Administrative Policies and Procedures Manual, at an estimated cost of one million dollars, to provide guidance in operating a long-term, acute-care hospital. The manual contains a preamble establishing the confidentiality of the manual, and its individual pages are marked "[c]onfidential and proprietary information." Although the manual was stored in the administrator's office at each hospital, there were no precisely defined policies as to where the manual was to be kept, who could review it or a specific sign-out procedure for it. Access to the manual was restricted to the members of each hospital's administrative team, departmental directors and hospital supervisors.

        Vencor also created other documents to facilitate the operation of its business, such as a Full-Time Equivalent ("FTE") report, which was a more detailed and comprehensive cost report than the one Vencor was already required to send to Medicare. Other financial documents included Vencor's "cost per patient day report" and the "net revenue schedule" which charted the amount of compensation Vencor received per day for each type of patient. W. Earl Reed, the vice-president of finance and development for Vencor, testified that these documents took Vencor personnel six years to develop, that they were unique to the long-term, acute-care market and as a result he considered their contents to be confidential.

        Vencor also used a "chargemaster" which contained standardized charges and terminology for the various procedures Vencor hospitals followed. Additionally, Vencor maintained a "consolidated charge history," which is a computer program developed by a contractor in conjunction with Vencor. This program charts revenues and costs per department and per procedure at all Vencor hospitals. 1

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        Webb was employed by Vencor as an assistant administrator of finance for the Sycamore, Illinois hospital. In that position, he had access to all of these financial documents and this information. Webb had used the Administrative Policies and Procedures Manual on several occasions, and was sent a draft copy of the Financial Policies and Procedures Manual for review in January 1993.

        In July 1992, Webb was paid $1,000 to enter into a "Confidentiality and Non-Competition Agreement" with Vencor. The agreement provides, for the most part, that for a twelve month period after his employment at Vencor is terminated, Webb will not "engage, directly or indirectly, within the continental United States (the 'Geographical Territory') in any 'Competitive Business.' " Competitive business was initially designated in the agreement to mean "any business or activity conducted by the Company as of the date of Employee's termination from the Company, including, but not limited to, providing long-term hospital care to medically complex, chronically-ill patients." However, in a letter Webb received on July 8, 1992 from the vice-president of operations, the term "competitive business" was "clarified" to apply "solely [to] the provision of long-term hospital care to medically complex, chronically ill patients." 2

        The agreement prohibits an employee from divulging any of Vencor's confidential information, which it defines as "all proprietary information concerning the Company's present and proposed businesses, operating methodologies, referral sources, assets, marketing strategies, financial and clinical matters, including all procedures, systems and techniques used by the Company in evaluating its operations and the quality of its services, all financial data and pricing information...

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