Vencor, Inc. v. Webb

Decision Date31 August 1994
Docket NumberNo. 93-2792,93-2792
Citation33 F.3d 840
PartiesVENCOR, INCORPORATED, Plaintiff-Appellant, v. David O. WEBB, Defendant-Appellee.
CourtU.S. Court of Appeals — Seventh Circuit

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

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 relevant to the Company's operations and all business and marketing plans and financial protections." 3

Webb ultimately resigned from Vencor and accepted a position with THC as manager of its central business services in which he supervised THC's billings and collections. Webb testified that his duties at THC included developing methodologies used to collect accounts, reviewing the computerized billing system and developing documents related to patient billing. Webb admitted that he considered the Vencor manuals and financial documents to be confidential, and that he has not taken any Vencor documents, nor disclosed any of the proprietary or confidential information.

II.

Since oral argument, the parties have informed the court that Webb's employment with THC has been terminated. We therefore consider whether this suit (originally brought to enjoin Webb from working at THC) has become moot. Despite Webb's argument that this matter is moot, we are not convinced that the controversy here "no longer 'touch[es] the legal relations of the parties having adverse legal interests.' " DeFunis v. Odegaard, 416 U.S. 312, 317, 94 S.Ct. 1704, 1706, 40 L.Ed.2d 164 (1974), quoting Aetna Life Ins. Co. v. Haworth, 300 U.S. 227, 240-41, 57 S.Ct. 461, 464, 81 L.Ed. 617 (1937).

The general rule is that a case becomes moot " 'when the issues presented are no longer "live" or the parties lack a legally cognizable interest in the outcome.' " United States Parole Comm'n v. Geraghty, 445 U.S. 388, 396, 100 S.Ct. 1202, 1208, 63 L.Ed.2d 479 (1980), quoting Powell v. McCormack, 395 U.S. 486, 496, 89 S.Ct. 1944, 1951, 23 L.Ed.2d 491 (1969). While the question whether to enjoin Webb from working at THC may now be moot, the Supreme Court has recognized an exception to the general rule in situations that are "capable of repetition, yet evading review."

This doctrine has been "limited to a situation where two elements combined: (1) the challenged action was in its duration too short to be fully litigated prior to its cessation or expiration, and (2) there was a reasonable expectation that the same complaining party would be subjected to the same action again." Weinstein v. Bradford, 423 U.S. 147, 149, 96 S.Ct. 347, 349, 46 L.Ed.2d 350 (1975) (per curiam). Webb describes the chances that he would go to work for one of the two remaining principal competitors of Vencor as "a mere physical or theoretical possibility." Such "a mere physical or theoretical possibility" has never been held by the Court to be sufficient to satisfy the test set forth in Weinstein. Murphy v. Hunt, 455 U.S. 478, 482, 102 S.Ct. 1181, 1183, 71 L.Ed.2d 353 (1982). Rather, the Court requires that there must be a "reasonable expectation" or a "demonstrated probability" that the wrong will be repeated. Id. Webb argues that there is no support for such a "reasonable expectation" in the record, and thus the appeal is moot. We disagree.

A heavy burden of proof rests on the party suggesting mootness. National-Standard Co. v. Adamkus, 881 F.2d 352, 356 (7th Cir.1989); see also County of Los Angeles v. Davis, 440 U.S. 625, 631, 99 S.Ct. 1379, 1383, 59 L.Ed.2d 642 (1979); United States v. W.T. Grant Co., 345 U.S. 629, 632-33, 73 S.Ct. 894, 897, 97 L.Ed. 1303 (1953). Webb has failed to meet his burden. The agreement restricted Webb from working for any one of Vencor's principal competitors for twelve months. With Webb's employment at THC terminated on April 8, 1994, Vencor would, if the agreement were found to be enforceable, be entitled to the enforcement of the covenant until April 8, 1995.

Webb's last two positions of employment were in the specialized field of long-term, acute-care hospitals for the chronically ill. Webb is currently unemployed and presumably seeking employment. The only evidence offered by Webb to persuade the court that there is no "reasonable expectation" that he will work for one of Vencor's two other competitors, or even return to work at THC, is that there are a number of potential employers for someone with his experience and skill. But he has not...

To continue reading

Request your trial
54 cases
  • Am. Hosp. Ass'n v. Azar
    • United States
    • U.S. District Court — District of Columbia
    • June 23, 2020
    ...and detailed price list for each of the thousands of services and items provided by [clinic foundation]."); Vencor, Inc. v. Webb , 33 F.3d 840, 842 (7th Cir. 1994) (discussing the use of a " ‘chargemaster’ which contained standardized charges and terminology for the various procedures [plai......
  • Dearborn v. Everett J. Prescott, Inc.,
    • United States
    • U.S. District Court — Southern District of Indiana
    • April 30, 2007
    ...a strong and fundamental policy of Illinois." The Labor Ready court also relied on the Seventh Circuit's decision in Vencor, Inc. v. Webb, 33 F.3d 840, 844-45 (7th Cir.1994), which affirmed a district court's denial of a preliminary injunction in a covenant not to compete case. In Vencor, t......
  • A Woman's Choice-East Side Women's Clinic v. Newman
    • United States
    • U.S. District Court — Southern District of Indiana
    • November 9, 1995
    ...the consequences of granting or denying the injunction to nonparties." Abbott Labs., 971 F.2d at 11-12. Accord, e.g., Vencor, Inc. v. Webb, 33 F.3d 840, 845 (7th Cir.1994); Lawson Products, Inc. v. Avnet, Inc., 782 F.2d 1429, 1433 (7th Preliminary injunctions are designed to "minimize the h......
  • Gen. Elec. Co. v. Uptake Techs., Inc.
    • United States
    • U.S. District Court — Northern District of Illinois
    • June 25, 2019
    ...choice-of-law provision would still require New York law to violate fundamental California public policy. See Vencor, Inc. v. Webb , 33 F.3d 840, 844-45 (7th Cir. 1994) ("[Defendant] argues that this non-competition agreement is contrary to the fundamental public policy of the state of Illi......
  • Request a trial to view additional results

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT