Gold, Vann & White, PA v. Friedenstab

• Decision Date: 16 October 2002
• Docket Number: No. 4D01-4564.,4D01-4564.
• Citation: Gold, Vann & White, PA v. Friedenstab, 831 So.2d 692 (Fla. App. 2002)
• Parties: GOLD, VANN & WHITE, P.A., Appellant, v. Allen P. FRIEDENSTAB, M.D., Appellee.
• Court: Florida District Court of Appeals

831 So.2d 692

GOLD, VANN & WHITE, P.A., Appellant, v. Allen P. FRIEDENSTAB, M.D., Appellee.

No. 4D01-4564.

District Court of Appeal of Florida, Fourth District.

October 16, 2002.

Rehearing Denied December 13, 2002.

Richard M. Goldstein and Keith R. Gaudioso of Goldstein, Tanen & Trench, P.A., Miami, for appellant.

Craig M. Rappel and Robert Rappel, D.O. of Rappel & Rappel P.A., Vero Beach, for appellee.

STONE, J.

We reverse a summary judgment entered against Gold, Vann & White, P.A. (GVW), precluding its enforcement of a restrictive covenant against Doctor Friedenstab.

The trial court erred in deciding that no issues of fact remained as to the enforceability of the contract where portions of the contract are invalid.

Friedenstab was employed as a physician in the OB/GYN Department of GVW from 1986 to 1998. His employment was initially governed by a 1986 employment agreement. Friedenstab eventually became a shareholder and the parties entered into an "Employment Agreement Stockholder" agreement in 1989. The agreement contained a covenant not to compete, which included a provision that should Friedenstab remain employed for a period of one hundred twenty months after January 1, 1989, the provisions of the non-competition agreement would no longer be of force and effect.

In 1989, GVW entered into a service agreement with Phycor of Vero Beach, Inc. Phycor was to provide GVW with facilities, equipment, supplies, support staff, physicians, and management services. The service agreement was amended in 1992 and 1997. The 1997 service agreement contained a provision that in exchange for its services, Phycor would receive an annual fee which would equal $12,000.00 over and above clinic operating expenses, 12% of net clinic revenues, and 25% of additional managed care payments.

In partial consideration of the execution of the 1997 Phycor agreement, Friedenstab agreed to amend his 1989 agreement by removing the ten year limitation period on the covenant not to compete.

In March 1998, GVW gave Friedenstab notice of his termination. In September 1998, Friedenstab opened a new practice. GVW then filed a complaint for breach of contract and to enforce the covenant not to compete. Friedenstab filed a counterclaim that included a count for declaratory relief to determine the legality and enforceability of the 1997 physician practice management service agreement between GVW and Phycor.

Friedenstab asserts that the restrictive covenant in the employment agreement was unenforceable because the service agreement between GVW and Phycor was an illegal fee splitting arrangement and, because the service agreement served as consideration for the restrictive covenant, the restrictive covenant could not survive.

In granting Friedenstab's motion for partial summary judgment on the declaratory relief count, the trial court concluded that the restrictive covenant was unenforceable because portions of the agreement between GVW and Phycor amount to unlawful fee splitting.

No managed care payment was ever paid pursuant to the percentage provision in the contract, as the business never had any managed care contracts. The Phycor contract, in effect for over ten years, was cancelled after this dispute began, so that GVW's claim is limited to eighteen months of covenant violation and attorney's fees issues.

Although we agree with the trial court that the 1997 service agreement contained illegal provisions, issues of fact remain as to the severability of those provisions. First, the trial court correctly determined that the 1997 service agreement was illegal in that it provides for fee splitting. Phycor's duties included developing and implementing a public relations program, administering managed care contracts, and providing ancillary services, as approved by the policy board. Although there is no evidence that the public relations and marketing duties resulted in increased business for the P.A., the agreement, itself, impermissibly provided for payment of a percentage of the revenue the management services and practice enhancement would generate and, thus, constituted an indirect method of fees for patient referral in violation of sections 458.331 and 817.505, Florida Statutes (2001). See Crow v. Agency for Health Care Admin., 669 So.2d 1160 (Fla. 5th DCA 1996)(holding that salary based on a percentage of previous year's revenue and a year-end bonus based on current year's revenues would each be in violation of the prohibition on fee-splitting).

Florida Statutes §§ 458.331(1)(i) and 817.505(1)(a) prohibit any split fee arrangement. Section 458.331(1)(i) provides that it is grounds for disciplinary action if a medical provider is:

paying or ... engaging in any split fee arrangement in any form whatsoever with a physician, organization, agency, or person, either directly or indirectly, "for patients referred to providers" of health care goods and services.

Section 817.505(1)(a), provides it is unlawful for any person, including a health care provider, to:

Offer or pay any commission, bonus, rebate, kickback, or bribe, directly or indirectly, in cash or in kind, or engage in any split-fee arrangement, in any form whatsoever, to induce the referral of patients or patronage from a health care provider or health care facility;

As reflected in several decisions from the Florida Board of Medicine, the board has interpreted these statutes to prohibit agreements like the one here that allow for the payment of fees to be directly or indirectly related to the referral of patients to health care providers. See In re the Petition for Declaratory Statement of Edmund G. Lundy, M.D., 9 FALR 6289 (Dec. 3, 1987); In re the Petition for Declaratory Statement of Gary R. Johnson and the Green Clinic, 14 FALR 3935 (July 11, 1992); In re the Petition for Declaratory Statement of Magan L. Bakarania, M.D., 20 FALR 395, affirmed, Phymatrix Mgmt. Co. v. Bakarania, 737 So.2d 588 (Fla. 1st DCA 1999). In Bakarania, Bakarania sought a declaratory statement as to the legality of a long-term management agreement between a practice management company and a group practice of licensed physicians. The agreement provided that the company was to provide management services including practice expansion by developing "relationships and affiliations with other physicians and other specialists, hospitals, networks, health maintenance organizations, and preferred provider organizations." The company was to create a physician provider network as well as to evaluate, negotiate, and administer managed care contracts. Id. at 396. The agreement provided that the company would be paid, in part, an annual performance fee equal to 30% of the group practice's net income each year. Id. at 397.

The board, whose decision was upheld by the First District, held that the agreement was a split-fee agreement in violation of section 458.331(1)(i), in that the group practice was required to pay a specified percentage of their net income without regard to the cost of providing services supplied by the company, and without regard to whether the income is from services performed either by the group practice or the group practice's supervision. The board noted that "[a]lthough payment of a reasonable flat fee in return for provision of management services, including practice enhancement, is appropriate and allowable under Florida law, payment of a percentage of the revenue the management services and practice enhancement generate is not permissible." Bakarania, 20 FALR at 398.

In issuing its order, the board distinguished Practice Management Associates, Inc. v. Gulley, 618 So.2d 259 (Fla. 2d DCA 1993), and the other Second District cases that did not find percentage based agreements to be fee splits. The board...