Baugh v. Columbia Heart Clinic, P.A.
| Decision Date | 13 March 2013 |
| Docket Number | No. 5074.,5074. |
| Citation | 402 S.C. 1,738 S.E.2d 480 |
| Parties | J. Kevin BAUGH, M.D. and Barry J. Feldman, M.D., Respondents, v. COLUMBIA HEART CLINIC, P.A., Appellant. Appellate Case No. 2010–176767 |
| Court | South Carolina Court of Appeals |
OPINION TEXT STARTS HERE
A. Camden Lewis, Keith M. Babcock, and Ariail King, of Lewis Babcock & Griffin LLP, of Columbia, for Appellant.
Charles F. Thompson Jr., of Malone Thompson Summers & Ott LLC, of Columbia, for Respondents.
Columbia Heart Clinic, P.A., appeals the trial court's final order from a non-jury trial. The trial court held (1) the restrictions on competition in agreements between Columbia Heart and the respondents are unenforceable and (2) the South Carolina Wage Payment Act entitled the respondents to unpaid compensation. We reverse.
Columbia Heart is a corporate medical practice that provides comprehensive cardiology services. Its physicians are all cardiologists, although each performs different subspecialties within that field.
J. Kevin Baugh, M.D., and Barry J. Feldman, M.D. (collectively, Respondents) are cardiologists who had been shareholders and employees of Columbia Heart since before 2000. They specialize in interventional cardiology. Interventional cardiology is a subspecialty of general cardiology focusing on certain invasive procedures such as the implantation of medical balloons and stents to unblock arteries. Usually interventional cardiology must be performed in a hospital with capability to perform open-heart surgery in case complications arise from interventional procedures.
II. The Agreements
When Respondents became shareholders, they each entered employment agreements that forfeited money payable to them upon termination if they competed with Columbia Heart in Lexington and Richland Counties within a year. These agreements contained no other provisions that discouraged competition, and their consideration was a compensation system attached as an exhibit.
In 2004, Columbia Heart's shareholders embarked on the construction of a new medical office building in Lexington County through a limited liability company (the LLC). The LLC was almost entirely owned by the shareholder-physicians of Columbia Heart. Columbia Heart was to be the anchor tenant, but it did not own any interest in the LLC. Each member of the LLC signed personal obligations on the project debt in proportion to their equity in the LLC. Because of (1) the investment and liabilities undertaken by Columbia Heart's shareholders as members of the LLC and (2) a recent departure of a large number of Columbia Heart physicians, Columbia Heart sought to bind its shareholder-physicians more tightly to the medical practice. Thus, in July 2004 Columbia Heart's shareholder-physicians entered into the agreements at issue (the Agreements).1
The Agreements contain two separate non-competition provisions, one in Article 4 and one in Article 5. Section 4.5(i) of Article 4 provides the following:
Notwithstanding any other provision in this Agreement in the event at any time during the twelve (12) month period immediately following the expiration or termination (for any reason, whether with or without Cause) of this Agreement Physician continues or commences the active practice of medicine in the field of cardiology within a twenty (20) mile radius of any Columbia Heart office at which Physician routinely provided services during the year prior to the date of expiration or termination of this Agreement, then Physician shall forfeit any monies payable to Physician pursuant to this Section 4.5 following Physician's continuation or commencement of the practice of medicine in violation of this Section 4.5(i).
Section 5.1 of Article 5 says the following:
Physician, in the event of termination or expiration of this agreement for any reason,during the twelve (12) month period immediately following the date of termination or expiration of this Agreement, shall not Compete ... with Columbia Heart.
Section 5.2 defines specific terms “[f]or purposes of Article 5”:
“Compete” means directly or indirectly, on his own behalf or on behalf of any other Person, other than at the direction of Columbia Heart and on behalf of Columbia Heart: (A) organizing or owning any interest in a business which engages in the Business in the Territory; (B) engaging in the Business in the Territory; and (C) assisting any Person (as director, officer, employee, agent, consultant, lendor, lessor or otherwise) to engage in the Business in the Territory.
“Business” is defined as “the practice of medicine in the field of cardiology.” “Territory” is defined as “the area within a twenty (20) mile radius of any Columbia Heart office at which Physician routinely provided services during the year prior to the date of termination or expiration of this Agreement.”
No separate monetary consideration was paid to any shareholder-physician to sign the Agreements, nor did the Agreements change the compensation system established by Respondents' prior agreements.
III. Respondents' Departure and Ensuing Litigation
Columbia Heart opened a new office in the LLC's building in December 2005. In April 2006, Respondents left Columbia Heart in accordance with the Agreements. Ten shareholders remained.
Within a month after departing, Respondents opened a new practice, Lexington Heart Clinic, where they treated patients in cardiology and hired a number of Columbia Heart's administrative and medical support staff. Lexington Heart was on the same campus as Columbia Heart's Lexington office, separated by an approximate distance of 300 yards. Columbia Heart's physicians were rotated in pairs to work in its new Lexington office until the office closed in September 2006 because of fiscal unsustainability.
Respondents filed suit against Columbia Heart, raising a number of claims. They raised a declaratory judgment action against Columbia Heart, seeking two things: (1) a ruling that the Agreements contain unenforceable non-competition provisions and (2) injunctions to prohibit Columbia Heart from enforcing those provisions. Respondents also claimed violation of the Wage Payment Act, seeking treble damages for unpaid compensation, plus costs and attorney's fees. Columbia Heart answered and sought damages for contract and fiduciary duty counterclaims but did not seek injunctive relief.
The trial court conducted a bench trial addressing Respondents' declaratory judgment and wage payment claims.2 It held the Agreements' non-competition provisions unenforceable and awarded Respondents unpaid compensation under the Wage Payment Act. This appeal followed.
1. Did the trial court err in holding the Agreements contain unenforceable non-competition provisions?
2. Did the trial court err in holding Respondents are entitled to unpaid compensation under the Wage Payment Act?
“When legal and equitable actions are maintained in one suit, the court is presented with a divided scope of review, and each action retains its own identity as legal or equitable for purposes of review on appeal.” Wright v. Craft, 372 S.C. 1, 17, 640 S.E.2d 486, 495 (Ct.App.2006). “The proper analysis is to view the actions separately for the purpose of determining the appropriate standard of review.” Id. at 17–18, 640 S.E.2d at 495.
On appeal, Columbia Heart contends the Agreements' non-competition provisions are enforceable for a number of reasons. Respondentsraise alternative sustaining grounds. We address these arguments in turn.
The trial court found the Agreements were supported by consideration and subject to review for whether their non-competition provisions were reasonable. The court addressed the provisions in Article 5 and Article 4 separately. It found Article 5's territory restriction was reasonable because the twenty-mile radius was necessary to protect Columbia Heart's legitimate business interests and was not unduly burdensome on Respondents' ability to earn a living. The court also found Article 5's restriction against “the practice of medicine in the field of cardiology” was not overbroad. However, the court held Article 5's prohibition of “assisting any Person ... to engage in the [practice of medicine in the field of cardiology]” was unreasonable under Preferred Research, Inc. v. Reeve3 and Faces Boutique, Ltd. v. Gibbs.4 The court reasoned this restriction “goes beyond restricting [Respondents] from doing what they did for” Columbia Heart and would bar them from assisting any cardiology practice “in any capacity.” The court thus held the restriction was not necessary to protect a legitimate interest of Columbia Heart, and it found the restriction could not be blue-penciled from the rest of Article 5. And as a result, the court struck the entire covenant as unenforceable. In tandem, the court struck the non-competition provision in Article 4 because the court found the provision was a “part of, intended to be part of, and cannot be logically separated from the consequences of violating the non-compete provisions of Article 5.”
To determine the standard of review for a claim brought under the Declaratory Judgment Act, we look to the main purpose of the complaint, as reflected by the character of the claims, evidence, and relief sought. Cullen v. McNeal, 390 S.C. 470, 481, 702 S.E.2d 378, 384 (Ct.App.2010). Respondents' declaratory judgment claim seeks a determination that the Agreements' non-competition provisions are unreasonable and an injunction. An injunction is an equitable remedy, and the interpretation of an unambiguous contract is a question of law, as is the question of whether a non-competition clause is reasonable. Madden v. Bent Palm Invs., LLC, 386 S.C. 459, 467, 688 S.E.2d 597, 601 (Ct.App.2010); Preferred Research, 292 S.C. at 547–48, 357 S.E.2d at 490. Thus, we interpret the Agreements and address necessary factual questions...
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