Benchmark Medical Holdings, Inc. v. Barnes

• Decision Date: 27 July 2004
• Docket Number: No. CIV.A. 2:03CV993-A.,CIV.A. 2:03CV993-A.
• Citation: 328 F.Supp.2d 1236
• Parties: BENCHMARK MEDICAL HOLDINGS, INC., Benchmark Medical Management Company, and Benchmark Acquisition Corporation, Plaintiffs, v. Glen "Rocky" BARNES, Defendant.
• Court: U.S. District Court — Middle District of Alabama

328 F.Supp.2d 1236

BENCHMARK MEDICAL HOLDINGS, INC., Benchmark Medical Management Company, and Benchmark Acquisition Corporation, Plaintiffs, v. Glen "Rocky" BARNES, Defendant.

No. CIV.A. 2:03CV993-A.

United States District Court, M.D. Alabama, Northern Division.

July 27, 2004.

Albert Loring Vreeland, II, Lehr Middlebrooks Price & Vreeland, PC, David James Middlebrooks, Lehr Middlebrooks Price & Vreeland, PC, Robert Brett Adair, Lehr Middlebrooks Price & Vreeland, PC, Birmingham, Steven R. Wall, Morgan Lewis & Bockius LLP, Philadelphia, PA, for Benchmark Medical Holdings, Inc., Benchmark Medical Management Company, Benchmark Acquisition Corp., Plaintiffs.

Benjamin Saxon Main, Ball Ball Matthews & Novak PA, Richard A. Ball, Jr., Ball Ball Matthews & Novak PA, Robert A. Huffaker, Rushton Stakely Johnston & Garrett PC, Montgomery, AL, for Glen" Rocky" Barnes, Defendant.

FINDINGS OF FACT AND CONCLUSIONS OF LAW

ALBRITTON, Senior District Judge.

I. INTRODUCTION

Benchmark Medical Holdings, Inc., Benchmark Medical Management Company, and Benchmark Acquisition Corporation ("Plaintiff"¹ or "Benchmark") filed their Complaint against several Defendants on October 2, 2003, bringing claims for violation of the Lanham Act (Count I), violation of the Alabama Trade Secrets Act (Count II), breach of asset purchase agreement (Count III), breach of employment agreements (Count IV), breach of non-competition agreements (Count V), breach of fiduciary duty (Count VI), and tortuous interference with contract (Count VII). Some of the claims were disposed of before trial, and only one defendant, Glen "Rocky" Barnes ("Defendant" or "Barnes") remained. The court has jurisdiction on the basis of diversity of citizenship.

Arbitration proceedings were also pursued against the Defendants. The Defendants moved the court for a Preliminary Injunction or Stay of the arbitration proceedings on December 17, 2003. At oral argument on December 22, 2003, the Plaintiffs consented to a two-week stay of the arbitration proceedings while Defendants' motions for a preliminary injunction or stay were pending. On December 29, 2003, the court ordered (Doc. # 61) "that the parties cease all arbitration proceedings and that such proceedings be stayed pending determination by the court of the Defendants' Motions for Preliminary Injunction or Stay."

On February 27, 2004, the court vacated this order and denied Barnes' motion² for a preliminary injunction or stay of the arbitration proceedings. In denying this motion, the court indicated that it would be receptive to considering means of achieving greater efficiency in these proceedings. The court stated that recognizing the problems of judicial economy and the dangers of inconsistent results, some other courts, finding themselves without discretion to enjoin the arbitration proceedings, have stayed their own proceedings. The court noted that the Defendant has not pursued such a motion, or a motion to compel the Plaintiffs to arbitrate claims included in the Complaint. The court indicated that it was disinclined to stay the proceedings before it without hearing from the parties on this issue. The court informed the Defendant that if he were interested in pursuing such a motion to compel arbitration and to stay the court proceedings, the court would be receptive to considering it. No such motion was made.

The Plaintiffs reached a settlement with three of the original Defendants, Quinn S. Millington, Dale M. Yake, and Rehab Solutions, LLC, which resulted in a joint stipulation of dismissal. Thus, the Court dismissed Counts I, II and V with prejudice. Barnes was the only remaining Defendant.

In the same order in which the court denied his request for stay of the arbitration proceedings, the court dismissed Barnes' counter-claims without prejudice. Thus, when the court considered Barnes' summary judgment motion, the only claims remaining before this court were Count III (breach of asset purchase agreement), Count IV (breach of employment agreement), Count VI (breach of fiduciary duty), and Count VII (tortuous interference with contract). On March 5, 2004, the court denied Barnes' motion for summary judgment.

On March 24, 2004, Benchmark moved the court to dismiss Count VI (breach of fiduciary duty) and Count VII (tortuous interference with contract) in order to achieve greater efficiency by pursuing these damage-related claims, which were similar to the damages claims being pursued in the arbitration proceedings, through a single arbitral forum. On March 29, the court dismissed these claims with prejudice. Thus, the only remaining claims before this court are Count (III) for breach by Barnes of the purchase agreement and Count (IV) for breach of Barnes' employment agreement. The Plaintiff seeks a permanent injunction directing the Defendant to comply with the restrictive covenants contained respectively in his purchase and employment agreements.

With the damage claims proceeding in arbitration, and by request of the parties, the court makes no findings of fact as to whether Barnes has in the past breached the purchase agreement or the employment agreement. Instead, the parties have agreed that Barnes intends to act in contravention of the non-compete agreements in the future to the greatest extent legally permitted. Thus, as stated by the Defendant's counsel, "what we now have is tantamount to a declaratory judgment. We are saying we don't think these noncompetes are valid for various reasons and that the noncompetes, to the extent there is validity, they are unreasonable as to length and geographic area and that you would try those issues — tell us are the noncompetes valid; if so, to what extent...." Transcript at p. 34:8 to 34:14. As stated by the Plaintiff in its post-trial brief, "[a]t trial, the parties agreed that the only issues remaining for the court to decide involve the enforceability of the two non-competition agreements signed by the [D]efendant as part of the sale of his business." Plaintiff's Post Trial Brief at 1 (citing Transcript at p. 32-34). The parties agreed to proceed in this manner.

The court conducted a bench trial on May 26 and 27, 2004, after which the parties submitted briefs. The issues before this court are whether the non-compete agreements contained in the purchase agreement and the employment agreement are valid and, if so, to what extent they are enforceable. Consistent with the relief requested in its complaint, the Plaintiff seeks a permanent injunction directing the Defendant to comply with the terms of the restrictive covenants contained in these agreements. The Defendant asks the court to declare the restrictive covenants invalid.

II. FINDINGS OF FACT AND CONCLUSIONS OF LAW³

Based on the testimony and evidence submitted at trial, together with briefs and argument of counsel, the court makes the following findings of fact and conclusions of law:

On September 28, 2001, Benchmark purchased Rehab Associates. Plaintiff's Exhibit 103, Purchase Agreement. The Purchase Agreement included a variety of provisions, ranging from paying Rehab Associates' debts to earn-out incentives which in total created the possibility of the acquisition being a thirty million dollar purchase, and at the least required Benchmark to pay 25.5 million dollars.⁴ Transcript at p. 125:11 to 125:22. Benchmark owns, through its subsidiaries, a network of physical and occupational rehabilitation facilities in various locations in the United States. See id at p. 121:23 to 122:9, 124:1 to 124:16, 124:23 to 125:10. Rehab Associates was an expanding physical therapy business, which when it was purchased was operating approximately thirty-four physical and occupational health facilities located in Alabama, Colorado, Georgia, Illinois, and Missouri. Id. at p. 37:23 to 38:3. For Benchmark, however, the acquisition of Rehab Associates went beyond the facilities. Id. at 127:4 to 127:19. The purchase of Rehab Associates was largely a purchase of Barnes, and the relationships that he had in the Southeast. Id. Benchmark believed that it was buying the goodwill of Rehab Associates and the continuing efforts of Barnes, who had grown the business into what it was on the day that it was sold. Id. For the Plaintiff, an important part of getting the benefit of its bargain and the deal working was Barnes cultivating and developing those opportunities and relationships in order to grow Benchmark's acquisition into something larger than it was when it was purchased. Id. To that end, at the time the purchase of Rehab Associates was closed Benchmark hired Barnes as Regional Vice President and an Employment Agreement was executed by the parties.

An essential condition of the purchase by Benchmark was an agreement by Barnes not to compete. The terms of such an agreement were negotiated between Benchmark and Barnes, both represented by counsel, and the final form was contained in two documents without which negotiations would have ended and Benchmark would not have purchased Rehab Associates. Id. at p. 39:13 to 39:24, 81:16 to 84:5, 122:10 to 123:25, 127:25 to 129:15. The documents were executed and the sale was closed.

As part of the Purchase Agreement, Barnes agreed to a non-compete provision that provides as follows:

Prohibited Activities. Barnes agrees that for a period of five (5) years from the Closing Date, he will not, anywhere within seventy-five (75) miles of any of the facilities operated or managed by a Company as of the date hereof (the "Territory"):

(a) (directly or indirectly) own, manage, operate, join, control, finance or participate in the ownership, management, operation, control or financing of, or be connected as an officer, director, employee, principal, agent, representative, consultant, investor, owner, partner, manager, joint venturer or otherwise with, or permit his or its name to be used by or in connection with, any business or enterprise engaged anywhere in the Territory in the...