Deutsch v. Barsky

• Decision Date: 11 April 2002
• Docket Number: No. 00-CV-114, No. 00-CV-168.
• Citation: 795 A.2d 669
• Parties: Daniel DEUTSCH, et al., Appellants/Cross-Appellees, v. Stephen BARSKY, Appellee/Cross-Appellant.
• Court: D.C. Court of Appeals

795 A.2d 669

Daniel DEUTSCH, et al., Appellants/Cross-Appellees, v. Stephen BARSKY, Appellee/Cross-Appellant.

Nos. 00-CV-114, 00-CV-168.

District of Columbia Court of Appeals.

Argued January 10, 2001.

Decided April 11, 2002.

Edward Modell, Washington, DC, for appellants/cross-appellees.

Geoffrey P. Gitner, Washington, DC, for appellee/cross-appellant.

Before WAGNER, Chief Judge, and TERRY and REID, Associate Judges.

REID, Associate Judge:

This case involves the validity of a covenant not to compete which is set forth in an agreement between two dentists, appellants/cross-appellees Dr. Daniel Deutsch and Daniel J. Deutsch. D.D.S., P.C. (collectively, "Dr.Deutsch"), and appellee/cross-appellant Dr. Stephen Barsky, who in effect ended their "partnership." After determining that the contract damages flowing from the breach of the covenant could not be ascertained, the trial court granted summary judgment in favor of Dr. Barsky on the ground that the covenant not to compete was unreasonable and unenforceable.

On cross-appeal, Dr. Barsky argues that the trial court erred in concluding that contract damages for breach of the covenant not to compete are not ascertainable at law. Detecting no error in this ruling, we affirm that portion of the trial court's decision.

Dr. Deutsch contends in his appeal that the trial court did not properly apply the factors set forth in Ellis v. James V. Hurson Assocs., Inc., 565 A.2d 615 (D.C.1989), before reaching its conclusion that the covenant not to compete is unreasonable and unenforceable. We agree. Consequently, we reverse that part of the trial court's summary judgment decision relating to the validity and enforceability of the covenant, and remand this matter to the trial court for further proceedings consistent with this opinion.

FACTUAL SUMMARY

The record before us shows that Dr. Deutsch, who is licensed to practice dentistry in the District of Columbia, established a professional corporation known as "Daniel J. Deutsch, D.D.S., P.C."¹ When Dr. Barsky acquired and became owner of fifty percent of the shares of the corporation on June 1, 1990, Dr. Deutsch and Dr. Barsky became "partners," according to Dr. Deutsch's deposition testimony.² From around June 1, 1990 to December 3, 1996, Dr. Barsky and Dr. Deutsch occupied the same office at 1925 K Street, N.W. in the District. Each had separate patients, but there was mutual collaboration in case of emergencies.

On October 1, 1993, Dr. Deutsch and Dr. Barsky executed an agreement ("the October 1st agreement") under which Dr. Barsky sold his shares of the professional corporation to Dr. Deutsch in exchange for $506,000.00. Dr. Barsky also agreed to rent space for his dental practice from the professional corporation for a minimum of five and one-half years from the effective date of the October 1st agreement, to pay management fees (for example, for billings and collections), and to share operating expenses (for example, for a receptionist and a telephone system).

The October 1st agreement contained a mutual covenant not to compete clause in paragraph 16 which specified in full:

Departure from the Practice of Dentistry. The parties acknowledge and agree that if either Seller or Shareholder leaves the practice of dentistry at the Leased Premises while Management Fees are due, the other party shall have a right to the departing party's dental practice to satisfy any outstanding obligations. Seller and Shareholder shall each execute Security Agreements and Financing Statements granting the other party a security interest in their respective practices. If either Seller or Shareholder leaves the practice of dentistry during the five and one-half year period following the date of this Agreement and any obligations under this Agreement remain outstanding, the departing party covenants and agrees that for a period of two years following said departure, he will not, as an individual, stockholder, officer, director, partner, agent, employee, consultant or representative, engage in the practice of dentistry within a radius of five miles from the Leased Premises.

Thus, the mutual covenant not to compete consisted of a two-year bar on dental practice within a five-mile radius of 1925 K Street, N.W., if either party left the 1925 K Street office during the five and one-half year term of the agreement while outstanding obligations remained under the agreement.

In June 1996, while the October 1st agreement was still in effect, Dr. Barsky entered into a lease for the rental of office space at 1145 19th Street, N.W., a location two blocks from 1925 K Street, N.W., and thus, within the five-mile radius specified in the covenant not to compete. Dr. Barsky did not move into the space immediately, and on December 1, 1996, Dr. Deutsch learned of Dr. Barsky's new lease agreement. Dr. Barsky relocated his practice to the 19th Street address on December 4, 1996, one day after appellants filed suit in the trial court, and while he still had obligations remaining under the October 1st agreement. After Dr. Barsky filed for bankruptcy and the automatic stay provision of 11 U.S.C. § 362(a) became effective, Dr. Deutsch dismissed his trial court complaint without prejudice. Dr. Barsky's bankruptcy action proceeded and eventually resulted in a final order relating to Dr. Deutsch's bankruptcy claim against Dr. Barsky. Entered on October 15, 1998, the order specified in relevant part:

ORDERED, that the rights of [Dr. Deutsch] to seek enforcement of the covenant not to compete contained in the Agreement between the parties dated October 1, 1993 ("the Agreement") are determined, in part, as follows:

A. The rejection of the Agreement by the debtor, Stephen Barsky, is a breach by Dr. Barsky of the Agreement; and

B. Any right to damages arising from the breach of the Agreement constitutes a claim within this bankruptcy case

* * *

F. If, and only if, a court of competent jurisdiction determines that under state law no adequate right in damages exists as a consequence of the breach of the agreement, because an adequate determination of the amount of damages cannot be made sufficient to permit a judgment to be entered under the standards of the law of the District of Columbia, [Dr. Deutsch] is entitled to seek specific performance of the covenant not to compete contained in the Agreement.. . . .

Furthermore, the bankruptcy court ruled that Dr. Deutsch would be "permit[ted]. . . to bring an action in the courts of the District of Columbia seeking a determination as to the issue of the existence of an ascertainable right in damages," or if necessary, "enforcement of the covenant not to compete. . . ."

In accordance with the order of the bankruptcy court, Dr. Deutsch filed a verified complaint in the trial court on December 8, 1998, seeking declaratory and injunctive relief. The verified complaint alleged that an adequate determination of damages relating to Dr. Barsky's breach of the covenant not to compete could not be made, and hence, Dr. Deutsch sought a two-year injunction, from the date of the final order issued in the instant litigation, precluding Dr. Barsky from conducting a dental practice within a five-mile radius of 1925 K Street, N.W.

Dr. Barsky moved for summary judgment on Dr. Deutsch's verified complaint. In disposing of the motion, the trial court concluded that money damages were not ascertainable, and that the covenant not to compete in the October 1st agreement "is unenforceable and without force or effect."³ Dr. Deutsch filed a timely notice of appeal, and Dr. Barsky lodged a cross-appeal.

ANALYSIS

Dr. Deutsch challenges the trial court's conclusion that the covenant not to compete is unreasonable under District of Columbia law, and argues that summary judgment was inappropriate because the trial court failed to apply the specific factors set forth in Ellis, supra, and did not resolve "several genuine issues of disputed facts presented to [it] by Dr. Deutsch's pleadings." Dr. Barsky takes issue with these arguments, maintaining that the trial court did not err in finding the covenant not to compete unenforceable as a matter of law, and further, that this court should reject Dr. Deutsch's interpretation of the October 1st agreement.

In his cross-appeal, Dr. Barsky contends that the trial court erred in concluding that money damages for breach of the covenant not to compete are not ascertainable. He asserts that Dr. Deutsch made a dollar-specific claim in the bankruptcy court ($542,970.04); and that, because Dr. Deutsch has an adequate remedy at law, the covenant may not be specifically enforced. In response to Dr. Barsky's cross-appeal, Dr. Deutsch questions Dr. Barsky's interpretation of District law and of the October 1st agreement. In addition, he states that the dollar amount he sought in the bankruptcy claim was for other matters, including "rents and other definite payments from Dr. Barsky . . .,"⁴ and that these amounts were actually discharged by the bankruptcy proceeding.

We repeat our well-known standard for review of a denial of a summary judgment motion. "Summary judgment `is appropriate only when there are no material facts in issue and when it is clear that the moving party is entitled to judgment as a matter of law.'" Puma v. Sullivan, 746 A.2d 871, 874 (D.C.2000) (quoting Willis v. Cheek, 387 A.2d 716, 719 (D.C.1978) (citations omitted)). "In reviewing a trial court order granting a summary judgment motion, we conduct an independent review of the record. . . ." Tavakoli-Nouri v. Gunther, 745 A.2d 939, 941 (D.C.2000) (citing Sherman v. District of Columbia, 653 A.2d 866, 869 (D.C.1995)). We view the record "`in the light most favorable to the party opposing the motion.'" Kelley v. Broadmoor Coop. Apartments, 676 A.2d 453, 456 (D.C.1996) (citations omitted). With respect to contract interpretation, "[s]ummary judgment is appropriate when the agreement is unambiguous and where there is no question as to the...