Dice v. Clinicorp, Inc.

• Decision Date: 17 May 1995
• Docket Number: Civ. A. No. 95-149.
• Citation: 887 F. Supp. 803
• Parties: C. Wayne DICE, Jr., Plaintiff, v. CLINICORP, INC., Robert S. Goldsamt, C. Thomas McMillen, McMillen & Company, Inc., and Mid-Atlantic Chiropractic, Inc., Defendants.
• Court: U.S. District Court — Eastern District of Pennsylvania

887 F. Supp. 803

C. Wayne DICE, Jr., Plaintiff, v. CLINICORP, INC., Robert S. Goldsamt, C. Thomas McMillen, McMillen & Company, Inc., and Mid-Atlantic Chiropractic, Inc., Defendants.

Civ. A. No. 95-149.

United States District Court, W.D. Pennsylvania.

May 17, 1995.

James P. Sommers, Monroeville, PA, for plaintiff.

Russell J. Ober, Jr., Pittsburgh, PA, for defendants.

OPINION AND ORDER

D. BROOKS SMITH, District Judge.

I. Introduction

On February 1, 1995, plaintiff C. Wayne Dice, a chiropractor licensed to practice in Pennsylvania, filed the instant action against CliniCorp, Inc. ("CliniCorp"), Mid-Atlantic Chiropractic, Inc. ("Mid-Atlantic"), and other defendants, alleging claims for breach of contract, negligence, violations of the federal securities laws, fraud and deceit, and wrongful termination. See Docket No. 1. Defendant CliniCorp, a Delaware corporation headquartered in West Palm Beach, Florida, is engaged in the business of managing chiropractic and other health care-related clinics. See Docket No. 10, at 2. Defendant Mid-Atlantic, a Pennsylvania professional corporation headquartered in Lebanon, Pennsylvania, conducts a chiropractic practice. Id.

Plaintiff's causes of action involve the August 1993 sale of plaintiff's chiropractic business to CliniCorp, as well as plaintiff's resulting employment agreement with Mid-Atlantic. As explained in greater detail below, the relationship among the parties soon deteriorated, and plaintiff eventually filed the instant action.

On March 15, 1995, defendants CliniCorp and Mid-Atlantic filed an Emergency Application for Temporary Restraining Order and Motion for Preliminary Injunction (Docket No. 4). On March 30, 1995, this Court held a hearing on defendants' motion for preliminary injunctive relief.

At that hearing, CliniCorp withdrew its motion for a preliminary injunction, and the hearing proceeded only on behalf of Mid-Atlantic. See Docket No. 15 ("Hearing Transcript"), at 3-4. At the conclusion of the hearing, the Court directed the parties to file supplemental memoranda, setting forth proposed findings of fact and legal argument. Counsel was specifically instructed to address the issue of whether Mid-Atlantic had demonstrated the threat of irreparable harm such as to warrant the issuance of a preliminary injunction. Id., at 230-31.

For the reasons explained below, I find that defendant Mid-Atlantic has failed to establish that it will suffer irreparable harm in the absence of preliminary injunctive relief. Accordingly, Mid-Atlantic's request for a preliminary injunction is denied. Because I find that Mid-Atlantic has failed to satisfy one of the essential elements for obtaining an injunction, I need not reach the other elements.

II. Findings of Fact

1. CliniCorp is a Delaware corporation that is engaged in the business of managing chiropractic and other health care-related clinics. Its common stock is traded on the American Stock Exchange. Hearing Transcript, at 6.

2. Mid-Atlantic is a professional corporation that provides chiropractic services in the Commonwealth of Pennsylvania. Id., at 6-7.

3. The sole director, sole corporate officer and majority shareholder for Mid-Atlantic is George L. Jenkins, Jr., a chiropractor located in Lebanon, Pennsylvania. Id., at 138-39.

4. Mid-Atlantic operates under a comprehensive management agreement with CliniCorp. Pursuant to that agreement, Mid-Atlantic is to employ professionals and "technically provide the services to patients" at any CliniCorp clinic in Pennsylvania in exchange for a contractually agreed-upon fee. Hearing Transcript, at 7; Plaintiff's Hearing Exhibit No. 3 ("Management Agreement").

5. The reason for this particular management arrangement between CliniCorp and Mid-Atlantic, according to CliniCorp, is:

CliniCorp generally, ... as a matter of ... state law, because of a doctrine called the Corporate Practice of Medicine cannot itself, as a Delaware corporation, a non-professional corporation, treat patients. Therefore, it enters into comprehensive management contracts with the professional corporations that provide the services to patients. Those professional corporations such as Mid-Atlantic employ the professionals who render services at the clinic site.

Hearing Transcript, at 7.

6. CliniCorp attempts to increase the number of clinic locations where it provides its management services — to "cluster clinics" — because "the more clinics you have, theoretically, the more money you make, as long as the clinic overheads at that location don't exceed the cost to CliniCorp of providing its management services." Id., at 17-19.

7. In its management capacity for Mid-Atlantic and the clinics, CliniCorp has no obligation to consult Mid-Atlantic on a dayto-day basis. Although Mid-Atlantic is to employ the professionals, CliniCorp, at times, acts in its management capacity in such a way as to implement changes in personnel and salary based upon the assumption that Mid-Atlantic will "ratify" CliniCorp's actions after-the-fact. Mid-Atlantic's Proposed Findings of Fact (Docket No. 17), ¶ 8; Hearing Transcript, at 7-8, 10, 50-51, 143.

8. Pursuant to the terms of the Management Agreement, CliniCorp is to receive at least eighty percent (80%) of the gross collections from any clinic managed by CliniCorp in Pennsylvania, and Mid-Atlantic is to pay the professional staff's salary and benefits from the twenty percent (20%) that Mid-Atlantic retains. Mid-Atlantic's reason for entering into such an arrangement is to "make money.... To the extent Mid-Atlantic has money left after it pays its management fee 80% to CliniCorp and pays its doctors, whatever is left to Mid-Atlantic, it makes." Management Agreement, at ¶ 8; Hearing Transcript, at 12-13, 17.

9. Prior to August 25, 1993, plaintiff operated a chiropractic clinic located at 1004 West View Park Drive (the "Original Clinic") through an entity known as Dice Chiropractic, P.C. ("Dice Chiropractic"). Plaintiff provided professional chiropractic services at the Original Clinic. Hearing Transcript, at 13-14, 149-150.

10. On August 25, 1993, plaintiff and Dice Chiropractic entered into an agreement with CliniCorp, pursuant to which CliniCorp acquired the "practice assets" of Dice Chiropractic, which included the physical equipment and accounts receivables of Dice Chiropractic. Plaintiff's Hearing Exhibit No. 8 ("Acquisition Agreement"); Hearing Transcript, at 15, 149-50.

11. In exchange for the Dice Chiropractic assets, CliniCorp agreed to deliver to plaintiff 506,074 shares of unregistered common stock of CliniCorp. CliniCorp was required to cause a Registration Statement to become effective within 120 days of the closing of the Acquisition Agreement for the purpose of registering plaintiff's shares received for the clinic. Acquisition Agreement, ¶ 2.2; Hearing Transcript, at 37-38.

12. Pursuant to the Acquisition Agreement between Dice and CliniCorp and pursuant to the Management Agreement between CliniCorp and Mid-Atlantic, CliniCorp took over virtually every aspect of the operation and management of the Original Clinic. Management Agreement, ¶ 2; Hearing Transcript, at 11-12.

13. Also on August 25, 1995, as required by the Acquisition Agreement, plaintiff entered into an Employment Agreement with Mid-Atlantic. Hearing Transcript, at 14; Acquisition Agreement, ¶ 12.3; Defendant's Hearing Exhibit B ("Employment Agreement").

14. The Employment Agreement specifically provides:

The parties hereto acknowledge and agree that this Agreement is prepared and will be executed in express conjunction with that certain transaction by which CliniCorp, Inc. has acquired or will acquire substantially all of the assets used by the Employee to provide professional services to patients (the "Transaction"), and that the execution of this Agreement is a material part of, and an inducement to CliniCorp, Inc.... and Employee to enter into, the Transaction.

Employment Agreement, at 1, Recital C.

15. The Employment Agreement is considered part of "the entire agreement among the parties" to the Acquisition Agreement. Acquisition Agreement, ¶ 14.9.

16. Pursuant to the Employment Agreement and the Acquisition Agreement, plaintiff agreed to devote his full time and efforts to providing professional chiropractic services at the Original Clinic for a period of three years. Employment Agreement. ¶¶ 1.1, 2.1, 3, 6, 7; Acquisition Agreement, ¶ 13.2.

17. Plaintiff agreed that during the term of the Employment Agreement and for a period of two years thereafter, he would not directly or indirectly compete with the business of Mid-Atlantic or own any part of or become the employee of any enterprise that competes with the business of Mid-Atlantic within a ten mile radius of the clinic. Employment Agreement, ¶ 6.1 18. Plaintiff also agreed that during the term of the Employment Agreement and for a period of two years thereafter, plaintiff would not solicit, encourage or advise patients treated during the term of the Employment Agreement at the Original Clinic to obtain or seek professional services from any professional who is not an employee of Mid-Atlantic, or to solicit, encourage or advise any employees of Mid-Atlantic to terminate their employment with Mid-Atlantic for any reason. Employment Agreement, ¶ 7.

19. Plaintiff expressly agreed in the Employment Agreement that a violation of the provisions of the covenant not to compete or the covenant not to solicit would cause irreparable damage to Mid-Atlantic, and that Mid-Atlantic would be entitled to an injunction. Employment Agreement, ¶¶ 6.1, 7.

20. Plaintiff was to be paid a base salary of $270,000 per year, plus benefits, by Mid-Atlantic pursuant to the Employment Agreement, with the base salary to be adjusted annually based upon the performance of the Original Clinic. Employment Agreement, ¶ 4.1.

21. Unfortunately, soon after the execution of the Acquisition and the Employment Agreements, the relationship among ...