Emerick v. Cardiac Study Ctr., Inc.

• Decision Date: 08 August 2012
• Docket Number: No. 41597–6–II.,41597–6–II.
• Parties: Robert EMERICK, Respondent, v. CARDIAC STUDY CENTER, INC., P.S., Appellants.
• Court: Washington Court of Appeals

170 Wash.App. 248

286 P.3d 689

Robert EMERICK, Respondent,

v.CARDIAC STUDY CENTER, INC., P.S., Appellants.

No. 41597–6–II.

Court of Appeals of Washington,

Division 2.

Feb. 28, 2012.

As Amended and Ordered Published Aug. 8, 2012.

Valarie Standefer Zeeck, Gordon Thomas Honeywell, Tacoma, WA, for Appellant.

Stuart Charles Morgan, Attorney at Law, Tacoma, WA, for Respondent.

ARMSTRONG, P.J.

[170 Wash.App. 250]¶ 1 When Dr. Robert Emerick joined Cardiac Study Center's specialty practice, he signed a covenant not to compete with Cardiac if he left the practice. Cardiac terminated Emerick, and he filed this action seeking a declaration that the covenant was unreasonable and thus unenforceable. The trial court agreed and granted Emerick summary judgment, invalidating most of the covenant's provisions. On appeal, Cardiac argues that the trial court misapplied Washington law in granting the summary judgment. We agree and, therefore, reverse and remand.

FACTS

¶ 2 Cardiac is a medical practice group of approximately 15 cardiologists. The practice has provided care to patients with heart disease in Pierce County since 1966. The practice has four offices, each near a hospital. The hospitals serve as a referral source for Cardiac.

¶ 3 Dr. Robert Emerick practiced medicine in Memphis, Tennessee for approximately three years before joining Cardiac. In February 2002, Cardiac hired him as an employee. In February 2004, Emerick became a shareholder of Cardiac. At that time, Emerick signed a shareholder employment agreement, which included the covenant not to compete at issue here. The covenant states that if a doctor leaves the group, he promises not to practice competitively in Pierce County or Federal Way for a period of five years. The covenant specifically provides:

(e) Non–Competition.... The Employee further recognizes and acknowledges that because the goodwill of the Corporation's business is a valuable asset, and because the solicitation of patients of referral sources or persons or entities with whom the Corporation contracts, by the Employee, after the Employee has ceased to be employed by the Corporation, will cause irreparable harm to the goodwill of the Corporation, the Corporation would not continue to employ the Employee unless it is assured that such solicitation will not occur. The Employee therefore agrees and covenants that during the Employee's employment by the Corporation and for sixty (60) full months after termination of such employment for any reason, the Employee will not, directly or indirectly, (i) anywhere within Pierce County and Federal Way, Washington (“Restricted Area”) engage in the practice of cardiac medicine in any manner which is directly competitive with any aspect of the business of the Corporation as presently conducted or as said business may evolve in the ordinary course of business between the date of this Agreement and the expiration of this covenant not to compete, whether or not using any Confidential Information, (ii) anywhere in the Restricted Area, have any business. dealings or contracts, except those which demonstrably do not relate to or compete with the business or interests of the Corporation, with any then existing patient, customer or client (or party with whom the Corporation contracts) of the Corporation or any person or firm which has been contacted or identified by the Corporation as a potential customer or client of the Corporation; or (iii) be an employee, employer, consultant, agent, officer, director, partner, trustee or shareholder of any person or entity that does any of the activities just listed. Provided, however, nothing herein shall preclude a patient from selecting a provider of their choice.

Clerk's Papers (CP) at 19–20.

¶ 4 During oral argument below, Cardiac conceded that Emerick should be allowed to practice in Federal Way; Cardiac suggested a geographic restriction of a five-mile radius around the existing Cardiac centers. Cardiac also conceded that Emerick should be allowed to see his former patients from Cardiac.

¶ 5 Emerick specializes in interventional cardiology.¹ He explained that Cardiac has six other interventional cardiologists. Approximately five other interventional cardiologists practice in Pierce County, and three practice in Federal Way. Cardiac submitted evidence that the distinction between interventional cardiologists and non-interventional cardiologists is not critical in determining an appropriate physician-to-population ratio. Further, Cardiac presented evidence that Pierce County and Federal Way have an excess of cardiologists for the population's need.²

¶ 6 In August 2005, patients and other medical providers began to complain to Cardiac about Emerick's conduct (CP at 522 (stricken)).³ Because of Emerick's conduct, some physicians stopped referring patientsto Cardiac (CP at 137 (stricken)). Cardiac's Professional Conduct Committee met with Emerick to address the complaints (CP at 137 (stricken)). The Committee met again after more complaints were received, yet Emerick's behavior did not change (CP at 137–40 (stricken)). In February 2009, the Conduct Committee recommended that the Board discipline Emerick (CP at 147 (stricken)). On My 1, 2009, Cardiac's Board of Directors terminated Emerick (CP at 147 (stricken)).

¶ 7 Emerick remained a shareholder until September 30, 2009.

Procedure

¶ 8 Emerick sued Cardiac seeking a declaration that the covenant was unenforceable. Emerick moved for summary judgment, arguing that the covenant was void as against public policy.⁴ In March 2010, the trial court granted Emerick's motion, ruling that the covenant was unenforceable because it violated public policy. Although the trial court's ruling appeared to void the covenant in its entirety, the court also ordered Emerick not to solicit Cardiac patients. And the court ordered the parties to remedy the effects of a letter Cardiac sent to patients regarding Emerick leaving the practice. Then, on December 3, 2010, the trial court entered findings of fact and conclusions of law, concluding in part that the covenant's temporal scope was “overly broad.” CP at 1389. The court permanently enjoined Cardiac from enforcing the covenant, which “bar[s] Dr. Emerick from serving patients whom Dr. Emerick does not solicit, and has not solicited.” CP at 1390. The, trial court awarded Emerick fees and costs totaling approximately $60,000.

ANALYSIS

I. Standard of Review

¶ 9 We review summary judgment de novo. Trimble v. Wash. State Univ., 140 Wash.2d 88, 92–93, 993 P.2d 259 (2000). Whether a covenant not compete is reasonable is a question of law. See Alexander & Alexander, Inc. v. Wohlman, 19 Wash.App. 670, 684, 578 P.2d 530 (1978).

II. Noncompetition Provision

¶ 10 Courts will enforce a covenant not to compete if it is reasonable and lawful. Wood v. May, 73 Wash.2d 307, 312, 438 P.2d 587 (1968). We test reasonableness by asking (1) whether the restraint is necessary to protect the employer's business or goodwill, (2) whether it imposes on the employee any greater restraint than is reasonably necessary to secure the employer's business or goodwill, and (3) whether enforcing the covenant would injure the public through loss of the employee's service and skill to the extent that the court should not enforce the covenant, i.e., whether it violates public policy. Perry v. Moran, 109 Wash.2d 691, 698, 748 P.2d 224 (1987), judgment modified on reconsideration,111 Wash.2d 885, 766 P.2d 1096 (1989).

¶ 11 If the trial court determines that certain terms of the covenant are unreasonable, the entire covenant does not fail. Wood, 73 Wash.2d at 312, 438 P.2d 587. The court should still seek to enforce the covenant to the extent reasonably possible to accomplish the contract's purpose. Wood, 73 Wash.2d at 312–13, 438 P.2d 587. Specifically, the court considers “whether partial enforcement is possible without injury to the public and without injustice to the parties.” Wood, 73 Wash.2d at 313, 438 P.2d 587 (distinguishing Washington law from the so called “blue-penciltest,” which requires the changes to the contract to still be grammatically viable).

A. Necessary for Employer

¶ 12 A restrictive covenant protects an employer's business as warranted by the nature of employment. Wood, 73 Wash.2d at 310, 438 P.2d 587 (citing 9 A.L.R. 1467–68). An employee who joins an established business gains access to his employer's customers and “ ‘acquire[s] valuable information as to the nature and character of the business....' ” Wood, 73 Wash.2d at 310, 438 P.2d 587 (quoting 9 A.L.R. 1467–68). This exposure to the employer's clients and businessmodel allows the employee to compete with his employer after he leaves the employment. Wood, 73 Wash.2d at 310, 438 P.2d 587 (citing A.L.R. 1467–68). To protect the employer's business, equity allows the employer to require the employee to sign a noncompetition agreement. Wood, 73 Wash.2d at 310, 438 P.2d 587.

¶ 13 Specifically, an employer has a “legitimate interest in protecting its existing client base” and in prohibiting the employee from taking its clients. Perry, 109 Wash.2d at 700, 748 P.2d 224. In Perry, our Supreme Court considered an accounting firm's restrictive covenant with a newly hired accountant. Perry, 109 Wash.2d at 692, 748 P.2d 224. Moran, the new accountant, had worked as an accountant for a significant period of time before joining the firm. Perry, 109 Wash.2d at 692, 748 P.2d 224. The court recognized the firm's legitimate interest in protecting its client base after Moran left: Perry, 109 Wash.2d at 700, 748 P.2d 224;see also Knight, Vale & Gregory v. McDaniel, 37 Wash.App. 366, 369–70, 680 P.2d 448 (1984) (recognizing a firm's interest in maintaining a client base built over many years). Courts also consider an employer's investment in training a newly minted professional. See Ashley v. Lance, 75 Wash.2d 471, 475–77, 451 P.2d 916 (1969) (“ ‘A young professional man may be willing to trade his future right to compete in...