Fields Foundation, Ltd. v. Christensen

• Citation: 103 Wis.2d 465,309 N.W.2d 125
• Decision Date: 19 June 1981
• Docket Number: No. 80-1975,80-1975
• Parties: The FIELDS FOUNDATION, LTD., Plaintiff-Respondent and Cross-Appellant, v. Dennis D. CHRISTENSEN, Defendant-Appellant and Cross-Respondent. *
• Court: Court of Appeals of Wisconsin

Page 125

309 N.W.2d 125

103 Wis.2d 465

The FIELDS FOUNDATION, LTD., Plaintiff-Respondent and Cross-Appellant, v. Dennis D. CHRISTENSEN, Defendant-Appellant and Cross-Respondent. ^*

No. 80-1975.

Court of Appeals of Wisconsin.

Submitted on Briefs March 10, 1981.

Opinion Released June 19, 1981.

Opinion Filed June 19, 1981.

James A. Olson and Richard L. Cates and Lawton & Cates, Madison, for defendant-appellant and cross-respondent.

Roger L. Gierhart and Carroll Metzner and Bell, Metzner & Gierhart, S.C., Madison, for plaintiff-respondent and cross-appellant.

Before GARTZKE, P. J., and BABLITCH, and DYKMAN, JJ.

GARTZKE, Presiding Judge.

Fields Foundation operates Midwest Medical Center, an abortion clinic in Madison. Dr. Dennis Christensen was the Center's medical director from 1977 through 1979. Fields brought this action against Christensen to enforce a covenant not to compete in Christensen's employment contract and for damages for breach of that contract and for defamation. The covenant restricts Christensen from engaging in a medical practice or business which is similar to the type conducted at the Center within fifty miles of the state capitol in Madison for two years after termination of his employment. ¹

The trial court enjoined Christensen from performing certain abortion-related activities but refused to enforce a liquidated damages clause in the covenant not to compete, and dismissed the defamation claim. Both parties have appealed.

Christensen contends that the covenant is not reasonably necessary to protect the employer, contains unreasonable restraints, is unduly harsh and contrary to the public interest, and that Fields is not entitled to equitable relief. Fields contends that the trial court properly enforced the covenant but should also have enforced the liquidated damages clause, that it is entitled to an accounting for abortions Christensen performed in violation of the covenant and that his defamatory statements were not substantially true. We affirm the trial court's orders in all respects.

1. Covenant Reasonably Necessary To Protect Employer

Section 103.465, Stats., provides:

A covenant ... (not to compete in an employment contract) within a specified territory and during a specified time is lawful and enforceable only if the restrictions imposed are reasonably necessary for the protection of the employer or principal. Any such restrictive covenant imposing an unreasonable restraint is illegal, void and unenforceable even as to so much of the covenant or performance as would be a reasonable restraint.

The statute and the common law require this court to make five distinct inquiries in evaluating the enforceability of a covenant not to compete. The covenant must (1) be necessary for the protection of the employer; (2) provide a reasonable time restriction; (3) provide a reasonable territorial limit; (4) not be harsh or oppressive as to the employee; and (5) not be contrary to public policy. See Chuck Wagon Catering, Inc. v. Raduege, 88 Wis.2d 740, 751, 277 N.W.2d 787, 792 (1979). Section 103.465, Stats., provides that any unreasonable portion of the covenant not to compete voids the entire covenant, even if the remaining portions would otherwise be enforceable.

This court's first inquiry is whether the employed has a protectible interest justifying any restriction on the employee's activities. Lakeside Oil Co. v. Slutsky, 8 Wis.2d 157, 163, 98 N.W.2d 415, 419 (1959).

An employer is not entitled to be protected against legitimate and ordinary competition of the type that a stranger could give. There must be some additional special facts and circumstances which render the restrictive covenant reasonably necessary for the protection of the employer's business. Id.

Thus, "to enforce a restraint, the employee must present a substantial risk either to the employer's relationships with his customers or with respect to confidential business information." Blake, Employee Agreements Not To Compete, 73 Harv.L.Rev. 625, 653 (1960). Put somewhat differently, an employee's covenant not to compete is ordinarily unenforceable, except to prevent the use of trade secrets or customer lists or unless the employee's services "are of a unique character." Behnke v. Hertz Corp., 70 Wis.2d 818, 821-22, 235 N.W.2d 690, 693 (1975), quoting Restatement of Contracts sec. 516, comment h on clause (f) at 1001 (1932).

The reasonableness of a covenant not to compete "involves the totality of the circumstances." Hunter of Wisconsin, Inc. v. Hamilton, 101 Wis.2d 460, 470, 304 N.W.2d 752, 757 (1981). The trial court's factual findings are therefore critical to appellate review.

The trial court did not make the formal findings or conclusions required by sec. 805.17(2), Stats. It discussed the facts and law and its reasoning in a memorandum decision. An appellate court may look to the trial court's memorandum decision for findings and conclusions. Termination of Parental Rights to T.R.M., 100 Wis.2d 681, 688, 303 N.W.2d 581, 583 (1981), and cases cited. Because the decision is detailed and extensive, we take from it the following facts, none of which are questioned on appeal:

Fields purchased the Center in January 1977. The Center's founders had struggled in its early years to build relationships with referral agencies and physicians and by mid-1977 had established the Center as a highly respected and well-run clinic with a trained, knowledgeable and dedicated medical and administrative staff. Christensen is an obstetrician and gynecologist. His abortion experience prior to joining the Center was limited to about five hundred abortions performed several years earlier in Minnesota. He had never lived or practiced in Wisconsin.

Christensen became the Center's medical director when he entered his contract with Fields June 2, 1977. The contract was to run until December 31, 1980 but ended in December 1979 when Christensen began an abortion clinic in Madison. He was the Center's only physician during most of his tenure.

Approximately eighty-one percent of the Center's abortion business is obtained through referrals, consisting of twenty-two percent from doctors, eighteen percent from former patients, twenty-nine percent from social service agencies and the balance from miscellaneous sources. Ten percent of its business consists of "repeat" patients and nine percent come through telephone contacts. During the average patient's two to three hour stay at the Center, she spends only five to ten minutes with the physician. Christensen had no regular contact with referral sources, but lists of Wisconsin physicians and family planning organizations are readily available elsewhere.

The trial court found that Christensen was nevertheless most interested in obtaining possession of the Center's referral lists. He photocopied the lists in 1979 to provide himself with a "base" from which to compete with the Center and made some contacts with referral agencies and physicians with respect to opening his own clinic.

The court found that Christensen's actions in copying referral lists, contacting referral sources and soliciting Center staff to join him in his competing practice illustrated the Center's interests which the covenant was designed to protect. The court found that when Christensen terminated his employment he had gained over two years' experience as the medical director of a well-known, well-respected and established abortion clinic, was so identified in his associations with the Madison medical community, and had become expert in the surgical procedures and knowledgeable in the operations of a highly specialized clinic. The court noted that the lists from which potential abortion referrals could be gleaned are generally available, as are monographs dealing with the establishment and operation of abortion clinics. The court found that the availability of those lists and monographs was not controlling in light of the other factors present and concluded that the restrictive covenant was reasonably necessary to protect the employer.

Its factual background having been established, whether the covenant not to compete is reasonably necessary to protect the employer is a question of law which may be resolved on appeal independently of the trial court's conclusion. Behnke, supra. We agree with the trial court's conclusion but not all of its reasons.

As other physicians performing similar services replaced him, Christensen's professional services lacked the uniqueness which might entitle the Center to protection. The experience and skill he gained during his employment does not justify a post-employment restriction. "In the absence of special circumstances the risk of future competition from the employee falls on the employer and cannot be shifted, even though the possible damage is greatly increased by experience gained in the course of the employment." Blake, 73 Harv.L.Rev. at 652. Our "law affords no recourse" against the departing employee who takes no more than his experience with him. Gary Van Zeeland Talent, Inc. v. Sandas, 84 Wis.2d 202, 214, 267 N.W.2d 242, 248 (1978).

Christensen's short and generally one-time contacts with patients would not make him a more formidable competitor than another doctor. The need for a protective covenant cannot be premised on the "customer contact" theory as enunciated in Lakeside Oil Co., supra, and Chuck Wagon Catering, Inc., supra. But as no fixed rule prevents protecting an employer "against the improper use of information about customers with whom the employee did not have actual contact," Hunter of Wisconsin, Inc., 101 Wis.2d at 468, 304 N.W.2d at 756, no rule precludes protection to an employer dependent on referrals, even if the employee had no contact with those making referrals. ²

Despite his limited patient contacts, Christensen's identification with the Center's considerable goodwill by those referring business to it provides him with significant advantages...