Holzer Clinic, Inc. v. Friday G. Simpson, M.D.

• Decision Date: 28 April 1998
• Docket Number: 98-LW-1032,97CA9
• Parties: HOLZER CLINIC, INC., Plaintiff-Appellee v. FRIDAY G. SIMPSON, M.D., et al., Defendants-Appellants Case
• Court: Ohio Court of Appeals

HOLZER CLINIC, INC., Plaintiff-Appellee v. FRIDAY G. SIMPSON, M.D., et al Defendants-Appellants

No. 97CA9.

98-LW-1032 (4th)

Court of Appeals of Ohio, Fourth District Gallia

April 28, 1998

R Clarke VanDervort, Charleston, West Virginia, for Appellant Friday G. Simpson, M.D.

Baker & Hostetler, Mark A. Johnson Columbus, Ohio, for Appellee.

DECISION

Stephenson P.J.

This is an appeal from a summary judgment entered by the Common Pleas Court of Gallia County, Ohio, in favor of Holzer Clinic, Inc., plaintiff below and appellee herein, on its breach of contract claim against Friday G. Simpson, M.D., defendant below and appellant herein. The following errors are assigned for our review:

I. "THE TRIAL COURT ERRED IN GRANTING HOLZER'S MOTION FOR SUMMARY JUDGMENT AND NOT GRANTING DR. SIMPSON'S MOTION TO DISMISS."

II. "THE TRIAL COURT ERRED IN STRIKING THE AFFIDAVIT OF DR. SANDRA JOSEPH, A FORMER EMPLOYEE AND SHAREHOLDER OF HOLZER, SUPPORTING DR. SIMPSON'S CONTENTION THAT THE PROTECTIVE COVENANT IS INVALID AND THUS, NOT ENFORCEABLE AGAINST HER."

The facts in this case are relatively undisputed and are revealed in the record as follows. Appellant is a board certified "family practice" physician. She graduated from the Marshall University School of Medicine in 1991 and began her residency at "John Marshall Family Practice" in Huntington, West Virginia. While still in her residency, appellant was recruited by Holzer to come and practice medicine at its facility in Proctorville, Ohio. The parties eventually agreed to terms of employment in June of 1993. As part of those terms, appellant was required to sign a "protective covenant" which provided inter alia as follow:

"[I]n consideration of and in exchange for being employed by [Holder ... the parties hereby agree as follows:

1. The Professional shall not ... for a period of two years after the termination of his or her association with the Clinic, within 30 miles of the Clinic's primary care facility in Gallipolis, Ohio and within 15 miles of any other facility operated by the Clinic:

a. Engage in the practice of medicine ... or otherwise directly or indirectly compete with the business carried on by then Clinic and its doctors;

b. Solicit patients ... or otherwise any business which directly of indirectly competes with the business or medical., surgical. or dental practices carried on by the clinic and its doctors.

* * *

It is further acknowledged and agreed that the Clinic's remedy at law for any breach of the obligations set forth in this section would be inadequate and that temporary and permanent injunctive relief may be granted in any proceeding which may be brought to enforce the provisions of this section without the necessity of proof of actual damage.

* * *

2. The parties hereto acknowledge and agree that there is a substantial benefit received from the Clinic by any individual who becomes employed in a professional capacity witty the Clinic, that the Clinic would be substantially damaged if the Professional leaves the Clinic and establishes a practice within the geographical area set forth above and that the only adequate remedy would be full enforcement of the foregoing noncompetition covenants. However, in the event a court of competent jurisdiction determines that all or any part of the noncompetition covenants are unenforceable and does not enforce such covenants or enforces such covenants only in part, then the parties hereto agree that if the Professional leaves the Clinic for any reason, and practices his or her profession, specifically including but not limited to medicine, surgery, or dentistry, within the territory specified in 1 above within a period of two (2) years following his or her leaving the Clinic, the Professional shall pay, upon demand, to the Clinic the greater of $75,000 or 50% of the Professional's average annual bookings for the Clinic during the 24 month period immediately preceding his or her termination with the Clinic, as fixed, liquidated and ascertained damages for loss of the Professional's services to the Clinic and loss of business to the Clinic, without proof of loss or damage. The parties hereby agree that said amount is not a penalty but is reasonable because of the difficulty and impracticality of fixing actual damages."

Appellant commenced working for Holzer in June of 1994 after completing her residency. The employment, however, does not appear to have been a happy one. Materials in the record suggest that there was considerable friction between appellant and clinic staff as well as with other principals or agents employed by Holzer. She resigned her position, effective December 31, 1995, and began work at "Tri-State Medical Center" in Huntington, West Virginia. The action below was commenced less than two (2) months later. On February 5, 1996, Holder brought suit against both appellant and Tri-State Medical Center advancing a variety of claims. The one most pertinent to this appeal was contained in the first count of the complaint and alleged that appellant had breached the aforementioned protective covenant. Holzer demanded specific performance of the covenant and a permanent injunction prohibiting her from violating its terms as well as damages in the amount of the greater of $75,000 or fifty percent (50%) of the "average annual bookings" she had at the clinic during the two (2) year period immediately preceding termination of her employment. Appellant filed an answer denying that she had breached the covenant and asserted, as a defense, that said covenant was unenforceable and void as a matter of law. She also counterclaimed against her former employer asserting, among other things, claims for breach of employment contract and unlawful restraint of trade. A reply was filed denying any liability to appellant and further contending that she had failed to set forth claims upon which relief could be granted.

On September 18, 1996, the trial court entered judgment finding that the protective covenant. was "partially unenforceable." It would appear from the record that Holzer did not want to pursue injunctive relief against appellant due to "concerns over continuity of care" for her patients. Given that equitable relief was the primary remedy provided for breach finder the covenant, and considering that liquidated damages could be obtained thereunder only if the covenant was deemed invalid, the court found that "the interests of judicial economy" dictated that it be found only partially enforceable. This presumably cleared the way for Holzer to continue with its claim for liquidated damages.

A motion for partial summary judgment was filed by Holzer on November 15, 1996, arguing inter alia that there was no genuine issue of material fact (concerning appellant's breach of the protective covenant) and that it was entitled to judgment in its favor on count one (1) of the complaint as a mater of law. The deposition given by appellant was submitted in support of that argument. She conceded therein that the distance between the Holzer Clinic in Proctorville, Ohio, and the Tri-State Medical Center in Huntington, West Virginia, was only five (5) miles. Moreover she admitted that in excess of sixty-five (65) patients from Holzer had transferred their files to her new place of employment. Holzer also relied on testimony given by appellant, at a previous hearing, Therein she admitted to continuing to treat patients that she had seed before in Proctorville, Ohio. An affidavit going to the issue of damages was submitted by Robert E. Daniel, an administrator at Holzer which attested that appellant's "average monthly bookings" during 1994-95 was $21,987. The witness calculated this out to average annual bookings in the amount of $263,846 of which one-half (1/2) would be $131,923.^[1] Given that this was more than the alternate figure If $75,000 specified in the protective covenant, Holzer argued that it was entitled to this amount as liquidated damages.

Appellant filed a memorandum contra raising a variety of arguments going to the validity and enforceability of the protective covenant. First, she contended that the terms of her employment at Holzer were governed by an "Employment Agreement" entered into by the parties. This agreement, on its face, lasted for one (1) year from June, 1994, to June, 1995. Appellant did not resign her employment at Holzer until December, 1995, which was six (6) months after the agreement expired. She argued that her employment became "at will" at that point and that the terms of the protective covenant no longer applied. Appellant also argued that the terms of said covenant were vague, ambiguous, unreasonable, unfair and could not reach across state lines to prohibit her from wording in West Virginia. Finally, she argued that the liquidated damages provision was in the nature of an unlawful penalty and could not be enforced against her.

The lower court entered judgment on January 23, 1997, finding that the protective covenant was legal and enforceable. Moreover, the court was not swayed by appellant's arguments that the term of her employment had ended. It was found that her change of employment status within Holzer did not alter applicability of the protective covenant. With respect to the issue of damages, however, the lower court found that the liquidated damages clause amounted to an impermissible penalty. The court reasoned that actual damages from appellant's breach could be derived from computer records. Otherwise, the court feared, "a disproportionate sum of money [could] be paid in this case if the liquidated damages claim is enforced." Determination of the proper amount of damages was then deferred for further adjudication.

Neither side was happy with this result and both filed motions for...