Hospital Consultants, Inc. v. Potyka, s. 15406

• Decision Date: 26 November 1975
• Docket Number: Nos. 15406,15407,s. 15406
• Citation: 531 S.W.2d 657
• Parties: HOSPITAL CONSULTANTS, INC., et al., Appellants, v. James S. POTYKA, M.D., et al., Appellees. Rodney D. BOBBITT, M.D., et al., Appellants, v. Tedd CROW, Appellee.
• Court: Texas Court of Appeals

Page 657

531 S.W.2d 657

HOSPITAL CONSULTANTS, INC., et al., Appellants, v. James S. POTYKA, M.D., et al., Appellees.

Rodney D. BOBBITT, M.D., et al., Appellants, v. Tedd CROW, Appellee.

Nos. 15406, 15407.

Court of Civil Appeals of Texas,

San Antonio.

Nov. 26, 1975.

Rehearing Denied Dec. 31, 1975.

Rique D. Bobbitt, Houston, Patrick Priest, San Antonio, for appellants.

George W. Krog, San Antonio, for appellees.

CADENA, Justice.

In our No. 15406 plaintiffs, Dr. James S. Potyka and Dr. James Larry Miller, sued defendants, Hospital Consultants, Inc. (a Texas Corporation), Dr. Rodney D. Bobbitt and the Baptist Memorial Hospital System, seeking (1) judgment declaring unenforceable certain covenants contained in an agreement between Dr. Bobbitt and Baptist Memorial Hospital System and in contracts between each plaintiff and Hospital Consultants, Inc.; and (2) an injunction preventing Dr. Bobbitt and Hospital Consultants, Inc., from attempting to enforce such covenants which allegedly had the effect of preventing or, at least, severely restricting, the practice of emergency room medicine by Dr. Potyka and Dr. Miller.

In No. 15407 Dr. Tedd Crow, as plaintiff, sought essentially the same relief against the same defendants with reference to the covenant in the contract between Dr. Bobbitt and Baptist Memorial Hospital System and a covenant contained in a contract between Dr. Bobbitt and Dr. Crow.

The cases were consolidated for the purpose of trial but, following trial without a jury, the trial court rendered separate judgments in each case. Each judgment declares the covenants to be unenforceable and restrains Dr. Bobbitt from attempting to enforce the covenant in his contract with Baptist Memorial Hospital System. Only Dr. Bobbitt and Hospital Consultants, Inc., have perfected appeals, and we consolidated the cases for argument and decision.

Plaintiffs, Dr. Miller, Dr. Potyka and Dr. Crow will be referred to by their surnames or, collectively, as 'plaintiffs.' Dr. Bobbitt will be identified as 'Bobbitt.' Hospital Consultants, Inc., will be designated as 'CORPORATION', WHILE BAPTIST MEMORIAL HOSPItal system will be refeRred to As 'Baptist.'

By instruments dated December 24, 1971, Bobbitt and Baptist agreed that Bobbitt, in consideration of payment to him by Baptist of $17,500.00 per month, would furnish competent physicians to staff the emergency rooms of hospitals operated by Baptist on a 24-hour basis. Baptist was to make no payments to the doctors assigned to its emergency rooms, since the agreement contemplated that such doctors would collect, and retain for their own use, the customary fees from the patients they attended in the emergency rooms. This contract contained the following provision, which is the covenant which Bobbitt has been enjoined from enforcing:

So long as an Emergency Room Physician is under contract with (Bobbitt) to provide professional services in the emergency room of any hospital, and for a period of three (3) years thereafter, Baptist and/or Hospitals shall not contract with said Emergency Room Physician to otherwise perform professional services in the emergency room of any Hospital, or allow said Emergency Room Physician to provide professional services in the emergency room of any Hospital, except as provided for in his contract with (Bobbitt). It is understood that the foregoing provisions are for the protection of the rights of (Bobbitt) and are not intended to restrict the rights and privileges of a physician to become an active member of the medical staff of any Hospital after ending his contractual relationships with (Bobbitt).

The contract also recited that since the damages resulting to Bobbitt as a result of a breach of the agreement by Baptist, would be difficult to ascertain, breach of the contract by Baptist would render it liable to Dr. Bobbitt in the sum of $50,000.00, which sum was described as 'liquidated damages and not . . . a penalty.'

Subsequently, Bobbitt and others took steps to form the defendant corporation, Hospital Consultants, Inc. Bobbitt's name, however, does not appear in the articles of incorporation which were filed on September 15, 1972. The principal activity of this corporation was the negotiation of contracts with hospitals in Texas such as the one executed in 1971 between Bobbitt and Baptist. Bobbitt owns stock in this corporation.

Despite his involvement in the formation of, and his ownership of stock in, the corporation, and despite the fact that he appears to have taken an active part in the management of the affairs of the corporation, Bobbitt, on February 23, 1973 (some 4 months after the formation of the corporation), entered into a contract with Crow, one of the plaintiffs, according to which Crow agreed to assume responsibility 'for examining every person who presents himself for care and/or treatment at the emergency room of the hospital to which he is assigned. . . .' The instrument recited that Bobbitt had entered into contracts with various hospitals to provide emergency room services, and that the purpose of the agreement was 'to enable Bobbitt to comply with his contracts with said hospitals, while enabling Crow to obtain substantial compensation for the exercise of his professional skills.' The contract contained the following restrictive covenant:

. . . CROW agrees that he will not enter into competition with BOBBITT by contracting or otherwise arranging to provide emergency room services for any hospital within a fifty (50) mile radius of any hospital to which he may be assigned, for a period of three (3) years following termination of this agreement, nor will he enter into an agreement similar to this agreement with any person or group of persons during said three (3) year period. Provided, however, that CROW shall be free to enter into a partnership or professional association with other medical doctors, so long as the terms of the partnership agreement or the articles of association or by-laws of the professional association do not abrogate or conflict with his obligations hereunder.

The instrument identifies Bobbitt and Crow as the parties to the contract. The corporation is nowhere mentioned, and the agreement is signed by Bobbitt with nothing to indicate that he signed the instrument in other than his individual, as distinguished from a representative, capacity.

Miller, on May 1, 1973, and Potyka, on June 22, 1973, signed contracts similar to the Bobbitt-Crow agreement, except that the Miller and Potyka contracts were with the corporation, rather than with Dr. Bobbitt. Although Bobbitt signed these agreements on behalf of the corporation, he is nowhere mentioned in the body of the agreement. The Miller and Potyka contracts recite that the corporation has entered into contracts to provide emergency room service for various hospitals, but it contains no reference to the Bobbitt-Baptist contract nor to any other contract to which Bobbitt is, or was, a party.

All three plaintiffs were assigned to work in emergency rooms of hospitals operated by Baptist in Bexar County. In the fall of 1973 or, perhaps, sooner, plaintiffs began to hear rumors that Baptist would not renew its contract with Bobbitt when such contract expired on April 25, 1974. Plaintiffs met with Bobbitt early in December, 1974, and questioned him about the matter. Bobbitt acknowledged that there were differences between him and Baptist's administrator, but he assured them that these differences would be resolved and that, in any event, because of his influence with members of Baptist's board of trustees, the contract would be renewed. He added that if the Baptist contract was not renewed, plaintiffs would be released from their contracts, except that he would not consent to their working in the emergency room of any Baptist hospital.

The Bobbitt-Baptist contract was not renewed when it expired on April 25, 1974. Instead, Baptist signed a 2-year contract for the provision of emergency room services in its hospitals with a partnership doing business under the name of Emergency Room Affiliates. Plaintiffs agreed to work in the Baptist emergency rooms for this partnership, but Bapist refused to permit them to do so because of the restrictive provision in its contract with Bobbitt. Plaintiffs then filed the suits which are now before us and, under protection of a temporary injunction, began working at Baptist's emergency rooms. Emergency Room Affiliates does not require that its doctors sign written agreements.

At the time of trial, Bobbitt had no emergency-room contract with any hospital located in Bexar County. The corporation has never had any such contract with Baptist or with any hospital located within a 50-mile radius of a hospital operated by Baptist. Both Bobbitt and the corporation are still actively seeking to negotiate similar contracts with hospitals in Bexar County and elsewhere in Texas. There is testimony concerning other contracts with hospitals in other cities, but it is not clear whether Bobbitt or the corporation is a party to such contracts.

We consider first the noncompetition agreements contained in the Bobbitt-Crow contract and in the contracts of Miller and Potyka with the corporation.

The trial court concluded that the individual contracts of plaintiffs with Bobbitt and with the corporation do not create the relationship of employer-employee, but, rather, the relationship of contractor-subcontractor, and that restrictive covenants against competition may not be applied to subcontractors beyond the term for which the subcontractor agrees to render exclusive service. Defendants' fifth and sixth points challenge these conclusions. For the purposes of this opinion, we will assume that the rules applicable to a subcontractor's agreement not to compete with the contractor are the same as those applicable to an agreement by an employee not to compete with his employer. We will, therefore, discuss the problem in terms of an...