Iredell Digestive Disease Clinic, P.A. v. Petrozza

• Decision Date: 15 November 1988
• Docket Number: No. 8822SC245,8822SC245
• Citation: 92 N.C.App. 21,373 S.E.2d 449
• Court: North Carolina Court of Appeals
• Parties: IREDELL DIGESTIVE DISEASE CLINIC, P.A., A North Carolina Professional Association v. Joseph A. PETROZZA, M.D.

Page 449

373 S.E.2d 449

92 N.C.App. 21

IREDELL DIGESTIVE DISEASE CLINIC, P.A., A North Carolina Professional Association v. Joseph A. PETROZZA, M.D.

No. 8822SC245.

Court of Appeals of North Carolina.

Nov. 15, 1988.

Pope, McMillian, Gourley, Kutteh & Parker by William P. Pope, Statesville, and Hall & Brooks by John E. Hall, Wilkesboro, for plaintiff-appellant.

Vannoy, Moore, Colvard, Triplett & Freeman by Anthony R. Triplett, North Wilkesboro, and James H. Early, Jr., Winston-Salem, for defendant-appellee.

JOHNSON, Judge.

The question presented by this case is whether the trial court erred in denying a request for a preliminary injunction sought by a covenantee-professional association (plaintiff) to enforce against a physician-covenantor (defendant) the terms of a covenant not to compete contained in an employment agreement. The trial court concluded that the plaintiff had failed to present evidence sufficient to establish a likelihood that at trial the plaintiff would be able to show that the covenant was not void as against public policy. We agree.

Plaintiff is a professional association engaged in the business of providing medical services, specifically, gastroenterology and general internal medicine, to patients in Iredell County, with its principal place of business located in the City of Statesville. Plaintiff's president and sole owner is Dr. David G. Kogut, a physician who has practiced internal medicine and its subspecialty, gastroenterology, in Statesville since June of 1979. Plaintiff was incorporated in 1980 as Iredell Digestive Disease Clinic, P.A. Defendant is a physician who also specializes in gastroenterology and internal medicine.

On or about 18 August 1983, plaintiff and defendant entered into an employment agreement (agreement) which provided that defendant would be employed as an associate for a term of three years, beginning on 1 July 1984 and ending on 30 June 1987. At the time defendant signed the agreement, he had not engaged in the private practice of medicine, having just completed his medical schooling. The agreement set forth a compensation schedule for the three-year period as well as various obligations of the parties with respect to the employment relationship. The agreement also contained a covenant not to compete, which reads:

19. In further consideration of the sum of ONE DOLLAR ($1), to be paid to the Employee by the Corporation on his first day of service, Employee agrees that in the event of his discharge by the Corporation for any breach of this Agreement or any other good cause, whether upon expiration of the term of this Agreement or contrary to the provision of this Agreement, and whether voluntarily or involuntarily, Employee will not thereafter for a period of three (3) years from the date of such termination directly or indirectly, alone or for his own account, or as a partner, member, employee, or agent of any partnership or joint venture, or as a trustee, officer, director, shareholder, or employee or agent of any corporation, trust or other business organization or entity, engaged in, trusted in or concerned with any business having an office or being carried on within a twenty (20) mile radius of Statesville or within a five (5) mile radius of any other hospital or office serviced by the Corporation, whichever is greater, if such business is directly or indirectly in competition with the business of Employer as defined above, namely the general practice of internal medicine or gastroenterology. [sic ] The Employee agrees that in the event that he violates the conditions of either (a) or (b) above by establishing a general internal medicine or gastroenterology practice within the above proscribed radius, that he will pay to the Corporation to indemnify the Corporation for the Employee's said breach, the sum of FIFTY THOUSAND DOLLARS ($50,000) immediately upon the commencement of such practice, plus 15% of gross income per year for three (3) years, payment to be made on the first of each month during the three (3) years.

Defendant began employment with plaintiff as anticipated in the agreement, and their association apparently prospered without major conflict until the fall of 1986, when the parties began discussing a partnership arrangement to succeed the 1983 agreement. The parties' versions of the events surrounding the partnership discussion are conflicting, with each party accusing the other of negotiating in bad faith. In any event, on or about 31 August 1987, having failed to reach an agreement with plaintiff, defendant informed plaintiff of his resignation. Thereafter, in mid-September of 1987, defendant opened his own office in Statesville for the practice of gastroenterology and internal medicine.

On 18 September 1987 plaintiff filed a civil complaint for breach of contract, including breach of the covenant not to compete. Plaintiff requested equitable relief in the form of a temporary restraining order and a preliminary injunction, and monetary damages under the liquidated damages provision in the agreement. A temporary restraining order was issued by Superior Court Judge Robert A. Collier, Jr., on 17 September 1987. Upon its expiration on 28 September 1987, and after hearing the arguments of counsel and receiving affidavits submitted by the parties, Superior Court Judge R.G. Walker, Jr., denied plaintiff's motion for a preliminary injunction on 1 October 1987, and plaintiff appealed.

A trial court's ruling on a party's motion for a preliminary injunction is an interlocutory order. Pruitt v. Williams, 288 N.C. 368, 218 S.E.2d 348 (1975). No appeal lies from an interlocutory order unless the order deprives appellant of a substantial right which might be lost absent review before final judgment. G.S. secs. 1-277(a) and 7A-27(d)(1). Plaintiff seeks to enforce a covenant not to compete which, if found valid, would run from 31 August 1987 to 30 August 1990. As of the filing of this opinion, more than one-third of that time period has already elapsed. Therefore, failure to hear plaintiff's appeal would involve a substantial right that may be lost before trial on the merits. See Robins & Weill v. Mason, 70 N.C.App. 537, 320 S.E.2d 693 (1984). We will proceed to the merits of the appeal.

The purpose of a preliminary injunction is to preserve the status quo of the parties pending trial on the merits. State v. School, 299 N.C. 351, 357, 261 S.E.2d 908, 913, appeal dismissed, 449 U.S. 807, 101 S.Ct. 55, 66 L.Ed.2d 11 (1980). A preliminary injunction is an extraordinary measure, to be issued by the court, in the exercise of its sound discretion, only when plaintiff satisfies a two-pronged test: (1) that plaintiff is able to show likelihood of success on the merits and (2) that plaintiff is likely to sustain irreparable loss unless the injunction is issued, or if, in the court's opinion issuance is necessary for the protection of a plaintiff's rights during the course of litigation. Investors, Inc. v. Berry, 293 N.C. 688, 701, 239 S.E.2d 566, 574 (1977). The trial court determined that plaintiff had failed to satisfy either prong. Specifically, the court made the following findings of fact:

1. That plaintiff cannot, through its sole employee, Dr. Kogut, maintain the established level of medical services in the specialty of gastroenterology, to which the public in the locale served by Iredell Memorial and Davis Community Hospitals has become both accustomed and entitled;

2. That the health and welfare of that segment of the public requiring gastroenterological services in the locale served by Iredell Memorial and Davis Community Hospitals would be harmed if only one gastroenterologist was available;

3. That the availability of only one gastroenterologist in the locale served by Iredell Memorial and Davis Community Hospitals would place an undue burden on other medical professionals who might be called upon to provide medical services normally provided by this medical specialty and would thus have an adverse impact upon the delivery of all medical services in the locale served by Iredell Memorial and Davis Community Hospitals;

4. That plaintiff, in its prayer for relief, does not seek to enforce the covenant not to compete contained in the contract between the plaintiff and defendant, but merely seeks to restrain the defendant from practicing the medical specialities of internal medicine and gastroenterology pending the trial of this case;

5. That plaintiff, in its prayer for relief, seeks its provable damages in addition to the lump-sum damages specified in the liquidated damages provision of its contract with defendant.

Based on these findings, the court reached the following conclusions of law:

1. That the plaintiff has not presented sufficient evidence to establish a likelihood that at trial it will be able to establish that the covenant not to compete is not void as against public policy;

2. That plaintiff has failed to present evidence sufficient to satisfy the undersigned that its remedy at law is inadequate or that its damages are irreparable, or that there exists some right of the plaintiff which ought to be protected by injunctive relief pending trial;

3. That the inclusion in the contract between the parties of a liquidated damages provision specifically measured as a lump-sum plus a percentage of the defendant's gross revenues clearly indicates that the parties contemplated that any damage flowing from a breach of the covenant not to compete would be duly and satisfactorily remedied by an award of money, the amount of which could be easily proven at trial;

4. That, balancing the equities in this controversy, the undersigned should not and will not grant the plaintiff the temporary enforcement of a covenant not to compete pending the trial of this case, especially when the plaintiff has not sought in this action to enforce the covenant not to compete for the full duration as provided in the contract, and that to do so would...