Mungas v. Great Falls Clinic, Llp
| Decision Date | 15 December 2009 |
| Docket Number | No. DA 09-0046.,DA 09-0046. |
| Court | Montana Supreme Court |
| Parties | Dr. James MUNGAS, Dr. Michael Dube, Dr. James English, Dr. Thomas Key, Dr. Dale Mortenson, Dr. Grant Harrer, and Dr. Gerald Spencer ("Independent Doctors"), Plaintiffs and Appellees, v. GREAT FALLS CLINIC, LLP, Defendant and Appellant. |
For Appellant: Robert B. Pfennigs; Jardine, Stephenson, Blewett & Weaver, P.C., Great Falls, Montana, T. Thomas Singer; Axilon Law Group, PLLC, Billings, Montana.
For Appellees: Michael D. Cok, Theodore R. Dunn; Cok Wheat & Kinzler, Bozeman, Montana.
¶ 1 The Eighth Judicial District Court, Cascade County, granted summary judgment in favor of the Appellees, who are physicians and former partners in the Great Falls Clinic (Clinic). The District Court concluded that a portion of the Clinic partnership agreements is void under § 28-2-703, MCA, as a restraint upon exercising a lawful profession and granted summary judgment in favor of the Appellees. The Clinic appeals.
¶ 2 The facts which relate to the positions of Doctors Mungas, Dube, Mortenson, Harrer and Spencer differ from those relating to Doctors English and Key. The issues presented are:
¶ 3 Issue 1: Did the District Court err in not dismissing the claims of Doctors Mungas, Dube, Mortenson, Harrer and Spencer, because the Clinic's obligations to them have been satisfied?
¶ 4 Issue 2: Is the claim of Dr. English barred by the provisions of § 35-10-619(9), MCA, a statute of limitation in Montana's version of the Revised Uniform Partnership Act?
¶ 5 Issue 3: Did the District Court err in holding that the goodwill exception to the prohibition against contracts restraining trade does not apply?
¶ 6 Issue 4: Did the District Court err in concluding that the provision of the Clinic's partnership agreements providing for forfeiture by a dissociating partner who practices in the Great Falls area is void as a matter of law?
¶ 7 Issue 5: Did the District Court err in awarding attorney fees?
¶ 8 The Great Falls Clinic is a medical partnership that has been operating in Great Falls since 1916. Over the years, the partners in the Clinic have practiced under various partnership agreements. The 2001 and 2004 partnership agreements are pertinent to this case. The 2001 partnership agreement contains the following provision entitled "Covenant Not To Compete":
Each Partner agrees that he or she will not, for a period of three years following his or her voluntary withdrawal from the Partnership, enter into or engage in the practice of medicine in the county of the principal place of his or her practice and in any contiguous county thereof, directly or indirectly, as owner, sole proprietor, partner, shareholder, member, employee, consultant, or in any other capacity. In the event said Partner violates this covenant such partner shall forfeit the accounts receivable of his or her capital account referred to in Article 6.1(b)ii and all interest whatsoever in the MontanaCare capital account referred to in Article 6.1(b)iii.1
The partnership agreement also provides that if a partner leaves the Clinic and is not in full compliance with the partnership agreement or is expelled, he or she suffers the same forfeitures. A dissociating partner is paid, over time, his share of the operational profits, capital contributions to the investment and equipment fund, stock, the actual value of their equity interest in the Clinic, and his interest in other entities in which the Clinic may have participated, regardless of his reason for leaving.
¶ 9 The 2004 partnership agreement changed the title of the covenant not to compete provision to "Competing After Withdrawal or Retirement." The 2001 and 2004 covenants restricting a departing partner's practice differed only in that a partner choosing to practice in Great Falls and the surrounding area within three years of separation would forfeit his interest in the Great Falls Surgery Center (a new subsidiary), in addition to the forfeitures listed under the 2001 partnership agreement.
¶ 10 All of the Appellees were parties to either the 2001 or 2004 partnership agreements and all of them were aware of the noncompetition covenants. The record shows that none of the Appellees voiced an objection to the noncompetition covenants during any partnership meetings or at any other time before they left the Clinic.
¶ 11 Upon their separation from the Clinic, each of the Appellees was asked to sign a separation agreement. Doctors Mungas, Mortenson, Dube, Harrer and Spencer signed such an agreement. The separation agreements signed by these Appellees itemized the amounts paid to them (profits, stock, partnership interest, etc.) and stated,
Both parties agree that the following amounts represent all remaining interest of [the doctor], his heirs, representatives and assigns, in the Partnership and its assets and that payment of the same as hereinafter set forth by the GREAT FALLS CLINIC, LLP to [the doctor] shall fully account to him and them for all amounts owing to or to become owing to him by the GREAT FALLS CLINIC, LLP by reason of his Partnership interest.
¶ 12 Dr. English separated from the Clinic in September 2004. The Clinic sent him a separation agreement but he refused to sign it. When English notified the Clinic he was leaving the partnership, he requested that his MontanaCare account and accounts receivable be paid to him because, in addition to practicing in Great Falls, he would be practicing outside the geographic area delineated in the noncompetition covenant. The Clinic denied his request. English received a check and a statement of distribution from the Clinic.
¶ 13 Dr. Key did not sign a separation agreement, as well. He received a proposed separation agreement several months after he left the Clinic in November 2005. Key understood the proposed agreement was a statement of what he should anticipate receiving with his separation from the Clinic. He stated in his deposition he did not sign the separation agreement because he believed the forfeiture clause drives doctors out of the community and because doctors who have contributed through earnest hard work should not be penalized financially for a decision that they change their lives and change their practices. Key further expressed dissatisfaction with the Clinic's calculation of the amount he was to receive because, although his day-to-day practice was steady, the accounting of his production fluctuated.
¶ 14 From the record, it appears that in February 2006, Key received a check from the Clinic accompanied by a letter explaining that the amount of his separation payments had been miscalculated. Key has received and accepted monthly payments of $1,294.48 for his interest in the Clinic.
¶ 15 In February 2006, the Appellees filed this action and made several claims. However, by the time of the final pretrial conference only two claims remained: (1) the prayer for a declaratory judgment that the portion of the partnership agreements reducing the buyouts for former partners competing in Great Falls was void, and (2) the claim for recovery of the amounts forfeited under the provisions.
¶ 16 In the District Court, the Appellees asserted that the provision of the partnership agreements reducing payments to them was void as a matter of law because they are prohibited restraints on the ability to practice their profession under § 28-2-703, MCA. They further argued that the forfeiture portion of the partnership agreements are unreasonable because they are arbitrary and the forfeitures are not related to a legitimate business interest, as required by Dobbins, DeGuire & Tucker, P.C. v. Rutherford, MacDonald & Olson, 218 Mont. 392, 708 P.2d 577 (1985).
¶ 17 The Clinic responded that the forfeiture provision of the partnership agreements was not void under § 28-2-703, MCA, because the reduction in payments to departing physicians fall within the exception for sale of goodwill, as is provided in § 28-2-704, MCA. At a hearing on pending motions, the Clinic also argued that Doctors Mungas, Dube, Mortenson, Harrer and Spencer may not recover any additional amounts because they reached an accord with the Clinic which had been satisfied. The Clinic also argued that the forfeiture provision of the partnership agreements was reasonable as a matter of law and therefore, the claims of the Appellees must be dismissed.
¶ 18 The District Court determined, as a matter of law, that the Appellees are entitled to recover the amounts they forfeited under the noncompetition covenants because neither exception provided in §§ 28-2-704 and -705, MCA, applied, thus the covenants constituted an unenforceable restraint on trade under § 28-2-703, MCA. The District Court also held that no waiver existed and the statute of limitations did not apply. The District Court then calculated the amount owed by the Clinic to the Appellees and entered judgment in their favor for such amounts, plus attorney fees.
¶ 19 We review a district court's rulings on summary judgment de novo, applying the same criteria as the district court under M.R. Civ. P. 56. Paull v. Park County, 2009 MT 321, ¶ 17, 352 Mont. 465, 218 P.3d 1198. We review the conclusions of law upon which the district court bases its decision to grant or deny summary judgment to determine if they are correct. Apple Park, L.L.C. v. Apple Park Condominiums, L.L.C., 2008 MT 284, ¶ 12, 345 Mont. 359, 192 P.3d 232.
¶ 20 Issue 1: Did the District Court err in not dismissing the claims of Doctors Mungas, Dube, Mortenson, Harrer and Spencer, because the Clinic's obligations to them have been satisfied?
¶ 21 Section 28-2-703, MCA, provides:
Any contract by which anyone is restrained from exercising a lawful profession, trade, or business of any kind, otherwise than is provided for by 28-2-704 or...
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