Ohio Urology, Inc. v. Poll

• Decision Date: 08 February 1991
• Docket Number: No. 90AP-848,90AP-848
• Citation: Ohio Urology, Inc. v. Poll, 594 N.E.2d 1027, 72 Ohio App.3d 446 (Ohio App. 1991)
• Parties: OHIO UROLOGY, INC., Appellant, v. POLL, Appellee.
• Court: Ohio Court of Appeals

Page 446

72 Ohio App.3d 446

594 N.E.2d 1027

OHIO UROLOGY, INC., Appellant, v. POLL, Appellee.

No. 90AP-848.

Court of Appeals of Ohio, Tenth District, Franklin County.

Decided Feb. 8, 1991.

Vorys, Sater, Seymour & Pease, Nancy L. Danison; and Leonard E. Kaplan, Columbus, for appellant.

Burman & Robinson and Robert N. Burman, Chester, Hoffman, Willcox & Saxbe, John J. Chester, Charles R. Saxbe and Donald C. Brey, Columbus, for appellee.

REILLY, Presiding Judge.

This is an appeal from a judgment of the Franklin County Court of Common Pleas, which granted defendant's motion for summary judgment.

Plaintiff advances the following assignments of error:

"I. The trial court erred in denying Ohio Urology's application for a temporary restraining order and motion for preliminary injunction.

"II. The trial court erred in dismissing Ohio Urology's claim for declaratory judgment and specific performance of a covenant not to compete based upon the referee's report recommending summary judgment in Dr. Poll's favor.

"III. The trial court erred in failing to independently critically review and verify to its own satisfaction the correctness of the referee's report pursuant to Civ. Rule 53."

Plaintiff filed a complaint in the trial court on March 27, 1990 against defendant seeking declaratory and injunctive relief to remedy an alleged breach of a covenant not to compete contained in the contract between the parties. Defendant counterclaimed, alleging plaintiff breached its contract with him.

On April 2, 1990, both parties applied for temporary restraining orders to protect their respective interests. After a hearing, the trial court orally denied these motions and referred the case to a referee of the court.

Defendant filed his motion for summary judgment on April 13, 1990 and plaintiff opposed the motion. A referee heard the cause and recommended that defendant's motion be granted. Consequently, plaintiff filed objections to the report, which the trial court overruled by judgment entry, filed on July 13, 1990. By agreement of the parties, all other claims, including the request for a permanent injunction, were dismissed so that immediate appeal could be taken from the denial of temporary injunctive relief.

Defendant is a urologist who came to Ohio in 1987 to practice medicine with plaintiff, a professional corporation located on the campus of Riverside Methodist Hospital in Columbus, Ohio. Plaintiff is owned and operated by two other urologists: Drs. Henry A. Wise II and Stephen A. Koff. Dr. Wise is the controlling shareholder of the corporation. He has an office at Riverside, while Dr. Koff has an office near Children's Hospital.

In May 1987, Dr. Wise contacted defendant about practicing in Columbus at Ohio Urology. At the time, defendant was practicing and teaching urology at Boston's Massachusetts General Hospital, the teaching hospital for the Harvard Medical School.

Defendant is a skilled surgeon and kidney stone specialist. He is accomplished in the latest medical techniques, such as lithotripsy. This nonsurgical procedure removes kidney stones by means of high intensity shock waves. It is performed with a lithotripter, an expensive piece of medical equipment. In Ohio, only Cincinnati, Cleveland, Toledo, and Columbus have such devices. The Ohio Kidneystone Center in Columbus, located at Riverside, houses the lithotripter.

Defendant accepted plaintiff's offer of employment, signing a two-year employment agreement, which was to commence on October 15, 1987. The agreement, terminable by plaintiff for good cause as defined therein, contains a broadly written covenant not to compete precluding defendant for two years after termination of the employment agreement from competing with plaintiff within a five-mile radius of any Ohio Urology office. Further, the employment agreement contains a provision stating that the employee acknowledges that damages for breach of this covenant are an inadequate remedy and that plaintiff shall be entitled to injunctive relief. Moreover, the employment agreement contains a provision stating that the employee acknowledges that plaintiff's list of patients is a valuable and unique asset which the employee shall not disclose to anyone or claim as his own. Finally, it states that, as to the restraint on competition: "The foregoing prohibited activity shall not include Employee's maintenance or establishment of staff privileges at an acute care hospital."

Aside from the compensation and benefits provided for in the employment agreement, part of the inducement to defendant to relocate in Columbus was a provision in the contract entitling him to be an "equity participant" in the practice upon successful completion of his term of employment. Plaintiff is an established medical practice with a large patient and physician referral base. Dr. Wise sought defendant's services because of the inability to service all of the patients seeking treatment.

Defendant came to Columbus and performed pursuant to the agreement. During this time, however, disagreements developed. In particular, in 1989 defendant sought to purchase an equity interest in Ohio Urology for $50,000. Defendant contends that this sum had always been the agreed purchase price as represented by Dr. Wise. But, at a meeting with Dr. Wise's accountants, defendant learned that Dr. Wise wanted up to $500,000 for a twenty percent interest in the practice.

The parties were unable to resolve their differences and eventually defendant established his own practice. It is disputed whether defendant was terminated or whether he left on his own accord. In any event, it is undisputed that he is practicing urology at his new office, located approximately one block from Riverside and Ohio Urology. Dr. Wise contends that defendant is soliciting former Ohio Urology patients and physician referrals to the detriment of plaintiff. Defendant denies this.

The first and second assignments of error are interrelated and considered together. Plaintiff contends the trial court erred in finding that all covenants not to compete between physicians are unenforceable as a matter of law.

The referee found that restrictive covenants between physicians are contrary to public policy and, therefore, unenforceable. The referee based this conclusion on certain provisions of the American Medical Association's ("AMA") Principles of Medical Ethics and interpretations of these principles contained in the AMA's 1989 Current Opinions of the Council on Ethical and Judicial Affairs. The referee explained that these ethical standards became part of the state's public policy because of R.C. 4731.22(B)(18), a licensing statute which allows the state medical board to discipline a physician for " * * * violation of any provision of a code of ethics of a national professional organization as specified in this division. 'National professional organization' means the American medical association * * *." Further, the statute requires the board to keep on file current copies of the code of ethics of the various professional organizations.

In finding physician covenants unenforceable, the referee relied on the AMA's Principles of Medical Ethics, Section Six, which provides:

"A physician shall, in the provision of appropriate patient care, except in emergencies, be free to choose whom to serve, with whom to associate, and the environment in which to provide medical services."

The 1989 Current Opinions contain a specific interpretation of this provision in Section 9.02, entitled "Agreements Restricting the Practice of Medicine." This provision states:

"The Council on Ethical and Judicial Affairs discourages any agreement between physicians which restricts the right of a physician to practice medicine for a specified period of time or in a specified area upon termination of employment or a partnership or a corporate agreement. Such restrictive agreements are not in the public interest."

Moreover, Current Opinions Section 6.11 states the policy that competition among physicians is to be encouraged. And Current Opinions Section 9.06 states the principle that free choice of physicians is the right of every individual, and that free competition among physicians and alternative systems of care are prerequisites of ethical practice and optimal care.

In this case, we need not consider the question of whether the legislature intended to incorporate the Council's Current Opinions into R.C. 4731.22(B)(18). For even if this were the case, the Council's Current Opinions would not be dispositive herein.

The AMA's interpretation of Principle Six contained in Current Opinions Section 9.02, which specifically applies to covenants not to compete, only "discourages" such covenants. While this AMA interpretation concludes with the strong statement that such covenants are not in the public interest, when read in context and as a whole, Section 9.02 does not support the conclusion that the AMA intended to ban all such covenants. Plainly, the AMA could have flatly stated that such agreements are unethical and prohibited. In other words, unlike DR 2-108(A), which expressly prohibits almost all restrictive covenants among lawyers, see Dwyer v. Jung (1975), 137 N.J.Super. 135, 348 A.2d 208, the ethical standards pertaining to physicians do not mandate unenforceability.

Thus, the referee erred in finding that all covenants not to compete between physicians are per se unenforceable pursuant to the Principles of Medical Ethics or their interpretations. The pertinent provisions promulgated by the AMA do not support such a sweeping ban. Cf. Karlin v. Weinberg (1978), 77 N.J. 408, 390 A.2d 1161, 1169, fn. 6 (addressing a prior version of the Principles of Medical Ethics).

Traditionally, agreements not to compete were viewed as restraints of trade and, therefore, were held invalid at common law on the ground of public policy. Extine v. Williamson Midwest, Inc. (1964), 176 Ohio St. 403, 404, 27...