Paradigm Health Sys., L.L.C. v. Faust

• Court: Court of Appeal of Louisiana
• Writing for the Court: CALLOWAY, J.
• Citation: Paradigm Health Sys., L.L.C. v. Faust, 218 So.3d 1068 (La. App. 2017)
• Decision Date: 12 April 2017
• Docket Number: 2016 CA 1276
• Parties: PARADIGM HEALTH SYSTEM, L.L.C. v. Barry FAUST

218 So.3d 1068

PARADIGM HEALTH SYSTEM, L.L.C.

v.Barry FAUST

2016 CA 1276

Court of Appeal of Louisiana, First Circuit.

APRIL 12, 2017

Vincent F. Wynne, Jr., Shannon K. Lowry, Covington, Louisiana, Attorneys for Plaintiff/Appellant, Paradigm Health System, L.L.C.

Bruce A. Cranner, Ryan G. Davis, Mandeville, Louisiana, Attorneys for Defendant/Appellee, Barry Faust, M.D.

BEFORE: PETTIGREW, McDONALD, AND CALLOWAY¹ , JJ.

CALLOWAY, J.

Defendant, Paradigm Health System, L.L.C. (Paradigm), appeals a judgment denying preliminary injunctive relief, based upon the trial court's determination that the noncompetition provisions of Paradigm's employment agreement with Barry Faust, M.D. were invalid and unenforceable. For the reasons stated herein, we affirm.

FACTS AND PROCEDURAL HISTORY

Paradigm filed a declaratory judgment, petition for damages, and a request for injunctive relief against Dr. Faust, claiming that he breached the noncompetition clause of an employment agreement between the parties. In June of 2014, Paradigm and Dr. Faust entered into an employment agreement, which stated that for two years after termination of the employment, Dr. Faust could not, "engage in the practice of medicine or render any medical services to any business similar to those services provided by [Paradigm]...." Paradigm claims that Dr. Faust resigned his employment on April 23, 2015. At the time Paradigm filed the petition on October 16, 2015, Paradigm claimed that Dr. Faust was actively seeking employment in the parishes restricted by the noncompetition agreement, St. Tammany, Tangipahoa, and/or the restricted portions of Jefferson Parish. Paradigm sought injunctive relief to prevent Dr. Faust from violating the noncompetition agreement, as well as damages and a declaratory judgment declaring the restrictive covenants in the employment agreement to be valid and enforceable.

In response, Dr. Faust denied that he resigned his employment, claimed he was terminated by Paradigm on April 21, 2015, and filed a reconventional demand asserting a claim for past wages. Dr. Faust filed a supplemental and amending reconventional demand claiming Paradigm breached the employment agreement by terminating him before he had worked for one year, and he also sought penalties and attorney's fees.

The trial court held a hearing on the injunctive relief sought by Paradigm on March 8, 2015. The trial court heard oral argument and continued the matter for the parties to complete discovery. On May 17, 2015, the trial court heard the continuation of the request for injunctive relief.² The noncompetition agreement prohibited Dr. Faust from the following:

[E]ngage in the practice of medicine or render any medical services to any business similar to those services provided by [Paradigm], located in the Louisiana Parishes of St. Tammany, Jefferson (exception of city of Kenner, and Westbank) and Tangipahoa. The list of parishes and locations shall be expanded if the Company opens new offices in additional locales in which case [this section] shall apply to the new [Paradigm] offices. Violation of this provision shall result in liquidated damages of $400,000.

The trial court determined that the language of the noncompetition agreement was overly broad, since it restricted Dr. Faust from the "practice of medicine" without being limited to his field of pain management. The trial court also found that the noncompetition agreement was overly broad and unenforceable because it attempted to add "locales" where Paradigm might open offices in the future to the geographic limitation. The trial court denied the request for preliminary injunctive relief.

The trial court signed a judgment on June 13, 2016, denying the preliminary injunctive relief, and Paradigm filed this appeal. This court issued a rule to show cause, as the judgment appeared to be a partial judgment and did not appear to address all the claims Paradigm had against Dr. Faust. Pursuant to that order, the trial court signed an amended judgment on October 25, 2016, designating the judgment as a final judgment pursuant to La. C.C.P. art. 1915(B) and issuing a per curiam giving explicit reasons as to the designation, as requested by this court. The rule to show cause issued by this court was referred to this panel. We maintain this appeal.³

ERRORS

While Paradigm assigns four assignments of errors, we find that these can be consolidated into the following errors by the trial court: (1) by finding the noncompetition clause to be overly broad and not in compliance with La. R.S. 23:921(C) ; (2) by finding the noncompetition clause to violate the geographic requirements of La. R.S. 23:921(C) ; and (3) by finding that certain clauses could not be severed from the noncompetition clause, and thereby refusing to reform the employment agreement.

LAW AND DISCUSSION

Historically, Louisiana has disfavored noncompetition agreements. SWAT 24 Shreveport Bossier, Inc. v. Bond , 2000-1695 (La. 6/29/01), 808 So.2d 294, 298. Such agreements are deemed to be against public policy, except under the limited circumstances delineated by statute.⁴ J4H, L.L.C. v. Derouen , 2010-0319 (La.App. 1 Cir. 9/10/10), 49 So.3d 10, 13. At all times pertinent to this matter, La. R.S. 23:921 provided, in part, as follows:

A. (1) Every contract or agreement, or provision thereof, by which anyone is restrained from exercising a lawful profession, trade, or business of any kind, except as provided in this Section, shall be null and void. However, every contract or agreement, or provision thereof, which meets the exceptions as provided in this Section, shall be enforceable.

...

C. Any person ... may agree with his employer to refrain from carrying on or engaging in a business similar to that of the employer and/or from soliciting customers of the employer within a specified parish or parishes, municipality or municipalities, or parts thereof, so long as the employer carries on a like business therein, not to exceed a period of two years from termination of employment.

Louisiana Revised Statute 23:921(C) is an exception to Louisiana's public policy against noncompetition agreements and, as such, must be strictly construed. J4H , 49 So.3d at 14. Thus, to be valid, a noncompetition agreement may limit competition only in a business similar to that of the employer, in a specified geographic area and for up to two years from termination of employment. Cellular One, Inc. v. Boyd , 1994-1783 (La.App. 1 Cir. 3/3/95), 653 So.2d 30, 33, writ denied , 1995-1367 (La. 9/15/95), 660 So.2d 449. If the action sought to be enjoined pursuant to a noncompetition agreement does not fall within the statutory exception of La. R.S. 23:921(C), or the agreement does not conform to the statutory requirements, then the party seeking enforcement cannot prove it is entitled to the relief sought. Vartech Systems, Inc. v. Hayden , 2005-2499 (La.App. 1 Cir. 12/20/06), 951 So.2d 247, 255–56.

Generally, a party seeking the issuance of a preliminary injunction must show that he will suffer irreparable injury if the injunction does not issue and must show entitlement to the relief sought; this must be done by a prima facie showing that the party will prevail on the merits of the case. However, in the event an employee enters into an agreement with his employer not to compete, pursuant to La. R.S. 23:921, and fails to perform his obligation under such an agreement, the court shall order injunctive relief even without a showing of irreparable harm, upon proof by the employer of the employee's breach of the noncompetition agreement. See La. R.S. 23:921(H) ; Vartech Systems , 951 So.2d at 255.

In determining whether the employer has met his burden of proof, the courts have been called on to consider the validity and enforceability of the agreement sought to be enforced by the employer. Where the actions sought to be enjoined pursuant to a noncompetition agreement do not fall within the exception found in La. R.S. 23:921(C) or where the noncompetition agreement is found to be unenforceable for failure to conform to La. R.S. 23:921, the employer is unable to establish that it is entitled to the relief sought. Vartech Systems , 951 So.2d at 255–56.

Typically, a trial court enjoys considerable discretion in determining whether a preliminary injunction is warranted, and the issuance of a preliminary injunction will not be disturbed on appeal absent a clear abuse of discretion. Vartech Systems , 951 So.2d at 256. However, the underlying issue in this case is whether the noncompetition agreement falls within the exception found in La. R.S. 23:921(C). The proper interpretation of a statute is a question of law that we review de novo. J4H , 49 So.3d at 14.

In the present matter, Paradigm employed Dr. Faust in the field of anesthesia and interventional pain management. The noncompetition agreement sought to prohibit Dr. Faust from engaging "in the practice of medicine" or rendering "any medical services to any business similar to those services provided by [Paradigm]." Nowhere does the employment agreement define the services provided by Paradigm. At the hearing, the trial court orally expressed his misgivings with the noncompetition clause, stating that it prevented Dr. Faust from the "practice of medicine," but Paradigm argued the doctor understood the restriction to be "pain management." The trial court stated, "But the agreement says he was hired as a physician to provide interventional pain management services, and the noncompete clause says that he cannot provide any medical services." Based on this distinction in the language used, the trial court found the noncompetition clause to be overly broad and unenforceable.

Noncompetition agreements are strictly construed in favor of the employee and against the party attempting enforcement. Noncompetition clauses that contain overly broad definitions of the employer's business violate La. R.S. 23:921(C) and are null and void. It is not sufficient to merely prohibit an employee...