Phoenix Orthopaedic Surgeons, Ltd. v. Peairs, 2

• Decision Date: 27 November 1989
• Docket Number: CA-CV,No. 2,2
• Citation: Phoenix Orthopaedic Surgeons, Ltd. v. Peairs, 164 Ariz. 54, 790 P.2d 752 (Ariz. App. 1989)
• Parties: PHOENIX ORTHOPAEDIC SURGEONS, LTD., an Arizona professional corporation, Plaintiff/Appellee, v. Richard PEAIRS and Jane Doe Peairs, husband and wife, Defendants/Appellants. 89-0118.
• Court: Arizona Court of Appeals

Page 752

790 P.2d 752

164 Ariz. 54

PHOENIX ORTHOPAEDIC SURGEONS, LTD., an Arizona professional corporation, Plaintiff/Appellee, v. Richard PEAIRS and Jane Doe Peairs, husband and wife, Defendants/Appellants.

No. 2 CA-CV 89-0118.

Court of Appeals of Arizona Division 2, Department A.

Nov. 27, 1989.

Review Denied May 8, 1990.

[164 Ariz. 56] Rawlings, Burrus, Lewkowitz & Feinstein, P.C. by Jeffrey S. Leonard and Vista Thompson Brown, Phoenix, for plaintiff/appellee.

O'Connor, Cavanagh, Anderson, Westover, Killingsworth & Beshears, P.A. by Scott E. Boehm and Charles L. Fine, Phoenix, for defendants/appellants.

OPINION

ROLL, Judge.

Dr. Richard Peairs appeals from the trial court's granting of a preliminary injunction enforcing the terms of a restrictive covenant in an employment contract between Dr. Peairs and Phoenix Orthopaedic Surgery, Ltd. (POS). The restrictive covenant prohibits him from practicing orthopaedic medicine and orthopaedic surgery within a five-mile radius of the offices of POS. For the reasons set forth below, we affirm.

FACTS

POS is a professional corporation of orthopaedic surgeons. The four shareholders are four physicians who practice out of three offices in northwest Phoenix.

In 1984, POS placed an advertisement in a publication of the American Academy of Orthopaedic Surgeons offering employment for a physician with the specialty of sports medicine. Dr. Peairs answered the advertisement and was furnished with a written agreement in May 1985. This proposed agreement contained a covenant not to compete, which provided as follows:

11. Practice of Medicine by Peairs Upon Termination of this Agreement. In the event of the termination of this agreement, Peairs agrees he will not practice orthopedic medicine and surgery within a five (5) mile radius of each office of Phoenix from which it is then practicing medicine for a period of three (3) years from (i) the date of termination or (ii) the last day of the current term of this agreement should it not be extended for an additional term. Should Pearis [sic] violate his agreement not to practice within the defined area for the expressed time, he shall pay Phoenix Two Hundred Fifty Dollars ($250.) for each and every day of his violation, not as a penalty, but as agreed liquidated damages to Phoenix for the injury to Phoenix's practice.

Dr. Peairs promptly indicated his concern regarding this provision. However, because he and his wife had already committed themselves to moving to Phoenix from Houston, and because Dr. Peairs believed that the contract was generally advantageous, he signed the contract. Dr. Peairs did have a relative, who was a San Francisco attorney, review the contract. The contract was to commence August 15, 1985, for a one-year term, to be renewable in writing at the option of the parties. Although the contract was not renewed in writing in August 1986, Dr. Peairs continued his employment with POS, albeit with negotiated modifications as to compensation and advancement provisions. On August 27, 1987, Dr. Peairs notified POS in writing that he was resigning, "to be effective in sixty days as required by our contract." POS notified Dr. Peairs of its intent to enforce the covenant not to compete. After Dr. Peairs left POS, he performed approximately 80 percent of his orthopaedic surgery within the restricted area.

PROCEDURAL HISTORY

On January 11, 1988, POS filed a declaratory judgment action seeking damages and injunctive relief based upon Dr. Peairs' alleged breach of the terms of the restrictive covenant in his employment contract by practicing orthopaedic medicine and orthopaedic surgery within a five-mile radius of POS offices. A preliminary injunction was issued June 16, 1988. The trial court ruled that the restrictive covenant in the employment contract was enforceable. The court restrained Dr. Peairs from performing emergency room duties as an on-call physician and from performing surgery at Thunderbird Samaritan Hospital, Maryvale Samaritan Hospital, and Glendale Surgicenter. The injunction did not restrain Dr. Peairs from engaging in these activities at John C. Lincoln Hospital (which is beyond the five-mile radius), from conducting classes or seminars, or from serving as the team physician for Deer Valley High School.

Dr. Peairs appeals from the issuance of the preliminary injunction. His motion to suspend the injunction pending this appeal was denied by a different superior court judge. That judge did modify the injunction to allow Dr. Peairs to treat his patients seeking emergency room treatment at hospitals within the five-mile radius of POS offices.

ISSUES ON APPEAL

Dr. Peairs contends that the trial court erred in issuing the preliminary injunction because (1) the employment agreement had expired, (2) the employment agreement is ambiguous and should be construed against POS, (3) POS suffered no irreparable harm and has an adequate remedy at law, (4) POS is barred from obtaining equitable relief, (5) the restrictive covenant is overbroad and therefore unenforceable, and (6) the restrictive covenant violates the public policy of Arizona.

STANDARD OF REVIEW

Granting a preliminary injunction is within the sound discretion of the trial court. The order will not be reversed unless there is a clear abuse of discretion. Financial Associates, Inc. v. Hub Properties, Inc., 143 Ariz. 543, 545, 694 P.2d 831, 833 (App.1984). A restrictive covenant in an employment agreement is valid and enforceable by injunction when the restraint does not exceed that reasonably necessary to protect the employer's business, is not unreasonably restrictive of the rights of the employee, does not contravene public policy, and is reasonable as to time and space. American Credit Bureau, Inc. v. Carter, 11 Ariz.App. 145, 147, 462 P.2d 838, 840 (1969). However, this court is not bound by the trial court's construction of an employment contract. Rogers v. Hecla Mining Co., 120 Ariz. 612, 613, 587 P.2d 1189, 1190 (App.1978).

The Employment Contract

1. Expiration Date

A restrictive covenant in an employment agreement must "fall within the requirements of a valid contract, and it must be incidental or ancillary to an otherwise legally enforceable contract." American Credit Bureau, 11 Ariz.App. at 147, 462 P.2d at 840. Dr. Peairs claims that the employment contract expired under its own terms and is not a legally enforceable contract.

The contract was effective August 15, 1985, to August 14, 1986. By its terms it was subject to modification or extension "by written mutual agreement." Dr. Peairs and POS orally negotiated his second year of employment. Dr. Peairs requested and received increased compensation and modified partnership terms so as to allow him full partnership three years following his original employment. On August 27, 1987, Dr. Peairs gave 60 days' written notice of his intent to leave POS "as required by our contract." ¹

Parties to a written contract can orally modify the contract by mutual agreement supported by consideration. Coronado Co., Inc. v. Jacome's Dept. Store, Inc., 129 Ariz. 137, 139, 629 P.2d 553, 555 (App.1981); Barrett v. Duzan, 114 Ariz. 137, 139-40, 559 P.2d 693, 695-96 (App.1977). There can be a modification of a written agreement without further writing. Arizona Feeds v. A & R Argo, Inc., 136 Ariz. 420, 423, 666 P.2d 520, 523 (App.1983). "The general rule in most jurisdictions is that parties to a written contract may alter or modify its terms by a subsequent oral agreement even though the contract precludes oral modification." Park v. Dealers Transit, Inc., 596 F.2d 203, 204 (7th Cir.1979).

Sufficient evidence exists to support the trial court's conclusion that Dr. Peairs and POS orally modified the terms of the employment contract, therefore, the contract was still in effect on August 27, 1987, when Dr. Peairs sent a letter terminating the contract on 60 days' notice.

2. Ambiguity of Restrictive Covenant

Dr. Peairs argues that the restrictive covenant is not enforceable because it is ambiguous. "An agreement is ambiguous if the language used by the parties can reasonably be construed in more than one sense, and such construction cannot be determined within the four corners of the instrument." Cecil Lawter Real Estate School, Inc. v. Town & Country Shopping Center Co., Ltd., 143 Ariz. 527, 533, 694 P.2d 815, 821 (App.1984). The trial court enumerated activities it considered to be the practice of surgery and medicine. The court did not state whether the agreement was ambiguous. However, the court heard evidence on the meaning of the agreement, and the intent of the parties, then apparently resolved any ambiguities. "[A]ny ambiguity in the documents is subject to a factual determination concerning the intent of the parties and is to be resolved conclusively by the ... trial court." United California Bank v. Prudential Ins. Co. of America, 140 Ariz. 238, 260, 681 P.2d 390, 412 (App.1983).

Dr. Peairs argues that the word "practice" as used in the restrictive covenant is ambiguous and that he understood the word to mean only that his office could not be located within a five-mile radius of any POS office. The trial court heard evidence that Dr. Peairs performs procedures which constitute orthopaedic surgery and that virtually all orthopaedic surgery is performed in hospitals or outpatient surgical centers. The trial court found that performing on-call physician duty at the emergency room of hospitals or serving as assistant surgeon at a hospital within a five-mile radius of POS is the practice of orthopaedic medicine. The court excluded teaching classes and seminars as not constituting the practice of medicine. The court also ruled that Dr. Peairs could serve as a volunteer team physician at Deer Valley High School because of the harm to the high school if Dr. Peairs were to be barred from his duties as volunteer team physician. The injunction was further modified to allow Dr. Peairs to treat his...