Raymundo v. Hammond Clinic Ass'n

• Decision Date: 29 May 1980
• Docket Number: No. 3-978A246,3-978A246
• Parties: Luciano C. RAYMUNDO, Defendant-Appellant, v. HAMMOND CLINIC ASSOCIATION, Plaintiff-Appellee.
• Court: Indiana Appellate Court

Page 65

405 N.E.2d 65

Luciano C. RAYMUNDO, Defendant-Appellant, v. HAMMOND CLINIC ASSOCIATION, Plaintiff-Appellee.

No. 3-978A246.

Court of Appeals of Indiana, Third District.

May 29, 1980.

Fred M. Cuppy, Gerald K. Hrebec and George W. Carberry, Merrillville, for defendant-appellant.

Robert F. Peters, Lucas, Clifford & Holcomb, Merrillville, for plaintiff-appellee.

GARRARD, Presiding Judge.

Appellant, Dr. Luciano C. Raymundo, appeals from the trial court's entry of summary judgment in favor of appellee, the Hammond Clinic Association, arising from a non-competition covenant in a partnership agreement.

The agreement entered into on December 31, 1974 provided in part as follows:

"D. In the event that any member of the Association, other than a member who receives 100% of the compensation paid to a full Partner, shall withdraw from the Association as provided for in this Article, then and in that event said Party covenants and agrees that he shall not, for a period of two (2) years from the effective date of his withdrawal from the Association, carry on or engage directly or indirectly in the practice of medicine within a 25-mile radius of the City of Hammond, Indiana, provided, however, that said 25-mile radius shall be confined to the State of Indiana and the cities of Calumet City and Lansing, Illinois.

6. In the event that the Second Party shall violate the provisions contained in Paragraph D of Article XVI of the Articles of Association of the Hammond Clinic, as set forth in Supplemental Agreement No. 20, then and in that event the Parties agree that the Second Party shall pay to the First Party as liquidated damages for the breach of said provisions the sum of Twenty-five Thousand Dollars ($25,000.00) if the breach occurs during the first twelve (12) months of the two (2) year period and the sum of Fifteen Thousand Dollars ($15,000.00) if the breach occurs during the second twelve (12) months of the two (2) year period."

In July 1974, Dr. Raymundo, who was not a member that received 100% of the compensation paid to a full partner, withdrew from the clinic and immediately began engaging in the solo practice of orthopedic medicine in Munster, Indiana, a city within the restricted area. The clinic brought this action seeking injunctive relief, damages of $25,000 and an accounting. Dr. Raymundo answered the complaint by asserting that the covenant was unenforceable as against public policy and in restraint of trade and that the liquidated damages clause was unenforceable as a penalty. He also moved to dismiss as moot the clinic's complaint for injunctive relief because the two year restriction had expired during pendency of the suit. The clinic filed a motion for summary judgment on the issue of Dr. Raymundo's liability for liquidated damages because of the breach of the non-competition covenant. Both motions were granted. The trial court entered final judgment in favor of the clinic for the breach of the covenant and awarded $25,000 damages. The remaining issues were scheduled for trial.

Raymundo appeals from the judgment in favor of the clinic ¹ contending that there were genuine issues of material fact concerning the validity of the liquidated damages clause and the non-competition covenant. We agree and reverse.

Dr. Raymundo contends that the liquidated damages claim was a penalty and thus unenforceable. As a general rule, where the nature of the contract is such that upon a breach thereof the resulting damage will be uncertain and difficult of proof and the amount of damages fixed by the parties is not greatly disproportionate to the loss likely to be occasioned by the breach, the sum fixed will be considered as liquidated damages and not as a penalty. Lettellier v. Abilene Flour Mills Co. (1935), 101 Ind.App. 20, 198 N.E. 111; Dowd v. Andrews (1922), 77 Ind.App. 627, 134 N.E. 294; Walker v. Bement (1911), 50 Ind.App. 645, 94 N.E. 339; Beiser v. Kerr (1939), 107 Ind.App. 1, 20 N.E.2d 666; Tudor v. Beath (1921), 76 Ind.App. 526, 131 N.E. 848.

As was stated in Lettellier v. Abilene Flour Mills Co. (1935), 101 Ind.App. 20, 27, 198 N.E. 111, 114:

"The courts formerly seemed quite strong in their views and would seldom admit that there was ever a valid contract providing for liquidated damages. Their tendency was to construe such language as a penalty, so that nothing but actual damages sustained by the party aggrieved could be recovered. They are now more tolerant of such provisions, and are strongly inclined to let parties make their own contracts, and carry out their own intentions, even when it results in the recovery of an amount stated as liquidated damages, upon proof of the violation of the contract and without proof of damages actually sustained. United States v. Bethlehem Steel Co. (1907), 205 U.S. 105, 27 S.Ct. 450, 51 L.Ed. 731."

Contracts not to engage in a particular business or profession belong to that class of cases which is adapted to stipulation for liquidated damages because it is often practically impossible to fix the exact amount of damages resulting from a breach of the agreement. Beiser v. Kerr (1939), 107 Ind.App. 1, 20 N.E.2d 666. A stipulation in such a contract is construed to be an agreement for liquidated damages rather than a penalty in the absence of any evidence to show that the amount of damages claimed is unreasonable. Duffy v. Shockey (1858), 11 Ind. 70; Beiser v. Kerr, supra. In the case at hand, there is no evidence to show that the amount specified in the contract was unreasonable or grossly disproportionate to the amount of actual damages suffered. It is uncontradicted that during the final six and one half months of Dr. Raymundo's association with the clinic he had brought in over $103,000.00 in gross revenues.

However, regardless of the enforceability of a liquidated damages clause, the clinic's ability to recover damages depends upon the validity of the non-competition agreement. If that covenant is void, the clinic is not entitled to any recovery for its breach. Dr. Raymundo argues that there are genuine issues of material fact surrounding the reasonableness of the geographic limitation in the non-competition covenant.

Non-competition covenants...