Retina Services, Ltd. v. Garoon

• Decision Date: 24 April 1989
• Docket Number: No. 88-1038,88-1038
• Citation: 182 Ill.App.3d 851,131 Ill.Dec. 276,538 N.E.2d 651
• Parties: , 131 Ill.Dec. 276 RETINA SERVICES, LTD. an Illinois medical corporation, Plaintiff-Appellant, v. Ira GAROON, M.D., Defendant-Appellee.
• Court: United States Appellate Court of Illinois

Page 651

538 N.E.2d 651

182 Ill.App.3d 851, 131 Ill.Dec. 276

RETINA SERVICES, LTD. an Illinois medical corporation Plaintiff-Appellant, v. Ira GAROON, M.D., Defendant-Appellee.

No. 88-1038.

Appellate Court of Illinois First District, First Division.

April 24, 1989.

Adams, Fox, Adelstein & Rosen, Chicago, for plaintiff-appellant (Michael E. Fox, Peter V. Baugher, and Norman Rifkind, of counsel) and O'Keefe, Asheden, Lyons & Ward, Chicago (J. Michael Heaton, of counsel).

Timothy R. Conway and Brad L. Jansen, Chicago, for defendant-appellee.

Justice BUCKLEY delivered the opinion of the court:

Retina Services Ltd. (plaintiff) brought this interlocutory appeal from the circuit court's denial of its motion for a preliminary injunction to enjoin Ira Garoon, M.D. (defendant) from providing medical services at five hospitals for a two-year period in contravention of a restrictive covenant not-to-compete in defendant's employment contract. The sole issue presented for our review is whether the circuit court erred in finding the covenant unenforceable. We reverse.

Plaintiff is an Illinois medical corporation. Its shareholders and professional employees, Joel Kaplan, M.D., and Frank P. La Franco, M.D., are ophthalmologists who subspecialize in retinal surgery. Plaintiff's practice is centered in the Chicago metropolitan area at eight hospitals which possess the equipment necessary for its subspecialty. Its patients consist mainly of referrals from other ophthalmologists.

Kaplan began marketing his subspecialty in 1966 by establishing contacts with ophthalmologists through speaking engagements and various other means. La Franco joined the practice in 1977. Either Kaplan or La Franco serve on the staff of five of the eight hospitals where they practice. In addition, of these five hospitals, they have founded eye centers at three hospitals and have nonexclusive contracts ¹ to perform retinal services with four hospitals.

Defendant began employment with plaintiff in 1982 after completing his fellowship in Massachusetts. At that time, defendant, who was represented by counsel, entered into a one-year contract with plaintiff for a $70,000 annual salary plus benefits. The contract contained various covenants not- to-compete after termination of his employment. Thereafter, upon Kaplan's and La Franco's sponsorship of and letters of recommendation, defendant received staff appointments at five of the hospitals Kaplan and La Franco were affiliated with and thereby gained access to their referring sources.

Defendant, again represented by counsel, entered into two subsequent employment agreements with plaintiff, extending the term of his employment at substantial increases in his salary with less restrictive covenants not-to-compete. Before signing the 1987 contract in issue here, defendant contacted an attorney for the American Medical Association who he understood was an expert on noncompetition agreements. Under this contract, defendant received cash compensation in excess of $300,000 along with approximately $50,000 in fringe benefits.

After Kaplan and La Franco decided not to renew defendant's contract at the expiration of the 1987 contract, defendant continued to practice at the five hospitals in contravention of the covenants. Plaintiff then filed an action to enforce the restrictive covenants. In its motion for preliminary injunction, plaintiff sought only to enforce that portion of the restrictive covenant which prohibited defendant from performing medical services at or serving on the staff of the five named hospitals and did not choose to enforce that portion which prohibited defendant from "tak[ing] any action [which may] disturb the existing * * * relationship of the Corporation with any referral source or any patient of Corporation" or from soliciting business from either.

In finding the covenant unenforceable, the circuit court found that plaintiff did not prove the existence of a protectable interest in its customer relationships because it did not establish a "near-permanent relationship" and "unlikely employee contact save for the employment." It also voiced concern over whether the geographic scope of the covenant was overly broad and necessary to protect plaintiff's interest.

It is established that a party who seeks a preliminary injunction must demonstrate by a preponderance of the evidence that (1) a certain and clearly ascertained right needs protection, (2) irreparable injury will occur without the injunction, (3) no adequate remedy at law exists, and (4) there is probability of success on the merits of the case. (A.B. Dick Co. v. American Pro-Tech (1987), 159 Ill.App.3d 786, 112 Ill.Dec. 649, 514 N.E.2d 45; McRand, Inc. v. Van Beelen (1985), 138 Ill.App.3d 1045, 93 Ill.Dec. 471, 486 N.E.2d 1306; Hydroaire, Inc. v. Sager (1981), 98 Ill.App.3d 758, 53 Ill.Dec. 928, 424 N.E.2d 719.) The determination of whether to grant or deny an injunction rests within the discretion of the trial court, and a reviewing court's role is limited to determining whether the trial court's findings are against the manifest weight of the evidence. McRand, 138 Ill.App. at 1050-51, 93 Ill.Dec. at 476, 486 N.E.2d at 1311; A.B. Dick Co., 159 Ill.App.3d at 791, 112 Ill.Dec. at 652, 514 N.E.2d at 48; Hydroaire, 98 Ill.App.3d at 761, 53 Ill.Dec. at 931, 424 N.E.2d at 722.

Whether injunctive relief should issue to enforce restrictive covenants not-to-compete in employment contracts depends upon the validity of the covenant, the determination of which is a question of law. (McRand, 138 Ill.App. at 1051, 93 Ill.Dec. at 476, 486 N.E.2d at 1311; Tower Oil & Technology Co. v. Buckley (1981), 99 Ill.App.3d 637, 642, 54 Ill.Dec. 843, 848, 425 N.E.2d 1060, 1065; Image Supplies, Inc. v. Hilmert (1979), 71 Ill.App.3d 710, 712, 28 Ill.Dec. 86, 88, 390 N.E.2d 68, 70.) Illinois courts carefully scrutinize the validity of these covenants that restrain trade (Akhter v. Shah (1983), 119 Ill.App.3d 131, 74 Ill.Dec. 730, 456 N.E.2d 232), and their enforceability is dependent upon the reasonableness of the restraint. Hydroaire, 98 Ill.App.3d at 764, 53 Ill.Dec. at 933, 424 N.E.2d at 724; House of Vision, Inc. v. Hiyane (1967), 37 Ill.2d 32, 37, 225 N.E.2d 21, 24.

In judging the reasonableness of covenants not-to-compete in a variety of employment settings, Illinois lower courts have focused on a number of different factors. Among these factors are whether the contract is supported by valuable consideration, whether the restraint is greater than necessary to protect the promisee, whether enforcement of the contract would be injurious to the public, whether enforcement would cause undue hardship to the promisor, whether the durational and geographic scope of the covenant are reasonable, and whether the employer has a protectable business interest. (See e.g., Akhter, 119 Ill.App.3d 131, 74 Ill.Dec. 730, 456 N.E.2d 232; Hydroaire, 98 Ill.App.3d 758, 53 Ill.Dec. 928, 424 N.E.2d 719; A.B. Dick Co., 159 Ill.App.3d 786, 112 Ill.Dec. 649, 514 N.E.2d 45.) Those courts which have examined whether a protectable business interest exists have applied a two-part test to reach its determination--the employer must have a near-permanent relationship with its customers and the employee would not have had contact with the customers but for the employment. McRand, 138 Ill.App.3d at 1051, 93 Ill.Dec. at 476, 486 N.E.2d at 1311; A.B. Dick, Co., 159 Ill.App.3d at 793, 112 Ill.Dec. at 653, 514 N.E.2d at 49.

The parties on appeal dispute what plaintiff is required to show to enforce a restrictive covenant not-to-compete among doctors under Illinois law. Specifically, defendant asserts that plaintiff must show that it had a protectable business interest in the five hospitals under the two-part test cited above, while plaintiff argues that Illinois courts recognize the goodwill inherent in a medical practice to be a protectable interest in consistently enforcing such covenants.

The Illinois Supreme Court has repeatedly upheld covenants not-to-compete in medical practice cases without making a specific inquiry into whether the plaintiff has demonstrated a protectable business interest. Notwithstanding the appellate court decisions which have carefully scrutinized whether the plaintiff has shown a protectable interest in cases outside the medical practice area, the Illinois Supreme Court's consistent enforcement of such covenants in the medical professional field, where the duration and geographic scope is reasonable, demonstrates its recognition that a professional's medical practice is a protectable business interest.

In the early case of Bauer v. Sawyer (1956), 8 Ill.2d 351, 134 N.E.2d 329, the supreme court noted that while contracts in general restraint of trade are generally held to be illegal, an exception exists in contracts where doctors in a medical partnership seek to prohibit a retiring partner from practicing medicine in the same city through a reasonable restraint. In House of Vision, 37 Ill.2d 32, 225 N.E.2d 21, the sole case where the court found a medical practice covenant not-to-compete to be unenforceable, the court weighed the employer's interests in protecting its customers of contact lenses with the hardships of the unlimited time period and the large geographic area of the covenant on the employee and concluded it was unreasonable.

Additionally, the court broadly stated in Canfield v. Spear (1969), 44 Ill.2d 49, 254 N.E.2d 433, where the doctor specializing in dermatology became known in the city through opportunities provided by his association with the clinic, that where the limitation as to time and...