WellSpan Health v. Bayliss, 2005 PA Super 76 (PA 2/22/2005)

• Court: Pennsylvania Supreme Court
• Writing for the Court: Beck
• Citation: WellSpan Health v. Bayliss, 2005 PA Super 76 (PA 2/22/2005), 2005 PA Super 76, No. 405 MDA 2004. (Pa. Feb 22, 2005)
• Decision Date: 22 February 2005
• Docket Number: No. 405 MDA 2004.,405 MDA 2004.
• Parties: WELLSPAN HEALTH, YORK HOSPITAL and WELLSPAN MEDICAL GROUP, Appellants v. PHILLIP BAYLISS, M.D., Appellee.

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2005 PA Super 76

WELLSPAN HEALTH, YORK HOSPITAL and WELLSPAN MEDICAL GROUP, Appellants v. PHILLIP BAYLISS, M.D., Appellee.

No. 405 MDA 2004.

Superior Court of Pennsylvania.

Filed: February 22, 2005.

Appeal from the Order entered February 27, 2004 In the Court of Common Pleas of York County, Civil Division at No. 2003-SU-02781-01.

Before: FORD ELLIOTT, JOYCE and BECK, JJ.

OPINION BY BECK, J.

¶ 1 In this appeal the issues of protectable business interest and requirements for a permanent injunction, within the context of a physician non-competition covenant, are brought before the court. Appellant WellSpan Health seeks review of an order which granted in part and denied in part its petition for a permanent injunction against a physician ex-employee, who was practicing his subspecialty in breach of his non-competition covenant. We affirm.

— FACTS —

¶ 2 WellSpan is a not-for-profit healthcare system based in York, Pennsylvania that serves patients in south central Pennsylvania and northern Maryland. The primary components of WellSpan are Gettysburg Hospital and York Hospital. The latter is a teaching hospital with a number of training components, including residency programs.

¶ 3 In 1993, WellSpan recruited Philip Bayliss, M.D., a perinatologist, to York Hospital. Perinatology, a specialized medical practice focused on the management of high risk pregnancies, is a subspecialty of maternal fetal medicine, which is in turn a subspecialty of obstetrics/gynecology. Dr. Bayliss was hired as the Medical Director of the Perinatal/Genetic Program at York Hospital and the Associate Residency Program Director for Obstetrics. He subsequently also became York Hospital's Director of the Maternal Fetal Medicine Division and a member of the Medical Executive Committee at WellSpan. By these appointments, Dr. Bayliss served as a member of the WellSpan management team, participating in business strategy and marketing sessions.

¶ 4 Prior to his recruitment by WellSpan, Dr. Bayliss had served in the U.S. Army Medical Corps in Texas and Germany. He had no contact with south central Pennsylvania prior to his recruitment by WellSpan.

¶ 5 Shortly before starting work at York Hospital, Dr. Bayliss signed a professional services agreement that included a post-employment non-competition covenant (or restrictive covenant). By the terms of the covenant, Dr. Bayliss agreed not to engage in the practice of perinatology in York County or its four contiguous counties (Lancaster, Dauphin, Cumberland, and Adams) for two years after termination of his employment.

¶ 6 York Hospital's Maternal Fetal Medicine Division expanded under Dr Bayliss to include two additional physicians and new equipment. At Dr. Bayliss's recommendation, Kimberly Heller, a board certified perinatologist, was hired in 1994, and Uma Reddy, a candidate for board certification in maternal fetal medicine, was hired in 2002 to work four days a week. WellSpan also hired other personnel for the program, including technicians, genetics counselors, and nurses. In the last five years, WellSpan spent approximately $900,000 in capital equipment for its Maternal Fetal Medicine Division.

¶ 7 WellSpan promoted the Maternal Fetal Medicine Division and Dr. Bayliss with marketing strategies, including advertisements to increase the number of referrals. As a specialized medical practice, maternal fetal medicine is dependent upon a strong referral base for its viability. One type of promotion was a videotape in which Dr. Bayliss was prominently featured. Dr. Bayliss created referral linkages with physicians at Memorial Hospital, in York County; Hanover Hospital, in York County; and Gettysburg Hospital, in Adams County.

¶ 8 In June 2001, Lancaster General Hospital opened a new Women and Babies Hospital (WBH) in Lancaster County, approximately 26 miles from WellSpan. WellSpan recognized a competitive threat to its obstetrics practice, particularly in east York County, from this new facility. As early as 1999, WellSpan and Dr. Bayliss had contemplated some type of expansion into Lancaster County. In August 2001, Drs. Bayliss and Heller presented to WellSpan a plan to expand maternal fetal medicine services to Lancaster County. However, WellSpan did not take steps, beyond discussion of possible strategies and plans, to create a physical presence in Lancaster County.

¶ 9 In February 2003, Dr. Bayliss announced his resignation from WellSpan, effective June 30, 2003, and his intention to establish a maternal fetal medicine practice at WBH in Lancaster County, beginning on July 1, 2003. Several WellSpan staff members were recruited to Dr. Bayliss's new practice.

— THE INJUNCTIONS —

¶ 10 On June 17, 2003, WellSpan filed a motion for preliminary injunction seeking enforcement of the restrictive covenant signed by Dr. Bayliss and also a complaint alleging breach of contract. Regarding the motion for preliminary injunction, the court held hearings on July 3 and 14, 2003 and issued an order on August 12, 2003, denying in part and granting in part WellSpan's motion. The trial judge upheld the restrictive covenant with regard to York and Adams Counties, forbidding Dr. Bayliss from engaging in the practice of perinatology in those counties and from soliciting referrals of perinatology patients from physicians in those counties until June 30, 2005. However, the trial judge refused to enforce the covenant in Lancaster, Dauphin, or Cumberland Counties, based on his conclusion that WellSpan did not compete for perinatology patients in those counties. He held that the covenant, as applied to geographical areas where WellSpan did not provide perinatology care, was unreasonable and hence unenforceable. The order also enjoined Dr. Bayliss from soliciting any past or present WellSpan perinatology patients and from using or disclosing any information pertaining to WellSpan's past or present patients, except as requested by the patient.

¶ 11 On October 1, 2003, WellSpan filed a petition for permanent injunction, again seeking enforcement of the non-competition covenant. Both parties agreed to rely on the record and stipulations from the preliminary injunction hearings for purposes of the permanent injunction proceedings. The trial court issued its order regarding WellSpan's permanent injunction petition on February 25, 2004. This order contained the same terms as the preliminary injunction order and was based on the same reasoning—that WellSpan and WBH did not compete for maternal fetal medicine patients in each other's counties. WellSpan filed a timely appeal of the February 25, 2004 order, particularly as it applies to Lancaster County.

¶ 12 To prevail in a claim for a permanent injunction, the plaintiff must prove a "clear right to relief." Buffalo Township v. Jones, 517 Pa. 637, 644, 813 A.2d 659, 663 (2002), cert. denied, 540 U.S. 821 (2003). The injury claimed must be one that cannot be compensated by an award of damages. Peugeot Motors of America, Inc. v. Stout, 456 A.2d 1002, 1008-09 (Pa. Super. 1983). However, in contrast to a preliminary injunction, a permanent injunction does not require a showing of irreparable harm or the need for immediate relief. Buffalo Township, supra at 644, 813 A.2d at 663. Rather, the plaintiff must show that an actual and substantial injury has occurred and/or is threatened in the future. Peugeot Motors, supra at 1008. As our Supreme Court has summarized, a permanent injunction is appropriately awarded "to prevent a legal wrong for which there is no adequate redress at law." Buffalo Township, supra at 644, 813 A.2d at 663 (quoting Soja v. Factoryville Sportsmen's Club, 522 A.2d 1129, 1131 (Pa. Super. 1987)).

¶ 13 Appellate review of the grant or denial of a permanent injunction is limited to determining whether the trial court committed an error of law.¹ Id. at 644 & n.4, 813 A.2d at 663-64 & n.4. In reviewing a question of law, our standard of review is de novo and our scope is plenary. Id. at 644 n.4, 813 A.2d at 664 n.4.

¶ 14 In the present case, to prevail in its petition for a permanent injunction, appellant WellSpan must prove that it has a clear right to relief under the post-employment non-competition covenant signed by Dr. Bayliss. WellSpan also must demonstrate that his breach of the covenant has caused or will cause actual and substantial injury to WellSpan for which there is no adequate legal remedy.

— NON-COMPETITION COVENANT —

¶ 15 Pennsylvania courts have historically been reluctant to enforce contracts that place restraints on trade or on the ability of an individual to earn a living; however, post-employment non-competition covenants are not per se unreasonable or unenforceable. See, e.g., Hess v. Gebhard & Co., Inc., 570 Pa. 148, 157-60, 808 A.2d 912, 917-18 (2002); Insulation Corporation of America v. Brobston, 667 A.2d 729, 733 (Pa. Super. 1995).

¶ 16 The non-competition covenant at issue sought to prevent Dr. Bayliss from practicing in York, Adams, Lancaster, Dauphin, and Cumberland counties. The trial court held that the covenant was enforceable in York and Adams counties, but not in Lancaster, Dauphin, or Cumberland counties.² Only the decision with regard to Lancaster County, the location of Dr. Bayliss' new employer, is appealed, and hence we focus on that county.

a. Protectable Interests

¶ 17 At a minimum, for a non-competition or restrictive covenant to be enforceable, it must be "reasonably related to the protection of a legitimate business interest." Hess, supra at 160, 808 A.2d at 918. The type of interests that have been recognized in the context of a non-competition covenant include trade secrets or confidential information, unique or extraordinary skills, customer good will, and investments in an employee specialized training program. Id. at 163, 808 A.2d at 920; Pennsylvania Funds Corp. v. Vogel, 399 Pa. 1, 7-8, 159 A.2d 472, 475-76 (1960). In contrast, a post-employment covenant that merely seeks to eliminate...