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PHYSICIAN PRACTICE GROUP ?COVENANTS NOT TO COMPLETE

By Greg Piche'

 The enforceability of covenants not to compete in physician practice group employment

agreements vary from state to state. These covenants continue to develop legal angst as courts

try to balance the protection of legitimate practice group interests against an individual

physician?s right to practice his or her profession in a continuing location.  There is also

the rights of patients to continue access to their preferred physicians to be considered

(although patient interests are rarely identified as specific elements in court decisions). 

The Montana Supreme Court, in Dr. James Mungus et al v. Great Falls Clinic LLP, 2009 MT 426

(MT, December 15, 2009) reversed a summary judgment granted in favor of the physicians seeking

a declaratory judgment that their covenants not to compete were unenforceable.

 

The Supreme Court weighed in with an analysis of the complex interaction of a number of

Montana statutes affecting a group of physicians who departed from the Great Falls Clinic in

Great Falls, Montana. The plaintiff physicians signed employment agreements which reduced their

payouts of accounts receivable when they left the clinic employ if they chose to remain as

competitors in the community. The physicians were in slightly different factual circumstances

as four of them signed a separation agreement agreeing to the reduced compensation as

satisfaction in full.  The court determined that under a statute that provided that partial

performance accepted by a creditor as satisfaction extinguishes the obligation even though

without new consideration for the acceptance, governed the claims of those signing the

separation agreement, rendering their further claims against the clinic a nullity.

 Several of the physicians refused to sign the separation agreements. One of the

plaintiffs, Dr. English refused to sign the separation agreement and the clinic asserted that

his claim was barred under the Montana partnership law that required a dissociated partner to

commence an action for the determination or  recovery of the value of a partnership interest

within 120 days. The statute was unclear as to whether the 120 day provision applied when there

was a specific buy out provision already calculating the interest in the employment agreement.

The court held that under Montana law, public policy required the application of the longer

statute of limitation where there is a doubt as to which should apply and therefore Dr.

English?s claim was not time barred.

 The clinic also asserted that the sale of ?goodwill? exception to a Montana statute

prohibiting restraints on trade should be applied, arguing that the forfeiture provisions in

the partnership agreements constituted the sale of the goodwill of a business. The court found

that there was no sale of property involved and rejected the argument.

 The court then addressed the trial court?s determination that the forfeiture provisions

were void as a matter of law. The court found that only an absolute prohibition upon a person?s

right to engage in business is void as a matter of law. Here there was a predetermined payout

in the event of competition. Where such is the case the court must undertake a factual

determination to determine whether the restraint was reasonable. In determining the

reasonability of the restraint the court must address three factors. They are: 1) whether the

covenant should be limited in operation either as to time or place; 2) whether the covenant

should be based on some good consideration; and 3)  whether the covenant should afford a

reasonable protection for and not impose an unreasonable burden upon the employer, the employee

or the public.  The court returned the case to the trial court for further proceedings as to

reasonableness for the physicians who refused to sign the separation agreement. So it goes in

the Big Sky.

Full post as published by Healthcare Law Blog on December 30, 2009 (boomark / email).