Health Law

TEXAS COURT UPHOLDS HOSPITAL CEO NON-COMPETE

By Greg Piche'

In Teel v. Hospital Partners of America, CA No. H-06-3991, a U.S. District Court for the Southern District of Texas ? Houston Division, entered summary judgment in favor of the defendant finding as a matter of law that Mr. Teel, a former CEO of Twelve Oaks, an HPA hospital in Houston could not claim damages against HPA for its attempts an enforcing Mr. Teel?s covenant not to compete with HPA, because the covenants were enforceable under the law of the contract (North Carolina) and under the law of the jurisdiction (Texas). Mr. Teel?s contract restricted him from ?owning, acquiring, developing or managing a competing hospital located within a 25-mile radius of an HPA facility or a facility that HPA was actively pursuing, for one year after his employment ended. If Mr. HPA terminated his employment without cause, Mr. Teel was to receive a severance package up to one year?s salary and benefits, if he signed an ?effective release agreement in form and substance reasonably satisfactory? to HPA.

Mr. Teel apparently wanted to have it both ways in that after his termination without cause in July of 2006 he began negotiating for a new job in Houston with HPA competitors and began to negotiate with HPA for his severance. In July of 2006, HPA sent Teel a proposed lease form that limited the scope of the non-compete to physician owned hospitals. Teel rejected the release and filed suit in August, 2006 alleging that his non-compete was unenforceable.  Teel received a conditional offer of employment from a university hospital in Houston. In December his lawyers sent a signed release back to HPA where the non-compete was broader than the release offer proposed by HPA earlier.

HPA responded that it refused to pay the severance package because Mr.  Teel had been in ?active discussions with direct competitors-other physician owned hospitals- in the same market. After determining that the noncompete clause was enforceable in North Carolina it also determined that it was enforceable under Texas law, which requires that the clause be ? ancillary to or part of an otherwise enforceable agreement at the time the agreement is made to the extent it contains limitations as to time, geographical area, and scope of activity to be restrained that are reasonable and do not impose a greater restraint than is necessary to protect the goodwill or other business interest of the promisee.  TEX.BUS. & COM. CODE, Sec. 15.50.

In Texas, for an covenant to be ancillary to or part of an otherwise enforceable agreement, the employer must prove that the consideration given by the employer must give rise to the employer?s interest in restraining the employee from competing and the covenant must be designed to enforce the employee?s return consideration for the otherwise enforceable agreement.

Having found that the covenant was appropriately limited geographically and in time and scope, the court turned to the issue of consideration and determined that Mr. Teel as an at will employee had been provided confidential information and specialized training as promised in his employment agreement and that consideration supported the promise not to compete. The court held that for an ?at will? employee the employee?s promise is executory and not enforceable until the promised information is provided. Once it is provided, the employee is bound and Teel was bound.

The court found that there remained a question of fact as to the question of whether HPA breached its obligation to pay the severance to Mr. Teel because Mr. Teel was willing to enter into a release agreement at least as satisfactory as the one offered by HPA earlier.  HPA argued that then was then and later was later- conditions had changed as a result of Mr. Teel?s activities and its earlier offer rejected by Mr. Teel was no longer sufficient for it to accept Mr. Teel?s later release proposal.  Sometimes when you go for it all you risk loosing it all.

Full post as published by Healthcare Law Blog on March 12, 2008 (boomark / email).