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Court must hold hearing on injunction involving medical practice

September 10, 2014

A trial court’s assessment of the public interest regarding whether a doctor is prohibited under a noncompete agreement to practice within 25 miles of his former office in Rensselaer was contrary to law, the Indiana Court of Appeals held Wednesday. The judges reversed the denial of a motion for a preliminary injunction preventing the doctor from opening a new practice next door to his previous one.

Pinnacle Healthcare LLC purchased Dr. Patrick J. Sheets’ Rensselaer practice for $275,000 in 2011. Sheets then became an employee of Pinnacle and signed an employment agreement, which included noncompete, nonsolicitation and nondisparagement clauses. Sheets would be prevented for two years from practicing medicine directly or indirectly within 25 miles of his office. The agreement also contained a clause on liquidated damages if Sheets were to continue to practice within 25 miles of his current practice after leaving Pinnacle.

In 2013, Sheets told Pinnacle he was terminating the contract, alleging the company failed to pay him money owed under the agreement. He also filed a lawsuit, seeking to prevent Pinnacle from enforcing the noncompete, nonsolicitation clauses.

While this suit was pending, Pinnacle learned that Sheets set up a new practice in the same building as his former one, just weeks after leaving Pinnacle. Pinnacle and the practice it purchased sought a preliminary injunction to enforce the contract.

The trial court, mostly citing a case from Tennessee and the shortage of general practice doctors near Rensselaer, denied Pinnacle’s request.

The Court of Appeals held that the trial court’s findings are insufficient to disclose a valid basis for its conclusion that the appellants’ remedies at law are either adequate or inadequate, Judge Edward Najam wrote in Pinnacle Healthcare, LLC and Patrick J. Sheets, M.D., Inc. v. Patrick J. Sheets, 37A04-1401-CT-39.

“The trial court’s findings do not disclose a valid basis for its judgment with respect to any of the four requirements for a preliminary injunction,” he wrote. Also, the trial court’s assessment of the public interest and its reliance on Mufreesboro Medical Clinic, P.A. v. Udom, 166 S.W.3d 674 (Tenn. 2005), are contrary to Indiana law. The trial court’s rationale suggests that non-compete agreements against physicians are per se unreasonable if they either deprive a community of important medical services or if they deny patients the opportunity to choose their own medical provider. But this was expressly rejected by the Indiana Supreme Court 30 years ago, Najam pointed out. Also, Udom has been rejected by the Indiana justices as authority in Indiana, and it is no longer even good law in Tennessee, as it has been superseded by statute.

The liquidated damages clause in the agreement does not preempt the appellants’ request for injunctive relief, the judges ruled, noting the issue would likely recur on remand. They remanded with instructions to hold a hearing on the appellants’ motion pursuant to Ind. Trial Rule 65.

 

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