Appeal by plaintiff and defendant from an order entered 15
December 2004 by Judge John B. Lewis, Jr. in Nash County Superior
Court. Heard in the Court of Appeals 2 November 2005.
Ward & Smith, P.A., by John M. Martin, for defendant-
appellant.
Smith Moore LLP, by Sidney Eagles, Jr., George J. Oliver, John
W. Mann, and Montaye Sigmon McGee, for plaintiff-appellee.
SMITH, Judge.
The parties appeal from an order granting in part and denying
in part plaintiff's motion for a preliminary injunction. The facts
pertinent to the appeal are as follows: Boice-Willis Clinic, P.A.,
(“plaintiff”) is a multi-specialty, physician-owned medical
practice with offices in Rocky Mount, Nashville, and Spring Hope,
North Carolina. David S. Seaman, M.D. (“defendant”) is a general
and vascular surgeon who has special training and experience in
surgical procedures involving the liver, bile duct and
gastrointestinal tract. On or about 10 December 2002, the parties
entered into an employment agreement which contained a non-competeprovision which is the subject of the underlying action. The non-
compete provision reads, in pertinent part, as follows:
(a) While employed and for a period of twenty-
four (24) months after termination of
employment, voluntary or involuntary, Doctor
shall not, directly or indirectly, as an
individual practitioner or as a principal,
partner, stockholder, director, officer,
employee, member, or in any other capacity,
engage, participate or become interested in,
affiliated or connected with, or be employed
by or have any beneficial or financial
interest in, any corporation, partnership,
clinic, firm, association, sole
proprietorship, limited liability company, or
any enterprise engaged in delivery of
competitive medical or surgical services being
located within (i) a twenty-five (25) mile
radius of Nash General Hospital, and (ii) if
the Clinic at the time of termination has
satellite medical offices in other cities or
towns which refer patients to the Rocky Mount
office, a fifteen mile radius of the municipal
limits of the towns and cities in which the
Clinic maintains and operates satellite
offices at time of termination of employment.
(b) During the Doctor's employment hereunder
and for a period of twenty-four (24) months
after Doctor ceases to be employed by the
Clinic, Doctor shall not, directly or
indirectly, solicit any patient of any other
doctor of the Clinic with which Doctor has had
any contact as a result of employment by the
Clinic hereunder. For this purpose, “patient”
shall mean any person in the primary care of
another doctor of the Clinic during the
preceding eighteen (18) month period prior to
termination.
After entering into the agreement, defendant began employment with
the plaintiff on 14 July 2003. By letter dated 15 September 2004,
plaintiff gave defendant a ninety-day notice of termination of
employment pursuant to the employment agreement. On 1 December
2004, prior to the expiration of the ninety-day period, defendantleft plaintiff and opened his general surgery practice known as
Rocky Mount Surgical Associates, PLLC.
Plaintiff filed a complaint on 7 December 2004 for breach of
contract, preliminary and permanent injunctive relief, and
declaratory judgment. On 5 January 2005, the trial court entered
an order enjoining defendant from: (1) advertising a medical or
surgical practice within a twenty-five mile radius of Nash General
Hospital; and (2) treating any persons who have been patients of
plaintiff within eighteen months prior to 14 December 2004 except
patients referred to him for a second opinion, who need surgical
procedures involving his specialty, or who need treatment for life
threatening or emergency situations. The order expressly permits
defendant to practice at the LifeCare facility, a long-term care
facility in Rocky Mount. The order also required plaintiff to post
a bond in the amount of $138,000.00. Plaintiff and defendant
cross-appeal the order.
On appeal, defendant contends the trial court erred in
granting the preliminary injunction because the non-competition
provision of the employment agreement violates public policy. We
disagree.
“The purpose of a preliminary injunction is to preserve the
status quo of the parties pending trial on the merits.”
Iredell
Digestive Disease Clinic v. Petrozza, 92 N.C. App. 21, 24, 373
S.E.2d 449, 451 (1988),
affirmed, 324 N.C. 327, 377 S.E.2d 750
(1989). A preliminary injunction, however, is an extraordinary measure, to be issued by
the court, in the exercise of its sound
discretion, only when plaintiff satisfies a
two-pronged test: (1) that plaintiff is able
to show likelihood of success on the merits
and (2) that plaintiff is likely to sustain
irreparable loss unless the injunction is
issued, or if, in the court's opinion issuance
is necessary for the protection of a
plaintiff's rights during the course of
litigation.
Id. “[T]he scope of review is basically
de novo and we are not
bound by the trial court's findings, but may review and weigh the
evidence and find facts for ourselves.”
Nalle Clinic Co. v.
Parker, 101 N.C. App. 341, 344, 399 S.E.2d 363, 365,
review denied,
329 N.C. 499, 407 S.E.2d 538 (1991) (quotations and citations
omitted).
Covenants not to compete partially restrain trade and,
therefore, are scrutinized strictly.
United Laboratories, Inc. v.
Kuykendall, 322 N.C. 643, 648, 370 S.E.2d 375, 379 (1988). “To be
enforceable, covenants must be (1) in writing, (2) based upon
valuable consideration, (3) reasonably necessary for the protection
of legitimate business interests, (4) reasonable as to time and
territory, and (5) not otherwise against public policy.”
Jeffrey R.
Kennedy, D.D.S., P.A. v. Kennedy, 160 N.C. App. 1, 9, 584 S.E.2d
328, 333,
review dismissed, 357 N.C. 658, 590 S.E.2d 268 (2003).
In the instant case, the parties do not dispute the first four
requirements have been met. Defendant, however, contends the non-
competition provision is against public policy because enforcement
would create a substantial question of potential harm to the public
health. The trial court concluded the covenant is enforceableunder North Carolina law, but also concluded “[e]nforcement of the
non-compete provision of the Employment Agreement would violate
public policy if the Defendant is prevented entirely from
practicing his areas of specialty, general surgery, liver and bile
duct procedures . . . .”
In
Petrozza, this Court set forth the standard for determining
whether a covenant not to compete is contrary to public policy.
A covenant not to compete between physicians
is not contrary to public policy if it is
intended to protect a legitimate interest of
the covenantee and is not so broad as to be
oppressive to the covenantor or the
public. . . . If ordering the covenantor to
honor his contractual obligation would create
a substantial question of potential harm to
the public health, then the public interests
outweigh the contract interests of the
covenantee, and the court will refuse to
enforce the covenant. . . . But if ordering
the covenantor to honor his agreement will
merely inconvenience the public without
causing substantial harm, then the covenantee
is entitled to have his contract enforced.
92 N.C. App. at 27-28, 373 S.E.2d at 453. In order to determine
whether there is a substantial question of potential harm to the
public health, this Court examines: (1) the shortage of
specialists in the field in the restricted area; (2) whether the
enforcement of the covenant creates a monopoly in that specialty
area, including the impact on fees and the availability of a doctor
in times of emergency; and (3) the patients' interest in having a
choice in the selection of a physician.
Statesville Medical Group
v. Dickey, 106 N.C. App. 669, 673, 418 S.E.2d 256, 259,
review
denied, 333 N.C. 257, 424 S.E.2d 922 (1992). After carefully reviewing the evidence of record, we conclude
there is a likelihood of plaintiff's success on the merits in that
the covenant at issue does not create a substantial question of
potential harm to the public health.
Defendant's specialty is general surgery. Evidence of record
indicates there were at least thirteen general surgeons practicing
within the restricted area at the time of the filing of the
complaint, only four of whom are employed by plaintiff.
Consequently, there is no shortage of general surgeons within the
restricted area and no potential for a monopoly by a single surgeon
or medical practice within the restricted area. Likewise, patient
choice is not adversely affected in that the covenant does not
prevent defendant from treating patients residing in the restricted
area -_ the covenant only requires defendant's practice be located
outside the restricted area.
Defendant argues this Court should consider only where the
surgeons actually practice surgery, i.e., the hospital(s) where the
surgeons have privileges, in determining whether there is a
monopoly and a shortage in the specialty area. We do not find
defendant's arguments persuasive. The standard previously
established by this Court is the number of physicians practicing
the specialty within
the restricted area.
Dickey, 106 N.C. App. at
673, 418 S.E.2d at 259;
Kennedy, 160 N.C. App. at 11, 584 S.E.2d at
335;
Petrozza, 92 N.C. App. at 30, 373 S.E.2d at 455. In this
case, the restricted area is defined in the employment agreement as
“a twenty-five (25) mile radius of Nash General Hospital.” Recordevidence indicates a total of thirteen general surgeons practice at
three hospitals within the restricted area in Rocky Mount, Wilson,
and Tarboro. Only four of the general surgeons are employed by
plaintiff and they practice at Nash General Hospital. Two other
surgeons also practice at Nash General.
Based on the foregoing, we conclude that plaintiff would
likely prevail at a trial on the merits as the non-competition
provision of the employment agreement is not void as against public
policy.
We next consider plaintiff's contention that the trial court
improperly limited the preliminary injunction. We agree.
Generally, a preliminary injunction should issue if a
plaintiff can show: (1) likelihood of success on the merits; and
(2) either the likelihood that the plaintiff will sustain
irreparable harm unless the injunction is issued or that issuance
is necessary for the protection of the plaintiff's rights during
the course of litigation.
A.E.P. Industries v. McClure, 308 N.C.
393, 401, 302 S.E.2d 754, 759-60 (1983). In
McClure, our Supreme
Court recognized that “in a noncompetition agreement, breach is the
controlling factor and injunctive relief follows almost as a matter
of course; damage from the breach is presumed to be irreparable.”
Id. at 406, 302 S.E.2d at 762. There is a presumption that a
preliminary injunction should issue for the protection of
plaintiff's rights during the course of litigation.
In the instant case, although the trial court found the
employment agreement enforceable under North Carolina law, thecourt limited the scope of the preliminary injunction and thereby,
“blue penciled” the parties' contract. The employment agreement
provides defendant may not operate a practice within the restricted
area for a period of twenty-four months after leaving the clinic.
Under the terms of the preliminary injunction issued by the trial
court, however, defendant was restricted only from advertising a
medical practice within a twenty-five mile radius of Nash General
Hospital. The trial court expressly permitted defendant to
continue practicing within the restricted area in violation of the
non-compete clause of the employment agreement. North Carolina
courts may not rewrite or revise a covenant not to compete unless
it is overbroad and the language is distinctly severable.
See
Hartman v. Odell and Associates,
117 N.C. App. 307, 317, 450 S.E.2d
912, 920 (1994). The covenant in the instant case is not
overbroad. Thus, we hold the trial court impermissibly limited the
scope of its preliminary injunction.
Plaintiff's last assignment of error contends that the trial
court erred in requiring plaintiff to post a $138,000.00 bond. We
disagree.
Security for preliminary injunctions is governed by Rule 65(c)
of the Rules of Civil Procedure and provides as follows:
No restraining order or preliminary injunction
shall issue except upon the giving of security
by the applicant, in such sum as the judge
deems proper, for the payment of such costs
and damages as may be incurred or suffered by
any party who is found to have been wrongfully
enjoined or restrained.
“The setting of bond is within the trial court's discretion.”
Shultz and Assoc. v. Ingram, 38 N.C. App. 422, 430, 248 S.E.2d 345,
352 (1978). “While the amount of the bond lies within the
discretion of the trial court . . . we must determine whether the
record contains evidence to support the trial court's decision.”
Currituck Associates v. Hollowell, ___ N.C. App. ___, ___, 612
S.E.2d 386, 388 (2005).
In the instant case, the preliminary injunction imposes
restrictions upon defendant that affect his income production. The
evidence of record indicates that had defendant continued
employment with plaintiff, he would have earned a base salary of
$138,000.00. The trial court determined $138,000.00 to be a
sufficient amount “for the payment of such costs and damages as may
be incurred or suffered by [defendant if he] is found to have been
wrongfully enjoined.” N.C.R. Civ. P. 65(c). We hold the trial
court did not abuse its discretion in requiring plaintiff to post
a $138,000.00 bond.
Affirmed in part, reversed in part, and remanded.
Judges STEELMAN and JACKSON concur.
Report per Rule 30(e).
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