Opinion
No. COA12–830.
2013-05-7
PINEHURST SURGICAL CLINIC, P.A., Plaintiff v. Andrea Teresa DIMICHELE–MANES aka Andrea Teresa Dimichele, Defendant.
Cranfill Sumner & Hartzog LLP, by Paul H. Derrick, for plaintiff-appellant. Doster, Post Silverman & Foushee, by Jonathan Silverman, for defendant-appellee.
Appeal by plaintiff from order entered 5 April 2012 by Judge Anderson D. Cromer in Moore County Superior Court. Heard in the Court of Appeals 12 December 2012. Cranfill Sumner & Hartzog LLP, by Paul H. Derrick, for plaintiff-appellant. Doster, Post Silverman & Foushee, by Jonathan Silverman, for defendant-appellee.
CALABRIA, Judge.
Pinehurst Surgical Clinic, P.A. (“PSC” or “plaintiff”) appeals from an order denying its motion for entry of a preliminary injunction against Andrea Teresa DiMichele–Manes aka Andrea Teresa DiMichele (“defendant”) for violating the restrictive covenants in an employment agreement. We reverse and remand.
I. Background
PSC is a multi-specialty, physician-owned group surgical practice of approximately forty physicians serving a fifteen-county area, with its primary practice located in Pinehurst, North Carolina. Defendant, a physician specializing in Obstetrics and Gynecology (“OB/GYN”), was offered an opportunity to practice OB/GYN with PSC. Defendant signed a Professional Employment Agreement (“PEA”) on 4 August 2008. The PEA included, inter alia, a restrictive covenant imposing a duty to practice exclusively for PSC, a covenant not to compete (“non-compete covenant”), a liquidated damages clause and an arbitration clause. The non-compete covenant, Section 15(a) of the PEA, prohibited defendant from practicing medicine in competition with plaintiff within a thirty-five-mile radius of its Pinehurst facility for a period of two years after leaving the practice. Defendant's violation of the non-compete covenant authorized PSC to seek liquidated damages pursuant to Section 15(b). Nonpayment of liquidated damages within thirty days after termination of employment authorized PSC to seek injunctive relief under 15(d).
From 15 October 2008, until she took maternity leave on 19 July 2011, defendant treated OB/GYN patients at PSC's Women's Care Center (“the WCC”). After defendant's child was born, she did not return to the WCC. Instead, defendant's attorney sent a letter of resignation dated 16 November 2011, notifying John Rezen (“Rezen”), PSC's CEO, that she planned to terminate her employment with PSC and included numerous reasons in the letter stating why she believed she was constructively discharged. On 4 January 2012, defendant updated her records with the North Carolina Medical Board to reflect that she was practicing medicine with Carolina Women's Health Center (“CWHC”), a practice located in Sanford, North Carolina.
On 1 March 2012, defendant started treating patients at CWHC, which is located within the thirty-five-mile radius of Pinehurst covered by the non-compete covenant. That same day, plaintiff filed a complaint alleging defendant violated the terms of the PEA. Plaintiff sought a temporary restraining order (“TRO”) as well as preliminary and permanent injunctive relief. At that time, the trial court granted the TRO to enjoin defendant from practicing medicine until resolution of the dispute.
On 5 April 2012, at a hearing, plaintiff presented evidence that defendant executed the PEA and that defendant's competition may result in injury to plaintiff. Defendant admitted that patients transferred their medical records from plaintiff's practice to CWHC. The trial court made several findings of fact and entered an order denying plaintiff's motion for a preliminary injunction and dissolving the TRO against defendant. Although the trial court found the non-compete covenant to be valid, it concluded that plaintiff had adequate remedies and failed to prove (1) it would likely suffer irreparable harm if the requested injunctive relief were not granted and (2) that its rights with respect to its property, proprietary and confidential information and its competitive interests would be violated unless defendant was restrained from practicing medicine with a competitor. While plaintiff sought both a preliminary and a permanent injunction, only the denial of plaintiff's preliminary injunction is on appeal.
II. Interlocutory Order
“The denial of a preliminary injunction is interlocutory” and “an appeal to this Court is not usually allowed prior to a final determination on the merits. However, review is proper if such order or ruling deprives the appellant of a substantial right which he would lose absent a review prior to final determination.” Analog Devices, Inc. v. Michalski, 157 N.C.App. 462, 465, 579 S .E.2d 449, 451–52 (2003)(internal quotations and citations omitted). “In cases involving an alleged breach of a non-competition agreement and an agreement prohibiting disclosure of confidential information, North Carolina appellate courts have routinely reviewed interlocutory court orders both granting and denying preliminary injunctions, holding that substantial rights have been affected.” Jeffrey R. Kennedy, D.D.S., P.A. v. Kennedy, 160 N.C.App. 1, 5–6, 584 S.E.2d 328, 331 (2003) (internal quotations and citations omitted). In the instant case, denial of the preliminary injunction affects a substantial right and is immediately appealable since the covenant's two-year limitation may expire before a final judgment on the merits. As a result, the relief plaintiff sought would be unavailable if defendant continued practicing medicine in the interim.
III. Denial of Preliminary Injunction
Plaintiff argues that the trial court erred by denying its motion for a preliminary injunction. Specifically, plaintiff claims the trial court erred by concluding that denial of the preliminary injunction would not irreparably harm plaintiff since plaintiff had adequate remedies to address the breach of the non-compete covenant and that its rights with respect to its property, proprietary and confidential information as well as its competitive interests would not be violated unless defendant was restrained from practicing medicine with a competitor. We agree.
On appeal, review of the denial of a preliminary injunction is de novo, and thus the appellate court “may weigh the evidence anew and enter its own findings of fact and conclusions of law....” Id. at 8, 584 S.E.2d at 333. “However, a trial court's ruling ... is presumed to be correct, and the party challenging the ruling bears the burden of showing it was erroneous.” Analog, 157 N.C.App. at 465, 579 S.E.2d at 452.
A preliminary injunction will only be issued
(1) if a plaintiff is able to show likelihood of success on the merits of his case and (2) if a plaintiff is likely to sustain irreparable loss unless the injunction is issued, or if, in the opinion of the Court, issuance is necessary for the protection of a 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) (citation omitted). Determination of the second issue is “discretionary and requires the trial court to weigh the equities.” Redlee/SCS, Inc. v. Pieper, 153 N.C.App. 421, 427, 571 S.E.2d 8, 13 (2002).
A. Plaintiff's likelihood of success on the merits
In North Carolina, a restrictive covenant is valid and enforceable if it is “(1) in writing, (2) entered into at the time and as a part of the original contract of employment, (3) based on a valuable consideration, (4) reasonable both as to the time and territory embraced in the restrictions, (5) fair to the parties, and (6) not against public policy.” U–Haul Co. v. Jones, 269 N.C. 284, 286, 152 S.E.2d 65, 67 (1967). In the instant case, the trial court concluded that defendant's covenant not to compete was “(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.”
Here, defendant challenges the validity of the covenant, arguing that it was not based on valuable consideration. Defendant contends that the language in the PEA separating the non-compete covenant from the remainder of the PEA renders the restrictive covenant a “naked covenant” and relies on Wilmar, Inc. v. Liles and Wilmar, Inc. v. Polk to support this contention. 13 N.C.App. 71, 185 S.E.2d 278 (1971). Defendant's reliance is misplaced. In Wilmar, the defendants were both employed by the plaintiff prior to the execution of a contract of employment with plaintiff. Id. at 77, 185 S.E.2d at 282. The Wilmar Court held that since the employment preexisted the execution of the covenants not to compete, additional consideration was required to support the covenant not to compete. Id. In the instant case, the PEA included a non-compete covenant. Therefore, since defendant entered into the non-compete covenant at the time of the PEA, additional consideration was not required. Defendant's new employment with PSC was adequate valuable consideration. See Calhoun v. WHA Med. Clinic, PLLC, 178 N.C.App. 585, 597, 632 S.E.2d 563, 571 (2006) (“the promise of new employment is valuable consideration and will support an otherwise valid covenant not to compete contained in the initial employment contract.” (internal citations omitted)).
Defendant also contends that plaintiff failed to show a likelihood of success because plaintiff breached the PEA. For a breach of contract to prevent a plaintiff from obtaining injunctive relief, a defendant must show that “the alleged breach was substantial and material and goes to the heart of the agreement.” Kennedy, 160 N.C.App. at 13, 584 S.E.2d at 336 (internal quotations and citation omitted). When the breach is not material, then it will not prevent a party from obtaining equitable relief in the form of an injunction. Id. The burden of proof is on the defendant to provide evidence that the breach was material. See id.
In the instant case, defendant contends that plaintiff constructively discharged her, thus breaching the PEA and relieving her of any obligations under the contract, including compliance with the non-compete covenant that was included in the PEA. The trial court declined to address the issue of constructive discharge, finding that there was “insufficient evidence” to make such a finding. The trial court did find that “ [p]laintiff provided [d]efendant with an extensive patient base and the support necessary to maintain a successful medical practice, in addition to [p]laintiff's reputation, name recognition, and goodwill in the community.” Defendant has not challenged these findings of fact on appeal, and thus they are binding. Durham Hosiery Mill Ltd. P'ship v. Morris, ––– N.C.App. ––––, ––––, 720 S.E.2d 426, 427 (2011).
We find that based on the unchallenged findings of fact by the trial court, defendant failed to meet her burden of proving that plaintiff substantially or materially breached the PEA. Plaintiff has shown that the non-compete covenant in the PEA was valid and enforceable and that defendant violated the non-compete covenant. Therefore, plaintiff was likely to succeed on the merits of its case. A.E.P., 308 N.C. at 404, 302 S.E.2d at 761. B. Irreparable Loss/Protection of Plaintiff's Rights
Although we find plaintiff was likely to succeed on the merits of its case, the trial court denied plaintiff's motion for injunctive relief. The trial court concluded that plaintiff failed to prove it was likely to sustain irreparable harm. Therefore, we must determine whether “plaintiff is likely to sustain irreparable loss unless the injunction is issued, or if, in the opinion of the Court, issuance is necessary for the protection of a plaintiff's rights during the course of litigation.” Id. at 401, 302 S.E.2d at 759–60 (citation omitted).
“[I]njury is irreparable where the damages are estimable only by conjecture, and not by any accurate standard.” Id. at 407, 302 S.E.2d at 762 (internal quotations and citation omitted). In A.E.P., the trial court denied the plaintiff's motion for a preliminary injunction, finding that although the plaintiff would likely succeed on the merits, the plaintiff failed to establish a prima facie case of irreparable harm. Id. at 404–05, 302 S.E .2d at 761. Our Supreme Court reversed the decision, referring to the language in the noncompetition agreement expressly acknowledging that “remedies at law for the breach of any of the restrictive covenants contained in the immediately preceding paragraph shall be deemed to be inadequate and that A.E.P. Industries, Inc. shall be entitled to injunctive relief for any such breach.” Id. at 406; 408, 302 S.E.2d at 762–63. The A.E.P. Court also recognized that “[t]he focus in cases ... is not only whether plaintiff has sustained irreparable injury, but, more important, whether the issuance of the injunction is necessary for the protection of plaintiff's rights during the course of litigation; that is, whether plaintiff has an adequate remedy at law.” Id. “[I]n 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 and the remedy at law is considered inadequate.” Id. (internal quotations and citation omitted). The plaintiff is not required to “show actual damage by instances of successful competition, but it is sufficient if such competition, in violation of the covenant, may result in injury.” Id. (internal quotations and citation omitted).
In Kennedy, the plaintiff sought a preliminary injunction after the defendants breached a covenant not to compete by opening a dental office in violation of the covenant. 160 N.C.App. at 3–5, 584 S.E.2d at 331. The Court determined that the plaintiff had “established irreparable harm through a showing that a substantial portion of its patients have followed [the defendants] to the new practice” and found that there was “no equitable reason why the injunction should not issue.” Id. at 15–16, 584 S.E.2d at 337;see also Robins & Weill v. Mason, 70 N.C.App. 537, 542, 320 S.E .2d 693, 697 (1984) (finding irreparable injury where the defendants started a company in competition with the plaintiff and had access to the plaintiff's customers and determined that denial of the “preliminary injunction would essentially serve to foreclose much of the relief the plaintiff sought” by having defendants sign valid covenants not to compete); QSP, Inc. v. Hair, 152 N.C.App. 174, 179, 566 S.E.2d 851, 854 (2002) (finding irreparable loss where (1) the defendant violated the covenant not to compete by soliciting the plaintiff's customers; (2) the defendant misappropriated the plaintiff's confidential information; and (3) irreparable injury would occur if the defendant was not restrained from further violating the covenant not to compete).
In the instant case, defendant's violation of the non-compete covenant authorized PSC to seek liquidated damages pursuant to Section 15(b). Nonpayment of liquidated damages within thirty days after termination of employment authorized PSC to seek injunctive relief. Defendant failed to pay $100,000.00 to plaintiff for breach of the non-compete covenant within thirty days of termination of employment. Defendant chose to forego the benefit of the clause, an expedited settlement between the parties.
Plaintiff sought a preliminary injunction to restrain defendant from continuing to violate the terms of the PEA. The non-compete covenant prohibits defendant from practicing medicine within a thirty-five-mile radius of plaintiff's Pinehurst office for a period of two years. Defendant breached this covenant only four months after her resignation from PSC by practicing medicine with CWHC located within a thirty-five-mile radius. Plaintiff presented evidence that the parties entered into a valid PEA that included a non-compete covenant and that defendant breached that covenant. Therefore, “injunctive relief follows almost as a matter of course; damage from the breach is presumed to be irreparable and the remedy at law is considered inadequate.” A.E.P., 308 N.C. at 406, 302 S.E.2d at 762. As recognized in A.E.P., to find irreparable injury, it is not essential to show that the injury cannot be compensated “in damages, but that the injury is one to which the complainant should not be required to submit or the other party permitted to inflict, and is of such continuous and frequent recurrence that no reasonable redress can be had in a court of law.” Id. at 407, 302 S.E.2d at 763 (internal quotations and citation omitted). Furthermore, the “contention that [a] plaintiff is not entitled to injunctive relief because the contract provision for liquidated damages provides an adequate remedy at law is untenable.” U–Haul, 269 N.C. at 287, 152 S.E.2d at 67.
Plaintiff contended it would be irreparably harmed by:
a. Dissemination and use of PSC's patient identities and other confidential information by a direct competitor;
b. Loss of patients, loss of confidence and trust of patients, loss of goodwill, and loss of business reputation;
c. Damage to corporate stability and the enforcement of reasonable contracts; and
d. Present economic loss, including from loss of patients, which is unascertainable at the present time, and future economic loss, which is presently incalculable.
The trial court made findings of fact addressing the harm incurred by plaintiff:
9. As a practicing physician and director of [p]laintiff, [d]efendant was responsible for developing close working relationships with other physicians and staff of the practice, with patients, and with third parties who dealt with [d] efendant and other individuals at [p]laintiff during the course of any given period of time.
10. Plaintiff has invested many years of time and resources creating, developing, and protecting all aspects of its practice and cultivating relationships with patients, employees, and various entities in the region in which it does business.
11. The patients served by [d]efendant and others on [p]laintiff's behalf were developed at great expense over a number of years. Because [p]laintiff is a medical practice, its patients are critical to its business, and the practice incurs significant annual expenses to develop and maintain a loyal patient base and goodwill in the community.
12. During the course of [d]efendant's affiliation with [p]laintiff as an employee, owner, and director, she was provided with extensive confidential information regarding all aspects of [p] laintiff's medical practice and business affairs. Possession and use of that information was critical to the successful performance of [d]efendant's duties as an employee and of her role as a shareholder and director.
13. Plaintiff provided [d]efendant with an extensive patient base and the support necessary to maintain a successful medical practice, in addition to [p]laintiff's reputation, name recognition, and goodwill in the community.
Although defendant admitted that patients transferred their medical records from plaintiff's practice to CWHC and thus plaintiff presented evidence that defendant's competition may result in injury, the trial court found that plaintiff could reasonably calculate the loss not only of clients, but also the value of a physician with defendant's specialty. However, we find that the trial court's findings of fact 9–13, unchallenged on appeal by defendant, show that plaintiff suffered irreparable harm. Therefore, the trial court's conclusion that plaintiff did not suffer irreparable harm is unsupported by its findings.
Finally, defendant contends that plaintiff is not entitled to equitable relief because it has “unclean hands.” “Our courts have long recognized that a party seeking equitable relief, such as injunctive relief, must come before the court with ‘clean hands.’ Those who seek equitable remedies must do equity, and this maxim is not a precept for moral observance, but an enforceable rule.” Kennedy, 160 N.C.App. at 15, 584 S.E.2d at 337 (internal quotations and citation omitted). In Kennedy, where the trial court did not address the defendants' equitable defenses and the defendants failed to either cross-assign “as error the trial court's failure to address its equitable defenses as an alternative basis for denying the injunction,” or present the arguments on appeal, this Court found that the issue was not preserved for appeal. Id.
In the instant case, again we note that defendant has failed to challenge any of the trial court's findings of fact. Finding of fact 13 stated that “[p]laintiff provided [d]efendant with an extensive patient base and the support necessary to maintain a successful medical practice, in addition to [p]laintiff's reputation, name recognition, and goodwill in the community.” In addition, the trial court found that there was “insufficient evidence” to find constructive discharge and concluded that the restrictive covenant met the requirements in U–Haul. These unchallenged findings and conclusion of law are inconsistent with defendant's defense of unclean hands. Since defendant has not specifically argued that the trial court erred in making these findings or conclusion of law or cited authority suggesting error by the trial court, we, like the Court in Kennedy, conclude that the defense of unclean hands is not properly before the Court.
IV. Conclusion
The trial court properly concluded that plaintiff's non-compete covenant in the PEA executed by defendant was a valid and enforceable covenant. Nonpayment of the liquidated damages clause within thirty days after termination of employment authorized PSC to seek injunctive relief. Plaintiff has established a likelihood of success on the merits, has sustained irreparable injury and the issuance of the injunction is necessary for the protection of plaintiff's rights. The trial court, therefore, erred in denying plaintiff's motion for a preliminary injunction. This case is reversed and remanded to the trial court to grant a preliminary injunction enforcing plaintiff's non-compete covenant.
Reversed and Remanded. Judges BRYANT and GEER concur.
Report per Rule 30(e).