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Community Hospital Group, Inc. v. More

December 29, 2003

THE COMMUNITY HOSPITAL GROUP INC., T/A JFK MEDICAL CENTER, PLAINTIFF-APPELLANT,
v.
JAY MORE, M.D. AND SOMERSET MEDICAL CENTER, DEFENDANTS-RESPONDENTS, AND DR. JAMES CHIMENTI AND NEUROSURGICAL ASSOCIATES AT PARK AVENUE, DEFENDANTS.



On appeal from an interlocutory order of the Superior Court of New Jersey, Chancery Division, Middlesex County, MID-C-241-02.

Before Judges Pressler, Ciancia and Alley.

The opinion of the court was delivered by: Alley, J.A.D.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued December 2, 2003

Plaintiff The Community Hospital Group, t/a JFK Medical Center, seeks to enforce a post-employment restrictive covenant with defendant neurosurgeon Jay More, a former employee of plaintiff's New Jersey Neuroscience Institute. The covenant as written states that defendant is prohibited from practicing within a thirty-mile radius of plaintiff's location in Edison for a period of two years. Plaintiff claims that after his resignation from plaintiff's employ in July 2002 defendant violated the covenant by joining another neurosurgery practice located several miles from plaintiff.

Plaintiff applied to the Chancery Division to preliminarily enjoin defendant from engaging in the new practice, relief which that court denied in an order dated November 21, 2002. We denied plaintiff's motion for leave to appeal on January 8, 2003, but the Supreme Court granted plaintiff's motion for leave to appeal in a March 25, 2003 order that summarily remanded the matter to us"to consider the appeal on its merits." Having done so, we grant the preliminary injunction on the terms stated below.

Before the preliminary injunction hearing the parties took considerable discovery. The following facts, on which we rely in this appeal, are essentially undisputed.

I.

Plaintiff JFK Medical Center is a not-for-profit hospital in Edison. The New Jersey Neuroscience Institute is part of the Hospital and is a not-for-profit medical care provider specializing in the treatment of neurological disorders. The Institute's mission goals are clinical care, education, and research in the areas of neurology and neurosurgery. It deems itself a"tertiary care provider" of neurology-related services, receiving the majority of its patients through referrals from physicians in other specialties.

Since its inception in 1992, the Institute has sought to develop an extensive clinical neurological program and has devoted approximately fourteen million dollars to its development. It also invests approximately two hundred thousand dollars annually on advertising and promotion. It offers a stroke treatment program, as well as epilepsy and neuro-oncology programs, and is the only New Jersey medical facility to provide "Gamma Knife" treatment, a non-surgical technique used to treat certain brain tumors and vascular malformations.

In 1996, the Institute established an accredited neurological residency program, an activity that can be distinguished from a neurosurgery program. It claims that its continued viability is dependent upon its ability to recruit and retain a sufficient number of skilled physicians that will enable it to generate the necessary volume of patients to support its services, such as the residency program. It claims that without a sufficient number of physicians on staff, it would be unable to attract the case diversity necessary to provide training for the residency program and, therefore, might lose its accreditation.

On July 1, 1994, plaintiff hired defendant as a neurosurgeon immediately upon the completion of his residency at Mt. Sinai Hospital in New York. Defendant did not bring with him to this position any practice or patient base. In December 1994, the parties entered into a written one-year employment contract whose term ran until June 30, 1995. The parties entered into successor employment agreements effective July 1, 1995, for four years and July 1, 1999, for a term of five years.

Each of the three employment agreements contained post employment restrictive covenants which prohibited defendant from certain medical practice within a thirty-mile radius of plaintiff. The 1994 agreement stated that the duration of the restrictions respecting new employment was for"two (2) years" after termination. The 1995 and 1999 agreements stated that the duration of the restrictions was for"a period of one (2) years [sic]." Plaintiff contends that the reference in these provisions to"one" year is clearly a typographical error. Defendant does not concede that these covenants have a two-year duration, but we note that all three agreements contained additional restraints for periods of two years on any attempts by defendant to acquire plaintiff's patients, referrals, or staff for his subsequent practice. We quote those provisions below.

The first of the post-employment restrictive covenants, contained in the 1994 agreement, included a prohibition on defendant's practice of neurosurgery within a thirty-mile radius of the Institute. The prohibition in the subsequent agreements was also for thirty miles but was expanded to cover all medical practice. The most recent agreement, effective July 1, 1999, states in Article 7.14(a):

[F]or a period of one (2) years following the date of termination of MORE's employment for any reason whatsoever, MORE shall not, directly or indirectly, own, manage, operate, control or be employed by, participate in or be connected in any manner with the ownership, management, operation or control of any medical practice, nor engage in the practice of medicine, in any of its branches, within a 30 mile radius of the HOSPITAL, providing the same or substantially the same medical care as the Services outlined in this agreement.

Both the prayer for relief in the First Count of the Complaint and the proposed relief in the proposed order presented by plaintiff to the trial court would prohibit defendant from the practice of neurosurgery, not from other branches of medicine, however, and in light thereof we limit our consideration of the scope of relief accordingly.

The provisions of Article 7.14(a) of the 1999 agreement require defendant to refrain from soliciting any of plaintiff's patients or patient referrals for a two (2) year period following his separation:

During the term of this Agreement and for a period of two (2) years following the date of termination of MORE's employment for any reason whatsoever, MORE shall not, directly or indirectly, for his own account or for the account of others, induce any patients of the HOSPITAL to patronize any professional health care provider other than the HOSPITAL; canvas or solicit any business relationship from any patients of the HOSPITAL; directly or indirectly request or advise any patients of the HOSPITAL to withdraw, curtail, or cancel any patients' business with the HOSPITAL; or directly or indirectly disclose to any other person, firm or corporation the names or addresses of any patients of the HOSPITAL.

Defendant further agreed in Article 7.14(c) of that agreement that he would not solicit or induce any employees of plaintiff to leave their employment for a two-year period.

That agreement also stated in Article 7.14(e) that these post-employment restraints were reasonable:

MORE acknowledges that: (i) the terms contained in Article 7.14 are necessary and appropriate for the reasonable protection of the HOSPITAL's interests;, (ii) each and every covenant and restriction is reasonable in respect to its subject matter, length of time and geographical area; and (iii) the HOSPITAL has been induced to enter into this Agreement with EMPLOYEE and is relying upon the representation and covenant by MORE that he will abide by and be bound by each of the covenants and agreements set forth in this Article 7.14.

Moreover, the agreement provided that plaintiff had the right to seek injunctive relief to enforce the post-employment restraints and that defendant would be liable for its legal costs and expenses, including attorneys fees, in connection with any such application.

For the years of defendant's employment, plaintiff agreed under the respective contracts to pay him the following base annual salaries:

1994-95 - $180,000

1995-96 - $225,000

1996-97 - $247,500

1997-98 - $272,250

1998-99 - $299,475

1999-00 - $330,000

2000-01 - $354,750

2001-02 - $381,356

Throughout defendant's employment, in addition to paying his salary plaintiff bore other costs related to the efforts to develop, enhance and maintain his neurosurgical practice. These included expenses associated with continuing education courses, costs related to keeping his medical licenses current, defendant's medical malpractice insurance of approximately $25,000 annually, tuition reimbursement, and certain reimbursement for business travel, medical societies' dues, and medical journals and subscriptions.

During defendant's employment, plaintiff engaged in certain efforts to promote him to the public as well as to other specialists as one of its"sub-specialists" and"experts." He was featured as an expert speaker at seminars and programs sponsored by the Institute and geared toward the referral sources.

In defendant's first six months with plaintiff, his practice grew from no patient surgeries to between thirty-five to forty surgeries. Beginning the following year, the number of surgeries he performed increased annually during his employment, at least until September 11, 2001. The growth of his practice during the course of his employment was attributed by plaintiff to his increased visibility based on his continued employment and association with plaintiff. Shortly before leaving plaintiff's employ, defendant referred to himself as the"top producer" and"rainmaker" among plaintiff's physicians.

On July 17, 2001, defendant submitted his letter of resignation from plaintiff's employment effective July 17, 2002. On January 18, 2002, defendant was informed that plaintiff did not want to compensate him for his accrued vacation time and that he needed to use his vacation time. Since this amounted to nearly five months vacation, defendant offered to forego a portion of this vacation time, but plaintiff declined.

Defendant began discussions with Neurosurgical Associates at Park Avenue (NAPA) in May 2002 regarding the possibility that he might join their practice. On July 22, 2002, defendant joined NAPA's practice, which was located approximately five miles from plaintiff.

Recently defendant received medical staff privileges at Somerset Medical Center (SMC), a 355 bed medical center in Somerville, which is located within the thirty-mile radius. SMC provides a variety of emergency, medical/surgical and rehabilitative services in the central New Jersey area. Affiliated with the University of Medicine and Dentistry of New Jersey, SMC serves as a teaching hospital for a three-year residency program in the areas of family practice and surgery.

Its medical and dental staffs represent the major medical and surgical specialties.

Plaintiff in part bases its claims to the reasonableness of the restrictive covenant on evidence that it serves patients residing in or received from a referral base located throughout the thirty-mile area.

A number of New Jersey institutions outside the thirty-mile radius have significant numbers of neurosurgical patients. These include Englewood Hospital, Holy Name Hospital in Teaneck, and Valley Hospital in Ridgewood. Defendant did not apply for privileges at any of these institutions, nor did he do so at a number of hospitals located in parts of Manhattan, the Bronx, Queens, and Long Island outside the thirty-mile radius. He"continues to receive employment opportunities from across the country... and many of these practices offer packages well in excess of what... [he] was getting [at the Institute]."

It appears undisputed that at least five other institutions deliver extensive neurosurgical care within a thirty-mile radius of the plaintiff's location and that"each of these five institutions appears to [have] a sufficient number of neurosurgeons to cover."

There was evidence that patients routinely travel more than thirty miles to seek specialized ...


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