from the Iowa District Court for Black Hawk County, George L.
surgeon appeals a district court order enforcing the
liquidated damages provision of a covenant not to compete in
his employment contract with a former employer.
J. Dutton and Laura L. Folkerts of Dutton, Braun, Staack
& Hellman, P.L.C., Waterloo, for appellant.
Brandon M. Schwartz and Michael D. Schwartz of Schwartz Law
Firm, Oakdale, Minnesota, for appellee.
Considered by Potterfield, P.J., Greer, J., and Scott, S.J.
district court enforced a liquidated damages provision based
on a violation of a covenant not to compete in a
cardiothoracic surgeon's employment contract. On appeal,
the doctor argues that the covenant not to compete is
unenforceable and prejudicial to the public interest and, in
any event, the liquidated damages provision constitutes an
unenforceable penalty. We affirm the district court and
remand for further proceedings.
Background Facts and Proceedings.
James Wright has been a board-certified cardiothoracic
surgeon since 1982. Cardiothoracic surgeons perform surgical
procedures on the organs in the chest, including the heart
and lungs. These procedures include open-heart surgeries,
coronary artery bypasses, and valve replacements and repairs.
Wright worked as a cardiothoracic surgeon in Jacksonville,
Florida, Texarkana and Nacogdoches, Texas, and Mason City and
Iowa City, Iowa, before being recruited to the Black Hawk
County, Iowa area.
2007, Cedar Valley Medical Specialists, P.C. (CVMS) and Allen
Memorial Hospital entered into a recruiting agreement with
Wright. CVMS and Allen Hospital have a mutual and
long-standing interest of providing health care in the Black
Hawk County area. Under the terms of the agreement, Wright
agreed to work as a cardiothoracic surgeon for CVMS. Wright
received a signing bonus, moving expenses, and a guaranteed
salary regardless of the revenue he brought in or the
expenses he incurred. He also did not have to agree to a
covenant not to compete or a liquidated damages provision.
CVMS agreed to give Wright the necessary resources and
support to establish his practice and relationships in the
Black Hawk County medical community, marketing, and other
benefits of a group practice. Allen Hospital agreed to pay
Wright's signing bonus and moving expenses and to ensure
that Wright received his guaranteed income during the
two-year contract term.
February 2009, CVMS and Allen Hospital entered into an
agreement whereby CVMS agreed to provide a physician to serve
as the medical director of cardiovascular surgery at Allen
Hospital, and in exchange Allen Hospital would pay CVMS $10,
000 per month beginning June 1. CVMS designated Wright as the
April, Wright's initial two-year contract was coming to
an end and he submitted a written notice of intent to become
a shareholder at CVMS as of the first of June. At the time
Wright transitioned to become a shareholder, he had a deficit
of $390, 969.10 in expenses, which CVMS forgave.
8, CVMS entered into a written employment contract with
Wright, effective June 1, that contained various provisions,
including noncompete language. Paragraph 2C of the contract
2C. LIQUIDATED DAMAGES FOR COMPETITION. For the
two-year period commencing with the last day Professional is
employed by Corporation and within 35 miles of Black Hawk
County, Iowa, Professional agrees Professional will not
practice medicine or engage in any business or practice
related to medicine, nor will Professional own, manage,
operate, control, be employed by, participate in, or in any
fashion be connected with the ownership, management,
operation, or control of any business or practice related to
medicine, nor shall Professional on behalf of or in
conjunction with any other person, persons, firm,
partnership, agency, association, company, or corporation,
call upon any patient, customer, or supplier of Corporation,
for the purpose of or with the effect of soliciting or
diverting or taking away from Corporation such patient,
customer, or supplier.
In the event of a breach by Professional of the provisions of
this Item 2C, Professional agrees to pay Corporation as
liquidated damages the greater of:
a. $100, 000.00, or
b. The compensation paid by Corporation to Professional
during the six months immediately preceding the termination