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Cedar Valley Medical Specialists, PC v. Wright

Court of Appeals of Iowa

October 9, 2019

CEDAR VALLEY MEDICAL SPECIALISTS, PC, Plaintiff-Appellee,
v.
JAMES WRIGHT, M.D., Defendant-Appellant.

          Appeal from the Iowa District Court for Black Hawk County, George L. Stigler, Judge.

         A 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.

          David 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. [*]

          GREER, JUDGE.

         The 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.

         I. Background Facts and Proceedings.

         Dr. 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.

         In May 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.

         In 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 physician.

         In 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.

         On May 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 specifically provided:

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 of ...

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