The First District of the Illinois Appellate Court, in the case of Northwest Podiatry Center, Ltd., et al. v. Ochwat, et al., recently found that a trial court improperly enjoined physician-defendants in a few key respects. The decision serves as a reminder of how courts will closely scrutinize restrictive covenants in Illinois.
The case was filed after two longtime physicians affiliated with plaintiff Northwest Podiatry Center, Ltd. (“NPC”) left the practice to form a competing practice. One of the physician-defendants, Dr. Ochwat, worked at NPC for over 20 years and was also a vice-president and a member of NPC’s board of directors. The other physician-defendant, Dr. Halihan, worked at NPC since 2006 and signed a restrictive covenant agreement that contained a non-compete clause (barring competitive practice for 36-months within a five mile radius of NPC); a “privileges” restriction (requiring that he surrender his clinical privileges at any hospital where he currently holds privileges, with no durational limitation); and a non-solicitation restriction (prohibiting him from soliciting business away from NPC for a 36-month period).
Based upon evidence presented at a preliminary injunction hearing, the trial court found that the defendants began soliciting NPC employees and clients before they resigned, misused company assets to set up a competing company and interfered with NPC’s contracts. The trial court entered an injunction that, in part, ordered Dr. Halihan to resign his clinical privileges at certain facilities and prohibited both defendants from treating NPC patients.
The First District of the Illinois Appellate Court partially reversed the injunction. First, it found that the trial court’s order requiring Dr. Halihan to forfeit his privileges was improper. It found that a “privileges” restrictive covenant that provides that a physician, when leaving the employ of a practice, will surrender his clinical privileges at any hospital or treatment center at which the employee holds privileges, is overbroad.
Plaintiff NPC argued that the restrictive covenant was ambiguous because it unintentionally omitted the 36-month temporal restriction that the other provisions contained. Plaintiff further argued that because the provision was ambiguous, the court should consider extrinsic evidence of the parties’ intent. The trial court agreed, concluding that the parties intended the 36-month restriction to apply, but the court ultimately did not follow the 36-month limitation, and instead did not put any durational limitation on the restriction.
The appellate court reversed on this point, finding that just because the other restrictive covenants in the same agreement contain limitations for a 36-month period, that does not mean that the covenant without a temporal restriction is ambiguous. In fact, it is evidence that the parties never intended to include a temporal restriction. The court went on to find that without a durational limitation, requiring Dr. Halihan to permanently resign all clinical privileges was overbroad and not necessary to protect NPC’s legitimate business interests.
Second, the appellate court reversed the injunction to the extent it prohibited the defendant-physicians from treating any current or former patients of NPC’s practice. The court noted that a “patient has a right to seek treatment from his or her doctor at the doctor’s new place of employment unless that doctor is restrained by contract.” Defendant Dr. Ochwat did not have a restrictive covenant with plaintiff, so the appellate court found that restricting him in this fashion was unsupported.
Yet, the appellate court found that even the injunction against Dr. Halihan, who did have a 36-month non-solicitation provision in his contract, was improper. The appellate court recognized that, in Illinois, a court has the power to modify a restrictive covenant to make it narrower. Yet, a court cannot create a provision that was not part of the contract. The court held that the lower court “did not modify an overly broad restriction; rather the court created its own patient restriction where none was contemplated by the parties.”
The NPC decision provides us with a few important reminders when it comes to restrictive covenants in Illinois:
• It is not advisable to have a non-compete provision in a contract that does not have a temporal limitation. Don’t assume that a court will modify or “blue-pencil” such a provision by looking to other restrictions in the same agreement.
• Don’t assume that a court will fashion narrower restrictions than the ones you agreed to in your contract. While many courts have the authority to narrow restrictive covenants in certain instances, they cannot create new covenants never agreed upon by the parties.
• Courts are reluctant to prohibit physicians from treating patients unless there is a valid agreement expressly prohibiting their treatment of their former employer’s patients.
• Injunctions can be entered against employees even if their restrictive covenant agreements might not be relevant or enforceable. In this case, the defendants’ breaches of fiduciary duty and tortious interference led the trial court to enjoin their ability to contract with an independent practitioner’s association, and the appellate court affirmed that part of the ruling.