Pinnacle Healthcare v. Sheets (Summary)

RESTRICTIVE COVENANTS

Pinnacle Healthcare v. Sheets, No. 37A04-1401-CT-39 (Ind. Ct. App. Sept. 10, 2014)

The Court of Appeals of Indiana ordered a trial court to hold a hearing on a hospital’s request for a preliminary injunction to require a formerly employed physician to comply with the terms of a noncompete agreement. The appellate court directed the trial court that noncompetition agreements with physicians in Indiana are not “per se unreasonable,” even if they deprive a community of important medical services or if they deny patients the opportunity to choose their own medical provider.

During the summer of 2011, the physician sold his practice to Pinnacle Healthcare (“Pinnacle”) and became one of its employed physicians. Under the terms of his employment agreement, he was prohibited from opening a competing medical practice within 25 miles of Pinnacle and was prohibited from soliciting other employees to leave Pinnacle and from making negative comments about Pinnacle.

In December 2013, the physician gave notice to Pinnacle that he was terminating the employment agreement due to Pinnacle’s alleged failure to pay him funds owed under their agreement. He opened a competing medical practice and began treating former patients at this new location. Pinnacle petitioned the trial court to enjoin the physician from engaging in these activities, but the circuit court refused, citing a shortage of physicians in the community. It concluded that this would be “too great a burden against the public interest.”

The Court of Appeals of Indiana reversed. It explained that noncompetition agreements with physicians are permissible under Indiana law even if they deprive a community of important medical services. Furthermore, it noted that the trial court did not adequately consider Pinnacle’s claims under the non-solicitation and non-disparagement clauses of the employment agreement. It reversed the trial court’s denial of the injunction and remanded with instructions for the trial court to reconsider all of Pinnacle’s allegations.