Monarch Healthcare v. Orr — Jan. 2016 (Summary)

COVENANT NOT TO COMPETE

Monarch Healthcare v. Orr
No. G050463 (Cal. Ct. App. Jan. 20, 2016)

A physician sold her medical practice to a health care company. The transaction was completed via an asset purchase agreement that included specific valuations for items such as furniture, fixtures, equipment and supplies. The purchase agreement stated that the assets being sold included “all of the goodwill of the medical practice.” However, the agreement did not allocate a specific portion or percentage of the purchase price to the element of goodwill as it did for the tangible items. The asset purchase agreement also included a covenant not to compete and a nonsolicitation clause. After the sale of the practice, the physician worked for the company that purchased her practice. After the physician’s employment ended, she opened her own practice. The company sued to enforce the nonsolicitation clause. The trial court granted a preliminary injunction as requested by the company. The court of appeal reversed this ruling. It held that because the asset purchase agreement did not include consideration for the goodwill of the physician’s medical practice, the covenant not to compete and nonsolicitation clause of the asset purchase agreement were not enforceable. The court of appeal also ruled that the employment agreement – which the physician admitted included a $100,000 signing bonus that was verbally discussed as compensation for the goodwill of her practice – did not constitute consideration for the noncompete and nonsolicitation covenants.