Wharton Physician Servs. v. Signature Gulf Coast Hosp., L.P. — Jan. 2016 (Summary)

NON-COMPETE CLAUSES

Wharton Physician Servs. v. Signature Gulf Coast Hosp., L.P.
No. 13-14-00437-CV (Tex. App. Jan. 14, 2016)

The Court of Appeals of Texas affirmed summary judgment in favor of a hospital in a lawsuit brought by the hospital’s former hospitalist group. The group alleged that the hospital violated the non-compete clause in the parties’ contract when its new hospitalist group hired two physicians who were previously employed by the first hospitalist group within six months of when the hospital terminated the group’s contract. The group sought liquidated damages pursuant to the contract’s terms, which the hospital refused to pay. Finding in favor of the hospital, the court held that while the parties’ contract was enforceable generally, the non-compete clause was unenforceable because there was no additional consideration for that clause given outside the main contract for hospitalist services. In other words, the fees to be paid under the contract were all attributable to hospitalist services provided – and no additional amounts could be attributed to the non-compete itself. Further, the court held that even if the non-compete was enforceable, there was no breach of that provision because the hospital did not employ the physicians – its new hospitalist group did. The court noted that the hospital could not have bound a non-signatory party, such as the new hospitalist group, to a contract term. The mere fact that the new hospitalist group had a contract to provide services at the hospital did not make it an affiliated organization that would be bound by a non-compete in one of the hospital’s contracts.