Fayette County Appeals Court Affirms Non-Competition Damages and Prevailing Party Attorney Fee Award

On Monday, a unanimous Fayette County Court of Appeals addressed the other half of the non-compete/tortious interference case between dental practices blogged about here last May.  In it, the Court affirmed the $125,000 jury verdict against the defendant dentist for breaching the non-competition clause in his sales agreement with the plaintiff dentist and the reduction of the successful dentist’s attorney fees award (pursuant to the loser pay provision in the contract) to $95,988 based on prevailing attorney fee rates in Fayette County of $250/hour.  Ginn v. Stonecreek Dental Care, 2015-Ohio-4452.  The Court found that the 30-mile non-compete restriction was clear on its face in a contract containing an integration clause and could not be clarified with extrinsic evidence to mean anything other than 30 straight-line miles.  Finally, the jury was entitled to base its damage award on the plaintiff’s testimony of lost revenue.

According to the Court’s opinion, the defendant dentist sold his Washington Court House practice to the plaintiff dentist in 2010 and, as part of that sale, agreed to work one day per week for the plaintiff dentist and not otherwise practice dentistry for 5 years within 30 miles of the plaintiff’s practice.  The contract also provided that the prevailing party would be entitled to attorneys’ fees in the event of litigation over a breach of the agreement. The defendant dentist resigned six months later and began working for StoneCreek Dental in Chillicothe.  StoneCreek’s office was less than 30 straight line miles from the plaintiff dentist’s office, but was more than 30 driving miles.  The plaintiff dentist brought suit and the jury awarded him $125K plus interest.  The trial court dismissed the claims against StoneCreek, but that dismissal was reversed in part on appeal in May.

First, the Court held that it was not an abuse of discretion to reduce the attorneys’ fees to $250/hour based on the prevailing rates in Fayette County instead of the actual rates of the Franklin County attorneys. The plaintiff’s attorneys had requested $143,595 plus expenses.  The trial court based its analysis on the factors listed in Professional Rule of Conduct 1.5.  In addition, the trial court properly excluded litigation expenses because the contract only required the payment of fees and not expenses.  Without a controlling contract or statute, the American Rule requires each party to pay their own fees and expenses. 

Second, the Court held that it was proper for the jury to base its award on the plaintiff’s testimony about the revenue he lost when the plaintiff resigned to work for a competitor.  Damages for breach of a non-competition clause is generally based on lost profits.   As the Court held last May, mathematical certainty is not required.  The plaintiff dentist testified about his past revenue and the increase in revenue he realized while the defendant worked for him for six months.  He doubled that amount to show how the revenue would have increased in a year.  Because his overhead did not change, the increased revenue constituted profit that he lost when the defendant began competing against him during the five-year non-competition period. “Whether the revenues actually represented lost profits as testified to by Dr. Ginn relates to Dr. Ginn's credibility and was for the jury to decide.”    

Finally, the Court rejected that defendant’s argument that the 30-mile territorial restriction was ambiguous where the parties each had different interpretations of the restriction.  It also refused to consider extrinsic evidence – i.e., evidence outside the four corners of the contract – to interpret the 30 mile restriction because it was plain on its face and unambiguous.   The contract contained an integration clause which precludes the parties from attempting to contradict its terms with other evidence about other side-agreements.  Further, Ohio courts have routinely interpreted similar restrictions to refer to straight-line miles instead of driving miles.

 

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can be changed or amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Fayette County Appeals Court Reverses Directed Verdict on Tortious Interference with Non-Compete and Sale of Good Will

Last week, the Fayette County Court of Appeals reversed in part a directed verdict entered in favor of a large dental practice on claims that it had tortiously interfered with the non-compete and sale of good will contract of a dentist it hired who had signed the contract with the plaintiff dentist when selling his practice.   Ginn v. StoneCreek Dental Care, 2015-Ohio 1600. The defendant practice hired the defendant dentist with full knowledge of the terms of his non-competition provision and sales agreement, which included the sale of good will, including his trade name and trade marks.  It then targeted advertising using his name and voice in the area of the non-compete territory during the non-compete period and employed him within the non-compete territory.  While the Court affirmed the dismissed of the claims for tortious interference with prospective contractual relations (i.e., patients), it held there was sufficient evidence that the defendant practice had tortiously interfered with both the five-year, 30 mile non-compete provision and sale of good will from the defendant dentist.  It also found that the plaintiff had sufficient evidence of damages even though he could not identify a single patient that left his practice for the defendant practice.

According to the Court’s opinion, the plaintiff dentist purchased the practice of the defendant dentist and agreed to employ him one day each week.  The purchase agreement included a sales price, a five-year non-compete with a 30-mile territory and a provision about transferring goodwill, including his trade name and trade mark (which was the name of the defendant dentist).  The defendant dentist resigned after approximately six months and, shortly thereafter, went to work for the defendant dental practice, which was located within the non-compete area. He had provided the defendant practice with a copy of his sales agreement, including the provisions governing non-competition and good will.   About six months later, the defendant practice began radio advertisements with the defendant dentist’s name and voice to recruit patients to its practice.  About a year later, the plaintiff dentist filed a lawsuit against the defendant dentist for breach of contract and against the defendant practice for tortious interference with contract and prospective contractual relations.  The defendant dentist left the defendant practice about ten months later.  The case proceeded to trial and at the conclusion of the plaintiff’s evidence, the court entered a directed verdict for the defendant practice on the grounds that it lacked sufficient intent to interfere with the contract.  The plaintiff appealed.

The Court affirmed dismissal of the tortious interference with business relations claim because the plaintiff remarkably could not identify a single patient that left him for the defendant practice. He testified that his “staff would have handled any transfer of patients and that he does not keep a record of where patients transfer.”  (Maybe he did not want to offend them by identifying them as witnesses).

The defendant practice claimed that it only negligently violated the non-compete and goodwill provisions and that its “mere knowledge” of the defendant dentist’s contract was not enough to show intent.  While the court agreed that a party’s mere knowledge of the fact of a contract is not sufficient to show intent, knowledge of the terms of that contract is a horse of a different color.   Because the defendant practice had a copy of the contract and knowledge of its terms, it could not claim to have “mere knowledge” of the existence of a contractual relationship.

As for negligence, the defendant practice claimed that it believed that it was outside the 30-mile non-compete territory because it calculated the distance using driving miles.  However, the legal standard is straight line miles.  Therefore, the jury was entitled to weigh the evidence to determine if it believed the defendant practice acted improperly, especially considering its other actions in this case (such as advertising within the non-compete territory).

As for interference with the good will provision of the sales contract, the Court agreed that broadcasting commercials in the non-compete territory with the defendant dentist’s name and voice while it had knowledge that the defendant dentist had assigned his commercial rights in his name to the plaintiff dentist was sufficient evidence to prove an intention by the defendant practice to interfere with the good will provisions of the sale contract.

The Court partially rejected the defendant’s claim of competitor’s privilege because it only applies when the contracts at issue are terminable at will.  In this case, the non-compete had a five-year duration.  While the good will provision did not have a specific duration, a “reasonable time” restriction is imposed by law.  However, what constitutes a “reasonable time” is a question of fact: 

In the sale of a business, even when the sale carries with it goodwill and the name of a business, the seller may reengage in business only after reasonable time has passed that allows the buyer to establish the customers of the purchased business as his own. . . Whether sufficient time has passed in order for the buyer to establish the customers of the purchased business as his own is a question of fact. Id. Three years has been held a sufficient time.

                               . . .

In regard to the goodwill provision, there is a question of fact as to whether Stonecreek Dental employed wrongful means in competing with [plaintiff dentist] by broadcasting advertisements within the geographic proximity of [plaintiff dentist’s] office using [defendant dentist’s] name and voice approximately one year after the sale of the practice. Because no timeframe applied specifically to the sale of the goodwill of the business, including all right, title, and interest in the name R. Douglas Martin, DDS, it is a question for a jury to determine whether one year was a reasonable time to have passed to allow [the plaintiff] to establish [defendant dentist’s] patients as his own before Stonecreek Dental broadcast such radio advertisements. 

The Court also found that the plaintiff had produced sufficient evidence to show the proximate cause of and amount of his lost profit, even though he could not specifically identify a single patient who left him for the defendant practice.   A jury is permitted to infer that patients left because of the advertising targeted within a non-compete territory.  Further, the damages are calculated based on the number of patients lost by the plaintiff, not by the number of patients gained by the defendant. Mathematical certainty is not required.   In this case, the plaintiff produced evidence about the historical growth of his practice and anticipated growth from purchasing the practice of the defendant dentist, compared to the size of his practice after the tortious activity began. 

When considering Dr. Ginn's substantial decline in revenue soon after Dr. Martin left, in conjunction with the timing of the radio-broadcast advertisements utilizing Dr. Martin's name and voice, it can reasonably be inferred that Stonecreek Dental's interference with the contract was the proximate cause of Dr. Ginn's loss of profits. As such, there is some evidence as to whether Stonecreek Dental's actions proximately caused the decline in Dr. Ginn's revenue, and whether Dr. Martin leaving the practice and working and advertising for Stonecreek Dental proximately caused damages to Dr. Ginn is a question for a jury.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can be changed or amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.