DOCTORS AND NON-COMPETES: CASE#5
The next important decision by a Virginia court on the legality and enforceability of a physician’s non-compete comes from my hometown of Roanoke, VA. The case was called Drs. Blum Newman, Blackstock & Associates, Optometrists v. Timothy Jessee, MD and was decided in 1997.
Dr. Jessee (the defendant), an optometrist resigned his employment of nine years with plaintiff’s professional corporation and began practicing at a local Wal-Mart store. Plaintiff filed suit requesting injunctive relief and damages, claiming Dr. Jessee was in violation of his non-competition agreement. The agreement restricted Dr. Jessee from practicing optometry within a 25-mile radius of the plaintiff’s nine offices for three years. As written, the non-compete agreement prevented Dr. Jessee from being employed as an optometrist in the Roanoke Valley for a period of three years. Dr. Jessee argued the contract was overbroad, ambiguous, punitive, and unenforceable.
The trial court, applying the “three-prong test” found the agreement to be reasonable and enforceable.
The most interesting part of the case dealt with the issue of “liquidated” damages. Apparently, the non-compete contract provided that Dr. Jessee would be indebted to the plaintiff corporation for a specific sum of money if he violated the non-compete (the opinion never discloses the amount of the liquidated damages set out in the contract). The court noted the general rule that:
When the damages resulting from the breach are susceptible of definite measurement or when the agreed amount would be grossly in excess of actual
damages, courts usually construe such an agreement to be unenforceable penalty.
In this case, were it necessary to fix damages, actual damages could be reasonably ascertained by use of normal accounting practices. For the reasons set forth…the Court finds that the liquidated damages portion of the contract is an unenforceable penalty clause. It is, however, severable.
My Take: Due to the abbreviated length of the judge’s decision it is difficult to determine just what evidence was presented to the trial court so it is difficult to gain significant guidance from this decision. However, the fact the judge basically “threw out” the damages stipulated in the non-compete agreement is significant.