Visions of an Improper Noncompete Provision: Texas Court Rejects LASIK Clinic’s Injunction Request Against Former Doctor
LASIK eye surgery requires a precise surgeon. If the surgery is unsuccessful, it can result in under- or over-correction, dry eyes, or infection.
LasikPlus of Texas, a Houston eye clinic, recently found out that it should have exercised similar precision when drafting its noncompete agreements. Instead, the Fourteenth Court of Appeals ruled last week that because LasikPlus failed to include required language in its noncompete agreement, one of its doctors can open a competing clinic two miles from its front door. See LasikPlus of Texas, P.C. v. Mattioli, No. 14-12-01155-CV (Tex. Ct. App. Nov. 21, 2013). We suspect there was not a dry eye in the house after that decision.
The covenant at issue in the case was part of LasikPlus’s employment agreement with Dr. Frederico Mattioli. Under the covenant, Dr. Mattioli, for the eighteen months following termination of his employment, could not open a competing clinic within 20 miles or solicit LasikPlus’s clients. Dr. Mattioli could only terminate the agreement with 120 days’ notice, or 30 days’ notice if LasikPlus was already in breach.
In October 2012, Dr. Mattioli told LasikPlus that he would be leaving within the month to start his own practice less than two miles away. LasikPlus sued Dr. Mattioli, seeking an injunction to bar him from opening the practice. The employment agreement expressly entitled LasikPlus to an injunction in these circumstances. Further, if the covenant was deemed unreasonable in scope of time or location, other language allowed the court to reform the covenant and enforce it to the degree it would be reasonable.
Yet Dr. Mattioli still succeeded in defeating LasikPlus’s request for an injunction, because the clinic left out a critical piece of the covenant.
Under the Texas Covenants Not to Compete Act, Tex. Bus. & Com. Code § 15.50 et seq., a covenant “relating to the practice of medicine . . . must provide for a buy out of the covenant by the physician at a reasonable price.” Dr. Mattioli’s covenant had no buy-out provision. As a result, the trial court decided, and the court of appeals agreed, that the covenant was not enforceable. Therefore, the clinic was not entitled to a preliminary injunction barring Dr. Mattioli from starting up his Lasik practice.
LasikPlus had to concede that its provision did not satisfy the requirements of the statute. On appeal, it came up with three arguments as to why the trial court should have entered the injunction anyway. First, it claimed that the trial court had improperly prejudged the merits of its case for breach of the noncompete. The court of appeals noted, however, that a party seeking preliminary injunctive relief “must establish, among other things, a probability of ultimate success on the merits,” and where the statute barred enforcement of the covenant, LasikPlus couldn’t establish that likelihood of final success.
Second, the clinic argued that the trial court should have “reformed” – i.e., revised – the covenant to make it enforceable. It argued that three justifications supported this approach: (i) the language allowing the court to revise the covenant if it was unreasonable; (ii) additional language in the Texas act allowing an arbitrator to decide a reasonable buyout at the parties’ option; and (iii) a claimed “mutual mistake” in drafting the agreement. The court of appeals rejected all of these reasons for rewriting the clause. It stated that the language in the contract itself clearly “applie[d] only when a court determines the covenant not to compete to be unreasonable,” not unenforceable as a matter of law; the Texas statute did “not suggest a court or arbitrator could add a buy-out clause to a covenant that does not contain one”; and there was no mistake as to including a buy-out provision, because Dr. Mattioli had submitted an uncontroverted affidavit to the trial court showing that he had raised the possibility of a buy-out and LasikPlus rejected it.
Third, LasikPlus argued that Dr. Mattioli failed to comply with the notice provision in his contract for terminating the agreement. However, it hadn’t asked for an injunction on that basis in the trial court, and couldn’t show how Dr. Mattioli’s failure to give proper notice entitled it to bar him from competing before a trial on its claims for breach of contract.
The main lesson that LasikPlus, other employers, and their attorneys should take from the Texas Court of Appeals’s holding is that they should always check the governing law (including statutes and judicial decisions) in their jurisdiction when they are putting together a noncompete agreement. These laws are constantly in flux, as we’ve been covering regularly here on Suits by Suits, so it’s dangerous to assume that you know the law or that it hasn’t changed since the last time you wrote a non-compete provision. Similarly, employees who seek to void a noncompete agreement should look at the governing law to identify requirements that their employers may not have thought of when drafting their covenants.
If you are interested in more information about legal issues involving executives and their employers, on December 10, 2013, Zuckerman Spaeder LLP partners and Suits by Suits contributing editors Ellen D. Marcus and Jason M. Knott will present a webinar titled “Whistleblower Watch: Big Issues in the Latest Whistleblower Cases Under Dodd-Frank, Sarbanes-Oxley, and the Internal Revenue Code.” In the session, Ms. Marcus and Mr. Knott will discuss the basics of these whistleblower and anti-retaliation provisions and address new developments in the law, including the Sarbanes-Oxley case currently pending before the U.S. Supreme Court. To register, click here.