James B. Lees, Jr., Esq.
J. Konrad, Esq.
Sharon F. Iskra, Esq. R. Kemp Morton, Esq.
Hunt & Lees Huddleston, Bolen, Beatty,
Charleston, West Virginia Porter & Copen
Attorney for Appellant Huntington, West Virginia
Attorneys for Appellee
The Opinion of the Court was delivered PER CURIAM.
employee covenant not to compete is unreasonable on its face if its time or
area limitations are excessively broad, or where the covenant appears designed
to intimidate employees rather than to protect the employer's business, and
a court should hold any such covenant void and unenforceable, and not undertake
even a partial enforcement of it, bearing in mind, however, that a standard
of 'unreasonable on its face' is to be distinguished from the standard of 'reasonableness'
used in inquiries adopted by other authorities to address the minor instances
of overbreadth to which restrictive covenants are naturally prone. Syllabus
Point 2, Reddy v. Community Health Foundation of Man, 171 W.Va. 368,
298 S.E.2d 906 (1982).
2. An inherently reasonable restrictive covenant is presumptively enforceable in its entirety upon a showing by the employer that he has interests requiring protection from the employee. Syllabus Point 3, Reddy v. Community Health Foundation of Man, 171 W.Va. 368, 298 S.E.2d 906 (1982).
3. Parties may properly contract for liquidated damages (1) where such damages are uncertain and not readily capable of ascertainment in amount by any known or safe rule, whether such uncertainty lies in the nature of the subject, or in the particular circumstances of the case; or (2) where from the nature of the case and tenor of the agreement, it is apparent that the damages have already been the subject of actual fair estimate and adjustment between the parties. Syllabus Point 3, Wheeling Clinic v. Van Pelt, 192 W.Va. 620, 453 S.E.2d 603 (1994) (citation omitted).
4. A clause for damages in a contract is a penalty rather than a liquidated damage provision when the amount is grossly disproportional in comparison to the damages actually incurred. This is true even though the provision is denominated as liquidated damages in the contract. Syllabus Point 4, Wheeling Clinic v. Van Pelt, 192 W.Va. 620, 453 S.E.2d 603 (1994) (citation omitted).
5. The verdict of a jury will be held sacred by this Court, unless there is a plain preponderance of credible evidence against it, evincing a miscarriage of justice from some cause, such as prejudice, bias, undue influence, misconduct, oversight, or some misconception of the facts or law. Syllabus Point 1, Young v. West Virginia & P.R. Co., 44 W.Va. 218, 28 S.E. 932 (1894).
This is an appeal of an order
of the Circuit Court of Cabell County that in essence set aside a plaintiff's
verdict and directed a verdict in favor of the defendant. The court also, in
the alternative, awarded the defendant a new trial.
Dr. LoCascio worked for HEA
for the 1-year trial period. He had a full patient load from the
first day, and he participated fully in the HEA practice, coming to know the
local medical market and community. At the end of his first year, Dr. LoCascio
elected to remain at HEA, and to buy in and become one of the owners
of HEA in 3 years. Dr. LoCascio was paid the increasing salary and benefits
that were specified in his contract for the next 3 years. Dr. LoCascio's billings
generated gross revenues for HEA that were substantially in excess of his salary;
however, HEA covered all of the overhead of his practice.
In early to mid-1994, Dr. LoCascio began to look for other employment. He traveled to Seattle, Washington, and to other locations to explore other employment opportunities. Dr. LoCascio testified that his exploration of other possible employment resulted from his belief that he might not do well financially by buying into the HEA practice. According to Dr. LoCascio, one consideration was that two physicians who had come to HEA had left without joining the practice as owners -- and with those physicians gone, Dr. LoCascio believed that buying into HEA might not be consistent with his financial goals. However, at the same time that Dr. LoCascio was exploring other employment alternatives, he was also negotiating with Dr. Roisman about possibly revising the contractual terms regarding the cost of a buy-in at HEA.
In October of 1994, Dr. LoCascio and Dr. Roisman participated in a meeting with several technician employees who worked in the HEA offices. These employees tested patients' vision, using eye charts, lenses, and similar equipment -- to obtain visual acuity test result numerical readings, like 20/20, 20/30, etc. Some of the technician employees had received special certification in connection with this work; others had not, and it does not appear that such certification was legally required. Most had learned the testing procedures on the job.
The results of the technicians' visual testing were recorded by the technician on a patient's chart. The technician would then leave the patient, who would wait for an HEA doctor, like Dr. Roisman or Dr. LoCascio -- who would then examine the patient, having the technician's test results in hand. The interpretation of the test results, any additional testing or re-testing, and any medical diagnosis and prescription, were the sole responsibility of the physician.
At the October 1994 meeting, the
technician employees complained that Dr. Roisman had in a number of instances
superseded or invalidated the visual acuity test results that the technicians
had written on a patient's chart -- by crossing though (but ordinarily not obliterating)
the technician's results, and substituting Dr. Roisman's own numbers on the patient's
chart. According to the testimony of several technicians at the trial in the instant
case, Dr. Roisman's revisions occurred in almost all instances where a patient
in fact had cataracts, but where the technician's test result numbers were not
severe enough to permit Medicare reimbursement for the patient's cataract surgery.
The evidence was unrefuted at trial that such changes by Dr. Roisman occurred
with some regularity -- although clearly they were not the ordinary case.
At the meeting, Dr. Roisman did not give much shrift to the technicians' complaints. However, Dr. LoCascio said that he was very surprised by the complaints, and he testified that he pulled several hundred of Dr. Roisman's charts for review. Dr. LoCascio further testified that he found the complaints to be corroborated by the charts. Dr. LoCascio testified that he decided, on the basis of the meeting and his review of Dr. Roisman's charts, that he, Dr. LoCascio, would definitely not stay at HEA because of what Dr. LoCascio believed to be seriously unethical and fraudulent conduct by Dr. Roisman.
There are, of course, two sides to the issue of the alleged misconduct by Dr. Roisman that Dr. LoCascio claimed both led to and legally justified his leaving HEA. It is appropriate at this juncture to skip ahead a bit and summarize the other evidence that developed on this issue -- before continuing the narrative of the events that culminated in the lawsuit, trial, and court order that form the basis of the appeal that is before this Court in the instant case.
Dr. Roisman thereafter sued Dr.
LoCascio for breach of contract and tortious interference with business relations.
Dr. Roisman sought damages in the amount of the contractually required stock purchase,
or, in the alternative, the $650,000 (two times Dr. LoCascio's salary at the time
of the alleged breach of contract) in liquidated damages that the contract called
for in the event that Dr. LoCascio breached its terms. Dr. LoCascio counterclaimed
against Dr. Roisman, asserting claims of tortious interference and constructive
discharge. Dr. LoCascio claimed, inter alia, that Dr. Roisman had engaged
in fraudulent and unethical conduct in connection with the HEA practice that excused
any breach of contract by Dr. LoCascio.
The case proceeded to trial before a jury in January of 2000. Dr. Roisman, in his case-in-chief, described how he had founded and developed HEA, how he had recruited Dr. LoCascio, and how Dr. Roisman and Dr. LoCascio had negotiated Dr. LoCascio's contract of employment. Dr. Roisman explained that he had provided Dr. LoCascio with a turn-key practice, with a full complement of patients from his first day. Dr. Roisman testified that he had paid Dr. LoCascio a large salary (one million dollars), with full benefits, over 4 years. Dr. Roisman defended the 2-year non-compete clause as a mutually bargained- for protection for HEA against the financial consequences of losing a key employee, and then having that employee set up shop in the same area. Dr. Roisman put on evidence that Dr. LoCascio, shortly before he left HEA, had taken a copy of the HEA patient list, to which Dr. LoCascio had access while he was at HEA. Dr. Roisman testified that Dr. LoCascio, in his post-HEA practice, had been obtaining a substantial number of patient referrals from sources who had previously been referring patients to Dr. LoCascio at HEA. Dr. Roisman presented the testimony of an economist who concluded that HEA had lost a substantial amount of former HEA patient income as a direct result of Dr. LoCascio's leaving HEA. The economist also concluded that Dr. Roisman had suffered monetary damages as a result of Dr. LoCascio's failure to purchase stock in HEA.
At the end of Dr. Roisman's case-in-chief, the circuit court decided that HEA's claim against Dr. LoCascio must fail as a matter of law for three basic reasons. The circuit court concluded that: (1) the geographic area of non-competition in Dr. LoCascio's contract was as a matter of law so over broad as to make the covenant not to compete unenforceable in any fashion; (2) the contractual requirement that Dr. LoCascio purchase stock in HEA was as a matter of law unenforceable because Dr. LoCascio had ceased to be a part of the HEA practice; and (3) the $650,000 liquidated damages provision was a penalty as a matter of law, and therefore was unenforceable.
However, the circuit court did not instruct the jury that the court was ruling against Dr. Roisman as a matter of law. Rather, in several related procedural rulings that we need not detail here, the circuit court allowed the trial to proceed and go to the jury on the parties' claims and defenses, for the purpose of making a complete appellate record. Pursuant to these procedural rulings, after Dr. Roisman presented his case-in-chief, Dr. LoCascio presented evidence in support of his counter-claims against Dr. Roisman. Dr. Roisman then presented evidence in rebuttal. The circuit court then allowed Dr. LoCascio to put on any additional evidence that he wished, including recalling witnesses, in defense to Dr. Roisman's claims against Dr. LoCascio.
A lengthy instructions conference produced a charge to the jury on the parties' claims and counterclaims and defenses. Neither appellant nor appellee has raised before this Court any argument that this jury charge was legally deficient or inaccurate; and our general review of the charge indicates that the charge fairly sets forth the applicable law on the parties' claims and defenses, and gave the jury its proper role in ruling on those claims and defenses. We need not discuss these in detail.
The jury was furnished with a verdict form that the parties also have not criticized in their briefs. The positions of the parties were ably argued to the jury by counsel. The jury returned the following verdict:
the jury find by a preponderance of the evidence that Joseph A. LoCascio, III,
M.D., tortiously interfered with the business of Huntington Eye Associates,
If you have checked YES
to any one or more of questions 1 or 2 above, give the amount of damages which
you believe Huntington Eye Associates, Inc. should receive in compensation,
if any. If you have checked NO to each question 1 and 2 above, then
enter -0- and proceed directly to question 3 below.
the jury find by a preponderance of the evidence that Dr. Tully Roisman tortiously
interfered with the contract by and between Huntington Eye Associates, Inc.
and Dr. Joseph A. LoCascio, III, M.D.
the jury find by a preponderance of the evidence that Huntington Eye Associates,
Inc. constructively discharged Joseph A. LoCascio, III, M.D.
If you have checked YES
to either question 3 or 4 above, and you believe that Joseph A. LoCascio, III,
M.D. is entitled to compensation from Huntington Eye Associates, Inc., give
the amount of damage you award, if any:
After the jury returned its
verdict, the circuit court entered an order dated May 2, 2000 from which the
instant appeal is taken. That order directed a defense verdict for Dr. LoCascio on Dr. Roisman's claims, on the grounds that Dr. Roisman's case had
failed as a matter of law. This order, in essence, set aside the jury verdict
in favor of Dr. Roisman. Also, the jury having ruled against Dr. LoCascio on
his counterclaim against Dr. Roisman, the circuit court did not disturb that
The circuit court also, in the alternative, awarded a new trial to Dr. LoCascio on Dr. Roisman's claims against Dr. LoCascio, on the grounds that Dr. LoCascio had not had a fair and full opportunity to defend against Dr. Roisman's claims.
2. An employee covenant not to
compete is unreasonable on its face if its time or area limitations are excessively
broad, or where the covenant appears designed to intimidate employees rather than
to protect the employer's business, and a court should hold any such covenant
void and unenforceable, and not undertake even a partial enforcement of it, bearing
in mind, however, that a standard of unreasonable on its face is to
be distinguished from the standard of reasonableness used in inquiries
adopted by other authorities to address the minor instances of overbreadth to
which restrictive covenants are naturally prone.
3. An inherently reasonable restrictive covenant is presumptively enforceable in its entirety upon a showing by the employer that he has interests requiring protection from the employee.
4. An employee may rebut the presumptive enforceability of a restrictive covenant by showing: (1) that he has no trade assets of the employer to convert; (2) that such trade assets as he has belong to him and not to the employer; (3) that the employer could be equally well protected by a narrowed covenant; or (4) that the employer has had time to recoup any extraordinary investment in the employee.
5. In an action for injunctive relief to enforce a restrictive covenant in an employment contract the burden of proving the inherent reasonableness of the restrictive covenant, and of showing a need for protection by it, is on the employer; the burden of proving that an inherently reasonable covenant should not be enforced in its entirety is on the employee.
In Reddy, this Court found that a covenant not to compete in a medical employment contract, with a 30-mile/3-year restriction, was not facially unreasonable as a matter of law. We remanded the case in Reddy for a factual determination as to whether the employer had proven a protectible interest that the covenant was reasonably designed to protect. We have stated that [t]he existence of a [n employer's] protectible interest is a question of fact for a jury or trial court sitting as a fact finder. Torbett v. Wheeling Dollar Sav. & Trust Co., 173 W.Va. 210, 314 S.E.2d 166 (1983).
In a subsequent case, Gant v. Hygeia Facilities Foundation, Inc., 181 W.Va. 805, 384 S.E.2d 842 (1989), we upheld a legal determination by a circuit court that a similar 30-mile/3-year covenant was not facially unreasonable. In Gant we also upheld the circuit court's factual determination that the employer had a protectible interest, and that the employee had not shown that the covenant should not be enforced in its entirety.
In the instant case, Dr. Roisman had begun and built a business that provided specialized eye care over a wide geographic area, and he recruited extensively for doctors who would like to join in building such a business. As definitively evidenced by the language of the contract that is at issue in the instant case, Dr. Roisman specifically sought, in his recruiting efforts, doctors who would not abruptly leave HEA and go into direct competition with HEA in its market area.
The contract also definitively shows that Dr. LoCascio held himself out to be such a doctor. Dr. LoCascio specifically represented and promised to Dr. Roisman that Dr. LoCascio [did] not intend or desire to remain or practice medicine within the area professionally served by HEA, if in fact [Dr. LoCascio did] not remain employed by HEA and if he [did not] purchase . . . equity stock interest in HEA [.] (Emphasis added.) The contractual language and the other evidence at trial strongly suggest that Dr. Roisman would not have hired Dr. LoCascio, if Dr. LoCascio had not made such a promise.
Such a promise, of course, would mean little or nothing if it had no teeth. Doctors, like lawyers and just about everyone else, understand that people's intentions and desires change. Therefore, to make it clear and to assure that he could be counted on to abide by and adhere to his stated intentions and desires, Dr. LoCascio also promised Dr. Roisman, in a solemnly binding fashion, that if Dr. LoCascio left HEA, Dr. LoCascio would abide by the specific non-compete provisions of the contract.See footnote 3 3 And Dr. LoCascio further promised to Dr. Roisman that Dr. LoCascio would pay specific and mutually-agreed-upon liquidated damages to Dr. Roisman, if Dr. LoCascio failed to honor those non-compete provisions.
Dr. LoCascio did not testify that he did not understand or did not intend to keep the promises that he made to Dr. Roisman. Dr. LoCascio's explanation at trial for his breach of those promises was rather that the breach was entirely caused, excused, and justified by Dr. Roisman's alleged unethical, fraudulent conduct.
The circuit court's order holding that the non-compete clause in the instant case was unenforceable focused on the court's conclusion that the existence of the several HEA branch offices resulted in an area limitation [that is] excessively broad, Syllabus Point 1, Reddy, supra -- by the circuit court's estimate, as much as 120 miles in one dimension.
However, Dr. Roisman put on evidence that HEA drew significant numbers of patients from a wide area around the various HEA branch offices.See footnote 4 4 The theoretical breadth of the contractually proscribed area, while a possible factor for a jury to consider in determining HEA's protectible interest, was not so broad as to be facially unreasonable -- particularly in light of the fact that Dr. LoCascio, without first seeking any legal determination of his rights,See footnote 5 5 opened his competing office, not 51 miles from HEA's Huntington office, but less than 2 miles away.
We believe, consistent with this
Court's approach in Reddy and Gant, that the circuit court erred
in concluding that the non-compete provision of the commercial contract between
these two sophisticated, well-represented professionals was facially over broad
and unenforceable as a matter of law.
The circuit court's second ground for directing a verdict against Dr. Roisman was based on the court's reasoning that the contract contemplated that Dr. LoCascio would purchase stock in HEA only if he was practicing there -- so that when Dr. LoCascio left HEA, for whatever reason, Dr. Roisman could make no claim for damages against Dr. LoCascio based on Dr. LoCascio's failure to purchase stock. The circuit court concluded that changing circumstances at HEA, such as the departure of two other doctors, and ambiguities in the contract about the stock price made the stock purchase and related provisions unenforceable as a matter of law.
We agree that the stock purchase agreement contemplated that Dr. LoCascio would be practicing at HEA when he bought the stock. It is also correct that there were changes at HEA that would have justified modifying the buy-in terms, if Dr. LoCascio had in fact chosen to stay. Dr. Roisman testified that he had offered such modifications to Dr. LoCascio, and the evidence was that such modifications were being discussed, before the meetings with the technicians.
However, the analysis of the stock purchase agreement by the circuit court ignores the related matter of the liquidated damages provision of the contract, which the circuit court separately found to be an unenforceable penalty. When the stock purchase and liquidated damages provisions are considered together, it is apparent that both Dr. Roisman and Dr. LoCascio understood from the outset that Dr. LoCascio might change his intentions and desires, and choose to leave HEA without purchasing stock in HEA -- and indeed, that Dr. LoCascio might also choose to go so far as not to honor the non-compete provisions of the contract.
In such an event, the contractual language shows that Dr. Roisman and Dr. LoCascio understood that calculating the actual damages to HEA would be difficult, if not impossible. Considering the inherent complexity and uncertainty of such a calculation, this was an entirely reasonable understanding. Therefore, both Dr. Roisman and Dr. LoCascio agreed (and the point bears emphasis that both had something at stake in coming to this agreement, for the actual loss could well be greater or less) on a two-years'-salary figure, as a rough but fair estimate of what the loss to HEA would be.
Our black-letter rule on liquidated damages provisions was stated in another covenant-not-to-compete case, Wheeling Clinic v. Van Pelt, 192 W.Va. 620, 453 S.E.2d 603 (1994):
3. Parties may properly contract for liquidated damages (1) where such damages are uncertain and not readily capable of ascertainment in amount by any known or safe rule, whether such uncertainty lies in the nature of the subject, or in the particular circumstances of the case; or (2) where from the nature of the case and tenor of the agreement, it is apparent that the damages have already been the subject of actual fair estimate and adjustment between the parties.
4. A clause for damages in a contract is a penalty rather than a liquidated damage provision when the amount is grossly disproportional in comparison to the damages actually incurred. This is true even though the provision is denominated as liquidated damages in the contract.
Id., Syllabus Points 3 and 4 (citations omitted).
The circuit court found that while the 2-years'-salary liquidated damages clause set HEA's damages at $650,000, HEA's actual damages were less than half of that amount, according to HEA's expert -- and therefore that the liquidated damages amount was grossly disproportionate to the actual damages to HEA.
However, this finding was based on a mischaracterization of the expert's testimony. HEA's expert testified that the lost income from patients who had been with HEA and who had gone to Dr. LoCascio after he left HEA accounted for a nearly $300,000 direct loss to HEA. But the loss to HEA from Dr. LoCascio's leaving HEA was not limited to the direct patient-shift costs imposed by Dr. LoCascio's competition; it also involved such elements as the foreseeable but difficult to calculate losses in overall HEA billings due to the abrupt loss of a physician in the practice -- not to mention the lost income from the anticipated stock purchase. Dr. LoCascio testified that his billings in 4 years at HEA were $2.5 million.
The jury was instructed that if it found that the liquidated damages amount was unreasonably large and therefore punitive, the jury could in the alternative award actual damages. The jury decided, based on all of the evidence, that the liquidated damages were in fact reasonable.
Our review of the evidence leads us to the conclusion that a jury could conclude that these two well-represented professionals had arrived at a reasonable formula for estimating the damages to HEA that would occur if Dr. LoCascio breached his contractual promises, and the result of applying that formula was not grossly disproportionate to reality. Consequently, we conclude that the circuit court erred in directing a verdict for Dr. LoCascio on the latter two grounds that the court recited.
The final issue that we must address is whether the circuit court erred in granting Dr. LoCascio a new trial on the grounds that Dr. LoCascio was unable to fully and fairly defend against Dr. Roisman's claims. We have reviewed the record and conclude that Dr. LoCascio was given a fair opportunity to put on all of the evidence and argument that he wished in both defense and offense. Dr. LoCascio took the stand twice to explain his position. At the end of the trial, Dr. LoCascio was given the right to call or re-call additional witnesses for either defensive or offensive purposes; and he was also offered a recess to consider strategy. Dr. LoCascio has not proffered any specific evidence that he says could have made a difference in the outcome of the jury's deliberations.
The jury had the law, the evidence, and the argument with which to assess the competing claims of the parties. Dr. LoCascio took the position that he did not, could not, and need not adhere to the contract's provisions because of alleged ethical, medical, and legal wrongdoing by Dr. Roisman. The jury simply did not accept that position.
The verdict of a jury will be held sacred by this Court, unless there is a plain preponderance of credible evidence against it, evincing a miscarriage of justice from some cause, such as prejudice, bias, undue influence, misconduct, oversight, or some misconception of the facts or law. Syllabus Point 1, Young v. West Virginia & P.R. Co., 44 W.Va. 218, 28 S.E. 932 (1894).