- July 27, 2018
The next time you’re about to sign a noncompete agreement, be sure to read the fine print — because such documents aren’t to be taken lightly.
Physician Partners of America LLC, a health care company with locations throughout Florida, Texas and California, found that out the hard way recently, having to pay $3.3 million to settle a lawsuit. According to Carlton Fields, the law firm that represented the plaintiffs, Surgery Partners, it’s one of the largest-ever employee contract dispute settlements in the health care industry, and because — in a highly unusual move — it was made public, it carries with it a bevy of valuable business lessons.
The lawsuit against Physician Partners of America LLC (PPOA) was brought by Surgery Center Holdings Inc., a pain management practice that does business as Surgery Partners, and its Tampa-based affiliates, Tampa Pain Relief Center Inc. and Armenia Ambulatory Surgery Center LLC. One of the core disputes in the case was over whether the defendants, PPOA and another physician in the company, Dr. Charles Friedman, were legally entitled to keep patients who joined their practice if the doctors who brought them there were working for PPOA in violation of a noncompete agreement. Some 600 patients hung in the balance of the lawsuit.
The settlement, according to Alan Rosenthal, a Miami-based Carlton Fields partner who served as lead attorney on the case, “confirms the importance of complying with state law and employee contracts.”
The opposing counsel in the case, William Schifino Jr., managing shareholder at Gunster, Yoakley & Stewart P.A., contends that while there are lessons for businesses, the settlement represents PPOA's patient-first ethos at work. As the case was headed into its fourth year, the settlement, Schifino adds, wasn't a straightforward defeat on the merits. "The case was one that we, in the end, would have clearly won," Schifino says, "but litigation is very expensive, and so we made a decision that's not at all in the doctors' best interests, not in Friedman's best interests, not in PPOA's best interests, but in the best interests of the patients."
The crux of the case, which was filed in 2018 and went all the way to Florida’s Second District Court of Appeals in Lakeland, involves the alleged “poaching” of three Surgery Partners doctors and nurse practitioners by PPOA founder Dr. Rodolfo Gari. Those doctors signed noncompete agreements with Surgery Partners that forbade them from joining a rival practice within a certain distance — in this case, a radius of 15 miles — from a Surgery Partners location. And, according to the lawsuit, those employees took those patients from Surgery Partners with them to PPOA.
Rosenthal contends Gari bought a Pinellas Park medical practice — owned by Friedman — that was just outside the 15-mile radius and hired former Surgery Partners physicians to work there. He then used a “complex web of corporate entities,” Rosenthal says, to hide the fact that the doctors were also practicing at other PPOA-owned clinics within the 15-mile radius.
That, Rosenthal says and the lawsuit alleged, was a violation of the contract.
“We could show that everything, every entity, ran up to Dr. Gari alone,” Rosenthal says. “That’s where the discovery process was so critical. We were tracking patients and proving that they were treated and operated on within the restricted area. Those two groupings of evidence are what made the difference.”
Gari, Rosenthal contends, thought he could get away with it because of the way the health care industry has evolved in recent years: many doctors no longer own and operate their own practices; rather, they fall under the purview of a larger corporation that handles back-office operations so doctors can focus on treating patients. Thus, having the former Surgery Partners doctors employed by Dr. Friedman’s office — they even had employment contracts that said they worked for Friedman, not PPOA — seemed like a way to get around their noncompete agreements, Rosenthal says.
“That’s what made this so different,” Rosenthal says. “To my knowledge, it’s the first time in the health care industry where a court has enforced a noncompete [agreement] like this.”
Schifino offers a different take.
For one, he points out that Hillsborough County Circuit Judge Scott Stephens found in favor of Drs. Gari and Friedman in November 2019, when Surgery Partners filed for an injunction to keep the poached doctors from practicing. In his opinion, Stephens wrote, "Plaintiff does not have evidence that the doctors solicited patients of the plaintiff."
The judge also describes the doctors' connection to PPOA-owned sites within the 15-mile radius as "incidental." He writes, "It is true that they became employed by an entity that has other locations within 15 miles of the plaintiff's locations, but only tortured reading of the employment agreements would prohibit that."
Schifino also takes issue with the notion that PPOA stole patients from Surgery Partners.
"When did patients become chattel of an entity?" he says. "They don't belong to Surgery Partners. These patients are free to choose what doctors they choose. The plaintiff was trying to prevent our doctors from treating patients, approximately 600 of them that had been formerly treated by Surgery Partners."
Many of those patients, Schifino says, had been seeing the same doctor for a decade or more.
"If Surgery Partners had achieved its intended result," he says, "we would have had to call up 600 patients and say, 'You have to leave.' That would have been an unacceptable result for our clients."
There's a clear lesson to be gleaned from this murky legal case: sometimes the best way to mitigate long-term risk is to avoid it altogether, even it means taking a short-term, one-time hit, financially.
"While we believed that the trial court and the appellate court would have denied the plaintiff's request to [jettison the 600 patients]," Schifino says. "We weren't willing to take any risk that that could happen."
Disputes over noncompete agreements, whether in health care or any other field, can become contentious. But Rosenthal says it’s important to remember it’s just business.
“This is not personal,” he says. “It’s not about animus. This is one company enforcing its contractual rights and seeking to protect its customers, its patients … they’re not going to embark on a very expensive, aggravating, time-consuming proposition like this because they’re angry with an individual.”
In the end, PPOA hired the doctors it coveted, though it cost the company a pretty penny, to say the least. But Rosenthal says the alternative could’ve been far worse if the case went to trial: a judge might have enjoined the doctors from working at PPOA and awarded punitive damages in excess of the $3.3 million in the settlement.
“We were going to ask for punitive damages,” he says. “But it didn’t get that far. They cut their losses and ended it to move on and not lose their doctors. And those doctors had been big producers [for Surgery Partners]. If they had been enjoined from working for [PPOA] for a period of time, [PPOA] stood to lose a lot more.”