SALARTASH SURGICAL ASSOCIATES, LLC v. MICHAEL P. DEL ROSARIO

 

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-1420-05T51420-05T5

SALARTASH SURGICAL ASSOCIATES, LLC,

Plaintiff-Appellant/

Cross-Respondent,

v.

MICHAEL P. DEL ROSARIO,

Defendant-Respondent/

Cross-Appellant.

____________________________________

 

Submitted December 12, 2006 - Decided March 27, 2007

Before Judges Axelrad and Gilroy.

On appeal from the Superior Court of New Jersey, Chancery Division, Atlantic County, Docket No. C-198-04.

Westmoreland, Vesper & Quattrone, attorneys for appellant/cross-respondent (R. C. Westmoreland and Kathleen F. Beers, on the brief).

Cooper Levenson April Niedelman & Wagenheim, attorneys for respondent/cross-appellant (Howard E. Drucks, on the brief).

PER CURIAM

Plaintiff Salartash Surgical Associates, LLC, appeals from that part of the October 18, 2005, order of the Chancery Division, dismissing its claims for damages caused by defendant Michael P. Del Rosario's breach of the parties' employment agreement. Defendant cross-appeals from the dismissal of his counterclaim for breach of the agreement. We reverse the dismissal of plaintiff's claim for damages; affirm the dismissal of defendant's counterclaim; and remand to the trial court for further proceedings consistent with this opinion.

Plaintiff is a limited liability company, licensed to engage in the practice of medicine and surgery, with offices in Atlantic and Cape May Counties. Its principals are Dr. Alimorad Salartash (Alimorad) and Dr. Khash Salartash (Khash), both surgeons. Following an extensive search of eligible surgeons throughout the country, plaintiff extended an offer of employment to defendant, and defendant accepted. Defendant commenced employment with plaintiff on or about July 15, 2002. On October 29, 2002, the parties entered into a three-year employment agreement (the Agreement), effective July 1, 2003, and ending June 30, 2006.

The Agreement provided that either party could terminate the employment arrangement on sixty days' written notice to the other. Plaintiff also had the right to terminate the Agreement "for cause," including "failure to comply with the terms and conditions of this [a]greement, provided . . . that [plaintiff] shall give [defendant] ten (10) days written notice of such failure and an opportunity for [defendant] to cure any such failure within said ten (10) day period." The Agreement also contained a restrictive covenant, which provided, in relevant part:

During the [e]mployment [p]eriod and for a period of two (2) years thereafter, [defendant] agrees that he will not directly or indirectly, as employee, owner, partner, stockholder, or otherwise, engage in the practice of medicine within a radius of twenty (20) miles of any office which [plaintiff] maintains. [Defendant] further agrees that he will not, during such term and said two (2) year period, directly or indirectly, disclose to any other person or entity or use for his or allow to use for their own profit or benefit any proprietary or confidential information concerning [plaintiff's] practice.

After a year of employment, conflicts arose between defendant and the two principals, Alimorad and Khash. On July 22, 2004, defendant informed Khash that he was resigning from the practice but would continue to work for plaintiff for the next sixty days. Notwithstanding, within the sixty days, defendant ceased performing surgeries on behalf of plaintiff, and the parties blamed each other for defendant's cessation of services. Among other matters, Alimorad contended that defendant failed to assist another physician, Dr. Patel, during a surgery scheduled on July 27, 2004. Although defendant conceded that he did not show up for the surgery, he claimed he was never informed that he was scheduled to assist Dr. Patel on that day. During a telephone conversation between Alimorad and defendant on July 29, 2004, defendant contended that Alimorad terminated him for refusing to perform scheduled surgical procedures. Defendant asserted that he had refused to perform surgeries at plaintiff's request because he believed that he had been prohibited by Khash from providing follow-up care to his patients at plaintiff's offices. Khash denied that he ever prohibited defendant from providing follow-up care at the offices. After leaving plaintiff's medical practice, defendant opened a medical office in Galloway Township, within twenty miles of plaintiff's office.

On October 4, 2004, plaintiff filed a complaint and order to show cause seeking among other matters, a preliminary injunction, prohibiting defendant from practicing medicine within the geographical range of the restrictive covenant, and damages for breach of the restrictive covenant and failure to continue in plaintiff's employment for sixty days from the date defendant provided notice that he was leaving employment. Defendant counterclaimed for damages, asserting that defendant had wrongfully terminated his employment in violation of the Agreement by refusing to allow him to work for sixty days following his notice of resignation.

On December 21, 2004, the trial judge denied plaintiff's application for preliminary injunction, prohibiting defendant from practicing medicine within twenty miles of plaintiff's offices. Following the Court's decision in Community Hosp. Group, Inc. v. More, 183 N.J. 36 (2005), plaintiff renewed its application for restraints. Because of a pending trial date, the application was denied. The issues were bifurcated for trial, with the court trying the issues pertaining to the restrictive covenant first.

On October 17, 2005, following a five-day bench trial and having found Alimorad and Khash to be more credible than defendant, the judge determined that defendant had breached the Agreement by refusing to perform surgery for sixty days after notice of leaving employment, and that Alimorad acted properly in terminating him on July 29, 2004. The judge also determined that plaintiff had a legitimate interest in enforcing the restrictive covenant to protect its investment in defendant, and its relationships with patients and referring doctors; that enforcement of the covenant would not have caused undue hardship to defendant; and that enforcement would not be injurious to the general public because there were numerous other surgeons in the Atlantic City area. Notwithstanding, the judge denied enforcement of the restrictive covenant, concluding that the enforcement of the covenant was not necessary to protect plaintiff's legitimate interest: "I don't see how the restrictive covenant truly serves the function of protecting those interests in this particular case."

On October 18, 2005, the trial judge entered a confirming order that: 1) denied plaintiff's request for specific performance of the restrictive covenant with prejudice; 2) dismissed plaintiff's claim for damages for violation of the restrictive covenant with prejudice; 3) dismissed defendant's counterclaim for damages for wrongful termination and breach of contract with prejudice; and 4) dismissed without prejudice, "any and all remaining claims for damages which had been asserted in this matter . . . subject to the right of either party to pursue those claims through the filing of a new Complaint in the Law Division . . . within ninety days of the date of this Order." (underscoring in original).

On appeal, plaintiff concedes that because of the lapse of time, the issue pertaining to enforcement of the restrictive covenant is moot. Plaintiff argues that the trial judge erred in dismissing its claim for damages caused by defendant's breach of Paragraph 5 (failure to provide medical services for sixty days after giving notice) and Paragraph 7 (the restrictive covenant) of the Agreement. On his counterclaim, defendant argues that the trial judge erred in determining that defendant had "refused to render surgical services during this 60-day time period prescribed in the Agreement."

On appeal, we may not interfere with a trial court's fact findings unless those findings would work an injustice. Rova Farms Resort, Inc. v. Investors Ins. Co. of Am., 65 N.J. 474, 483-84 (1974). Consequently, "the appellate court should exercise its original fact finding jurisdiction sparingly and in none but a clear case where there is no doubt about the matter." Id. at 484. The same level of deference is not required when we are reviewing a legal conclusion. Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995).

Plaintiff argues that the trial judge erred by dismissing its claim for damages after determining that defendant had breached the Agreement by refusing to perform surgery for the period of sixty days following notice that he was leaving plaintiff's employment (Paragraph 5) and by opening an office for the practice of medicine within the restrictive geographic area approximately three months after his resignation (Paragraph 7). We agree.

We first address plaintiff's claim based upon the breach of the restrictive covenant. Our Supreme Court recently revisited the issue "decided in Karlin v. Weinberg, 77 N.J. 408 (1978), that a post-employment restrictive covenant in an employment contract between physicians or between a physician and hospital is not per se unreasonable and unenforceable." Community Hospital, supra, 183 N.J. at 41. The Court declined to overrule Karlin and "adopt a per se rule invalidating restrictive covenants between physicians or between physician and a hospital" and instead "utilized a reasonableness test determining the enforceability of [such] restrictive covenants." Id. at 54-55.

In deciding whether a noncompete agreement is unreasonable and unenforceable, the reviewing court is required to apply a three-prong test determining whether "(1) the restrictive covenant was necessary to protect the employer's legitimate interest in enforcement, (2) whether it would cause undue hardship to the employee, and (3) whether it would be injurious to the public." Id. at 57. Under the first prong, "legitimate interest may include: (1) protecting confidential business information, including patient lists; (2) protecting patient and patient referral bases; and (3) protecting investment in the training of a physician." Id. at 58. "Beyond that, three additional factors should be considered in determining whether the restrictive covenant is overbroad: its duration, the geographic limits, and the scope of activities prohibited. Each of those factors must be narrowly tailored to ensure the covenant is no broader than necessary to protect the employer's interest." Id. at 58-59 (citing Karlin, supra, 77 N.J. at 423).

Here, although the trial judge found that the restrictive covenant satisfied the three-prong reasonableness test of Community Hospital, the judge determined that it would be inappropriate to enforce the covenant because it did "not have an appropriate function in protecting the interest[s] that are, in fact, legitimate." In other words, the judge held that although there was legitimate interest to protect, the plaintiff was required to establish a functionality element under the first prong of Community Hospital. Because plaintiff concedes that the time period for the restrictive covenant has expired and the issue is moot, we do not address the trial court's grafting of a "functionality component" onto the first prong of the reasonableness test of Community Hospital.

However, it appears that the judge, determining that plaintiff was not entitled to enforce the restrictive covenant, denied plaintiff's claim for damages based on breach of the covenant. We are satisfied that this determination was not correct. An aggrieved party may sue for damages for breach of a restrictive covenant. See Community Hospital, supra, 183 N.J. at 63-64, where the Court, although not enforcing the restrictive covenant because the time limitation had expired, remanded the matter to the trial court for further proceedings on plaintiff's damage claim. Moreover, plaintiff is also entitled to pursue its damage claim for breach of Paragraph 5 of the Agreement for failure of defendant to provide medical services for sixty days following notice that he was leaving plaintiff's employment. Accordingly, we reverse that part of the order of October 18, 2005, dismissing plaintiff's claim for damages based on the breach of Paragraphs 5 and 7 of the Agreement, and remand the matter to the trial court for further proceedings consistent with this opinion.

As to defendant's cross-appeal, we are satisfied from our study of the record and the arguments presented, that sufficient credible evidence in the record as a whole warrants the findings and conclusions of the trial judge, and we discern no good reason or justification for disturbing them. Rova Farms and Resort, supra, 65 N.J. at 483-84. Moreover, the argument is without merit. Accordingly, we affirm the judgment dismissing defendant's counterclaims substantially for the reasons expressed by the trial judge in his thoughtful oral opinion of October 17, 2005. R. 2:11-3(e)(1)(A) and (E).

Affirmed in part; reversed in part; and remanded to the trial court for further proceedings consistent with this opinion.

 

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A-1420-05T5

March 27, 2007