Judicial Opinion

Judicial Opinion

STATE OF WISCONSIN, CIRCUIT COURT, OUTAGAMIE COUNTY
APPLETON CARDIOLOGY ASSOCIATES Plaintiff v. JUANA VILLANUEVA, M.D. Defendant.	Case #: 16 CIVIL 3379 Judge: Analysis Word Count: # 3,147

 

Introduction

Defendant, Dr. Juana Villanueva (hereinafter referred to as “Villanueva”), has moved this Court for summary judgment in Plaintiff’s, Appleton Cardiology Associates (hereinafter referred to as “Appleton”), claim for breach of the parties’ employment contract. The parties agree that there is no dispute as to any material fact regarding the breach of contract claim. At issue is whether the non-compete agreement between parties is enforceable. For the reasons that follow, Defendant’s motion is denied and parties must attend a pre-trial conference for trial on damages and injunctive relief.

Statement of Facts

[This section has been omitted due to length but will be provided upon request.]

Analysis

The non-compete agreement between Appleton and Villanueva is enforceable because it is reasonable under all counts. Courts recognize the policy of the restrictive covenant statute in Wisconsin to protect employees from the in terrorem effect caused by powerful employers. Streiff v. American Family Mut. Ins. Co., 348 N.W.2d 505, 512 (Wis. 1984). The agreement may be applicable if the restrictions are reasonable. Chuck Wagon Catering, Inc. v. Raduege, 277 N.W.2d 787 (Wis. 1979); Wis. Stat. § 103.465 (2016). In the past, the Wisconsin courts construe non-compete agreements narrowly and in favor of the employee. Streiff v. American Family Mut. Ins. Co., 348 N.W.2d at 510. The burden of proof falls on the employer. Chuck Wagon Catering, Inc., 277 N.W.2d at 790. To recover under section § 103.465 of the Wisconsin statute, the employer must prove the covenant is (1) necessary for the protection of the employer, (2) provides a reasonable time and (3) reasonable area restriction, (4) is not oppressive to the employee, and (5) is not harmful to public policy. Heyde Cos. v. Dove Healthcare, LLC, 654 N.W.2d 830, 835 (Wis. Ct. App. 2001). These elements must all be met for summary judgment and an injunction to occur. Wis. Stat. § 103.465 (2016). Four key restrictions narrowly construe this rule: (1) they are prima facie suspect; (2) they must withstand close scrutiny to pass legal muster as being reasonable; (3) they will not be construed to extend beyond their proper import or further than the language of the contract absolutely requires; and (4) they are to be construed in favor of the employee. Heyde, 654 N.W.2d at 835. Additionally, section § 103.465 of the Wisconsin statute is conjunctive, where all the elements need to be met to be enforceable. Blue-penciling, allowing certain elements to be enforced to the extent that they are reasonable, is barred under the statute. Streiff, 348 N.W.2d at 509. In this case, there are three undisputable requirements.

(I) Reasonable Time

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(II) Reasonable Area

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(III) No Harm to Employee

Third, the agreement must not cause undue hardship to the employee. The agreement may not restrict the former employee from continuing in the same profession. Chuck Wagon Catering, Inc., 277 N.W.2d at 793. The standard question to determine if a covenant is reasonable with respect to the employee, is whether the employee can still make a living in their field. Id. Here, Villanueva is licensed by the state and can treat anyone that she has never treated at Appleton, meaning she is only restricted from servicing about 4,000 people. She is also allowed to reassign the patients to her partner at Lakefront, even though she cannot treat them herself. In Outagamie County and the surrounding areas, potential patients are abundant due to Appleton’s recent rejection of Medicare payments. There are no other cardiologists nearby that accept new patients as quickly as Lakefront, where new patients are accepted within 1-3 weeks while others take 8-10 weeks. Villanueva will easily succeed in her field, as is articulated by these facts. Thus, the two disputable requirements left to discuss are no harm to the general public and necessary to protect the employer.

(IV) No Harm to Public

Forth, the Court concludes that Appleton’s covenant does not harm public policy because it has not endangered the public health or safety, nor has it created a monopoly, since Lakefront is still able to provide the public access to its services. To determine reasonableness, the evidence must show that employment opportunities are protected; the agreement did not create a lack of competition, monopoly, shortage of employees or shortage of the type of service; and the general public is considered to have reasonable access to an employee’s service. Lakeside Oil Co., 98 N.W.2d at 417. The general public must have a reasonable access to an employee’s particular service. Id. Additionally, enforcement of the non-compete cannot endanger public health or safety, such as, the danger of a special-skilled physician in a small community that is prevented from treating patients. Techworks, LLC v. Wille, 770 N.W.2d 727, 736 (Wis. Ct. App. 2009).

In Lakeside Oil Co., the covenant restricted Slutsky from competing in the petroleum business in Milwaukee county for two years. Id. at 415. The court held that Slutsky worked for the small company as the sole salesman and it did not matter whether he competed with the company or not because he would not reasonably affect the general public. Id. at 417-18.

Additionally, there is no harm to the public since the covenant does not endanger public health or safety of the public. Techworks, LLC, 770 N.W.2d at 736. In Techworks, LLC, is a tech-support service that made an employment contract with David Wille. Id. The Court held that the covenant was not barred by public policy because Wille’s non-compete did not endanger the public since he worked in tech-support and a lack of services would not put others in harm. Id. However, the Court reasoned if a physician with special skills is barred from seeing patients in a small town, then public policy is violated because it may harm the public’s access to medical treatment, which may in turn harm their health. Id.

Appleton’s covenant did not harm the public because they did not create a monopoly and it did not endanger the health or safety of the public since they allowed Villanueva’s practice to treat Appleton patients. Appleton is similar to Lakeside Oil Co., but unlike Techworks, LLC. Lakeside Oil Co. is similar because both cases restrict the ability to compete in a certain area and with certain clients for a particular time, which is allowed under certain circumstances. Lakeside Oil Co. was allowed to restrict Slutsky from competing because the restriction did not equate to denying the public reasonable access to a service. Similarly, Appleton restricted Villanueva not to treat any patient whom she treated any time during her employment at Appleton for two years at any location in Wisconsin. This is reasonable and not harmful because patients are still allowed to be treated by the Lakefront practice. Furthermore, Villanueva treated one hundred former Appleton patients at Lakefront, of which ten patients were formerly treated by Villanueva. These patients left Appleton when they qualified for Medicare, whereby Appleton still increased their revenue despite the loss of patients from the policy change. Here, one can argue that it is actually beneficial that Villanueva compete in terms of public policy because she is offering access to patients that would otherwise have limited access to medical treatment due to Appleton’s policy change. Notwithstanding, Lakeside Oil Co. held that it did not matter whether he competed or not because he did not violate policy. Similarly, the agreement does not violate policy because it does not establish a shortage in employment; a lack of competition; and gives reasonable access to services.

In contrast, the Techworks, LLC case is not applicable here because the covenant is between a tech-support service, whereas, the covenant in Appleton is a medical physician. In Techworks, LLC the Court concluded that it was acceptable to bar Wille from competing since restricting a tech-support employee does not endanger the public. However, Techworks, LLC is not similar because Villanueva is a professionally skilled cardiologist that accepts Medicare from patients when Appleton does not. Appleton stopped treating new Medicare patients as of March 1, 2015 and patients treated by Appleton on Medicare were given a time limit to find a new cardiologist. Thus, Dr. Villanueva’s restriction may possibly rise to the level for public policy concern because patients may be endangered from limited specialists, whereas, in Techworks, LLC, Wille did not even rise to the level of concern. Furthermore, the possible policy concerns are not withstanding for the reasons above. The court holds that Villanueva’s working capacity is not limited to the point of public concern.

[Counter argument has been omitted due to length but will be provided upon request.]

However, the Court concludes that covenant did not violate public policy since the restriction was reasonable and did not hinder competition, limit access to the public, and did not endanger the public’s health because Lakefront gave patients access to service.

(V) Necessary for protection of employer

Fifth, the Court concludes that Villanueva and Appleton’s non-compete is reasonably necessary to protect the employer because of the competitive advantage gained from identifying with Appleton and the special relationship with clients under the doctor-patient relationship. The policy behind protecting employer interests is to prohibit unfair advantage in competition, like that which is more than competition of a stranger. Pollack, 458 N.W.2d. at 598. This is a disjunctive rule that must be satisfied by one of the five following protectable interests: (1) confidential information; (2) trade secrets; (3) reputation, goodwill, or referrals; (4) investment in the employee; and (5) customer loyalty or relationship to the employee. Chuck Wagon Catering, Inc., 277 N.W.2d at 787, 791; General Medical Corp., v. Kobs, 507 N.W.2d 381 (Wis. Ct. App. 1993); Wausau Medical Ctr., S.C. v. Asplund, 514 N.W.2d 34 (Wis. Ct. App. 1994); Pollack v. Calimag, 458 N.W.2d 591 (Wis. Ct. App. 1990); Fields Found., Ltd. v. Christensen, 309 N.W.2d 125 (Wis. Ct. App.). Here, there are three undisputable elements.

1. Trade secrets

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2. Confidential business information

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3. Employer Goodwill/Reputation (Referrals) Pollack

Third, goodwill comes from a positive relationship between the customer and employee who deal regularly and are of asset to the employer. Chuck Wagon Catering, Inc., 277 N.W.2d at 792. Here, there is no interest because she saw most Appleton patients once or twice a year and only ten percent of patients four to five times a year, which is not enough for protection. Thus, the are two disputable requirements to discuss: (1) investment in the employee and (2) special client relationship.

4. Investment in the Employee

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5. Special Relationship/Client Contacts

Fifth, the Court concludes that Dr. Villanueva had a special relationship from the doctor-patient loyalty and a competitive advantage by identifying with Appleton. To determine a special relationship, a customer’s relationship to employees has value to the “extent that the customer knows and feels he can rely” on the employee. Chuck Wagon, 277 N.W.2d at 792. This is described under the customer-contact theory. Wausau, 514 N.W.2d at 41. The theory states that if an employee’s relationship amounts to “such control or influence” over the customers that the “employee may be able to take the customers away from the employer,” then the employer has a protectable interest. Id. The purpose of a non-compete is to prevent an employee from competitive use of information and contacts because a customer is a valuable asset to certain businesses. Chuck Wagon Catering, Inc., 277 N.W.2d at 789. Also, additional facts and circumstances make the agreement reasonable for protection because an employer is not protected against ordinary competition. Fields Found., Ltd., 309 N.W.2d at 129. The employee must present substantial risk to the employer’s client relationship that is unreasonable to the totality of the circumstances. Id.

To determine a special relationship, there must be an unreasonable and substantial risk to employer’s client relationship, not ordinary competition, under the totality of the circumstances. Id. In Fields Found., Ltd, Fields Foundation operates an abortion clinic where Dr. Dennis Christensen, a gynecologist, was the medical director for two years. Id. at 128. The Court held that Christensen’s identified with the Center because they referred business to him, providing him with an advantage over competitors and his actions of copying referral lists and soliciting staff to compete is exactly what the covenant was designed to protect. Id. The court reasoned that Fields struggled to build relationships to establish a well-known business. Id. Furthermore, Fields trained Christensen, who only performed five hundred abortions prior to employment. This allowed him to gain two years’ experience and allowed him to become an expert in surgical procedures, despite only spending five to ten minutes with the patients. Id.

Additionally, the purpose of a non-compete is to prevent an employee from competitive use of information and contacts because a customer is a valuable asset to certain businesses. Chuck Wagon Catering, Inc., 277 N.W.2d at 789. A customer’s relationship to employees has value to the “extent that the customer knows and feels he can rely” on the employee. Chuck Wagon, 277 N.W.2d at 792. In Chuck Wagon Catering, Inc., Raduege leased from Chuck Wagon a lunch route for two and one-half years, while Chuck Wagon established and maintained it for six years. Id. During the lease, Raduege had daily contact with the customers Id. The Court held there was a reasonable protectable interest because Raduege’s repeated and exclusive solicitation created a salesman-customer’s loyalty. Id.at 793.

Also, to determine a special-client relationship, one must turn to customer-contact theory. Wausau, 514 N.W.2d at 41. The theory states that if an employee’s relationship amounts to “such control or influence” over the customers that the “employee may be able to take the customers away from the employer,” then the employer has a protectable interest. Id. In Wausau Med. Ctr., the Asplund worked for three-and-one-half months at WMC as a vascular surgeon. Id. at 39. The Court held that there was no protectable interest since his short tenure established minimal referrals from WMC that did not materially aid his reputation. Id. at 40. Therefore, WMC did not acquire a protectable interest, despite the Court agreeing that covenants between physicians are favored when there is a specific set of facts. Id. at 41.

Here, there is a special relationship because of Villanueva’s doctor-patient relationship advantage and Appleton’s legitimate interest in protecting his clientele, which is supported by Fields Found., Ltd and Chuck Wagon Catering, Inc., but not Wausau Med. Ctr. Appleton is similar to Fields Found., Ltd because they both involve physicians that built a reputation and acquired skills from their employer, establishing patient loyalty, despite the time spent with the patients. In Fields Found., Ltd, Christensen became a well-known gynecologist after gaining experience and a reputation from working under Fields for two years. He Increased his skills from only five hundred prior abortions and became a medical director. Similarly, Villanueva is a cardiologist that gained experience and a reputation from working under Appleton for two years after she was hired right out of fellowship. She saw her patients on average once or twice a year with the exception of ten percent four to five times a year. In Fields Found., Ltd, the Court held that there was substantial risk above ordinary competition because Christensen’s identification with the Center provided him with competitive advantage over other physicians, despite only spending five to ten minutes with the patients. Also, her actions of copying lists and soliciting staff is not the only determining factor for an interest. Here, Villanueva’s identification with the Center provides her with advantages over other competitors. Her experience provided her with a good reputation that contributed to a special relationship with the clients, which prompted them to follow her. Also, the lack of a soliciting act does not negate protection under the circumstances.

Additionally, Appleton’s case is similar to Chuck Wagon Catering, Inc., because Appleton’s customers is a valuable asset and feel like they can rely on the Villanueva as their physician. In Chuck Wagon Catering, Inc., Raduege took the lease of Chuck Wagon for two and one-half years. Raduege leased a lunch route where he had daily contact with the customers that Chuck Wagon established after six years. Similar, Villanueva was an employee of Appleton for two years where she treated patients daily, who were established by Appleton. In Chuck Wagon Catering, Inc., the Court held there was an interest because there was repeated and exclusive solicitation of a salesman-customer’s loyalty by Raduege. Here, the Court holds the repeated contact and exposure to Villanueva’s expertise created a patient-doctor loyalty and contacts, which is a protectable interest.

In contrast, Wausau Med. Ctr. is unlike Appleton because Villanueva met the customer-contact theory with sufficient influence over the customers that the employee may be able to take the customers away from the employer. In Wausau Med. Ctr., the Asplund worked for three-and-one-half months with WMC as a vascular surgeon, whereas, Villanueva worked for Appleton for two years. In the past, the Court determined there was no protection because his short tenure established minimal referrals, despite stating that covenants between physicians are favored under specific circumstances. Here, the Court holds that there is an interest because her reputation was established in concurrence with the duration of her employment, whereby her mere identification as an Appleton employee aided to her reputation and customer contact.

[Counter argument has been omitted due to length but will be provided upon request.]

The Court concludes that there is a special relationship with Appleton clients because the loyalty in the doctor-patient relationship; competitive advantage from working under Appleton; and extent of the employment established customer contacts.

The Court concludes that there is a reasonable necessity to protect the employer because there is a special relationship and investment in the employee when Villanueva established loyalty in a doctor-patient relationship and Appleton substantially trained her in becoming an expert.

Enforceability of the Contract

Therefore, the Court concludes that Appleton’s covenant against Villanueva is reasonable and can be enforced since there is a legitimate interest to protect the employer and the covenant does not go against public policy under section §103.465 of the Wisconsin statute. Furthermore, the employer interest is established by investment in employee and special doctor-patient relationship. The enforcement drives the policy that there can be an interest to protect the employer when the language is construed reasonably. Since Appleton’s covenant was reasonable and not burdensome to the employee, not enforcing such a covenant would question the existence of non-competes entirely. Thus, the Court correctly considered totality of the circumstances and reasonableness in determining enforceability.

Disposition

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