Zellner v. Stephen D. Conrad, M.D., P. C.

183 A.D.2d 250, 8 I.E.R. Cas. (BNA) 4, 589 N.Y.S.2d 903, 1992 N.Y. App. Div. LEXIS 12802
CourtAppellate Division of the Supreme Court of the State of New York
DecidedNovember 9, 1992
StatusPublished
Cited by26 cases

This text of 183 A.D.2d 250 (Zellner v. Stephen D. Conrad, M.D., P. C.) is published on Counsel Stack Legal Research, covering Appellate Division of the Supreme Court of the State of New York primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Zellner v. Stephen D. Conrad, M.D., P. C., 183 A.D.2d 250, 8 I.E.R. Cas. (BNA) 4, 589 N.Y.S.2d 903, 1992 N.Y. App. Div. LEXIS 12802 (N.Y. Ct. App. 1992).

Opinion

OPINION OF THE COURT

COPERTINO, J.

The principal question which confronts us on this appeal is whether an at-will employee or independent contractor can be bound by a restrictive covenant limiting his ability to practice his profession both temporally and geographically where the covenant was given after employment began and where no additional benefits were obtained from the employer. We hold that he can.

The plaintiff, James Zellner, is an ophthalmologist licensed to practice medicine in the State of New York. In February 1984 he began working as a salaried employee of Ophthalmology Associates of Bay Ridge, P. C., in Brooklyn. In April 1984 another of the employees of Ophthalmology Associates, Dr. Stephen Conrad, who had formed his own professional corporation, which is the defendant herein, purchased the medical practice for more than $1,000,000. Conrad described the practice as "very substantial”, consisting of thousands of patients who reside, for the most part, in the vicinity of its office. Zellner went to work for the defendant in July of that year. There is no dispute that Zellner’s status was that of an independent contractor, who was to be compensated by receiving a 50% share of the fees the defendant charged the patients he treated.

According to Zellner, this arrangement was to be a temporary one and he was promised he would eventually be permitted to buy into the defendant by purchasing shares thereof and investing in equipment purchased during the interim period. He also contends that Conrad agreed to enter into a [252]*252written agreement formalizing their relationship as soon as he commenced work for the defendant, and that negotiations, conducted both personally and through their respective attorneys, began at about this time. After several months Zellner believed that an agreement was within reach, but in January of 1985 he received a proposed letter agreement, dated January 31, 1985, which contained the restrictive covenant at issue in this case. The agreement was accompanied by a letter of transmittal from the defendant’s counsel stating that "his execution of this restrictive covenant is required as a condition to his remaining a consultant to the Corporation”. Based on what he describes as Conrad’s assurances that the letter agreement was intended to operate only until the two had executed the formal employment and shareholder agreements, and that he was constrained as sole support of his family, Zellner signed.

The January 31, 1985, agreement provides that as consideration for his continued retention as an "independent consultant” to the defendant, "without any specified term or formal agreement”, Zellner recognized the proprietary rights of the defendant in its patient lists, their records, and "certain other property,” and that he should not use such proprietary information to compete with the defendant. Based upon these understandings, Zellner agreed that upon termination of his relationship with the defendant he would not engage in the practice of ophthalmic medicine within a two-mile radius of the defendant’s office for two years, nor solicit or treat any of its patients during that period. Zellner further agreed, "irrespective of any other rights” that the defendant would be entitled to receive 35% of the gross collections from his medical practice during the two-year period as liquidated damages if he competed with the defendant "in any manner violative” of the aforementioned restrictions. The agreement concluded with an acknowledgment that it "shall not be deemed” an employment agreement, and that the defendant retained all rights to obtain any judicial remedies available, including injunctive relief.

It is undisputed that the parties never entered into the employment and shareholder agreements for reasons Zellner attributes to bad faith negotiations on Conrad’s part, and that the plaintiff terminated his relationship with the defendant on June 21, 1990, effective June 29, 1990. He opened an office within 13 blocks of the defendant and began treating patients with whom he had developed a relationship during his associa[253]*253tion with the defendant. Zellner also mailed professional announcements of his changed location to "potential patients”, to colleagues and to "certain residents of Brooklyn” who appeared on a mailing list purchased from a direct mail marketing firm. He also began the instant lawsuit.

In his complaint the plaintiff alleged, inter alia, wrongful and oppressive conduct by Conrad and that he expected the defendant to seek injunctive relief prohibiting the plaintiff from practicing ophthalmology or ophthalmic surgery. The plaintiff also alleged that the liquidated damages provision gave the defendant an adequate remedy at law. He sought a judgment declaring that the restrictive covenant limiting his ability to practice medicine was unenforceable. The case is before us on the defendant’s motion for a preliminary injunction, which the Supreme Court granted.

The principal argument advanced by the plaintiff on this appeal is addressed to the Supreme Court’s finding that the defendant had demonstrated a likelihood of success on the merits of its claim for a permanent injunction enjoining the plaintiff from practicing ophthalmic medicine and surgery under the terms of the January 31, 1985 agreement, which had been asserted by way of counterclaim in its answer (see, e.g., Grant Co. v Srogi, 52 NY2d 496; Albini v Solork Assocs., 37 AD2d 835). He contends that because his employment already had begun by the time he was presented with the agreement, the defendant was obliged to present him with some additional consideration in exchange for his promise not to compete after termination of their relationship. He claims that the defendant failed to do so. Stressing the fact that no written employment contract ever came into being and that the defendant thus had no obligation to pay him any particular sum — or, for that matter, to continue to use his services at all — he asserts that the restrictive covenant was not ancillary to any other agreement which might serve to justify its existence, rendering the covenant a naked and thus unenforceable restraint on trade.

It is well established that while restrictive covenants tending to prevent a person from pursuing his or her vocation after termination of an employment relationship are disfavored by the law (Columbia Ribbon & Carbon Mfg. Co. v A-1-A Corp., 42 NY2d 496), they generally will be enforced against medical and dental professionals if such covenants are reasonably limited temporally and geographically and, without being harmful to the public or unduly burdensome, serve the accept[254]*254able purpose of protecting the former employer or associate from unfair competition (Gelder Med. Group v Webber, 41 NY2d 680; Karpinski v Ingrasci, 28 NY2d 45). We find, as did the Supreme Court, that, under the facts of this case, the covenant at issue met these requirements. We also note that the presence of a liquidated damages provision did not foreclose the granting of injunctive relief (see, Karpinski v Ingrasci, supra). However, it must not be forgotten that restrictive covenants are, first and foremost, contracts. As with any contract, the promise not to compete must be supported by adequate consideration on the part of the promisee. The only consideration cited in the agreement was the plaintiff’s continued retention as an independent consultant by the defendant, with no changes made to the then-existing relationship. The question for us to determine is whether this was sufficient.

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Bluebook (online)
183 A.D.2d 250, 8 I.E.R. Cas. (BNA) 4, 589 N.Y.S.2d 903, 1992 N.Y. App. Div. LEXIS 12802, Counsel Stack Legal Research, https://law.counselstack.com/opinion/zellner-v-stephen-d-conrad-md-p-c-nyappdiv-1992.