Restrictive Covenants

Also under Physician-patient relationship

This suit defends a physician’s right and obligation to notify his patients when he leaves one practice and starts another.

Dr. Fong contracted to serve as an oncologist for Bayside Oncology/Hematology Associates, a medical corporation (“Bayside”) located in Orange County, California.  Bayside fired him, and he then notified his former patients that he had opened an oncology practice in the same office complex in which Bayside was located.

Learning of the notice to the patients, Bayside sued Dr. Fong.  Dr.  Fong counterclaimed.  Ultimately, the jury rendered a verdict on two of the counts in favor of Bayside and against Dr. Fong in the total amount of $1,256,500.  On Dr. Fong’s counterclaim, the jury verdict, based on one of the counts, was $473,000.  One element of the jury’s verdict against Dr. Fong (in the amount of $756,500) was based on a finding that he had violated the California statute against unfair competition by “soliciting” patients from Bayside.

The California Medical Association (CMA) and the Litigation Center filed an amicus brief supporting Dr. Fong.  The brief argued that Dr. Fong’s actions, which conformed to the ethical standards of the CMA and the AMA, did not constitute wrongful solicitation. 

The Court of Appeal affirmed in part and reversed in part.  It rejected amici’s arguments and found that Dr. Fong had improperly solicited his former patients.

Dr. Nolan sold her medical practice and, as part of the sale contract, promised that she would not compete with the purchaser within a defined geographic area.  In violation of her covenant, she then began to compete within the restricted area.  The purchaser sued her, and the trial court enjoined her from practicing medicine within the restricted area and from referring patients to physicians, hospitals, or clinics within the restricted area other than the purchaser or its employees.

The Litigation Center joined an amicus brief prepared by the Pennsylvania Medical Society in support of Dr. Nolan’s appeal.  The brief did not contest the validity of the restrictive covenant or the general concept that Dr. Nolan should bear some adverse consequences for its violation.  However, it did challenge the scope of the injunction entered against her.

Although restrictive covenants should be narrowly construed under contracts law, the injunction prohibited Dr. Nolan from making certain types of patient referrals, an activity not specifically proscribed by the covenant itself.  The injunction also violated her right to freedom of speech, in that she could not communicate openly and honestly with her patients.  Most importantly from the viewpoint of organized medicine, the injunction violated the AMA’s Medical Ethics Principle II and the AMA’s Fundamental Elements of the Patient-Physician Relationship.  Under the injunction, Dr. Nolan would obey the court order, or she could practice medicine ethically.  Unfortunately, she could not do both. 

The Pennsylvania Superior Court affirmed over a dissent.