21 A.3d 110
Me.2011Background
- SOCHS is a nonprofit integrated healthcare system managing Court Street Family Practice, Community Clinical Services, and St. Mary's Regional Medical Center; SOCHS funds these entities and supports them financially.
- The doctors (Farrago, Stone, Kase) had identical SOCHS employment agreements under which SOCHS owned all fees and paid salaries, and doctors served at Court Street and St. Mary's on call.
- Each contract contained a Limitation of Practice clause forbidding practice within 25 miles for two years post-termination, with three escape routes: active St. Mary’s admitting privileges, written consent of SOCHS CEO, or paying $100,000 as liquidated damages.
- In 2006 the doctors left SOCHS to work for Central Maine Medical Center within 25 miles; none obtained consent or paid $100,000.
- 1373 patients had their records transferred to the departing doctors, signaling substantial potential damages and loss of patient base for Court Street.
- SOCHS sued in 2007 for breach of contract; the trial court found the covenants reasonable and the $100,000 liquidated damages provisions enforceable, and entered judgment for SOCHS.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Are the restrictive covenants enforceable to protect SOCHS's legitimate interests? | SOCHS: covenants protect goodwill and patient base created by doctors. | Farrago/Stone/Kase: covenants are overbroad and not for legitimate business interests. | Yes; covenants protect legitimate SOCHS interests. |
| Are the liquidated damages provisions enforceable under the two-part Raisin Memorial Trust test? | SOCHS: $100,000 is a reasonable estimate of actual damages if doctors breach. | Doctors: the amount is not justified as a reasonable approximation of damages. | Enforceable; the provisions meet the two-part test. |
| Did SOCHS have standing to pursue the breach claim? | SOCHS: as a party to the contracts, it has standing to seek damages. | Doctors: standing may be lacking under some theories. | SOCHS has standing to sue for contract damages. |
Key Cases Cited
- Brignull v. Albert, 666 A.2d 82 (Me. 1995) (legitimate business interests may justify restrictive covenants)
- Chapman & Drake v. Harrington, 545 A.2d 645 (Me. 1988) (covenants must not sweep wider than necessary to protect business interests)
- Raisin Memorial Trust v. Casey, 2008 ME 63 (Me. 2008) (two-part test for enforceability of liquidated damages)
- Coastal Ventures v. Alsham Plaza, LLC, 2010 ME 63 (Me. 2010) (criteria for contract interpretation of liquidated damages clauses)
- Stull v. First American Title Ins. Co., 2000 ME 21 (Me. 2000) (standing to sue in contract claims)
- Bernier v. Merrill Air Eng'rs, 2001 ME 17 (Me. 2001) (reasonableness and scope of restrictive covenants)