Caruso v. BartonCaruso v. Barton
ORDER
This Court, having considered the briefs and record on appeal, and after oral argument, rules as follows:
(1) Richard F. Caruso, M.D., P.A. T/A Seaside Gastroenterology Consultants (“Seaside“) filed suit in the Superior Court against Heather Barton, M.D., a former physician employee of the Seaside medical practice. Seaside sought liquidated damages for Barton‘s alleged breach of a non-compete provision in her employment agreement after she left Seaside and joined a nearby competing gastroenterology practice. Following the parties’ cross-motions for summary
(2) On appeal, Seaside argues that the Superior Court erred in granting Barton summary judgment because Seaside was still operating at the time Barton joined the nearby competing practice. If Seaside was an operating entity, then the premise of the Superior Court‘s ruling – that the liquidated damages provision was unenforceable as a penalty because Seaside no longer had business interests to protect – goes away.
(3) Although we would have preferred to end the ongoing litigation between the parties, the cost of which has now exceeded the amount in dispute, we reluctantly conclude that a disputed issue of material fact exists as to whether Seaside was operating at the time Barton left the practice and joined another gastroenterology practice. Thus, we reverse the court‘s grant of summary judgment to Barton and remand for limited further proceedings.
(4) Richard F. Caruso, M.D., owned and operated Seaside, a medical practice specializing in gastroenterology in Lewes, Delaware.1 Seaside employed gastroenterologist Heather Barton, M.D., from 2018 until May 2021.2
(5) Barton signed an Employment Agreement with Seaside for an initial term of two years, effective July 1, 2018 (the “Agreement“).3 Section 10(b) contains the covenant of non-competition:
For and during the term of this Employment Agreement, and for two (2) years subsequent thereto, Employee shall not compete in any way with Employer directly or indirectly, and will not consult with or have any interest in any business, firm, person, partnership, corporation or other entity, whether as employee, officer, director, agent, security holder, creditor, consultant or otherwise, which engages in the practice of Gastroenterology or provides services to any individual or entity which competes with Employer directly or indirectly, in any aspect of the medical practice of Gastroenterology at any location within ten (10) miles of Employer‘s office located at 1309 Savannah Road, Lewes, DE.4
(6) Section 10(c) contains a liquidated damages provision:
The parties acknowledge and agree that any breach of the foregoing Covenants will cause irreparable damage to Employer, and that the usual amount of damages to which the Employer should be entitled would be difficult to ascertain. Employee therefore agrees that upon the occurrence of a breach of one or more of the foregoing Covenants, she will pay to the Employer as liquidated damages and not as a penalty, the sum of One Hundred thousand ($100,000.00) dollars[.]5
(7) The parties renewed the Agreement several times with the last renewal
(8) Barton began discreetly exploring other employment options.9 As early as January 2020, she contacted Beebe Healthcare (“Beebe“) in Lewes, Delaware and began actively pursuing a gastroenterologist position with them in December 2020.10
Barton did not tell Caruso that she was considering leaving Seaside or contemplating
(9) Around the same time, in December 2020, Caruso began negotiating with AmSurg Anesthesia Management Services, LLC (“AmSurg“) for the sale of Seaside.12 Caruso‘s operational and management consultant, Michael T. Fiore, discussed the office lease, physical assets and employment agreements with AmSurg.13
(10) On February 16, 2021, Seaside received Barton‘s Notice of Termination.14 In a letter dated March 8, 2021, Seaside accepted Barton‘s resignation effective May 28, 2021, and raised the post-employment non-compete obligation:
I remind you that if at any time during the two (2) years following the Termination Date, you engage, directly or indirectly, in the practice of gastroenterology anywhere within a ten (10) mile radius of Seaside‘s office at 1309 Savannah Road, Lewes[,] Delaware, you must immediately pay Seaside liquidated damages of One Hundred Thousand Dollars ($100,000.00).15
(11) Seaside sold its assets to AmSurg on May 11, 2021.16 The Bill of Sale
(12) On May 12, 2021, Caruso executed an employment agreement with an affiliate of AmSurg, EHG GI DE, P.C.19 According to the terms of his new employment, Caruso was prohibited from competing within 25 miles of Lewes, Delaware during the initial term of his employment, effective July 19, 2021.20
(13) Barton began working as a gastroenterologist at Beebe Hospital in June 2021, performing the same or similar duties as those she performed for Seaside, within ten miles of Seaside and within two years of leaving Seaside.21 On October 28, 2021, Seaside filed this Superior Court action against Barton.22 It claimed that Barton refused to pay the agreed upon liquidated damages upon breach, as provided by her Employment Agreement.
(14) After the parties cross-moved for summary judgment, the Superior
(15) This Court reviews a trial court‘s grant of a motion for summary judgment de novo.27 Summary judgment is appropriate when the moving party shows “that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.”28 The enforceability of a liquidated damages provision is a question of law subject to de novo review.29
(16) Under Delaware law, “[a]ny covenant not to compete provision of an
. . . all other provisions of such an agreement shall be enforceable at law, including provisions which require the payment of damages in an amount that is reasonably related to the injury suffered by reason of termination of the principal agreement. Provisions which require the payment of damages upon termination of the principal agreement may include, but not be limited to, damages related to competition.31
(17) To enforce a liquidated damages provision in a physician employment agreement, the plaintiff must prove that the departing physician breached the terms of the non-compete restriction, and the liquidated damages provision is reasonable and does not act as a penalty.32 Here, the Superior Court found that Barton breached the non-compete provision. She joined a competing gastroenterology practice less than 10 miles from Seaside‘s practice, within two years following termination. But
(18) Without other considerations, we can say under the facts of this case that the liquidated damages provision in Barton‘s employment contract is reasonable and enforceable. “Liquidated damages are a sum to which the parties to a contract have agreed, at the time of entering into the contract, as being payable to satisfy any loss or injury flowing from a breach of their contract.”33 In Delaware, a liquidated damages provision is valid and enforceable when it reflects the parties’ best estimate of unascertainable damages and is not a penalty.34 By contrast, a penalty is “an agreement to pay a stipulated sum upon breach, irrespective of the damage sustained.”35 A liquidated damages provision will not be disturbed when (1)
damages are uncertain, and (2) the amount agreed upon is reasonable based on the
(19) Here, without considering other factors, the parties do not appear to dispute that the $100,000 liquidated damages provision in Barton‘s employment agreement is reasonable. But there are other considerations. Although Barton does not contest the reasonableness of the $100,000 liquidated damages amount, she claims that because Seaside “sold its assets to AmSurg prior to Barton‘s final day of employment with [Seaside] on May 28, 2021, and Caruso is prohibited from operating [Seaside] during his employment, Barton never competed.”38 Therefore, Barton argues, “enforcement of the liquidated damages provision must be a penalty because it cannot be reasonably tethered to a legitimate business interest.”39 Seaside responds that Barton “did in fact engage in competition with Plaintiff as she began working at Beebe on June 21, 2021, and Plaintiff‘s business continued to operate until he commenced employment with [AmSurg] on July 18, 2021.”40
(20) In their appellate briefing, the parties have muddled the framework for
(21) Although the Superior Court found that Seaside ceased operations before Barton started to compete, the court relied on the ambiguous statements from Seaside‘s counsel about the status of the practice post-Bill of Sale. In a pre-trial conference transcript, Seaside‘s counsel made statements about Seaside‘s status.41 But it is unclear from counsel‘s statement what period she was referring to when she stated that Seaside stopped seeing patients:
THE COURT: Is Seaside Gastroenterology Consultants still competing?
MS. ALLEN: Is Seaside -- no, Seaside -- it is still -- Caruso, PA, operating as Seaside still is in existence, but is no longer seeing patients. But it is still an active company, still an active PA . . . . Seaside Gastro is not operating.42
(22) At the pretrial conference, Seaside‘s attorney also stated that “[Caruso] didn‘t sell the practice, your Honor. The only thing he sold was the bill of sale -- and I wasn‘t involved in that -- is the bill is the furniture and the equipment.”43 In other words, Seaside sold furniture and equipment, but not the practice. In the reply brief in this appeal, Seaside‘s counsel stated that “Defendant did in fact engage in competition with Plaintiff as she began working at Beebe on June 21, 2021, and Plaintiff‘s business continued to operate until he commenced employment with EHG GI DE, P.C. on July 18, 2021.”44
(23) Other than statements from Seaside‘s counsel, which are unclear, we cannot discern from the record when Seaside ceased seeing patients following the Bill of Sale. Thus, a disputed issue of material fact exists, and summary judgment was premature. Given the unique circumstances of this case, we reverse the Superior Court‘s decision granting summary judgment to Barton and remand for the limited purpose for the Superior Court to make a definitive factual finding when Seaside ceased seeing patients following the Bill of Sale. The court can decide the issue in
NOW, THEREFORE, IT IS HEREBY ORDERED that the judgment of the Superior Court is REVERSED and the case is REMANDED for further proceedings consistent with this Order. Jurisdiction is not retained.
BY THE COURT:
/s/ Collins J. Seitz, Jr.
Chief Justice