Opinion
C.A. No. 07C-09-022 (JTV).
Submitted: May 13, 2008.
Decided: November 25, 2008.
Upon Consideration of Defendant's Motion for Summary Judgment.
DENIEDRoy S. Shiels, Esq., Brown, Shiels O'Brien, Dover, Delaware. Attorney for Plaintiff.
Scott E. Chambers, Esq., Schmittinger Rodriguez, Dover, Delaware. Attorney for Defendant.
ORDER
Upon consideration of the defendant's motion for summary judgment, the plaintiff's opposition, and the record of the case, it appears that:
1. This is a breach of contract case arising out of a former business relationship between two chiropractors practicing in Milford, Delaware. The plaintiff, Lynn Walsh, alleges that the defendant, Andrew Riddle, violated the terms of a non-compete clause in the parties' contract.
2. The defendant moves for summary judgment on the grounds that he was released from the non-compete provision, and, alternatively, that the provision was unenforceable as drafted.
3. For the reasons which follow, I conclude that factual issues remain as to whether the non-compete clause was or was not a part of the parties' agreement at the time of the alleged violation, and that the non-compete clause is not unenforceable as a matter of law. Therefore, the motion will be denied.
4. The plaintiff owns and operates Walsh Chiropractic Center, a chiropractic practice in Milford. On May 20, 2002, the parties signed two contracts (the "Lease Agreement" and the "Referral Agreement") pursuant to which the plaintiff agreed to rent the defendant space in his chiropractic facilities as an independent contractor. Paragraph 9(C) of the Referral Agreement contains a non-compete clause and provides for liquidated damages in the event of a breach:
Whether or not Walsh purchases Riddle's business and the goodwill thereof, Riddle agrees not to practice within a 10 mile radius from Walsh's office location and/or location's, should additional offices be opened during the tenure of Riddle, for a period of two years. It is understood and agreed that a breach by Riddle of this covenant would cause irreparable and immeasurable damages to Walsh. Because of the impossibility of ascertaining and measuring these damages, the parties agree that in the event Riddle breaches this covenant, Walsh shall be entitled to an injunction from a court of competent jurisdiction enjoining Riddle from the practice of chiropractic in the area provided above for the two year period. Further, as liquidated damages, and not by way of penalty, Walsh shall be entitled to recover from Riddle the sum of $1,000.00 per month for sixty (60) consecutive months.
The parties do not dispute that the Referral Agreement is a valid contract.
5. The parties maintained a business relationship providing chiropractic services in the Milford area from May 2002 until March 18, 2005, when the defendant sent a letter to the plaintiff expressing concerns about his professional future in light of the plaintiff's uncertain retirement plans. The plaintiff responded with a letter on March 21, 2005, indicating that he would not enforce the non-compete clause and that the defendant could take his patients and their charts with him.
6. In a January 13, 2006 letter from plaintiff to defendant, the plaintiff stated that he was aware of attempts by the defendant to solicit Walsh Chiropractic personnel to work for another chiropractor. Because of this perceived betrayal, the plaintiff wrote: "[U]nder the circumstances I appear to have no other choice then [sic] to terminate any and all agreements currently in effect between us and we go our separate ways. Consider this letter as thirty days (30) notice of my intent to terminate
any and all contractual agreements."
7. This led to an office meeting on January 19, 2006, attended by the plaintiff, the defendant, and the office manager, Tina Kuser. Ms. Kuser took notes of the parties' discussion, which included a request by the defendant that the parties' contract be reinstated in its entirety. The plaintiff allegedly agreed to reinstate the contract, and in a January 24, 2006 letter to the defendant, stated: "All agreements previously established between us are in effect and will be honored in their entirety."
8. The parties continued their relationship under the reinstated contract until December 13, 2006, when the defendant sent the plaintiff a letter indicating that he would be leaving the practice in January 2007 and opening an office in Milford. Sometime thereafter, the defendant established Atlantic Chiropractic Associates in Milford, which is approximately 0.61 miles from Walsh Chiropractic Center. The complaint in this case then followed.
9. Summary judgment should be granted when there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. The moving party bears the burden of establishing the non-existence of material issues of fact. If a motion is properly supported, the burden shifts to the non-moving party to establish the existence of material issues of fact. In considering the motion, the facts
Super. Ct. Civ. R. 56(c).
Gray v. Allstate Ins. Co., 2007 WL 1334563, at *1 (Del.Super. May 2, 2007).
Id.
must be viewed in the light most favorable to the non-moving party. Summary judgment is inappropriate "when the record reasonably indicates that a material fact is in dispute or if it seems desirable to inquire more thoroughly into the facts in order to clarify the application of law to the circumstances.
Pierce v. Int'l Ins. Co. of Ill., 671 A.2d 1361, 1363 (Del. 1996).
Mumford Miller Concrete, Inc. v. New Castle County, 2007 WL 404771, at *1 (Del.Super. Jan 31, 2007).
10. The defendant contends that the March 21, 2005 letter released him from the non-compete restriction and that it was no longer in force when he left the plaintiff's practice and established a new office. He further contends that the plaintiff's January 24, 2006 letter reinstating "[a]ll agreements previously established" did not reinstate the non-compete clause, but instead reinstated, or reestablished, the waiver or release of the non-compete clause contained in the March 21, 2005 letter. He contends that a reasonable person would conclude that the plaintiff's use of the term "all agreements" included the promises contained in the March 21 letter.
11. The plaintiff contends in response that there was no consideration for his promise not to enforce the non-compete clause-that it did not become an enforceable "agreement" meeting the requirements for a valid contract modification. The plaintiff further contends that it was not reasonable for the defendant to believe that the parties mutually agreed to eliminate the clause. The plaintiff further contends that the January 24 letter was clearly intended to reinstate all "agreements wherein both
parties agreed to the creation of benefits and obligations," rather than only parts of prior agreements. He further contends that during and after that time, the defendant never indicated that he believed the non-compete clause was excluded from the "all agreements" language (or that "all agreements" included the plaintiff's "agreement" to release the defendant from the non-compete). The plaintiff further contends that the defendant cannot interpret the correspondence in such a way as to retain the benefits of the parties' contractual relationship while avoiding the corresponding burdens.
12. On this record, issues of fact exist as to whether, or not, the non-compete clause was a part of the parties' agreement when the defendant opened his own office. Issues of fact also remain as to claims of waiver and estoppel raised by the defendant. These issues cannot be resolved on summary judgment.
13. The defendant contends that if the non-compete clause was part of an otherwise valid agreement, it is unenforceable. He contends that the restriction is unreasonable in duration and does not advance any legitimate economic interests of the plaintiff. Under Delaware law, covenants not to compete are not subject to mechanical enforcement. A non-compete provision must first meet the standard contract formalities, and is subject to the additional requirements that it (1) be reasonable in geographic scope and temporal duration, (2) advance a legitimate economic interest of the party seeking its enforcement, and (3) survive a balancing
EDIX Media Group, Inc. v. Mahani, 2006 WL 3742595, at *7 (Del. Ch. Dec. 12, 2006).
of the equities in order to be enforceable. Determining whether these elements are met is a fact-specific inquiry.
Concord Steel, Inc. v. Wilmington Steel Processing Co., Inc., 2008 WL 902406, at *4 (Del.Ch. Apr. 3, 2008); Hough Assocs., Inc. v. Hill, 2007 WL 148751, at *14 (Del.Ch. Jan. 17, 2007); Am. Homepatient, Inc. v. Collier, 2006 WL 1134170, at *2 (Del.Ch. Apr. 19, 2006); All Pro Maids, Inc. v. Layton, 2004 WL 1878784, at *4 (Del.Ch. Aug. 9, 2004).
14. I am not persuaded that the non-compete provision at issue is unenforceable as a matter of law. The restriction on the defendant's ability to practice is limited to a ten mile radius for two years. It is likely that there will be evidence that ten miles is a reasonable geographic parameter for the town of Milford. The geographic scope of a covenant not to compete is considered reasonable where the business of the plaintiff is actively conducted there. In terms of duration, non-compete agreements covering limited areas for two years or fewer have generally been held to be reasonable.
Comfort, Inc. v. McDonald, 1984 WL 8216, at *3 (Del.Ch. June 1, 1984).
Am. Homepatient, 2006 WL 1134170 (non-compete agreement between medical equipment supplier and former employer was limited to duration of one year and radius of fifty miles); All Pro Maids, 2004 WL 1878784 (non-compete agreement between cleaning company and former employee was limited to one year and specific zip codes); Tristate Courier Carriage, Inc.v. Berryman, 2004 WL 835886 (Del.Ch. Apr. 15, 2004) (two year covenant in stock purchase agreement was reasonable in duration and scope); Del. Express Shuttle, Inc. v. Older, 2002 WL 31458243 (Del. Ch. Oct. 23, 2002) (three year non-compete agreement imposed on ground transportation company's former employee was unreasonable, but two year restriction was not); Copi of Del., Inc. v. Kelly, 1996 WL 633302 (Del. Ch. Oct. 25, 1996) (two year non-compete covenant was reasonable in context of highly competitive reprographic equipment sales industry).
15. As to the plaintiff's economic interest, there is evidence that two prior
business associates of the plaintiff left his practice and opened competing practices nearby, giving rise to legitimate concerns about the plaintiff's financial and professional future and his business goodwill. Moreover, the record reflects that the plaintiff was concerned about protecting a special chiropractic methodology called the "Walsh technique," which was expressly referenced in the contract documents. A jury could validly find that the plaintiff had a legitimate interest in giving some protection to this technique through a non-compete clause.
All Pro Maids, 2004 WL 1878784, at **5 ("Courts recognize protection of an employer's goodwill as a legitimate economic interest for a restrictive covenant.").
See Referral Agreement, at ¶ 2.
16. The third factor, balancing equities, is also properly left to a jury in this case.
The defendant draws a distinction between independent contractors and employees, arguing that employers have less of an economic interest in restricting the activities of independent contractors. Indeed, the court in EDIX Media Group, Inc. v. Mahani, 2006 WL 3742595 (Del. Ch. Dec. 12, 2006), expressed concerns about independent contractors being "forced entirely from employment in a given industry" through enforcement of non-compete provisions. Id. at *8. While the defendant relies on the analysis in EDIX, he ignores the court's statement admitting that it was "unaware of a prior Delaware decision directly addressing covenants not to compete in the context of employees and independent contractors." Id. at *7. Moreover, the defendant's analogy to the case is inapt because of the unreasonably broad language contained in the non-compete clause in that case. The defendant, an independent contractor in the auto customization industry, was barred from entering into a relationship with any business "substantially similar" to the plaintiff's business within the same territory. Id. at *2. In the case at bar, the defendant is precluded only from "the practice of chiropractic," for a period of two years. The non-compete clause stops short of restricting the defendant from engaging in "substantially similar" activities in the relevant territory, thus eliminating the concerns of the EDIX court about preserving competition and avoiding the inequitable treatment of independent contractors.
17. The defendant's motion for summary judgment is hereby denied.
IT IS SO ORDERED.