St Clair Medical, PC v. Borgiel
715 N.W.2d 914, 270 Mich. App. 260 (2006)
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Rule of Law:
A restrictive covenant not to compete in an employment contract is enforceable under Michigan law if it protects an employer's reasonable competitive business interests, is reasonable in duration, geographical area, and type of employment, is reasonable between the parties, and is not specially injurious to the public. Additionally, liquidated damages clauses for breach of such covenants are enforceable if the amount is reasonable in relation to possible injury and not unconscionable.
Facts:
- Christopher Borgiel, M.D., began working for St. Clair Medical, P.C. on October 15, 2001.
- Dr. Borgiel signed an employment contract that included a restrictive covenant and a liquidated damages clause.
- The contract stipulated that Dr. Borgiel would not practice medicine within seven miles of either the Greater Yale Medical Clinic or the Mitchell Medical Center for at least one year after his employment ended, and would reimburse St. Clair Medical $40,000 if these terms were breached.
- From October 2001 through July 2003, Dr. Borgiel worked almost exclusively at the Greater Yale Medical Clinic in Yale, Michigan, and approximately six hours at the Mitchell Medical Center in Fort Huron, Michigan.
- On June 18, 2003, Dr. Borgiel submitted a letter of resignation, terminating his employment on July 2, 2003.
- Dr. Borgiel stated his intent to work for Physician’s Health Care Network in Fort Gratiot, which is located within seven miles of the Mitchell Medical Center.
Procedural Posture:
- St. Clair Medical, P.C. filed a complaint in circuit court alleging Dr. Borgiel violated the restrictive covenant and requested $40,000 in liquidated damages for breach of contract.
- Dr. Borgiel filed a counterclaim for a declaratory judgment that the restrictive covenant and liquidated damages clause were void and unenforceable.
- St. Clair Medical, P.C. filed a motion for summary disposition on its claim for breach of contract and on Dr. Borgiel’s counterclaim.
- Dr. Borgiel filed a cross-motion for summary disposition.
- The circuit court granted St. Clair Medical, P.C.'s motion for summary disposition, finding the restrictive covenant enforceable, that Dr. Borgiel violated it, and that the liquidated damages clause was enforceable.
- The circuit court subsequently issued an order awarding St. Clair Medical, P.C. $40,000, plus interest, offset by $3,300 owed to Dr. Borgiel.
- The circuit court granted Dr. Borgiel’s motion to stay enforcement of the judgment pending appeal.
- Dr. Borgiel appealed the circuit court's order to the Michigan Court of Appeals.
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Issue:
Does a physician's employment contract containing a restrictive covenant, which prohibits practice within seven miles of either of two clinic locations and includes a liquidated damages clause, protect a reasonable competitive business interest and is it reasonable in its terms and damages, thereby making it enforceable?
Opinions:
Majority - Per CURIAM
Yes, a physician's employment contract containing a restrictive covenant that prohibits practice within seven miles of either of two clinic locations and includes a liquidated damages clause does protect a reasonable competitive business interest and is reasonable in its terms and damages, thereby making it enforceable. The court found the restrictive covenant unambiguously prohibited Dr. Borgiel from practicing medicine within seven miles of either clinic, regardless of where he primarily worked. Dr. Borgiel admitted performing limited services at the Mitchell Medical Center and that his new position was within the restricted radius. The court rejected Dr. Borgiel's argument that the covenant was unreasonable and violated the Michigan Antitrust Reform Act (MARA), noting that MARA codifies the common-law rule that enforceability depends on reasonableness. The court concluded that the covenant protected St. Clair Medical, P.C.'s competitive business interest in retaining patients and preventing Dr. Borgiel from unfairly appropriating patient goodwill developed through his association with the employer and the employer's advertising. While acknowledging factual disputes regarding confidential information or specialized training, the court held that protecting patient relationships from unfair competition was a sufficient legitimate interest. The seven-mile geographical restriction around both anticipated work locations was deemed modest and reasonable, particularly since St. Clair Medical, P.C.'s clinics drew patients throughout St. Clair County. The court also found the covenant was not specially injurious to the public, distinguishing it from cases involving critical shortages of medical specialists where broader restrictions might be unethical. Finally, the $40,000 liquidated damages clause was upheld as reasonable, given the inherent difficulty in calculating actual damages from patient loss, and was not unconscionable or excessive. The court also found no error in granting summary disposition as Dr. Borgiel failed to show that further discovery would yield support for his position.
Analysis:
This case provides crucial clarification on the enforceability of physician non-compete clauses in Michigan under the Michigan Antitrust Reform Act (MARA). It establishes that protecting an employer's investment in patient goodwill and preventing the unfair appropriation of patient relationships established through the employer's practice is a 'reasonable competitive business interest,' even when specific claims of confidential information or specialized training are disputed. The decision reinforces that courts will uphold reasonable liquidated damages provisions for breach of such covenants, especially where actual damages are difficult to ascertain. This case offers significant guidance for medical practices drafting employment agreements and for physicians navigating or challenging restrictive covenants, underscoring the importance of carefully crafted geographic and temporal limitations as well as reasonable damage provisions.
