Orthopaedic Associates of Southern Delaware, P.A. v. Pfaff ( 2017 )

SUPERIOR COURT
OF THE
STATE OF DELAWARE
E. SCOTT BRADLEY 1 The Circle, Suite 2
JUDGE GEORGETOWN, DE 19947
December 22, 2017
Daniel F. McAllister, Esquire Daniel C. Herr, Esquire
Aaron C. Baker, Esquire Law Office of Daniel C. Herr, LLC
Baird Mandalas Brockstedt, LLC 1225 N. King Street, Suite 1000
6 South State Street Wilmington, DE 19801
Dover, DE 19901
RE: Orthopaedic Associates of Southern Delaware, P.A., v. William L.
Pfaff, III, and Lewes Spine Center, LLC, and Corie L. Wingate
C.A. No. S17C-07-016 ESB
Dear Counsel:
This is my decision on Defendant William L. Pfaff, III’s Motion to Dismiss
Counts I and III of the Amended Complaint filed against him by Plaintiff Orthopaedic
Associates of Southern Delaware, P.A. (“OASD”).1 OASD is a Delaware
professional association which owns and operates a medical practice providing
medical and surgical care at five locations throughout Sussex County, Delaware. Dr.
Pfaff is a physician who was employed by OASD for a number of years until he left
on April 30, 2017. Dr. Pfaff then formed the Lewes Spine Center, LLC, on May 5,
2017. OASD alleges that (1) Dr. Pfaff violated his obligation not to compete with
1
Count III alleges multiple violations of one agreement. Dr. Pfaff’s Motion seeks
dismissal of only one of the violations. Specifically, Dr. Pfaff seeks dismissal of paragraphs 36
and 37 of Count III which allege that Dr. Pfaff disparaged OASD after he left.
OASD by forming the Lewes Spine Center, and (2) Dr. Pfaff disparaged OASD when
he contacted his former patients and others after leaving OASD. Dr. Pfaff argues that
his obligation not to compete with OASD terminated when he entered into a new
agreement with OASD that had no such obligation and that he did not disparage
OASD after he left. At issue in Dr. Pfaff’s motion is the enforceability and
integration of two employment agreements and a separation agreement entered into
between Dr. Pfaff and OASD. I have concluded that Dr. Pfaff had no obligation not
to compete with OASD after he left and that OASD has adequately pled, in part, that
Dr. Pfaff disparaged it after he left.
STATEMENT OF THE FACTS2
A. The 2014 Agreement3
On January 1, 2014, OASD and Dr. Pfaff entered into an employment
agreement (the “2014 Agreement”) whereby, among other things, OASD agreed to
employ Dr. Pfaff as a physician in exchange for other rights and benefits set forth in
the 2014 Agreement. The 2014 Agreement also made Dr. Pfaff a shareholder in
OASD. The 2014 Agreement contains a post-termination restrictive covenant. In
2
The facts are based on the Amended Complaint and the attachments to it.
3
The 2014 Agreement is titled “Orthopaedic Associates of Southern Delaware, P.A.,
Employment Agreement” and consists of 13 pages containing 28 numbered paragraphs and two
attachments.
2
particular, the restrictive covenant stated that Dr. Pfaff:
“shall not during the term of this Agreement and for a period of one (1)
year after its termination for any other reason without the express
written consent of the Corporation, which may be withdrawn at any time
upon ninety (90) days’ written notice by Corporation, directly or
indirectly, in whole or in part, own, manage, operate, join, control,
participate in the ownership, management, operation or control of,
contract with, be employed by, or be connected with any manner, any
entity or business which is a competitor of Corporation or to which the
Corporation provides medical services and/or any entity or business
within a radius of twenty-five (25) miles of Lewes, Ocean View,
Millsboro, and Milford or any other satellite offices or Healthcare
Facilities to which the Corporation provides medical services.”4
The initial term of the 2014 Agreement was from January 1, 2014 through
December 31, 2014. It then continued from year to year until terminated. OASD and
Dr. Pfaff terminated the 2014 Agreement on February 28, 2017.
B. The 2017 Agreement5
On March 1, 2017, OASD and Dr. Pfaff entered into a new employment
agreement (the “2017 Agreement”) whereby, among other things, OASD agreed to
employ Dr. Pfaff as a physician in exchange for other rights and benefits set forth in
the 2017 Agreement. The 2017 Agreement reflected Dr. Pfaff’s status at that time
solely as a physician of OASD, and not as a shareholder/physician as he was under
4
2014 Agreement, paragraph 8(a).
5
The 2017 Agreement is titled “Orthopaedic Associates of Southern Delaware, P.A,
Physician Employment Agreement” and consists of 11 pages containing 28 numbered
paragraphs.
3
the 2014 Agreement. Upon termination of the 2017 Agreement, the 2017 Agreement
prohibited Dr. Pfaff from soliciting or hiring employees of OASD but, by its own
terms, did not prohibit Dr. Pfaff from competing with OASD. This is in contrast to
the 2014 Agreement. Specifically, the 2017 Agreement stated that:
“upon termination of this agreement, Physician shall not, directly or
indirectly, during any portion of the Term or the two (2) year period
immediately after the end of the Term solicit, employ or otherwise
engage as an employee, independent contractor or otherwise, any person
who is or was an employee or independent contractor of Employer at
any time during the Term or in any manner induce or attempt to induce
any such employee or independent contractor of Employer to terminate
his or her employment or engagement as such with Employer.”6
The 2017 Agreement also contained a provision that states “this Agreement contains
the entire understanding and agreement between the parties with respect to the subject
matter hereof and supercedes all prior agreements and understandings between the
parties with respect to such subject matter.”7 The 2017 Agreement did not mention
the 2014 Agreement. OASD and Dr. Pfaff terminated the 2017 Agreement on May
5, 2017.
C. The Separation Agreement
On May 17, 2017, OASD and Dr. Pfaff entered into a Separation Agreement
and General Release. According to the Separation Agreement, OASD and Dr. Pfaff:
6
2017 Agreement, paragraph 9(f).
7
2017 Agreement, paragraph 24.
4
“mutually agree[d] to terminate the employment relationship in
accordance with the terms in the March 1, 2017 Employment Agreement
between Pfaff and OASD (“Employment Agreement”). The respective
post-termination obligations of the parties shall remain in effect, except
to the extent they conflict with the terms of this Agreement, and except
as follows: a. Pfaff’s obligations under the non-solicitation clause in
Paragraph 9(f) remain in effect, with the exception that upon starting a
new practice, Pfaff may hire Physician Assistants Corie Wingate and
Pamela Schweiger (contingent upon their agreement thereto and four
weeks’ notice to OASD).”8
The Separation Agreement also contains a “non-disparagement” clause. The
non-disparagement clause states:
“the parties agree not to make any oral or written communication to any
person or entity which disparages, or has the effect of damaging the
reputation of, or otherwise working in any way to the detriment of, the
other party, except as required by local, state or federal law. In view of
the difficulty of determining and calculating the amount of damages that
may result from a violation of this Section 10, each party agrees to pay
to the other $1,000 as liquidated damages, and not as a penalty, for each
and every violation of this Section.”9
The Separation Agreement also has an “entire agreement clause”. It states:
“this Agreement contains the entire agreement between the parties, and
shall be governed by the laws of the State of Delaware. This Agreement
may not be changed orally, but only by an agreement in writing signed
by the party against whom enforcement of any waiver, change,
modification or discharge is sought. The parties attest that no other
representations were made regarding this Agreement other than those
contained herein and that this agreement represents the entirety of the
8
Separation Agreement, paragraph 3.
9
Separation Agreement, paragraph 11.
5
agreement between the parties.”10
The Separation Agreement does not refer to the 2014 Agreement.
D. Additional Facts
Dr. Pfaff formed the Lewes Spine Center, LLC, on May 5, 2017. The Lewes
Spine Center operates a medical practice in Georgetown, Delaware. Dr. Pfaff is the
sole owner and member of the Lewes Spine Center. On or about June 2, 2017, Dr.
Pfaff sent a letter (“June letter”) to his former patients announcing his new medical
practice. OASD alleges that Dr. Pfaff sent his June letter to no less than 1,100
patients of OASD and to as many as 1,300 patients. The June letter states:
Dear Patient,
As you are likely aware by this point, I am no longer associated
with Orthopaedic Associates of Southern Delaware. Unfortunately, my
departure was sudden and unexpected. In this day and age, medicine has
become a business and in this instance the business of medicine
obstructed me from continuing to treat you at my prior practice.
Since I last saw you, I have been diligently working to set up a
new practice in order to continue to care for you and your family
members. I will begin seeing patients in a satellite office in Georgetown
starting in mid-June. I am also setting up an office in Lewes which will
not be completed for another month or so.
I understand you likely were referred to another physician and
may or may not be satisfied with that provider. I would like to convey
to you that I am deeply sorry for the inconvenience and disruption; but,
this was out of my control and affected me as well. I would like to
continue your care if you are interested or in need.
Upon receipt of this letter, you may call and make an
10
Separation Agreement, paragraph 20.
6
appointment. I hope you will allow me to continue to provide spine care
to you as I miss being your provider and I am looking forward to
continuing to treat all of my patients.
Sincerely,
Dr. Pfaff
On June 2, 2017, Dr. Pfaff wrote to a colleague that:
“I established the “Lewes Spine Center, LLC”... my plan ... get
back in the ring and get my title back.”
“Oh, Did I say crush OASD.”
“I’m sure you have been seeing many of my prior patients so I
wanted to update you. Today, I am sending out 1,100 letters to my prior
patients. I will start seeing patients this month in a satellite office in
Georgetown. I am bidding on an office space in Kings Row, Lewes.”
OASD also alleges that, based upon information it has received from third-parties, on
or after May 17, 2017, Dr. Pfaff made oral or written statements to other persons
which disparaged OASD.
STANDARD OF REVIEW
The standards for a Rule 12(b)(6) motion to dismiss are clearly defined. The
Court must accept all well-pled allegations as true.11 The Court must then determine
whether a plaintiff may recover under any reasonable set of circumstances that are
susceptible of proof.12 When deciding a motion to dismiss, the Court accepts as true
all well-pleaded allegations in the complaint, and draws all reasonable inferences in
11
Spence v. Funk, 396 A.2d 967, 968 (Del. 1978).
12
Id.
7
favor of the plaintiff.13 As a general rule, when deciding a Rule 12(b)(6) motion, the
Court is limited to considering only the facts alleged in the complaint and normally
may not consider documents extrinsic to it. There are two exceptions, however, to
this general rule.14 “The first exception is when the document is integral to a
plaintiff’s claim and incorporated into the complaint. The second exception is when
the document is not being relied upon to prove the truth of its contents.”15 “Where
allegations are merely conclusory, however, (i.e., without specific allegations of fact
to support them) they may be deemed insufficient to withstand a motion to dismiss.”16
Dismissal will not be granted if the complaint “gives general notice as to the nature
of the claim asserted against the defendant.”17 A claim will not be dismissed unless
it is clearly without merit, which may be either a matter of law or fact.18 Vagueness
or lack of detail in the pleaded claim are insufficient grounds upon which to dismiss
13
Ramunno v. Crawley, 705 A.2d 1029 (Del. 1998).
14
See Vanderbilt Income & Growth Assocs., L.L.C., v. Arvida/JMB Managers, Inc., 691
A.2d 609, 612 (Del. 1996).
15
Vanderbilt, 691 A.2d at 613.
16
Lord v. Souder, 748 A.2d 393, 398 (Del. 2000).
17
Diamond State Telephone v. University of Delaware, 269 A.2d 52, 58 (Del. 1970).
18
Id.
8
a complaint under Rule 12(b)(6).19 If there is a basis upon which the plaintiff may
recover, the motion is denied.20
DISCUSSION
I. Alleged Breach of the 2014 Agreement (Count I)
OASD alleges in the Amended Complaint that Dr. Pfaff breached the 2014
Agreement by forming the Lewes Spine Center, and engaging in, managing, joining,
and owning a medical practice in Georgetown, Delaware, in direct competition with
OASD. OASD argues that the 2017 Agreement was not intended to discharge or
release the parties’ post-termination obligations contained in the 2014 Agreement.
Dr. Pfaff argues that the 2014 Agreement was not in effect at the time he formed the
Lewes Spine Center, reasoning that the 2014 Agreement was superceded by the 2017
Agreement.
The 2014 Agreement covers Dr. Pfaff’s role as a shareholder and physician in
OASD with a corresponding compensation structure reflecting his dual role as
shareholder and physician. Upon termination of the 2014 Agreement between OASD
and Dr. Pfaff, the 2014 Agreement states that Dr. Pfaff cannot “own, manage,
operate, join, control, participate in the ownership, management, operation or control
19
Id.
20
Id.
9
of, contract with, be employed by, or be connected with any manner, any entity or
business which is a competitor of Corporation...”21 OASD and Dr. Pfaff terminated
the 2014 Agreement on February 28, 2017. Dr. Pfaff formed the Lewes Spine Center
on May 5, 2017. Thus, Dr. Pfaff established a new medical practice in a location that
directly competes with OASD within one year of terminating the 2014 Agreement.
Accordingly, Dr. Pfaff would be in violation of the non-compete provision of the
2014 Agreement if the 2014 Agreement survives the 2017 Agreement and Separation
Agreement.
On March 1, 2017, OASD and Dr. Pfaff entered into the 2017 Agreement. The
2017 Agreement covers Dr. Pfaff’s role strictly as a physician for OASD and not as
a shareholder. This is also reflected in the compensation structure of the 2017
Agreement. The “Terms of Agreement” of the 2017 Agreement state, in part, “if
either party decides to terminate employment, then stated termination rules apply,
as defined in this contract agreement.” (Emphasis added).22 Of note, there is no
mention of the 2014 Agreement in the “Terms of Agreement” or anywhere else in the
2017 Agreement. The “Termination of Agreement” is discussed under the ninth
numbered paragraph of the 2017 Agreement. Paragraph 9(f) states “upon termination
21
2014 Agreement, paragraph 8(a).
22
2017 Agreement, paragraph 1.
10
of this agreement, Physician shall not, directly or indirectly, during any portion of the
Term or the two (2) year period immediately after the end of the Term solicit, employ
or otherwise engage as an employee, independent contractor or otherwise, any person
who is or was an employee or independent contractor of Employer at any time during
the Term or in any manner induce or attempt to induce any such employee or
independent contractor of Employer to terminate his or her employment or
engagement as such with Employer.” The 2017 Agreement does not prohibit Dr.
Pfaff from competing with OASD. Interestingly, the only prohibition stated is that
Dr. Pfaff is not allowed to employ, for a term of two years, any former or current
employees of OASD. If the 2017 Agreement is controlling, then Dr. Pfaff was not
in violation of it by forming the Lewes Spine Center. OASD and Dr. Pfaff terminated
the 2017 Agreement on May 5, 2017.
On May 17, 2017, OASD and Dr. Pfaff jointly signed the Separation
Agreement. According to the Separation Agreement, OASD and Dr. Pfaff:
“mutually agree[d] to terminate the employment relationship in
accordance with the terms in the March 1, 2017 Employment
Agreement between Pfaff and OASD (“Employment Agreement”).
(Emphasis added). The respective post-termination obligation of the
parties shall remain in effect, except to the extent they conflict with the
terms of this Agreement, and except as follows: a. Pfaff’s obligation
under the non-solicitation clause in Paragraph 9(f) remain in effect, with
the exception that upon starting a new practice, Pfaff may hire
Physicians Assistants Corie Wingate and Pamela Schweiger (contingent
upon their agreement thereto and four weeks’ notice to OASD).”
11
The Separation Agreement does not prohibit Dr. Pfaff from competing with
OASD. The Separation Agreement does specifically mention the 2017 Agreement.
It provides that OASD and Dr. Pfaff were terminating Dr. Pfaff’s employment
relationship with OASD pursuant to the terms of the 2017 Agreement. The
Separation Agreement does not mention the 2014 Agreement. The only reference
in the Separation Agreement to the subject matter of the 2014 Agreement is paragraph
7 where OASD agreed to provide monthly reports to Dr. Pfaff for the period of time
from January 1, 2014 through February 28, 2017. Presumably, this would allow Dr.
Pfaff to calculate the amount of money that OASD owed him for work that he had
done but had not been paid for. Additionally, the Separation Agreement specifically
changes the terms of paragraph 9(f) of the 2017 Agreement. The Separation
Agreement allowed Dr. Pfaff to hire two physician assistants employed by OASD
contingent upon them providing four weeks’ notice to OASD. Paragraph 20 of the
Separation Agreement also states that the Separation Agreement “contains the entire
agreement between the parties...” In summary, the 2017 Agreement and Separation
Agreement do not prohibit Dr. Pfaff from competing with OASD and allow him to
hire physician assistants Corie Wingate and Pamela Schweiger on four weeks’ notice
upon starting a new medical practice.
12
The Applicable Law
The issue raised in this Motion to Dismiss is one of contractual interpretation.
The proper construction of a contract is a question of law for this Court.23 When
interpreting a contract, the Court gives priority to the parties’ intentions as reflected
in the four corners of the agreement.24 If the contractual language at issue is clear and
unambiguous, it must be accorded its plain meaning.25 Ambiguity exists “when the
provisions in controversy are reasonably or fairly susceptible of different
interpretations.”26 A contract is not ambiguous merely because the parties disagree
about its proper construction.27 Extrinsic evidence “may not be used to interpret the
intent of the parties, to vary the terms of the contract[,] or to create an ambiguity,” if
the contract is unambiguous.28 On a motion to dismiss, “a trial court cannot choose
between two differing reasonable interpretations of ambiguous documents.”29
23
Rhone -Poulenc Basic Chems. Co., v. Am. Motorists Ins. Co., 616 A.2d 1192, 1195
(Del. 1992).
24
Paul v. Deloitte & Touche, LLP, 974 A.2d 140, 145 (Del. 2009).
25
Phillips Home Builders v. Travelers Ins. Co., 700 A.2d 127, 129 (Del. 1997).
26
Kaiser Aluminum Corp. v. Matheson, 681 A.2d 392, 395 (Del .1996).
27
Rhone-Poulenc, 616 A.2d at 1196.
28
Eagle Indus., Inc. v. DeVilbiss Health Care, Inc., 702 A.2d 1228, 1232 (Del. 1997).
29
Vanderbilt Income & Growth Assocs., LLC, v. Arvida/JMB Managers, Inc., 691 A.2d
609, 613 (Del. 1996).
13
Clauses indicating that the contract is a expression of the parties’ final
intentions generally create a presumption of integration.30 “An integrated agreement
is a writing or writings constituting a final expression of one or more terms of an
agreement.”31 An integration clause is not irrebuttable, however, because the parties’
intent always controls.32 A court therefore must “consider the facts and circumstances
surrounding the execution of the instrument” to discern whether the contract is fully
integrated, or partially integrated.33 Factors relevant to that consideration include: (i)
the parties’ intent, to the extent it is discernable, (ii) the language of the contract,
including any integration clause, (iii) whether the contract was carefully and formally
drafted, (iv) the time the parties had to consider the contract’s terms, (v) whether the
parties bargained over specific terms, and (iv) whether the contract “addresses
questions that naturally arise out of the subject matter.”34 A contract is completely
integrated if on its face it is clear that the parties intended the writing to be a final and
30
Addy v. Piedmonte, 2009 WL 707641, at *9 (Del. Ch. Mar. 18, 2009).
31
Restatement (Second) of Contracts § 209(1)(1981).
32
MicroStrategy Inc., v. Acacia Research Corp., 2010 WL 5550455, at *13 (Del. Ch.
Dec. 30, 2010).
33
Carrow v. Arnold, 2006 WL 3289582, at *4 (Del. Ch. Oct. 31, 2006).
34
James v. United Medical LLC,2017 WL 1224513, at *6 (Del. Super. Mar. 31, 2017),
citing Carrow, 2006 WL 3289582, at *4 (citing Taylor v. Jones, 2002 WL 31926612, at *3 (Del.
Ch. Dec. 17, 2002)).
14
total expression of their agreement. 3 5 Conversely, “[i]f a written agreement is final
and incomplete, it is a partially integrated contract.”36
For purposes of a motion to dismiss for failure to state a claim under Superior
Court Civil Rule 12(b)(6), all allegations in the complaint must be accepted as true.
My review of the Amended Complaint, the 2014 Agreement, the 2017 Agreement,
and the Separation Agreement leads me to conclude that the rights and
responsibilities of OASD and Dr. Pfaff are governed by the 2017 Agreement as
modified by the Separation Agreement. Quite simply, the 2017 Agreement is a fully
integrated agreement covering all aspects of the relationship between OASD and Dr.
Pfaff. The restrictive covenant in the 2014 Agreement did not survive the formation
of the 2017 Agreement.
The Integration Factors
The “Entire Agreement” clause of the 2017 Agreement specifically states it
“contains the entire understanding and agreement between the parties with respect
to the subject matter hereof and supercedes all prior agreements and understandings
between the parties with respect to such subject matter.” (Emphasis added). This
creates a presumption that the 2017 Agreement is an integrated agreement covering
35
Taylor, 2002 WL 31926612, at *3.
36
Id.
15
Dr. Pfaff’s employment relationship with OASD.37 An integration clause is not
irrefutable, however, because the parties’ intent always controls.38 A court must
therefore consider the facts and circumstances surrounding the execution of the
instrument to discern whether the contract is fully integrated or partially integrated.
Factors relevant to that consideration include the following:39
1. The Parties’ Intent
I conclude that the parties’ intent was to make the 2017 Agreement the only
agreement governing Dr. Pfaff’s employment relationship with OASD. The purpose
of the 2017 Agreement is easily discernible from its title and language. It is titled
“Orthopaedic Associates of Southern Delaware, P.A., Physician Employment
Agreement.” Its stated purpose was to employ Dr. Pfaff to provide medical services
to patients of OASD. The 2017 Agreement then went on to address every aspect of
that relationship, including the termination of it. Moreover, the 2017 Agreement
makes no mention of the 2014 Agreement, suggesting that it was no longer of any
relevance.
37
Addy v. Piedmonte, 2009 707641, at *9 (Del. Ch. Mar. 18, 2009).
38
MicroStrategy Inc., v. Acacia Research Corp., 2010 WL 5550455, at *13 (Del. Ch.
Dec. 30, 2010).
39
James v. United Medical LLC, 2017 WL 1224513, at *6 (Del. Super. Mar. 31, 2017).
16
2. The Language of the Contract Including any Integration Clause
The 2017 Agreement contains all of the terms applicable to a typical medical
practice – physician employment relationship, including the term, conditions of
employment, obligation of the physician, fees, the physician’s compensation, new
patient access, intellectual property, professional liability insurance, termination of
agreement, indemnification upon termination, compliance with law, amendments,
governing law, waiver, severability, further action, successors, non-assignability,
confidentiality and non-disclosure, notices, physician general indemnification,
headings, authority, entire agreement, retirement plan, survival and legal advice.
Quite simply, the 2017 Agreement covered every aspect of Dr. Pfaff’s employment
relationship with OASD and added an “entire agreement” clause providing that the
2017 Agreement “contains the entire understanding and agreement between the
parties with respect to the subject matter hereof and supersedes all prior agreements
and understanding between the parties with respect to such subject matter.” The
subject matter of the 2014 and 2017 Agreements was Dr. Pfaff’s employment as a
physician by OASD. Thus, the parties provided that the 2017 Agreement was to be
the sole agreement covering their relationship.
3. Whether the Contract was Carefully and Formally Drafted
The 2017 Agreement is comprehensive and detailed and was obviously drafted
17
by a person knowledgeable with the employment of physicians by medical practices.
Thus, it certainly appears to be carefully and formally drafted.
4. The Time the Parties had to Consider the Contract’s Terms
I do not know how long the parties had to consider the 2017 Agreement’s
terms, but it was obviously long enough to address every important matter in a
medical practice-physician employment relationship.
5. Whether the Parties Bargained Over Specific Terms
I do not know if the parties bargained over the specific terms of 2017
Agreement. However, I would say that they did since a number of the important
terms in the 2014 and 2017 Agreements were different, particularly the 2017
Agreement’s lack of a non-compete clause, which was obviously important to both
parties.
6. Whether the Contract Addressed Questions that Naturally
Arise out of the Subject Matter
I conclude that the 2017 Agreement does. Indeed, it covers everything having
to do with a medical practice-physician relationship.
Having considered all six factors, I conclude they all support my finding that
the 2017 Agreement is a completely integrated document. Moreover, there are a
number of other factors that support my conclusion that the 2017 Agreement is a fully
integrated contract.
18
The Stated Purpose of the Separation Agreement
The Separation Agreement provides that OASD and Dr. Pfaff were terminating
Dr. Pfaff’s employment relationship with OASD in “accordance with the terms” of
the 2017 Agreement. There was no mention of the terms of the 2014 Agreement. If
the 2014 Agreement had any continued relevance, then you would have expected the
parties to refer to it. They did not.
The 2017 and Separation Agreements
The 2014 Agreement prohibited Dr. Pfaff from competing with the OASD for
one year. The 2017 Agreement and Separation Agreement did not prohibit Dr. Pfaff
from competing with OASD at all. The only way to reconcile this conflict is to
conclude that the 2014 Agreement did not survive the execution of the 2017
Agreement.
The New Medical Practice
The 2014 Agreement reflected Dr. Pfaff’s role as a shareholder and physician
with OASD. The 2014 Agreement prohibited Dr. Pfaff from competing against
OASD upon termination of the 2014 Agreement for a period of one year. Dr. Pfaff
and OASD terminated the 2014 Agreement on February 28, 2017, and entered into
the 2017 Agreement on March 1, 2017. The 2017 Agreement reflected Dr. Pfaff’s
role with OASD as a physician-employee and not a shareholder. The 2017
19
Agreement does not prohibit Dr. Pfaff from competing against OASD. The 2017
Agreement only prohibits Dr. Pfaff from hiring any former or current employees of
OASD for a term of two years. The Separation Agreement relaxes this prohibition
even further. It allows Dr. Pfaff to hire two employees of OASD when he starts his
new medical practice contingent upon the two employees providing four weeks’
notice to OASD. It is illogical for OASD to argue that Dr. Pfaff can hire two
employees of OASD on short notice for a new medical practice but that he cannot
open a new medical practice. There would be little to no point in addressing the
hiring of the two physician assistants on short notice in the Separation Agreement if
Dr. Pfaff could not open a medical practice for another nine months. You would have
thought that if the parties believed that Dr. Pfaff was prohibited from opening a new
medical practice for another nine months, then the parties would have discussed it at
the same time they were discussing Dr. Pfaff’s hiring of two OASD employees. They
did not.
The Purpose and Timing of the Non-Compete Provision
The purpose of a non-compete covenant is to prohibit an employee from
terminating his employment one day and becoming his employer’s competitor the
next day while all of his relationships with his employer’s customers are intact. Thus,
the purpose of a non-compete covenant is furthered by requiring the departing
20
employee to wait for a period of time before competing with his former employer.
OASD and Dr. Pfaff terminated the 2014 Agreement on February 28, 2017. OASD
and Dr. Pfaff entered into the 2017 Agreement on March 1, 2017. If you accept
OASD’s argument that the non-compete provision in the 2014 Agreement survives
the 2017 Agreement, then the non-compete started to run on March 1, 2017. Thus,
the one-year clock on the non-compete had started even though Dr. Pfaff was still
working for OASD under the 2017 Agreement. Indeed, the non-compete could have
run out if Dr. Pfaff had worked for OASD for a whole year. If the parties had wanted
the non-compete to start when Dr. Pfaff ended his employment relationship with
OASD – as would have been customary – then the parties would have said so. Their
failure to do so defeats the purpose of the non-compete covenant and suggests that
the parties did not intend for it to survive the execution of the 2017 Agreement. If
OASD and Dr. Pfaff had understood and agreed otherwise, then it should have been
discussed in the 2017 Agreement. It was not.
I viewed the parties’ decision not to discuss in the 2017 Agreement and
Separation Agreement the non-compete covenant in situations where you would have
thought that they would have done so it if it was still applicable as a sign that it was
no longer applicable and not as an indication that the 2017 Agreement was only
partially integrated.
21
There is no evidence that suggests the 2017 Agreement is an incomplete
recitation of the parties’ desires. Even after drawing all reasonable inferences in
favor of OASD and accepting the allegations in the Amended Complaint as true, there
is no reasonable set of circumstances that suggest the 2014 Agreement survived the
formation of the 2017 Agreement.40 Dr. Pfaff’s Motion to Dismiss Count I of the
Amended Complaint is GRANTED.
II. Alleged Breach of the Separation Agreement (Count III)
OASD alleges in the Amended Complaint that Dr. Pfaff breached the
Separation Agreement by (1) sending to OASD patients the June letter which
allegedly disparaged OASD, and (2) making oral and written statements which
allegedly disparaged OASD.41 The Separation Agreement provides as follows:
11. Non-disparagement. The parties agree not to make any oral
or written communication to any person or entity which disparages, or
has the effect of damaging the reputation of, or otherwise working in
any way to the detriment of, the other party, except as required by local,
state or federal law. In view of the difficulty of determining and
calculating the amount of damages that may result from a violation of
Section 10, each party agrees to pay the other $1,000 as liquidated
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OASD put great weight on the fact that under the Separation Agreement OASD had to
provide Dr. Pfaff with financial reports for the period from January 1, 2014 through February 28,
2017. I did not for several reasons. One, this had nothing to do with the non-compete provision
of the 2014 Agreement. Two, it suggested that OASD may have owed money to Dr. Pfaff for
work he had done but had not been paid for. I took it as no more than that.
41
I believe that Dr. Pfaff mistakenly denied sending the June letter but admitted that it
disparaged OASD when he meant to admit sending it, but deny that it disparaged OASD.
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damages and not as a penalty, for each and every violation of this
Section.42
Black’s Law Dictionary defines disparagement as a “false and injurious
statement that discredits or detracts from the reputation of another’s character,
property, product, or business.”43
A. The June Letter
Dr. Pfaff argues that paragraph 36 of Count III of OASD’s Amended
Complaint fails in part because he did not disparage, harm, or act to the detriment of
OASD in sending out his June letter. Dr. Pfaff argues that the June letter he sent to
his prior patients is merely a notice letter or advertisement alerting his former patients
of his new practice, apologizing for the disruption of their care, and offering them
medical treatment. Therefore, according to Dr. Pfaff, under no set of facts could
OASD make out a claim for disparagement which would entitle OASD to relief.
OASD argues that the Separation Agreement prohibits the parties from making a
broad range of negative and critical statements about each other. OASD argues that
the June letter is critical of it and suggests that OASD prioritizes its business by
putting its profits first and its patients second.
42
Section 10 of the Separation Agreement refers to Dr. Pfaff’s obligation not to obtain
and/or use any of OASD’s confidential information after he leaves it.
43
Black’s Law Dictionary 215 (3d ed. 1996).
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After drawing all reasonable inferences in favor of OASD, I conclude that the
June letter can be all of the things the Dr. Pfaff claims it is, but it can also be
disparaging as OASD suggests. Dr. Pfaff wrote, “[i]n this day and age, medicine has
become a business and in this instance the business of medicine obstructed me from
continuing to treat you at my prior practice.” Dr. Pfaff also wrote, “I am deeply sorry
for the inconvenience and disruption; but, this was out of my control and affected me
as well.” It is reasonable and possible for the finder of fact to see this as OASD being
more concerned about its business than treating its patients. This certainly provides
a potential basis for recovery under a theory of disparagement for OASD. Since there
is a possible basis for recovery which would entitle OASD to relief, Dr. Pfaff’s
allegation that paragraph 36 of Count III of the Amended Complaint must be
dismissed for failure to state a claim is DENIED.
B. Email
Dr. Pfaff argues that paragraph 37 of Count III of the Amended Complaint
must be dismissed in part as conclusory. OASD argues that Dr. Pfaff disparaged it
in a June 2, 2017, email to a colleague. The email states:
“I established the “Lewes Spine Center, LLC”... my plan ... get back in
the ring and get my title back.”
“Oh, Did I say crush OASD.”
“I’m sure you have been seeing many of my prior patients so I wanted
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to update you. Today, I am sending out 1,100 letters to my prior
patients. I will start seeing patients this month in a satellite office in
Georgetown. I am bidding on an office space in Kings Row, Lewes.”
Even after accepting all allegations in the Amended Complaint as true and drawing
all reasonable inferences in favor of OASD, I conclude that the e-mail does not
disparage OASD. All the email does is boast what Dr. Pfaff perceives his talents to
be and his desire to have a more successful business than OASD. That is not
disparagement. Dr. Pfaff’s allegation that paragraph 37 of Count III of the Amended
Complaint must be dismissed for failure to state a claim upon which relief may be
granted as it relates to the June 2, 2017, email is GRANTED.
C. Other Oral and Written Statements
Dr. Pfaff argues that paragraph 37 of Count III of the Amended Complaint
must be dismissed in part as conclusory. OASD argues that Dr. Pfaff made oral or
written statements that were disparaging and damaging to OASD, or detrimental to
OASD. OASD does not state what those oral or written statements were other than
the June 2, 2017, email, which I discussed above. Without more, there is simply no
conceivable way for OASD to recover due to the conclusory nature of this allegation.
Dr. Pfaff’s allegation that paragraph 37 of Count III of the Amended Complaint must
be dismissed for failure to state a claim upon which relief may be granted is
GRANTED.
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CONCLUSION
Dr. Pfaff’s Motion to Dismiss OASD’s Amended Complaint is GRANTED in
part and DENIED in part as follows:
Dr. Pfaff’s Motion to Dismiss Count I of OASD’s Amended Complaint is
GRANTED.
Dr. Pfaff’s Motion to Dismiss Paragraph 36 of Count III of OASD’s Amended
Complaint is DENIED.
Dr. Pfaff’s Motion to Dismiss Paragraph 37 of Count III of OASD’s Amended
Complaint as it relates to the June 2, 2017, email and “other oral and written
statements” is GRANTED.
Very truly yours,
/s/ E. Scott Bradley
E. Scott Bradley
cc: Prothonotary
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