Khalid Mahmood, M.D. v. Hilal M. Fanasch, M.D. ( 2005 )

In The Court of Appeals

Ninth District of Texas at Beaumont

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NO. 09-05-134 CV ____________________

KHALID MAHMOOD, M.D., Appellant V.

HILAL M. FANASCH, M.D., Appellee

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On Appeal from the 172nd District Court Jefferson County, Texas Trial Cause No. E-173,506

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MEMORANDUM OPINION

Appellant Khalid Mahmood, M.D., filed a declaratory judgment action against appellee Hilal M. Fanash, M.D., seeking a declaration that a covenant not to compete contained in the parties' employment agreement was "void and unenforceable as a matter of law." Fanasch counterclaimed and sought a temporary restraining order and permanent injunctive relief prohibiting Mahmood from violating the covenant not to compete. The trial court entered a temporary restraining order against Mahmood. After trial on the merits, the trial court entered a permanent injunction prohibiting Mahmood from continuing his employment with U.S. Oncology/Texas Oncology, P.A. or directly or indirectly establishing, maintaining, or locating an office for the practice of hematology/oncology within a thirty-mile radius of Fanasch's office. The injunction extends until October 31, 2006. The trial court also rendered judgment in favor of Fanasch on his counterclaim and ordered that Mahmood take nothing. Mahmood filed this appeal. We reverse and remand.

The Record

Fanasch, a physician specializing in hematology and oncology, entered into an agreement to employ Mahmood, another such physician. After Mahmood had worked for Fanasch for one year, Fanasch decided not to extend an offer of partnership but offered Mahmood a new employment contract. Mahmood did not sign the proposed contract, and he subsequently entered into an employment agreement with Texas Oncology.

The parties stipulated to the following: if the covenant not to compete is valid, Mahmood breached the employment contract; Mahmood received access to patients, patient information, and information regarding Fanasch's methods of practice because of his employment with Fanasch; the trial court could decide the issue of whether Mahmood's subsequent employment detrimentally impacted Fanasch's medical practice; and both parties' attorney's fees were reasonable.

The trial court found that the employment agreement is enforceable; Mahmood breached the agreement when he began his employment at Texas Oncology; Mahmood's employment provided him with access to information he would not otherwise have received regarding patients and Fanasch's methods of practice; Mahmood's employment with Texas Oncology detrimentally impacted Fanasch's business, goodwill, and medical practice; the covenant not to compete is ancillary to or part of an otherwise enforceable agreement; and the limitations as to time and geographical area are reasonable and do not impose a greater restraint than is necessary to protect the goodwill or other business interest of Fanasch. The trial court also permanently enjoined Mahmood from violating the covenant not to compete. We will discuss Mahmood's issues one, two, and seven, as they are dispositive.

Standard of Review

We review the trial court's order granting permanent injunctive relief under an abuse of discretion standard. Operation Rescue-Nat'l v. Planned Parenthood of Houston & Southeast Tex., Inc., 975 S.W.2d 546, 560 (Tex. 1998). A trial court abuses its discretion if it acts without reference to any guiding rules and principles or reaches a decision so arbitrary and unreasonable as to amount to a clear and prejudicial error of law. Walker v. Packer, 827 S.W.2d 833, 839 (Tex. 1992) (orig. proceeding); Beaumont Bank, N.A. v. Buller, 806 S.W.2d 223, 226 (Tex. 1991) (quoting Downer v. Aquamarine Operators, Inc., 701 S.W.2d 238, 241-42 (Tex. 1985)). The trial court has no discretion in determining what the law is or applying the law to the facts. Walker, 827 S.W.2d at 840.

Mahmood's Issues

In his first issue, Mahmood argues the trial court erred in holding the covenant not to compete complied with Texas law. In his second issue, Mahmood contends the trial court erred in holding that the covenant not to compete was ancillary to or a part of an otherwise enforceable agreement at the time the Agreement was made. We address issues one and two together.

Whether a covenant not to compete is enforceable is a question of law. Light v. Centel Cellular Co. of Tex., 883 S.W.2d 642, 644 (Tex. 1994). A covenant not to compete is enforceable if it is ancillary to or part of an otherwise enforceable agreement at the time the agreement is made to the extent that it contains limitations as to time, geographical area, and scope of activity to be restrained that are reasonable and do not impose a greater restraint than is necessary to protect the goodwill or other business interest of the promisee. Tex. Bus. & Comm. Code Ann. § 15.50(a) (Vernon 2002).

We must first determine if there is an otherwise enforceable agreement to which the covenant not to compete is either ancillary or a part of at the time this agreement was made. Light, 883 S.W.2d at 644. Consideration for a promise not to compete cannot be dependent on a period of continued at-will employment. Id. "Such a promise would be illusory because it fails to bind the promisor who always retains the option of discontinuing employment in lieu of performance." Id. at 645. However, "otherwise enforceable agreements" can result from at-will employment if the consideration for the promise is not illusory. Id.

The parties agree that the employment agreement was terminable by either party without cause upon sixty days' written notice, making Mahmood an employee at-will. See Anderson Chem. Co., Inc. v. Green, 66 S.W.3d 434, 439 (Tex. App.--Amarillo 2001, no pet.) (Provision requiring notice before termination does not support a covenant not to compete.). Therefore, the covenant not to compete must be supported by consideration that is not illusory. Id.

Fanasch contends Mahmood's stipulation in the employment agreement that the covenant not to compete is ancillary to or part of Mahmood's agreement to perform services is controlling. According to Fanasch, the parties also stipulated that Fanasch's employment of Mahmood provided Mahmood information regarding Fanasch's patients, former patients, and methods of practice that he would not have received but for such employment, and Mahmood's employment therefore gives rise to Fanasch's interest in obtaining the covenant not to compete. We disagree.

Although the parties stipulated that Mahmood received information during his employment that he would not otherwise have received, the employment agreement neither prohibits Mahmood from disclosing this information, nor contains any promise on the part of Fanasch to furnish confidential information. See Anderson Chem. Co., 66 S.W.3d at 438 (citing Light, 883 S.W.2d at 645, n. 6). Even if Fanash provided confidential information to Mahmood during his employment, there were no "otherwise enforceable agreements" when the covenant not to compete was made. See id.

Fanasch also argues that the provision stating Mahmood may not obtain copies of case records, case histories, patient lists, or other patient information unless the patient so requests is a non-disclosure agreement (i.e. an "otherwise enforceable agreement"). This provision does prohibit Mahmood from obtaining copies of certain records, but it does not prohibit him from disclosing information. Obviously, such a prohibition is essential in any non-disclosure agreement. Mahmood's first and second issues are sustained.

Mahmood's Issue Seven

In his seventh issue, Mahmood argues the trial court erred in not awarding him attorney's fees. Mahmood filed this proceeding as a declaratory judgment action. Therefore, the Uniform Declaratory Judgments Act applies. See Tex. Civ. Prac. & Rem. Code Ann. § 37.004 (Vernon 1997). The Uniform Declaratory Judgments Act provides, "[i]n any proceeding under this chapter, the court may award costs and reasonable and necessary attorney's fees as are equitable and just." Tex. Civ. Prac. & Rem. Code Ann. § 37.009 (Vernon 1997). In a declaratory judgment action, the decision to grant or deny attorney's fees and costs lies within the trial court's sound discretion. Sharp v. Hobart Corp., 957 S.W.2d 650, 654 (Tex. App.--Austin 1997, no pet.). We remand this cause to the trial court to determine the amount of attorney's fees, if any, to which Mahmood is entitled.

On this record, we conclude the trial court erred in granting the permanent injunction because the covenant not to compete is not enforceable. Mahmood's first, second, and seventh issues are sustained. We need not address his remaining issues, as they would not result in greater relief. We reverse the trial court's judgment and remand this cause to the trial court for a determination of the parties' entitlement to attorney's fees and entry of a judgment in accordance with this opinion. See Tex. Civ. Prac. & Rem. Code Ann. § 37.009 (Vernon 1997); Sharp, 957 S.W.2d at 654 ("A prevailing party in a declaratory judgment action is not entitled to attorneys' fees simply as a matter of law; entitlement depends upon what is equitable and just and the trial court's power is discretionary in that respect.").

REVERSED AND REMANDED.

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STEVE McKEITHEN

Chief Justice

Submitted on September 8, 2005

Opinion Delivered November 17, 2005

Before McKeithen, C.J., Kreger and Burgess ⁽¹⁾, JJ.

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The Honorable Don Burgess, sitting by assignment pursuant to Tex. Gov't Code Ann. § 74.003(b) (Vernon 2005).