Michael Dunn, M.D. v. FastMed Urgent Care, P.C. ( 2019 )

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
MICHAEL DUNN, M.D., )
)
Plaintiff, )
)
v. ) C.A. No. 2018-0934 MTZ
)
FASTMED URGENT CARE, P.C.; )
FASTMED HOLDINGS I, LLC; )
FASTMED HOLDINGS, LLC; URGENT )
CARES OF AMERICA HOLDINGS I, )
LLC; and KYLE BOHANNON, )
)
Defendants. )
MEMORANDUM OPINION
Date Submitted: May 29, 2019
Date Decided: August 30, 2019
Neil R. Lapinski, Phillip A. Giordano, and Kate A. Mahoney, GORDON,
FOURNARIS & MAMMARELLA, P.A., Wilmington, Delaware, Attorneys for
Plaintiff Michael Dunn, M.D.
Kathleen M. Miller and Kelly A. Green, SMITH, KATZENSTEIN & JENKINS
LLP, Wilmington, Delaware; Andrew Federhar and Jessica Gale, SPENCER FANE
LLP, Phoenix, Arizona, Attorneys for Defendants FastMed Urgent Care P.C.,
FastMed Holdings LLC, FastMed Holdings I LLC, Urgent Cares of America
Holdings I LLC, and Kyle Bohannon.
ZURN, Vice Chancellor.
The company at the heart of this case provides urgent care medical services
in Arizona, and employed the plaintiff, who is trained as a physician, as an executive.
The company went through a merger, after which the plaintiff left the company. The
plaintiff asserts the post-acquisition company wronged him while negotiating the
terms of his employment and by asserting a restrictive covenant after he left. The
plaintiff has failed to plead wrongdoing under Delaware law that is justiciable by
this Court.
The first source of wrongdoing is a series of oral promises, which are difficult
to enforce in the shadow of a series of written agreements. In connection with the
merger, the parties executed a contract selling the plaintiff’s interest to the
defendants, as well as an employment agreement. The defendants also allegedly
promised to deviate from the terms of those agreements, but then failed to deliver;
instead, the defendants performed under the written agreements. The plaintiff
asserts the defendants defrauded him and breached the implied covenant of good
faith and fair dealing. On the defendants’ motion to dismiss, I conclude the fraud
claims impose a weighty pleading burden that the plaintiff fails to satisfy, and the
implied covenant claim is only available in certain circumstances not present here.
The second source of wrongdoing is the defendants’ assertion of a restrictive
covenant contained in the contract selling the plaintiff’s interest. That five-year
restrictive covenant prohibited the plaintiff from working in a competitive executive
2
capacity, but did not prohibit him from practicing medicine. The restrictive covenant
contained Delaware forum and choice of law provisions. The plaintiff eventually
resigned from the post-merger company, and accepted a similar executive position
with an Arizona competitor. The defendants notified the competitor that the
plaintiff’s employment would be in violation of the restrictive covenant.
Consequently, the competitor rescinded its employment offer. The plaintiff
contends that the non-compete provision is unenforceable under Delaware’s statute
governing restrictions on the practice of medicine, and that the defendants’ assertion
of the restrictive covenant therefore amounts to intentional interference with the
plaintiff’s relationship with his prospective employer. I disagree.
The plaintiff also contends that the defendants’ efforts to enforce the non-
compete amount to defamation per se and that the defendants’ acts constitute civil
conspiracy. In the absence of any other well-pled claim, this Court lacks subject
matter jurisdiction over the plaintiff’s defamation claim, and there is no underlying
wrong on which to base his conspiracy claim. The motion to dismiss is granted.
3
I. BACKGROUND
I draw the facts from the allegations in and documents incorporated by
reference or integral to the Complaint.1 I must accept as true the Complaint’s well-
pled factual allegations and draw all reasonable inferences from those allegations in
Plaintiff’s favor.2
A. Dunn Executes A Letter Of Transmittal As Part Of FastMed’s
Acquisition Of Urgent Cares.
Plaintiff Michael Dunn is a physician licensed to practice medicine in the state
of Arizona. In 2003, Dunn became a member and manager of an Arizona
professional limited liability company, TriCity Express Care, PLLC, dba Urgent
Care Express (“Urgent Cares”), that offered urgent care services. Urgent Cares was
acquired in 2011; the surviving entity is also referred to as Urgent Cares. In 2012,
Dunn became Urgent Cares’ Chief Medical Officer, Arizona, and signed an
employment agreement. In May 2015, Dunn sold his ownership interest in Urgent
Cares to FastMed Holdings, LLC, when that entity acquired Urgent Cares pursuant
to a Purchase Agreement and Plan of Merger entered into by several affiliated
companies.
1
Wal-Mart Stores, Inc. v. AIG Life Ins. Co., 860 A.2d 312, 320 (Del. 2004). All citations
to the Complaint are to Plaintiff’s Verified Complaint. Docket Item (“D.I”) 1.
2
In re Gen. Motors (Hughes) S’holder Litig., 897 A.2d 162, 168 (Del. 2006).
4
At first, Dunn refused to sign a Letter of Transmittal to sell his interest in
Urgent Cares “due to disagreements regarding the scope of [its] non-compete
clause.” 3 On May 28, 2015, Dunn communicated these concerns to two
representatives of FastMed affiliates: Kyle Bohannon, a manager of FastMed
Holdings I, LLC, and Kevin Blank, CEO of FastMed Urgent Care, P.C. “Bohannon
and Blank responded to Dunn’s concerns by communicating to Dunn that he would
be unable to redeem his Profits Interest Units if he refused to sign the Letter of
Transmittal.”4 Blank then suggested “amend[ing] the language of the non-compete
to allow for Dunn to continue to work in the urgent care field.” 5 The three “agreed
that at the conclusion of the Purchase Agreement and Plan of Merger, Bohannon
would redraft the Letter of Transmittal’s non-compete clause to be for only three
years, and that there would be a separate carve out that would permit Dunn to work
as a medical director immediately following separation.”6
Based on this agreement, Dunn signed the Letter of Transmittal that same day,
exchanging his interest in Urgent Cares for approximately $1,000,000. The Letter
of Transmittal contained the following restrictive covenant (the “Restrictive
Covenant”):
3
Compl. ¶ 17.
4
Id.
5
Id.
6
Id. ¶ 18.
5
Effective as of the Closing … [Dunn] hereby agrees that,
from the Closing Date until the five (5) year anniversary of
the Closing Date, [Dunn] will not, without the prior written
consent of Buyer, directly or indirectly, engage in any
activity, or participate or invest in, or provide or facilitate
the provision of financing to, or assist, in each case,
whether as owner, part-owner, equity holder, member,
partner, director, officer, trustee, employee, agent or
consultant, or in any other capacity, or by providing any
financial, operational or technical assistance to any Person
that engages in, any business, organization or other Person
other than the Surviving Company or a Company
Subsidiary whose business activities, products or services
are competitive with the Business or that otherwise
competes with the Business, or interview for any potential
employment, directorship, advising or consulting
relationship with any such business, organization or other
Person, in each case, anywhere in the United States
(collectively, “Prohibited Activities”). 7
The non-compete provision would not apply “in the case [that Dunn] is a physician,
being employed as (and providing customary services of) a physician.” 8 The Letter
of Transmittal contained a Delaware choice of law and forum selection clause. 9
B. Dunn Signs An Employment Agreement With FastMed, Then
Resigns After FastMed Demotes Him.
On or about June 22, 2015, Dunn entered into the Second Amended and
Restated Employment Agreement (the “Second Employment Agreement”) with
7
Id. ¶ 20; id. Ex. B at 9.
8
Id. Ex. B at 9.
9
Id. Ex. B at 4 (incorporating Purchase Agreement into Letter of Transmittal); D.I. 12 Ex.
2 §§ 14.08–.09.
6
FastMed Urgent Care, P.C. (“FastMed”), as Urgent Cares’ successor in interest, and
assumed the title of “Regional Chief Medical Officer, and President, Arizona.”10
The Second Employment Agreement applied during Dunn’s employment and for six
months thereafter. The Second Employment Agreement was contingent upon the
consummation and closing of the Purchase Agreement. The Purchase Agreement
closed as planned, and Dunn became subject to the Second Employment Agreement.
At some point, “Bohannon and other executives expressly assured Dunn that
the position of employment offered to Dunn pursuant to the [Second Employment
Agreement] was a long-term position.”11 But the Second Employment Agreement
provided that Dunn was an at-will employee. 12 It also gave Dunn the right to
terminate his employment for “Good Reason” as defined thereunder; if he did so, he
would receive certain payments and benefits.13 The Second Employment
Agreement defined “Good Reason” as including “the Company’s assignment of
[Dunn] (without his consent) to a position, responsibilities, or duties of a materially
10
Compl. ¶ 22; id. Ex. C.
11
Id. ¶ 24.
12
Id. Ex. C § 5(a), (d).
13
Id. Ex. C § 5(b).
7
lesser status or degree of responsibility than his position, responsibilities, and duties
set forth [herein].” 14
In August 2015, Bohannon informed Dunn that FastMed had eliminated
Dunn’s position, and that Dunn would be reporting to a then-junior physician that
was being promoted to Chief Medical Officer. Dunn resigned for Good Reason, and
the parties entered into a Separation Agreement dated September 21, 2015.15 The
Separation Agreement contained an Arizona choice of law and forum selection
clause.16
C. Dunn Receives A Job Offer That Leads To Litigation Over The
Scope Of Prior Agreements.
In August 2016, nonparty Banner Health offered Dunn the position of
Physician Executive, which Dunn accepted. FastMed’s counsel threatened legal
action, “stating that Dunn and Banner Health would be in violation of Dunn’s alleged
ongoing restrictive covenant arising out of the Letter of Transmittal agreed to on
May 28, 2015.” 17 Banner Health backed away and did not let Dunn start his job,
informing him that it would rescind the employment offer if he could not resolve the
14
Id. Ex. C § 23(e).
15
Id. Ex. D; id. Ex. E.
16
Id. Ex. D. § 11(g).
17
Id. ¶ 35; id. Ex. G.
8
matter.18 Dunn’s counsel and FastMed exchanged letters that did not resolve the
dispute, leading Dunn to seek judicial relief in Arizona.19
Dunn’s Arizona complaint, filed on September 26, 2016, sought a temporary
restraining order, preliminary injunction, and order to show cause concerning
FastMed’s alleged interference with his employment with Banner Health. On
February 7, 2017, the Arizona Court dismissed Dunn’s complaint, ruling that the
Letter of Transmittal’s Delaware forum selection clause applied such that Dunn had
to sue in Delaware.20 Dunn appealed the decision, but lost in the Arizona Court of
Appeals in June 2018.21
On December 26, 2018, Dunn filed suit here against FastMed; Urgent Cares
of America Holdings I, LLC; FastMed Holdings, LLC; FastMed Holdings I, LLC;
and Bohannon (together, “Defendants”).22 The Complaint seeks injunctive relief to
prevent Defendants from applying the Restrictive Covenant (Count One) and a
declaratory judgment that the Restrictive Covenant violates Delaware law and public
policy (Count Seven). It also seeks damages for alleged breach of the implied
18
Id. Ex. I.
19
Id. Ex. H; id. Ex. J.
20
Id. Ex. K.
21
Dunn v. FastMed Urgent Care PC, 424 P.3d 436, 438 (Ariz. Ct. App. 2018).
22
Plaintiff named Comvest Investment Partners IV-A, L.P., and Comvest Investment
Partners Holdings, LLC, as defendants in the Complaint. Plaintiff voluntarily dismissed
these two parties on April 10, 2019. D.I. 18.
9
covenant of good faith and fair dealing (Count Two), negligent misrepresentations
(Count Three), fraud (Count Four), intentional interference with contractual
relationship (Count Five), and civil conspiracy (Count Six). Dunn also seeks
injunctive relief and damages for defamation per se (Count Eight).
Defendants moved to dismiss on February 8, 2019. The parties completed
briefing on April 23, and I heard oral argument on May 29.
II. ANALYSIS
The standards for reviewing a motion to dismiss for failure to state a claim for
relief are well settled:
[A] trial court should accept all well-pleaded factual allegations in the
Complaint as true, accept even vague allegations in the Complaint as
“well-pleaded” if they provide the defendant notice of the claim, draw
all reasonable inferences in favor of the plaintiff, and deny the motion
unless the plaintiff could not recover under any reasonably conceivable
set of circumstances susceptible of proof. 23
The motion to dismiss “will be granted where it appears with ‘reasonable certainty’
that the plaintiff could not prevail on any set of facts that can be inferred from the
pleadings.”24 Applying this standard, each of Dunn’s counts is dismissed.
23
Cent. Mortg. Co. v. Morgan Stanley Mortg. Capital Hldgs. LLC, 27 A.3d 531, 536 (Del.
2011) (citation omitted).
24
Leonard Loventhal Account v. Hilton Hotels Corp., 2000 WL 1528909, at *3 (Del. Ch.
Oct. 10, 2000) (quoting Solomon v. Pathe Comm’ns Corp., 672 A.2d 35, 38 (Del. 1996)),
aff’d sub nom. Account v. Hilton Hotels Corp., 780 A.2d 245 (Del. 2001).
10
A. Dunn Has Not Stated A Claim For Breach Of The Implied
Covenant.
According to Dunn, the Letter of Transmittal and the Second Employment
Agreement “were part of the plan by which he would continue operating in his
executive role as Regional Chief Medical Officer and President, Arizona, as
contemplated by the [Second Employment Agreement].” 25 He claims Defendants
“breached the implied covenant of good faith and fair dealing by accepting the
benefits of Dunn’s cooperation, his surrender of Profits Interest Units, and his good
faith attempts to continue his position of employment with FastMed Urgent Care,
P.C. pursuant to their contracts” and then “[eliminating] his position shortly after,
and attempting to enforce an inapplicable restrictive covenant .” 26 Dunn fails to state
a claim for breach of the implied covenant of good faith and fair dealing.
“The implied covenant of good faith and fair dealing inheres in every contract
and ‘requires “a party in a contractual relationship to refrain from arbitrary or
unreasonable conduct which has the effect of preventing the other party to the
contract from receiving the fruits” of the bargain.’” 27 “To state a claim for breach
25
Compl. ¶ 63.
26
Id. ¶ 64.
27
Kuroda v. SPJS Hldgs., L.L.C., 971 A.2d 872, 888 (Del. Ch. 2009) (quoting Dunlap v.
State Farm Fire & Cas. Co., 878 A.2d 434, 442 (Del. 2005)); see also Merrill v. Crothall-
Am., Inc., 606 A.2d 96, 101 (Del. 1992) (“[E]very employment contract made under the
laws of this State, consonant with general principles of contract law, includes an implied
covenant of good faith and fair dealing.”).
11
of the implied covenant, a litigant must allege a specific obligation implied in the
contract, a breach of that obligation, and resulting damages.” 28 The implied
covenant is often invoked in two situations:
[O]ne … is when it is argued that a situation has arisen that was
unforeseen by the parties and where the agreement’s express terms do
not cover what should happen. The other situation … is when a party
to the contract is given discretion to act as to a certain subject and it is
argued that the discretion has been used in a way that is impliedly
proscribed by the contract’s express terms. 29
The implied covenant may also be invoked when the parties’ “conduct frustrates the
‘overarching purpose’ of the contract by taking advantage of their position to control
implementation of the agreement’s terms.” 30
In any case, the implied covenant cannot be used to “base a claim … on
conduct authorized by the terms of the agreement.” 31 “Only when it is clear from
the writing that the contracting parties would have agreed to proscribe the act later
complained of … had they thought to negotiate with respect to that matter may a
28
Fortis Advisors LLC v. Dialog Semiconductor PLC, 2015 WL 401371, at *3 (Del. Ch.
Jan. 30, 2015) (internal quotation marks omitted) (quoting Matthew v. Laudamiel, 2012
WL 605589, at *16 (Del. Ch. Feb. 21, 2012)).
29
Oxbow Carbon & Minerals Hldgs., Inc. v. Crestview-Oxbow Acq., LLC, 202 A.3d 482,
504 n.93 (Del. 2019) (citations omitted).
30
Corp. Prop. Assocs. 14 Inc. v. CHR Hldg. Corp., 2008 WL 963048, at *5 (Del. Ch.
Apr. 10, 2008) (quoting Dunlap, 878 A.2d at 442).
31
Dunlap, 878 A.2d at 441; see also Allen v. El Paso Pipeline GP Co., L.L.C., 113 A.3d
167, 183 (Del. Ch. 2014) (“recognizing “the implied covenant will not infer language that
contradicts a clear exercise of an express contractual right” (quoting Nemec v. Shrader,
991 A.2d 1120, 1127 (Del. 2010))).
12
party invoke the covenant’s protections.”32 “Where the contract speaks directly
regarding the issue in dispute, ‘[e]xisting contract terms control … such that implied
good faith cannot be used to circumvent the parties’ bargain, or to create a “free-
floating duty unattached to the underlying legal documents.”’”33
Dunn premises his implied covenant claim on “a set of contracts [that] existed
between Dunn and Defendants, including: the Letter of Transmittal, the [Second
Employment Agreement], and the Separation Agreement.”34 Dunn does not allege
the implied covenant fills a gap, nor does he allege any misuse of a granted
discretionary power. Rather, he contends Defendants engaged in a bait-and-switch
to induce him into signing the Letter of Transmittal and Second Employment
Agreement, by promising long-term employment at a senior level, but then
eliminating his position, demoting him, and enforcing the Restrictive Covenant.
Dunn’s claim flows from his expectation that that the Letter of Transmittal and
Second Employment Agreement “were part of the plan by which he would continue
operating in his executive role.”35
Dunn’s implied covenant claim is belied by the contracts he signed. There
are no terms to be implied in those contracts. Rather, Dunn agreed to terms that
32
CHR Hldg. Corp., 2008 WL 963048, at *5 (quoting Dunlap, 878 A.2d at 442).
33
Fortis, 2015 WL 401371, at *3 (quoting Dunlap, 878 A.2d at 441).
34
Compl. ¶ 58.
35
Id. ¶ 63.
13
contradict those he wishes to imply. Dunn expected that surrendering his interests
in Urgent Cares would lead to a less restrictive non-compete agreement and a long-
term, senior position with the post-merger company. 36 But he signed the Letter of
Transmittal with a contradictory five-year term. He also signed the Second
Employment Agreement with contradictory terms providing that: (1) FastMed could
terminate Dunn’s employment with or without cause,37 and (2) Dunn could be
demoted and thereafter resign for Good Reason.38 Because the Letter of Transmittal
and Second Employment Agreement speak directly to the issues in dispute, Dunn
has failed to state a claim for breach of the implied covenant.39
Because Dunn brings his implied covenant claim in the context of his at-will
employment, additional discussion is warranted. Delaware law carefully
circumscribes implied covenant claims in the at-will employment context.40 Dunn
36
Id. ¶¶ 18, 24, 63, 64.
37
Id. Ex. C § 5(a), (d).
38
Id. ¶¶ 27–28.
39
See Dunlap, 878 A.2d at 441 (“[O]ne generally cannot base a claim for breach of the
implied covenant on conduct authorized by the terms of the agreement.”); Allen, 113 A.3d
at 183 (holding that covenant cannot be used to “contradict[] a clear exercise of an express
contractual right” (citing Nemec, 991 A.2d at 1125)); Fortis, 2015 WL 401371, at *3
(“Where the contract speaks directly regarding the issue in dispute, ‘[e]xisting contract
terms control … .”).
40
See e.g., Rizzitiello v. McDonald’s Corp., 868 A.2d 825 (Del. 2005) (en banc); E.I.
DuPont de Nemours & Co. v. Pressman, 679 A.2d 436 (Del. 1996); Merrill, 606 A.2d at
101.
14
relies on one such case, E.I. DuPont de Nemours & Co. v. Pressman, 41 in claiming
Defendants’ deception breached the implied covenant. “In Delaware, there is a
‘heavy presumption that a contract for employment, unless otherwise expressly
stated, is at-will in nature, with duration indefinite.’ Although at-will employment
remains a heavy presumption in this State, every employment contract contains an
implied covenant of good faith and fair dealing.” 42 However, “the implied covenant
is to be narrowly construed.” 43 “Courts have been reluctant to recognize a broad
application of the [implied] Covenant out of a concern that the Covenant could
thereby swallow the [employment-at-will] Doctrine and effectively end at-will
employment.”44 In this balance, Dunn fails to state an implied covenant claim.
In Pressman, a supervisor “set out on a campaign to discredit” an employee
and manufactured materially false grounds to cause his dismissal. 45 Pressman
“relates solely to an act or acts of the employer manifesting bad faith or unfair
dealing achieved by deceit or misrepresentation in falsifying or manipulating a
record to create fictitious grounds to terminate employment.” 46 Where the employee
41
679 A.2d 436 (Del. 1996).
42
Rizzitiello, 868 A.2d at 830 (first quoting Pressman, 679 A.2d at 440; and then citing
Merrill, 606 A.2d at 101).
43
Id. at 831 (citing Pressman, 679 A.2d at 437).
44
Pressman, 679 A.2d at 442 (citations omitted).
45
Id. at 444.
46
Id. at 443–44.
15
resigned, and was not terminated, the employee cannot show a breach of the implied
covenant under Pressman.47 It is undisputed that Dunn was not terminated; Dunn’s
employment ended with his resignation. Further, Dunn does not allege that
Defendants falsified the grounds for his separation from FastMed. Although
informative, Pressman cannot bear the weight of Count Two.
Pressman is among the progeny of Merrill v. Crothall-American, Inc., in
which a terminated employee alleged the employer “induced him to enter into the
employment contract by concealing from him its intention to employ him only
temporarily while allowing him to proceed under the belief that the duration of the
employment was, at the least, indefinite. So stated, a valid claim for breach of an
implied covenant of fair dealing is properly pleaded.”48 The Delaware Supreme
47
See Rizzitiello, 868 A.2d at 831. The Delaware Supreme Court “recognized
in Pressman, that an employee who voluntarily resigns rather than being terminated may
have a claim for constructive discharge.” Id. Dunn did not bring such a claim.
48
606 A.2d 96, 102 (Del. 1992). The Delaware Supreme Court contextualized Merrill
within the balance between at-will employment and the implied covenant of good faith and
fair dealing as follows:
As a general rule, Delaware law creates a heavy presumption that a contract
for employment, unless otherwise expressly stated, is at-will in nature with
duration indefinite. We have identified four primary situations in which an
employer’s authority to terminate an employee is limited by
the implied covenant of good faith and fair dealing: (1) where the
employee’s termination violates public policy, (2) where the employer
misrepresents an important fact and the employee relies on it when deciding
to accept a new position or to remain at a present one, (3) where the employer
uses its superior bargaining power to deprive an employee of identifiable
compensation related to an employee’s past service, and (4) where an
16
Court explained that bad faith exists where an employer induces another to enter into
an employment contract and its actions in doing so are intentionally deceptive. 49
At first glance, the claim in Merrill appears to resemble Dunn’s. But “the
exceptions to the employment at-will doctrine are narrow and discrete.”50 Upon
closer inspection, the facts before the Court and the facts in Merrill diverge in
distinct and important ways. In Merrill and its progeny, the permissible claims were
brought by employees who were terminated. 51 That is not the case here: Dunn
voluntarily resigned for a contractually sanctioned reason.
Merrill also requires that the employer intend, at the moment of the
misrepresentation, to act otherwise. “[T]o constitute a breach of the implied
covenant of good faith, the conduct of the employer must constitute an aspect of
fraud, deceit or misrepresentation.”52
The lodestar here is candor. An employer acts in bad faith when it
induces another to enter into an employment contract through actions,
words, or the withholding of information, which is intentionally
employer through deceit, fraud, and misrepresentation manipulates the
record to create fictitious grounds to terminate employment.
Bailey v. City of Wilm., 766 A.2d 477, 480 (Del. 2001) (footnote and internal quotation
marks omitted).
49
Merrill, 606 A.2d at 101.
50
Lord v. Souder, 748 A.2d 393, 403 (Del. 2000).
51
See Pressman, 679 A.2d at 439; Merrill, 606 A.2d at 98; see also Rizzitiello, 868 A.2d
at 831–32 (recognizing application of the implied covenant to employees who are
constructively discharged).
52
Merrill, 606 A.2d at 101 (citation and internal quotation marks omitted).
17
deceptive in some way material to the contract. Such conduct
constitutes an aspect of fraud, deceit or misrepresentation. 53
“Absent bad faith, an employer has the freedom to terminate an at-will employment
relationship for its own legitimate business, or even highly subjective, reasons.” 54
Dunn does not assert Defendants intended to employ him only temporarily, or
to demote him, at the time they induced him to sign the Letter of Transmittal and
Second Employment Agreement with promises of long-term senior employment.
Dunn only pleads
Defendants breached the covenant of good faith and fair dealing by
accepting the benefits of Dunn’s cooperation, his surrender of Profits
Interest Units, and his good faith attempts to continue in his position of
employment with FastMed Urgent Care, P.C. pursuant to their
contracts, and proceeded to eliminate his position shortly after, and
attempting to enforce an inapplicable restrictive covenant to ensure that
Dunn cannot compete with FastMed Urgent Care, P.C. 55
Dunn’s pleading is premised on what he “expected,” not what Defendants
intended.56 Dunn fails to plead the requisite intent and has therefore failed to state a
claim for breach of the implied covenant under Merrill. Count Two is dismissed.
53
Id. (internal quotation marks omitted).
54
Peterson v. Beebe Med. Ctr., Inc., 623 A.2d 1142, 1993 WL 102560, at *2 (Del. Mar.
24, 1993) (TABLE) (citing Merrill, 606 A.2d at 102).
55
Compl. ¶ 64.
56
Id. ¶ 63. In Dunn’s Opposition to Defendants’ Motion, he argues that Defendants
intended to induce him into signing the Letter of Transmittal in order to consummate the
Purchase Agreement and intended to subsequently terminate his employment. D.I. 16 at
12 (“While the deceit in Pressman was aimed at causing the employee’s termination, the
deceit here was intended to induce Dunn to sign the LOT in order to consummate the
18
B. Dunn Has Not Stated A Claim For Negligent Misrepresentation or
Fraud.
Dunn asserts claims of negligent misrepresentation (Count Three) and fraud
(Count Four). Dunn’s negligent misrepresentation claim is based on the Letter of
Transmittal.57 Specifically, Dunn alleges that “Defendants made statements to
induce [him] to surrender his Profits Interest Units and to become subject to the
restrictive covenant stated in the Letter of Transmittal.”58 Dunn’s fraud claim is
based on those same alleged statements, as well as alleged representations that he
Purchase Agreement, terminate Dunn’s employment, and deprive him of the more
favorable terms of the Second Agreement and Separation Agreement when the ink on the
purchase agreement was barely dry.”). He further argues that these facts were pled in the
Complaint. Id. They were not pled under Count Two. Dunn’s fraud claim pleads that
Defendants knew the representations were false and that the sequence of events leads to
the “logical conclusion” that Defendants intended to induce him into executing the Second
Employment Agreement. See Compl. ¶¶ 75, 77. But Dunn did not attempt to meet the
implied covenant’s intent requirement until his Opposition. His brief cannot patch pleading
deficiencies. See, e.g., Akrout v. Jarkoy, 2018 WL 3361401, at *3 n.23 (Del. Ch. July 10,
2018), rearg. denied, 2018 WL 4501174 (Del. Ch. Sept. 19, 2018) (“Plaintiff’s counsel’s
post hoc attempt to clarify the allegations in the Complaint in response to a motion to
dismiss, while understandable given the paucity of the Complaint, cannot be received as a
supplement or amendment to the pleading itself.”); Orman v. Cullman, 794 A.2d 5, 28 n.59
(Del. Ch. 2002) (“[Plaintiff] improperly attempts to expand the scope of his complaint in
his brief opposing the motion to dismiss … . At this stage of litigation, the Court is only
permitted to consider the well-pleaded facts contained in the complaint and any documents
incorporated by reference into that complaint … . Briefs relating to a motion to dismiss are
not part of the record and any attempt contained within such documents to plead new facts
or expand those contained in the complaint will not be considered.”).
57
Dunn does not mention the Second Employment Agreement in Count Three. See Compl.
¶¶ 66–71. My analysis of Dunn’s negligent misrepresentation claim focuses solely on the
Letter of Transmittal.
58
Id. ¶ 67.
19
would have a “long-term position” under the Second Employment Agreement.59
Because events unfolded differently, Dunn argues the representations must be
interpreted as fraudulent and intended to induce him into surrendering his Profits
Interest Units and agreeing to the Restrictive Covenant. 60 Assuming for the sake of
this motion that Dunn is permitted to rely on Defendants’ extra-contractual
statements,61 Dunn has failed to state claims for fraud and negligent
misrepresentation.
1. Dunn Has Failed To Plead Fraudulent Intent To Break A
Promise.
In Delaware, fraud requires that the plaintiff allege “(i) a false representation,
(ii) the defendant’s knowledge of or belief in its falsity or the defendant’s reckless
indifference to its truth, (iii) the defendant’s intention to induce action based on the
59
Unlike his negligent misrepresentation claim, Dunn’s fraud claim is based on both the
Letter of Transmittal and the Second Employment Agreement. Id. ¶¶ 72–81.
60
Id. ¶ 67; see also id. ¶ 75 (“The abrupt elimination of the position brings the logical
conclusion that the statements to retain Dunn under the Letter of Transmittal and Second
Amended and Restated Employment Agreement were fraudulent misrepresentations
intended to induce Dunn into surrendering his Profits Interest Units and sign a restrictive
covenant that was not agreed upon and unreasonable in scope.”).
61
Defendants argue Dunn disclaimed reliance on extra-contractual representations. D.I.
12 at 19–20. They point to Section 5.26 of the Purchase Agreement, D.I. 12 Ex. 2, and the
Second Employment Agreement, Compl. Ex. C § 16. Case law suggests that neither
provision prevents Dunn from asserting a fraud claim. See, e.g., FdG Logistics, LLC v.
A & R Logistics Hldgs. Inc., 131 A.3d 842, 859 (Del. Ch. 2016); Prairie Capital III, L.P.
v. Double E Hldg. Corp., 132 A.3d 35, 50–51 (Del. Ch. 2015); Abry P’rs V, L.P. v. F & W
Acq. LLC, 891 A.2d 1032, 1058–59 (Del. Ch. 2006). But I need not resolve this issue today
because Counts Three and Four are properly dismissed on other grounds.
20
representation, (iv) reasonable reliance by the plaintiff on the representation, and
(v) causally related damages.”62 Court of Chancery Rule 9(b) requires a plaintiff to
plead fraud with particularity. 63 Specifically, Rule 9(b) mandates that
[t]he factual circumstances to be “stated with particularity refer to the
time, place, and contents of the false representations; the facts
misrepresented; the identity of the person(s) making the
misrepresentation; and what that person(s) gained from making the
misrepresentation.” 64
Usually, intent can be pled generally. 65 But when a fraud claim hinges on
promissory statements, or expressions as to what will happen in the future, a plaintiff
must plead “particularized facts that allow the Court to infer that, at the time the
62
Prairie Capital, 132 A.3d at 49 (citing Stephenson v. Capano Dev., Inc., 462 A.2d 1069,
1074 (Del. 1983)).
63
Ct. Ch. R. 9(b) (“In all averments of fraud or mistake, the circumstances constituting
fraud or mistake shall be stated with particularity.”).
64
GreenStar IH Rep, LLC v. Tutor Perini Corp., 2017 WL 5035567, at *10 (Del. Ch.
Oct. 31, 2017) (quoting Trenwick Am. Litig. Tr. v. Ernst & Young, L.L.P., 906 A.2d 168,
207–08 (Del. Ch. 2006), aff’d sub nom. Trenwick Am. Litig. Tr. v. Billett, 931 A.2d 438
(Del. 2007)), aff’d, 186 A.3d 799 (Del. 2018); see also Steinman v. Levine, 2002 WL
31761252, at *14 (Del. Ch. Nov. 27, 2002), aff’d, 822 A.2d 397 (Del. 2003) (“[A] well
pleaded fraud allegation must include at least ‘the time, place and contents of the false
representations . . . and what [was] obtained thereby.’” (second alteration in original)
(quoting Crescent/Mach I P’rs, L.P. v. Turner, 846 A.2d 963, 988 (Del. Ch. Sept. 29,
2000)).
65
See Grunstein v. Silva, 2009 WL 4698541, at *13 (Del. Ch. Dec. 8, 2009) (“[A]
traditional fraud claim … allows a plaintiff to plead intent generally.”).
21
promise was made, the speaker had no intention of keeping it.” 66 In Grunstein v.
Silva, this Court stated:
[B]ecause the factual predicate of a promissory fraud claim is the
speaker’s state of mind at the time the statement is made, a general
averment of a culpable state of mind is insufficient. Instead, the
plaintiff “must plead specific facts that lead to a reasonable inference
that the promissor had no intention of performing at the time the
promise was made.” 67
“This is, in part, because of the general rule that ‘statements which are merely
promissory in nature and expressions as to what will happen in the future are not
actionable as fraud.’” 68 “To anticipate the future and predicate falsehood upon an
act to be done or omitted at a future day would change a mere broken promise into
a fraud on the part of him who was bound to fulfill the engagement … .” 69 “[A]
party’s failure to keep a promise does not prove the promise was false when made.”70
66
MicroStrategy Inc. v. Acacia Research Corp., 2010 WL 5550455, at *15 (Del. Ch. Dec.
30, 2010); see also Grunstein, 2009 WL 4698541, at *13 (stating plaintiff must allege
particularized facts that infer “the speaker had no intention of performing”); Outdoor
Techs., Inc. v. Allfirst Fin., Inc., 2001 WL 541472, at *4 (Del. Super. Apr. 12, 2001) (“Only
when such statements are made with the present intention not to perform will courts
endorse a fraud claim.”).
67
Grunstein, 2009 WL 4698541, at *13 (citing Winner Acceptance Corp. v. Return on
Capital Corp., 2008 WL 5352063, at *10 (Del. Ch. Dec. 23, 2008)).
68
Id. (citing Outdoor Techs., 2001 WL 541472, at *4).
69
Id. (citation omitted).
70
Id. (quoting Berdel, Inc. v. Berman Real Estate Mgmt., Inc., 1997 WL 793088, at *8
(Del. Ch. Dec. 15, 1997)).
22
Dunn predicates his claim on promissory statements, or “expressions as to
what will happen in the future.” 71 When Dunn signed the Letter of Transmittal, he
was aware of the five-year Restrictive Covenant. Dunn’s fraud claim is based on his
“oral agreement” with Bohannon and Blank to amend the Restrictive Covenant in
the future, after the Letter of Transmittal had been signed. Similarly, when Dunn
signed the Second Employment Agreement, its terms expressly rendered him an at-
will employee who was subject to demotion. Dunn relies on promises by “Bohannon
and other executives” that he would be retained in a “long-term position.”72
Defendants’ statements that contradicted the written terms were promises to deviate
from those terms in the future. Because Defendants failed to fulfill those promises,
Dunn concludes that he has been defrauded. Without a proper pleading of intent,
these promissory statements cannot support Dunn’s fraud claim.
Dunn has not pled specific facts that lead to a reasonable inference that the
Defendants had no intention of performing at the time of their promises. Dunn only
pleads general averments of a culpable state of mind, stating that the “Defendants
knew that the representations were false”73 and that the sequence of events leads to
71
Id. A promise of a future outcome is distinct from a misrepresentation of existing fact.
“A false assertion presupposes that an event has occurred, that a duty has been performed,
that a fact has intervened or that an authority exists, either or all of which may have induced
the contract or prevented its being consummated.” Id. (citation omitted).
72
Compl. ¶ 24.
73
Id. ¶ 77.
23
the “logical conclusion” that Defendants intended to induce Dunn to sign the
agreements without fulfilling their promises. 74
In particular, Dunn does not plead that Bohannon and Blank intended to break
their alleged promise to renegotiate the Restrictive Covenant. He does not plead any
explanation for why the alleged agreement altering the terms never materialized. All
that is before the Court is that the parties subsequently entered into the Second
Employment Agreement, which left the Restrictive Covenant in place. Similarly,
Dunn has failed to plead that Defendants never intended to keep him in his senior
position as promised. He does not plead any explanation as to why the Second
Employment Agreement contradicted the alleged promises by enumerating Dunn’s
at-will employment status and permitting his demotion. Dunn has failed to plead
that the Defendants never intended to keep their promises to renegotiate the
Restrictive Covenant or to keep Dunn in a long-term position. He has failed to state
a claim for promissory fraud.
2. Dunn Has Failed To Plead The Other Elements Of Fraud
Under Rule 9(b).
To plead the other elements of his fraud claim under Rule 9(b), Dunn must
adequately identify the “time, place, and contents of the false representations; the
facts misrepresented; the identity of the person(s) making the misrepresentation; and
74
Id. ¶ 75.
24
what that person(s) gained from making the misrepresentation.” 75 Dunn is also
required to identify specific statements by individual defendants. 76 Dunn’s claim
“has simply mirrored the language of the necessary fraud elements. [His] complaint
contains no facts to support his conclusory allegations, as to the time, place or
contents of the false representations.” 77
In support of his fraud claim under the Letter of Transmittal, Dunn alleges:
Directly preceding Dunn’s signing of the Letter of Transmittal on or
about May 28, 2015, Kyle Bohannon and Kevin Blank, then-CEO of
FastMed Urgent Care, P.C., made specific representations to Dunn
regarding the terms of the restrictive covenant and acknowledged
Dunn’s concerns regarding the scope of the agreement, ultimately
culminating in an oral agreement to alter the terms of the restrictive
covenant that would permit Dunn to work as a medical director
immediately following separation.78
Dunn premises his claim on “specific representations” made by Bohannon and
Blank, grouped together.79 Dunn cannot adequately plead fraud based on allegations
75
GreenStar IH Rep, LLC, 2017 WL 5035567, at *10 (quoting Trenwick Am. Litig. Tr.,
906 A.2d at 207–08).
76
Fortis, 2015 WL 401371, at *8 (“[Plaintiff] does not even identify misrepresentations
made by any particular individuals. He simply lumps all the Director Defendants together
in his cause of action. [Plaintiff] is required to identify specific acts of individual
defendants for his … claim to survive.” (citing Steinman, 2002 WL 31761252, at *15)).
77
Steinman, 2002 WL 31761252, at *14.
78
Compl. ¶ 74.
79
Id.; see also id. ¶ 18.
25
that Bohannon and Blank together represented a certain result without distinguishing
as between them and identifying their specific statements. 80
Dunn’s allegations of fraud in the execution of the Second Employment
Agreement are similarly untethered to any individual speaker. Dunn relies on
assurances “that the position of employment offered to [him] pursuant to the [Second
Employment Agreement] was a long-term position.”81 He alleges:
Kyle Bohannon expressly stated to Dunn that Dunn’s employment
under the Second Amended and Restated Employment Agreement that
he was needed not only to continue to run the Arizona market, but also
that he would assist[] with running the Texas market, and that he was
very much needed as an asset going forward. 82
He also alleges “Kyle Bohannon and other executives of the Affiliated Companies
further expressly assured Dunn that the position of employment offered to [him]
pursuant to the [Second Employment Agreement] was a long-term position.”83
“[T]he [C]omplaint fails to identify who made any particular
misrepresentation … . Instead, the [C]omplaint asserts that one of [Bohannon and
other executives] made the representations, but we do not know who allegedly made
80
See Steinman, 2002 WL 31761252, at *15 (“[Plaintiff] is required to identify specific
acts of individual defendants for his negligent misrepresentation claim to survive.”).
81
Compl. ¶ 24.
82
Id. ¶ 75.
83
Id. ¶ 24.
26
which statement(s).” 84 While Dunn alleges that Bohannon “expressly stated” that
he was “very much needed as an asset going forward,” 85 he improperly groups
Bohannon together with “other executives” who allegedly assured Dunn that his was
a “long-term position.” 86 Dunn cannot premise his claim on statements by
Bohannon and “other executives” without identifying specific statements made by
specific persons. 87
Dunn also fails to allege when he was assured a long-term position.
Pleading when the alleged misrepresentations occurred is especially
important where, as here, the alleged promises are of future
performance … . To defend against such assertions, a defendant
logically must be apprised when the alleged statements were made in
order to counter the assertion that it did not intend to keep its promise
at that time. 88
Dunn’s Complaint does not allege when Defendants promised him long-term
employment. If Dunn’s Complaint is read chronologically, any assurances of a long-
term position were made after Dunn executed the Second Employment Agreement.89
But Dunn’s brief describes these statements as “the promise that Dunn would remain
employed by one of the FastMed Defendants following the closing, inducing him to
84
Fortis, 2015 WL 401371, at *8.
85
Compl. ¶ 75.
86
Id. ¶ 24.
87
See Fortis, 2015 WL 401371, at *8.
88
Id. at *7.
89
Compl. ¶¶ 22–26.
27
sign the Second Agreement,” indicating his position that the assurances were made
before or during the execution.90 Dunn’s claim for fraud under the Second
Employment Agreement fails to apprise Defendants of when the alleged statements
were made.
As to both the Letter of Transmittal and the Second Employment Agreement,
“the [C]omplaint makes no mention of where or by what means any of the
misrepresentations were made.” 91 The Complaint does not describe where (e.g., at
Urgent Cares’ offices, FastMed’s offices, a mutual meeting place) or how (e.g., in
person, by phone, by email) any of these representations occurred. As the Court
pointed out in Fortis Advisors LLC v. Dialog Semiconductor PLC,
[t]he lack of these details, in isolation, may not warrant dismissal under
Rule 9(b). But when the lack of any such details is considered together
with the failure of the [C]omplaint to identify when any of the alleged
misrepresentations were made and who made any of them, the
complaint fails in my view to apprise [the Defendants] of sufficient
information concerning the circumstances of the alleged fraud and thus
does not satisfy the particularity requirement of Rule 9(b). 92
Dunn has failed to state a claim for fraud in the execution of the Letter of Transmittal
and Second Employment Agreement under Rule 9(b).
90
D.I. 16 at 16.
91
Fortis, 2015 WL 401371, at *8.
92
Id.
28
3. Dunn Has Failed To State A Claim For Negligent
Misrepresentation.
Dunn has also failed to adequately plead the required elements of negligent
misrepresentation. To state a negligent misrepresentation claim, Dunn must allege
“(1) the defendant had a pecuniary duty to provide accurate information, (2) the
defendant supplied false information, (3) the defendant failed to exercise reasonable
care in obtaining or communicating the information, and (4) the plaintiff suffered a
pecuniary loss caused by justifiable reliance upon the false information.”93 As a
matter of law, promissory statements are insufficient to support a negligent
misrepresentation claim. 94
Negligent misrepresentation, however, “cannot lie where the
underlying representations take the form of promises” because
promissory fraud requires an intentional or knowing act. That is
because the promise to honor an agreement is only a misrepresentation
if the promisor knows at the time of the promise that he will ultimately
breach; such a misrepresentation cannot occur unknowingly
or negligently. 95
Dunn’s claim for negligent misrepresentation is based on Defendants’ promise to
redraft the Restrictive Covenant at a later time. 96 These promissory statements
cannot sustain Dunn’s negligent misrepresentation claim.
93
CHR Hldg. Corp., 2008 WL 963048, at *8 (citing Steinman, 2002 WL 31761252, at
*15).
94
Grunstein, 2009 WL 4698541, at *14.
95
Id. (footnote omitted).
96
Compl. ¶¶ 18, 67.
29
In addition, Dunn’s negligent misrepresentation claim fails under Rule 9(b).
Although a separate and distinct claim, negligent misrepresentation is closely related
to fraud. “A claim of negligent misrepresentation, or equitable fraud, requires proof
of all of the elements of common law fraud except that plaintiff need not demonstrate
that the misstatement or omission was made knowingly or recklessly.” 97 Both fraud
and negligent misrepresentation require pleading with particularity under Rule
9(b). 98 If a plaintiff brings both fraud and negligent misrepresentation claims and
fails to plead his common law fraud claim with the requisite particularity, his
negligent misrepresentation claim must fail for the same reason.99 As discussed
above, Dunn has failed to adequately plead fraud premised on the Letter of
Transmittal under Rule 9(b). For those same reasons, Dunn’s negligent
misrepresentation claim is dismissed.
97
Fortis, 2015 WL 401371, at *9 (internal quotation marks omitted); see also CHR Hldg.
Corp., 2008 WL 963048, at *8 (noting negligent misrepresentation “is in essence a fraud
claim with a reduced state of mind requirement”).
98
See Zebroski v. Progressive Direct Ins. Co., 2014 WL 2156984, at *7 (Del. Ch.
Apr. 30, 2014) (applying Rule 9(b) pleading standard to equitable fraud claim); Those
Certain Underwriters at Lloyd’s London v. Nat’l Installment Ins. Servs., 2007 WL
1207106, at *5 (Del. Ch. Feb. 8, 2007, revised Apr. 16, 2007) (“Court of Chancery Rule
9(b) requires that fraud be pled with particularity. This rule almost certainly extends to
negligent misrepresentation (equitable fraud) as well[.]”).
99
See Fortis, 2015 WL 401371, at *9 (“Because [plaintiff] failed to plead its common law
fraud claim with the requisite particularity, its negligent misrepresentation claim fails for
the same reason.”).
30
C. The Restrictive Covenant Does Not Violate Delaware’s Statute
Encouraging The Unrestricted Practice Of Medicine.
Dunn seeks relief in the form of a declaratory judgment and injunction
preventing Defendants from attempting to enforce the Restrictive Covenant. He
argues the Restrictive Covenant violates 6 Del. C. § 2707, which provides:
Any covenant not to compete provision of an employment, partnership
or corporate agreement between and/or among physicians which
restricts the right of a physician to practice medicine in a particular
locale and/or for a defined period of time, upon the termination of the
principal agreement of which the said provision is a part, shall be void;
except that 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. 100
I conclude that because the term “practice medicine” in Section 2707 refers to a
physician’s provision of medical services to patients in Delaware, the Letter of
Transmittal does not restrict Dunn’s employment in a manner that violates Section
2707. Counts One and Seven are dismissed.
“The goal of statutory construction is to determine and give effect to
legislative intent.”101 I “begin [my] analysis with the language of the statute
100
6 Del. C. § 2707.
101
Eliason v. Englehart, 733 A.2d 944, 946 (Del. 1999).
31
itself.” 102 The key wording describes an “agreement between and/or among
physicians which restricts the right of a physician to practice medicine.”103 The
statute does not define the phrase “to practice medicine,” and no party has provided
any authority construing it. Few states have adopted similar legislation, and those
states do not appear to have construed the phrase.104
Other Delaware laws provide guidance. In a separate statute, the Medical
Practice Act, the General Assembly defined “practice of medicine” or “practice
medicine” as follows: 105
a. Advertising, holding out to the public, or representing in any manner
that one is authorized to practice medicine in this State;
b. Offering or undertaking to prescribe, order, give, or administer any
drug or medicine for the use of another person;
c. Offering or undertaking to prevent or to diagnose, correct, and/or
treat in any manner or by any means, methods, or devices a disease,
illness, pain, wound, fracture, infirmity, defect, or abnormal physical or
102
LeVan v. Indep. Mall, Inc., 940 A.2d 929, 933 (Del. 2007).
103
6 Del. C. § 2707 (emphasis added).
104
See Colo. Rev. Stat. § 8–2–113(3), amended by Professions and Occupations Act, ch.
136 (H.B. 19-1172) (amended 2019); Mass. Gen. Laws ch. 112, § 12X (2019); R.I. Gen.
Laws § 5–37–33; see also Cent. Ind. Podiatry, P.C. v. Krueger, 882 N.E.2d 723, 728 (Ind.
2008) (identifying Colorado, Delaware, and Massachusetts as states having adopted
“statutes prohibiting physician noncompetition agreements”).
105
Section 2707 appears in general provisions relating to commerce and trade; it is not part
of the Medical Practice Act. See Franklin Fibre-Lamitex Corp. v. Dir. of Revenue, 505
A.2d 1296, 1298 (Del. Super. Ct. 1985) (stating that where term was not defined in statute
it is “permissible to look to related statutes and principles of statutory construction to
determine its meaning” (footnote omitted)), aff’d, 511 A.2d 385 (Del. 1986).
32
mental condition of another person, including the management of
pregnancy and parturition;
d. Offering or undertaking to perform a surgical operation upon another
person;
e. Rendering a written or otherwise documented medical opinion
concerning the diagnosis or treatment of a person or the actual
rendering of treatment to a person within the State by a physician
located outside the State as a result of transmission of the person’s
medical data by electronic or other means from within the State to the
physician or to the physician’s agent;
f. Rendering a determination of medical necessity or a decision
affecting or modifying the diagnosis and/or treatment of a person;
g. Using the designation Doctor, Doctor of Medicine, Doctor of
Osteopathy, physician, surgeon, physician and surgeon, Dr., M.D., or
D.O., or a similar designation, or any combination thereof, in the
conduct of an occupation or profession pertaining to the prevention,
diagnosis, or treatment of human disease or condition, unless the
designation additionally contains the description of another branch of
the healing arts for which one holds a valid license in the State.106
The definition concludes, “[f]or the purposes of this chapter, in order that the full
resources of the State are available for the protection of persons using the services
of physicians, the act of the practice of medicine occurs where a person is located
at the time a physician practices medicine upon the person.”107 Thus, the
enumerated acts pertain to the provision of medical services or treatment within
Delaware.
106
24 Del. C. § 1702(12).
107
Id. (emphasis added).
33
Title 24, Section 1720 relatedly sets out Delaware’s “certification
requirements to practice medicine.”108 Without meeting those requirements, the
“person may not practice medicine in” Delaware. 109 There is no indication that the
General Assembly intended to regulate the practice of medicine in other states.110
The dictionary complements these statutory definitions. Merriam-Webster
defines “practice” as “to be professionally engaged in;” 111 lists “practice medicine”
as the relevant example; 112 and defines “medicine” as “the science and art dealing
with the maintenance of health and the prevention, alleviation, or cure of disease.”113
In view of these sources, I conclude that the term “practice medicine” in
Section 2707 refers to a physician’s provision of medical services or treatment to
patients in Delaware. “Although the plain language of [Section 2707] is dispositive,
the legislative history helpfully confirms the narrow construction.” 114 The synopsis
108
24 Del. C. § 1720.
109
Id. § 1720(a).
110
Id. § 1702(2) (“‘Certificate to practice medicine’ means the authorization awarded by
the Board to a person who has been qualified to practice medicine in this State by meeting
the requirements of this chapter.”).
111
Practice, Merriam-Webster Online Dictionary, https://www.merriam-
webster.com/dictionary/practice (last visited August 29, 2019).
112
Id.
113
Medicine, Merriam-Webster Online Dictionary, https://www.merriam-
webster.com/dictionary/medicine (last visited August 29, 2019).
114
Agar v. Judy, 151 A.3d 456, 475 (Del. Ch. 2017); see also Bd. of Adjustment of Sussex
Cty. v. Verleysen, 36 A.3d 326, 332 (Del. 2012) (“The most prevalent source of legislative
34
for the bill that became Section 2707 explains: “Because patients establish
relationships with their physicians and/or enter into courses of treatment with
particular physicians, the patients should not be deprived of the services of the
physician of their choice because of an economic contract entered into between two
physicians.”115 Section 2707 does not contemplate injunctive enforcement of its
restriction, but allows damages because damages do not “[a]ffect[] the doctor/patient
relationship already established prior to the termination” of the agreement between
the physicians. 116 When sitting on the Superior Court, Vice Chancellor Slights stated
that the General Assembly adopted Section 2707 in furtherance of “the importance
of maintaining the continuity of care by protecting the physician-patient
relationship.”117
Dunn does not plead that the Restrictive Covenant prevents him from
providing medical services as a physician in any way that would provoke Section
2707’s protections of the physician-patient relationship. Nor does he plead that his
job with Banner Health would involve patient care, generally or in Delaware.
Rather, Dunn only states, “Banner Health’s employment offer was a highly valuable
history for a Delaware statute is the synopsis, which the Delaware Supreme Court has held
is ‘a proper source for ascertaining legislative intent.’”).
115
Del. S.B. 294 syn., 132nd Gen. Assem. (Del. 1983).
116
Id.
117
Total Care Physicians, P.A. v. O’Hara, 2002 WL 31667901, at *6 (Del. Super. Ct.
Oct. 29, 2002).
35
and unique opportunity through which Dunn could utilize his expertise as Physician
and Executive in operating urgent care services … .”118 Thus, he only complains
that the Restrictive Covenant prevented him from taking an executive position with
Banner Health—a role that is in express contravention of the Letter of Transmittal,
but not Section 2707.
Further, Dunn can practice medicine without violating the terms of the
Restrictive Covenant. The Letter of Transmittal expressly allows Dunn to be
“employed as (and providing customary services of) a physician.” 119 This carveout
preserves Dunn’s ability to practice medicine. This exemption is consistent with the
purpose of the Restrictive Covenant, which was part of a merger whereby FastMed
paid $200 million for Urgent Care. The Restrictive Covenant protects FastMed and
its investment in Urgent Care from Dunn (and others) competing with it in that
business, not from Dunn seeing patients or providing medical treatment. Further,
Dunn resides in Arizona, and is “licensed to conduct all medical services relevant to
his issued license in the state of Arizona.”120 He does not plead that he ever offered,
performed, or was licensed to provide any medical services in Delaware or that his
job offer from Banner Health involved him doing so.
118
Compl. ¶ 52 (emphasis added).
119
Id. ¶ 21.
120
Id. ¶ 10.
36
Thus, even giving Dunn the benefit of every reasonable inference, it is not
reasonably conceivable that Section 2707 invalidates the Restrictive Covenant.121
Section 2707 is meant to protect physician–patient relationships within Delaware by
prohibiting restrictions on the practice of medicine in Delaware. Dunn is not a
Delaware physician and is not precluded from practicing medicine under the
Restrictive Covenant. Dunn’s Restrictive Covenant does not violate Section
121
Dunn argues the Court should not decide this issue now because “whether or not [the
Banner Health] job constituted such practice is admittedly a factual question.” D.I. 16 at
20. He relies on Bakotic v. Bako Pathology LP, 2018 WL 6601172 (Del. Super. Ct.
Dec. 10, 2018). But that case does not involve any clear carveout to allow the physicians
to provide physician services.
37
2707. 122 Dunn asserts no other grounds for concluding the Restrictive Covenant is
unenforceable. 123 Counts One and Seven are dismissed. 124
122
The parties sparred over whether Section 2707 would violate the Commerce Clause of
the United States Constitution if it were applied to physicians in other states. See D.I. 20
at 16–19; D.I. 23 at 21–24; see also Healy v. Beer Inst., Inc., 491 U.S. 324, 336–37 (1989)
(stating courts must analyze “how the challenged statute may interact with the legitimate
regulatory regimes of other States and what effect would arise if not one, but many or
every, State adopted similar legislation” and that “[g]enerally speaking, the Commerce
Clause protects against inconsistent legislation arising from the projection of one state
regulatory regime into the jurisdiction of another State”); Klig v. Deloitte LLP, 36 A.3d
785, 797–98 (Del. Ch. 2011) (“Nor is there any basis to think that Delaware could enforce
its vision of appropriate employment law regulation within New York’s territory . . . .
Under our federal system of co-equal state sovereigns, Delaware can readily regulate
within its borders, but cannot regulate the wages of an individual working in another state,
outside of Delaware’s jurisdiction.”). I do not reach the Constitutional question. The Court
is to avoid constitutional issues if feasible. See Downs v. Jacobs, 272 A.2d 706, 708 (Del.
1970) (“It is the settled policy of this Court that a constitutional question will not be decided
unless its determination is essential to the disposition of the case.”); accord Snell v.
Engineered Sys. & Designs, Inc., 1994 WL 672680, at *1 (Del. Ch. Nov. 18, 1994) (“[T]his
Court should avoid deciding Constitutional questions if other means of disposing of a case
are available.”), aff’d in part, rev’d in part, 669 A.2d 13 (Del. 1995); Crisco v. Bd. of Educ.
of Indian River Sch. Dist., 1988 WL 90821, at *7 n.1 (Del. Ch. Aug. 29, 1988) (“I decline
to reach the constitutional claim because it is not essential to the disposition of this case.”).
Dunn’s Restrictive Covenant does not fall within the ambit of Section 2707 because it does
not prohibit his practice of medicine. Those grounds alone are sufficient to resolve the
issue before the Court.
123
My analysis of Dunn’s invocation of Section 2707 does not reach the issue of whether
the Restrictive Covenant is enforceable in view of broader Delaware law or Arizona public
policy. See generally NuVasive, Inc. v. Miles, 2019 WL 4010814 (Del. Ch. Aug. 26, 2019).
124
Count One seeks injunctive relief, asking the Court to enjoin the enforcement of the
Restrictive Covenant. Compl. ¶ 53–56, b. Count One must be dismissed on two grounds.
First, because the Court concludes that the Restrictive Covenant is enforceable over Dunn’s
sole argument, based on Section 2707, Dunn’s request for injunctive relief cannot be
granted. Second, “[i]njunctions are a form of relief, not a cause of action.” Quadrant
Structured Prods. Co., Ltd. v. Vertin, 102 A.3d 155, 203 (Del. Ch. 2014). Therefore, “[a]s
a technical matter,” Count One is dismissed because it seeks a “remed[y] rather than
assert[s] claims.” Id.
38
D. Dunn Fails To Adequately Allege Intentional Interference With A
Contractual Relationship.
Dunn argues Defendants intentionally interfered with his prospective
contractual relationship with Banner Health by threatening to enforce the Restrictive
Covenant. 125 He claims that the “Defendants knew or should have known that [the]
statements [to Banner Health] were false, given the unenforceability of the non-
compete clause.”126 “A claim for tortious interference with contract requires a
showing that: ‘(1) there was a contract, (2) about which the particular defendant
knew, (3) an intentional act that was a significant factor in causing the breach of
contract, (4) the act was without justification, and (5) it caused injury.’” 127
Defendants attack the fourth element on the ground that their interference was proper
and justified. 128 A plaintiff does not state a claim for improper interference where
the alleged improper action is “within [the defendant’s] contractual rights.” 129
125
Compl. ¶¶ 82–87.
126
D.I. 16 at 21.
127
Himawan v. Cephalon, Inc., 2018 WL 6822708, at *9 (Del. Ch. Dec. 28, 2018) (quoting
WaveDivision Hldgs., LLC v. Highland Capital Mgmt., L.P., 49 A.3d 1168, 1174 (Del.
2012)). Dunn does not frame this claim as relating to prospective relations. The Court
adopts his framing.
128
D.I. 12 at 23 (“Here, FastMed Defendants had the legitimate and justifiable motive of
enforcing the benefit of their bargain with regard to the five-year covenant not to compete.
Under such circumstances, Dunn cannot show an improper motive, nor does he allege
any.”).
129
Chapter 7 Tr. Constantino Flores v. Strauss Water Ltd., 2016 WL 5243950, at *12 (Del.
Ch. Sept. 22, 2016) (concluding claim was not well-pled where defendant acted within its
contractual rights); see also Darius Int’l, Inc. v. Young, 2008 WL 1820945, at *48 (E.D.
39
Dunn argues Defendants’ assertion of the Restrictive Covenant was improper
because Defendants knew, or should have known, that it was unenforceable under
Section 2707.130 According to Dunn, Defendants improperly threatened Banner
Health with an agreement Defendants knew was not enforceable. As described
above, Section 2707 does not render the Restrictive Covenant unenforceable. Dunn
asserts no other basis for unenforceability, and therefore, no other basis for
concluding Defendants wielded the Restrictive Covenant improperly. Because
asserting the Restrictive Covenant was “within [the Defendants’] contractual rights,”
Dunn’s claim for intentional interference is dismissed. 131
E. Dunn’s Defamation Per Se Claim Must Be Dismissed For Lack Of
Subject Matter Jurisdiction.
Dunn’s defamation per se claim asserts that Defendants falsely stated to
Banner Health that employing Dunn would violate the Restrictive Covenant.132
Pa. Apr. 23, 2008) (ruling party’s actions were justified where it
“merely enforced a non-competition agreement that it believed in good faith was valid”).
130
Compl. ¶ 86 (“Defendants acted improperly by attempting to apply a restrictive
covenant that Dunn was not subject to, and notifying Banner Health to the effect of
interfering with his future employment with Banner Health.”); D.I. 16 at 16 (“Defendants
knew, or should have known, that the five-year non-compete clause in the [Letter of
Transmittal] was unenforceable under the circumstances.”).
131
See Strauss Water Ltd., 2016 WL 5243950, at *12 (“[Plaintiff] [i]s required to plead
that [the] alleged interference was somehow improper.”).
132
Compl. ¶¶ 101–02.
40
Even assuming Dunn had stated a claim for defamation, 133 the claim must be
dismissed because this Court lacks jurisdiction to hear the claim. “Equitable
jurisdiction is a predicate issue for every matter in this court of limited
jurisdiction.” 134 The Court has a duty to determine whether it has the jurisdiction to
hear Dunn’s claim and can raise the jurisdictional issue sua sponte.135 An
independent claim for defamation does not fall within the purview of Chancery’s
equitable jurisdiction because “equity will not enjoin a libel.”136
In view of this Court’s limited ability to redress common-law torts, as well as
this Court’s inability to sanction a party solely for speech, defamation—and
specifically its subcategories of libel and slander—“are seen as denizens of the
Superior Court, and are subject to the findings made there by juries regarding the
133
The Court need not and cannot determine whether Dunn has stated a claim for
defamation per se because it lacks subject matter jurisdiction over the claim. Such a
determination must be made in the appropriate court of law.
134
Preston Hollow Capital, LLC v. Nuveen, LLC, 2019 WL 3801471, at *4 (Del. Ch.
Aug. 13, 2019) (citing Athene Life & Annuity Co. v. Am. Gen. Life Ins. Co., 2019 WL
3451376 (Del. Ch. July 31, 2019)).
135
See, e.g., Ct. Ch. R. 12(h)(3) (“Whenever it appears by suggestion of the parties or
otherwise that the Court lacks jurisdiction of the subject matter, the Court shall dismiss the
action.”); Envo, Inc. v. Walters, 2009 WL 5173807, at *4 n.10 (Del. Ch. Dec. 30, 2009)
(“The issue of subject matter jurisdiction is so crucial that it may be raised at any time
before final judgment and by the court sua sponte.”), aff’d, No. 460, 2012, 2013 WL
1283533 (Del. Mar. 28, 2013) (TABLE).
136
Preston Hollow, 2019 WL 3801471, at *9 (interpreting J.C. Pitman & Sons, Inc. v.
Pitman, 7 A.2d 721 (Del. Ch. 1946)); Organovo Hldgs., Inc. v. Dimitrov, 162 A.3d 102,
115 (Del. Ch. 2017).
41
speech of their peers.” 137 The boundaries of Chancery’s jurisdiction in this area have
been carefully drawn, with only one narrow exception surviving the maxim that
equity will not enjoin a libel. 138
The “trade libel” exception was first established in J.C. Pitman & Sons, Inc.
v. Pitman.139 Pitman recognized that, while courts will not enjoin “mere trade
libels,” when “a court of equity has jurisdiction on some other ground, the American
courts will also usually enjoin the continued publication of a trade libel incident
thereto.” 140 If the claim falls within Pitman’s ambit, this Court may exercise its
jurisdiction to enjoin “trade libel,” “a libelous statement to consumers that falsely
disparages a plaintiff’s goods or services.”141 But if the Pitman trade libel exception
does not apply, then the claim for defamation must be dismissed or transferred to a
court of law.
In Organovo Holdings, Inc. v. Dimitrov, Vice Chancellor Laster determined
that Pitman’s trade libel exception did not apply where a plaintiff failed to state a
claim that would otherwise invoke this Court’s jurisdiction, in that case tortious
137
Preston Hollow, 2019 WL 3801471, at *1.
138
See Pitman, 47 A.2d at 726.
139
Id. at 725–26.
140
Id. at 725 (emphasis added)
141
Preston Hollow, 2019 WL 3801471, at *2.
42
interference with prospective economic advantage. 142 Assuming for purposes of the
analysis that the complaint pled trade libel, the Court “recognized that a request for
equitable remedies for tortious interference with prospective economic advantage
can provide the requisite basis for equitable jurisdiction that can justify a related
injunction against future speech.”143 But because the plaintiff’s complaint failed to
state a claim for tortious interference, the Court found that the complaint “cannot
provide a route to an injunction against defamatory statements that are part of a
larger trade libel. It consequently cannot provide a basis for subject matter
jurisdiction.” 144 If the plaintiff fails to plead an independent tort claim warranting
an anti-speech injunction, and if that claim is consequently dismissed, then
Organovo governs and the trade libel exception cannot confer subject matter
jurisdiction over the defamation claim.
Assuming for purposes of this analysis that Dunn has pled trade libel, Dunn’s
claim for defamation per se falls beyond Pitman’s narrow scope. Although Dunn
brought independent claims for fraud, negligent misrepresentation, and international
interference with contractual relationship, these claims have been dismissed, and all
that remains is a defamation claim. Thus, nothing remains to “invoke[e] the
142
Organovo Hldgs., 162 A.3d at 123.
143
Id. at 122.
144
Id. at 123.
43
application of equity to a wrong other than ‘mere’ defamation.” 145 Without an
independently and adequately pled tort claim, there is no basis for an equitable
remedy that would only “incidentally” enjoin Defendants’ speech. Because the
remainder of Dunn’s claims have been dismissed, Dunn can only ask this Court to
do two things: (1) simply enjoin a libel, which it cannot do, and (2) award damages
for the claim, a legal remedy that, without additional grist for the mill of equity,
cannot be fashioned by this Court. Dunn’s claim falls squarely within Organovo,
and must be dismissed.
“As discussed at length above, this Court is without jurisdiction to determine
whether slander has occurred here. In such a case, a plaintiff may generally transfer
the matter to a court of law.” 146 Dunn seeks both an injunction and damages for his
defamation claim. 147 As exemplified by Vice Chancellor Slights in Perlman v. Vox
Media, Inc., where a plaintiff seeks both damages and injunctive relief for a
145
Preston Hollow, 2019 WL 3801471, at *9 (citing Organovo, 162 A.3d at 123).
146
Id. at *10.
147
Dunn asserts that Defendants’ alleged defamatory statements “caused Dunn to be
damaged in an amount to be determined at trial,” Compl. ¶ 105, and further seeks
“compensatory damages against Defendants in an amount to be proven at trial,” id. ¶ c. In
addition, Dunn seeks “an injunction precluding Defendants from contacting Dunn, Banner
Health, and any future employers of Dunn in regard to the improper application of the
alleged restrictive covenant.” Id. ¶ b.
44
defamation claim, the matter should be transferred to Superior Court.148 If Dunn
wishes to pursue his claim for damages from defamation per se, he may elect to
transfer the claim to the Superior Court by filing an election of transfer within sixty
days under Section 1902.149
F. Dunn Has Not Adequately Pled Civil Conspiracy.
Finally, Dunn alleges that the “Defendants had an agreement to …
fraudulently induce Dunn to surrender his Profits Interest Units and confine Dunn’s
future employability in his chosen field.” 150 Dunn must plead three elements to state
a claim for civil conspiracy: “(1) a confederation or combination of two or more
persons; (2) an unlawful act done in furtherance of the conspiracy; and (3) actual
damage.” 151 The second element makes clear that “[c]ivil conspiracy “is not an
148
2019 WL 2647520, at *4, *7 (Del. Ch. June 27, 2019) (determining that defamation
claim for which plaintiff sought both an injunction and damages should be transferred to
Superior Court).
149
See 10 Del. C. § 1902 (“No civil action, suit or other proceeding brought in any court
of this State shall be dismissed solely on the ground that such court is without jurisdiction
of the subject matter, either in the original proceeding or on appeal. Such proceeding may
be transferred to an appropriate court for hearing and determination, provided that the party
otherwise adversely affected, within 60 days after the order denying the jurisdiction of the
first court has become final, files in that court a written election of transfer … .”).
150
Compl. ¶ 89.
151
AeroGlobal Capital Mgmt., LLC v. Cirrus Indus., Inc., 871 A.2d 428, 437 n.8 (Del.
2005).
45
independent cause of action; it must be predicated on an underlying wrong.”152
Because Dunn’s other claims fail, his civil conspiracy claim also fails.
III. CONCLUSION153
For the foregoing reasons, Defendants’ Motion to Dismiss is GRANTED,
with Count Eight subject to transfer to Superior Court. Once Dunn makes his
election on Count Eight, the parties shall submit a conforming order.
152
Kuroda v. SPJS Hldgs., L.L.C., 971 A.2d 872, 892 (Del. Ch. 2009) (citation omitted).
153
Bohannon requested that if the complaint is “not dismissed in its entirety” that the Court
analyze whether it should be dismissed as to him for separate reasons. D.I. 12 at 26–27.
Because of the above analysis, I need not consider those reasons.
46