Cogley Clinic v. Martini , 253 Iowa 541 ( 1962 )

Snell, J.

This is an action in equity to enjoin the violation of the restrictive covenant in a contract of employment.

Plaintiff, Cogley Clinic, is a partnership. Its members are physicians and surgeons associated together for the practice of their profession in Council Bluffs and surrounding territory.

The partnership was first formed in 1927 with four doctors. Through changes in personnel, 29 doctors have been associated with the partnership. There are now 12 partners, two associates (doctors), a business administrator and 30 employees, including nurses, technicians, clerks, etc. The doctors include among their number specialists in their respective fields. They have an extensive medical practice and draw patients from a radius of 100 to 125 miles. They have about 50,000 patients. About 30,000 of the patients live within 25 miles of Council Bluffs. Because of the large number of doctors associated together, the partnership uses the name “Cogley Clinic.” For convenience it will be referred to as the clinic.

The clinic enjoys a substantial referral business from doctors outside of Council Bluffs. There is practically no referral business from other doctors in Council Bluffs. Including Omaha, Nebraska, and Council Bluffs, Iowa, 450,000 people live within 25 miles of Council Bluffs.

Prior to 1952 there were no restrictions limiting the practice of a doctor who withdrew from the clinic. Some doctors, who had been brought in and established by plaintiff-partnership, withdrew and engaged in practice in Council Bluffs in direct competition with the clinic. Patients followed the withdrawing partners and the remaining doctors suffered substantial loss of patronage and income. To bring in a new doctor to fill a vacancy on the staff and get him established is expensive. The estimated cost to the clinic is $10,000. It is usually about two years before his work produces income equal to his cost to the clinic.

In 1953 a contract between the partners, including associates, was introduced. The contract set forth the agreement of partnership or employment, and among the provisions was a restrictive covenant effective upon the withdrawal of a partner or termination of employment.

Dr. H. F. Martini is a doctor licensed to practice in Iowa and 'Wisconsin. He has had special training and specializes in orthopedic surgery. He has passed some of the examinations but is not certified by the American Board of Orthopedic Surgery. The evidence in this ease indicates without dispute that he is a competent orthopedic surgeon.

In 1953 plaintiff did not have among its doctors an orthopedic surgeon. The specialist in that field who had been a partner had withdrawn before the introduction of the restrictive covenant and was in private practice in Council Bluffs. He is now deceased.

Doctor Martini, at that time a total stranger to the Council Bluffs area, came to the clinic as an employee in October 1953. He became a partner in January 1956. Membership as a partner terminated in October 1959 when he again became an employee. Doctor Martini’s entire acquaintance with patients, referral doctors, hospital personnel and local procedures prior to the termination of his employment was through his association with the clinic. For reasons not material to this action, except as noted below, his employment was terminated in February 1960. On each employment he signed a contract containing the following covenant:

“D. Not to engage, on the termination for any cause whatsoever of the employment hereunder, in the practice of medicine or surgery or any of the healing arts, or engage to work for any individual, firm, partnership or association engaged in the practice of medicine or surgery or any of the healing arts, in the City of Council Bluffs, Iowa, or within a radius of twenty-five (25) miles thereof, for a period of three (3) years from the time the employment under this Contract ceases.”

When Doctor Martini came to the clinic in 1953 he was introduced professionally and socially and his association with the clinic was announced to the public, patients of the clinic and to doctors in the territory. All of the medical files and records of the clinic were available to him. He was the only member of the clinic specializing in orthopedic surgery, although others did traumatic surgery. It appears that patients of an orthopedic surgeon are largely patients referred by other attending physicians. Doctor Martini eared for such patients referred by members of the clinic staff and outside doctors. There was very little referral work from other doctors in Council Bluffs.

At the present time, other than Doctor Martini and several in Omaha, there is no orthopedic specialist closer than about 100 miles. Several orthopedic surgeons in Omaha are available to the Council Bluffs area. They have been doing orthopedic work in Council Bluffs for many years and are available on call. They are not far away. While Doctor Martini was associated with the clinic, the Omaha orthopedic surgeons took care of the referred work of Council Bluffs doctors not associated with the clinic. While the clinic has no orthopedic surgeon on the staff, Omaha doctors are called in for necessary cases.

One of the reasons for the termination of Doctor Martini’s employment by the clinic was the complaint of other doctors about his failure to see patients and answer calls and his unavailability when needed. He was frequently not as available as doctors from Omaha. Inconvenience and annoyance resulted.

It was the opinion of all witnesses that the location of one or two orthopedic surgeons in Council Bluffs would be desirable and convenient. The clinic is seeking such an associate. The members of plaintiff-partnership deny that they desire any monopoly in the medical and surgical field. The record in this ease shows that the lack of resident orthopedic surgeons in Council Bluffs is inconvenient but it does not show that the public welfare necessarily depends on Doctor Martini’s practice in Council Bluffs.

On July 9 and 10, 1960, Doctor Martini caused to be published in a daily paper in Council Bluffs an announcement as follows: “Dr. H. F. Martini announces the opening of his office, for the practice of orthopedic surgery, in the City National Bank Bldg. — Adv.”

This action for a restraining injunction followed. Doctor Martini admits that he has been engaged in the practice of medicine and surgery.

The trial court found for plaintiff and enjoined defendant under the provisions of his contract. We agree with the trial court.

I. In this appeal defendant challenges the reasonableness of the restrictive covenant. Defendant contends that there is no social economic justification for the restriction, that it is greater than required for protection of plaintiff; that the restriction imposes an undue hardship upon defendant; that it tends to create a monopoly; that it unreasonably restricts the use of defendant’s skills; that it is injurious to the public; and that it is unreasonable as to time and areá.

II.‘ The defendant does not seriously challenge the legality of restrictive covenants in general. Restrictive covenants of employment are strictly construed against one seeking injunctive relief. They are in partial restraint of trade and .are approved with some reluctance. Under certain circumstances they are recognized and enforced by injunctive proceedings. For many years restrictive covenants between doctors have been recognized as valid and enforceable. Rowe v. Toon, 185 Iowa 848, 169 N.W. 38; Oates v. Leonard, 191 Iowa 1004, 183 N.W. 462.

What is frequently called a landmark case in the area of restrictive covenants is Brecher v. Brown, 235 Iowa 627, 17 N.W.2d 377. The opinion in that case discusses the history and development of the law. The rule was affirmed that a contract in restraint of trade is to be gauged by the reasonableness of the restraint imposed as necessary to the protection of the covenantee and compatible with the public interest. There the restrictive covenant was between doctors of veterinary medicine and surgery. The contract provided for an area limitation with a radius of 25 miles. It was unlimited as to time. It was pointed out that the area was such that it could not possibly be served by plaintiff. The restriction was held to be unreasonable. In considering “the difficult task of applying general rules to the specific facts” the court referred to rigid formulas as “helpful in appraising the elusive quality of reasonableness,” but not controlling. Mutual Loan Co. v. Pierce, 245 Iowa 1051, 1055, 65 N.W.2d 405, 407, after referring to Brecher v. Brown, supra, says: “It comes down to a question of reasonableness. The restraint will be enforced if reasonably necessary to afford a fair protection to the business interests of the party in favor of whom it is given. It is to be strictly construed and the restriction must be no greater than necessary to protect the interests of the employer. It must not be oppressive to the employee or create undue hardship on him, out of proportion to the benefits which the employer may in reason expect to secure. * * It should be remembered that the territory that can be served by a veterinarian with a country practice is not comparable to the territory that can be served by a medical clinic or an orthopedic specialist.

Our most recent pronouncement is in Federated Mutual Implement and Hardware Ins. Co. v. Erickson, 252 Iowa 1208, 1213, 110 N.W.2d 264, 267. There the contract was attacked as violative of public policy. The authorities were reviewed and cited. It was held that four factors are involved: size of the restricted area; the time element; the type of service performed by the covenantor; and the reasonableness of the situation, as applied to the facts of each case. In the cited case we quoted with approval from Larsen v. Burroughs, 224 Iowa 740, 277 N.W. 463, as follows: “ ‘The privilege of a duly licensed physician to practice his chosen profession when and where he may wish is a right which the courts will zealously protect, but it is also a privilege which, by valid, voluntary contract, the physician may restrict; providing that such contractual restrictions are reasonable, and not contrary to public policy.’ ”

The restricted period was 10 years. The injunction was granted.

In McMurray v. Faust, 224 Iowa 50, 276 N.W. 95, also a case involving doctors, the restricted time was five years. The restriction was approved.

In these days of good roads, rapid transportation and an expanding perimeter for business and professional influence, 25 miles is not far for a client or patient to go to see a professional man of his choice. In the case before us, plaintiff draws patients over an area of 100 miles. The clinic has 30,000 patients within 25 miles. Under the facts shown, a 25-mile limitation is reasonable.

A three-year period of time is reasonable. See cases cited, supra.

III. The record shows that in the past the clinic has suffered financial loss when partners with a personal following withdrew. Except for the clinic’s investment in previous promotion of Doctor Martini’s professional recognition in the community, there is very little evidence of loss caused by his present competition. There is no showing that in the six-month period between the opening of Doctor Martini’s office and the trial of this case in district court there was any exodus of patients from the clinic to defendant’s office. We do not consider this too important nor the basis for determination of the issues. There are too many intangibles and variable contingencies in a situation such as we have here to have the case decided on whether there has been a gain or loss of income in the first six months of the contract violation.

A court of equity will not grant injunctive relief unless there is an invasion or threatened invasion of a right and a substantial injury will result or such injury is reasonably to be apprehended. The burden is on one who asks relief to prove these elements. Schmitt v. Kirkpatrick, 245 Iowa 971, 63 N.W.2d 228.

The record is clear that in the past eight years substantial loss to the clinic has followed withdrawal of and subsequent competition by former members. Doctor Martini was introduced, sponsored and recommended in Council Bluffs by plaintiff for about seven years. Loss to plaintiff from his present competition may reasonably be apprehended. It is not necessary for plaintiff to prove specific items or amount of damage. Such a requirement would render restrictive covenants in the professional field almost useless.

IV. Defendant argues that a contract in restraint of employment which gives greater protection to the employer than is required is unreasonable. With that general statement of the law we agree, but we do not agree that the contract before us is unreasonable.

V. Defendant argues that contracts imposing undue hardship are not enforceable. Under the facts in this case this argument loses its vitality. In 1953, again in 1956, and again in 1959, Doctor Martini agreed to the restrictive covenant. He is a mature, highly educated man. There was no coercion or concealment. He was not misled. As far as his contract is concerned he may practice his profession anywhere except within 25 miles of Council Bluffs. We cannot say that the withdrawal from his field of opportunity of one area with a radius of 25 miles for three years is so unduly harsh that we should place thé stamp of judicial approval upon his open violation of a solemn agreement. As our court has frequently said, we do not desire to encourage parties generally in ignoring contracts fairly entered into.

VI. A contract in restraint of employment which is injurious to the rights of the general public is unreasonable and not enforceable.

Here there is no showing that the rights of the public are in danger. The public has no vested right to the services of Doctor Martini. He has always had the right to retire or move from the community. No one could legally complain if he did. He agreed in writing to refrain from practice within 25 miles of Council Bluffs for three years. There are over 60 doctors in Council Bluffs and over 400 in Omaha, including specialists in orthopedic surgery. The public welfare is not seriously involved in this case.

VII. With over 460 doctors residing in Council Bluffs and Omaha (446 outside of plaintiff-clinic), it cannot be seriously contended that the 12 partners in the plaintiff-partnership have a monopoly in their profession.

VIII. The burden of proof that a contract is contrary to public policy is upon him who asserts it. Larsen v. Burroughs, supra. Defendant has failed to prove any violation of public policy.

A note in 58 A. L. R. on page 162 has this to say: “It is a firmly established doctrine that a member of one of the learned professions, upon becoming assistant to another member thereof, may, upon a sufficient consideration, bind himself not to engage in the practice of his profession upon the termination of his contract of employment, within a reasonable territorial extent, as such an agreement is not in restraint of trade or against public policy. Such contracts have been held valid where made by physicians, surgeons, and others of the healing profession.”

We find from a study of the entire record that plaintiff has met the burden of proof necessary for injunctive relief.

The stay order heretofore entered in this case is vacated and the decree of the trial court is affirmed. — Affirmed.

Garfield, C. J., and Thompson, Oliver and Thornton, JJ., concur. Hays and Larson, JJ., dissent. Peterson, J., takes no part. Bliss, J., not sitting.