RENDERED: MARCH 13, 2015; 10:00 A.M. NOT TO BE PUBLISHED Commonwealth of Kentucky Court of Appeals NO. 2013-CA-000373-MR MOUNTAIN COMPREHENSIVE HEALTH CORPORATION APPELLANT APPEAL FROM LETCHER CIRCUIT COURT v. HONORABLE STEPHEN D. COMBS, SPECIAL JUDGE ACTION NO. 12-CI-00189 CRYSTAL GIBSON APPELLEE OPINION REVERSING AND REMANDING ** ** ** ** ** BEFORE: DIXON, J. LAMBERT, AND NICKELL, JUDGES. NICKELL, JUDGE: Mountain Comprehensive Health Corporation (Mountain Comprehensive) appeals from the Letcher Circuit Court s February 6, 2013,award of summary judgment in favor of Crystal Gibson. After having carefully reviewed the record, we reverse.
BACKGROUND Gibson, trained in the area of OB/GYN care, was employed as a physician s assistant with Mountain Comprehensive at its Whitesburg Clinic. Physician s assistants are required to work under the supervision of a physician. Throughout the duration of her employment, Gibson worked under Dr. Wade Baker. Gibson was employed under a series of employment agreements beginning June 4, 2003. The Employment Agreement (Agreement) at issue was executed on April 3, 2009. The Agreement provided in part: XIV. TERMS OF EMPLOYMENT This agreement shall remain in full force and effect for a period of Three (3) years from and after the Physician Assistant s practice start date. The Agreement further required Gibson to provide 180 days notice of her intention not to renew for another three-year term. Absent such notice, the Agreement would automatically renew. The Agreement also included the following provision: XV. RESTRICTED (sic) COVENANT The Physician Assistant further expressly covenants and agrees (unless waived in writing by the Corporation) that, for a period of one (1) year following the termination of his/her employment with the Corporation, he/she will not, directly or indirectly, for himself/herself or as an agent, on behalf of, or in conjunction with, and person, firm, association or corporation engage in the practice of medicine within a fifty (50) air mile radius from any clinic now operated by the Corporation or that may be operated by the Corporation in the future. -2-
Providing the required 180 days notice, Gibson advised Mountain Comprehensive on October 3, 2011, she would not renew her contract when it expired. Gibson decided not to renew after she learned Dr. Baker was leaving Mountain Comprehensive in September 2012. Gibson s last day of employment with Mountain Comprehensive was April 2, 2012. On July 2, 2012, Gibson began working in a management position for Whitesburg Women s Clinic, the facility where Dr. Baker would be working. Whitesburg Women s Clinic is located approximately one mile from Mountain Comprehensive s Whitesburg Clinic. On October 1, 2012, Gibson began treating patients under Dr. Baker s supervision. Gibson filed a Petition for Declaration of Rights on July 2, 2012, requesting the court to declare the restrictive covenant in the Agreement null and void. On September 14, 2012, Gibson filed a motion for summary judgment, arguing the restrictive covenant was unenforceable due to a force majeure clause, and for its failure to specify a reasonable geographic restriction. Mountain Comprehensive filed a motion for temporary injunction on September 19, 2012. A hearing on both motions was held on September 27, 2012. Initially, Judge Samuel T. Wright overruled Gibson s motion for summary judgment. However, following a break during the temporary injunction hearing, Judge Wright announced he would recuse himself from this matter due to a prior contractual relationship with a party connected to Gibson. Judge Steven Combs was appointed as special judge on November 21, 2012. -3-
After Gibson renewed her motion for summary judgment on December 4, 2012, a hearing was held on January 18, 2013. Sustaining her motion, the trial court entered Findings of Fact, Conclusions of Law, and Final Judgment on February 11, 2013. Finding the restrictive covenant unenforceable, the trial court determined the Agreement expired by its own terms on April 2, 2012. In addition, the trial court found the Agreement was unenforceable pursuant to a force majeure clause. Finding Dr. Baker s decision to leave Mountain Comprehensive a factor outside Gibson s control, the trial court determined Gibson would not have been able to perform as an OB/GYN physician s assistant because Mountain Comprehensive would no longer have an OB/GYN at the Whitesburg Clinic. The trial court further determined the restrictive covenant was void for a variety of public policy reasons, in that it contained an unreasonable geographic restriction, served no legitimate business purpose, and would create issues of continuity of care for numerous patients. The trial court also found Mountain Comprehensive waived its right to enforce the restrictive covenant based on a previous pattern of non-enforcement of covenants with other employees. This appeal followed. STANDARD OF REVIEW The standard of review on appeal of a grant of summary judgment is whether the trial court correctly found that there were no genuine issues as to any material fact and that the moving party was entitled to judgment as a matter of -4-
law. West Kentucky Rural Electric Cooperative Corp v. City of Bardwell, 362 S.W.3d 351, 355 (Ky. App. 2011) (quoting Scifres v. Kraft, 916 S.W.2d 779, 781 (Ky. App. 1996)). We review the record in the light most favorable to the nonmoving party and resolve any doubts in its favor. Steelvest, Inc. v. Scansteel Service Center, Inc., 807 S.W.2d 476, 480 (Ky. 1991). Since a summary judgment involves no fact-finding, this Court's review is de novo. Blevins v. Moran, 12 S.W.3d 698, 700 (Ky. App. 2000). Movant bears the initial burden of convincing the court by evidence of record that no genuine issue of fact is in dispute. The burden then shifts to the party opposing summary judgment to present at least some affirmative evidence showing that there is a genuine issue of material fact for trial. Steelvest, 807 S.W.2d. at 482. As this matter involves a restrictive covenant, this Court has held: an agreement in restraint of trade is reasonable if, on consideration of the subject, nature of the business, situation of the parties and circumstances of the particular case, the restriction is such only as to afford fair protection to the interests of the covenantee and is not so large as to interfere with the public interests or impose undue hardship on the party restricted. Hammons v. Big Sandy Claims Service, Inc., 567 S.W.2d 313, 315 (Ky. App. 1978) (quoting Ceresia v. Mitchell, 242 S.W.2d 359 (Ky. 1951). Generally, restrictive covenants are held valid, and not against public policy, unless the particular circumstances of the case would cause serious inequities to result. Daniel Boone Clinic, P.S.C., v. Dahhan, 734 S.W.2d 488, 489 (Ky. App. 1987) -5-
(citing Lareau v. O'Nan, 355 S.W.2d 679 (Ky. 1962); Hall v. Willard & Woolsey, P.S.C., 471 S.W.2d 316 (Ky. 1971)). ANALYSIS On appeal, Mountain Comprehensive argues the trial court erroneously granted Gibson s motion for summary judgment. First, Mountain Comprehensive claims the trial court improperly held the restrictive covenant was unenforceable because the employment agreement expired on April 2, 2012. Mountain Comprehensive argues this reading ignores the plain wording of the restrictive covenant, which states the covenant remained in effect one year after termination of Gibson s employment. Mountain Comprehensive argues the trial court s reading of the employment contract failed to construe the employment contract as a whole and give effect to all of its parts. We agree. A contract must be enforced as it is written if there is no ambiguity. McMullin v. McMullin, 338 S.W.3d 315, 320 (Ky. App. 2011). Any contract or agreement must be construed as a whole, giving effect to all parts and every word in it if possible. City of Louisa v. Newland, 705 S.W.2d 916, 919 (Ky. 1986). While the Agreement in this matter provided a term of three years if not renewed, the restrictive covenant expressly provided rights and obligations with a specified term outlasting expiration of the Agreement. Giving effect to all parts of the contract, the restrictive covenant expressly provides it survives termination of the Agreement, remaining in effect one additional year. -6-
Our reading of the Agreement finds support in Daniel Boone Clinic, which involved a restrictive covenant lasting one and one-half years following termination of employment. Holding the term termination meant ending, however accomplished, the Court determined the restrictive covenant was enforceable because termination occurred as a result of expiration of the contract. Daniel Boone Clinic, 734 S.W.2d at 490. Thus, the Court held the covenant survived one and one-half years beyond expiration. Id. Applying such reasoning to the Agreement in the instant matter, the restrictive covenant remained in effect one year following the April 2, 2012, expiration of the Agreement. Therefore, the trial court erred in finding the covenant unenforceable by expiration. Next, Mountain Comprehensive argues the trial court erred in granting summary judgment by finding the restrictive covenant unenforceable by operation of a force majeure clause in the Agreement. The Agreement provides: XVIII. FORCE MAJEURE The Physician Assistant and the Corporation shall be excused from performance of their obligations under this Agreement where they are prevented from so performing by any cause not within the control of the party whose performance is interfered with, and which by the exercise of reasonable diligence, the party is unable to prevent. The trial court found Dr. Baker s departure from Mountain Comprehensive would leave Gibson without a supervising OB/GYN physician. The court found this created a force majeure circumstance outside Gibson s control which could not have been prevented with reasonable diligence. -7-
On appeal, Mountain Comprehensive argues there were genuine issues of material fact concerning whether a force majeure occurred. Mountain Comprehensive claims Gibson was licensed as a physician s assistant in primary care, not specifically in the OB/GYN subspecialty. Thus, Mountain Comprehensive alleges Gibson could have continued her employment as a primary care physician s assistant. In addition, Mountain Comprehensive argues another OB/GYN physician, Dr. Hadley, worked at Mountain Comprehensive after Gibson s departure and would have been available to supervise Gibson. In her reply brief, Gibson claims Dr. Hadley and another OB/GYN physician, Dr. Berry, would not have been available to work at the Whitesburg Clinic until Fall of 2012. Gibson also argues working as a primary care physician s assistant was not a valid option because she has only worked as an OB/GYN physician s assistant, and the Agreement should be enforced in accordance with its practical construction. We hold a genuine issue of material fact exists with respect to whether Dr. Baker s departure created a force majeure rendering the restrictive covenant unenforceable. Whether Gibson could have worked as a primary care physician s assistant, or whether another OB/GYN would have been able to supervise her at the Whitesburg Clinic, are genuine issues of material fact that survive Gibson s summary judgment motion. See Steelvest, 807 S.W.2d. at 482. The trial court also granted Gibson s motion for summary judgment by citing several public policy reasons. First, the court found the restrictive -8-
covenant unenforceable because it served no legitimate business purpose since Mountain Comprehensive did not employ an OB/GYN at the time Gibson was forced to make a decision to leave. This court has held restrictive covenants can be a valuable business tool in protecting a business from competition from former employees. Hammons, 567 S.W.2d at 315. We hold a genuine issue of material fact exists as to whether Mountain Comprehensive had a legitimate business interest to protect in enforcing the restrictive covenant. During the hearing on the motion, Gibson admitted Mountain Comprehensive continued to provide OB/GYN services after her departure through Dr. Hadley. As such, Mountain Comprehensive was in direct competition with Gibson s new employer, Whitesburg Women s Clinic. Thus, we hold it was premature to grant summary judgment based upon a finding that Mountain Comprehensive did not have a legitimate business interest to protect. The trial court also granted summary judgment upon finding the restrictive covenant contained an unreasonable geographic restriction. The trial court found the restriction preventing Gibson from working within 50 miles of any clinic effectively prevented Gibson from working in eastern Kentucky. Further, the court found the restriction preventing Gibson from working within 50 miles of any clinic that may be operated in the future to be unreasonable and out of Gibson s control. Citing Hammons and Daniel Boone Clinic, Mountain Comprehensive argues in prior Kentucky opinions have approved similar or larger distance -9-
restrictions. Mountain Comprehensive also alleges if the geographic restriction was unreasonable, the trial court was required to apply the blue pencil rule to reduce the restriction because the actual distance of Gibson s new employment one mile is clearly reasonable. In response, Gibson claims the restrictive covenant is unreasonable because the geographic scope is open-ended and undetermined, barring Gibson from working within 50 miles of any future Mountain Comprehensive clinics. Thus, Gibson argues the proscribed area was indefinite and could expand with any new clinic Mountain Comprehensive opened. Generally contracts in restraint of trade are not enforceable where they are unlimited as to both time and space, or as to where they are unlimited as to space but limited as to time, but where such contracts are unlimited as to time but are confined to a reasonable territory they are enforceable. Hammons, 567 S.W.2d at 315 (quoting Calhoun v. Everman, 242 S.W.2d 100 (Ky. 1951)). We agree with Gibson and the trial court that the restriction prohibiting employment within 50 miles of any future clinic is indefinite and not confined to a reasonable territory. Mountain Comprehensive argues even if the geographic restriction is unreasonable, the court erred by declining to apply the blue pencil rule and enforce the restrictive covenant accordingly. We agree. The blue pencil rule empowers a trial court to amend or reform a geographic restriction in a non-compete clause if the initial restrictions are overly broad or burdensome. Kegal v. Tillotson, 297 S.W.3d 908, 913 (Ky. App. 2009); -10-
Hammons, 567 S.W.2d at 315. Kentucky first applied the blue pencil rule to a restrictive covenant in Ceresia, wherein this Court considered a restrictive covenant preventing the seller of a business from competing with the purchaser in Muhlenberg County, and anywhere in Kentucky. Amending the covenant, the trial court limited the restriction to only Muhlenberg County. On appeal, this Court held an agreement restricting competition may be reasonable as to part of the territory but unreasonable as to the rest, and enforceability turns on whether the illegal portion of the contract is divisible. Id. 242 S.W. 2d at 362. The real issue, we held, is whether partial enforcement is quite possible without injury to the public and without injustice to the parties themselves. Id. Applying this principle, the Court affirmed the lower court s amendment to the scope of the covenant. Id. In Hodges v. Todd, 698 S.W.2d 317, 320 (Ky. App. 1985), this Court considered a restrictive covenant with an unspecific geographic limit. The trial court dismissed an action seeking to enforce a restrictive covenant after finding it was unenforceable due to its failure to limit the geographic area. In reversing, this Court turned to Ceresia, holding equitable considerations should be taken into account in determining whether to enforce a restrictive covenant even though it is unreasonable as to either time or space. Id. at 320. This Court remanded the matter for the trial court to determine whether the enforceable geographic limitations were divisible. Id. -11-
In Hammons, the restrictive covenant at issue prohibited an employee from competing within 200 miles of any of his former employer s offices. Applying the blue pencil rule, the trial court reformed the covenant by limiting the injunction to the geographic area surrounding only the office where the employee previously worked. Citing Ceresia, a panel of this Court affirmed. In the instant matter, the trial court explicitly declined to apply the blue pencil rule without specific findings. Rather, the court cited several cases from other jurisdictions, including Varsity Gold, Inc. v. Porzio, 45 P.3d 352 (Ariz. App. 2002), Bridgestone/Firestone, Inc. v. Lockhart, 5 F. Supp.2d 667 (S.D.Ind. 1998), and Hartman v. W.H. Odell & Associates, Inc., 450 S.E.2d 912 (N.C. App. 1994). However, Ceresia and its progeny provide the appropriate framework for evaluating application of the blue pencil rule in Kentucky, and cases from foreign jurisdictions need not be invoked. 1 The instant matter is similar to Hammons, where the trial court reformed the geographic restriction from any office to only the office at which the employee had previously worked. Applying the same reasoning to the facts at bar, we hold the trial court could have amended the restrictive covenant by removing 1 In each of these cases, the courts held the blue pencil rule could not be applied because the unreasonable restriction from the contract could not be severed. Varsity, 45 P.3d at 355 ( [A]ny judicial significant modification of the provision that cannot be tolerated. ); Bridgestone/Firestone, 5 F.Supp.2d at 684 ( This prohibition also cannot be saved by the blue pencil doctrine. The only way to fix it would be to add language.... Such additions are not permitted under Indiana law. ); Hartman, 450 S.E.2d at 318 (holding a court may choose to enforce a separable restriction, but the covenant at issue restricting an employee from competition could not be saved by the blue pencil rule). -12-
the overly broad restriction from competition within a 50 mile radius of any clinic that may be operated by Mountain Comprehensive to a more specific, less broad restrictive area from the Whitesburg Clinic where Gibson had previously worked. As such, we remand this matter to the trial court to reconsider application of the blue pencil rule. Next, the trial court found the restrictive covenant was void because it would create issues of continuity of care for numerous OB-GYN patients in and around Letcher County. Arguing Gibson produced no evidence to support this finding, Mountain Comprehensive maintains the evidence in the record demonstrates OB/GYN care continued at the Whitesburg Clinic after Gibson s departure. Our review of the record reveals Gibson did not prove the existence of continuity of care problems. Rather, when viewed in a light most favorable to Mountain Comprehensive, the evidence suggests Gibson could have continued to provide OB/GYN care at the Whitesburg Clinic had she stayed. Thus summary judgment was improper, because whether continuity of care issues would cause serious inequities so as to violate public policy is a question of fact based on the particular circumstances of the case. Lastly, Mountain Comprehensive argues the trial court erred by finding it waived its right to enforce the restrictive covenant based upon a pattern of non-enforcement. Mountain Comprehensive argues the only evidence in the record on this issue came from the testimony of its CEO, who explained some -13-
restrictive covenants were modified to fit the particular circumstances of some employees, but denied ever waiving a covenant. In contrast, Gibson argues these instances of non-enforcement imply she was being singled out while other former employees were permitted to work. Waiver is commonly defined as a voluntary and intentional surrender or relinquishment of a known right, or an election to forego an advantage which the party at his option might have demanded or insisted upon. Conseco Finance Servicing Corp. v. Wilder, 47 S.W.3d 335, 345 (Ky. App. 2001) (quoting Barker v. Stearns Coal & Lumber Co., 163 S.W.2d 466, 470 (Ky. 1942)). The evidence viewed in a light most favorable to Mountain Comprehensive demonstrates some covenants were modified to suit particular circumstances, but it never waived Gibson s nor other covenants. Therefore, genuine issues of fact remain and summary judgment was not appropriate on this basis. For the foregoing reasons, the judgment of the Letcher Circuit Court is reversed and this matter is remanded for further proceedings consistent with this Opinion. ALL CONCUR. BRIEFS FOR APPELLANT: Gene Smallwood, Jr. Whitesburg, Kentucky BRIEF FOR APPELLEE: Daniel F. Dotson Whitesburg, Kentucky -14-