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Orthopaedic Associates of Southern Delaware P.A. v. Pfaff

Superior Court of Delaware

December 22, 2017

Orthopaedic Associates of Southern Delaware, P.A.,
v.
William L. Pfaff, III, and Lewes Spine Center, LLC, and Corie L. Wingate

         Dear Counsel:

         This is my decision on Defendant William L. Pfaff, III's Motion to Dismiss Counts I and III of the Amended Complaint filed against him by Plaintiff Orthopaedic Associates of Southern Delaware, P.A. ("OASD").[1] OASD is a Delaware professional association which owns and operates a medical practice providing medical and surgical care at five locations throughout Sussex County, Delaware. Dr. Pfaff is a physician who was employed by OASD for a number of years until he left on April 30, 2017. Dr. Pfaff then formed the Lewes Spine Center, LLC, on May 5, 2017. OASD alleges that (1) Dr. Pfaff violated his obligation not to compete with OASD by forming the Lewes Spine Center, and (2) Dr. Pfaff disparaged OASD when he contacted his former patients and others after leaving OASD. Dr. Pfaff argues that his obligation not to compete with OASD terminated when he entered into a new agreement with OASD that had no such obligation and that he did not disparage OASD after he left. At issue in Dr. Pfaff's motion is the enforceability and integration of two employment agreements and a separation agreement entered into between Dr. Pfaff and OASD. I have concluded that Dr. Pfaff had no obligation not to compete with OASD after he left and that OASD has adequately pled, in part, that Dr. Pfaff disparaged it after he left.

         STATEMENT OF THE FACTS[2]

         A. The 2014 Agreement[3]

         On January 1, 2014, OASD and Dr. Pfaff entered into an employment agreement (the "2014 Agreement") whereby, among other things, OASD agreed to employ Dr. Pfaff as a physician in exchange for other rights and benefits set forth in the 2014 Agreement. The 2014 Agreement also made Dr. Pfaff a shareholder in OASD. The 2014 Agreement contains a post-termination restrictive covenant. In particular, the restrictive covenant stated that Dr. Pfaff:

"shall not during the term of this Agreement and for a period of one (1) year after its termination for any other reason without the express written consent of the Corporation, which may be withdrawn at any time upon ninety (90) days' written notice by Corporation, directly or indirectly, in whole or in part, own, manage, operate, join, control, participate in the ownership, management, operation or control of, contract with, be employed by, or be connected with any manner, any entity or business which is a competitor of Corporation or to which the Corporation provides medical services and/or any entity or business within a radius of twenty-five (25) miles of Lewes, Ocean View, Millsboro, and Milford or any other satellite offices or Healthcare Facilities to which the Corporation provides medical services."[4]

         The initial term of the 2014 Agreement was from January 1, 2014 through December 31, 2014. It then continued from year to year until terminated. OASD and Dr. Pfaff terminated the 2014 Agreement on February 28, 2017.

         B. The 2017 Agreement[5]

         On March 1, 2017, OASD and Dr. Pfaff entered into a new employment agreement (the "2017 Agreement") whereby, among other things, OASD agreed to employ Dr. Pfaff as a physician in exchange for other rights and benefits set forth in the 2017 Agreement. The 2017 Agreement reflected Dr. Pfaff's status at that time solely as a physician of OASD, and not as a shareholder/physician as he was under the 2014 Agreement. Upon termination of the 2017 Agreement, the 2017 Agreement prohibited Dr. Pfaff from soliciting or hiring employees of OASD but, by its own terms, did not prohibit Dr. Pfaff from competing with OASD. This is in contrast to the 2014 Agreement. Specifically, the 2017 Agreement stated that:

"upon termination of this agreement, Physician shall not, directly or indirectly, during any portion of the Term or the two (2) year period immediately after the end of the Term solicit, employ or otherwise engage as an employee, independent contractor or otherwise, any person who is or was an employee or independent contractor of Employer at any time during the Term or in any manner induce or attempt to induce any such employee or independent contractor of Employer to terminate his or her employment or engagement as such with Employer."[6]

         The 2017 Agreement also contained a provision that states "this Agreement contains the entire understanding and agreement between the parties with respect to the subject matter hereof and supercedes all prior agreements and understandings between the parties with respect to such subject matter."[7] The 2017 Agreement did not mention the 2014 Agreement. OASD and Dr. Pfaff terminated the 2017 Agreement on May 5, 2017.

         C. The Separation Agreement

         On May 17, 2017, OASD and Dr. Pfaff entered into a Separation Agreement and General Release. According to the Separation Agreement, OASD and Dr. Pfaff:

"mutually agree[d] to terminate the employment relationship in accordance with the terms in the March 1, 2017 Employment Agreement between Pfaff and OASD ("Employment Agreement"). The respective post-termination obligations of the parties shall remain in effect, except to the extent they conflict with the terms of this Agreement, and except as follows: a. Pfaff's obligations under the non-solicitation clause in Paragraph 9(f) remain in effect, with the exception that upon starting a new practice, Pfaff may hire Physician Assistants Corie Wingate and Pamela Schweiger (contingent upon their agreement thereto and four weeks' notice to OASD)."[8]

         The Separation Agreement also contains a "non-disparagement" clause. The non-disparagement clause states:

"the parties agree not to make any oral or written communication to any person or entity which disparages, or has the effect of damaging the reputation of, or otherwise working in any way to the detriment of, the other party, except as required by local, state or federal law. In view of the difficulty of determining and calculating the amount of damages that may result from a violation of this Section 10, each party agrees to pay to the other $1, 000 as liquidated damages, and not as a penalty, for each and every violation of this Section."[9]

         The Separation Agreement also has an "entire agreement clause". It states:

"this Agreement contains the entire agreement between the parties, and shall be governed by the laws of the State of Delaware. This Agreement may not be changed orally, but only by an agreement in writing signed by the party against whom enforcement of any waiver, change, modification or discharge is sought. The parties attest that no other representations were made regarding this Agreement other than those contained herein and that this agreement represents the entirety of the agreement between the parties."[10]

         The Separation Agreement does not refer to the 2014 Agreement.

         D. Additional Facts

         Dr. Pfaff formed the Lewes Spine Center, LLC, on May 5, 2017. The Lewes Spine Center operates a medical practice in Georgetown, Delaware. Dr. Pfaff is the sole owner and member of the Lewes Spine Center. On or about June 2, 2017, Dr. Pfaff sent a letter ("June letter") to his former patients announcing his new medical practice. OASD alleges that Dr. Pfaff sent his June letter to no less than 1, 100 patients of OASD and to as many as 1, 300 patients. The June letter states:

Dear Patient,
As you are likely aware by this point, I am no longer associated with Orthopaedic Associates of Southern Delaware. Unfortunately, my departure was sudden and unexpected. In this day and age, medicine has become a business and in this instance the business of medicine obstructed me from continuing to treat you at my prior practice.
Since I last saw you, I have been diligently working to set up a new practice in order to continue to care for you and your family members. I will begin seeing patients in a satellite office in Georgetown starting in mid-June. I am also setting up an office in Lewes which will not be completed for another month or so.
I understand you likely were referred to another physician and may or may not be satisfied with that provider. I would like to convey to you that I am deeply sorry for the inconvenience and disruption; but, this was out of my control and affected me as well. I would like to continue your care if you are interested or in need.
Upon receipt of this letter, you may call and make an appointment. I hope you will allow me to continue to provide spine care to you as I miss being your provider and I am looking forward to continuing to treat all of my patients.
Sincerely,
Dr. Pfaff

         On June 2, 2017, Dr. Pfaff wrote to a colleague that:

"I established the "Lewes Spine Center, LLC"... my plan ... get back in the ring and get my title back."
"Oh, Did I say crush OASD."
"I'm sure you have been seeing many of my prior patients so I wanted to update you. Today, I am sending out 1, 100 letters to my prior patients. I will start seeing patients this month in a satellite office in Georgetown. I am bidding on an office space in Kings Row, Lewes."

         OASD also alleges that, based upon information it has received from third-parties, on or after May 17, 2017, Dr. Pfaff made oral or written statements to other persons which disparaged OASD.

         STANDARD OF REVIEW

         The standards for a Rule 12(b)(6) motion to dismiss are clearly defined. The Court must accept all well-pled allegations as true.[11] The Court must then determine whether a plaintiff may recover under any reasonable set of circumstances that are susceptible of proof.[12] When deciding a motion to dismiss, the Court accepts as true all well-pleaded allegations in the complaint, and draws all reasonable inferences in favor of the plaintiff.[13] As a general rule, when deciding a Rule 12(b)(6) motion, the Court is limited to considering only the facts alleged in the complaint and normally may not consider documents extrinsic to it. There are two exceptions, however, to this general rule.[14] "The first exception is when the document is integral to a plaintiff's claim and incorporated into the complaint. The second exception is when the document is not being relied upon to prove the truth of its contents."[15] "Where allegations are merely conclusory, however, (i.e., without specific allegations of fact to support them) they may be deemed insufficient to withstand a motion to dismiss."[16]Dismissal will not be granted if the complaint "gives general notice as to the nature of the claim asserted against the defendant."[17] A claim will not be dismissed unless it is clearly without merit, which may be either a matter of law or fact.[18] Vagueness or lack of detail in the pleaded claim are insufficient grounds upon which to dismiss a complaint under Rule 12(b)(6).[19] If there is a basis upon which the plaintiff may recover, the motion is denied.[20]

         DISCUSSION

         I. Alleged Breach of the 2014 Agreement (Count I)

         OASD alleges in the Amended Complaint that Dr. Pfaff breached the 2014 Agreement by forming the Lewes Spine Center, and engaging in, managing, joining, and owning a medical practice in Georgetown, Delaware, in direct competition with OASD. OASD argues that the 2017 Agreement was not intended to discharge or release the parties' post-termination obligations contained in the 2014 Agreement. Dr. Pfaff argues that the 2014 Agreement was not in effect at the time he formed the Lewes Spine Center, reasoning that the 2014 Agreement was superceded by the 2017 Agreement.

         The 2014 Agreement covers Dr. Pfaff's role as a shareholder and physician in OASD with a corresponding compensation structure reflecting his dual role as shareholder and physician. Upon termination of the 2014 Agreement between OASD and Dr. Pfaff, the 2014 Agreement states that Dr. Pfaff cannot "own, manage, operate, join, control, participate in the ownership, management, operation or control of, contract with, be employed by, or be connected with any manner, any entity or business which is a competitor of Corporation..."[21] OASD and Dr. Pfaff terminated the 2014 Agreement on February 28, 2017. Dr. Pfaff formed the Lewes Spine Center on May 5, 2017. Thus, Dr. Pfaff established a new medical practice in a location that directly competes with OASD within one year of terminating the 2014 Agreement. Accordingly, Dr. Pfaff would be in violation of the non-compete provision of the 2014 Agreement if the 2014 Agreement survives the 2017 Agreement and Separation Agreement.

         On March 1, 2017, OASD and Dr. Pfaff entered into the 2017 Agreement. The 2017 Agreement covers Dr. Pfaff's role strictly as a physician for OASD and not as a shareholder. This is also reflected in the compensation structure of the 2017 Agreement. The "Terms of Agreement" of the 2017 Agreement state, in part, "if either party decides to terminate employment, then stated termination rules apply, as defined in this contract agreement." (Emphasis added).[22] Of note, there is no mention of the 2014 Agreement in the "Terms of Agreement" or anywhere else in the 2017 Agreement. The "Termination of Agreement" is discussed under the ninth numbered paragraph of the 2017 Agreement. Paragraph 9(f) states "upon termination of this agreement, Physician shall not, directly or indirectly, during any portion of the Term or the two (2) year period immediately after the end of the Term solicit, employ or otherwise engage as an employee, independent contractor or otherwise, any person who is or was an employee or independent contractor of Employer at any time during the Term or in any manner induce or attempt to induce any such employee or independent contractor of Employer to terminate his or her employment or engagement as such with Employer." The 2017 Agreement does not prohibit Dr. Pfaff from competing with OASD. Interestingly, the only prohibition stated is that Dr. Pfaff is not allowed to employ, for a term of two years, any former or current employees of OASD. If the 2017 Agreement is controlling, then Dr. Pfaff was not in violation of it by forming the Lewes Spine Center. OASD and Dr. Pfaff terminated the 2017 Agreement on May 5, 2017.

         On May 17, 2017, OASD and Dr. Pfaff jointly signed the Separation Agreement. According to the ...


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