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Unenforceability of physician non-compete: Insight or confusion?

On Feb. 5, 2009, in the case of Mercho-Roushdi-Shoemaker-Dilley Thoraco-Vascular Corporation v. James W. Blatchford III, MD, and Eve G. Cieutat, MD, the Indiana Court of Appeals once again addressed the continuing issue of whether non-competes are enforceable in physician agreements.

When Drs. Blatchford and Cieutat became equity owners in Thoraco-Vascular Corporation, a surgery practice providing cardiovascular medical services in Indianapolis and Terre Haute, they signed a stock purchase agreement that contained a non-compete covenant. If or when they exited the corporation, the covenant prohibited them from practicing thoracic, vascular or cardiovascular surgery for three years within a 50-mile radius of either Monument Circle in Indianapolis or the Vigo County Courthouse.

The parties’ relationship eventually deteriorated and Drs. Blatchford and Cieutat left the corporation. A lawsuit was filed to determine whether the non-compete was enforceable.

The trial court found for Drs. Blatchford and Cieutat and the corporation appealed. The Indiana Court of Appeals, applying the standard three-pronged enforceability test to the non-compete covenant, found the corporation had a “protectable interest” in the money, effort and time it expended to build its heart program in Terre Haute.

It also found the non-compete was reasonable in terms of time, activity and geographic scope. However, the court held the non-compete was against public interest as it was injurious to the Terre Haute community.

Drs. Blatchford and Cieutat had seven physicians offer testimony that their exclusion from practice in Terre Haute would cause a local shortage, and physicians would be compelled to refer some of their cardiovascular patients to Indianapolis, since no one else in Terre Haute was capable of performing certain procedures.

Physicians should not feel a false sense of security by this decision. The court infers it may have enforced the non-compete had the corporation presented any evidence rebutting that of the seven physicians.

Does this mean that if you are the best in your community you can avoid a non-compete, while your contemporaries are still bound? This does not seem just. We will wait to see if the corporation seeks transfer to the Indiana Supreme Court. If it does and the transfer is accepted, perhaps the Indiana Supreme Court can render more insight into this case.

If you have questions or require additional information regarding this case, contact Elizabeth Russell at (317) 238-6236 or by e-mail at Krieg DeVault LLP.

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