Mohanty v. St. John Heart Clinic, S.C. 866 N.E.2d 85 (Ill. 2006) - Doctors Face Steep Uphill Battle In Attempting to Void Noncompetition Agreements

The validity of doctor noncompetition agreements frequently arises under Illinois law. In 2006, the Illinois Supreme Court decided the Mohanty case which has made it extremely difficult for doctors to successfully challenge noncompetition clauses in their employment contracts.

The Mohanty case is significant because it upheld two doctor-clinic noncompetition agreements; both with substantial restrictions on the doctor.

The Defendant in the case was a heart clinic owned and operated by Dr. Monteverde, board certified in both cardiology and internal medicine.

The first noncompetition agreement was entered into by the Defendant clinic and Dr. Ramadurai. Dr. Ramadurai's contract called for minimum compensation of $160,000 per year, but provided that upon termination, "Dr. Ramadurai 'shall not' practice medicine within a two-mile radius of any Clinic office or at any of the four hospitals where the Clinic operated for a period of three years.

The second noncompetition agreement was entered into by the Defendant and Dr. Mohanty. This contract also guaranteed Dr. Mohanty minimum compensation of $160,00, but provided that upon termination "Dr. Mohanty 'shall not' practice medicine within a five-mile radius of any Clinic office or at any of the four restricted hospitals for a period of five years." Id. at 90.

The Illinois Supreme Court held that (a) the Doctors had not shown any breach of the employment contracts which would render the noncompetition clauses unenforceable; and (b) that neither restrictive covenant was "unreasonably overbroad in [its] temporal or activity restrictions."

The Court first rejected the doctors' contention that noncompetition agreements in physician employment contracts were void as against public policy.

Next, the Court held that "under general contract principles, a material breach of a contract by one party may be grounds for releasing the other party from his contractual obligations." The Doctors contended that the clinic breached the employment contracts by billing Medicare for tests that they conducted. Thus, alleged the doctors, the clinic wrongfully profited from their work. Furthermore, they alleged that the billing practice of the clinic was improper. The Illinois Supreme Court upheld the finding of the trial court that the plaintiff doctors had not proved a breach of contract.

Therefore, the employment contracts, and the non-competition clauses contained in those agreements were valid and enforceable.

The obvious result of this case is that a doctor will have an exceedingly difficult time in challenging a noncompetition clause in an employment contract, provided that the clause closely resembles the clauses upheld in the Mohanty case.

Edward X. Clinton, Jr.
Copyright 2009

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Seventh Circuit Rejects Lost Profits Claim Because Plaintiff Unable to Obtain Admissible Expert Testimony Supporting Its Theory of Recovery

On June 30, 2009, the Seventh Circuit decided Von Der Ruhr v. Immtech International, Inc., Nos. 08-1496, 08-1956 and 08-1971.

The main issue in the case was whether the Defendant had breached an agreement to license a patented pharmaceutical product. Septech claimed that, had the Defendant honored the licensing agreement, it could have eventually obtained FDA approval to market the pharmaceutical product. Septech claimed that the Defendant had caused it to lose substantial lost profits on the pharmaceutical product.

Septech did not disclose an expert witness. Instead, Septech sought to present the lost profits testimony through its President, a lay witness. The District Court granted Defendant's motion in limine to bar this testimony pursuant to Federal Rule of Evidence 701. The Seventh Circuit affirmed.

Rule 702 governs the testimony of expert witnesses, while Rule 701 governs opinion testimony by lay witnesses.

Rule 701 Opinion Testimony by Lay Witnesses, provides:

If the witness is not testifying as an expert, the witness' testimony in the form of opinions or inferences is limited to those opinions or inferences which are (a) rationally based on the perception of the witness, and (b) helpful to a clear understanding of the witness' testimony or the determination of a fact in issue, and (c) not based on scientific, technical, or other specialized knowledge within the scope of Rule 702.

The Court noted that the last sentence "is intended 'to eliminate the risk that the reliability requirements set forth in Rule 702 will be evaded through the simple expedient of proffering an expert in lay witness clothing.'" (Id. quoting the Fed. R. Evid. 701 Advisory Committee Note).

As the Court noted, "[Septech's President] intended to testify to his expectation of millions of dollars in profits from a brand new drug, which had not been approved by the FDA, which still needed a corporate partner, and for which no competitive market analysis had been conducted. It is difficult to imagine how anyone in this situation could possess the necessary personal knowledge to give a useful lay opinion based on his perception and it is clear that [the President] did not have such knowledge." The Court noted that the President had no personal knowledge of the market for the pharmaceutical.

Without the President's testimony, Septech had no evidence to support its lost profits theory and the District Court barred Septech from arguing this issue to the jury.

In affirming the District Court's rejection of the lost profits theory, the Seventh Circuit indicated that Septech needed competent expert testimony to support the lost profits theory. Having no such testimony, Septech attempted to rely on the testimony of its President, a lay witness. The President, however, was not competent and lacked sufficient personal knowledge, to give such testimony.

The Septech case is the latest in a series of cases decided by the Seventh Circuit on issues arising where a party attempts to obtain expert testimony from a lay or fact witness.

The leading case is Musser v. Gentiva Health Services, 356 F.3d 751 (7th Cir. 2004). In Musser, the plaintiff failed to disclose any expert testimony. Plaintiff argued that the failure to make the disclosure was harmless because it had disclosed several doctors as treating physicians. The district court held that the disclosure that certain witnesses were treating physicians violated Rule 26(a) because the defendant was not informed that plaintiff was going to call the treating physicians as expert witnesses.

The district court, pursuant to Rule 26 and Rule 37(c)(1) struck the proposed expert testimony as a sanction. The Seventh Circuit affirmed and held that, pursuant to Rule 26, all opinion testimony must be disclosed. The Court held: “Thus, all witnesses who are to give expert testimony under the Federal Rules of Evidence must be disclosed under Rule 26(a)(2)(A).” Id. at 755 (emphasis in original); see also Hammel v. Eau Galle Cheese Factory, 407 F.3d 852 (7th Cir. 2002). The Seventh Circuit noted that the deposition taken of an opinion witness is much different than the deposition taken of a fact or occurrence witness. The opposing party should be informed that the witness will be offering opinion testimony so that it can make proper preparations for trial.

Conclusion:

The Septech v. Immitech case again illustrates the importance of (a) determining whether or not an expert is necessary long before trial; (b) finding such an expert; and (c) disclosing the expert before trial. Rule 702 requires a lay witness who intends to give expert testimony to have personal knowledge - something that is often impossible to demonstrate where opinions are offered.

Edward X. Clinton, Jr.

Copyright 2009

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