### IN THE COURT OF APPEALS OF TENNESSEE AT NASHVILLE July 10, 2003 Session MARC J. KAYEM, M.D. v. WILLIAM ROBERT STE WART, JR., M.D.

Direct Appeal from the Chancery Court for Maury County

No. 97-594 Jim T. Hamilton, Judge

No. M2002-01515-COA-R3-CV - Filed October 9, 2003

Plaintiff filed suit to recover sums allegedly due under a contract of employ ment. The trial court awarded partial summary judgment to defendant, f indi ng p laintiff

was not e

ntitled to c ertain percentages of accounts receivable. The trial court further found plaintiff had brea chedthe contract and a covenant not to compete, and awarded de fendant a judgment of $12,500. The tria l court a lso awarded defendant’s attorney ’s fees. We affirm in part, reverse in par t, and remand.
Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court Affirmed in Part; Reversed in part and Remanded
D AV ID R. F ARMER , J., delivered the opinion of the court, in which H OLLY M. K IRBY , J. and W IL LI AM H. I NMAN , S P
. J., joined.
Scott C. Williams and Stephanie S. Maxwell, Co lumb ia, Ten nes see , for th e ap

pel lan t, M arc J. Kayem, M.D.
Thomas W. Hardin and Patrick M. Carter, Columbia, Tennessee, for the appellee, William Robert Stewart, M.D. OPINION
This dispute arises from an em pl oym ent agr

eement w

hich incl uded a c ovenant not to compete. In March 1994, Marc J. Kayem, M.D. (Dr. Kay em) andWilliam Robert Stewart, Jr., M.D. (Dr. Stewart) entered into a two-y ear con tract which provided that Dr. Kayem would practice otolar yngology as an employee of Dr. Stewart at Columbia Ear, Nose & Throat in Colum bia , Tennessee. The contract provided that Dr. Kay em would receive as compensation forty percent of the first $300,000 of gross receipts attributable to services pr ovided by him, and forty

-five percent of such receipts in excess of $300,000. It further provided that during the first y ear of e mploy ment, Dr. Kayem would receive a minimum of $120,000 in com pensation. Under the contract, Dr. Kayem was entitled to a minimum of two weeks annual vacation leave, with v acation perio ds-2-

established by mutual ag

reement. Vacation leave was to be increased t o three weeks a y ear once gross receipts attributable to Dr. Kay em reached $300,000. The contract also included a covenant not to compete and provisions for termination with and without cause.
In accordance with the contract, Dr . Kayem submitted a letter of resignation

without ca

use in August 1997. His resignation was accepted by Dr. Stewart, who indicated Dr. Kaye m’s last day of employ ment would

be Dece mber 1, 19 97. I

n late Au gust and

early Septembe

r, a dispu te arose concerning Dr. Kaye

m’s vacatio n time. Dr. Kaye m took unauthorized leave September 5 and 8, which resulted in his immediate termination for cause.
On September 17, Dr. Kayem filed a complaint against Dr. Stewart in the Chancery

Court of Ma ur y Co un ty. In his com plaint, Dr. Kaye

m alleged that Dr. Stewart chang ed the terms and conditions of employment afte r receiving Dr. Kay

em’s resignation. He further alleged that the September

leave giving ri se to his termination for cause had been arranged andaccept ed prior to his r esigna tio n, and that Dr. Stewart had breached the c ontract by ter minating the contract without payment of ni ne ty d ays severa nce pay . Dr. Kaye m sought a restraining order prohibiting enforcement

of the covenan t not to comp ete, con tending it was mor

e restri ctive tha

n necess ary

to protect Dr. Stewa

rt’s inte rests, tha t the terr itorial lim it of fifty miles was unreasonable and resulted in undue ha

rdship, a nd that it was against public policy

. He further requested permission to provide follow up servic es to his pa tients, and to prac tice medi cine at s pecific location s not in

competition withDr. Stewa

rt’s pra ctice. Dr. Kay

em also pr

ay ed for a declar atory judgmen t declar ing the r ights of the parties under the contract, for sever ance pay due unde

r the contract for termination without cause with less then ninety-day s notice, for forty -five percent of c ol lections a ttributab le to his services, and pension and education benefits.
On September 19, the trial cou rt i ssued a temporary order restraining Dr. Stewart fr om enforcing the covenant not to compete. Th e parties entered into an agreed order extending the restraining order on October 6. The terms of the agreed order provided that, pending further action of the court, Dr. Kay em would be permitted to: 1) provide services as a contracted emergen c y department

physician at Mau ry Regiona l Hosp ital unti l Jan uary 1, 19 98; 2 ) prov ide ot olaryngol ogy service s, including surgery , at the specialty c linic in Marshall County until Jan uary 1, 19 98; 3) provide fallow-up care for rece nt surgical patients and treat a limit ed number of patients who requested that he perform their surg eries prior to his termination.
Dr. Stewart filed an answer and counter-c laim on October 9, alleging materia l breach by

Dr. Kayem a nd seeking enforcement of the c ovenant not to compete, damages under the c ont ract , attorney’sfees and costs. Dr. Stewart moved for partial summary judgment regarding

whether Dr. Kayem was entitled to forty-f

ive percent of collections attributable to his serv i ces prio r to termination. Dr. Kaye

m cross-moved for

partial summary judgment on the same issue. The trial court granted Dr . Stew art’s motion in July 1998. Following a Fe bruary 2002 tria

l, the trial court entered judgment for

Dr. Stewart, awarding him damag es of $12,500, $ 584.50 in d

iscretio nary

costs, and $26,0 06.28 in a

ttorney ’s fees . Dr. Kay

em now ap

peals to th

is Court.-3- Issues Presented for Review Dr. Kaye m raises the following issues for our review: (1) Whether

the trial court erred in granting Dr. Stewart’s motion for par tial summary judg ment and denying

Dr. Kaye

m’s cross-motion for partial summary judgmen t. (2) Whether

the trial court er red in ruling tha

t t he covenant not to compete, containedin the Employment Agr eement, was reasonable, that Tenn. Code Ann. § 63-6-204

did not app ly to

the covenant not to compete, and that Dr. Stewart was ther ef

ore entitled to liquidated damages in the amount of $12,500. (3) Whether

the trial court erred

in ruling that Dr. Kayem’s conduct a mounted to a materi al brea

ch of the Employ ment Ag reemen t. (4) Whether

the trial court er red in ruling th at Dr. Kayem was no t entitled to se ve ra nc e p ay. (5) Whether

the trial court erred in ordering Dr . Kayem to pay Dr. Stewart’s attorney’sfees for

matters in the cas e other t han those directly related to the covenant not to compete.

Standard of Review
The interpre

tation of a

contract i s a mat ter of law. Guiliano v. Cleo, Inc. , 995 S.W.2d 88, 95 (Tenn. 1999). We review the trial court’s conclusions on matters of l aw de novo , with no presumption of corr

ectness

. Tenn. R. A

pp. P. 13(d

); Bowden v. Ward

, 27 S.W.3d 913, 916 (Tenn. 2000). When the lang

uage o f the con

tract is p lainand unambiguous, courts determine the intentions of the parties from the four corners of the contract, interpreting and enf orcing it as written. Int’l Flight C tr. v. City of

Murfree sboro , 45 SW3d 565, 570 (Tenn. Ct. App. 2000). A contract is not rendered ambiguo us sim p ly because

the parties disagree as to the interpre tation of one or more of its provisions. Id. at n5. Whether a party has breached a contract is a que stion o f fact. McIntur

ff v. Neeseman , 986 S.W.2d 11, 12 ( Tenn. Ct. App. 1998)(perm. app. denied). We review a tria l cou rt’s findings of fact with a presumption of correctness unless the evidence prepo nderate s otherwise. Tenn. R. App. P. 13(d). The Partia l Summary Judgment Awar d The trial court awarded Dr. Stewart pa rtial summary judgme

nt on the issue of whether Dr.-4-

Kayem was entitled t o fo rty -five pe rcent of the collections fo

r servic es attributable to

him while employed by Dr. Stewart but rece

ived aft er Dr. K ay em’s ter

mination. (

Vol 1 at 125) The controlling contract clause

reads:
2.01 Compensation : For all services provide d EMPLOYER pursuant to the provisions of this Agreement, EMPLOY ER agrees to compe n sate EMPLOYEE as follows:

a.. Forty

percent (40%) of the first $300,000.00 of EMPLOYER’s gross receipts which are attribu t able to services of EMPLOYEE and forty -five percent (4 5% ) of EMPLOYER’s gross receipts in excess of $300,000.00 which are attributable to services of EMPLOYEE.
The trial court interpreted this clause as limiting the sums due t o Dr. Kay em to a percentage of collections ac tu al ly r ec ei ve d b y Dr . S te wa rt pr io r t o D r. Ka yem ’s te rm in at io n. Ac co rd in gl y, the trial court determined Dr. Kayem was not entitled to a percentage of those collections which were attributable to his services but not received by Dr. Stewart until after Dr. Kay em’s termination.
We disagree with the trial court’s interpreta tion. A plain reading of

the contract provides that Dr. Kayem is entitled to a per centage of

gross r eceipts attributa

ble to his se

rvices. It doe s not limit his entitlement to amounts collected before his termination.
We accordingly

hold that Dr. Kaye

m is entitled to forty-five per cent of all amounts collected by Dr. Stewart for services attributable to Dr. Kaye m, regardless of whether those amounts we re received prior to or after

Dr. Kaye m’s termination. The award of partial summary judgment to Dr. Stewart is reversed. We award Dr. Kay em summary judg ment on this issue. The Coven ant not to Compet e The employment contra

ct included the following covenant not to compete:
3.05 Restricti ve Covena nt: Upon termin ation of this Agreement for any reason, EMPLOYEE

[D r. Ka yem] a grees that he will not, for a period of two (2) ye ars, associate himself with or engage in, di re ct ly or indirectly, the pra ctice of medicine within fifty (50) miles of the city limits of Columbia, Tenn essee, except that EMP LOYE E may practice medicine within the city limits of Nashville, Murfreesboro and Dickson, Tennessee. I n the event of the violation of any of the terms he re of

by E MPLOYEE, t

he valuation of the injury f rom which would be difficul t of asce rtainmen t, EMPL OYEE will

pay to EMPLOYER [Dr. Stewart] the sum of Twelv e Thousand Five Hundred Dollars ($12,500.00) per month for ea ch month that he breaches the prov ision s of this paragraph, not as a penalty , but as liquidated damages therefor. Howe ver, it is understood and agreed that the rights as-5-

outlined below shall not be reduced or avoided by the t erms o f this provision for liquidated da ma ge s. It i s m ut ua ll y ag re ed th at an y breach or evasion of any of the terms of this paragr aph will result in immediate irreparable injury to EMPLOYER and will authori ze recours e to injunction as we ll as to all

other le gal or equitable remedies to which EMPLOYER may be entitled hereund erin addition to such remedies as set forth above. In the e vent of a breach of

this Agreement, EMPLOYEE agrees to pay

all cost s and expenses, including attorney ’s fees, incurred by EMPLO YER.
If any court shall determine that the nature, duration or geogr aphical limit of an y res triction c ontained above is u

nenforc eable, it is the inte ntion of bo th EMPLOYEE

and EMPLOYER that the restrictions set forth here in will not be thereby terminat ed but sha ll be dee med redu ced tothe extentrequired to render them valid and enforceable.
The trial court found the covenant was clear, una mbiguous and reasonable, and awarded Dr. Stewart damages in the amount of $12,500 for breac h of the covenant by

Dr. Kaye m. Dr. Kay em argues that th

e coven ant not to c ompete is u nenforc eable

as a matter of law under Tenn. Code Ann. § 63-6-204. He further submits that the covenant does not prohibit him from soliciting former p atients, a nd that ev en if it did , there i s no proof that he di rectly solicited the former patients w hom he treated. Dr. Kaye m testified at trial that he did not solicit new patients in the prohibited area after

leaving the employ

of Dr. Stewart, although he did trea t new pati ents who c ame into the clinic in Maury County . Dr. Kaye m contends that because 1) he had accepted a position

in Californ ia and planned to relocate in late November, 1997; 2) had no intention of remaining in the area or competing with Dr. Stewart; 3) worked in a limited capacity for only a two-month period; 4) had an ethical obligation to finish up treatment of former patients; and 5) did

not solicit

patients, he did not violate the spirit of the covenant. Dr. Stewart contends that Tenn. Code Ann. § 63-6-204 is inapplicable to this case, and that Dr. Kay em’s employment in Maury and Marshall Counties were in direc t violation

of an enf orceab le coven ant. Section 63-6-204

provid es that “employing entities ” shall not restrict an employ ed physicians right to pract ice medicine excep t u nder certain enumerated conditions. Tenn. Code Ann. § 63-6- 204( d)(2)(1997). The section defines “employ ing entity” a s “a hospital licensed under title 68, chapter 11, or title 33, chapter 2, or an affiliate of such an en ti ty, that employs one (1) or more physicians.” Tenn. Co de Ann. § 63-6 -204(d)(7)(D)(1997). Dr. Kay em does not allege that Columbia Ear, Nose and Throat is a hospital so licensed. Dr. Stewa rt conte nds it is cle arly

not such an entity, and we find nothing in the record to indicate otherwise. We accordingly ag ree withDr. Stewart that Tenn. Code Ann. § 63-6-204 is inapplicable in this case.
Tennessee follows the “rule of reasona bleness”approac

h to coven ants not to compete. Cent. Adjustment Bureau, Inc. v. Ingram , 678 S.W.2d 2 8, 37 (Te nn. 1984) . This rule

provides :1 Th is Co urt reco gnizes that co vena nts not to com pete in professi ons such as Medicine often involve i mportant

pub lic interest

considerations, including the right of a patient

to choose hi s physi cian and t he benefi t of h aving qua lif ied practiti oners in specialized fields. See M ed. Educ. Assi st. Corp., v Tennes see , 19 S. W.3d 803, 816 (Tenn. Ct. App. 199 9)(perm . app. den ied). W e do no t address the p ublic interest consi derations here , howe ver, as Dr. Kayem di d not intend to conti nue to prac tice medicine in Tenness ee aft er leaving Dr. Stewart’ s employ, but had accepted employment in Califo rnia. -6- [U]nless the circumstances indicate bad faith on the part of the em ploy er, a co

urt will enforceco ve na nt s n ot to co mp et e t o t he ex te nt th ey a r e reaso nably necessa ry to protect the employer’ s interest “without imposing undue hardship on the employee when the public interest is not adversely affected.”
Id. (quot ing Ehlers v. Iowa Warehouse Co. , 188 N.W.2d 368, 370 (Iowa 1971)). Thus courts can modify and enforce

covenants not to compete to the extent that they are reasonable and not repugnant to pu bl ic po li cy. Id. Additionally, a covena ntnot to comp ete that is “deliberately unreasonable and oppressive” is not valid and will not be enforced. Id.
The orde r of the tr ial cour t in the pre sent cas e states: This Court finds the Covenant, which was for a two (2) year duration, limited the medical practice within a fifty (50) mile radius of the city limits of Columbia, Tennessee. The cities of Nashville, Murfreesboro and D ickson ar e espec ially exempted from the prohibitions of the covenant. The restrictions are clea r, unambiguous and rea sonable c onsideri ng the a rea in which D efenda

nt’s patie nts’ reside.
This Cou rt finds th at the Pla intiff sig ned the E

mploy ment Ag reemen t, including the Covenant Not to Compete, after consulting with his attorney. Plaintiff has failed to make a clear showing that he had the right to practice medicine in the restricted area.
The trial court further found Dr. Stewart was e ntitled to damages of $12,000. Upon review of

the rec ord, we f

ind no sug gestion

of bad fa ith on the part of Dr . Stew art. We agree with the tri al cou rt that the covena nt not to co mpete wa s reason able in tim e and g eogra

phic scope and did no t impose

an undue hardship onDr. Kay em. 1 We accordingly

affirm the judgment of the trial court on this issue. Severance Pay
The contract was auto matic al ly renewable for successive terms of one year a nd included provisions for termination. Section 4.01 of the contract provided:-7-

Th is Agre ement may be te rminated upon the occurrence of any of the following events:

a. Without cause, by notice in writing to the other party given ninety (9 0) da ys prior to the date of termination. In the event either p arty

fails to give the ninety

(90) days notice , he shall be liable to

the other party for an a mount equa

l to ninety (90) da ys b as e s al ar y. b. Material breach of contract by EMPLO YEE or EM PLOYE R.

c. Death

of EMPLOYEE or disabi lity of EMPLOYEE which render s EMPLO YEE unab le to per form his du

ties.
d. If EMPLO YER has jus t cause w hich shall include, but

not be limi ted to, EMPLOYEE conducting himself in an unprofe ssional, unethical or fraudulent manner, and if, in the o pinion of EMPL OYER, such con duct disc redit s EMPLOYER

or is detrimental to the reputation, character and standing of EMPLOYER. Upon termination for any of the foregoing events, the EMPL OYEE shall be entitled to compensation and benefits accrued but unpaid as of the te rmination date. In November 1996, the par ties renewed the contract for a one -year period a ccordin g to the sameterms. In August 1997, Dr. Ka yem submitted a letter of r es ignation in accordance with the termination provision s of the c ontract . His resi g nation wa s t o be effective January 2, 1998. Dr. Stewart accepted Dr. Kay

em’s resignation by

letter dated August 21, 1997. In his letter, D r. Stewart stated that Dr. Kay em’s resignation was accepted a s resignation without cause in accordance

with section 4.01 of the contract. He further stated tha t, in acc ordance

with the c ontract , Dr. Kay em’s last day of employ

ment would be December 1, 1997.
In late August and early

September 1997, a dispute arose regar ding Dr. Kayem’s plans to be outof the office on Friday, Septe mber 5 and Monday

September 8. On September 2, Dr. Stewart sent Dr. Kaye m a letter confirming an August 29 conve rsation about

Dr. Kaye m’s leave time. In the le tter, Dr. Stewart stated that Dr. Kay em had exceeded allotted vacation and personal lea ve da ys . Dr. Stewart f

urther s tated tha

t fo r the remainder of his tenure, Dr. Kay em would, therefore, be expected to be at work when the office was open a nd on days and times designatedfo r s ur ge ry, regar dless of whether Dr. Kay

em had surgery

scheduled. Dr. Stewart

concluded by stating , “[y]ou are spe cifically a

dvised tha

t any deviatio n from thiswill be considered by me as a material breach of our emplo yme

nt agreement whi ch among other things would

justify immediate termination of the Employment Agr

eement and y ourself.”-8-

Notwithstanding Dr. Stewart’s letter, Dr. Kay em was absent from the office on September 5 an d 8 . D r. St ew ar t r es po nd ed by l et te r o f S ep te mb er 10 , 1 99 7, ad vi si ng Dr . K aye m th at he was in ma te ri al br ea ch of

th e c on tr ac t. Dr . S te wa rt wr ot e, “[ a] cc or di ng ly, please accept this as notice of the imm ediate termination of the Employme nt Agreement and y

our employment. You wi ll b e entitled to compensation and benefits accrued but unpaid as of this date.”
The trial court found that Dr. Kay em had breached the contrac t and, therefore, was terminated for cause under section 4.01(b) of the contract. The trial court accordingly found Dr. Kayem wa s notentitled to se veranc e pay . We revie w this dete

rmination with a pre sumption of

correctness unle ss the evidence preponderates otherwise. McInturff v. Neeseman , 986 S.W.2d a t 12; Tenn. R. App. P. 13(d).
The evidenc e in this ca se does not prepond erate a gainst the trial court ’s fin ding. Alth ough Dr. Kay em had submitted his resignation prior to being terminated, he re mained bound by the c ontr act provisions throughout his tenure. He was unambiguously advised by Dr. Stewa

rt that he had exceeded his allotted leave time, and that he was expected to be in the office on September 5 and 8, 1997. H

is absenc e from the

office on those dates amounted to a breach of the contract, and D r. Kayem accordingly

was terminated for

cause. The j udgmen

t of the tr ial cour t is affir med on this issue. Award of Attorney’s Fees
The trial court awarded

Dr. Stewart his attorney ’s fees of $24, 006.28. Dr. Kaye m contends that the trial court erred in awarding D r. Stewart attorney ’s fees for matters not directly re

lated to the covenant not to compete. He contends that the contract provides for a ttorney’s fees only with respect to disputes over the covenant.
Courts must construe the provisions of a contract together, seeking to ascertain the intention of the pa rties bas ed upon the usual, natural, and ordinary meaning of the languag e they employ ed. Guiliano v. Cleo, Inc. , 995 S.W.2d 88, 95 (Tenn. 1999). Acontractual term is ambiguous wher

e it may be reasonably

understood in more than one w ay. Planters G in Co. v. Fed. Compre ss & Ware house Co. , 78 S.W.3d 885, 890 (Tenn. 2002). Provisions of a contract which are ambiguous must be construed against the party who drafted it. Gen. Cons tr. Contrac tors Ass’n v. Great er St. Thomas Baptist Church , 107 S.W.3d 513, 521 (Tenn. Ct. App. 2002).
Section 3.05 of the employment contra ct contains a provision for the pay ment of attorney’ s fees. This section provides: “[i]n the event of a breach of this Agree ment, EMPLOYEE

agree s to pay all costs and expenses, including attorne y’ s fees, i ncurre d by

EMPLO YER.” Dr . Stewar t asserts that the plain langua ge of th is sentence conte

mplates th

e pay ment of a ttorney ’s fees in the event of any breach of the agree

ment, and is not limited to matters regarding the c ovenant not to compete. Alth ough we agr

ee with D r. Stewa

rt that the plain lan guag e of the s entence is clear, it s placement

within the section relating to the covenant not to compete crea tes ambiguity. I

t is one-9-

sentence included in a paragraph which otherwise relates only to the covenant not to compete, and which is followed by a par agraph concerning

the enforceability

of the covenant. T he pa ym ent of attorney’sfees is n ot mentione d elsewhere in

the contract. Reviewing the contract in its entirety, w e agre e with Dr. Kayem t hat it antic ipate s an awa rd of at torne y’s fees on ly for mat ters r elati ng t o enforcement

of the covenant not to co mpete. I nsofar a s the provision is amb iguous, we must construe it against the drafter, Dr. Stewa rt.
We accordingly

modify the trial court’saward o f attorne y’ s fees to Dr. Stewa

rt. Dr. Stewart is entitled to reasonable attorney ’s fees only f or matters regarding the c ovenant not to compete. We rema nd to the trial court for a determination of reasonable a ttorney’s fees in accordance with the foregoi ng. Conclusion
We affirm the trial court’s determination that Dr. Kaye m materially bre ached the contract of employment

and, therefore, is not entitled to severance pa y. We further affirm the trial court’s judgment that the covenant not to compete was reasonable, and a ffirm judgment in the amount of $12,500 t o Dr. Stewart. We disagree with the trial court that Dr. K ayem wa s not entitled to a percen tage of collections attributable to his services but not received until after his termination. The award of partial summary judg

ment to Dr. Stew art on thisissue accordingly is reversed, and partial summary judgme

nt to Dr. Kayem is aw arded. We also reverse the trial court’s determination that Dr. Stewart was entitled to all of his attorney ’s fees under the contract. We modify the award o f attorney’sfees, limiting the award to fees inc urred to enforc e the pro visions of the cove nant not to compete. We remand for a determination of the amount due

Dr.Kay em for c ollection s attribut able to his services, and for modification of the awa rd of atto rney ’s fees to Dr. Stewa

rt consist ent with this opinion. Costs of thi s appeal are taxe d one-ha

lf to appellee, William Robert Stewart, M.D., and one-half to the appellant, Marc J. Kaye m , M.D., and

his surety , for whic

h executio n may

issue if necessary .

___________________________________ DAVID R. FARMER, JUDGE