Source: http://robertfitzpatrick.blogspot.com/2014/01/
Timestamp: 2017-08-22 09:14:24
Document Index: 421578390

Matched Legal Cases: ['§ 2710', '§ 2710', '§ 2707', '§ 2710', '§ 2710', '§ 2710']

Fitzpatrick on Employment Law: January 2014
It is worth noting, as an initial matter, that the American Medical Association has stated that "covenants not to compete restrict competition, disrupt continuity of care, and potentially deprive the public of medical services.” AMA Opinion 9.02, "Restrictive Covenants and the Practice of Medicine", AMA Code of Medical Ethics (Updated June 1998) (available at http://www.ama-assn.org/ama/pub/physician-resources/medical-ethics/code-medical-ethics/opinion902.page). The opinion goes on to note that restrictive covenants are unethical “if they are excessive in geographic scope or duration in the circumstances presented, or if they fail to make reasonable accommodation of patients’ choice of physician.” Id.
There is little precedent regarding the treatment of physician non-competes (or of non-competes in general) in the District of Columbia. In Deutsch v. Barsky, the D.C. Court of Appeals was called upon to review a trial court's determination that a non-compete between a dentist and his former employer was void as against public policy. 795 A.2d 669 (D.C. 2002). After finding that there was no per se bar to medical (or at least, dental) non-competes, the Court went on to set forth the proper inquiry, and held that, assuming the contract not to compete was otherwise valid, "it must plainly appear that it contravenes public policy before the courts will declare it void upon that ground." Id. at 674 (quoting Godfrey v. Roessle, 5 App. D.C. 299, 303-04 (D.C. 1895). While the Court did not further address the special circumstances of non-competes in the medical field, its reliance on case law from other professions in reaching its decision that summary judgment in favor of the defendant-dentist was inappropriate reveals that such concerns are muted, at best. E.g. Erikson v. Hawley, 12 F.2d 491 (D.C. 1926) (Court enforced ten year non-compete agreement enjoining defendant from practicing orthodontia within D.C.).
That said, there is little precedent in the District of Columbia on this point, and - especially given the lack of specific attention to this issue in Deutsch, the enforceability of physician non-competes can fairly be considered an open question. See Zulima Farber, et al., “Are Physician Post-Employment Noncompete Agreements Enforceable?”, Metropolitan Corporate Counsel (March 1, 2004) (available at: http://www.metrocorpcounsel.com/articles/3746/are-physician-post-employment-noncompete-agreements-enforceable) (“jurisdictions such as the District of Columbia…have no definitive case law regarding physician-noncompete agreements.”). This is particularly true when the physician practices in a highly specialized field of medicine if it may be difficult for patients to find an alternate healthcare provider. D.C. is somewhat unique in that many otherwise reasonable geographic restrictions (e.g. restrictions of a 10, 25, or 50 mile radius) would include the entirety of the District of Columbia, and, in many cases, the vast majority of the D.C. metropolitan area. To the extent that the physician at issue practices in a sub-specialty with few other practitioners, the difficulty in obtaining alternative treatment may weigh in favor of blue penciling – or voiding – the non-compete provisions on public policy grounds. See Wheeler v. Fredericksburg Orthopaedic Assocs., 44 Va. Cir. 399 (Va. Cir. Ct. 1998) (finding non-compete unenforceable based, in part, on fact that no other surgeons in plaintiff’s sub-specialty practiced in the area and patients would need to travel 50 miles for next nearest doctor). Of course, some courts have found that "unique" or "extraordinary" skills possessed by a doctor may, on a case-by-case basis, actually support the enforcement of a reasonable restrictive covenant. See BDO Seidman v. Hirshberg, 12 N.E.2d 1220 (N.Y. 1999).
In the absence of D.C. law on point, a D.C. court may turn to Maryland law. Under Maryland law, covenants not to compete may be enforced “only against those employees who provide unique services, or to prevent the future misuse of trade secrets, routes or lists of clients, or solicitation of customers.” Becker v. Bailey, 268 Md. 93, 97, 299 A.2d 835 (1973). Unfortunately, much like in D.C. – though to a slightly lesser extent – there is “a general paucity of Maryland case law regarding covenants not to compete specifically in the healthcare industry, and no Maryland court has conducted a thorough analysis of such covenants or explicitly defined their scope.” Robert Niccolini, Esq., “Covenants Not To Compete in Healthcare: A Maryland Primer”, Maryland State Bar Association (2007) (available at: http://www.msba.org/sec_comm/sections/health/docs/homepage/noncompetes/CovNottoCompeteRobN.pdf). Despite this, the Maryland Court of Special Appeals, in Holloway v. Faw, Casson & Co., strongly implied that some level of special protection was appropriate for physicians. 572 A.2d 510 (Md. Ct. Spec. App. 1989). In Holloway, the Court addressed whether accountants deserved special protection from restrictive covenants as a matter of public policy. In reaching its conclusion that they did, the Court noted that accountants, like lawyers and physicians, had a special relationship with their clients deserving of protection. Id. at 517; See also Niccolini, “Covenants Not to Compete in Healthcare: A Maryland Primar” at p.9.
Nationally, there is great deal of disagreement among courts as to whether, and how, physicians should receive special protection from non-competes. E.g. S. Elizabeth Wilborn Malloy, “Physician Restrictive Covenants: The Neglect of Incumbent Patient Interests”, 41 Wake Forest L. Rev. 189 (Spring 2006); Robert W. Horton, “Restrictive Covenants in Physician Employment Relationships”, American Health Lawyers Assoc. Member Briefing (April 2013) (available at: http://www.bassberry.com/files/upload/AHLA_Article_Horton_and_Padgett_April_2013.pdf). By way of example, Illinois has repeatedly upheld physician non-competes. In a typical case, Canfield v. Spear, the Illinois Supreme Court reasoned that: "[i]t cannot be said that the public interest is adversely affected if a physician decides to move from one community to another, nor does it become so if the move results from some agreement made in advance. If a severe shortage exists in any particular place young doctors will tend to move there, thus alleviating the shortage." 44 Ill. 2d 49, 52 (1969). Wyoming appears to follow a similar approach. See Oliver v. Quynn, 2013 WY 70 (2013) (quoting Canfield).
The majority rule, however, seems to afford at least some protection to physicians. In Cmty. Hosp. Group, Inc. v. More, 869 A.2d 884 (N.J. 2005), the New Jersey Supreme Court reversed the decision of a lower court to enforce just such an agreement because the lower court had “failed to focus on the adverse impact the geographic restriction [in the non-compete agreement] would have on neurological patients seeking treatment at [defendant’s employer’s] emergency room. Without [defendant]…necessary neurological treatment to an emergency room patient could be compromised.” Id. at 899. Accordingly, the Court found that there was “overwhelming” evidence that prohibiting Defendant from attending neurological patients in the geographical area specified would injure the public interest. The Court, while prepared to accept a non-compete covering a limited geographical distance “less than thirteen miles”, specifically instructed the lower court, on remand, that any geographical restriction should exclude defendant’s current employer. Id. at 900. See also Duneland Emergency Physicians Med. Group v. Brunk, 723 N.E.2d 963 (Ind. Ct. App. 2000) (restrictive covenant unenforceable when it would compromise emergency room care); Premier Health Care Servs., Inc. v. Schneiderman, 2001 Ohio 7087 (Ohio Ct. App. Dec. 28, 2001) (public interest weighed against granting injunction against physician-defendant); Emergicare Sys. Corp. v. Bourdon, 942 S.W.2d 201 (Tex. Ct. App. 1997) (refusing to enforce covenant that would have prevented doctor from serving public as emergency doctor);
Non-competes with regard to physicians also face regulatory hurdles. For example, the Federal Trade Commission recently relieved a group of cardiologists from a non-compete agreement which it determined implicated antitrust concerns. See Karen Cheung-Larivee, “FTC Antitrust Agreement Frees Cardiologists From Non-Compete Contract”, FierceHealthcare (Dec. 6, 2012) (available at: http://www.fiercehealthcare.com/story/ftc-antitrust-agreement-frees-cardiologists-non-compete-contract/2012-12-06). Furthermore non-compete agreements in the context of physician recruitment can implicate, and be barred by, the Stark Laws. In particular under 42 C.F.R. 411.357(e)(4)(vi), physicians and physician practices are prohibited from placing restrictions on the practice of physicians which they recruit that would “unreasonably restrict the recruited physician’s ability to practice medicine in the geographic area served by the hospital.” Between 2004 and 2007 the Centers for Medicare & Medicaid Services (“CMS”) took the position that imposing a non-compete agreement on a recruited physician would violate the Stark Law. See I. Paul Mandelkern & Jason S. Rimes, “CMS Rules That Non-Compete Provision Complies With Stark Laws Physician Recruitment Exception”, National Law Review (Nov. 3, 2011) (available at: http://www.lowndes-law.com/publications-presentations-blogs/1085-cms-rules-that-non-compete-provision-complies-stark-laws-physician-recruitment). However, in 2007 CMS issued an advisory opinion which found that a proposed physician recruitment arrangement, which included a non-competition provision, met the requirements of the Stark Law. See CMS Advisory Opinion AO-2011-01 (available at: http://www.cms.gov/Medicare/Fraud-and-Abuse/PhysicianSelfReferral/downloads/CMS-AO-2011-01.pdf). Although properly drafted non-compete agreements can comport with the Stark Law, it does present another avenue of attack, even to otherwise reasonable non-compete agreements, which would prohibit a physician from practicing within the geographic area covered by a hospital.
Posted by Robert B. Fitzpatrick at 5:16 PM 2 comments
Holds on Holds: Can Sending Litigation Holds to Certain Third Parties Constitute Defamation or Tortious Interference?
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In International Portfolio v. Purplefish, LLC, No. 12-06748 (Pa. Sup. Ct. Dec. 24, 2013), the Pennsylvania Superior Court recently held that a party that sent “litigation holds” to the opposing party’s business associates and clients did not, in so doing, unlawfully defame or tortiously interfere with the other party’s business. For plaintiffs’ attorneys handling cases against large employers, in which the employer’s customers or suppliers may become involved in the litigation, the International Portfolio decision is an important one because it provides room to distribute litigation holds without fear of tort claims.
The case involved a hedge fund that brought Racketeer Influenced and Corrupt Organizations (RICO) Act and fraud claims against the company that managed its debt portfolios. In a move that has become a prudent and standard practice in litigation, the hedge fund’s counsel sent litigation hold letters to other clients and associates of the defendant company, explaining what the litigation involved and the duty to preserve any documents potentially related to the litigation.
The defendant company then brought suit in state court against the fund for defamation and tortious interference with contractual relations, alleging that the letters were not sent in the normal course of litigation proceedings - which would merit both the judicial and the litigation privilege - but were sent only to “defame, disparage, and harm Appellants.” The company argued that the facts mirrored those of Bochetto v. Gibson, 860 A.2d 67 (Pa. 2004), in which an attorney faxed a complaint to a reporter, and was later found liable for defamation.
The trial court dismissed the claims with prejudice. On appeal, the Pennsylvania Superior Court, in a December 24, 2013 opinion by Judge Joseph D. Seletyn, affirmed the trial court’s order of dismissal. Expounding on the reasons for the judicial and litigation privileges, Judge Seletyn quoted from the Pennsylvania Supreme Court’s opinion in Binder v. Triangle Publications, Inc., 275 A.2d 53, 442 Pa. 319, 324 (Pa. 1971):
“The reasons for the absolute privilege are well recognized. A judge must be free to administer the law without fear of consequences. This independence would be impaired were he to be in daily apprehension of defamation suits. The privilege is also extended to parties to afford freedom of access to the courts, to witnesses to encourage their complete and unintimidated testimony in court, and to counsel to enable him to best represent his client’s interests.”
The court distinguished the facts of the case from those in Bochetto, reasoning that Bochetto’s activities were outside the regular course of normal judicial proceedings, while the attorneys for the fund in this instance were acting well within the regular course of proceedings by sending litigation holds with the intention of preserving evidence for litigation.
The case, though unpublished, again demonstrates that attorneys are generally well within their rights to send litigation holds to third parties, even if those third parties are clients or business associates of the other party. No need to put holds on holds.
Posted by Robert B. Fitzpatrick at 5:16 PM 6 comments
It’s Déjà vu All Over Again: Does a Mere Statutory Violation Without Any Actual Damage Confer Article III Standing?
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In re Hulu Privacy Litigation, No. 3:11-cv-03764, 2013 U.S. Dist. LEXIS 179934 (N.D. Cal. Dec. 20, 2013) and Sterk v. Best Buy Stores, L.P., No. 11 C 1894, 2012 U.S. Dist. LEXIS 150872, 2012 WL 5197901 (N.D. Ill. Oct. 17, 2012)
During its 2011-12 term, the Supreme Court considered whether a plaintiff had standing to sue under Article III where the plaintiff had alleged a violation of a statutory prohibition, the Real Estate Settlement Procedures Act (RESPA), but had not asserted that the plaintiff had incurred any actual damage. See First Am. Fin. v. Edwards, 132 S. Ct. 2536, 183 L. Ed. 2d 611 (June 28, 2012). Importantly, RESPA does not require that the plaintiff show actual injury in order to establish a prima facie case and be awarded damages. In the face of such statutes, the dispute has arisen as to whether Article III of the Constitution places any limits on Congress’ ability to allow statutory private rights of action, even where the plaintiff suffered no actual injury. In the First American case, The Ninth Circuit held that the mere statutory violation was an injury-in-fact, even though there was no actual damage. Edwards v. First Am. Corp., 610 F.3d 514, 515-16 (9th Cir. 2010). After full briefing and oral argument, the Supreme Court, at the term’s end, dismissed the case on the grounds that certiorari had been improvidently granted. First Am. Fin., 132 S. Ct. 2536.
Now, under another federal statute, the Video Privacy Protection Act (“VPPA”), 18 U.S.C. § 2710 et seq., this standing issue has arisen again. The VPPA was enacted to prevent what it refers to as “wrongful disclosure” of records of rental or sale of video tapes, or of similar audio visual materials. 18 U.S.C. § 2710 et seq. Congress passed the VPPA after Judge Robert Bork’s video rental history was published during his Supreme Court nomination.
The district courts appear to be in conflict on the issue of whether a violation of the VPPA can be sufficient to confer standing, or whether an actual injury must also be shown. The most recent decision on this question, In re Hulu Privacy Litig., 2013 U.S. Dist. LEXIS 179934, 17 (N.D. Cal. Dec. 20, 2013), from a court within the Ninth Circuit, relying on Edwards v. First Am. Corp., finds standing despite the absence of actual damage. The other, Sterk v. Best Buy Stores, L.P., No. 11 C 1894, 2012 U.S. Dist. LEXIS 150872, 2012 WL 5197901 (N.D. Ill. Oct. 17, 2012), instead concluded that the absence of actual damage defeats standing.
II. The Sterk Case
In Sterk, the Plaintiff was a customer of Best Buy, which sells, among other items, movies in DVD and other formats. Best Buy maintains digital records detailing its customers’ movie purchase histories, and their billing and contact information. Sterk, 2012 U.S. Dist. LEXIS 150872 at *2. The Plaintiff purchased movies from various Best Buy locations over the course of several years. Id. at *2-3. Best Buy communicated its records regarding the plaintiff’s name, purchase history, and credit card information from one or more of Best Buy’s corporate subsidiaries, to the parent company, Best Buy Inc. Id. at *3. The plaintiff claimed that this disclosure was a “wrongful disclosure” within the meaning of the VPPA. Id. at *1-3. An issue was also raised as to how long the defendants had maintained the records in question, as the VPPA also covers how long such records should be stored. Id. at *9-10.
One major issue in the Sterk case was whether the communications, which were internal communications between two or more corporations within the Best Buy corporate umbrella, constituted a “disclosure” for the purposes of the VPPA. Id. at *8-9. The court, in an opinion written by Judge John Darrah, ultimately concluded that the plaintiff had failed to adequately plead facts which would support a finding of a disclosure. Id.
As to the retention of records issue, Judge Darrah concluded that the VPPA does not provide a private right of relief for damages under the record retention provision of the statute. Id. at *13. While the Judge recognized that the plaintiff had also sought injunctive relief, the Judge did not reach that issue, as he found that the plaintiff had failed to plead an injury-in-fact, and that the plaintiff therefore lacked standing to support his retention claim. Id.
As to standing, Judge Darrah reasoned as follows:
While injury required by Article III may exist when created by statute, that rule only applies where Congress elevates ‘to the status of legally cognizable injuries concrete, de facto injuries that were previously inadequate in law.’ Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61, 112 S. Ct. 2130, 119 L. Ed. 2d 351 (1992)…
None of Plaintiff’s theories establishes an injury-in-fact for his disclosure or retention claims under the VPPA. The SCA and the VPPA require a plaintiff to be ‘aggrieved,’ meaning the individual has suffered an Article III injury-in-fact. See U.S.C. § 2707(a); 18 U.S.C. § 2710(c)(1); Kyles v. J.K. Guardian Sec. Services, Inc., 222 F.3d 289, 295 (7th Cir. 2000). Therefore, a plaintiff must plead an injury beyond a statutory violation to meet the standing requirement of Article III. Plaintiff argues that a statutory violation is adequate to meet this requirement. However, while Congress is permitted to expand standing to the extent permitted under Article III, Congress cannot abrogate the basic standing requirement that an individual suffer an actual redressable injury-in-fact. Gladstone Realtors v. Village of Bellwood, 441 U.S. 91, 100, 99 S. Ct. 1601, 60 L. Ed. 2d 66 (1979).
Id. at *15-17.
III. The Hulu Case
On December 20, 2013, Magistrate Judge Laurel Beeler of the U.S. District Court for the Northern District of California denied a defense motion for summary judgment, in a class action suit, brought under the VPPA, against the online video streaming service Hulu. Magistrate Judge Beeler held that the VPPA defined “any aggrieved person” as a customer whose “personally identifiable information” had been disclosed, and that the VPPA did not require the customer to demonstrate any actual harm resulting from such a disclosure. 18 U.S.C. § 2710(b); In re Hulu Privacy Litig., 2013 U.S. Dist. LEXIS 179934, 17 (N.D. Cal. Dec. 20, 2013).
The case began in September of 2011, when a group of Hulu customers brought a suit alleging that the service violated several federal privacy statutes by tracking customers’ browsing history and sharing their viewing history with Facebook and other Internet companies. In June 2012, Magistrate Judge Beeler dismissed all but the claim under the VPPA.
The court then placed a hold on the VPPA claim, pending the Supreme Court’s ruling in First American Financial v. Edwards, on the issue of whether a statutory violation was sufficient to support a finding of standing, without a separate finding of an actual injury. As noted above, the Supreme Court ultimately declined to issue a ruling in First American, and instead dismissed the case, finding that the Court had improvidently granted the cert. petition.
After the Supreme Court’s dismissal of First American, Magistrate Judge Beeler addressed other issues in the case. Hulu argued that it did not qualify as a video tape service provider under the VPPA because it did not sell or otherwise provide “video cassette tapes or similar audio visual materials” under the Act. The court looked to the dictionary and to legislative history and rejected Hulu’s argument, concluding that “Congress used ‘similar audio visual materials’ to ensure that VPPA’s protections would retain their force even as technologies evolve.” Similarly, the court rejected Hulu’s argument that the plaintiffs were not protected “subscribers” under the VPAA because they were not paid subscribers. The court reasoned that “if Congress wanted to limit the word ‘subscriber’ to ‘paid subscriber,’ it would have done so.” 2012 U.S. Dist. LEXIS 112916, 24 (N.D. Cal. Aug. 10, 2012).
Following the beginning stages of pretrial discovery and an October 2013 defense motion for summary judgment, Magistrate Judge Beeler then analyzed the standing issue in a December 20, 2013 opinion. In the motion for summary judgment, Hulu argued that an “aggrieved person” under the VPPA must be injured in some way. Magistrate Judge Beeler noted that statutory analysis “begins with the plain language of the statute, and it ends there if the text is unambiguous.” At *15. Magistrate Judge Beeler continued:
The plain language of the statute shows that Congress considered a consumer to be an ‘aggrieved person’ under the VPPA if a video tape service provider wrongfully discloses that consumer’s personally identifiable information. Id. § 2710(b). Subsection (b) refers to the ‘aggrieved person’ in the singular and precedes it with a definite article. Thus, ‘the aggrieved person’ is the consumer whose information was disclosed. Subsection (b) does not refer to ‘an aggrieved person’ or ‘any person aggrieved.’ The consumer, therefore, is ‘aggrieved’ based solely on the disclosure of personally identifiable information to third parties and the video tape service provider is liable to that ‘aggrieved person’ for the relief in subsection (c)…
Nothing in subsection (c) (or any other part of the statute) requires an injury beyond a violation of subsection (b). Moreover, the practical import of the statute is that the words ‘aggrieved person’ in subsection (c) mean the same thing they do in subsection (b)(1): a consumer whose personally identifiable [information] is disclosed by the video provider in violation of the statute. Hulu provides no alternative reading of the plain language of the statute.
In arguing that a mere statutory violation was insufficient to confer standing, Hulu pointed to the opinion issued in the Sterk case discussed above. Id. at *26. In declining to follow Sterk, Magistrate Judge Beeler primarily pointed to the Ninth Circuit’s 2010 decision in the First American Financial case which, given the Supreme Court’s dismissal of the case, remained controlling precedent in the Ninth Circuit. Id. at *27-28.
Thus, one could argue that the Sterk and Hulu cases are in direct conflict with one another over the question of whether something more than a statutory violation is needed to demonstrate standing. Of note, it appears that Magistrate Judge Beeler might not agree that the two cases directly conflict. In arguing that the two cases are factually distinguishable, Magistrate Judge Beeler noted that in Sterk, the court found that the plaintiff had not adequately alleged a disclosure of the information in question, and that the plaintiff had therefore failed to allege a cognizable claim under the VPPA. In re Hulu Privacy Litig., 2013 U.S. Dist. LEXIS 179934 at *30-31. It was in that context, Magistrate Judge Beeler reasoned, that the Sterk court had noted that the Plaintiff had also failed to allege any economic harm which was grounded in the facts. Id. at *30. Thus, Magistrate Judge Beeler concluded, “Sterk does not support a conclusion that injury beyond disclosure is a prima facie element of a VPPA claim.” Id. at *31.
Thus, one cannot help but wonder whether Judge Darrah would have found standing had there been an adequately pled disclosure in Sterk. Given Judge Darrah’s holding that “a plaintiff must plead an injury beyond a statutory violation to meet the standing requirement of Article III”, one would think not. But then again, whether the disclosure itself would have caused one or more cognizable harms which Judge Darrah would have found sufficient to confer standing, one can only conjecture.
IV. Implications in the Employment Law and Other Contexts
Courts have considered similar standing arguments in the context of employment statutes. See, e.g., Kendall v. Employees Retirement Plan of Avon Products, 561 F.3d 112 (2d Cir. 2009) (holding that a retirement plan participant and purported class representative lacked constitutional standing to sue under ERISA, despite the allegation that the plan administrator had breached its fiduciary duty, in the absence of an alleged injury in fact distinct from the statutory violation). The same can be said of many other categories of statutes. See, e.g., Wilson v. Glenwood Intermountain Properties, Inc., 98 F.3d 590 (10th Cir. 1996) (the Fair Housing Act); Heard v. Bonneville Billing & Collections, Nos. 99-4092 & 99-4100, 2000 WL 825721 (10th Cir. June26, 2000) (The Fair Debt Collection Practices Act); Vermont Agency of Natural Res. v.United States ex rel. Stevens, 529 U.S. 765, 772 (2000) (the False Claims Act). See also Raines v. Byrd, 521 U.S. 811, 818 (1997) (members of Congress lacked standing to challenge constitutionality of legislation, despite having statutory authority to sue, because they failed to show a ‘personal injury’) (internal quotations and emphasis omitted). So, it is clear that this dispute has potential consequences which reach far beyond the controversy in the Sterk and Hulu cases over the scope of who has standing under the VPPA in particular.
As the Supreme Court has yet to rule on Article III’s power to rein in Congress’ authority to allow private rights of action for those who have not suffered actual injury, cases like Sterk, Hulu, and the others cited above, will no doubt continue to arise. If the Supreme Court chooses to rein in Congress’ power in this area, it will face many obstacles in doing so, including where to draw the line on what constitutes “actual injury”. And, even if the Court requires an actual injury for every case, what constitutes an actual injury will undoubtedly continue to puzzle courts for years to come.
So, the next time you read a standing case dealing with the issues discussed above, you can declare, as Yogi Berra once did, that “It’s like déjà vu all over again!”. These are issues which we are not likely to see completely resolved anytime soon.
Posted by Robert B. Fitzpatrick at 4:38 PM 0 comments