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IN THE SUPREME COURT OF TENNESSEE AT NASHVILLE
February 2, 2005 Session MURFREESBORO MEDICAL CLINIC, P.A. v. DAVID UDOM
Appeal by permission from the Court of Appeals, Middle Section Chancery Court for Rutherford County No. 02-5739CV Hon. Robert E. Corlew, III, Chancellor

No. M2003-00313-SC-S09-CV - Filed June 29, 2005

The issue presented in this case is whether a covenant not to compete is enforceable between a physician and his former employer, a private medical clinic. The trial court concluded that the noncompete agreement was enforceable and enjoined the physician from establishing a medical practice at a location within the restricted area. The Court of Appeals affirmed the trial court's decision that the non-compete agreement was enforceable, but reversed the grant of the temporary injunction and remanded the case to the trial court for further determinations with respect to the agreement's "buyout" provision. After a thorough review of the issues presented, including considerations of public policy, we reverse the Court of Appeals' judgment. We hold that except for those specifically prescribed by statute, physicians' covenants not to compete are unenforceable and void. Tenn. R. App. P. 11 Permission to Appeal; Judgment of the Court of Appeals is Reversed WILLIAM M. BARKER, J., delivered the opinion of the court, in which E. RILEY ANDERSON and ADOLPHO A. BIRCH, Jr., JJ., joined. J ANICE M. HOLDER, J., filed a concurring and dissenting opinion. FRANK F. DROWOTA , III, C.J., not participating. Douglas B. Janney, III, Nashville, Tennessee, for the appellant, David Udom. Josh A. McCreary, Murfreesboro, Tennessee, for the appellee, Murfreesboro Medical Clinic, P.A.

OPINION FACTUAL BACKGROUND The plaintiff, Murfreesboro Medical Clinic (MMC), is a private medical practice in Murfreesboro, Tennessee, that employs more than fifty physicians. In early 2000, MMC made an

offer of employment to the defendant, Dr. David Udom (Dr. Udom), to practice internal medicine at MMC. Dr. Udom verbally accepted the offer. To memorialize this agreement, MMC presented Dr. Udom with an "employment and stock transfer agreement" (the agreement) for his review and signature. The agreement provided Dr. Udom with an initial two-year term of employment at MMC, with MMC having the option of extending the contract at the expiration of those two years. The agreement also contained a non-compete provision which stated: [u]pon any termination of this Agreement . . . , the Employee agrees not to engage in the practice of medicine within a twenty-five (25) mile radius of the public square of Murfreesboro, Tennessee for a period of eighteen (18) months following such termination. The agreement further contained a "compensation for competition" provision, referred to by the parties as a "buy-out" clause. This buy-out clause provided that the non-compete restrictions cited above would be waived "upon the payment by the Employee to the Corporation of an amount equal to twelve times the most recent Initial Monthly Salary . . . and the reimbursement of the Corporation for any moving expenses paid to, or on behalf of, the Employee." Dr. Udom reviewed the proposed agreement, signed it, and returned it to MMC on or about April 4, 2000. He began work on September 1, 2000, and practiced medicine in the Internal Medicine Department until August of 2002. On August 13, 2002, as his initial two-year term of employment was about to expire, MMC advised Dr. Udom that it would not renew his contract and that August 31, 2002, would be his last day of employment. After being informed of MMC's decision, Dr. Udom met with Robert Hardy, MMC's Chief Executive Officer, who advised Dr. Udom that MMC would enforce the non-compete provision. In early September, Dr. Udom met with Dr. D. Scott Corlew, MMC's President and Chairman of the Board, to discuss whether the non-compete clause would allow Dr. Udom to become a hospitalist1 at Middle Tennessee Medical Center (MTMC). He was told that taking a position as a hospitalist would be in breach of the non-compete provision, even though Dr. Udom would not be directly competing for patients with MMC. Dr. Udom was also told during this meeting that he could not accept a position at the Alvin C. York Veterans Administration Medical Center in Murfreesboro despite the fact that this facility did not directly compete for patients with MMC.2 In addition, Dr. Udom was informed that the non-compete provision would require him to
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A hospitalist is a physician, usually an internist, who specializes in the care of hospitalized patients. The American Heritage D ictionary (4th ed. 20 00). As a ho spitalist, a physician tre ats patients who are alre ady in the hosp ital, not patients who spe cifically seek out the physician. Veterans A dministration hospitals are fed erally fund ed facilities that provide treatment only to persons meeting certain eligibility requirements. In general, a person must have been honorably discharged from military service (continued...)
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relinquish his admitting privileges at MTMC. Dr. Udom states in an affidavit contained in the record that the covenant not to compete would preclude him from practicing medicine at all of the hospitals in the Murfreesboro area, including MTMC in Murfreesboro, Stone Crest Medical Center in Smyrna, Alvin C. York VA Medical Center in Murfreesboro and Summit Hospital in Nashville. It would also restrict him from practicing in several communities surrounding Murfreesboro, including La Vergne, Antioch, Brentwood, Shelbyville, Woodbury, Lascassas and Lebanon. On October 10, 2002, Dr. Udom sent a letter to MMC, informing it of his intention to open a medical practice in Smyrna, Tennessee. In a second letter dated November 18, 2002, he reiterated his intent and also informed MMC that he did not intend to utilize the "buy-out" clause of the employment agreement. On December 10, 2002, MMC filed a complaint against Dr. Udom seeking to enjoin him from violating the non-compete provision of his employment agreement. Following a hearing in chancery court on January 10, 2003, MMC was granted a temporary injunction enjoining Dr. Udom from establishing a medical practice in Smyrna, Tennessee, or engaging in the practice of medicine at MTMC in Murfreesboro, Tennessee. The court ordered MMC to file a $120,000.00 injunction bond and also permitted Dr. Udom to deposit $120,000.00 with the Clerk & Master's Office as satisfaction of the "buy-out" clause. In addition, Dr. Udom was granted permission to file a Rule 9 interlocutory appeal. On February 19, 2003, Dr. Udom opened a solo practice in Smyrna, Tennessee. His office was approximately fifteen miles from the public square of Murfreesboro, Tennessee. In the Court of Appeals, Dr. Udom argued that (1) the trial court erred in granting MMC the temporary injunction and (2) that the covenant not to compete is unenforceable because it is unreasonable in the circumstance, does not secure a protectable interest, is over-broad, and is against public policy. The Court of Appeals reversed the grant of the temporary injunction against Dr. Udom but affirmed the holding that the covenant not to compete was enforceable. The Court of Appeals remanded the case to the Chancery Court to determine "the reasonableness and specific amount to be used in satisfying the buy-out provision." We granted Dr. Udom permission to appeal to determine whether the covenant not to compete is enforceable. The issue of whether covenants not to compete are enforceable against physicians is one of first impression for this Court.

(...continued) to be eligible for treatme nt at a VA facility. In addition, length of service, nature of disability, income level and ava ilable VA resources also facto r into what treatment is available. See 38 U .S.C.A .

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