Appeal from the Superior Court of the District of Columbia (CA-9309-98) (Hon. John H. Bayly, Jr., Trial Judge)
Before Wagner, Chief Judge, and Terry and Reid, Associate Judges.
The opinion of the court was delivered by: Reid, Associate Judge
This case involves the validity of a covenant not to compete which is set forth in an agreement between two dentists, appellants/cross-appellees Dr. Daniel Deutsch and Daniel J. Deutsch. D.D.S., P.C. (collectively, "Dr. Deutsch"), and appellee/cross-appellant Dr. Stephen Barsky, who in effect ended their "partnership." After determining that the contract damages flowing from the breach of the covenant could not be ascertained, the trial court granted summary judgment in favor of Dr. Barsky on the ground that the covenant not to compete was unreasonable and unenforceable.
On cross-appeal, Dr. Barsky argues that the trial court erred in concluding that contract damages for breach of the covenant not to compete are not ascertainable at law. Detecting no error in this ruling, we affirm that portion of the trial court's decision.
Dr. Deutsch contends in his appeal that the trial court did not properly apply the factors set forth in Ellis v. James V. Hurson Assocs., Inc., 565 A.2d 615 (D.C. 1989), before reaching its conclusion that the covenant not to compete is unreasonable and unenforceable. We agree. Consequently, we reverse that part of the trial court's summary judgment decision relating to the validity and enforceability of the covenant, and remand this matter to the trial court for further proceedings consistent with this opinion.
The record before us shows that Dr. Deutsch, who is licensed to practice dentistry in the District of Columbia, established a professional corporation known as "Daniel J. Deutsch, D.D.S., P.C." *fn1 When Dr. Barsky acquired and became owner of fifty percent of the shares of the corporation on June 1, 1990, Dr. Deutsch and Dr. Barsky became "partners," according to Dr. Deutsch's deposition testimony. *fn2 From around June 1, 1990 to December 3, 1996, Dr. Barsky and Dr. Deutsch occupied the same office at 1925 K Street, N.W. in the District. Each had separate patients, but there was mutual collaboration in case of emergencies.
On October 1, 1993, Dr. Deutsch and Dr. Barsky executed an agreement ("the October 1st agreement") under which Dr. Barsky sold his shares of the professional corporation to Dr. Deutsch in exchange for $506,000.00. Dr. Barsky also agreed to rent space for his dental practice from the professional corporation for a minimum of five and one-half years from the effective date of the October 1st agreement, to pay management fees (for example, for billings and collections), and to share operating expenses (for example, for a receptionist and a telephone system).
The October 1st agreement contained a mutual covenant not to compete clause in paragraph 16 which specified in full:
Departure from the Practice of Dentistry. The parties acknowledge and agree that if either Seller or Shareholder leaves the practice of dentistry at the Leased Premises while Management Fees are due, the other party shall have a right to the departing party's dental practice to satisfy any outstanding obligations. Seller and Shareholder shall each execute Security Agreements and Financing Statements granting the other party a security interest in their respective practices. If either Seller or Shareholder leaves the practice of dentistry during the five and one-half year period following the date of this Agreement and any obligations under this Agreement remain outstanding, the departing party covenants and agrees that for a period of two years following said departure, he will not, as an individual, stockholder, officer, director, partner, agent, employee, consultant or representative, engage in the practice of dentistry within a radius of five miles from the Leased Premises.
Thus, the mutual covenant not to compete consisted of a two-year bar on dental practice within a five-mile radius of 1925 K Street, N.W., if either party left the 1925 K Street office during the five and one-half year term of the agreement while outstanding obligations remained under the agreement.
In June 1996, while the October 1st agreement was still in effect, Dr. Barsky entered into a lease for the rental of office space at 1145 19th Street, N.W., a location two blocks from 1925 K Street, N.W., and thus, within the five-mile radius specified in the covenant not to compete. Dr. Barsky did not move into the space immediately, and on December 1, 1996, Dr. Deutsch learned of Dr. Barsky's new lease agreement. Dr. Barsky relocated his practice to the 19th Street address on December 4, 1996, one day after appellants filed suit in the trial court, and while he still had obligations remaining under the October 1st agreement.
After Dr. Barsky filed for bankruptcy and the automatic stay provision of 11 U.S.C. § 362 (a) became effective, Dr. Deutsch dismissed his trial court complaint without prejudice. Dr. Barsky's bankruptcy action proceeded and eventually resulted in a final order relating to Dr. Deutsch's bankruptcy claim against Dr. Barsky. Entered on October 15, 1998, the order specified in relevant part:
ORDERED, that the rights of [Dr. Deutsch] to seek enforcement of the covenant not to compete contained in the Agreement between the parties dated October 1, 1993 ("the Agreement") are determined, in part, as follows:
A. The rejection of the Agreement by the debtor, Stephen Barsky, is a breach by Dr. Barsky of the Agreement; and
B. Any right to damages arising from the breach of the Agreement constitutes a claim within this bankruptcy case
F. If, and only if, a court of competent jurisdiction determines that under state law no adequate right in damages exists as a consequence of the breach of the agreement, because an adequate determination of the amount of damages cannot be made sufficient to permit a judgment to be entered under the standards of the law of the District of Columbia, [Dr. Deutsch] is ...