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VENCOR, INC. v. WEBB

July 20, 1993

VENCOR, INC., Plaintiff,
v.
DAVID O. WEBB, Defendant.



The opinion of the court was delivered by: PHILIP G. REINHARD

 INTRODUCTION

 Plaintiff, Vencor, Inc. (Vencor), filed a complaint for injunctive and other relief and, subsequently a motion seeking to preliminarily enjoin a former employee, defendant, David O. Webb (Webb), from working for his new employer, Transitional Hospital Corp. (THC). Jurisdiction is pursuant to 28 U.S.C. § 1332. Venue in this court is proper under 28 U.S.C. § 1391(a) as Webb was a resident of this district at the time of filing and the claim arose here. The court has expedited discovery and held a prompt hearing on the motion for preliminary injunction. *fn1" Having heard the testimony of witnesses and received exhibits into evidence, the court hereby enters its findings of fact and conclusions of law.

 FACTS

 Its hospitals are located in Florida, Georgia, Michigan, Tennessee, Indiana, Illinois, Missouri, Texas, Oklahoma, Colorado, Arizona and California. It has had patients in those hospitals from sixteen states other than those in which its hospitals are located. It also obtains patients through national referrals from Medicare and the American Association of Retired Persons.

 Vencor has three principal competitors, including THC, that operate long-term acute care hospitals. THC currently has three such facilities, in Louisiana, Texas and Florida, *fn2" that are in the process of obtaining certification. Vencor considers THC to be its direct competitor. THC issued two press releases in May and July 1992 which refer to Vencor as a competitor and state that "other markets are being examined * * * to determine their suitability for THC's products." (Pl. Exh. 13) Excerpts from Webb's deposition were admitted as admissions and establish that THC operates long-term acute care facilities and has entered the same health care market niche as Vencor.

 Long-term acute care is essentially concerned with providing care to chronically ill patients who require long periods of time to recover and are in need of life support systems of one degree or another. The typical hospital stay for one of these patients is over twenty-five days. Because of the different regulations governing Medicare and health insurance reimbursement for these types of patients, most hospitals do not provide this type of care.

 Several corporate officials of Vencor testified regarding various manuals and documents created by Vencor and used in the operation of their long-term acute care hospitals. According to Frank Anastasia, Vencor's director of operations, Vencor personnel developed an administrative policies and procedures manual (Pl. Exh. 6) in May 1990 at an estimated labor cost of about $ 1,000,000. The manual is concerned with the operations of a long-term acute care facility and would not be useful for operating a short-term acute care hospital. The manual is kept in the administrator's office of each hospital, contains a preamble concerning the confidentiality of the manual and has individual pages that are labelled "confidential and proprietary information." A cover letter regarding the manual was given to each hospital administrator in June 1992. The letter did not discuss where the manual was to be kept, who could review it or whether there was a sign-out procedure. The four members of each hospital's administrative team, the department directors and supervisors all had access to the administrative manual.

 W. Earl Reed, the vice-president of finance and development at Vencor, described several financial documents created and utilized by Vencor in the operation of its long-term acute care hospitals. The full-time equivalent (FTE) report (Pl. Exh. 8) is unique to long-term acute care facilities. While Vencor was required to send a twelve-month cost report to Medicare, such report was not as detailed as the FTE report. The cost per patient day report (Pl. Exh. 9) was created by Vencor and had never been done before as to long-term acute care. Reed also developed the net revenue schedule (Pl. Exh. 10) which showed how much was paid to Vencor per day for each type of patient. It is designed to be used for long-term acute care hospitals. The net income analysis and recap (Pl. Exhs. 11 and 11a) was also designed for use in a long-term acute care facility to measure income by payor class. Reed considered all of these documents to be confidential as to their format and the information contained therein because they took six years to develop and had never been prepared for a long-term acute care hospital before.

 Vencor also used a "chargemaster" which contained standardized charges and standardized terminology for the various procedures utilized at Vencor's hospitals. Additionally, Vencor had a consolidated charge history (Pl. Exh. 5) which is a computer program developed by a third party in conjunction with Vencor to show revenues and costs by department and procedure for the various hospitals. *fn3" Hermes considered the consolidated charge history to be confidential because a competitor could use the information therein to create a marketing plan.

 Webb was the assistant administrator of finance at Vencor's hospital in Sycamore, Illinois. In that position he was familiar with the various financial documents Vencor used. He had used similar types of documents at two previous employers and considered Vencor's version as being simpler and less detailed. He also referred to the administrative policies and procedures manual occasionally and was sent a draft copy of the financial policies and procedures manual in January 1993 to review.

 In June 1992, Webb received a document entitled "CONFIDENTIALITY AND NON-COMPETITION AGREEMENT." Webb signed the agreement on July 8, 1992, and received $ 1,000 as consideration for doing so. The agreement provides, in relevant part, that Webb will not, for a twelve-month period after leaving Vencor, "engage, directly or indirectly, within the continental United States (the 'Geographical Territory'), in any 'Competitive Business.'" Competitive business is defined in the agreement as "any business or activity conducted by the Company as of the date of Employee's termination from the Company, including, but not limited to, providing long-term hospital care to medically complex, chronically-ill patients." In a letter to Webb dated July 8, 1992, the vice-president of ...


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