Webb accepted a position with THC as manager of its central business services. In that position, he is in charge of billings and collections. He denied taking any Vencor documents and denied using any of Vencor's alleged confidential information in his job at THC. Neither has he disclosed any information considered proprietary or confidential by Vencor. Portions of his deposition were admitted wherein he testified that part of his responsibilities at THC were to develop methodologies used to collect accounts, review the computerized billing system and design documents related to patient billing. He admitted at the hearing that he considered the Vencor manuals and financial documents to be confidential.
Thomas McNaull testified as an expert on behalf of Webb. He is the president of American fled Trust, a hospital management company, and is a former vice-president of financial operations for a group of about 100 hospitals. His experience has been in managing over 450 hospitals, but he has never worked or consulted for a hospital providing solely long-term care. He reviewed the administrative and financial manuals, concluded that they were the type generally required by many hospitals and contained matters covered by many hospital manuals, and opined that the format of neither manual was unique. He also was of the opinion that none of the financial reports used by Vencor were unique and that other hospitals used similar reports. He considered the consolidated charge history as unique and not available to other hospitals.
Lastly, the parties stipulated that THC has hired several other former Vencor employees.
As a threshold matter, a party seeking a preliminary injunction must demonstrate: (1) some likelihood of succeeding on the merits, and (2) that it has no adequate remedy at law and will suffer irreparable harm if preliminary relief is denied. Abbott Lab. v. Head Johnson & Co., 971 F.2d 6, 11 (7th Cir. 1992). If the moving party cannot establish either of these prerequisites, the injunction must be denied. Abbott Lab., 971 F.2d at 11. If the movant clears both hurdles, the court must then consider: (3) the irreparable harm the non-moving party will suffer if preliminary relief is granted, balancing that harm against the irreparable harm to the moving party if relief is denied, and (4) the public interest in the denial or grant of the preliminary injunction. Abbott Lab., 971 F.2d at 11-12. The court must then weigh all four factors in deciding whether to grant the injunction. Abbott Lab., 971 F.2d at 12. This "sliding scale" approach balances the degree of likelihood of success on the merits against the irreparable harms. The more likely the plaintiff will succeed on the merits, the less the balance of irreparable harms need weigh in its favor. The less likely the plaintiff will succeed, the more the balance of irreparable harm must weigh in its favor. Abbott Lab., 971 F.2d at 12. This weighing process also must consider the consequences to the public interest of granting or denying the injunctive relief. Abbott Lab., 971 F.2d at 12.
In deciding whether Vencor has demonstrated some likelihood of succeeding on the merits, it is first necessary to decide what substantive law to apply to this dispute. In a diversity case, the choice of which state's substantive law to apply is determined by the conflict of law rules of the forum state. Sarnoff v. American Home Prod. Corp., 798 F.2d 1075, 1080 (7th Cir. 1986) (citing Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496-97, 85 L. Ed. 1477, 61 S. Ct. 1020 (1941)). In deciding whether the parties' choice of law provision will be enforceable in Illinois, the court must also apply Illinois' choice of law rules. Sarnoff, 798 F.2d at 1080. Illinois courts will allow parties to designate the law of another state if enforcement of such law is not dangerous, inconvenient, immoral, nor contrary to the public policy of Illinois. Sarnoff, 798 F.2d at 1081.
Here, the parties elected to have the agreement governed by Kentucky law. There is no apparent reason, and the parties have suggested none, that an Illinois court would find the non-competition agreement to be against the public policy of Illinois. In fact, Illinois recognizes the enforceability of such agreements under the appropriate circumstances. See Sarnoff, 798 F.2d at 1080. That an Illinois court might find this agreement violates Illinois law does not necessarily lead to the conclusion that it is so obnoxious to Illinois public policy that an Illinois court would refuse to enforce it, despite the parties' choice of Kentucky law. See Sarnoff, 798 F.2d at 1081. Finding the agreement unoffensive to the public policy of Illinois, this court will apply Kentucky law in deciding the extent to which it is enforceable.
The threshold question, then, is whether Vencor has shown some likelihood of proving at a subsequent trial that the non-compete agreement is enforceable against Webb under Kentucky law.
In Kentucky, an agreement in restraint of trade (such as the one at issue here) is reasonable if, under the circumstances of the particular case, the restriction is limited to affording fair protection to the interests of the employer and is not so broad as to interfere with the public interest or impose undue hardship on the party restricted. Central Adjustment Bureau, Inc. v. Ingram Assoc., Inc., 622 S.W.2d 681, 684-85 (Ky. Ct. App. 1981); see Hammons v. Big Sandy Claims Serv., Inc., 567 S.W.2d 313, 315 (Ky. Ct. App. 1978). A covenant not to compete with a former employer will be enforceable by way of injunction if it is valid and reasonable. Louisville Cycle & Supply Co. v. Baach, 535 S.W.2d 230, 232 (Ky. 1976). Thus, reasonableness is the linchpin of any non-competition agreement under Kentucky law.
Such agreements are valid and enforceable if the terms are reasonable in light of the surrounding circumstances. Crowell v. Woodruff, 245 S.W.2d 447, 449 (Ky. Ct. App. 1951). Reasonableness is to be determined generally by the nature of the business or profession and employment, and the scope of the restrictions with respect to their character, duration and territorial extent. Crowell, 245 S.W.2d at 449; see Hall v. Willard & Woolsey, 471 S.W.2d 316, 317 (Ky. Ct. App. 1971).
In the present case, the non-compete portion of the agreement prohibits Webb from working in a competitive business anywhere in the continental United States for twelve months after leaving Vencor.
This court need not address whether the geographic scope of the covenant is reasonable,
as the court finds the agreement unreasonable under the circumstances of this case and, thus, unenforceable against Webb.
Webb is an accountant. His position at THC is in billing and collections. There is no evidence to show that he took any confidential documents when he left Vencor. Although he was privy to certain financial documents and information contained therein,
there is no evidence that he has used any of those documents or information in his particular position at THC. Moreover, he denied doing so. While the evidence showed that Webb was involved in "straightening out" the financial operations at THC's hospitals in Texas and Florida,
there was again no evidence to show that Webb utilized any information he obtained at Vencor in doing so, other than general knowledge and experience.
Furthermore, there is no evidence that Webb is in any position at THC that would allow him to utilize the information acquired while at Vencor.
At Vencor he was the assistant administrator of finance at one of Vencor's facilities. At THC, he is responsible for billing and collections. Without opining on the relative importance of the two positions, Webb's position at THC entails different duties and responsibilities. Webb's undisputed testimony was that he had no need to use any Vencor information and that such information had little, if any, bearing on his duties at THC. For example, Webb explained that the calculation of costs, which he performed at Vencor, is unrelated to collecting payments from Medicare, a function of his THC position.
Also bearing on the question of whether the non-competition agreement can reasonably be applied to Webb under these circumstances is the nature of the interest sought to be protected by the agreement.
The evidence here failed to show that Vencor had a proprietary interest in the format of the manuals or the financial documents used to operate its business to the degree necessary to impose a prohibition on Webb from working in the particular position he holds at THC. While several Vencor officials testified to the time, effort and money spent on developing the format of the manuals and documents, the evidence failed to show they were unique. Furthermore, McNaull, Webb's expert, testified that in his opinion the manuals and documents, while well-done, were not unique within the industry. Under Kentucky law, it would seem to be unreasonable to enforce an agreement not to compete against Webb where the interest sought to be protected is essentially a particularized compilation of already existing and generally recognized principles and formulations into a different or more comprehensive format. This is especially so where there is no evidence to show the former employee is actually using, or in a position to use, that information to duplicate or recreate the final product of his former employer.
In so ruling, this court recognizes that financial information specifically pertaining to Vencor would be confidential to the extent it is not otherwise made available to the public. The confidentiality of such information is not sought to be enforced in this lawsuit, however.
Under these circumstances, the court finds that Vencor has failed to make a threshold showing of some likelihood of succeeding on the merits. Some likelihood, of course, means more than some chance. Vencor has not shown that it has any likelihood of succeeding in permanently enjoining Webb from working in his position at THC for the duration of the prohibited time period (twelve months). Absent that showing, this court must find in favor of Webb and deny the motion for preliminary injunction without further inquiry. See Abbott Lab., 971 F.2d at 11.
Even if the court were to find that Vencor showed some likelihood of succeeding on the merits, it would nonetheless deny Vencor's motion under the remainder of the sliding scale analysis.
Under that approach, the more likely Vencor is to succeed on the merits, the less the balance of irreparable harms need weigh in its favor and vice versa. The court believes that if, in fact, Vencor has shown some likelihood of succeeding on the merits, it is slight. Thus, the balance of irreparable harms must weigh more heavily to justify a preliminary injunction.
The balance of irreparable harm is measured by weighing the irreparable harm Webb will suffer if the preliminary injunction is granted against the irreparable harm to Vencor if it is denied. In this case, Webb, a husband and father of three young children, will be out of a job. He also purchased a home in Atlanta, Georgia, as part of his accepting a position with THC. He will, of course, be left in a financial lurch should he be suddenly forced to quit his job. Furthermore, there is no guarantee that a position will be available for him a year from now at THC or that he will be able to return to THC.
On the other hand, Vencor has not identified what irreparable harm it will suffer under the particular circumstances here should the preliminary injunction not issue. Nor can this court perceive of any harm that Vencor might suffer in the time it might take to obtain permanent relief against Webb that would not be compensable by some reasonable means. Clearly, the balance of irreparable harm does not weigh so heavily in favor of Vencor, if at all, to outweigh the minimal showing of the likeliness of succeeding on the merits.
Additionally, this court must, in weighing these various factors, also consider the public interest, that is, the consequences of granting or denying the preliminary injunction to non-parties. See Abbott Lab., 971 F.2d at 11-12. The public interest at stake if the injunction is granted is that of unnecessarily and unreasonably interfering with free enterprise and an individual's ability to work where he or she chooses. This is especially true because the agreement in this case has nationwide scope as written. More importantly, it is also against the public interest to force a person out of a job, possibly leaving him or her with no means to support themselves or their family. Additionally, Vencor's ability to disrupt the operations of THC will give it a distinct competitive advantage that will thwart to some degree the development of fair competition in an area of obvious public need, long-term health care. The other side of the coin is that for companies such as Vencor to efficiently and effectively deliver their services to the public they need to be able to protect critical and confidential material necessary to their operations.
In this case, there are identifiable effects on the public interest whether the preliminary injunction is denied or granted. As such, this factor carries little weight in the equation. When all the factors are weighed, the balance clearly tips in Webb's favor. Thus, even were the court to find that Vencor showed some likelihood of succeeding on the merits as a threshold matter, it would nonetheless deny the motion for preliminary injunction.
For the foregoing reasons, Vencor's motion for a preliminary injunction is denied.
PHILIP G. REINHARD, JUDGE
UNITED STATES DISTRICT COURT
DATED: July 20, 1993