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TLC Laser Center Inc. v. Midwest Eye Institute

June 15, 1999

TLC THE LASER CENTER, INC., AND TLC MIDWEST EYE LASER CENTER, INC., PLAINTIFF-APPELLANTS,
v.
MIDWEST EYE INSTITUTE II, LTD., MIDWEST EYE PHYSICIANS, P.C., HERMAN D. SLOANE, M.D., ALLEN M. PIELET, M.D., FLOYD W. WOODS, O.D., RONALD J. CARR, O.D., AND DOMINICK L. OPITZ, O.D., DEFENDANT-APPELLEES.



The opinion of the court was delivered by: Presiding Justice Gordon

Appeal from the Circuit Court of Cook County Honorable John K. Madden, Judge Presiding.

Pursuant to Supreme Court Rule 304(a), plaintiffs TLC The Laser Center, Inc. (TLC, Inc.), and TLC Midwest Eye Laser Center, Inc. (TLC-Midwest) (collectively, TLC or plaintiffs), appeal from the trial court's entry of partial summary judgment in favor of defendants. The court determined that TLC did not possess a "protectable interest" which would support a claim for a preliminary injunction. For the reasons given below, we affirm.

FACTS

On January 20, 1998, TLC filed an eleven-count verified complaint against defendants. It sought injunctions under section 15 of the Trademark Registration Act (also known as the Anti-Dilution Act) (765 ILCS 1035/15 (West 1994)) *fn1 and the Illinois Uniform Deceptive Trade Practices Act (815 ILCS 510/1 et seq. (West 1994)) (counts I and II); and under restrictive covenants contained in written "Confidentiality and Non-Competition Agreements" between defendants and plaintiffs (count IV). In addition to injunctive relief plaintiffs also sought monetary damages for common-law unfair competition (count III), breach of contract (count V), unjust enrichment (count VI), tortious interference with contractual relations (count VII), breach of fiduciary duty (count VIII), inducement of breach of fiduciary duty (count IX), tortious interference with prospective business relations (count X), and conversion (count XI). None of the monetary damage counts are before us on this appeal, however.

According to the complaint defendants Herman D. Sloane, M.D., and Allen M. Pielet, M.D., are ophthalmologists practicing in Illinois. Prior to December 1996, Sloane, Pielet and five other ophthalmologists with whom Sloane and Pielet shared facilities at Midwest Eye Institute, Ltd. (MEI), in Palos Heights, Illinois, and Midwest Eye Institute II, Ltd. (MEI II), in Westchester, Illinois, were managing their practices and facilities without administrative support. However, in December 1996 TLC purchased "substantially all of the non-professional assets of MEI and MEI II from its [sic] shareholders, including Sloane and Pielet." Among the assets purchased were the leasehold interests in the MEI and MEI II facilities and all "rights, title and interest in and to the tradenames 'Midwest Eye Institute, Ltd.' and 'Midwest Eye Institute II, Ltd.'" The precise provisions of the transaction were memorialized in a document entitled "asset purchase agreement," which was attached as an exhibit to the complaint.

Shortly thereafter, in January 1997, Sloane and Pielet entered into a "confidentiality and non-competition" agreement with plaintiffs. The non-competition agreement, a copy of which was also attached as an exhibit to the complaint, provided in relevant part that "During the two (2) years after the date hereof, the Covenantors [(Sloane and Pielet)] shall not, without the prior written consent of Companies [(TLC)], provide excimer laser surgical professional or technical services within a 30 mile radius of the Premises. For purposes of this Agreement 'Premises' shall include MEI II's facility [in] Westchester, Illinois and MEI's facility [in] Palos Heights, Illinois. The parties hereto acknowledge and agree that the covenant contained herein shall not be effective if the Covenantors terminate the Practice Administrative Service Agreement between Covenantors and TLC Midwest pursuant to the terms of Section 8.3 of that Agreement."

The "Practice Administrative Service Agreement" (service agreement) to which the non-competition agreement referred was also attached to the complaint. This document provided that TLC would train Sloane and Pielet to perform excimer laser surgery at TLC's expense and would equip the Westchester facility to perform excimer laser surgery. According to the complaint excimer laser surgery is different than traditional ophthalmological practice, in that rather than treating an ocular disease, excimer surgery is elective, and is designed to improve the vision of persons with otherwise healthy eyes. The complaint alleged that "neither MEI nor MEI II had excimer laser technology service and performed relatively few excimer laser procedures" prior to 1997.

In the service agreement TLC also licensed to Sloane and Pielet's practice the right to operate under the name "Midwest Eye Institute" (which name TLC had obtained the rights to in the asset purchase agreement). Sloane, Pielet, and the practice covenanted in return that "During the term of this Agreement and for a period of two (2) years after the termination of this Agreement for any reason other than termination pursuant to Section 8.3 hereof, the Practice and the Surgeons shall not, without the prior written consent of TLC Midwest within a 30-mile radius of each site of the Premises provide excimer laser surgical professional or technical services at any location other than the Premises."

Sloane, Pielet, and their practice also agreed that

"The Practice and the Surgeon acknowledge and agree that TLC is entitled to prevent the disclosure of Confidential and Proprietary Information. *fn2 The Practice and the Surgeon agree at all times during the term of this Agreement and thereafter to hold in strictest confidence and not to disclose to any person[,] firm or cooperation [sic], other than to Practice Professional Employees, to Physician Resource Group, Inc. and its affiliates and persons engaged by TLC Midwest to further the business of the Practice, and not to use except in the pursuit of the business of TLC Group, Confidential and Proprietary Information, without the prior written consent of TLC Midwest; unless (i) such information becomes known or available to the public generally through no wrongful act of the Practice or the Surgeon or its employees, (ii) disclosure is required by law or the rule, regulation or order of any governmental authority under color of law, provided, that prior to disclosing any Confidential and Proprietary Information pursuant to this clause (ii), the Practice and the Surgeon shall, if possible, give prior written notice thereof to TLC Midwest and provide TLC Midwest with the opportunity to contest such disclosure, or (iii) the Practice and the Surgeon reasonably believe that such disclosure is required in connection with a lawsuit to which the Practice or the Surgeon is a party."

Plaintiffs agreed to furnish the Practice with services incident to the medical practice (including, e.g., purchasing, billing, bookkeeping) and to advance to the Practice sufficient funds to pay all expenses. However, Sloane and Pielet retained sole and exclusive control of "all aspects of their practice of medicine and the delivery of medical service at the TLC Facilities." Sloane and Pielet agreed to compensate plaintiffs for their services and repay advances and agreed that for a period of five years they would not transfer their shares of the practice nor would they terminate it. They also covenanted to work no fewer than 25 hours per week at TLC.

Section 8.3 of the service agreement, which was referred to in the restrictive covenants contained in the service agreement and the non-competition agreement, allowed Sloane, Pielet and the "Practice" (MEI II) to terminate the service agreement if either of two things happened: TLC's insolvency or a material breach of the service agreement by TLC (if such breach continued for more than sixty days after written notice thereof).

The complaint alleged that Sloane and Pielet began to conspire to "break away from TLC Midwest Eye Institute" in or about the early summer of 1997. According to plaintiffs, in the fall of 1997 Sloane and Pielet reduced the number of hours they worked at TLC without legitimate reason (including an alleged feigned hand injury by Sloane) in order to "create a backlog of patients scheduled for excimer laser surgery in an effort to divert patients" to a new facility Sloane and Pielet opened in December 1997 under the name "Midwest Eye Physicians." TLC alleged that in December 1997 Sloane and Pielet served TLC with written notice of the Practice's cancellation of the service agreement and induced other TLC employees, including defendants Ronald Carr and Dominick Opitz, to purge records from the TLC facility's files, secrete TLC's confidential and proprietary information, and remove equipment and non-medical supplies which either belonged outright to TLC or were subject to a security interest held by TLC. According to the complaint Carr and Opitz were at the time employed by TLC as Directors of Clinical Services at the Palos Heights and Westchester facilities, respectively.

As previously noted, plaintiffs brought suit against defendants on a variety of theories, but this appeal concerns solely Counts I, II, and IV of the complaint. In Count I plaintiffs sought to enjoin defendants from violating the Illinois Anti-Dilution Act (765 ILCS 1035/15 (West 1994)). Plaintiffs contended that their tradename of "Midwest Eye Institute" was distinctive, and that defendants' use of the name "Midwest Eye Physicians" (MEP) was intended to confuse patients and referring physicians and threatened "economic injury and damage to TLC's goodwill and business reputation which has become intertwined with the reputation and market success of its excimer laser practice." Similarly, count II of the complaint sought an injunction against defendants based on the Illinois Uniform Deceptive Trade Practices Act (815 ILCS 510/1 et seq. (West 1994)). Plaintiffs contended that defendants had willfully and intentionally acted so as to bring about a "likelihood of confusion or of misunderstanding as to the source, sponsorship, approval or certification of goods or services" which had caused TLC "irreparable harm" and would continue to do so unless enjoined. *fn3 Finally, Count IV of the complaint sought an injunction based on the restrictive covenants contained in the non-competition agreement and the service agreement. Plaintiffs contended that defendants violated the covenants by (1) practicing excimer laser surgery within the restricted territory within the restricted time; and (2) "on information and belief," using and/or disclosing TLC's confidential and proprietary information in their formation and operation of MEP.

In January 1998, within the same month as the complaint was filed, plaintiffs filed a motion for a temporary restraining order and a preliminary injunction. Claiming "substantial and irreparable injury" to its business, TLC requested the court to enjoin Sloane, Pielet, and MEI II from breaching the non-competition agreement and enjoin Sloane, Pielet, MEI II and MEP from using the tradename "Midwest Eye Physicians" (or any similar "derivative of 'Midwest Eye Institute'") or otherwise violating the Anti-Dilution and Deceptive Trade Practices Acts.

The court denied plaintiffs' request for a temporary restraining order on the basis that plaintiffs had failed to "establish a protectible [sic] right or interest in enforcing the restrictive covenants at issue." Plaintiffs did not appeal from this order. The court stated at the hearing at which that order was issued that it had not decided the merits of the preliminary injunction by its decision not to grant a temporary restraining order. It directed the parties to brief the issue whether plaintiffs had a protectable interest before it conducted a hearing on the request for a preliminary injunction.

In accordance with the court's direction, plaintiffs moved for a "summary determination" that they possessed a protectable interest, and defendants counter-moved for summary judgment in their favor on the basis that plaintiffs had no protectable interest. The parties filed legal memoranda together with extrinsic submissions in support of their respective positions. In support of their motion for summary determination, plaintiffs submitted affidavits by Kenneth F. Wong, senior director of operations for TLC; Duane Morrison, TLC's regional general manager for the midwest, rocky mountain states and California; Janine Charland, general manager of TLC-Midwest; and Cathy Graziano, the business manager of TLC-Midwest. Defendants, in turn, submitted copies of their agreements with plaintiffs; two affidavits by Sloane; an affidavit by attorney Kenneth Harris; schedule 3.1 to the asset purchase agreement; and schedule 6.1 to the practice management agreement. (No schedules were included in the copies of the agreements which were attached to the original complaint.)

The Wong affidavit, submitted by plaintiffs, concerned costs which TLC had and would continue to incur. Wong stated that a TLC excimer laser center required several unique rooms and specialized equipment. The average "build out cost" for a new facility was $70.00 per square foot; generally at least 3,500 to 4,000 square feet of usable space was required, or 6,500 square feet if the facility was also to house a facility for non-excimer laser procedures. Wong admitted that TLC was required to make relatively few modifications to the Westchester property, however; the only cost he detailed was the removal of one wall at a cost of $4,300. He stated that TLC was required to make a heavy capital investment in the equipment required to perform excimer laser procedures. Wong stated that the laser alone cost approximately $500,000, and other associated equipment (including a microkeratome, an air purifier, and a specialized cooling unit) cost an additional $95,000. TLC also purchased yearly maintenance contracts for the equipment at a price of approximately $47,000 per year.

Wong stated that TLC would incur substantial losses if it was forced to relocate from the Westchester office. To move the specialty equipment from the Westchester office would cost between $3,000 and $10,000, depending on the distance of the move; he also stated that it would be "extremely unlikely" that TLC could find a sub-tenant for its lease because of the special cooling equipment, wiring, lay-out, millwork and plumbing in the facility. He anticipated that TLC would lose at least $600,000 on the lease if it were forced to relocate.

Morrison stated in his affidavit that because there was a very low rate of utilization of excimer laser procedures (he stated that only two percent of the near-sighted population was expected to undergo corrective laser surgery within the next five to ten years), a population base of at least 500,000 people and 100 to 150 referring physicians was required to sustain a center. Morrison stated that in addition to the laser center defendants were establishing in Palos Heights, there were already four other such operations in the Chicagoland area.

Charland's affidavit explained the operations of TLC. Charland stated that throughout its course of operations, TLC had developed a number of techniques for "managing, marketing and promoting a corrective laser surgery practice and center" which were "not generally known outside of TLC." Charland stated that TLC had hired and trained a number of employees at the Westchester office who, on information and belief, were then working for defendants. She stated that according to TLC procedures the patient only met the surgeon on the date of the surgery, before which the patient had met and had substantial interaction with TLC staff. Accordingly, she contended, TLC "develops a significant amount of 'good will' of its own with patients and referring eye care professionals."

TLC's final submission was the affidavit of Graziano, which concerned defendants' alleged misappropriation of TLC files. Before being employed by TLC, Graziano had been employed by defendants for approximately six years. She stated that before defendants' departure from TLC, TLC had regularly reviewed patient charts in the course of its business in order (in part) to generate a list of optometrists who referred patients to TLC. She averred that the defendants, upon their departure, had "removed the vast majority of the patient files from the TLC facilities, and those files are no longer available for review to determine the source of many patient referrals." Graziano stated that after review of the list of referring optometrists and based upon her familiarity with defendants' referring optometrists through her previous employment, she believed that TLC's marketing efforts added seven optometrists to the group who were referring patients to defendants.

As noted, among defendants' submissions were two separate affidavits by Sloane. *fn4 In the first of those affidavits Sloane stated that before he and Pielet were ever approached by TLC he (Sloane) already had "extensive training in excimer laser surgery ***, and had substantial experience in that area." Sloane also stated that when he and Pielet entered into their relationship with TLC, they sold only "non-medical, nonprofessional assets to TLC--assets such as tables, computers, facility leases, etc." Sloane emphasized that he and Pielet did not sell TLC their practice or their patient records. He also noted that although TLC represented that it had expended more than $1.5 million to purchase the non-medical assets of the practice, he and Pielet received "less than approximately $20,000."

The second Sloane affidavit was essentially a response to the Charland affidavit. Sloane averred that the persons to whom Charland referred were employees of his and Pielet's practice, not employees of TLC, and to the extent TLC sought to employ the persons directly, it was in breach of the practice management agreement. Sloane also stated that under the practice management agreement he and Pielet were charged for all of the services those personnel performed, "including" their salaries. Moreover, Sloane stated that neither he nor Pielet "raided" TLC's staff. According to Sloane, the persons identified by Charland worked for ...


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