Wednesday, July 25, 2018
Settlement Agreement Unlawfully Restricts Doctor’s Practice Under California Law
By a MetNews Staff Writer
The Ninth U.S. Circuit Court of Appeals, in a 2-1 decision, yesterday reversed a District Court judge’s order that a doctor sign an agreement reflecting the agreed-upon terms, citing the terms of a settlement that was reached with his former employer in a race discrimination case, holding that the agreement was invalid under California law because it created a restraint on a medical practice.
Senior District Court Judge John D. Bates of the District of Columbia, sitting by designation, wrote the majority opinion, in which Circuit Judge Sandra S. Ikuta joined. Dissenting, Judge Milan D. Smith Jr. termed the appellant’s excuse for declining to sign the agreement, accepted by the majority, as “sheer humbug.”
The appellant is Donald Golden. He sued the California Emergency Physicians Medical Group (“CEP”) based on its discharge of him.
CEP said it fired Golden as an emergency room physician because he had not gained board certification in emergency medicine; Golden contended CEP’s action was based on his race.
Golden filed the case in Alameda Superior Court. CEP removed it to the U.S. District Court for the Northern District of California, and a settlement was reached.
In declining to sign a settlement agreement setting forth the agreed-upon terms, Golden cited California Business and Professions Code §16600 which declares that “every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.”
Judge Jeffrey S. White found that section inapplicable because the agreement—barring Golden from working at any facility CEP presently owns, contracts with, or in the future gains rights in or contracts with—does not contain a covenant not to compete. He ordered Golden to sign the agreement “no later than August 15, 2011.”
Golden I Opinion
The Ninth Circuit, on April 8, 2015, in Golden I, reversed. The majority, in an opinion by Judge Diarmuid F. O’Scannlain (now on senior status), joined in by Judge Mary H. Murguia, said:
“The courts of California have not clearly indicated the boundaries of section 16600’s stark prohibition but have nevertheless intimated that they extend to a considerable breadth. At the very least, we have no reason to believe that the Stale has drawn section 16600 simply to prohibit ‘covenants not to compete’ and not also other contractual restraints on professional practice. We refrain, however, from addressing the ultimate merits of this question on the relatively undeveloped record that accompanies this appeal, leaving the district court at liberty to order additional briefing or to conduct further fact-finding as it deems prudent. On remand, the district court should determine in the first instance whether the no-employment provision constitutes a restraint of a substantial character to Dr. Golden’s medical practice.”
Judge Alex Kozinski (since retired) dissented, saying:
“The only way section 16600 might be implicated is if, at some future time, Dr. Golden were working for an entity that is acquired by CEP, in which case the agreement would give the employer a right to fire him without a further showing of cause. We have no way of knowing whether this part of the settlement agreement will ever come into play….”
On remand, White again ordered Golden to sign the settlement agreement, and he again refused and filed an appeal.
Golden II Opinion
In yesterday’s majority opinion, Bates said the portion of the agreement affecting where Golden may practice “survives to the extent that it bars Dr. Golden from working at facilities that are owned or operated by CEP, but it fails to the extent that it prevents him from working for employers that have contracts with CEP and to the extent that it permits CEP to terminate him from existing employment in facilities that are not owned by CEP.”
Bates explained that while ruling out reemployment by CEP would have a “minimal” impact on Golden’s practice, barring him from facilities that contract with CEP would have a major effect because “CEP would be entitled to terminate him from his current employment at four facilities where CEP also has contracts.”
In a footnote, he quoted a declaration in which Golden said:
“CEP [could] and would fire me from all of my present jobs because CEP has a contract and gets paid by the same people who pay me.”
The power to fire Golden from facilities it does not now own, but might gain an interest in sometime in the future or might contract with could have a major effect, he declared, pointing out:
“…CEP appears to be growing: according to its own records, the group’s market share has increased steadily over the past decade or so, moving from around twenty percent of all emergency room admissions in California in 2006 to just over twenty-seven percent in 2014.”
In his dissent, Smith wrote:
“Until today, no court has defined what constitutes a ‘restraint of a substantial character’ under California law. Rather, we have emphasized that there is no one-size-fits-all approach to this inquiry.”
He said Golden cannot “point to any evidence that he would be fired, actually restrained, or barred from engaging in his profession upon signing the settlement agreement,” and that he would be “free to engage as a hospitalist, emergency room physician, or in any other medical specialty for entities unaffiliated with CEP.”
“[T]he settlement agreement would not substantially restrain Dr. Golden from engaging in his chosen profession. The only discernable limitation on his profession is that he can no longer work for CEP, which even the majority agrees does not violate section 16600. Even if the other provisions…may someday impose a substantial restraint. such future events are too speculative to justify reversing the district court today.”
Another chunk of the dissent appears below.
The case is Golden v. CEP, No. 16-17354.
Excerpt From Dissent by Judge Mylan D. Smith
Dr. Golden filed a lawsuit against CEP when it terminated his medical staff privileges, allegedly because of poor performance. Just before trial was to begin, the parties reached a settlement agreement in which CEP agreed to pay Dr. Golden some money, and he agreed to give up any opportunity to work again for CEP. At that point, however, this dispute ceased being a typical employment dispute and metastasized into one of those cases that only Franz Kafka could love. First, when the parties finalized the settlement agreement in writing, they appeared before a magistrate judge to confirm their agreement, at which appearance Dr. Golden expressly told the judge that he agreed with the terms of the settlement agreement. Apparently, his word meant nothing. Shortly thereafter, Dr. Golden backed out of the settlement agreement, and refused to sign the settlement document, which he knew stiffed his lawyer out of the contingency fee he had earned for representing Dr. Golden for three years. Then, undercutting the quid pro quo underlying the entire settlement. Dr. Golden claimed retroactively that the reason he refused to sign the settlement agreement to which he had assented in open court was that it violated California Business and Professions Code §16600. This is sheer humbug, and it is lamentable that the change in California law conjured by the majority has the effect of rewarding Dr. Golden’s dishonorable conduct.
The parties are before us for a second tune, disputing whether the district court abused its discretion in concluding that the settlement agreement did not constitute a restraint of a substantial character in violation of section 16600. I respectfully dissent because the majority concludes that the agreement violates section 16600 based primarily on a series of highly speculative future professional restraints that may or may not happen, and because the district court followed our guidance and applied it faithfully to the facts.
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