Legal Question in Business Law in California

covenant not to compete

I sold my physical therapy practice on 3/15/2007. Included in the sale document is the statement :''Seller shall not directly or indirectly carry on a similar business within a radius of 15 miles of the business being sold, attempt to hire any existing employees of the business, solicit any customers of the business nor assist anyone else except the buyer to do so within these limits; nor have any interest, directly or indirectly in such business except as an employee of the buyer, for a period of 3 years from the COP. '' I would like to begin a new practice, does this covenant include marketing to doctors within the 15 mile radius, if my office is outside the 15 mile radius? I understand that I cannot market to prior patients - this would apply to new patients. However, what if my prior patients were to search for me and find me without my telling them of my whereabouts - can i still treat them? Can I hire an employee to work in my facility if it is outside the 15 mile radius? I am currently employed at a clinic which is 14 miles from my previous clinic, and was given a verbal approval by the buyer. Shall I attempt to get a written confirmation of this?

Can I use my prior logo in areas outside the 15 mi. radius?

Asked on 5/07/08, 1:07 am

3 Answers from Attorneys

Cathy Cowin Law Offices of Cathy Cowin
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Re: covenant not to compete

I think you are interpreting this agreement too restrictively. I also sense that you could benefit from some general discussion regarding business planning. Some of these questions cannot be accurately answered without reviewing the entire agreement with the buyer and the service mark (logo) ownership. I recommend that you fax the agreement to me (or another attorney) prior to discussion. Looking solely at the language you have provided to attempt to provide some generalized comments, you have agreed not to open a business or be involved in a business in a more indirect manner that is located within 15 miles of your old practice. This does not mean that you can't treat prior patients that come to you independently. This does not restrict general marketing to your business target market. There is probably (and you have indicated an understanding) that there is language elsewhere that specifically prohibits direct solicitation of prior patients as a specific target group. You are not restricted in employee hiring practices unless you are pirating the other business in some manner. That's dead-bang simple that you shouldn't hire their employees off of them. Yes, written confirmation of an understanding is always the best practice. The logo is probably a very bad idea in terms of a potential claim of service mark infringement. If you intend to create a new logo, there are specific guidelines for minimizing the risk of intellectual property dispute claims and that is a recommended part of a new business plan. Despite having tried to answer the questions as best possible with limited language, this is not really reliable legal advise because you would need an attorney to review the entire agreement in order to understand all possible rights/obligations of the parties. There may be other provisions that would impact the counsel. I would strongly urge you to talk with an attorney about your situation specifically rather than relying on generalized comments to this posted question. I think you'll feel significantly assured about your business planning if you do so. Best of luck in your new practice!

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5/07/08, 11:12 am
Bryan Whipple Bryan R. R. Whipple, Attorney at Law
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Re: covenant not to compete

I agree with Ms. Cowin.

Here's another aspect. How is the buyer of your business doing? Did you get paid in full? Has the buyer complained abount any aspect of the deal afterward? A malcontented buyer who thinks he paid too much or that the seller misrepresented the opportunity is much more likely to look at your new operation with close scrutiny and to sue on the slightest pretext. Then, win or lose, you have the costs of defending a suit.

Well, maybe.......does your agreement have an attorney-fee clause? The effect of such a clause is to make a suit possible for the plaintiff, even where the damages are rather small is strict monetary terms. He could recover $5,000 in lost profits but also collect his $20,000 attorney and expert witness fees incurred in winning.

Finally, in measuring the 15 miles, are you using "as the crow flies," shortest route, or the route most people would actually drive? From a possible defendant's aspect, I'd recommend using the conservative approach and use the crow flight method to get the biggest radius in defining the prohibited turf.

If there are close calls and the buyer has not become hostile toward you, I'd suggest asking for a written waiver or modification of the sale agreement. You can negotiate the fine points like the marketing to doctors. Likely the buyer will agree to some aspects, not others, and you might want to give a modest consideration for any concessions.

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5/07/08, 12:25 pm
Edward Hoffman Law Offices of Edward A. Hoffman
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Re: covenant not to compete

I agree with what Ms. Cowin and Mr. Whipple have written, especially their suggestion that you consult directly with an attorney.

Your situation is complicated. The multiple questions you ask are beyond the scope of what LawGuru is for. You need specific guidance from someone who has reviewed the agreement and discussed your situation with you at some length.

It sounds like you can afford to pay for a few hours of a lawyer's time. I think that would be money well spent.

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5/07/08, 1:47 pm

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