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Collier HMA Physician Management, LLC v. Menichello

Florida Court of Appeals, Second District

May 31, 2017

COLLIER HMA PHYSICIAN MANAGEMENT, LLC, d/b/a PHYSICIANS REGIONAL MEDICAL GROUP, a Florida limited liability company, Appellant,
v.
BRIAN MENICHELLO, M.D., an individual, Appellee.

         NOT FINAL UNTIL TIME EXPIRES TO FILE REHEARING MOTION AND, IF FILED, DETERMINED

         Appeal from the Circuit Court for Collier County; Hugh D. Hayes, Judge.

          Alan D. Lash, Martin B. Goldberg, Lorelei J. Van Wey, and Justin C. Fineberg, of Lash & Goldberg LLP, Miami, for Appellant.

          Lawrence A. Farese and Michael R. Whitt, of Robins Kaplan LLP, Naples, for Appellee.

          WALLACE, Judge.

         In this case we are called upon to determine the enforceability of a restrictive covenant in an employment agreement between Collier HMA Physician Management, LLC, d/b/a Physicians Regional Medical Group, a Florida limited liability company (Collier HMA), and Brian Menichello, M.D. (Dr. Menichello). Collier HMA appeals the circuit court's final summary judgment in favor of Dr. Menichello entered on the theory that the restrictive covenant was unenforceable because Collier HMA was a "successor" employer and the employment agreement did not expressly authorize enforcement of the covenant by an assignee or successor as required under section 542.335(1)(f), Florida Statutes (2012). Because the circuit court erred in basing its ruling on what it deemed to be the "substance" of a merger transaction involving Collier HMA's ultimate parent instead of on traditional principles of corporate law, we reverse.

         I. THE FACTUAL AND PROCEDURAL BACKGROUND

         Collier HMA is a Florida limited liability company with its principal place of business in Collier County.[1] The company owns and operates a health care business that employs approximately forty physicians and operates two hospitals. Collier HMA also has two full-service medical clinics, one in Naples and one in Bonita Springs.

         Dr. Menichello is a medical doctor licensed to practice medicine in Florida. In September 2012, Collier HMA entered into an Employment Agreement (the Agreement) with Dr. Menichello. In accordance with the Agreement, Dr. Menichello was to practice medicine at Collier HMA and its two hospitals. The term of the Agreement was for three years, but it was terminable by either party on ninety days' notice.

         The Agreement, as amended, included a restrictive covenant that provided in pertinent part, as follows:

6.7. Restrictive Covenant. During the term of this Agreement, and for the 12-month period after this Agreement expires or is terminated, you won't have any financial relationship, including, without limitation, as an employee or independent contractor, with Naples Community Hospital, Inc., Lee Memorial Health System or Millennium Physician Group, nor any organization that directly or indirectly controls, is controlled by, or is under common control with, Naples Community Hospital, Inc., Lee Memorial Health System or Millennium Physician Group.

         Notably, the Agreement does not provide that it is binding upon and enforceable by the successors and assigns of the parties. Instead, the Agreement expressly provides to the contrary:

6.11. No Third-Party Beneficiaries. The terms and provisions of this Agreement are intended solely for the benefit of you and us. It is not the intention of the parties to confer third-party beneficiary rights upon any other person.

         The absence of a provision for the enforcement of the Agreement by the successors and assigns of the parties is pertinent to their arguments regarding the enforceability of the restrictive covenant under section 542.335(1)(f).

         In September 2012, when the parties entered into the Agreement and Dr. Menichello began the three-year term of his employment, Collier HMA was part of a large group of medical businesses that were ultimately controlled by Health Management Associates, Inc. (HMAI), a Delaware corporation with its headquarters and principal place of business in Naples. During the term of the Agreement, Community Health Systems, Inc. (CHS), effected a merger transaction whereby it acquired control of all of the businesses in the chain that were previously subject to the ultimate control of HMAI. An explanation of the ownership of Collier HMA and its place in the family of several other companies related to it both before and after the merger is necessary to an understanding of the parties' arguments and the issue to be decided.

         As is often the case with medical businesses, the structure of these companies was and remains characterized by multiple levels or tiers of ownership. At the first tier, Collier HMA owned and operated the business where Dr. Menichello was employed. At the second tier up the chain, Collier HMA was owned by a single member, Southwest Florida HMA Holdings, LLC. At the third tier, that entity was owned by Health Management Associates, LP. At the fourth tier, Health Management Associates, LP, was owned by Health Management General Partner, LLC. At the fifth tier, that entity was owned by Collier HMA's ultimate parent company, HMAI. The stock of HMAI was publicly traded. Thus, the equity interest in HMAI changed hands regularly. By contrast, the ownership of Collier HMA and the other companies in the multi-tiered ownership structure remained constant.

         The merger by which CHS acquired HMAI, the ultimate parent of Collier HMA at the top tier of the ownership structure, occurred in January 2014. This transaction was structured as follows: CHS caused to be created a wholly-owned subsidiary named FWCT-2 Acquisition Corporation (FWCT-2). Upon approval of the merger by the necessary parties, FWCT-2 merged with and into HMAI, with the result that HMAI survived as a wholly-owned subsidiary of CHS.

         After the merger, the stock of HMAI was no longer publicly traded. But HMAI survived the merger and continued to operate, as did all of the subsidiaries in the chain of ownership below HMAI. Obviously, there was a change in the ownership of HMAI, but there was no change in the ownership of its subsidiary companies, including Collier HMA. Indeed, Collier HMA continued to exist and to operate the medical practice, with Southeast Florida HMA Holdings, LLC, as its sole member, just as before the merger. Also, just as before, Dr. Menichello continued to be employed by and to receive his compensation from Collier HMA.

         After the CHS merger, Dr. Menichello became dissatisfied with certain aspects of the continued operations of Collier HMA. Although we need not detail Dr. Menichello's complaints here, they related primarily to a claimed insufficiency in staffing and other services that he believed were necessary to the optimum operation of his practice. On September 24, 2014, Dr. Menichello gave Collier HMA ninety days' written notice of his intention to terminate the Agreement without cause effective December 24, 2014. Afterwards, Collier HMA learned that Dr. Menichello intended to begin working for Naples Community Hospital, Inc. (NCH), or one of its affiliates. On October 30, 2014, Collier HMA sent Dr. Menichello a letter reminding him of the provisions of the restrictive covenant in the Agreement. Collier HMA also ...


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