On August 12, Schenectady's Ellis Hospital sued to bar enforcement of St. Peters Health Partners Medical Associates, P.C.'s ("St. Peters") 1-year noncompete agreements with 27 of its local cardiologists, claiming that after six years of merger discussions with Ellis Hospital that had been the subject of two (2) professional service agreements that had expressly allowed for those cardiologists to continue servicing Schenectady's community, St. Peters abruptly terminated those discussions and secretly compelled those cardiologists to sign 1-year noncompete agreements that would bar them from working at Ellis after termination of the professional services agreement, which is now scheduled to end in December of 2026.
Not surprisingly, given the high profile of both parties, this newly filed lawsuit has generated quite a bit of press coverage.
The Central Allegations of the Complaint in Ellis Hospital v. St. Peters Health Partners
Although the complaint runs over 20 pages, the essential allegations and claims are as follows:
Ellis brings this action reluctantly to prevent the irreparable harm SPHPMA seeks to inflict on Ellis, evidently in a desire to destroy Ellis as a competitor, gain a stranglehold on the hospital services business in the Capital Region, and, as an inevitable by-product, inflict grievous harm on the medically needy of Schenectady County, many of whom are among the most vulnerable in society.
SPHPMA twice agreed, in Section 5.5.2 of two iterations of the PSA, that if SPHPMA terminated the PSA, Ellis would “be free to contract for the provision of Cardiology Services . . . with any of [SPHPMA’s] Cardiologists.”
The 27 Cardiologists that are the subject of the PSA have been the foundation of Ellis’s cardiology services for decades, and losing the services of these Cardiologists would threaten Ellis’s existence as well as the provision of essential medical services to the population of Schenectady.
Unbeknownst to Ellis, and in blatant violation of the PSA, SPHPMA recently entered into employment contracts with the Cardiologists containing non-compete clauses barring the Cardiologists from working for Ellis for one year, even after termination of the PSA.
SPHPMA has threatened the Cardiologists with legal action to enforce these unlawful non-compete clauses, and this threat has intimidated the Cardiologists from entering into employment with Ellis – even though the Cardiologists have conveyed to Ellis that most, if not all of them, would prefer to work with Ellis going forward, because doing so would allow them to continue providing services to their existing patients and to the population of Schenectady to which the Cardiologists have dedicated their careers.
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Without the foundation of the cardiology practice provided by the Cardiologists, Ellis would not be able to be a full-service hospital.
Cardiology patients often have complex issues and thus need to consult with professionals in other medical disciplines, such as emergency medicine, vascular, neurology, or pulmonary care.
If the cardiology practice is harmed at Ellis, it will have a negative ripple effect on professionals in these other fields, making it increasingly harder to retain or recruit these professionals when the patient volume is not there to support them.
This may cause a vicious circle in which emergency department patients will need to be transferred to Albany and patients that historically could have been treated at Ellis must leave the county for services.
Ultimately, if SPHPMA is able to block Ellis from competing to hire the Cardiologists, it will seriously threaten Ellis’s viability as a hospital, threaten many jobs at Ellis in Schenectady, and threaten a serious degradation in the quality of patient care in Schenectady, Fulton, and Montgomery Counties.
The Causes of Action Set Forth in the Complaint
In terms of the different causes of action, the complaint is rather narrowly focused: (1) breach of the professional services agreements; (2) tortious interference with Ellis's prospective business relations with the cardiologists; and (3) for declaratory and injunctive relief,
"[T]hat the non-compete provisions in the Cardiologists’ current employment agreements are void and unenforceable as applied to Ellis, because they were entered into in direct contravention and breach of the Current and Original PSA."
At its core, this line really summarizes the basis for the entire action in one phrase.
What Will Likely Come Next
Although a review of the Court's electronic docket does not indicate that any motion seeking injunctive relief has been filed as yet, I suspect that Ellis will file such a request in short order.
Putting aside the legal defenses that St. Peters seems to have - which, even from a quick reading of the complaint, and before any answer has been filed, appear to be rather robust, including a substantial question as to whether Ellis Hospital has appropriate standing to question the validity and enforceability of the restrictive covenants - given that the nature of the complaint is so fact-specific and fact-driven, in particular, the harm that will inure to the community if the cardiologists' noncompete agreements are enforced, I imagine the Court will order a hearing to flesh out the facts underlying Ellis's claims before issuing any order on Ellis's application for injunctive relief.
Simply put, the factual record is not sufficiently developed at this stage to warrant an order in either direction right now.
Why the Politicians' Vow to Introduce Legislation to Ban Enforcement of These Noncompetes is an Empty Promise
All of that being said, given the heavy publicity, other forces have entered the fray, including local politicians who have vowed to introduce legislation that would bar enforcement of such noncompetes pertaining to medical professionals. Of course, such public pronouncements should be viewed with a healthy dose of skepticism, given that such legislation has been proposed in New York State previously, and, more to the point, there is zero chance that any such newly proposed legislation would wind its way through the State legislatures in time to make any difference in this current dispute.
I guess we will have to stay tuned.
