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Hanger Prosthetics & Orthotics East, Inc. v. William C. Kitchens

Citations: 280 S.W.3d 192; 27 I.E.R. Cas. (BNA) 1618; 2008 Tenn. App. LEXIS 357; 2008 WL 2502117Docket: E2007-01808-COA-R3-CV

Court: Court of Appeals of Tennessee; June 23, 2008; Tennessee; State Appellate Court

Original Court Document: View Document

Narrative Opinion Summary

This case concerns Hanger Prosthetics and Orthotics East, Inc. suing a former employee, William C. Kitchens, and his new employer, Choice Medical, Inc., for violating a non-compete agreement. Kitchens, upon leaving Hanger, joined Choice Medical, allegedly breaching the covenant not to compete by working in the same field within a restricted area. The trial court upheld the covenant's enforceability, citing Hanger's protectable interest through Kitchens' significant relationships with physicians and the experience he gained. The court found that Choice Medical induced Kitchens to breach the agreement, resulting in treble damages of $720,546 under Tennessee law. The damages were calculated from net lost profits using a Knoxville Market Analysis Report, despite the defendants' objections. The defendants appealed, challenging the enforceability of the non-compete, the legitimacy of Hanger's business interest, and the method of damages calculation. The appellate court affirmed the lower court's decisions, recognizing Hanger's legitimate interests and the reasonableness of the covenant's restrictions. The court also upheld the application of treble damages, emphasizing the defendants' intent to leverage Kitchens' relationships for economic gain. The ruling reaffirms the enforceability of non-compete agreements when they are necessary to protect an employer's business interests and do not impose excessive hardship on the employee.

Legal Issues Addressed

Calculation of Damages

Application: Damages were calculated based on net lost profits using a Knoxville Market Analysis Report, a decision upheld despite defendants' challenges.

Reasoning: The Trial Court determined that the damages period was from September 4, 2004, to February 23, 2005, and instructed the parties to calculate damages using the Knoxville Market Analysis Report.

Enforceability of Non-Compete Agreements

Application: The trial court found the non-compete covenant enforceable due to Hanger's protectable interest and reasonable restrictions.

Reasoning: The Trial Court concluded that Hanger had standing to enforce the non-compete clause and established that Kitchens lacked initial training as a prosthetist but gained considerable experience and developed significant relationships with local physicians while at Fillauer, which granted Hanger a protectable interest.

Protectable Business Interest

Application: Hanger's provision of training and the development of customer relationships established a protectable business interest.

Reasoning: Defendant Kitchens lacked initial training or experience as a prosthetist upon starting at Fillauer/Hanger but received extensive training, becoming the primary representative for the company in local hospitals.

Reasonableness of Non-Compete Restrictions

Application: The court deemed the covenant's duration and geographic scope reasonable to protect the employer's interests without undue hardship to the employee.

Reasoning: The Court deemed both the duration and geographic scope of the restrictions reasonable and found no public interest issues with enforcing the agreement, given the unique relationships Kitchens built during his employment.

Treble Damages Under Tenn. Code Ann. § 47-50-109

Application: The court awarded treble damages against the defendants for inducing a breach of contract under Tennessee law.

Reasoning: The Trial Court issued a judgment stating that these lost profits were to be trebled under Tenn. Code Ann. § 47-50-109, resulting in a total recovery of $720,546.00 from the defendants.