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Altoona Regional Health System v. Schutt

Superior Court of Pennsylvania

September 4, 2014

ALTOONA REGIONAL HEALTH SYSTEM
v.
COREY R. SCHUTT, D.O., Appellees
v.
UNIVERSITY ORTHOPEDICS CENTER, LTD., Appellant

Argued March 5, 2014

Appeal from the Order of the Court of Common Pleas, Blair County, Civil Division, No.: Civil Action No. 2012 GN 621. Before MILLIRON, J.

David B. Consiglio, State College, for appellant.

Michael P. Routch, Hollidaysburg, for Altoona Regional, appellee.

John W. Heslop, Jr., Altoona, for Schutt, appellee.

BEFORE: ALLEN, J., OLSON, J., and WECHT, J. OPINION BY WECHT, J.

OPINION

Page 261

WECHT, J.

University Orthopedics Center, Ltd., (" UOC" ) appeals from the May 30, 2013 order of the Court of Common Pleas of Blair County. UOC alleges that the trial court erred when it granted partial judgment on the pleadings and a permanent injunction to Altoona Regional Health System (" ARHS" ). The injunction prevented UOC from enforcing a restrictive covenant provision in Corey R. Schutt, D.O.'s employment agreement. That covenant barred Dr. Schutt from practicing orthopedics or related subspecialties for two years after the end of his employment with UOC

Page 262

and within twenty miles of UOC's facilities. UOC also asserts that the trial court erred in sustaining the preliminary objections filed by Dr. Schutt. For the reasons that follow, and upon review of Rules 1034 and 2227 of our Rules of Civil Procedure, we must vacate in part, reverse in part, and remand for further proceedings.

On October 27, 2009, UOC and Dr. Schutt entered into a three-year employment agreement. See Complaint for Injunction and Declaratory Relief, 2/22/2012, Exh. A.2 (" Employment Agreement" ). That same day, ARHS, UOC, and Dr. Schutt entered into an " Orthopedic Trauma Support and Practice Recruitment Agreement" in which ARHS agreed to underwrite a portion of Dr. Schutt's salary at UOC in exchange for Dr. Schutt covering calls in ARHS' emergency room. Complaint for Injunction and Declaratory Relief, 2/22/2012, Exh. A.1 (" Recruitment Agreement" ).

Approximately two years later, Dr. Schutt terminated his employment with UOC and began work at Southern Alleghenies Elite Orthopedics (" Elite Orthopedics" ), which is a wholly-owned subsidiary of ARHS. In a January 11, 2012 letter to Dr. Schutt, UOC asserted that Dr. Schutt had breached the restrictive covenant of the Employment Agreement by beginning work at Elite Orthopedics, and UOC claimed it was entitled to $250,000 in liquidated damages as a result of the alleged breach. ARHS responded with a January 25, 2012 letter that demanded UOC cease any attempts to enforce the restrictive covenant. Specifically, ARHS cited an exception to the restrictive covenant in Section 5.8 of the Recruitment Agreement.

On February 22, 2012, ARHS filed a complaint against UOC in the Court of Common Pleas of Blair County. The complaint sought an injunction to prevent UOC from enforcing the restrictive covenant against Dr. Schutt, and also sought declaratory relief to elucidate the parties' rights under the contracts. On March 14, 2012, UOC filed preliminary objections to ARHS' complaint. In relevant part, UOC sought dismissal of the complaint because ARHS had failed to join Dr. Schutt, an assertedly indispensable party. See UOC's Preliminary Objection to Complaint, 3/14/2012, at 5-6. In an order and opinion dated August 1, 2012, the learned trial court concluded that Dr. Schutt was an indispensable party pursuant to Pa.R.C.P. 2227(a):

Persons having only a joint interest in the subject matter of an action must be joined on the same side as plaintiffs or defendants. Pa.R.C.P. 2227[(a)]. Pennsylvania law holds that a party is indispensable " when his or her rights are so connected with the claims of the litigants that no decree can be made without impairing those rights." Sprague v. Casey, 520 Pa. 38, 550 A.2d 184, 189 (Pa. 1988). In this case, the [c]omplaint relates to the enforcement of agreements to which Dr. Schutt is [a] party and the disposition of this [c]omplaint will either render him able to practice medicine freely or may lead to further litigation involving his ability to practice and obligations to pay damages and perhaps attorney's fees. Additionally, the court would not have jurisdiction to render a judgment without the presence of Dr. Schutt because of the principle that a decree should finally determine the rights that all persons have in a subject. Powell v. Shepard, 381 Pa. 405, 113 A.2d 261, 265 (Pa. 1955). Therefore, it is obvious that [Dr. Schutt's] rights are so connected that no decree can be made without impairing those rights.

Order, 8/1/2012, at 3-4 (citations modified, italics added). Consequently, the trial court dismissed ARHS' complaint, but

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granted ARHS thirty days within which to amend its pleading.

On August 7, 2012, ARHS filed an amended complaint. This pleading was virtually identical to the original complaint and requested the same injunctive and declaratory relief. The only substantive difference between the two filings was that, in deference to the trial court's order, the amended complaint added Dr. Schutt as a named party. See ARHS' First Amended Complaint, 8/7/2012, ¶ ¶ 27-35. ARHS chose to designate Dr. Schutt as an " Involuntary Plaintiff."

On September 21, 2012, UOC responded to ARHS' amended complaint with an answer, new matter, and counterclaims. In this filing, UOC asserted various counterclaims against ARHS and Dr. Schutt, including breach of contract, tortious interference, and breach of fiduciary duty. The counterclaims also sought to enforce the restrictive covenant against Dr. Schutt, and requested that ARHS provide UOC allegedly unpaid income contributions. See Answer, New Matter and Counterclaims to First Amended Complaint for Injunction and Declaratory Relief, 9/21/2012, at 22-32.

On October 10, 2012, Dr. Schutt filed preliminary objections to UOC's counterclaims. In pertinent part, Dr. Schutt asserted a demurrer on all counterclaims, arguing that Pa.R.C.P. 2227(b) barred UOC from filing affirmative counterclaims against Dr. Schutt because of his involuntary status. Dr. Schutt's Preliminary Objections to Answer, New Matter, and Counterclaims, 10/10/2012, ¶ ¶ 10-16. On October 18, 2012, ARHS filed a response to UOC's answer.

On December 13, 2012, UOC filed a reply to Dr. Schutt's preliminary objections, arguing that the trial court should reject Dr. Schutt's demurrer. On that same day, UOC replied as well to ARHS' October 18 response.

On January 2, 2013, before the trial court had ruled upon Dr. Schutt's preliminary objections, ARHS filed a motion for partial judgment on the pleadings regarding ARHS' claims for injunctive and declaratory relief and regarding UOC's counterclaims seeking to enforce the restrictive covenant of the Employment Agreement. See Motion for Partial Judgment on the Pleadings, 1/2/13, ¶ 2. ARHS argued that the language in Section 5.8 of the Recruitment Agreement unequivocally forbids UOC from attempting to enforce the restrictive covenant in the event that Dr. Schutt commences employment with an ARHS subsidiary. Id. at ¶ 18.

On January 22, 2013, UOC filed its answer in opposition to ARHS' motion for partial judgment on the pleadings. UOC argued that ARHS' motion was premature because the pleadings were not closed and because material facts remained in dispute. On June 5, 2013, the trial court issued an order and opinion simultaneously addressing both ARHS' motion for partial judgment on the pleadings and Dr. Schutt's preliminary objections. First, the trial court granted ARHS' request for injunctive and declaratory relief:

Section 5.8 of the Recruitment Agreement . . . is a carve-out provision which specifically prevents UOC from undertaking any efforts to restrict, prohibit or otherwise penalize Dr. Schutt from providing services as an employee of or contractor of any entity which is owned or controlled by ARHS or any of its subsidiaries or its affiliates. Section 5.8 concludes with [ sic ] its last sentence by entitling ARHS to injunctive relief if UOC either directly violates[,] or is likely to violate[,] the subsection.
Section 5.8 is applicable to the current relationship and the [c]ourt agrees with

Page 264

ARHS that the relief which [ARHS] requests is abundantly clear as contained within the four corners of [S]ection 5.8. The [Recruitment] Agreement also contains a statement that includes a standard paragraph precluding consideration of any other interpretation of the document not reduced to writing.

Trial Court Opinion, 6/5/2013, (" T.C.O." ) at 7-8.

Next, the trial court turned to Dr. Schutt's preliminary objections and concluded that UOC could not proceed against Dr. Schutt on UOC's affirmative counterclaims:

Dr. Schutt relies on Pa.R.C.P. 2227(b) as it relates to involuntary plaintiffs. Dr. Schutt further relies on Karoly v. Cap, 365 Pa.Super. 528, 530 A.2d 436 (Pa. 1987), to buttress his argument that Pa.R.C.P. 2227 does not allow [d]efendant's recovery of damages against those joined as involuntary [p]laintiffs. Dr. Schutt reasons that if [i]nvoluntary [plaintiffs] are not required to file pleadings, ...

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