ISU sues DVMs for breach of contract, veterinarians file monopoly countersuit

ISU sues DVMs for breach of contract, veterinarians file monopoly countersuit

Specialists, university at odds over non-compete agreements
Apr 22, 2011

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Des Moines — Three former Iowa Veterinary Specialties veterinarians and an operations manager have been hauled into court over what Iowa State University (ISU) is alleging was a subversive attempt at stealing away customers from its newly acquired specialty practice.

But the doctors say ISU’s new non-profit specialty practice can’t legally compete with their new private referral practice—the Iowa Veterinary Referral Center, which opened March 1 just six miles from the practice they left when ISU took it over.

ISU purchased Iowa Veterinary Specialties in January 2011 for $4.6 million with the intent of operating it as a 24-hour nonprofit emergency and surgical medicine facility to serve the Des Moines area.

Veterinarians Steven Reimer, Derek Nestor and Stan Wagner signed non-compete agreements with Iowa Veterinary Specialties, according to a complaint filed in U.S. District Court Feb. 28, and each were paid “substantial compensation” for their work at the practice. Wagner’s non-compete agreement was non-transferrable. But both Reimer’s and Nestor’s non-compete agreements were to be honored through any sale or transfer of the practice and preclude the doctors from competing in any emergency or specialty medicine in the Des Moines area for two years after ending employment with Iowa Veterinary Specialties, argues Kelsey Knowles, attorney for ISU.

Reimer and Nestor, along with their attorneys, disagree. Both doctors were told by separate lawyers that a university-owned practice—a non-profit—could not legally compete with a private enterprise. They were told the university would not be able to enforce the non-compete agreements, which Reimer and Nestor say were signed after they were hired at Iowa Veterinary Specialties.

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“Dr. Reimer and Dr. Nestor were fraudulently induced into signing the non-compete agreement at issue because IVS told them Dr. Nestor had an agreement to purchase IVS,” writes Jesse Linebaugh, attorney for the defendants.

“We felt like we were going to be safe to proceed with opening our hospital,” Nestor says.

The complaint response, filed March 16, goes on to detail the circumstances surrounding the signing of Nestor’s and Reimer’s non-compete agreements. The two had offered to purchase the practice in 2008, but their request was denied. Nestor then took a job at a clinic in South Carolina, but was persuaded to come back to Iowa Veterinary Specialties with a raise and an agreement to purchase the practice within five years with Reimer.

Reimer and Nestor say they signed amended agreements with the intent to take over the practice in the future and because they never imagined they would be in this predicament. For starters, Iowa Veterinary Specialties was founded out of the frustration of the previous owner with the university system, Reimer says.

“Not in a million years would I have thought they would have sold to the university they opened in response to,” he explains. “Multiple clients have come over here frustrated with the university communication and care, and they’ve expressed significant concern to us about the quality of care they can get in central Iowa if this goes through. People in central Iowa want an option.”

They had planned on buying the practice, but say they couldn’t compete with the university’s bid of a half a million dollars more than any other bidders.

“At the time we signed (the non-compete agreements), we had an oral agreement with the owners to eventually work out a deal to buy the hospital,” Nestor explains.

The non-compete agreements were worded in a way that the doctors would have had to relocate out of state to continue practicing.

“We were all born and raised in Iowa,” says Reimer. “We would have had to leave our home state where our families are.”

Continuing on with the university was not an option for the veterinarians, both ISU alums.

“We weren’t interested in continuing with the university just because of the different type of atmosphere that is involved with teaching and research,” Nestor says, adding the heavy administrative model ISU employs would have made it “very inefficient to get things done.”

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Additionally, the veterinarians argue in their response to ISU’s complaint to the courts, Reimer was not offered employment when ISU took over the practice, and the university has only “selectively” enforced non-compete agreements with other employees, “thus rendering them meaningless.”

Despite the agreement, ISU’s complaint alleges that Reimer, Wagner and Nestor ended their employment with the practice when the sale to ISU was finalized in February 2011 and immediately began advertising their services with another Des Moines specialty practice, the Iowa Veterinary Referral Center, in violation of the non-compete agreements.

The suit goes on to describe how the doctors and former Iowa Veterinary Specialties operations manager Paul Hanika allegedly used their former practice’s computers to gain confidential client information to use in “setting up their competing venture.” ISU also claims that the men used the practice’s personnel and vendors to set up their business on company time and ran computer sweep programs to delete files and attempt to erase evidence of their information-gathering on the practice computers.

ISU asserts that $5,000 has been spent to restore the computer systems. ISU Veterinary Services Corp. is asking for $75,000 in damages altogether, plus an injunction to stop the men from continuing to violate the non-compete agreements or using any information they obtained while working for their former practice.

Hanika denies any wrongdoing and says ISU’s goal in naming he and Wagner in the complaint is to shut the new practice down. In the defendants” answer to ISU’s complaint, they point out that the practice’s client list was virtually a list of all veterinarians in Iowa and can’t be considered confidential information since the list is available to the public on the practice’s own website.

While their practice so far as been successful, Reimer and Nestor say the stress of fighting ISU is something they could have done without.

“This has added a significant amount of stress beyond the normal stress that comes with opening a new practice, particularly one this size,” says Nestor. “For anyone that’s going to sign (a non-compete agreement), make sure you have your attorney read it thoroughly.”

Reimer says they are fighting ISU’s complaint because if this can happen to them, it could happen to anyone.

“I think this is a scary precedent for practice in the nation,” he says. “Because universities can outbid just about anybody.”

The veterinarians filed a countersuit against ISU April 18, alleging the university is monopolizing the veterinary specialty market in Iowa. A trial date has been set for October 15.