The case of the enforced noncompete clause

How the Joseph v. O’Laughlin case illustrates the importance of noncompetes to buyers of veterinary practices

Noncompetes aren’t really enforceable, are they? Yes, they are.

The seller of a veterinary practice in Mount Pleasant, Pa., recently learned this the hard way. The case, Joseph v. O’Laughlin, illustrates the importance of noncompete agreements to buyers of veterinary practices—and the consequences of violating these pacts.

The Joseph case involves a practice known as Grace Veterinary Clinic. John B. O’Laughlin, DVM, was its owner. In December 2014, Dr. O’Laughlin entered into an agreement to sell the assets of the practice to Laurie Joseph, DVM.

The purchase-and-sale agreement contained a noncompete clause and related restrictions. Specifically, the agreement prohibited O’Laughlin from competing in any capacity with Dr. Joseph within 50 miles of Grace Veterinary Clinic for five years. It also prohibited him from indirectly or directly contacting or soliciting any past, present, or future client of the practice during this five-year period.

Making waves

About six months later, O’Laughlin put these contractual restrictions to the test. In particular, he formed a limited liability company called O’Laughlin Veterinary Services, created a Facebook page of the same name, and purchased equipment.

The Facebook page included a link to a map showing the location of the new practice that O’Laughlin planned to open. The link advised viewers that the clinic was “coming soon.” One Grace client commented that O’Laughlin was the “only vet” she had ever used, adding that she hoped he would be “back soon.” O’Laughlin, in turn, posted a message indicating that he would be “text updating” pet owners. Three days later, another Grace client chimed in, lauding O’Laughlin and stating, “Can’t wait for the new clinic to open.”

But that’s not all. O’Laughlin also filed a petition with the county zoning board for a variance allowing him to operate a veterinary clinic in Dawson, Pa., which was only eight miles from Grace.

His activity got the attention of Joseph, who filed a lawsuit in the Court of Common Pleas of Fayette County to try to stop O’Laughlin in his tracks. Unfortunately for him, the court was all too willing to enforce the contractual restrictions against him.

In particular, the court entered a permanent injunction dismissing the petition for a variance that O’Laughlin had pending before the county zoning board; canceling the zoning board’s scheduled hearing on the petition; directing him to cease operations at the Dawson facility; prohibiting him from operating a veterinary clinic within 50 miles of Grace within the five-year restricted period; and prohibiting him from engaging in any other activity that would violate the agreement.

Ouch.

O’Laughlin appealed the ruling to the Superior Court of Pennsylvania.

In his appeal, O’Laughlin argued that he did not actually compete against Grace but merely prepared to compete after the five-year restriction had expired. The Superior Court roundly rejected this argument. Emphasizing that noncompetes in purchase-and-sale agreements are “intended to temporarily limit a seller’s competition with a purchaser, in order for the purchaser to establish its own clientele,” the Superior Court saw O’Laughlin’s activities as “integral parts” of operating a competing veterinary clinic.

He also argued that his Facebook page did not violate the agreement because it was not a form of client solicitation. The Superior Court, disagreed, concluding: “There was but one reason for O’Laughlin to create the O’Laughlin Veterinary Services Facebook page and maintain contact with former clients: to solicit their business.”

Dissuaded that the parties’ agreement gave O’Laughlin the leeway to do what he did, the Superior Court affirmed the trial court’s decision and kept the permanent injunction in place.

Lessons learned

Joseph v. O’Laughlin offers many lessons to veterinarians interested in buying or selling a practice.

First, this case illustrates the importance to buyers of including enforceable noncompetition and nonsolicitation clauses in their purchase-and-sale agreements. In this regard, absent these contractual provisions, Joseph may not have had a legal basis to enjoin O’Laughlin from proceeding with his zoning application and Facebook page.

Second, Jones v. O’Laughlin highlights the powerful role of equity, or fairness, in cases involving noncompete clauses and related restrictions. The optics of a seller with a five-year, 50-mile noncompete seeking a zoning variance shortly after the sale for purposes of operating a competing facility only eight miles away would be troubling for many judges. This sense of unfairness was palpable in the Superior Court’s decision, which was clearly sympathetic to Joseph’s plight.

Third, the Joseph case serves as a reminder that noncompetition and nonsolicitation agreements are not self-executing. That is, one who is protected by such an agreement must be ready to enforce it in court if the opposing party does not voluntarily comply. Joseph was aware of this and did what she had to do. Otherwise, she might have lost her investment in the practice.

Fourth, the lawsuit emphatically dispels the notion that noncompetes are not enforceable and, consequently, that would-be violators have nothing to worry about. Properly drafted noncompetes are generally enforceable against veterinarians absent extenuating circumstances, and courts often give them special weight in the sale-of-business context.

Fifth, this legal tussle shows that litigation tends to be protracted and costly. Indeed, the deal closed in December 2014, but the ensuing litigation was not resolved on appeal until August 2017, nearly three years later. Thus, don’t be afraid to walk away from a proposed deal if you have serious concerns about the other party’s willingness to fulfill its obligations.

Finally, Joseph v. O’Laughlin underscores the importance of obtaining experienced legal counsel when buying or selling a veterinary practice. Restrictive covenants (i.e., noncompetes, nonsolicitation clauses, and the like) are but one aspect of a purchase-and-sale transaction. Such deals typically involve numerous contractual provisions that should be negotiated carefully—and entered into only with a full appreciation of their consequences.

Todd A. Newman, a Cornell Law School alum, works closely with veterinary practices. He is president and owner of a Salisbury, Mass., law firm (toddnewmanlaw.com) that focuses on business, employment, labor, and litigation matters.

16 thoughts on “The case of the enforced noncompete clause

  1. O’Laughlin is the best vet I have ever had. He values your pet and your situation over dollar signs. I was devasted when he sold his practice to Joseph. With hopes of her continuing to serve his patrons, I took my pets to her.. I found her unapproachable, and insistent on expensive procedures for my pets. To prevent O’Laughlin from practicing is a true crime. There is not a more compassionate vet I have come accross. And I know I am not the only one who feels this way. I look forward to the day I get to go to Grace Vet again.

  2. Trash written here, you want to see the truth? Take your pets to those people at “top notch”… Its a pitiful place with people that don’t know a quarter of what Dr O knows.. Can’t wait for the day that my pets will be seen with only the best vet!!

  3. Dr. Joseph and it’s a stretch to call her that.. will never have the compassion or knowledge that Dr. O has. She is more concerned with the dollar sign then the health and well being of the animal. I will wait s long as it takes for him to practice or drive the 50 miles for him cause God knows he is worth it. The writer of this trash should get their facts straight.

  4. Very sad that this is such a one sided look at this very sad situation. There is a reason everyone is waiting for Dr.John O’Laughlin to open another office HE IS AN AWESOME, ETHICAL, CARING, KNOWLEDGEABLE,& LOVING VET. You really should take some time to hear the other side of this story. It’s a shame that someone feels so threatened as a Vet to go to such extremes to prevent a great vet from practicing when clearly there are so pet and pet owners in need if great care. This is not a positive way at all to gain or keep a clientele that she is so worried about. Dr.O has been a much loved and trusted vet to many in the past and will be again soon God willing.

  5. Mr Newman you managed to enrage former GVC clients with your article. It’s a shame and irresponsible that you didn’t take the time to talk to Dr O’Laughlin prior to publishing your article. Had you done so, you would have been educated on all the facts. My question to you Mr Newman, will you now be liable when former GVC clients leave Top Notch when they reference your article as the reason?

  6. Okay I became very bored with all the rhetoric. The truth is most people, including myself, and friends and family do not feel the service provided after Dr. O left were as superior as his. All words and jealousy aside. Talent is what talent is. Dr. O was/is a phenomenal Veternarian. There has been no comparison to this practice he sold. My family and children grew up with this man genuinely providing excelling services in times of crisis, death and well visits. Stop the hate and let the public make the choices they need to make for their pets and family. These no compete clause are formed out of fear alone. If you excel at what you do there should be no worries. I don’t hear any other local Vets complaining. Stop taking our personal voices away!

  7. Mr. Newman, SHAME ON YOU!!!! If you felt there was a need to write this article, you really should have gotten BOTH sides of it..
    OUCH!!!!
    Dr. Joseph has already lost most of her former Grace Veterinary clients due to her own incompetence…. OUCH!!!!
    I speak from experience!!
    The non-compete clause is now senseless!!
    Dr. O’Laughlin is a TRUE PROFESSIONAL and has ALWAYS put his clients first going above and beyond in everything he does!!
    His reputation speaks for itself thru out the surrounding counties and in this community he is truly second to none!!!!
    You really need to be “enlightened” by getting the other side of this!!!!

  8. Non compete vs non competence needs to be considered in this situation.
    Joseph has lost most of the former Grace clients due to her unapproachable attitude and poor service.

  9. Let’s address the article first: biased, poorly written and tactless
    I was taught in high school Journalism not to write like this, but that’s beside the point.
    Dr. Joseph is not compassionate, quick to make rash decisions and ruthless in her attempt to make Dr. O’Laughlin look bad. She knows she does not provide the same level of service, the same quality of care that Doc did or have the heart he has.
    Actions speak louder than words! People don’t trust her with their pets because pets are family, and when she sees them all she sees is a dollar sign. That is not Doc. He cares deeply about each animal. The animals or their families do not matter to her. No respect or integrity.

  10. Journalism is dead as evidenced by this “article”. I am actually enraged at the lack of fair and unbiased reporting. Not one mention of her unethical behavior and treatment?! We all know John is competent, compassionate, and truly dedicated to our fur kids. This is why we will go to great lengths to defend his integrity and honor. We will all follow to the ends of the earth for his capabilities. Also, does anyone else suspect this story may have been planted?!

  11. I am so tired of the one-sidedness. Doc is the finest, most compassionate, truest, most competent, highly educated veterinarian I have ever known. He saved quite a few of my furbabies and has a love for the animals like no other. Also, I’m not sure if every other vet out there is overpriced or if he is just so generous of heart, (I believe it is the latter) but I have paid more than double his prices and had to go back several times because of an improper diagnosis. He never did something that was unnecessary, he was honest in saying that there were really no other options. He truly is a vet above vets!!! I admire him and his work and will be there with bells on with all ten of my fur family members in tow!!! Waiting (im)patiently, Doc!!! And, to you, the author, you suck!!! Research before publishing!!!

  12. Please people stop! This article was written by a lawyer in Veterinarian Practice news. The contents of the article are factual because they were taken from Court transcripts. Nowhere in this article does it say that either of the parties are less of a doctor and or professional. The article was written to warn veterinarians when purchasing practices to make sure they have all their ducks in a row. Why would you sell your practice then 6 months later try to open a new one? If you as a pet owner are not happy with the care you are given then take your pets elsewhere.

  13. June B……
    You should be so lucky as to have a loyal following as Dr. O’Laughlin, AND NO we will NOT STOP until our voices are heard and this situation is remedied!!!!

    1. What is the situation I ask? He sold the practice and signed the agreement. Wait out the term or follow the 50 mile radius per the agreement. Nothing needs to be said about either of the doctor good or bad. If only your pets could talk.

  14. Most of these comments seem to miss the point. First, Dr O decided to sell his practice. Second, the price of the practice INCLUDES the client base that he built. Vets buy a practice, not a building with equipment and a parking lot. Non-compete clauses are standard fare: doubt seriously that Dr O was coerced into signing same. Obviously the commentors are not put off by his obvious attempt to circumvent his legal agreement, but then good vets are not always good business managers.
    Once purchased, it is up to the individual clients if they patronize the new management–or not. It’s up to the new owner to try to retain the clientele, but direct competition with the prior owner is never a good idea. If you want to initiate a practice, build a clinic and start fresh: you’ll be better off.

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