Kenneth Kesler, M.D. v. Indiana University Health Care Associates, INC.

FILED

Apr 25 2024, 8:57 am

CLERK

Indiana Supreme Court

Court of Appeals

and Tax Court

IN THE

Court of Appeals of Indiana

Kenneth Kesler, M.D.,

Appellant-Plaintiff,

v.

Indiana University Health Care Associates, Inc., d/b/a/

Indiana University Health Physicians (IUHP),

Appellee-Defendant.

April 25, 2024

Court of Appeals Case No.

23A-PL-2111

Appeal from the

Marion Superior Court

The Honorable

Heather A. Welch, Judge

Trial Court Cause No.

49D01-2307-PL-27885

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Opinion by Senior Judge Baker

Judges Pyle and Felix concur.

Baker, Senior Judge.

Statement of the Case

[1] Kenneth Kesler, M.D. sought a declaratory judgment, seeking relief from the

restraints contained in a noncompetition clause of the Employment Agreement

he entered into with Indiana University Health Care Associates, Inc. d/b/a

Indiana University Health Physicians (IUHP). IUHP responded by filing its

answer, verified counterclaim for declaratory judgment, and a request for a

temporary restraining order (TRO), preliminary injunction, and permanent

injunction. After a hearing, the trial court issued its order granting IUHP’s

request for a preliminary injunction and enjoined Dr. Kesler from treating

patients within the geographically restricted area provided in the

noncompetition clause in his Employment Agreement. Dr. Kesler brings this

interlocutory appeal from the court’s order. Concluding that the court’s order

did not reflect consideration of all competing interests in support of the result

reached, we reverse and remand.

Facts and Procedural History

[2] Dr. Kesler is a board-certified thoracic surgeon who has developed a surgical

procedure to remove complex germ cell cancer tumors in the chest area.

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During his career, he has developed a group of around 156 referring physicians

who are primarily medical oncologists not employed by IUHP.

[3] In 2014, Kesler entered into an Employment Agreement with IUHP, which

took effect on January 1, 2015. The Employment Agreement contained a

restrictive covenant not to compete for a period of two years after the

termination of his employment with IUHP and within the defined geographical

thirty-mile range.

[4] Dr. Kesler provided IUHP with written notice of his intent to terminate the

Employment Agreement as of July 14, 2023. After that date, he was employed

by Community Health Network at Community North Hospital, a hospital

within the thirty-mile geographically restricted area. Within days of the

termination of his employment with IUHP, Dr. Kesler filed a declaratory

judgment action seeking relief from the restrictive covenant not to compete.

IUHP responded by filing its answer, verified counterclaim for declaratory

judgment, and a request for a TRO, preliminary injunction, and permanent

injunction.

[5] The trial court held a hearing on IUHP’s motion requesting a TRO and

preliminary injunction. During the hearing, IUHP presented argument and

relied on the verified pleadings and responses filed in the action. Among other

things, IUHP argued “it’s actually in the public interest to enforce—uh—the

contracts between the parties in this way [by enforcing the non-competition

clause].” Tr. Vol. II, p. 13. IUHP further claimed that “the suggestion that

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there’s harm to patients is really refuted by–uh—sort of by Dr. Kesler himself.

Um—you know—subject to his non-solicitate [sic], he agrees that patients can

and—we agree that patients can continue to treat with him if they choose—

uh—to relocate their care.” Id.

[6] Dr. Kesler offered exhibits and testimonial evidence. He testified about his

education, experience, training, employment, and referral network. He agreed

with the statement that there was no one at IUHP who performs the same

surgical procedure he does on the complex germ cell tumors in the chest. Over

ninety-five percent of his patients are new patients. Dr. Kesler’s counsel argued

that “there certainly is a strong public interest that Dr. Kesler be able to perform

these surgeries. At this time, the only place Dr. Kesler has surgical procedures

[sic]—perform these procedures is at Community Hospital.” Id. at 28. IUHP

responded that, “[w]e’re not limiting whether patients can treat with Dr. Kesler.

We are asking that the Court enforce the reasonable restrictive covenant on

where Dr. Kesler may situate his practice—uh—going forward if he’s providing

the same medical services.” Id. at 29.

[7] The trial court entered its order granting a preliminary injunction in favor of

IUHP, and enjoined Dr. Kesler from treating patients within the restricted

geographical area set out in the Employment Agreement.

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Discussion and Decision

A. Confusion Apparent in the Record

[8] Before we address the dispositive issue in this appeal, we pause to note the

confusion in the record as to what the appealed order really is. The trial court’s

order setting a hearing says it is considering a “Motion For Temporary

Restraining Order,” but makes reference in the order to IUHP’s “Motion for

Temporary Restraining Order and Preliminary Injunction” and concludes by

setting a “virtual hearing on the Motion for Temporary Restraining Order and

Preliminary Injunction.” Appellant’s App. Conf. Vol. II, p. 94 (emphasis added).

The record also shows that the parties believed they were attending a hearing

solely addressing the request for a temporary restraining order. See Tr. Vol. II,

p. 6. (“We know that this is a TRO hearing, not the full preliminary injunction

hearing.”) p. 7 (“TRO is to preserve the status quo until the–the preliminary

injunction hearing.”). The court announced at the beginning of the hearing that

“We’re here today on the Defendant’s motion for a temporary restraining

order.” Id. at 5. And the final line of the trial court’s order reads, “Either

counsel may petition the Court to schedule a preliminary injunction hearing.”

Appellant’s App. Conf. Vol. II, p. 22.

[9] However, immediately preceding that sentence, the trial court’s appealed order

says, “Based on the foregoing analysis, the Court hereby GRANTS IUHP’s

Motion for Temporary Restraining Order and Preliminary Injunction. Until this

controversy is resolved on the merits, Dr. Kesler is enjoined from violating the

noncompete in the Employment Agreement and treating patients within the 30-

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mile radius of his Employment Agreement.” Id. (emphasis added). And in

setting out the “STANDARDS FOR ISSUANCE OF A TRO AND

PRELIMINARY INJUNCTION,” the trial court’s order mistakenly cites State

v. Econ. Freedom Fund, 959 N.E.2d 794, 803 (Ind. 2011), to set out the

requirements for obtaining a TRO. See id at 15. Freedom Fund, however, sets

out the requirements to obtain a preliminary injunction. 959 N.E.2d at 803. It

is Indiana Trial Rule 65(B)(1) which governs the requirements for a temporary

restraining order, namely, that “it clearly appears from specific facts shown by

affidavit or by the verified complaint that immediate and irreparable injury,

loss, or damage will result to the applicant before the adverse party or his

attorney can be heard in opposition.” Additionally, Trial Rule 65(D)

establishes that the trial court’s order granting a TRO shall include or be

accompanied by findings under Trial Rule 52.

[10] And the record is blurred in yet another way. After setting out the court’s

assessment of the evidence under subheadings that follow the requirements for

a preliminary injunction, the order also discusses the “Bond Amount” and finds

that because “no TRO may issue without adequate security. . . . “security should

be provided” under Trial Rule 65(C) (emphasis added). Trial Rule 65(C) states

“No restraining order or preliminary injunction shall issue except upon the giving

of security by the applicant.” (emphasis added).

[11] We conclude that the trial court’s order should be considered an order granting

a preliminary injunction. The order says, “[u]ntil this controversy is resolved

on the merits . . .” Id. at 22. Although, one could argue that “merits” refers to

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a preliminary injunction hearing, where the likelihood of success on the merits

would be considered, the parties argued, and the court issued findings on the

requirements for a preliminary injunction. Additionally, under our case law,

the court’s issuance of a TRO is not reviewable on appeal, and is superseded

anyway, by the apparent grant of the preliminary injunction. See Witt v. Jay

Petroleum, Inc., 964 N.E.2d 198, 203 (Ind. 2012) (entry of TRO is not

appealable); Vickery v. Ardagh Glass Inc., 85 N.E.3d 852, 857 (Ind. Ct. App.

2017) (claims arising from the grant of a TRO become moot when superseded

by a preliminary or a permanent injunction), trans. denied.

B. Issue

[12] The dispositive issue in this appeal is whether the issuance of the preliminary

injunction was supported by the evidence and was proper. We conclude that it

was not.

C. Standard of Review

[13] “The grant or denial of a request for a preliminary injunction rests within the

sound discretion of the trial court, and our review is limited to whether there

was a clear abuse of that discretion.” Buffkin v. Glacier Group, 997 N.E.2d 1, 9

(Ind. Ct. App. 2013). “When determining whether to grant a preliminary

injunction, the trial court is required to make special findings of fact and state

its conclusions thereon.” Id. “When findings and conclusions thereon are

made, we must determine if the trial court’s findings support the judgment.” Id.

“We will reverse the trial court’s judgment only when it is clearly erroneous.”

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Id. “Findings of fact are clearly erroneous when the record lacks evidence or

reasonable inferences from the evidence to support them.” Id. “A judgment is

clearly erroneous when a review of the record leaves us with a firm conviction

that a mistake has been made.” Id. “We consider the evidence only in the light

most favorable to the judgment and construe findings together liberally in favor

of the judgment.” Id. “Also, the power to issue a preliminary injunction

should be used sparingly, and such relief should not be granted except in rare

instances in which the law and facts are clearly within the moving party’s

favor.” Id.

[14] “To obtain a preliminary injunction, the moving party has the burden of

showing by a preponderance of the evidence the following: (1) a reasonable

likelihood of success at trial; (2) the remedies at law are inadequate; (3) the

threatened injury to the movant outweighs the potential harm to the nonmoving

party from the granting of an injunction; and (4) the public interest would not

be disserved by granting the requested injunction.” Id. “If the movant fails to

prove any of these requirements, the trial court’s grant of an injunction is an

abuse of discretion.” Id.

D. Not All Preliminary Injunction Requirements Met

[15] We next examine the record to determine whether there is evidence to support

the trial court’s findings and whether those findings support the trial court’s

conclusions. See id. Here, we are most concerned with the showing as to (3)

the threatened injury to the movant outweighs the potential harm to the

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nonmoving party from the granting of an injunction, and (4) the public interest

would not be disserved by granting the requested injunction. Concluding that

the trial court’s order is not supported as to some of the findings leading to the

ultimate conclusion that a preliminary injunction is warranted, we find the trial

court erred.

D.1. Trial Court’s Findings And Evidentiary Support or Lack Thereof

[16] In its order, the court concluded, in pertinent part, as follows:

C. Balance of Harms and Public Interest

1. Dr. Kesler asserts that a TRO in IUHP’s favor

would be contrary to the public interest because he has

patients who are in need of surgical intervention to protect

their health and lives, and the noncompete impairs

patients’ legitimate interest in selecting the physician of

their choice. Opp., pp. 6-7.

2. However, without an injunction, IUHP would lose

the benefit of the non-compete agreement contained in the

Employment Agreement, to which Dr. Kesler agreed.

IUHP could also lose goodwill if Dr. Kesler is not

enjoined from competing with IUHP.

3. Dr. Kesler freely entered the Employment

Agreement that contained this non-competition provision.

Courts in Indiana have long recognized the freedom of

parties to enter into contracts and have presumed that

contracts represent the freely bargained agreement of the

parties. Trimble v. Ameritech Publ., Inc., 700 N.E.2d 1128,

1129 (Ind. 1998). The Indiana Supreme Court has

“continue[d] to believe that “it is in the best interest of the

public not to restrict unnecessarily persons’ freedom of

contract.” This Court further notes there is not evidence

of an unequal bargaining power between the parties at this

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early stage of the case.

4. Dr. Kesler’s potential harm appears to be that he

will have to move his practice more than 30 miles away

from IU Health University Hospital and IU Health

Methodist Hospital. IUHP notes that Dr. Kesler himself

pointed out that numerous Indiana hospitals are equipped

with the resources Dr. Kesler needs for his practice.

Memo., p. 15.

5. The Court acknowledges that, under the

noncompete, Dr. Kesler could still provide treatment

outside the Restricted Territory, and it is not uncommon

for his patients to willingly travel to him for treatment.

6. The Court finds that the injuries to IUHP outweigh

the harm to Dr. Kesler.

7. The Court further finds the best interest of the

public would be served in enforcing the Employment

Agreement, which appears to be a valid contract.

8. The Court further notes that Ind. Code § 25-22.5-

5.5-2.5(b)—providing that a primary care physician and an

employer may not enter into a noncompete agreement—

would not apply to Dr. Kesler because, admittedly, he is

not a primary care physician.

Appellant’s App. Conf. Vol. II, pp. 11-12.

D.2. The Parties’ Arguments

[17] Dr. Kesler’s counsel argued that there are no thoracic surgeons at IUHP

performing the surgical procedure Dr. Kesler developed to remove complex

germ cell cancer tumors in the chest area. Counsel further remarked that there

were “20—some—uh patients on [Exhibit B] who are very sick—who need

cancer surgery. And there certainly is a strong public interest that Dr. Kesler be

able to perform these surgeries.” Tr. Vol. II, p. 28. Dr. Kesler testified that

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“the referring physicians have categorically said no, I want Dr. Kesler to care

for my patient. Or the patients have done that.” Id. at 22. And in his response

to IUHP’s request for a TRO, Dr. Kesler argued, “Physician non-competition

agreements involve other considerations because it impairs ‘[t]he patients’

legitimate interest in selecting the physician of their choice . . .” Appellant’s

App. Conf. Vol. II, p. 91 (citing Central Ind. Podiatry, P.C. v. Krueger, 882 N.E.2d

723, 727 (Ind. 2008)). He further asserted that “[t]he patient’s confidence in

selecting the physician of their choice” is an important consideration. Id. The

Krueger decision specifically said, “the confidence of a patient in the physician is

typically an important factor in the relationship that relocation would displace.”

882 N.E.2d at 727.

[18] On the other hand, IUHP argued that it “has a protectible interest in

maintaining goodwill with patients and its patient base, and the restrictive

covenant provides a reasonable and necessary means to protect that interest.”

Appellee’s Conf. Br. p. 11. It also argued that the restrictive covenant was a

“crucial aspect” of the Employment Agreement and that “approximately 29%

of Dr. Kesler’s patients reside within the Restricted Territory.” Id. At the

hearing, IUHP argued that “it’s actually in the public interest to enforce—uh—

the contracts between the parties in this way.” Tr. Vol. II, p. 13.

[19] IUHP further argued that “[a]vailable data on Dr. Kesler’s patients confirms

that Dr. Kesler has had 2270 unique patients from 2019 to present, and 17,371

encounters. This same data confirms that patients remain as patients for two

years on average, across IU Health.” Appellant’s App. Conf. Vol. II, p. 80

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(Counterclaim). IUHP defined its suggested monetary damages based on data

that Dr. Kesler’s “patients remain as patients for two years on average, across

IU Health” and that the “total value of all those patients over the next two

years would have been $2.8 Million.” Appellee’s Conf. Br. p. 21.

[20] As for the nature of Dr. Kesler’s patients, however, he testified at the hearing

that over ninety-five percent of his patients are new patients, not repeat patients.

He also provided Exhibit B, which was a list of referral sources, or referring

physicians, he developed relationships with prior to entering into the

Employment Agreement. And he testified that “the vast majority of my referral

prior to IU Health employment came from outside IU Health Physicians.” Tr.

Vol. II, p. 20. Exhibit C was identified as a list of patients referred to Dr. Kesler

since his separation from IUHP and “none of them” are part of “the IUHP

patient base.” Id. at 22.

D.3. Analysis

[21] As for the trial court’s findings in this area, there is no dispute as to Findings

Number 4, 5, and 8. Dr. Kesler could provide services outside the

geographically limited area and his patients would travel to receive his services.

And no one disputes that Dr. Kesler is not a primary care physician. We now

address the findings which remain.

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D.3.a. Public Interest—Contracts or Physician of Choice

[22] We will address the trial court’s Findings Number 1, 2, 3 and 7 together

because they each pertain to the various positions about what is in the public’s

interest.

[23] Despite Dr. Kesler’s argument that the noncompete impairs patients’ legitimate

interest in selecting the physician of their choice, IUHP made no showing that

the public interest would not be disserved by the entry of a preliminary

injunction. In Fumo v. Medical Group of Michigan City, Inc., 590 N.E.2d 1103,

1109 (Ind. Ct. App. 1992), we held that:

the availability of the particular specialty practiced by the

physician is a matter to be considered by the trial court in looking

at the totality of the circumstances. Where a specialist offers

services uniquely or sparsely available in a specified geographical

area, an injunction may be unwarranted because the movant is

unable to meet the burden of showing that the public would not

be disserved.

And “[t]he effect of the injunction upon the public interest must be weighed

with the relative potential harms to the parties.” Id. at 1108.

[24] Additionally, and perhaps more importantly, IUHP has not demonstrated that

it has suffered any harm. Dr. Kesler’s statement that none of the post-

separation patients who were referred to him were members of IUHP’s patient

base is unrefuted. IUHP simply responded that 29 percent of the patients lived

in the particular restricted area under the noncompetition clause. However,

had Dr. Kesler moved his practice 30.01 miles from University Hospital and

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Methodist Hospital, patients from that restricted area could have freely traveled

to Dr. Kesler’s new location at the same risk of suggested “harm” to IUHP.

IUHP drafted and negotiated for that provision. Thus, IUHP anticipated the

loss of future patients upon Dr. Kesler’s departure had he moved his practice

30.01 miles from downtown Indianapolis and cannot now complain that the

loss of those same patients constitutes present harm attributable to a geographic

violation of the restrictive covenant.

[25] This leads us to the next point which is the unreasonableness or futility of the

geographic restriction at issue here. Although this also pertains to IUHP’s

likelihood of success at trial on the merits, IUHP has not demonstrated that the

geographic limitation here does not disserve the public while providing a benefit

to IUHP. IUHP has no thoracic surgeons who perform the complex

procedures Dr. Kesler performs. Therefore, the restriction does nothing more

than prevent Dr. Kesler from exercising his specific skill set. The record here

shows there simply are no thoracic surgeons at IUHP with whom Dr. Kesler is

in direct competition.

[26] And as for goodwill considerations, IUHP has not made a showing that the

complex procedures he performs involve trade secrets or confidential

information. “Indeed, ‘[a]lthough an employer has a protectible property

interest in the good will of his business (including secret or confidential

information), the same is not true regarding the general knowledge, information

or skills gained by the employee in the course of his employment.’” Buffkin, 997

N.E.2d at 11 (quoting Brunner v. Hand Indus., Inc., 603 N.E.2d 157, 160 (Ind. Ct.

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App. 1992)). Furthermore, “‘[W]hile an employer, under a proper restrictive

agreement, can prevent a former employee from using his trade or business

secrets, and other confidential knowledge gained in the course of the

employment, and from enticing away old customers, he has no right to

unnecessarily interfere with the employee’s following any trade or calling for

which he is fitted and from which he may earn his livelihood and he cannot

preclude him from exercising the skill and general knowledge he has acquired

or increased through experience or even instructions while in the

employment.’” Id. (quoting Donahue v. Permacel Tape Corp., 234 Ind. 398, 411,

127 N.E.2d 235, 241 (Ind. 1955)) (citation omitted).

[27] Here, the trial court’s findings “do not reflect consideration of all competing

interests or disclose the reasons for the result reached[]” regarding whether the

public interest would be disserved by issuing the preliminary injunction. Id.

Dr. Kesler provided unrefuted evidence that he was the only thoracic surgeon in

the particular area who performed the surgical procedure he developed to

remove complex germ cell cancer tumors in the chest area. IUHP responded by

making an argument appropriate for the underlying matter, viz., it is in the

public interest not to restrict unnecessarily persons’ freedom of contract.

[28] However, IUHP offered no evidence to show that the public would not be

disserved in the particular area. More recently our supreme court found that a

preliminary injunction would not disserve the public because the employer

“provided qualified physicians to meet the needs of all patients who would have

seen Krueger.” Krueger, 882 N.E.2d at 734. Such is not the case here based on

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the record before us. And again, importantly, IUHP has not demonstrated any

harm related to a geographic violation of the restrictive covenant.

[29] The trial court addressed the public interest in the provision of those services in

the particular area by reference to the geographic restrictions contained in the

noncompetition clause. The court found “it is not uncommon for [Dr. Kesler’s]

patients to willingly travel to him for treatment.” Appellant’s App. Conf. Vol.

II, p. 21. This highlights, however, that IUHP would “lose” those patients

whether Dr. Kesler practiced 1 mile, 30.1 miles, or 100 miles away from

downtown Indianapolis. It is Dr. Kesler’s departure that is the source of

IUHP’s “loss.” However, the court’s findings do not show that it considered

whether the public in the particular area would be disserved by the absence of

Dr. Kesler’s service. And IUHP has not shown that it has other physicians who

provide the same services in the particular area.

[30] Almost one third of Dr. Kesler’s patients, who are in poor health, would have

to travel further to receive his unique medical services. Instead, the court found

that IUHP’s loss of the benefit of its bargain in terms of the noncompetition

clause in the Employment Agreement, i.e., the suggested lost revenue in the

amount of $2.8 million, outweighed the harm to Dr. Kesler by having to move

his practice out of the geographically restricted area. Yet, IUHP was aware that

upon Dr. Kesler’s departure, which was allowed under the Employment

Agreement, it would lose the continued revenue from his patients.

Consequently, it has not shown any harm beyond that which it anticipated

anyway under the terms of the Employment Agreement should Dr. Kesler

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leave. IUHP has not tied its suggested revenue loss to a geographic violation of

the restrictive noncompetition covenant.

[31] Although “Indiana courts recognize the freedom of parties to enter into

contracts,” Fresh Cut, Inc. v. Fazli, 650 N.E.2d 1126, 1129 (Ind. 1995), “Indiana

courts have long stated that covenants which restrict a person’s employment

opportunities are strongly disfavored,” see Buffkin, 997 N.E.2d at 9-10, and “‘an

employer must show some reason why it would be unfair to allow the employee

to compete with the former employer.’” Clark’s Sales and Serv., Inc. v. Smith, 4

N.E.3d 772, 780 (Ind. Ct. App. 2014) (quoting Pathfinder Commc’ns Corp. v.

Macy, 795 N.E.2d 1109, 1110 (Ind. Ct. App. 2003)), trans. denied. Here, IUHP

has failed to established a valid reason why it would be unfair for Dr. Kesler to

practice at Community North Hospital.

[32] The question before us is limited to whether the issuance of the preliminary

injunction was proper. Here, the trial court’s findings do not show its

consideration of the risk to the public within the geographic limitation brought

about by the restriction of Dr. Kesler’s services. And IUHP has not shown

harm related to the geographic limitation of the noncompetition clause. As

such, we order that the preliminary injunction be dissolved.

D.3.b. Irreparable Harm—Balance of Harms

[33] The trial court’s Finding Number 6 says that the harm to IUHP outweighs the

harm to Dr. Kesler. IUHP has advanced the proposition that the loss of the

patients who would have stayed within the IU Health system for two years

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would result in a $2.8 million loss due to Dr. Kesler’s employment within the

Community Health Network. However, it is not the violation of the geographic

limitation of the noncompetition clause that they would suffer the suggested

$2.8 million loss; it is Dr. Kesler’s departure itself, which is authorized and was

contemplated under the Employment Agreement. As such, IUHP has

demonstrated no harm attributable to a violation of the noncompetition clause.

And Dr. Kesler could, in theory, move his practice. Yet, the consideration

missing from the trial court’s consideration is the harm to the public if health

care services are unavailable due to the grant of injunctive relief. For some of

these very ill patients, the harm could be irreparable. We conclude that the trial

court erred by granting the preliminary injunction and the same must be

dissolved.

Conclusion

[34] We conclude that the trial court’s findings do not show a consideration of the

disservice to the public by enjoining Dr. Kesler’s medical practice. IUHP has

failed to show it has suffered harm. Dr. Kesler could move his practice. But

the record shows the public suffers from the injunctive relief granted here.

Consequently, we conclude that the trial court erred by concluding that IUHP

was entitled to injunctive relief and by issuing the preliminary injunction.

Therefore, we reverse and remand this matter to the trial court with instructions

to dissolve the preliminary injunction.

[35] Reversed and remanded.

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Pyle, J., and Felix, J., concur.

ATTORNEYS FOR APPELLANT

Robert E Saint

Russell T. Clarke, Jr.

Emswiller, Williams, Noland, & Clarke, LLC

Indianapolis, Indiana

ATTORNEYS FOR APPELLEE

Laurie E. Martin

Gregory A. English

Christopher D. Wagner

Hoover Hull Turner LLP

Indianapolis, Indiana

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