State Court Enforces Restrictive Covenant in Surgeon’s Shareholder Agreement is not Harmful to the Public

By Lewis Tesser, Partner and Timothy Nolen, Associate, of Tesser, Ryan & Rochman, LLP

A recent New York State Supreme Court decision reflects a trend among the courts of weighing the availability of professional services in a given area before deciding whether a restrictive covenant would harm the public.

The case, Peconic Surgical Group, P.C. v. Cervone, 2011 WL 2347613 (Sup. Ct. Suffolk County, June 1, 2011), involved three surgeons on Long Island who entered into a shareholders agreement before joining a professional corporation.  The shareholders agreement specified that if the surgeons left the corporation, they would not engage in the practice of surgery for three years within fifteen miles of the professional corporation’s office.  Justice Emerson’s opinion rejected the defendants’ claim that the restrictive covenant was harmful to the public. She noted that in another case, Ricca v. Ouzounian, 51 A.D.3d 997 (2d Dept 2008), a Court enforced a restrictive covenant against a surgeon which lasted for two years and covered fifteen miles since there were two hospitals providing surgical services in the area. In Peconic, although the restrictive covenant lasted for three years, there were three hospitals which served the “East End of Long Island.” Thus, the restriction was not harmful to the public.

Peconic and Ricca reflect the central role that the availability of professional services plays in determining whether a restrictive covenant harms the public.