Dunn v. FastMed Urgent Care, P.C. – 6/19/2018

July 13, 2018

Arizona Court of Appeals Division One holds that an employment agreement with a full integration clause, a covenant not to compete, and a forum selection clause does not supersede a different covenant not to compete and forum selection clause contained in a prior sale agreement between the same parties.

A doctor sold his practice to an organization as part of a multi-party sale agreement which placed the doctor under a five-year covenant not to compete with choice of law and choice of forum provisions both selecting Delaware.  The sale agreement did not mention the doctor’s continued employment.  The doctor then entered an employment agreement with the organization that had a six-month covenant not to compete, and a few months later resigned and entered a separation agreement that expressly incorporated the six-month covenant and had choice of law and choice of forum clauses selecting Arizona, as well as a full integration clause that stated it was the entire agreement between the doctor and the organization.  The separation agreement made no mention of the sale agreement.  Eleven months later, the doctor accepted employment with a competitor, and the organization objected under the five-year covenant; the employment offer was withdrawn.  The doctor sued in Arizona, claiming breach of the separation agreement, and seeking a declaratory judgment that the sale agreement’s restrictive covenant was superseded.  The organization moved to dismiss, arguing that Delaware was the exclusive forum under the sale agreement.  The superior court agreed and dismissed the case.  The doctor appealed.

The Court of Appeals affirmed.  An integration clause, no matter how broad, only covers prior agreements that are within the scope of the new agreement.  Two contracts between two parties that govern different relationships between them are not within the same scope, and an integration clause in one will not supersede the other.  When an agreement covering one relationship, such as employment obligations, does not address another relationship, such as the obligations of a buyer to the seller, the first’s agreement’s integration clause will generally not affect the second relationship.  Further, a later agreement’s integration clause between two parties who had been some, but not all, the parties to a multi-party transaction will generally not affect the multi-party transaction.

Judge Morse delivered the unanimous opinion of the court; Judge Howe and Judge Jones joined.