Last month, the Second Circuit rejected the effort of an association of anesthesiology service providers to enjoin a Syracuse-based hospital from recruiting and hiring local anesthesiology providers. The association, American Anesthesiology of Syracuse (“American”) and its successor in interest, North American Partners in Anesthesiology LLP (“NAPA”), alleged that St. Joseph’s Hospital Health Center (the “Hospital”) violated a non-solicitation clause in an agreement between the Hospital and American. The Circuit agreed with the District Court that American and NAPA failed to establish irreparable harm based on purported loss of goodwill and anesthesiology providers’ concerns about their employment status.
The rejected injunction comes in the context of litigation brought by the Hospital, alleging that the non-solicitation clause violates the Sherman Act and is therefore unenforceable. The Hospital’s claims are part of a wave of challenges to such clauses, and the Second Circuit’s decision may suggest that the tide is moving against them—or at least, that irreparable harm due to violations of such clauses could be difficult to demonstrate.
Background
In 2018, the Hospital entered into a Services Agreement (“Agreement”) with American establishing an exclusive arrangement for provision of anesthesiology services by American’s anesthesiologists and certified nurse anesthetists (“CRNAs”). Under the Agreement, the anesthesiologists and CRNAs were assigned to Hospital patients as needed to support in-Hospital procedures. The anesthesiologists and CRNAs did not care for or admit their own patients to the Hospital. The Agreement contained a non-solicitation clause lasting for two years after its expiration.
As the Agreement’s expiration approached in late 2023, the Hospital informed American that it would not renew the Agreement. Two months later, the Hospital sent offers of employment to American’s anesthesiology providers, notwithstanding the non-solicitation clause.
Initiation of the Lawsuit
On the same day, the Hospital sued American and NAPA (together, “Defendants”), for violations of Section 1 of the Sherman Act, 15 U.S.C. § 1 (“Section 1”) and New York General Business Law § 340. The complaint alleged that Defendants “use[d] the [anti-solicitation clause] to impede the free movement of their anesthesia providers so that they c[ould] monopolize the value of the providers’ scarce services,” and sought a declaration voiding the clause. St. Joseph’s Hosp. Health Ctr. V. Am. Anesthesiology of Syracuse P.C., et al., ECF No. 1 ¶ 5 (N.D.N.Y. Feb. 26, 2024).
In response, Defendants counterclaimed for breach of contract and moved for a temporary restraining order and preliminary injunction, seeking to restrain the Hospital from continuing to recruit Defendants’ anesthesiology providers. According to Defendants, American’s anesthesiology providers had become “afraid and concerned about their future employment” and American worried that the Hospital’s “actions ha[d] caused [newly recruited] [providers] to rethink their commitments to join [American].” St. Joseph’s Hosp. Health Ctr. v. Am. Anesthesiology of Syracuse, P.C., No. 5:24-CV-276 (BKS/ML), 2024 WL 3093542, at *6 (N.D.N.Y. May 16, 2024). They also asserted that they stood to lose “goodwill” from the relationships between the anesthesiology providers and Hospital providers. Id.
The District Court and Circuit Decline to Enjoin Hospital’s Recruiting Efforts
The U.S. District Court for the Northern District of New York denied both motions, finding Defendants’ theory of irreparable harm “speculative, conclusory, and unsupported by [the] facts.” Id. The court explained that none of the fears cited spoke to actual or imminent reputational harm for American or NAPA. Id. Moreover, the court reasoned, the relationships between American and Hospital providers did not generate the “type of goodwill sufficient to establish irreparable harm”—namely, relationships that “produce an indeterminate amount of business in years to come, . . . such that the harm caused by the loss of the relationships is not compensable by money damages.” Id. (quoting Ticor Title Ins. Co. v. Cohen, 173 F.3d 63, 69 (2d Cir. 1999)) (cleaned up). Indeed, the court noted the lack of evidence that the anesthesiology providers themselves generated business for American because the Hospital itself assigned them to Hospital patients. Id. at *6-7. Nor was there evidence that the relationships between the anesthesiology providers and Hospital providers otherwise generated business for American. Id.
For similar reasons, the court also found Defendants unlikely to succeed on the merits of their breach of contract claim. The court explained that to be enforceable, restrictive covenants like the one at issue must address “unfair competition . . . that could result where the goodwill developed through a relationship with . . . customers is such that there is a substantial risk that the [recruited] employee may be able to divert all or part of [the employer’s] business.” Id. at *10 (quoting Ticor, 173 F.3d at 72) (cleaned up). The court distinguished the relationships between the Hospital and American providers with those that typically satisfy this standard—where the recruited employees could offer the same services as the employer to its customers and therefore, could use the employer’s goodwill to take these customers away. See id. at *10-11. That is, the court found that the providers associated with American didn’t have relationships with the Hospital such that they could use American’s goodwill to poach its business from the Hospital.
On appeal, the Second Circuit affirmed. The Circuit agreed with the District Court that the anesthesiology providers’ comments do not show that they “came to think less of” American and NAPA as a result of the Hospital’s actions. St. Joseph's Hosp. Health Ctr. v. Am. Anesthesiology of Syracuse, P.C., 131 F.4th 102, 108 (2d Cir. 2025). It further agreed that, even assuming that the anesthesiology providers’ relationships with Hospital providers constitute “customer relationships,” these relationships are not “the sort of relationships that can be the source of irreparable harm.” Id. at 107. The Circuit did not reach the other preliminary injunction factors.
Defendants’ breach of contract counterclaim proceeds, as does a tortious interference counterclaim that they added by amendment based on noncompete clauses in the anesthesiology providers’ employment agreements. The District Court is considering the second of two motions to dismiss that counterclaim, on the grounds that Defendants fail to allege a legitimate business interest supporting enforcement of the noncompete clauses. The Hospital’s antitrust claims also proceed after Defendants unsuccessfully moved to dismiss them based on lack of standing.
Takeaways
The appellate court’s decision not to enforce the non-solicitation clause while the Hospital’s antitrust claims remain pending echoes recent challenges in federal courts across the country to such clauses, as well as no-poach agreements between competitors, as anticompetitive. E.g., Deslandes v. McDonald’s USA, LLC, 81 F.4th 699 (7th Cir. 2023), cert. denied, 144 S. Ct. 1057, 218 L. Ed. 2d 241 (2024). This includes civil and criminal cases brought by agencies such as the Department of Justice, Antitrust Division (“DOJ”) and the Federal Trade Commission (“FTC”) against employers in the healthcare space and a variety of other industries. E.g., United States v. Surgical Care Affiliates LLC et al., 3:21-cr-00011 (N.D. Tex); In the Matter of Axon Enterprise, Inc. and Safariland, LLC, No. D9389 (F.T.C. Jan. 3, 2020). As recently as January of this year, these agencies issued new Antitrust Guidelines for Business Activities Affecting Workers, replacing their 2016 Antitrust Guidance for Human Resource Professionals and explicitly calling out these types of agreements as carrying enforcement risk.
