Iowa court bans two veterinary specialists from competing against ISU

Des Moines — Two veterinary specialists have been barred from practicing in the Des Moines area after a district court said they violated non-compete agreements signed with their former employer—a specialty hospital now owned by Iowa State University (ISU).

Drs. Steven Reimer and Derek Nestor signed transferable non-compete agreements while employed with Iowa Veterinary Specialties (IVS), purchased in January for $4.6 million by ISU with the intent of operating the hospital as an emergency and specialty care facility that could also serve as a teaching environment for ISU veterinary students.

Reimer and Nestor claimed to have had a verbal agreement to purchase the practice, but their offer was not accepted. Upon the sale of the hospital to ISU, both doctors left, opening their own specialty practice, Iowa Veterinary Referral Center (IVRC) on March 1, just six miles away from their former employer.

The doctors had argued that, as a non-profit organization, ISU could not legally compete with a private enterprise, rendering the non-compete agreements moot. They also argued in their March 18 response to a lawsuit, filed Feb. 28 by ISU, that competition in the veterinary specialty market is in the best interest of the public.

But the court felt differently.

Southern District of Iowa Judge John Jarvey ruled April 27 after three days of hearings that ISU falls under accepted exemptions under Iowa Code regarding government competition with private enterprise. The court found other arguments about validity of the non-compete agreements without merit, as well, including allegations that the doctors were “fraudulently induced” into signing the agreements and the agreements were only signed with the assurance that two doctors would later be allowed to purchase the practice.

“Reimer and Nestor had valid non-competition agreements with IVS,” ruled Jarvey. “They were highly compensated, very well-educated, and certainly capable of obtaining legal advice before and after signing those agreements. They are clearly in breach of those agreements, giving (ISU) great likelihood of succeeding on the merits of their claim.”

Additionally, Reimer and Nestor argued that an injunction from the court would cause their new practice significant harm. But the judge ruled that, based on testimony that ISU’s hospital has seen a drop in revenue and client visits since Reimer’s and Nestor’s competing hospital opened, ISU also would face harm without the injunction.

“IVS also faces significant harm absent an injunction, evidenced by its revenue decline since IVRC’s opening,” says Jarvey. “The court finds that the balance of harms also weighs somewhat in favor of issuing the injunction.”

Reimer and Nestor also has argued that greater competition in the veterinary specialty market was in the best interest of the public, but Jarvey ruled that because ISU invested public funds in its purchase of IVS, that its success also is in the public’s best interest. While competition is healthy, the judge ruled that the two-year limitation imposed by the non-compete agreements in question are not unreasonable and will help further ISU’s mission of training new veterinarians.

While the case has not been closed, the judge’s ruling means, for now anyway, Reimer and Nestor can’t engage in actions that compete with ISU in three Iowa counties—Polk, Dallas and Warren.

The injunction was denied in relation to the work of IVS’ former practice manager Paul Hanika, who opened the new practice with Reimer and Nestor, according to court records.