## Facts

- Two physicians were employed as pathologists under written employment agreements with a services entity beginning in 2007.
- The agreements required 12 months’ notice of termination; if less notice was given, the physicians agreed to pay liquidated damages equal to one year of annual salary.
- The agreements also imposed two-year post-employment non-solicitation covenants barring the physicians from soliciting certain payor contracts and referral sources with whom they had material contact during employment.
- In 2018, both physicians terminated employment without prior notice.
- The employer-related entities alleged the physicians formed a competing pathology practice and solicited business from the medical center account and other client/referral relationships covered by the non-solicitation provisions.
- A related entity claimed third-party-beneficiary rights under the physicians’ agreements and asserted contract and fiduciary-duty claims seeking enforcement of the non-solicitation covenants.
- The trial court entered a preliminary injunction enforcing the non-solicitation provisions and required a $25,000 injunction bond.

## Issues

1. Whether a trial court may grant a preliminary injunction enforcing non-solicitation covenants without first determining whether the covenants are enforceable under Alabama law as part of the likelihood-of-success analysis.
2. Whether the trial court erred by setting a $25,000 injunction bond and refusing to increase it despite evidence of substantial prospective losses if the physicians were wrongfully enjoined.

## Decision

- The Supreme Court of Alabama held that the preliminary injunction was improperly granted because the trial court did not first determine whether the non-solicitation provisions were enforceable, a necessary component of assessing likelihood of success on the merits.
- The Court held the $25,000 bond was inadequate in light of evidence that the physicians faced large prospective income losses and potential attorney’s fees if later found to have been wrongfully enjoined.
- The Court rejected the trial court’s view that it lacked jurisdiction to adjust the bond after a notice of appeal, treating bond adequacy as part of the injunction matter under review.
- The Court reversed and remanded for the trial court to decide enforceability and, if injunctive relief continued, to set an adequate bond consistent with Rule 65(c), Alabama Rules of Civil Procedure.

## Legal Principles

- A preliminary-injunction movant must show a substantial likelihood of success on the merits; when relief depends on restrictive covenants, the court must address enforceability as part of that showing.
- Granting preliminary injunctive relief to enforce restrictive covenants while deferring the enforceability determination is error.
- Under Rule 65(c), the applicant for a preliminary injunction must provide security in an amount the court deems proper to cover prospective costs, damages, and attorney’s fees if the enjoined party is later determined to have been wrongfully enjoined.
- At the bond-setting stage, the court focuses on a reasonable estimate of prospective exposure; the enjoined party still bears the burden to prove actual damages later.

## Conclusion

The Alabama Supreme Court required trial courts to decide the enforceability of restrictive covenants before issuing preliminary injunctions based on them and held that Rule 65(c) bonds must be set at levels that reasonably account for the enjoined party’s prospective losses and attorney’s fees if the injunction is later found wrongful.


DeVos v. Cunningham Grp., LLC, 297 So. 3d 1176 (Ala. 2019)