Deleo v. Equale & Cirone, LLP

• Court: Connecticut Court of Appeals
• Writing for the Court: BRIGHT, J.
• Citation: Deleo v. Equale & Cirone, LLP, 202 Conn.App. 650, 246 A.3d 988 (Conn. App. 2021)
• Decision Date: 23 February 2021
• Docket Number: AC 42383
• Parties: Derek J. DELEO v. EQUALE & CIRONE, LLP, et al.

202 Conn.App. 650

246 A.3d 988

Derek J. DELEO

v.EQUALE & CIRONE, LLP, et al.

AC 42383

Appellate Court of Connecticut.

Argued March 10, 2020

Officially released February 23, 2021

Daniel J. Krisch, with whom, on the brief, was Kevin J. Green, for the appellants (defendants).

Michael S. Taylor, with whom was Brendon P. Levesque, for the appellee (plaintiff).

Alvord, Bright and Norcott, Js.^*

BRIGHT, J.

The defendants, Equale & Cirone, LLP (partnership), and Anthony W. Cirone, Jr., appeal from the judgment of the trial court rendered in favor of the plaintiff, Derek J. DeLeo, on the defendants’ counterclaim for damages under the noncompete provision of the parties’ partnership agreement (noncompete provision). The defendants claim that the trial court erred in concluding that the noncompete provision constitutes an unreasonable restraint of trade and, therefore, is unenforceable. We affirm the judgment of the trial court.

This case returns to us after our decision in DeLeo v. Equale & Cirone, LLP , 180 Conn. App. 744, 184 A.3d 1264 (2018) ( DeLeo I ). In DeLeo I , this court reversed the judgment of the trial court, which had awarded damages in the amount of $740,783 to the defendants on the basis of the defendants’ counterclaim under the parties’ noncompete provision, and remanded the case with direction that the trial court determine whether the noncompete provision constitutes a reasonable restraint of trade under existing law. Id., at 751, 765, 184 A.3d 1264. Following our remand, the court, in its memorandum of decision dated November 28, 2018, determined that the noncompete provision is unreasonable and, therefore, unenforceable. This appeal challenges the court's determination.

Our opinion in DeLeo I sets forth the following relevant facts and procedural history. "The partnership, an accounting firm, is a limited liability partnership located in Bethel. Joseph A. Equale, Jr., and Cirone formed the partnership in 1999. In 2005, the plaintiff, a certified public accountant, joined the partnership as an equity partner. The partnership operated under an oral partnership agreement until January, 2009, when Equale, Cirone, and the plaintiff executed a written partnership agreement (partnership agreement). Pursuant to the partnership agreement, Cirone held a 40 percent interest, Equale held a 35 percent interest, and the plaintiff held a 25 percent interest. The partnership agreement was intended to govern all aspects of the partnership.

"In January, 2012, the partnership purchased the assets of Allen & Tyransky, an accounting firm located in Danbury. As a result of the acquisition, Jack Tyransky became a nonequity ‘contract’ partner of the partnership. Shortly after the acquisition of Allen & Tyransky, several of the partnership's employees began to suspect that the plaintiff was involved in a romantic relationship with a female staff accountant at the partnership. In October, 2012, Cirone learned about the suspicions regarding the plaintiff's relationship with the staff accountant.

Thereafter, Cirone confronted the plaintiff about the alleged relationship, but the plaintiff denied any such relationship. Later, Cirone approached Equale, who was preparing to retire from the partnership at the end of 2012, to discuss the plaintiff's alleged relationship. Both Equale and Cirone decided to believe the plaintiff's denial, and they did not take any further action at that time.

"Equale retired, effective January 1, 2013, but he continued to work for the partnership through the end of the 2013 tax season. Pursuant to the partnership agreement, Equale's shares were acquired by the partnership upon his retirement. Cirone and the plaintiff agreed that following Equale's retirement Cirone would own 62 percent of the partnership and the plaintiff would own the remaining 38 percent.

"On April 26, 2013, after the completion of the 2013 tax season, Cirone, Tyransky, and the plaintiff met at a diner to discuss the future of the partnership in light of the plaintiff's suspected relationship with the staff accountant. At this meeting,¹ Cirone told the plaintiff that they needed to fire the staff accountant and terminate their partnership. The court credited Cirone's testimony regarding this meeting, finding that ‘given [Cirone's] position as managing partner of the firm and also given the risks that [the plaintiff's] actions posed to the firm, [Cirone] had no choice but to separate [the plaintiff] from the partnership.’ The plaintiff and Cirone agreed that their business relationship had to end, and they acknowledged that any plan for the plaintiff's departure would begin with the partnership agreement.

"Following their meeting, Cirone and the plaintiff exchanged several e-mails during May and June, 2013, regarding the plaintiff's departure from the partnership. In these e-mails, the plaintiff did not deny that he was leaving the partnership, and there was no indication that he believed that the partnership was being dissolved. Following these exchanges, Cirone sent an e-mail to the partnership's employees informing them that the plaintiff would be ‘transitioning out of the firm’ beginning on June 17, 2013. The plaintiff retained his 38 percent partnership interest through June 30, 2013, and, after leaving the partnership, he continued to provide accounting services in New Milford. Following the plaintiff's departure, Cirone first transferred the plaintiff's interest in the partnership to himself, and then he transferred a 1 percent interest to Tyransky.

"In September, 2013, approximately two months after leaving the partnership, the plaintiff commenced the present action against the defendants. The operative amended complaint was filed on September 29, 2014, and contained seven counts alleging, inter alia, that the plaintiff held a 38 percent interest in the partnership, and that Cirone had excluded him from the daily operations of the partnership. He further alleged that Cirone's conduct had frustrated the economic purpose of the partnership such that it was no longer reasonably practicable to continue the partnership's business in accordance with the partnership agreement. Additionally, the plaintiff alleged claims of breach of fiduciary duty and conversion. The plaintiff sought, inter alia, a dissolution and winding up of the partnership pursuant to General Statutes §§ 34-339 (b) (2) (C) and 34-372 (5) ; restoration of his partnership rights pursuant to § 34-339 (b) (1) ; an accounting and access to the partnership's books and records pursuant to General Statutes §§ 34-337 and 34-338 ; appointment of a receiver pursuant to General Statutes § 52-509 ; and money damages.

"On January 6, 2015, the defendants filed an answer denying the plaintiff's allegations or leaving him to his proof, asserted various special defenses and a claim for setoff. ...

"The defendants also filed a four count counterclaim against the plaintiff, claiming that the partnership had terminated the plaintiff's partnership interest for cause, or, in the alternative, that the plaintiff had terminated his partnership interest voluntarily. In both counts the defendants claimed that the value of the plaintiff's partnership interest was limited to the accrual basis capital value,² as defined in the partnership agreement. Additionally, the defendants claimed that the plaintiff is subject to the noncompete provision in the partnership agreement, requiring him to compensate the partnership for any former clients of the partnership for whom the plaintiff had provided accounting services following his departure.³ In counts three and four, the defendants alleged that the plaintiff breached his fiduciary duty pursuant to the partnership agreement and/or pursuant to §§ 34-338 and 34-339.

"The plaintiff denied all the allegations as set forth in the defendants’ special defenses and claim for setoff. He also denied the allegations in the defendants’ counterclaim and, by way of special defense, asserted that the defendants had waived the enforcement of the noncompete provision.

"The case was tried to the court over the course of six days in September, 2015. In its memorandum of decision dated October 22, 2015, the court rendered judgment in favor of the defendants on the plaintiff's complaint and the defendants’ special defenses. The court did not credit the plaintiff's testimony, finding that the plaintiff, ‘through his words and actions, starting with the April 26 meeting through July of 2013, voluntarily withdrew as a partner of [the partnership].’ The court credited Cirone's testimony, finding that Cirone did not waive the partnership's right to enforce the noncompete provision in the partnership agreement, and that the plaintiff had agreed to terminate his partnership interest as of June 30, 2013. The court further found that the voluntary termination provision⁴ in the partnership agreement determined the amount due to the plaintiff. Accordingly, the court rendered judgment in favor of the defendants on their counterclaim and on the plaintiff's special defense. The court awarded the defendants $740,783. The court credited the testimony of the defendants’ expert witness with respect to the calculation of the plaintiff's accrual basis capital as of June 30, 2013, and the amount owed by the plaintiff to the partnership, pursuant to the noncompete provision in the partnership agreement. The court found that the plaintiff was overdrawn in his partnership income account by $143,496 as of June 30, 2013, and that his accrual basis capital as of June 30, 2013, was $165,079. The court also found that the plaintiff owed $762,366 to the partnership pursuant to the noncompete provision." (Footnotes in original; footnote added.) Id., at 747–52, 184 A.3d 1264.

The plaintiff appealed from the judgment of the trial court rendered in favor of the defendants on the plaintiff's complaint and the defendants’ special defenses, claim of setoff, and counterclaim, claiming that the court "(1)...