Cherry, Bekaert & Holland v. Brown

• Decision Date: 31 May 1991
• Citation: 582 So.2d 502
• Court: Alabama Supreme Court
• Parties: 1991-1 Trade Cases P 69,479, 6 IER Cases 868 CHERRY, BEKAERT & HOLLAND v. J. Charles BROWN. J. Charles BROWN v. CHERRY, BEKAERT & HOLLAND. 89-1004, 89-1015.

Page 502

582 So.2d 502

1991-1 Trade Cases P 69,479, 6 IER Cases 868

CHERRY, BEKAERT & HOLLAND v. J. Charles BROWN.

J. Charles BROWN v. CHERRY, BEKAERT & HOLLAND.

89-1004, 89-1015.

Supreme Court of Alabama.

May 31, 1991.

Victor T. Hudson and William W. Watts III of Reams, Vollmer, Phillips, Killion, Brooks & Schell, Mobile, for appellant/cross appellee.

Steve Olen and George W. Finkbohner III of Finkbohner, Lawler & Olen, Mobile, for appellee/cross-appellant.

ADAMS, Justice.

The accounting firm of Cherry, Bekaert & Holland, (hereinafter "CB & H"), appeals from the trial court's summary judgment in favor of J. Charles Brown in his action for a judgment declaring that paragraph 15.9 of the CB & H partnership agreement entered into by Brown after he began work with CB & H constituted an unenforceable covenant not to compete under Alabama law. Brown cross-appeals from the trial court's entry of summary judgment in favor of CB & H on his claim that CB & H had tortiously interfered with his business. We affirm.

In 1979, Brown became a partner in CB & H's Mobile, Alabama, office. In 1980, he was made an equity partner in CB & H, and he executed CB & H's partnership agreement in 1981. Article 15 of the partnership agreement contained the following paragraphs relevant to this appeal:

"15.8 For a period of three (3) years after the termination of his relationship with the partnership, the withdrawing or expelled partner will neither, for himself or any other accountant, solicit or perform any bookkeeping, auditing, accounting, tax consultant work, or accounting services of any other kind, either on his own account or for any other person, firm, or corporation in any capacity or relationship, within a ten (10) mile radius of the Cherry, Bekaert & Holland office in which such withdrawing or expelled partner was last stationed, except that there shall be no geographic restriction on a partner expelled without cause pursuant to Section 15.2 above, nor will he solicit or perform such accounting services for himself or any other accountant, from or for any client of the partnership without prior written consent of the Executive Board....

"15.9 In the event that a court of competent jurisdiction shall determine that the covenant not to compete contained in Paragraph 15.8 is invalid with respect to a withdrawing or expelled partner, it being agreed that within the State of Alabama the courts have determined that such a covenant is invalid, then, in that event, a withdrawing or expelled partner shall not be subject to the above covenant not to compete but shall be subject to the buy/sell agreement embodied in this paragraph.... In either event, said withdrawing or expelled partner shall pay to the partnership for the purchase of any client served (as defined in Paragraph 15.8 above) by said partner within a three (3) year period following the termination of his relationship with the partnership, an amount not less than one hundred fifty percent (150%) of the fees charged said client by the partnership during the last twelve (12) month period during which the partnership served said client prior to said client being served by the said partner plus an amount representing the excess, if any, of the fees charged by the said partner for the twelve (12) month period commencing with the time said partner first served said client over the fees charged by the partnership referred to above."

Brown signed the agreement in Mobile and sent it to CB & H's main office in Charlotte, North Carolina, to be executed by the managing partner. The agreement then became effective on January 14, 1981, after it was signed by the managing partner. The agreement also specified that the parties agreed that it was made in North Carolina and that its validity and construction were governed by North Carolina law.

In January 1988, Brown withdrew from CB & H. Some of the clients Brown served while working for CB & H retained him after he left CB & H. On March 15, 1989, CB & H sued Brown in North Carolina, seeking $259,801.50, an accounting, and specific enforcement of paragraph 15.9 of the partnership agreement. CB & H alleged that Brown took 100 CB & H clients when he left the partnership, without paying for them. On May 18, 1989, Brown sued in Mobile Circuit Court, alleging tortious interference with his business and seeking a judgment declaring that paragraph 15.9 of the CB & H partnership agreement was a covenant not to compete--a restraint of trade--and was void and unenforceable under Alabama Code 1975, § 8-1-1. On August 2, 1989, Brown filed a motion for a summary judgment on his claim that paragraph 15.9 was void under Alabama law. CB & H filed a motion to dismiss the Alabama proceeding for lack of subject matter jurisdiction, based on the prior pending suit in North Carolina. On February 21, 1990, the trial court entered a summary judgment in favor of Brown on his claim that paragraph 15.9 was void under Alabama law as a covenant not to compete. The trial court also denied CB & H's motion to dismiss for lack of subject matter jurisdiction, but entered a judgment in favor of CB & H on Brown's allegation of tortious interference with his business.

CB & H appeals that portion of the summary judgment declaring that paragraph 15.9 constitutes a covenant not to compete and denying CB & H's motion to dismiss. Brown cross-appeals from the judgment in favor of CB & H on his claim of tortious interference with business. CB & H raises the following issues for our review: (1) whether the trial court lacked subject matter jurisdiction over a declaratory judgment action filed subsequent to the filing of the North Carolina action at law involving the same parties and the same issues; (2) whether the validity of paragraph 15.9 under Alabama law was a moot question--not properly the subject of declaratory relief; i.e., whether North Carolina law would govern the validity of the provision in the North Carolina proceedings; (3) whether, the requested declaratory relief was furthermore moot on the grounds that, under Alabama choice of law principles, North Carolina law governed the validity of an agreement to pay money that was made in North Carolina and that made the money payable to a North Carolina partnership; and (4) whether an agreement by a withdrawing accountant to purchase any clients of his former partnership that he elects to continue to serve is an unenforceable covenant not to compete under Ala.Code 1975, § 8-1-1(a). On his cross-appeal, Brown raises the issue of whether the trial court erred in entering a judgment in favor of CB & H on his claim of tortious interference with business; he argues that there was no motion or pleading before the court upon which to base such a ruling.

CB & H first argues that the trial court lacked subject matter jurisdiction over this action because of the prior pending action in North Carolina involving the same parties and the same issues. CB & H's argument on this point is unpersuasive. While it is true that CB & H filed an action in North Carolina prior to Brown's action in Alabama, the mere fact that there is a prior pending action in another state does not divest the trial court of subject matter jurisdiction. In Galbreath v. Scott, 433 So.2d 454 (Ala.1983), this Court addressed a similar situation of a prior suit pending in another state. Finding that the prior suit, filed in Florida and involving the same parties and the same issues, did not bar a subsequently filed suit in Alabama, the Court stated:

" 'The mere pendency of an action in one state has no effect upon the right to bring an action in another. Whichever suit is first carried to judgment then bars the other, but it is only the rendition of judgment which has that effect. Until judgment is rendered, successive suits may be brought on the same cause of action in a dozen different states. While rendition of judgment on a prior judgment from another state as a cause of action does not discharge the prior judgment by merger or otherwise, the satisfaction of either judgment will discharge both.' "

Galbreath, 433 So.2d at 456 (quoting R. LeFlar, American Conflicts Law § 75 (3d ed. 1977). In the present case, CB & H's prior suit is still pending in North Carolina, as no judgment has been rendered in it. Thus, the prior pending suit in North Carolina has no effect on Brown's right to bring suit in Alabama, and the trial court properly retained jurisdiction over the action.

Having concluded that the trial court did have jurisdiction over Brown's suit, we must now focus on CB & H's partnership agreement, specifically paragraph 15.9. Although CB & H raises several issues related to paragraph 15.9 for our review, the essential question we must resolve is whether paragraph 15.9 is a covenant not to compete and whether it is enforceable under applicable Alabama law. We begin our analysis with Ala.Code 1975, § 8-1-1, the relevant statute concerning covenants not to compete. Section 8-1-1 provides:

"(a) Every contract by which anyone is restrained from exercising a lawful profession, trade or business of any kind otherwise than is provided by this section is to that extent void.

"(b) One who sells the good will of a business may agree with the buyer and one who is employed as an agent, servant or employee may agree with his employer to refrain from carrying on or engaging in a similar business and from soliciting old customers of such employer within a specified county, city or part thereof so long as the buyer, or any person deriving title to the good will from him, or employer carries on a like business therein.

"(c) Upon or in anticipation of a dissolution of the partnership, partners may agree that none of them will carry on a similar business within the same county, city or town, or within a specified part thereof, where the partnership business has been transacted."

Subsection (a) provides the general prohibition of covenants not to compete...