Drzewiecki v. H & R Block, Inc.

• Decision Date: 31 March 1972
• Citation: 24 Cal.App.3d 695,101 Cal.Rptr. 169
• Court: California Court of Appeals Court of Appeals
• Parties: Raymond DRZEWIECKI, etc., Plaintiff, Respondent and Appellant, v. H & R BLOCK, INC., et al., Defendants, Appellants and Respondents. Civ. 1302.

Page 169

101 Cal.Rptr. 169

24 Cal.App.3d 695

Raymond DRZEWIECKI, etc., Plaintiff, Respondent and Appellant, v. H & R BLOCK, INC., et al., Defendants, Appellants and Respondents.

Civ. 1302.

Court of Appeal, Fifth District, California.

March 31, 1972.

Hearing Denied June 22, 1972.

[24 Cal.App.3d 697] Hoge, Fenton, Jones & Appel, Inc., and Charles H. Brock, San Jose, for defendants and appellants.

Thomas, Snell, Jamison, russell, Williamson & Asperger, and James E. LaFollette, Fresno, for plaintiff and respondent.

OPINION

GARGANO, Associate Justice.

This litigation presents a contractual dispute between several closely related corporations, defendants in the court below, and one Raymond Drzewiecki, also known as Ray Drew, plaintiff in the court below. For convenience, the defendants will be referred to as appellants, and plaintiff will be referred to as repondent.

The essential facts are undisputed. In December 1958 respondent, a former resident of California, contacted H & R Block, Inc. in answer to an advertisement; the company was engaged in the business of preparing income tax returns for small taxpayers and was seeking 'income tax preparers.' As a result of the contact, respondent attended the H & R Block training session in Kansas City; after completing the program, he was employed by the company as an 'income tax preparer' for the 1959 tax season at its office at Mission, Kansas, a suburb of Kansas City.

In March 1959, Richard Bloch, a founder and officer of H & R Block, Inc., asked respondent if he wanted to manage a company office yet to be opened; Mr. Bloch told respondent that almost any city was available to him as long as it had a population of over 35,000 people. Thereupon, respondent submitted a list of five or six cities for the company's consideration; he ultimately selected Fresno, a city with a population in excess of 35,000.

On April 21, 1959, respondent and H & R Block, Inc. executed the agreement which is the subject of this litigation. This agreement, hereafter referred to as the Fresno contract, contained the following pertinent provisions:

ARTICLES OF EMPLOYMENT

'. . .S O

'WHEREAS, First Party is engaged in the business of preparing income tax returns and performing bookkeeping and related services for small business, and is desirous of employing Second Party as manager of branch office (or offices) to be located in Fresno, California (hereinafter referred to as Branch Office); and

'. . .ali

'2. First Party hereby employs Second Party as manager of the Branch Office upon the terms and conditions hereinafter set forth.

'3. First Party agrees to assist in selecting a site for said Branch Office and to furnish all capital funds necessary to its operation. Such capital shall be employed for such items as the payment of rent, salaries, utilities, supplies, equipment and advertising costs. All outlays and expenditures in excess of $100.00 shall be made at the sole discretion, election and direction of the employer, provided however, that same shall be adequate to permit such operation without any outlay of funds by Employee.

'. . .nds

'5. Second Party hereby accepts the position of manager of the Branch Office and covenants to abide by the terms and conditions of this Agreement in all respects.

'6. Employee shall devote such time and attention to the business as will be required for the successful operation of the business, and shall direct his best efforts to the obtaining of tax returns and bookkeeping accounts and to the servicing thereof in a professional manner and to the utmost of his ability. Minimum time under this paragraph shall be construed to mean full time from January 1 thru April 15 each year.

'. . . pr

'8. As compensation for his services, Second Party shall be entitled to $400.00 each month, to be paid him by Employer as a draw against Employee's share of net profits only of the Branch Office, during the period of January 1 through April 30. From April 30 until January 1 if Employee devotes a major portion of his time to the office, Employee shall be entitled to draw the entire net profit of the office plus, each month, the normal expense of the office if it were closed. Any of these draws are to be considered advances against the share of the profits as set out in #9 and shall be accumulative from year to year.

'9. Employee's share of the net profits shall be 75% Of such net profit for each fiscal year ending April 30. The net profit for each year shall be determined on the 30th day of April and Employee's share shall be available to Employee at any time thereafter, either in total or in monthly amounts the aggregate of which not to exceed Employee's total share.

'. . .ter

'11. At no time during his employment with First Party nor within five (5) years after the termination thereof, shall Second Party solicit, advertise for or service, directly or indirectly, any past, current or potential accounts of First Party, nor engage directly or indirectly in any business or undertaking, whether to the capacity of owner, employee, agent or otherwise, which may be in competition with First Party, within an area of twenty-five (25) miles of Fresno, California, without the written permission of First Party. If Second Party shall in any wise violate the terms and conditions aforesaid, he hereby agrees to pay to First Party all proceeds or monies by him or his assigns or agents received in the course of such unauthorized action plus liquidated damages of $5,000.00.

'12. It is expressly understood and agreed that the contract shall not constitute Second Party as a partner of stockholder in the business of First Party, nor shall Second Party at any time hold himself out as a partner, nor shall he commit First Party to any agreement, written or oral, without written authority of First Party so to do.

'13. The agreement shall be for a period of two years from the above date and thereafter shall automatically renew from year to year unless either party gives written notice of termination 90 days prior to renewal date. First party may give notice of termination only in the case of second party improperly conducting the business. This contract would also terminate if any law were passed to make the operation of the business illegal. All supplies, equipment and fixtures of the Branch Office shall be and remain the sole property of First Party at all times.

'. . . be

In April 1959 respondent and his family moved to Fresno. The branch office was scheduled to be opened January 1960, and respondent took a temporary position with a transport manufacturing company. A few months later he became concerned over his financial resources and requested H &amp R Block, Inc.'s permission to delay opening the Fresno office for a year. The request was denied, and respondent opened the office in January as scheduled.

In 1961, respondent, by separate agreement, was given the managership of H & R Block's branch offices in the city of Stockton and surrounding areas. During the following years he increased the number of branch offices managed by him from the original one in Fresno to a total of 23; at the trial, it was estimated the respondent's share of the net profits for the year 1969, from his Fresno area operation alone, would have been $65,000.

In 1967 H & R Block, Inc., which had expanded into a nationwide enterprise consisting of several publically owned related corporations with more than 3,200 branch offices, determined that the compensation the organization was paying to its 250 branch office managers was excessive and unrealistic. As a consequence, appellants proposed a new form of contract substantially reducing each manager's share of the net profits realized from future growths in company business. This contract was to go into effect in January 1968 and did not affect a manager's share in the net profits of a particular branch office as to business existing at the time it went into effect.

On May 7, 1968, appellants gave respondent notice of the termination of the Stockton agreement; respondent and four other managers had refused to sign the new contract, and appellants had directed their corporate officers to terminate the pre-existing contracts of all managers who had not signed. Respondent was also notified that his operation under the Fresno agreement was restricted to the Fresno city limits; later, further restrictions were imposed on the Fresno operation.

In October 1968 respondent instituted this action in the Superior Court of Fresno County. His complaint was in eight counts and sought injunctive and declaratory relief, reformation, partition, an accounting, and damages. About two months later, on December 11, 1968, appellants notified respondent that the Fresno contract was terminated.

After issue was joined on respondent's pleadings, the cause was tried by the Honorable Donald R. Franson, sitting without a jury. Judge Franson found that both the Stockton and Fresno contracts were employment contracts and did not create a joint venture or give respondent any propriety interest in the employer's business operations and that because the Stockton contract contained a provision that it could be terminated on notice by either party, it was properly terminated by appellants. He also found that the Fresno contract employed respondent for so long as he properly conducted the employer's business and could not be terminated by appellants except for cause. ¹ The judge then, inter alia, determined that the agreement included the city of Fresno and surrounding areas, that appellants did not have cause to terminate the employment that 10 years was a reasonable period of time for the employment to have continued had it not been wrongfully terminated, that respondent would have earned $60,000 per year during that period but instead would probably earn only $10,000 a year and that he was damaged by the wrongful termination in the sum of $386,086.75. Judgment was entered according to these...