Dwyer, Costello and Knox, P.C. v. Diak

• Decision Date: 12 January 1993
• Docket Number: No. 60646,60646
• Citation: 846 S.W.2d 742
• Parties: DWYER, COSTELLO AND KNOX, P.C., Respondent, v. Mark DIAK, Appellant.
• Court: Missouri Court of Appeals

Page 742

846 S.W.2d 742

DWYER, COSTELLO AND KNOX, P.C., Respondent, v. Mark DIAK, Appellant.

No. 60646.

Missouri Court of Appeals,

Eastern District,

Division Three.

Jan. 12, 1993.

J. Peter Schmitz, Heni Takacs, St. Louis, for appellant.

Jon M. Moyers, Timothy Francis Noelker, St. Louis, for respondent.

CHARLES B. BLACKMAR, Senior Judge.

The plaintiff professional corporation sued a former officer, director and stockholder for "breach of fiduciary duty" in resigning his employment and entering into a competing business before the date on which he made his resignation effective. The circuit court awarded actual and punitive damages on a jury verdict and the defendant appeals. We conclude that the plaintiff failed to establish any damages other than those occasioned by privileged competition with a former employer, and reverse.

1. The Facts

We of course state the facts the jury could have found in support of the verdict and give the plaintiff the benefit of all reasonable inferences from the evidence. The plaintiff, however, has the burden of establishing every element of its claim by substantial evidence, and is bound by authenticated documentary evidence and by its own uncontradicted evidence, including evidence elicited from the defendant. Gast v. Shell Oil Company, 819 S.W.2d 367 (Mo. banc 1981); Wendorff v. Missouri State Life Insurance Company, 318 Mo. 363, 1 S.W.2d 99 (1927).

The plaintiff was incorporated in 1982 under the Illinois Professional Service Corporation Act, 32 Ill.Stats.Anno. ch. 32, §§ 415-1 to 415-17 (Smith-Hurd 1970), for the practice of the accounting profession. It is qualified as a foreign corporation under Missouri law and its principal office and place of business is in the City of Saint Louis. In accordance with the requirements of its governing statutes, all stockholders, officers and directors are Certified Public Accountants (CPA), qualified to practice their profession in Missouri. As of July 8, 1985, the stockholder-director-officers were Knox, Dwyer (a retired CPA) and the defendant. The corporation also employed two other CPAs, Jackson and Thoman, as well as accountants who were not CPAs. No employee of the corporation, CPA or otherwise, was bound by a contract restricting competition with the plaintiff following termination of employment, and all were employees at will.

The defendant is a certified public accountant, licensed to practice in Missouri and Illinois. He was first employed by the plaintiff's predecessor in 1973. While so employed he passed the CPA examinations, after which he was assigned increased responsibilities, including the supervision of accounting work of clients whose principal CPAs at the firm had died or retired. He developed a specialty in the accounts of not-for-profit corporations, through study and practice. In 1983 the defendant made plans to leave plaintiff's service to accept employment with another accounting firm. To induce him to remain, the plaintiff's officer-directors offered him the opportunity to acquire stock and to become an officer and director. In this capacity he had the authority to sign the corporate name to audit reports. He would ordinarily be the principal supervisor of the accounting work of a particular client, as the head of an accounting team, and would not usually share the work of particular clients with other officer-directors.

On July 8, 1985, the defendant addressed a letter to Knox at the firm address reading in significant part as follows:

I wish to inform you that I am resigning from Dwyer, Costello, and Knox, P.C. effective September 30, 1985. I have formed a partnership with Allen Jackson to provide CPA services to the general public....

The September effective date is necessary because it is important that I complete certain audits in progress which cannot be timely completed in the best interest of the client unless personally completed by me. I will also service the administrative and other needs of any of those clients I have handled in the past as I deem necessary.

I believe reasonable compensation for my services during this winding up period will be a percentage of my 1985 annualized pay had I stayed with the firm (as previously agreed by us) determined by a proportion of those hours actually worked in relation to those hours I would have worked if I would not be resigning. I expect to spend between 20 and 30 hours per week performing the above mentioned services....

On July 11, 1985, Dwyer and Knox held a "directors' meeting" to which the defendant was not invited and which he did not attend. Pertinent portions of the minutes of this meeting read as follows:

A discussion took place concerning the resignation of stockholder and director, Mark Diak. It was unanimously agreed upon that Mr. Diak would be relieved as a director and officer of the corporation effective his resignation date.

A further discussion took place in regards to Mr. Diak starting his own business possibilities since it was heard that other firm employees were going with Mr. Diak, namely Mr. Jackson, Patty Thoman, and others.

It was decided to try to make this transition as smooth as possible. So long as both parties agreed, nothing of Dwyer, Costello and Knox would leave the office that belonged to the corporation. Discussion concerning Mr. Diak taking our clients was brought up and decided that he will have to pay us for them in the same manner that we paid Mrs. Costello.

(Mrs. Costello is the widow of a CPA who was an officer, director and shareholder of the plaintiff, and who had died several years earlier. The question of her entitlement is not further developed in the record.)

The defendant had begun preparations for his withdrawal in June of 1985. He agreed to enter into partnership with Jackson. When he advised Thoman of his intentions she said that she would resign also. She declined a partnership with the defendant and Jackson but agreed to enter the employment of the partnership. Other employees of the defendant who were not CPAs accepted offers of employment with the newly formed partnership after July 8. There is no evidence that Jackson, Thoman, or any other employee who resigned was delinquent in duties owed to the plaintiff or to the plaintiff's clients while remaining on its payroll.

The defendant also made preparations, prior to July 8, for setting up the partnership with Jackson. Office space was rented and stationery was printed. Over the weekend of July 3 and 4 he took files of persons who had been clients of the plaintiff to his new office. On July 8, apparently before Knox received the letter of resignation, the defendant advised a major client that he was leaving the plaintiff to form a new firm. There is no evidence that this client had any work under contract with the plaintiff at the time.

After July 8, the new partnership went into operation. The defendant continued with the work for clients under contract to the plaintiff, working part time at the plaintiff's place of business, while also doing work for the new firm's clients. He completed work for the plaintiff's clients prior to September 30, 1985. The plaintiff billed the clients for the services and paid the defendant for the hours expended, at the rate he had indicated. There is no evidence that the defendant received any other compensation from the plaintiff for services after July 8. The defendant sent notices to other clients he had served for plaintiff, indicating his willingness to do their accounting work. Many of these employed the new partnership. Jackson and Thoman also began work for the partnership, and numerous former clients of the plaintiff whom they had principally served switched their business to the new firm. Some employees of the plaintiff who had assisted the defendant, Jackson, and Thoman in doing its accounting work left the plaintiff's employ and accepted positions with the partnership. There is no evidence that the partnership undertook any accounting work which was under contract to the plaintiff on July 8, 1985.

It appears that Jackson, Thoman, and the defendant took possession of and made use of plaintiff's files on clients who switched their business. The files contained accounting work papers for completed work, which make accounting work for future years easier and less expensive. These files, so far as the record shows, were freely made available by the plaintiff's employees and there is no evidence of any unheeded demand for their return. Knox conceded that, when a client changes CPAs, it is the responsibility of the accountant who is being supplanted to provide the old work papers, or copies, to the new accountant. The work papers are of no value at all to an accountant who is no longer serving the client. There is no evidence that the plaintiff was disabled from or inconvenienced in serving any client who sought its services because the defendant or his colleagues had the work papers.

The firm of Jackson, Diak and Company lasted only until January 1, 1986, when Jackson withdrew. The defendant then rented space for himself and his employees in the plaintiff's suite. There was discussion of a reconciliation but this did not come about. In December of 1985 Knox and Dwyer advised the defendant that they expected compensation for former clients taken by the plaintiff, if no reconciliation were forthcoming. The defendant and his colleagues billed former clients of the plaintiff for $186,000.00 in fees during the year following the withdrawal, and for similar amounts in ensuing years. The jury awarded the plaintiff $50,000.00 actual damages and $100,000.00 in punitive damages. It found for the defendant on an additional count charging conversion of tangible property.

2. The Plaintiff's Theory

The plaintiff suggests that the case involves the fiduciary responsibilities of officers and directors of an Illinois corporation, and that the law of Illinois applies. It cites numerous decisions of the several ...