Isler v. Shuck, 74-25-E

CourtCourt of Appeals of Oregon
Writing for the CourtBefore SCHWAB; JOSEPH
Citation589 P.2d 1180,38 Or.App. 233
PartiesRobert F. ISLER, C. Richard Colling, Gary McAdams, Gerald Seagren and Clifford V. Sander, d/b/a Isler, Colling & McAdams, Certified Public Accountants, Respondents, v. Richard S. SHUCK, Appellant. ; CA 10221.
Docket NumberNo. 74-25-E,74-25-E
Decision Date29 January 1979

Gerald R. Pullen, Portland, filed the brief for appellant.

Mike Ratliff, Klamath Falls, filed the brief for respondents. With him on the brief was Parks & Ratliff, Klamath Falls.


JOSEPH, Judge.

This is an action to recover sums allegedly due as a result of defendant's activities after voluntary termination of an employment contract. Plaintiffs had a judgment for $20,085, and defendant appeals.

Prior to December, 1966, defendant had been employed as an accountant in a CPA firm. On December 1 the firm was purchased by plaintiffs, and defendant was offered continued employment. He executed an employment agreement which, so far as relevant here, provided that it could be terminated on 30 days' written notice, and that if defendant were to terminate employment he would "in no way approach any clients of the Company," pay plaintiffs "an amount equal to fifty percent (50) of the gross fees earned" from services performed in the three years after termination for any client of the company who should transfer his patronage to defendant and pay "an amount equal to ten percent (10) of the gross fees earned" from services performed in the two years after termination for defendant's own clients 1 who should continue their patronage with him.

There was an arbitration clause:

"If any question arises concerning the amount actually due the Company under the terms of the foregoing paragraphs, Applicant and the Company shall agree on a Certified Public Accountant as an independent auditor to examine applicant's records and to determine the correct amount, both parties agreeing to be bound by his decision."

After working under the agreement for five years, defendant quit. When he left, he took with him several clients, services for which were subject to the fee apportionment formula. Dispute soon arose over application of the formula, and this action resulted. Plaintiffs' amended complaint alleged the agreement, the capacity of the plaintiffs, defendant's termination of employment and subsequent performance of services subject to the agreement, and defendant's refusal to pay. The prayer was for $33,101. Defendant demurred on the ground that the contract "provides for liquidated damages," so plaintiffs' failure to allege the elements to establish the enforceability of such a provision left the complaint without facts sufficient to state a cause of action. The demurrer was overruled. That is the subject of defendant's first assignment of error.

At the time of trial of this case the rule was that the plaintiff had the burden of pleading and proving that a contractual provision for liquidated damages is not invalid as a penalty. See Chaffin v. Ramsey, 276 Or. 429, 435, 555 P.2d 459 (1976), and cases cited at 435, n. 5, 555 P.2d 459. That burden has now been shifted to the defendant. Dean Vincent, Inc. v. McDonough, 281 Or. 239, 574 P.2d 1096 (1978). If the rule were actually an issue here, we would apply the law as it existed when the demurrer was decided, because the rule in Dean Vincent was expressly made prospective in its application.

The formula was not a liquidated damage clause or a penalty clause. It was neither a provision for payment in lieu of defendant's performance nor a provision to secure performance of the contract. Medak v. Hekimian, 241 Or. 38, 44, 404 P.2d 203 (1965). Defendant had an absolute right to terminate his employment with plaintiffs and an absolute right to perform professional services without limit for former clients of the firm who should voluntarily avail themselves of those services without solicitation. He agreed to pay a fixed portion of fees earned from those services to the former employer. If the provision had to be characterized, it appears to be analogous to the purchase of a customer list. 2 See Bramhall v. ICN Medical Laboratories, Inc., 284 Or. 279, 286-88, 586 P.2d 1113 (1978). The demurrer was properly overruled. 3

Plaintiffs did not allege the performance of all conditions precedent to defendant's liability. Defendant now asserts that the demurrer should have been allowed because plaintiffs did not allege performance or an excuse for non-performance of the arbitration provision. He acknowledges that this point was not asserted as a ground of demurrer below. In fact, the defendant had refused to comply with plaintiffs' demand for arbitration. He testified at the trial:

" * * * (T)here is no way I'm going to turn my books over to another C.P.A. firm without a direct Court order."

We are asked to determine the sufficiency of the complaint on an attack made after judgment, and we would afford the complaint a liberal construction to uphold it if possible. But there are no allegations in the pleading which could fairly be read to relate to conditions precedent, and the omission of a material and necessary allegation might be fatal, even after judgment. See, e. g., Johnson v. School District No. 12, 210 Or. 585, 589, 312 P.2d 591 (1957). Where, as here, the missing allegation would be formal and would not be inconsistent with the complaint as it stands, and where it could be supplied by a simple amendment, we cannot reverse if on the whole record we "determine that the omission did not result in surprise or prejudice, or prevent a full trial of the real issues between the parties, and that the evidence disclosed the existence of a cause of action * * *." Fulton Ins. v. White Motor Corp., 261 Or. 206, 219, 493 P.2d 138, 147 (1972). This is such a case.

Defendant moved for an "involuntary nonsuit" on the ground that "there is no evidence that this covenant was reasonable, and the burden of proof is on the plaintiffs to prove that it was reasonable (as) a restraint of trade." The motion was denied, and that is assigned as error. 4 In his brief, defendant accurately reviews the rules for the enforceability of covenants not to compete and says: "The difficulty, therefore, is not in defining the rules of law applicable, but in applying those rules to the facts of this case." That is also accurate, for the provisions in issue do not constitute a covenant not to compete. To be sure,...

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