Joseph Frazier, D.D.S., and George D. Dallas, D.D.S. v. Dettman

• Decision Date: 10 April 1991
• Docket Number: 2-90-1272,Nos. 2-90-1271,s. 2-90-1271
• Citation: 212 Ill.App.3d 139,155 Ill.Dec. 771,569 N.E.2d 1382
• Parties: , 155 Ill.Dec. 771, 6 IER Cases 726 JOSEPH FRAZIER, D.D.S., AND GEORGE D. DALLAS, D.D.S., et al., Plaintiffs-Appellants, v. Gary DETTMAN, Defendant-Appellee.
• Court: United States Appellate Court of Illinois

Page 1382

569 N.E.2d 1382

212 Ill.App.3d 139, 155 Ill.Dec. 771,

6 IER Cases 726

JOSEPH FRAZIER, D.D.S., AND GEORGE D. DALLAS, D.D.S., et al., Plaintiffs-Appellants, v. Gary DETTMAN, Defendant-Appellee.

Nos. 2-90-1271, 2-90-1272.

Appellate Court of Illinois Second District.

April 10, 1991.

Michael T. Caldwell, Caldwell, Berner & Caldwell, Woodstock, William D. Dallas (argued), Regas, Frezados & Harp, Chicago, for Joseph Frazier, D.D.S. and George D. Dallas, D.D.S.

Daniel Slack Hefter (argued), Daniel S. Hefter & Assoc., Ltd., Chicago, W.M. Carroll, Jr., Steffen and Carroll, Crystal Lake, Steven M. Harris, Malk Harris Miller, Chicago, for Gary Dettman, D.D.S.

Presiding Justice REINHARD delivered the opinion of the court:

George D. Dallas, D.D.S., brought the instant action, individually and on behalf of the dissolved partnership of Joseph Frazier, D.D.S., and George D. Dallas, D.D.S. (the partnership), in the circuit court of McHenry County against defendant, Gary Dettman, D.D.S., a former employee of the partnership. Plaintiffs sought, inter alia, to enforce a restrictive covenant contained in defendant's employment contract with the partnership and a preliminary injunction. The circuit court refused to issue the preliminary injunction and, finding the restrictive covenant unenforceable, granted defendant's motion to dismiss those counts of plaintiffs' complaint based on the covenant. Plaintiffs brought separate appeals from these two orders, and the two appeals have been consolidated for review.

Plaintiffs raise three issues on appeal: (1) whether a restrictive covenant in an employment contract is enforceable by a dissolved partnership in the process of winding up its affairs; (2) whether a partner of the dissolved partnership, acting individually and not on behalf of the partnership can enforce such a restrictive covenant; and (3) whether an injunction should have been issued against defendant even in the absence of an enforceable restrictive covenant.

The following facts can be adduced from the record. Doctors Frazier and Dallas entered into a partnership agreement in 1985 to engage in the practice of dentistry under the name "Joseph I. Frazier, D.D.S. and George D. Dallas, D.D.S." Their practice was conducted at two offices in McHenry County, one in Woodstock and the other in Marengo.

Defendant, also a dentist, was hired by the partnership to perform dental services. Defendant had never practiced in McHenry County before being employed by the partnership. An employment contract dated August 1, 1987, was entered into between defendant and "Joseph Frazier, D.D.S. and George Dallas, D.D.S., a partnership." The contract notes that the partnership is also referred to in the document as the "partners." The contract contains the following pertinent provisions:

"6. Employee agrees that he will be treating Partners' patients and will have access to lists of patients and their addresses, and that he will learn dental techniques and processes from the Partners, and therefore agrees that during the term of this Agreement, and for 2 years after the termination of this Agreement, he will not engage or become associated with, directly or indirectly, any business or other activity, as a stockholder, partner, investor, sole proprietor, agent, employee or consultant, which is in any way competitive with the business of the Partners, or perform any act which may confer a competitive benefit or advantage to any enterprise competing with the Partners in McHenry County.

The Partners are actively engaged in the business of providing dental care, treatment and services in McHenry County, and it is therefore agreed that the foregoing restrictions shall be operative for the above time period only in that territory. * * * The parties agree that the remedy at law for any breach of this provision will be inadequate and the Partners shall be entitled to injunctive relief together with attorney's fees and costs.

8. All patient records, files, x-rays and other work papers used and/or produced by Employee shall belong to and remain the property of the Partners."

The employment contract does not provide that any of the rights thereunder are assignable, and any modification of the agreement required the consent of both parties.

Frazier and Dallas decided to dissolve the partnership effective September 17, 1990. The dissolution agreement provided, inter alia, that either Frazier or Dallas could hire any partnership employee who would agree to be so employed. The dissolution agreement also provided that each partner would facilitate the "good faith transfer and referral of patients and patients' records" in accordance with each patient's choice of dentist. The agreement did not provide for either the sale of patient lists or the transfer of such lists to either partner upon dissolution.

As a result of the dissolution of the partnership, defendant's employment was terminated effective September 22, 1990. Plaintiffs alleged that defendant indicated that he would accept, but then declined, Dr. Dallas' offer of employment under similar terms as his former employment with the partnership. Instead of working for either of the two partners, defendant began practicing dentistry at his own office in Woodstock. Plaintiffs alleged that defendant contacted plaintiffs' patients and arranged to treat them in his office. Plaintiffs further alleged, on information and belief, that defendant removed patient lists and records without authority and in direct breach of his contract.

Plaintiffs' verified complaint was filed on October 3, 1990. Though the complaint was filed on behalf of "JOSEPH FRAZIER, D.D.S., and GEORGE DALLAS, D.D.S., a partnership" as well Dallas individually, Frazier is not, individually, a party to the action. It was alleged that the partnership was currently in the process of winding up its affairs. Count I of the complaint sought a permanent injunction against defendant to enforce the restrictive covenant. Count I also sought to recover the profits defendant gained as a result of his breach and to compel return of the patient lists. Count II sought the issuance of a temporary restraining order (TRO) or a preliminary injunction pending resolution of the cause. Count III sought money damages for breach of the employment contract. Count IV alleged that defendant tortiously removed the patient lists, and count V alleged tortious interference with plaintiffs' contractual relations.

Defendant filed a motion under section 2-619 of the Code of Civil Procedure (the Code) (Ill.Rev.Stat.1989, ch. 110, par. 2-619) to dismiss plaintiffs' complaint. The motion contended, inter alia, that counts I, II and III of the complaint were based on a restrictive covenant which could not be enforced either by the dissolved partnership or by a partner individually. The trial court entered a TRO on October 3, 1990, preventing defendant from soliciting or treating plaintiffs' patients and from practicing dentistry in McHenry County. Defendant filed an interlocutory appeal from the TRO in appeal No. 2-90-1104, and this court, pursuant to Supreme Court Rule 307(d) ( 134 Ill.2d R. 307(d)), ordered that the TRO be vacated.

Plaintiffs subsequently asked the circuit court to issue a preliminary injunction. Plaintiffs contended that the terms of defendant's employment contract indicate that it could be enforced by either the partnership or the partners individually. Plaintiffs additionally contended that the restrictive covenant was an asset of the partnership which a winding-up partner could sue to protect. After a hearing on October 12, 1990, the circuit court denied plaintiffs' request for a preliminary injunction. The court also granted defendant's motion to dismiss counts I, II, and III of plaintiffs' complaint, holding that "the restrictive covenant sought to be enforced is, as a matter of law, unenforceable." Although the order did not dispose of counts IV and V, the court made a finding, pursuant to Supreme Court Rule 304(a) (134 Ill.2d R. 304(a)), that there was no just reason to delay enforcement or appeal of its order.

In No. 2-90-1271 of this consolidated appeal, plaintiffs appeal from the trial court's order denying the preliminary injunction pursuant to Supreme Court Rule 307(a)(1) (134 Ill.2d R. 307(a)(1)). In No. 2-90-1272, plaintiffs appeal from the trial court's order dismissing counts I, II, and III of the complaint pursuant to Supreme Court Rule 304(a).

Plaintiffs' first contention on appeal is that the partnership, acting through Dr. Dallas, may enforce the restrictive covenant even though the partnership is dissolved and in the process of winding up its affairs. An initial inquiry in this regard is whether Dr. Dallas, as a winding-up partner, has the authority to file suit on behalf of the partnership as a part of the process of winding up the partnership's affairs.

Section 30 of the Uniform Partnership Act (the Act) (Ill.Rev.Stat.1989, ch. 106 1/2, par. 30) provides that, upon dissolution, a partnership is not terminated, but continues in existence until the winding up of partnership affairs is completed. Dissolution terminates the authority of a partner to act on behalf of the partnership except so far as may be necessary to wind up partnership affairs. (Ill.Rev.Stat.1989, ch. 106 1/2, par. 33.) There is support for the proposition that "[i]ncluded in the powers of a liquidating partner winding up partnership affairs is the power to maintain an action on [the] partnership debts for the benefit of the partnership." (59A Am.Jur.2d Partnership § 1111 at 782 (1987).) Moreover, the dissolution of the partnership does not terminate its contractual relationships with other parties. See Ellerby v. Spiezer (1985), 138 Ill.App.3d 77, 81, 92 Ill.Dec. 602, 485 N.E.2d 413.

Nevertheless, the propriety of a winding-up partner bringing a suit to enforce a restrictive covenant which will only affect future conduct, when the...