Junkermier, Clark, Campanella, Stevens, P.C. v. Alborn, Uithoven, Riekenberg, P.C.

• Citation: 2016 MT 218,384 Mont. 464,380 P.3d 747
• Decision Date: 06 September 2016
• Docket Number: No. DA 15–0605.,DA 15–0605.
• Parties: JUNKERMIER, CLARK, CAMPANELLA, STEVENS, P.C., a Montana Professional Corporation, Plaintiff and Appellant, v. ALBORN, UITHOVEN, RIEKENBERG, P.C., a Montana Professional Corporation, Terry Alborn, Paul Uithoven, Christina Riekenberg, Joe Bateson, and Sherm Veltkamp, Defendants and Appellees.
• Court: United States State Supreme Court of Montana

384 Mont. 464

380 P.3d 747

2016 MT 218

JUNKERMIER, CLARK, CAMPANELLA, STEVENS, P.C., a Montana Professional Corporation, Plaintiff and Appellant,

v.ALBORN, UITHOVEN, RIEKENBERG, P.C., a Montana Professional Corporation, Terry Alborn, Paul Uithoven, Christina Riekenberg, Joe Bateson, and Sherm Veltkamp, Defendants and Appellees.

No. DA 15–0605.

Supreme Court of Montana.

Argued and Submitted June 8, 2016.

Decided Sept. 6, 2016.

Rehearing Denied Oct. 6, 2016.

For Appellant: Kirk D. Evenson (argued), Thomas A. Marra, Marra, Evenson & Bell, P.C., Great Falls, Montana.

For Appellees: Michael J. Lilly (argued), Bridget W. leFeber, Berg, Lilly & Tollefsen, P.C., Bozeman, Montana.

For Amici: Amy D. Christensen, Christensen & Prezeau, PLLP, Helena, Montana.

Justice BETH BAKER

delivered the Opinion of the Court.

¶ 1 Junkermier, Clark, Campanella, Stevens, P.C. (Junkermier) lost its Bozeman branch office after all but one of its Bozeman shareholders decided to start their own firm, taking most of Junkermier's clients with them. Junkermier sought to enforce a contractual covenant restricting competition, but the Eighteenth Judicial District Court held the agreement unenforceable. The court also rejected Junkermier's claim for damages against some of the Appellees for breach of fiduciary duty.¹ We consider the following issues on appeal:

1. Whether the District Court erred by failing to analyze the reasonableness of the covenant because it concluded that the underlying contract was unenforceable.

2. Whether the District Court erred in concluding that only one Former Shareholder breached a fiduciary duty and that Junkermier failed to prove awardable damages from that breach.

¶ 2 We reverse in part and remand.

PROCEDURAL AND FACTUAL BACKGROUND

¶ 3 Junkermier is a Montana accounting firm based in Great Falls, with offices in other Montana cities that it has acquired through merger or acquisition. Junkermier merged with the Bozeman accounting firm of Veltkamp, Stannebein, and Bateson, P.C. (Veltkamp Firm) in 2002. At the time of the merger, the Veltkamp Firm had four shareholders—Former Shareholders Uithoven, Bateson, and Veltkamp, and nonparty Harry Stannebein. Under the merger agreement, Junkermier and the Veltkamp Firm equalized their book value and the Veltkamp Firm shareholders received equal value shares of Junkermier. The merger agreement provided that the Veltkamp Firm could be “spun-off” if either party determined within eighteen months that the merger was not in its best interest. Neither party exercised this option. Former Shareholder Riekenberg was a non-shareholder employee at the Veltkamp Firm who became a Junkermier employee and shareholder after the merger.

¶ 4 Former Shareholder Alborn became a Junkermier shareholder in 1980. He served on Junkermier's board of directors and, by the spring of 2013, he had been the Junkermier Bozeman office branch manager for nearly ten years. Former Shareholders were five of the six Junkermier shareholders in Junkermier's Bozeman office and held nearly fifteen percent of Junkermier's shares. All Junkermier shareholders are subject to a Stock Purchase and Redemption Agreement (Stock Agreement), which requires that shareholders be employed by Junkermier in a professional capacity, restricts the transfer of shares, and details the parties' obligations regarding the sale and redemption of shares.

¶ 5 Throughout their employment with Junkermier, Former Shareholders—like all Junkermier shareholders—were employed under the terms of an annual Shareholder's Employment Agreement (Employment Agreement). The Employment Agreement defines the parties' various rights and obligations and contains a covenant restricting competition (Covenant) that provides, in part:

7. POST–EMPLOYMENT REPRESENTATION OF CLIENTS. If this Agreement is terminated for any reason and Shareholder provides professional services ... in competition with [Junkermier] the Shareholder agrees as follows:

a. To pay to [Junkermier] an amount equal to one hundred percent (100%) of the gross fees billed by [Junkermier] to a particular client over the twelve month period immediately preceding such termination, if the client was a client of [Junkermier] within the twelve month period prior to Shareholder's leaving [Junkermier's] employment (hereinafter “particular client”), and the particular client is thereafter within one year of date of termination served by Shareholder, Shareholder's partners, or any professional services organization employing the Shareholder.

...

f. For purposes of this Section, a Shareholder shall be considered to be in competition with [Junkermier], by providing professional services within the county of the Shareholder's primary office (the office through which the Shareholder provides the majority of his professional services), or any county contiguous thereto.

Under the Employment Agreement, Former Shareholders acknowledged that they were entering into the agreement “with full understanding of the nature and extent covered by the” Covenant, and that they realized that the Employment Agreement “would not be entered into without the [Covenant] contained herein.”

¶ 6 The Employment Agreement contained also a section entitled “Disclosure of Information.” That section prohibited shareholders from disclosing confidential information—defined to include “lists of [Junkermier's] clients.” The disclosure term made clear that it applied both during the agreement's term and “at all times after the termination of employment with [Junkermier].” The Employment Agreement specified further that any and all confidential information was “the sole and exclusive property of [Junkermier].”

¶ 7 Under the Employment Agreement, Junkermier agreed “to compensate the Shareholder at a mutually agreeable amount.” The agreement specified further that Former Shareholders would be paid a salary “pursuant to the policies and procedures contained in the [Junkermier] Employee Manual.” Former Shareholders were paid a base salary by Junkermier and they also received bonuses when approved by the board of directors, typically on an annual basis.

¶ 8 The Employment Agreement's term would “expire one (1) year from the date of execution.” It also could be terminated upon the happening of certain specified events. The Employment Agreement provided further that it could be extended for a one-year term by Junkermier on written notice.

¶ 9 In June 2012, Former Shareholders were notified that Junkermier was exercising its option to extend the terms of their most recent Employment Agreements through June 30, 2013. In the spring of 2013, Former Shareholders began discussing splitting from Junkermier due to various frustrations with the firm. Former Shareholders retained an attorney, who suggested that the Covenant was not enforceable. In early June 2013, Former Shareholders met with a consultant to get advice about splitting from Junkermier.

¶ 10 Around that same time, Former Shareholders informed Junkermier CEO Jerry Lehman in writing that they wanted to discuss leaving Junkermier. Shortly after, the majority of Former Shareholders met with Lehman. Lehman then informed the other Junkermier shareholders that Former Shareholders intended to leave. He called a special meeting of the shareholders to discuss the topic. At that meeting the other Junkermier shareholders appointed a committee to negotiate the details of Former Shareholders' split from the firm. The committee and Former Shareholders discussed a transition; each side made proposals regarding the Bozeman office's clients, but they never reached an agreement. On June 20, 2013, Lehman met with the Bozeman office employees and informed them that Former Shareholders were leaving. Also that same day, Junkermier sent all the Bozeman office employees a “COBRA Election Notice” informing them that their employment would end on June 30, 2013.

¶ 11 The last week of June 2013, Former Shareholder Alborn prepared a “to do list” assigning various tasks to Former Shareholders and other Bozeman office employees relating to forming the new Amatics accounting firm, and filed articles of incorporation for Amatics. Former Shareholders worked for Junkermier until June 30, 2013. The next day, Former Shareholders and almost all of the Junkermier Bozeman staff began work at Amatics. Amatics ran a full-page advertisement that same day in the Bozeman Daily Chronicle announcing its formation and new location. The ad stated that Amatics had “evolved” from Junkermier.

¶ 12 Prior to Former Shareholders' leaving Junkermier, a Junkermier employee downloaded a copy of Junkermier's Bozeman client list at Former Shareholder Alborn's request. The client list was taken to a local printing shop to print letters to the clients. On its first day of business, Amatics sent the letters to all of the clients on the downloaded client list informing them about the split from Junkermier. The letter included a document that asked the clients to choose whether they wanted to continue their relationship with Junkermier or to continue their relationship “with the Shareholders and staff of the former [Junkermier] Bozeman office, now known as [Amatics].” Junkermier sent its own letter to the Bozeman clients informing them of the changes in the office in mid-July. Ultimately, about 2,100 of the 2,400 clients on the client list transferred their accounting work from Junkermier to Amatics. A significant number of these clients had preexisting relationships with Former Shareholders Uithoven, Bateson, Veltkamp, and Riekenberg from their days at the Veltkamp Firm.

¶ 13 Following the split, Junkermier filed a complaint to declare the Covenant enforceable and to recover damages. The complaint included claims for breach of contract and breach of fiduciary duty against Former Shareholders. Pursuant to the Covenant, Junkermier sought 100% of the gross fees that Junkermier billed in fiscal year 2013 to clients that were serviced by Amatics in fiscal year 2014. The complaint originally...