Perry v. Moran

• Decision Date: 23 December 1987
• Docket Number: No. 52944-2,52944-2
• Citation: 109 Wn.2d 691,748 P.2d 224
• Court: Washington Supreme Court
• Parties: Charles F. PERRY, Richard L. Whittemore, Randall L. Tanner, and Steven G. Shimizu, d/b/a Perry, Whittemore & Tanner, a Washington partnership, Appellants, v. Judith MORAN, Respondent.

Page 691

109 Wn.2d 691

748 P.2d 224

Charles F. PERRY, Richard L. Whittemore, Randall L. Tanner and Steven G. Shimizu, d/b/a Perry, Whittemore &amp Tanner, a Washington partnership, Appellants, v. Judith MORAN, Respondent.

No. 52944-2.

Supreme Court of Washington En Banc.

Dec. 23, 1987.

Tousley, Brain, Reinhardsen & Block, William H. Block, Christopher I. Brain, Seattle, for appellants.

Lucas, Glase, Sherman & Hendrickson, Peter J. Lucas, Merrilee A. MacLean, Seattle, for respondent.

CALLOW, Justice.

The plaintiff, Perry, Whittemore and Tanner (PWT) is a Seattle accounting firm. In 1981, the firm consisted of 4 partners, 18 or 19 staff accountants, and 25 to 30 support employees. The firm was organized into three basic departments, including the Retirement Department for which the defendant, Judith Moran, was hired.

The defendant, Moran, began her career as an accountant in Michigan in 1972, performing retirement plan work. In 1976, she left the company she was working for to start her own practice in the same area, taking a major part of her initial client base from among her first employer's clients with the employer's consent. Moran practiced on her own in Michigan from 1976 to 1980, when she sold her practice.

After selling her Michigan accounting practice, Moran moved to Seattle, where she took a position with City College as an administrator and teacher of accounting. She did not develop an accounting practice in Seattle during the time she was employed with City College.

In June of 1981, Moran accepted a position with PWT as the head of its Retirement Department. At the time she began working for PWT, Moran executed an employment agreement, which included the following provisions:

Section 5. Non-Competition.

5.1 Clients. Employee recognizes and acknowledges that all clients and/or accounts serviced by Employer, Employer's other employees, or Employee during his employment with Employer, including all clients and/or accounts acquired by Employee due to his efforts, are the clients and accounts of Employer (collectively "Client Accounts").

5.2 Non-Disclosure. Employee recognizes and acknowledges that the list of Employer's Client Accounts, as it may exist from time to time, is a valuable, special and unique asset of the Employer's business. Employee shall not, during or at any time after the term of his employment, disclose the list of Client Accounts or any part thereof to any person, firm, corporation, association, or other entity for any reason or purpose whatsoever.

5.3 Restrictive Covenant. In the event this Agreement is terminated by either party, Employee shall not, either individually or as an employee or principal of another accounting or business firm, provide services to any Client Accounts within a five-year (5) period immediately subsequent to his termination of employment.

5.4 Additional Remedy. If for any reason Employee shall (i) acquire or otherwise obtain from Employer, by any means whatsoever, Client Accounts or provide services to such Client Accounts, then at the sole election of Employer, Employee shall pay to Employer fifty percent (50%) of the actual fees billed or billable to such Client Accounts by Employee each year for a period of three (3) years commencing with the date Employee first renders services to such Client Accounts.

Payment will be remitted to Employer by Employee with [sic ] fifteen (15) days after collection of amounts billed by Employee to Client Accounts, or within sixty (60) days of billing by Employee to Client Accounts, whichever comes first. If services rendered by Employee to Client Accounts are provided on an on-going basis of sixty (60) days or longer, progress payments will be made by Employee to Employer at (60)-day intervals based on progress billings by Employee to Client Accounts.

The foregoing remedy shall be in addition to any other remedies provided to Employer hereunder or by law.

Moran was employed with PWT for slightly more than 1 year. Under her supervision, the PWT Retirement Department was comprised of herself, Robert Ellis, a senior staff accountant, and Ruth Wett, an administrative staff member. Together they provided services that centered on the preparation of returns and filings related to retirement plans and defined benefit plans for professional service corporations.

Because of the nature of the PWT Retirement Department's work, much of its accountant-client contact came through clients, attorneys or outside general accountants. During her employment with PWT, Moran met a number of PWT clients and intermediaries.

On August 15, 1982, Moran gave notice of her intent to leave PWT, and on October 14, 1982, she terminated her employment. Shortly thereafter, Ellis and Wett also left PWT and joined Moran in a combined practice offering services similar to those performed by the PWT Retirement Department.

Soon after leaving PWT, Moran mailed notices of her new business to numerous individuals and companies who might offer client referrals. About 6 months later, she sent copies of a brochure describing her accounting practice to another list of people. While no notices or brochures were sent to actual PWT clients, some were sent to intermediaries of PWT clients who Moran had met while employed at PWT. The client intermediaries whom Moran contacted referred clients to her, including some who had been PWT clients during Moran's employment with PWT. During the 17 months between the time Moran left PWT and trial, she performed over $78,000 worth of services for clients who had been PWT clients during her employment with PWT.

Upon learning that Moran was servicing former PWT clients, PWT requested that she pay liquidated damages in accordance with section 5.4 of the employment agreement. When she refused, PWT filed the present action seeking either an injunction prohibiting Moran from servicing PWT client accounts or damages.

Trial commenced in June 1984. At the close of PWT's case, Moran moved for dismissal and the court granted the motion. The trial court based its determination in part on the following findings of fact:

16. Certain of the clients for whom Judith Moran provides accounting services are individuals or companies which had been clients of PWT, but had left PWT some time prior to being referred to Judith Moran. Some had left PWT prior to October 15, 1982, and others had left after October 15, 1982.

17. At no time did Judith Moran, directly or indirectly, solicit any active client of PWT.

18. At no time did Judith Moran, directly or indirectly, divert from PWT the accounting business of any active client of PWT.

19. No harm has resulted to PWT by the fact that former clients of PWT have sought and received accounting services from Judith Moran, as opposed to other accountants or accounting firms.

20. The effort to restrict Judith Moran from servicing clients who have already left PWT and are not active clients of PWT is a restraint which is greater than that which is reasonably necessary for the protection of the business or goodwill of PWT.

21. The effort to restrict Judith Moran from servicing clients who have already left PWT and are not active clients of PWT results in a degree of restriction of the public which is unnecessary, unwarranted and unreasonable.

22. The restrictive provisions of the Employment Agreement are unreasonable and should be modified so that they are reasonable and lawful.

23. Given the facts of this case, the restrictive provisions of the subject Employment Agreement should be modified so that Judith Moran would only be restricted from "soliciting or diverting" active clients of PWT.

24. In that there is no evidence that Judith Moran solicited or diverted active clients of PWT, plaintiffs' claims for damages and injunctive relief should be denied, and the preliminary injunction entered herein should be dissolved.

The trial court, in the judgment signed July 30, 1984, stated, inter alia:

The Employment Agreement between the parties herein executed on the 25th day of September, 1981, is modified and reformed in all respects, including those clauses relating to remedies, so that the restrictive provisions contained therein restrict Judith Moran only from "soliciting or diverting active clients of PWT" through October 14, 1987.

The trial court also awarded Moran attorneys' fees in the amount of $34,948.60.

The "findings of fact" entered by the trial court are to a great extent irrelevant to the issues presented. The case involves a contract of employment freely entered into between the parties and understood by the employee. The "findings of fact" by the trial court are, in reality, a rewriting of the agreement by the trial court and a stating of new terms for the agreement in the form of conclusions of law. The parties could contract that in return for employment the employee would agree that for a reasonable time she would not "provide services" to employer's clients. This is the heart of the agreement approved in Racine v. Bender 141 Wash. 606, 252 P. 115 (1927), and Knight, Vale & Gregory v. McDaniel, 37 Wash.App. 366, 680 P.2d 448, review denied, 101 Wash.2d 1025 (1984). These decisions support the prohibition against the performance of services so that an employer can protect its client base without the necessity of proving the solicitation or diversion of clients (an evidentiary morass at best) but need only prove that the client of the employee had been the client of the former employer.

This case involves an attempt by an accounting firm, doing primarily accounting services for doctors and clinics, to protect its client base from a defecting employee to whom it has introduced those clients. It involves an employee who after only approximately 14 months employment, long enough to ingratiate herself with the firm's clients, departs with an entire department and ends up with a number of those clients. It involves an employment agreement that specifies liquidated...