Philip G. Johnson & Co. v. Salmen

Decision Date02 April 1982
Docket NumberNo. 44083,44083
Citation317 N.W.2d 900,211 Neb. 123
CourtNebraska Supreme Court
PartiesPHILIP G. JOHNSON & CO., a partnership, Appellant and Cross-Appellee, v. Robert S. SALMEN, Appellee and Cross-Appellant.
Syllabus by the Court

1. Accounting: Equity. An action for an accounting may under one set of circumstances, find its remedy in an action at law and, under another, find it within the jurisdiction of equity.

2. Accounting: Equity. Where the intimate relationships of the parties are involved, an adequate remedy is available only within the equitable jurisdiction of the court.

3. Equity: Appeal and Error. In an action at equity, this court must review the record de novo and reach an independent conclusion without being influenced by the findings of the trial court; except, however, that where credible evidence is in conflict, we must give weight to the fact the trial court saw the witnesses and observed their demeanor while testifying.

4. Restrictive Covenants. Covenants not to compete, if reasonable, are enforceable. The considerations to be balanced are the degree of inequality in bargaining power; the risk of the covenantee losing customers; the extent of respective participation by the parties in securing and retaining customers; the good faith of the covenantee; the existence of sources or general knowledge pertaining to the identity of customers; the nature and extent of the business position held by the covenantor; the covenantor's training, health, education, and needs of his family; the current conditions of employment; the necessity of covenantor changing his calling or residence; and the correspondence of the restraint with the need for protecting the legitimate interests of the covenantee.

Sutter & Olson, Lincoln, for appellant and cross-appellee.

Fitzke & Langvardt, Hastings, for appellee and cross-appellant.

Heard before BOSLAUGH, McCOWN, WHITE, and CAPORALE, JJ., and FINN, D.J CAPORALE, Justice.

The plaintiff-appellant, Philip G. Johnson & Co. (Johnson), brought an action for an accounting and to recover damages from one of its former partners, Robert S. Salmen, the defendant-appellee. Salmen counterclaimed for damages and prejudgment interest.

Johnson appeals from the decree of the trial court which refused to enforce a restrictive covenant contained in the partnership agreement between it and Salmen. Salmen cross-appeals from that portion of the decree which denies him recovery of a share of the proceeds resulting from the sale of certain partnership assets and denies prejudgment interest.

Johnson urges, in summary, that the trial court erred in (1) refusing to enforce the restrictive covenant, (2) excluding certain testimony, and (3) awarding damages to Salmen. Salmen, on the other hand, urges the trial court erred in computing his damages and in refusing prejudgment interest.

An action for an accounting may, under one set of circumstances, find its remedy in an action at law and, under another, find it within the jurisdiction of equity. Where, as here, the intimate relationships of the parties are involved, an adequate remedy was available only within the equitable jurisdiction of the court. See, Cook v. Wilkie, 181 Neb. 596, 150 N.W.2d 124 (1967); Corn Belt Products Co. v. Mullins, 172 Neb. 561, 110 N.W.2d 845 (1961); Schmidt v. Henderson, 148 Neb. 343, 27 N.W.2d 396 (1947). Accordingly, we review the record de novo and reach an independent conclusion without being influenced by the findings of the trial court; except, however, that where credible evidence is in conflict, we must give weight to the fact the trial court saw the witnesses and observed their demeanor while testifying. Sturm v. Mau, 209 Neb. 865, 312 N.W.2d 272 (1981); Schmidt v. Henderson, supra.

Prior to becoming associated with Johnson, which engages in the practice of accounting, Salmen had practiced that profession in Grand Island as a sole practitioner for approximately a year. In the summer of 1969 Salmen merged his Grand Island practice with that of Johnson and moved to Hastings. Johnson has had offices in eight different Nebraska cities and has several clients who are now in a number of states.

A long period of negotiations ensued during which a number of proposals were made by Salmen and acceded to by Johnson. A partnership agreement between Johnson and Salmen was signed, effective July 1, 1975, which contains a restrictive covenant. It provides as follows:

"11.1 In the event that a partner withdraws from the partnership, or if a partner retires under the provisions of Section 9.4, it is mutually agreed that he will not for a period of three years from the date of his retirement or withdrawal from the firm take any action which may disturb the existing business relations between the firm or its successors, if any, and any of its clients, and specifically he will not during such three year period, directly or indirectly solicit or accept any professional engagements from clients or former clients of the partnership, or from officers and agents of such clients, nor will he perform such services as an employee, partner of, or associate of another firm or person doing accounting work for any client or former client of the firm, or an officer or agent of such client, nor will he take a position as an employee or paid officer or advisor of such client without authorization from the partnership.

"In the event that this covenant is breached, then upon the commencement of work or services for a client or former client of the firm, either by such partner on his own account or by another partnership including such partner, or by an individual accountant or firm of accountants with whom such partner is an employee, or by such partner's joining or becoming an employee of an accounting firm already doing work for such client or former client, or by becoming an employee, officer or advisor of such client or former client, such partner agrees to pay the partnership as an acquisition cost of such business an amount equal to the greater of (1) the total amount of fees received from such client, computed on an accrual basis during the three-year period immediately preceding the date of retirement or withdrawal from the firm; or (2) the total amount of fees, salary or other remuneration received by the retiring or withdrawing partner from such client or former client computed on an accrual basis for a three-year period subsequent to the date of withdrawal or retirement. Said amount is to be paid in estimated quarterly installments computed on the total amount determined under alternative (1) hereof for a three-year period commencing from the date of withdrawal or retirement, and the final payment shall include an additional payment in the event that alternative (2) exceeds alternative (1).

"Also any partner breaching this covenant in addition to payment of an acquisition cost as above outlined, shall forfeit any right to profit participation under the provisions of Sections 9.1(a) and (c) of this agreement.

"11.2 If at the time any withdrawn or retired partner breaches this covenant there are other partners who are disabled, retired or deceased and payments are being made to them or their estates under the provisions hereof, the partner who has breached this covenant shall be personally liable to each other disabled or retired partner and the estate of each other deceased partner for any reduction in profit participation in the years subsequent to the breach due to a reduction of the partnership income in any said year below the partnership income for the year immediately preceding the breach of this covenant. In the event that any payment is due under this section from the partner who has breached this covenant to said retired or disabled partner or the estate of a deceased partner, the amount so due shall be paid within 60 days after the close of the partnership's fiscal year."

Salmen withdrew from the partnership effective December 31, 1976. Following that departure he accepted professional employment from clients who were previously served by Johnson.

Prior to Salmen's withdrawal Johnson had reached an agreement, to be effective January 1, 1977, for the sale of its Scottsbluff office. Johnson also had a claim for insurance proceeds due to a fire loss, but it had not set the claim up as an asset, under its accrual method, by December 31, 1976. The value of Salmen's capital account, as computed by Johnson, was $21,502.57 plus $5,860 for Salmen's units of participation, or a total of $27,362.57. The trial court awarded Salmen $38,862.57, which included $3,500 as his share of the fire loss recovery and $8,000 as the value of his units of participation.

Appellant argues that the provision in question is not a covenant not to compete in that it does not purport to prohibit Salmen from entering the field of accounting, but merely obligates him to turn over the fees he earns from servicing certain clients during the 3 years following withdrawal...

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