Pierce v. Hand, Arendall, Bedsole, Greaves & Johnston

Citation678 So.2d 765
Parties11 IER Cases 1252 Donald F. PIERCE v. HAND, ARENDALL, BEDSOLE, GREAVES & JOHNSTON, a partnership. HAND, ARENDALL, BEDSOLE, GREAVES & JOHNSTON, a partnership v. Donald F. PIERCE. 1940876, 1940919.
Decision Date10 May 1996
CourtSupreme Court of Alabama

James R. Pratt III of Hare, Wynn, Newell and Newton, Birmingham, Richard F. Ogle of Schoel, Ogle, Benton and Centeno, Birmingham, for appellant/cross appellee Donald F. Pierce.

A. Danner Frazer, Jr. of Frazer, Greene, Philpot & Upchurch, Mobile, for appellee/cross appellant Hand, Arendall, Bedsole, Greaves & Johnston.

SHORES, Justice.

This case involves a dispute between Donald F. Pierce and the law firm of Hand, Arendall, Bedsole, Greaves & Johnston ("Hand-Arendall"), of which Pierce was formerly a partner. After he withdrew from the firm, Pierce sued for a declaratory judgment, asking the court to define his rights to deferred compensation under Paragraph 13 of the partnership agreement. The trial court held that Pierce was not entitled to deferred compensation because, it held, Paragraph 13 was void. Pierce appealed; Hand-Arendall cross appealed, contending that DR 2-109, Alabama Code of Professional Responsibility, applicable when the contract was entered, 1 created an exception to the general prohibition against noncompetition covenants between professionals codified in § 8-1-1, Ala.Code 1975. We reverse and remand.

Pierce joined the Hand-Arendall firm in 1959 and became a partner on January 1, 1963. Pierce turned 60 on August 28, 1990. In December 1990 he announced his intention to withdraw from the firm effective December 26, 1990. He withdrew and began a new law firm under the name Pierce, Carr & Alford on January 1, 1991.

The Hand-Arendall partnership agreement was signed in 1977 and was amended January 1, 1988. It contains as paragraph 13 the following provision:

"13. Retirement on or after Age Sixty: Upon reaching the age of sixty years, and at any time thereafter, a Partner may withdraw or retire from the Partnership by giving written notice to the partnership to such effect, but any such withdrawal or retirement shall be a retirement for the purposes of this Agreement. If any retired Partner discontinues the practice of law in Mobile, Baldwin and Washington Counties, Alabama and otherwise within fifty miles of Mobile (other than a practice restricted to his own and his family's interests), then so long as such discontinuance of his law practice continues, he and his estate shall be entitled to deferred compensation in an amount equal to what he would have received had he died at the time of his retirement. Such amount, other than his share of net profits, which shall be payable within ten days after his retirement, shall be payable in ten equal consecutive annual installments, the first of which shall be payable at the same time as his share of net profits. The Partnership may, by agreeing with the retired Partner or his estate, as the case may be, pay such deferred compensation over a shorter period of time...."

Hand-Arendall paid Pierce $17,452.83 as payment for his depreciated capital account and $21,843.39 as his distribution of net profits. Pierce claimed deferred compensation benefits in the amount of $225,000, pursuant to Paragraphs 11 and 13 of the partnership agreement. Hand-Arendall denied Pierce those benefits, on the grounds that he had not discontinued the practice of law in the Mobile area and had thus violated the terms of the agreement.

Pierce sued for a declaratory judgment, contending that the obligation not to compete in the Mobile area was void under § 8-1-1, Ala.Code 1975, as against public policy, but that paragraph 13 was otherwise legal. After a nonjury trial, the judge held:

"1) Paragraph 13 of the Partnership Agreement constitutes an impermissible restraint on Plaintiff's right to practice law.

"2) The conduct of the plaintiff renders his assertion to the right to financial recovery contrary to the established rules of equity.

"3) Since Paragraph 13 of the Agreement is invalid, the plaintiff cannot recover under its provisions."

While there is a presumption of correctness for factual findings made by the trial court in a nonjury trial, there is no presumption of correctness for legal conclusions. Borland v. Sanders Lead Co., 369 So.2d 523, 526 (Ala.1979). We first consider whether the trial court misapplied the law in holding that Paragraph 13 of the partnership agreement constitutes an impermissible restraint on Pierce's right to practice law and that Paragraph 13 is invalid in its entirety.

As the trial court correctly stated, "Alabama recognizes a strong public policy favoring a general prohibition against contracts which restrain one from exercising a lawful profession, and non-compete covenants are routinely declared invalid by our courts." Section 8-1-1(a) provides that "every contract by which anyone is restrained from exercising a lawful profession, trade or business of any kind other than is provided by this section is to that extent void." The trial court expressly found that the noncompetition language in Paragraph 13 creates a significant economic disincentive that impermissibly restrains Pierce's right to practice law. 2 We agree. However, it does not follow, as the trial court held, that the entirety of Paragraph 13 is thus void and unenforceable under § 8-1-1.

It is clear from the wording of the statute itself and from the holdings of this Court that under § 8-1-1(a) a noncompetition contract provision is only "void" only to "that extent" prohibited by § 8-1-1(a). Mann v. Cherry, Bekaert & Holland, 414 So.2d 921, 924 (Ala.1982). The fact that a promise not to compete is included in a contract does not necessarily render void the entire contract. "The contract remains otherwise valid." Salisbury v. Semple, 565 So.2d 234, 236 (Ala.1990), citing Mann v Cherry, Bekaert & Holland, supra. In Mann, this Court considered a contract for the purchase and sale of an accounting practice; the contract contained mutual noncompetition covenants. The purchaser stopped making payments to the seller after concluding that the covenants not to compete rendered the contract void. This Court held that the buyer, who had received all he had bargained for, should not be allowed to use the unenforceability of the noncompetition clause to avoid his contractual obligations. Mann at 925.

In the case of Friddle v. Raymond, 575 So.2d 1038 (Ala.1991), two veterinarians entered into a buy-sell agreement that provided that Raymond, the seller, would not compete within six miles for three years. The agreement provided that if Raymond competed, he would forfeit the payments due him, treating the forfeiture as the payment of liquidated damages. This Court struck down the forfeiture provision as being an effort to circumvent the prohibitions of § 8-1-1(a). In the case before us, only the noncompetition provision in Paragraph 13 is void. The trial court misapplied the law in holding Paragraph 13 to be void in its entirety.

We next consider whether the trial court erred in holding that Pierce is equitably estopped from asserting his claim to deferred compensation under the partnership agreement. The purpose of the doctrine of equitable estoppel is to promote equity and justice in an individual case by preventing a party from asserting rights under a general rule of law when his own conduct renders the assertion of such rights contrary to equity and good conscience. Mazer v. Jackson Ins. Agency, 340 So.2d 770 (Ala.1976). The party asserting the doctrine of equitable estoppel may not predicate his claim on his own dereliction of duty or wrongful conduct. Draughon v. General Finance Credit Corp., 362 So.2d 880, 884 (Ala.1978).

This Court, in Mazer v. Jackson Ins. Agency, supra, set forth the basic elements necessary to support an equitable estoppel:

"The basic elements of equitable estoppel are stated in Dobbs, Remedies § 2.3 (1973):

'An estoppel ... has three important elements. The actor, who usually must have knowledge of the true facts, communicates something in a misleading way, either by words, conduct or silence. The other relies upon that communication. And the other would be harmed materially if the actor is later permitted to assert any claim inconsistent with his earlier conduct.'

"A more detailed statement of the elements generally required to support an equitable estoppel is given in 3 Pomeroy, Equity Jurisprudence § 805 (5th ed. 1941):

" '... 1. There must be conduct--acts, language or silence--amounting to a representation or a concealment of material facts. 2. These facts must be known to the party estopped at the time of his said conduct, or at least the circumstances must be such that knowledge of them is necessarily imputed to him. 3. The truth concerning these facts must be unknown to the other party claiming the benefit of the estoppel, at the time when such conduct was done, and at the time when it was acted upon by him. 4. The conduct must be done with the intention, or at least with the expectation, that it will be acted upon by the other party, or under such circumstances that it is both natural and probable that it will be so acted upon.... 5. The conduct must be relied upon by the other party, and, thus relying, he must be led to act upon it. 6. He must in fact act upon it in such a manner as to change his position for the worse; in other words, he must so act that he would suffer a loss if he were compelled to surrender or forgo or alter what he has done by reason of the first party being permitted to repudiate his conduct and to assert rights inconsistent with it....' "

340 So.2d at 773. See General Elec. Credit Corp. v. Strickland Div. of Rebel Lumber Co., 437 So.2d 1240 (Ala.1983). The trial court failed to address these elements, although it cited Mazer as justification for its legal conclusion that Pierce was equitably estopped from recovering.

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