Professional Business Services, Co. v. Rosno

• Decision Date: 19 February 1999
• Docket Number: No. S-97-1106,S-97-1106
• Citation: 256 Neb. 217,589 N.W.2d 826
• Parties: , 14 IER Cases 1606 PROFESSIONAL BUSINESS SERVICES, CO., a Nebraska corporation, appellant, v. Stephen J. ROSNO, appellee.
• Court: Nebraska Supreme Court

Page 826

589 N.W.2d 826

256 Neb. 217, 14 IER Cases 1606

PROFESSIONAL BUSINESS SERVICES, CO., a Nebraska corporation, appellant, v. Stephen J. ROSNO, appellee.

No. S-97-1106.

Supreme Court of Nebraska.

Feb. 19, 1999.

Syllabus by the Court

1. Demurrer: Pleadings: Appeal and Error. When reviewing an order sustaining a demurrer, an appellate court accepts the truth of the facts which are well pled, together with the proper and reasonable inferences of law and fact which may be drawn therefrom, but does not accept as true the conclusions of the pleader.

2. Demurrer: Pleadings. In ruling on a demurrer, the petition is to be liberally construed; if as so construed the petition states a cause of action, the demurrer is to be overruled.

3. Restrictive Covenants: Employer and Employee. In an employment agreement, a covenant not to compete may be valid only if it restricts a former employee from working for or soliciting the former employer's clients or accounts with whom the former employee actually did business and had personal contact.

4. Restrictive Covenants: Employer and Employee. To determine whether a covenant not to compete is valid, a court must determine whether a restriction is reasonable in the sense that it is not injurious to the public, that it is not greater than is reasonably necessary to protect the employer in some legitimate interest, and that it is not unduly harsh and oppressive on the employee.

5. Restrictive Covenants: Employer and Employee. An employer has a legitimate business interest in protection against a former employee's competition by improper and unfair means, but is not entitled to protection against ordinary competition from a former employee.

6. Restrictive Covenants: Employer and Employee: Goodwill: Words and Phrases. To distinguish between ordinary competition and unfair competition, courts and commentators have frequently focused on an employee's opportunity to appropriate the employer's goodwill by initiating personal contacts with the employer's customers. Where an employee has substantial personal contact with the employer's customers, develops goodwill with such customers, and siphons away the goodwill under circumstances where the goodwill properly belongs to the employer, the employee's resultant competition is unfair and the employer has a legitimate need for protection against the employee's competition.

7. Restrictive Covenants: Employer and Employee: Goodwill. A determination that an employer had a legitimate business interest in customer goodwill does not automatically validate a covenant not to compete.

Robert R. Otte and Joseph E. Dalton, of Morrow, Poppe, Otte, Watermeier & Phillips, P.C., Lincoln, for appellant.

Jerry L. Pigsley, of Harding, Shultz & Downs, Lincoln, for appellee.

HENDRY, C.J., WRIGHT, CONNOLLY, GERRARD, STEPHAN, McCORMACK, and MILLER-LERMAN, JJ.

MILLER-LERMAN, J.

NATURE OF CASE

Professional Business Services, Co., a Nebraska corporation (PBS), appeals from an order of the district court for Lancaster County, dated September 19, 1997, granting Stephen J. Rosno's demurrer to PBS' second amended petition and dismissing PBS' second amended petition. In its second amended petition, PBS alleged that Rosno had breached a noncompetition covenant in an employment contract entered into between Rosno and PBS, and PBS sought $41,433 in liquidated damages. For the reasons recited below, we reverse, and remand with directions to reinstate the second amended petition.

BACKGROUND

On September 11, 1996, PBS filed a petition against Rosno, stating that it is a Nebraska corporation having its principal place of business in Lincoln, Nebraska. PBS is generally in the business of providing accounting services. PBS alleged that on October 1, 1992, PBS entered into a contract with Rosno which provided that Rosno would begin work for PBS on October 1, with Rosno's employment ending on September 30, 1993, unless extended by PBS on a year-to-year term. PBS alleged that Rosno's title was "Tax Specialist," that Rosno was employed as a certified public accountant, and that Rosno's duties included managing PBS' accounting and payroll services, providing services for PBS' clients, and performing other tasks as required.

PBS alleged that on November 10, 1995, Rosno met with one of PBS' officers, Steve Strasheim, and that Rosno presented Strasheim with a written "Notice of Termination," In its first petition, PBS set out certain of the relevant portions of the contract between Rosno and PBS. The employment contract was not attached to the original petition. It was alleged that sections 7a and b of the contract provided as follows:

effective in 90 days. PBS alleged that Rosno stated at this meeting that he considered certain noncompetition and trade secret provisions in the contract to be invalid and that he would be asking PBS' clients to become clients of his new accounting firm. PBS alleged that on November 13, Rosno and Strasheim met again and after Rosno repeated that he would continue to solicit PBS' clients, Strasheim terminated Rosno's employment with PBS.

a. In-Term Covenant: The parties agree that during the term of this Agreement and during the term of Rosno's employment by the Employer, the respective clients of the Employer shall remain the clients of the Employer and that Rosno shall not, directly or indirectly, whether as an officer, director, shareholder, partner, advisor, consultant or employee or in any other capacity do business for or with any client of the employer outside of the scope of duties rendered for Employer pursuant to this Employment Agreement....

b. Post-Term Covenant: Rosno further covenants and agrees that in the event of the termination of his employment, for whatever reason, he shall not directly or indirectly solicit, contact or perform services for any of Employer's clients for his own benefit or as an officer, director, shareholder, partner, advisor, consultant or employee of any third party. Said Post-Term Covenant shall continue for a period of two (2) years following such termination or separation for any reason whatsoever and shall include the area located within twenty-five (25) miles of Lincoln, Nebraska.

PBS alleged that either during Rosno's employment or within 2 years after his termination, Rosno directly or indirectly solicited, contacted, or performed services for PBS' clients. PBS alleged that section 8 of Rosno's contract provided as follows:

Enforcement: Employer shall be entitled to enforce the terms and provisions of the above and foregoing paragraph by injunction and/or restraining order issued by a court of competent jurisdiction in addition to any other rights, remedies or procedures that may be allowed at law and available to the Employer.

Rosno agrees that in the event he directly or indirectly, or in any capacity with another entity or person performs services for a client of Employer within two (2) years after his termination with Employer that he shall pay a liquidated amount of the total amount of billings received by Employer during the two (2) year period prior to Rosno's violation of his non-competition covenant.

In its petition, PBS alleged that under section 8 of the contract, Rosno owed PBS $41,433 and additional damages yet to be determined. PBS requested these amounts in its original and subsequent petitions, along with interest as allowed by law, and for such other and further relief as may be just and equitable.

On October 17, 1996, Rosno filed a "Motion to Make More Definite and Certain and Notice of Hearing." After hearing, the trial court sustained Rosno's motion in part, directing PBS to file an amended petition, with a copy of the written contract between the parties attached, and further directing PBS to set forth with particularity the type of damages sought and the amount of special damages. In subsequent petitions, PBS indicated that the damages sought were liquidated.

On November 19, 1996, PBS filed a first amended petition, attached to which was a copy of the contract. A review of the contract shows that following the typed provisions pertaining to the postterm covenant in section 7b, there is handwritten matter initialed by the parties providing that the postterm covenant not to compete shall not apply On December 3, 1996, Rosno filed a demurrer to PBS' first amended petition, stating that PBS' first amended petition failed to state facts sufficient to constitute a cause of action. In a journal entry dated April 10, 1997, the trial court sustained Rosno's demurrer, concluding that the covenant alleged in PBS' first amended petition is impermissively restrictive because it prohibits Rosno from contacts with " 'any of Employer's clients.' " The trial court granted PBS leave to file a second amended petition.

to clients listed in "Exhibit I." [256 Neb. 221] Exhibit I was attached to the first amended petition and lists approximately 95 clients of PBS.

PBS filed a second amended petition on May 14, 1997. In its second amended petition, PBS alleged that prior to October 1, 1992, Rosno was employed by Dale Gruntorad & Co. (Gruntorad), an accounting firm in Lincoln, Nebraska, and that while at Gruntorad, Rosno did substantial amounts of work for PBS and its clients on Gruntorad's behalf. PBS alleged that through this work, Rosno became familiar with significant aspects of PBS' business, which PBS has run for 37 years. PBS alleged that during the past 37 years, it has developed substantial goodwill with its clients.

PBS alleged that on or about June 1, 1992, Rosno approached PBS for a job, and that after several discussions, PBS advised Rosno that because he was familiar with its business, PBS would permit Rosno to contract with PBS if he left Gruntorad and started his own accounting firm. Rosno stated that he could not start his own accounting firm under the noncompete agreement he had with Gruntorad, but that his noncompete agreement with Gruntorad would not...