Professional Business Services Co. v. Rosno
| Citation | 680 N.W.2d 176,268 Neb. 99 |
| Decision Date | 04 June 2004 |
| Docket Number | No. S-02-1227.,S-02-1227. |
| Parties | PROFESSIONAL BUSINESS SERVICES CO., appellant and cross-appellee, v. Stephen J. ROSNO, appellee and cross-appellant. |
| Court | Supreme Court of Nebraska |
Robert R. Otte, of Morrow, Poppe, Otte, Watermeier & Phillips, P.C., L.L.O., Lincoln, for appellant.
Jerry L. Pigsley, of Harding, Shultz & Downs, Lincoln, for appellee.
Professional Business Services Co. (PBS) appeals from a judgment of the district court for Lancaster County, Nebraska, finding a noncompetition covenant to be greater than reasonably necessary to protect PBS and, therefore, unenforceable. From this and other findings below, PBS appeals and the appellee, Stephen J. Rosno, cross-appeals.
During the relevant time in question, PBS served primarily the health care industry in essentially four areas: taxes, accounting and payroll, practice management, and billing and claims. PBS contracted with the Dale E. Gruntorad Company accounting firm (Gruntorad) to operate PBS' tax practice area. From approximately 1987 to 1989, Rosno, employed by Gruntorad, performed a majority of PBS' work related to the tax practice area, including preparing all of the tax returns for and providing tax advice to PBS' clients. Rosno performed his work for PBS onsite, but did not have personal contact with PBS clients. PBS heavily relied upon the Gruntorad firm to provide tax services for PBS' business.
When PBS' founder died in 1989, PBS did not have an established client list. Due to his familiarity with PBS' client base, Rosno assisted PBS by preparing an inventory of PBS' clients. Rosno's role at PBS also began to take on more significance as Rosno became more heavily involved with advising clients for tax purposes. Rosno became a partner in the Gruntorad accounting firm and continued to prepare tax returns for PBS' clients.
Between June and September 1992, Rosno approached Steven Strasheim, one of PBS' principals, on several occasions, requesting that PBS hire Rosno as an employee. Initially, PBS rejected Rosno's requests for employment. Rosno told Strasheim that if Rosno left Gruntorad, pursuant to a noncompetition agreement with the accounting firm, the only way Rosno could continue providing services for PBS was to buy PBS' business from Gruntorad, a transaction Rosno explained he could not afford. Thus, PBS eventually agreed to hire Rosno. During the negotiation of Rosno's employment with PBS, Strasheim told Rosno that at that time, only he and his brother, the only other principal of PBS, had the level of professional experience necessary to maintain client relationships. Therefore, they would be looking to Rosno to help in that area. However, Strasheim and his brother also expressed to Rosno their concerns. If they hired Rosno and allowed him to take over the tax practice area, and begin having individual relationships with PBS' clients, Rosno might later leave PBS and take those clients with him. Rosno responded by suggesting the parties execute a noncompetition agreement to protect PBS.
On October 8, 1992, the parties executed a "Professional Employment Agreement" (employment agreement) drafted by PBS' attorney, which included a noncompete covenant. The effective date of the employment agreement was October 1, 1992; the day Rosno began working as an employee of PBS. At the time the parties executed the employment agreement, the parties made several handwritten changes, which both parties initialed. One such change included a provision that the postterm noncompetition provision of the covenant "shall not apply to clients listed on Exhibit I." Exhibit I lists approximately 95 clients of PBS. The noncompetition covenant of the employment agreement provides:
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. The post-term covenant shall not apply to clients listed on Exhibit I.
The employment agreement's effective dates were October 1, 1992, to September 30, 1993, and included an option to extend Rosno's employment with PBS on a year-to-year basis. The employment agreement addressed issues related to bonuses, vacation time, and sick leave, and included a provision related to termination of the employment agreement:
The employment agreement also contained a provision prohibiting Rosno from using, directly or indirectly, for his own benefit, PBS' trade secrets. These included customer lists or other business operation information deemed by PBS to be secret and held in confidence.
On Friday, November 10, 1995, Rosno gave Strasheim a handwritten notice of termination of the employment agreement. At the time Rosno presented his notice terminating the employment agreement, Strasheim described Rosno as being very hostile and stated that Rosno was threatening to make disparaging remarks about PBS. Rosno refused to say why he was resigning, but told Strasheim that "his feeling was our employment agreement was not valid and that he would be asking any PBS client he wanted to leave PBS and follow him to his new accounting firm." Strasheim asked Rosno to take the weekend to reconsider his position in that it was grounds for immediate termination. Strasheim met with Rosno the following Monday, at which time, Rosno gave Strasheim a list of clients whom Rosno believed he was entitled to, and intended to, solicit. Many of the clients on the list were not those listed on exhibit I attached to the employment agreement. Strasheim testified that Rosno then stated that "`I'm going to ask anybody I want to follow me to my accounting firm and leave PBS'" and that he was not going to honor the noncompetition covenant of the employment agreement. At that point, Strasheim terminated Rosno's employment and asked him to gather his belongings and leave. Rosno admitted during cross-examination that his intention, had he been permitted to continue working for PBS during his 90-day notice period, was to continue working for PBS while simultaneously taking PBS' clients. Strasheim testified that this was the most hostile resignation he had ever experienced, that he was completely caught off guard by Rosno's attitude, and that there had been no prior warning signs foreshadowing Rosno's resignation. Following Rosno's termination, PBS copied thousands of client records and gave them to Rosno pursuant to record release forms received from Rosno and signed by PBS clients.
PBS originally filed this action alleging breach of the covenant not to compete and claiming damages pursuant to the liquidated damages provision of the employment agreement. The trial court sustained a demurrer filed by Rosno, finding that PBS' petition failed to set forth facts sufficient to constitute a cause of action. Specifically, the trial court found that the noncompete covenant in the employment agreement was more restrictive than reasonably necessary to protect PBS' legitimate interest and, thus, was invalid and unenforceable.
On appeal to this court, we reversed, and remanded with directions to reinstate the operative petition. See Professional Bus. Servs. v. Rosno, 256 Neb. 217, 589 N.W.2d 826 (1999) (Rosno I). We noted the general rule that a covenant not to compete in an employment contract "`may be valid only if it restricts the former employee from working for or...
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