Schott v. Beussink

• Decision Date: 22 July 1997
• Docket Number: No. 71172,71172
• Citation: Schott v. Beussink, 950 S.W.2d 621 (Mo. App. 1997)
• Parties: 13 IER Cases 244 William R. SCHOTT, Melvin Van De Ven, & Charles Naile, d/b/a Schott & Company, Plaintiffs/Appellants, v. Debra A. BEUSSINK, Everett R. Hey, Thomas D. Martin, Jerry W. Roe, all individually and d/b/a Beussink, Hey, Martin & Roe, Respondents.
• Court: Missouri Court of Appeals

Page 621

950 S.W.2d 621

13 IER Cases 244

William R. SCHOTT, Melvin Van De Ven, & Charles Naile, d/b/a Schott & Company, Plaintiffs/Appellants, v. Debra A. BEUSSINK, Everett R. Hey, Thomas D. Martin, Jerry W. Roe, all individually and d/b/a Beussink, Hey Martin & Roe, Respondents.

No. 71172.

Missouri Court of Appeals,

Eastern District,

Division Four.

July 22, 1997.

Motion for Rehearing and/or Transfer to

Supreme Court Denied Aug. 26, 1997.

Application to Transfer Denied

Sept. 30, 1997.

Stephen C. Wilson, Jackson, for plaintiffs/appellants.

Walter S. Drusch, Cape Girardeau, for defendents/respondents.

RHODES RUSSELL, Presiding Judge.

Plaintiffs are general partners in an accounting firm known as Schott & Company ("employer"). Defendants ("employees"), who are certified public accountants, formerly worked for employer. Employer appeals the dismissal of its third amended petition alleging breach of contract, civil conspiracy, and interference with contract. The trial court dismissed the petition for failure to state a claim upon which relief could be granted. We affirm in part and reverse and remand in part.

During the course of their employment, employees worked under a series of one-year contracts. Each employment contract contained a provision which stated that if an employee terminated the contract other than on June 30, for any reason other than nonfulfillment of the terms of the contract, the employee would have to pay employer a sum equal to two months of the employee's salary. In addition to this provision, each contract contained a non-compete clause or restrictive covenant which provided that:

The Employee covenants and agrees that for a period of two (2) years after the termination of this Agreement that he as an individual or in conjunction with associates or as an employee of another corporation, accountant or firm or company of accountants, will not come directly or indirectly, solicit or do any tax, auditing, accounting, system, or related types of work of or for any of the clients of the Employer for whom the Employer has done business during the fifteen (15) month period preceding the termination of this Agreement or with whom they were at that date in negotiation to do business.

Five months prior to the end of their contracts, employees terminated their employment with employer. Employer brought suit against employees alleging four causes of action: 1) breach of the covenant which prohibited termination of the contract other than on June 30; 2) breach of a restrictive covenant prohibiting withdrawing employees from soliciting employer's clients within two years after withdrawal; 3) civil conspiracy; and, 4) interference with contract relations.

Employees filed a motion to dismiss the breach of contract claim regarding the restrictive covenant for failure to state a cause of action. Employees maintained that the restrictive covenants which prohibited them from soliciting employer's clients for two years were unenforceable in that the provisions did not contain spatial limitations, and therefore, were not valid restrictive covenants. Employees also alleged that the contract provisions were unenforceable because they were against public policy.

The trial court sustained employees' motion to dismiss, finding that the restrictive covenants were unenforceable because of public policy. In addition, the court stated that the contractual provisions were not valid restrictive covenants because they did not contain spatial limitations.

Employer filed a notice of appeal from that dismissal. Our court dismissed that appeal for lack of jurisdiction, finding that the dismissal order was not final for purposes of appeal. See Schott v. Beussink, 913 S.W.2d 106 (Mo.App.1995). Subsequently, employees filed motions to dismiss the remaining portions of employer's petition. The trial court sustained employees' motions to dismiss the civil conspiracy and interference with contract claim. The trial court also noted that a judgment dismissing the breach of contract claim regarding the restrictive covenants had been previously rendered. Subsequently, employer filed a voluntary non-suit, dismissing all remaining portions of its petition. This appeal of the trial court's dismissal follows.

In reviewing a trial court's order dismissing a claim, we accept all properly pleaded facts as true, we give all the pleadings their broadest intendment, and we construe all allegations favorably to the pleader. Wenthe v. Willis Corroon Corp., 932 S.W.2d 791, 793 (Mo.App.1996). A petition is sufficient if it invokes substantial principles of law which entitle the plaintiff to relief and informs the defendant of what the plaintiff will attempt to establish at trial. Id.

I. BREACH OF CONTRACT CLAIM-RESTRICTIVE COVENANT

In its first point, employer contends the trial court erred in dismissing its claim seeking enforcement of the contract provision prohibiting withdrawing employees from soliciting its clients for two years after withdrawal. Employer argues that the trial court erroneously applied the law as employees were subject to valid non-compete provisions, and because there is no recognized public policy which would preclude enforcement of the non-compete provisions.

In its dismissal, the trial court relied upon the holding in Dwyer, Costello and Knox, P.C. v. Diak, 846 S.W.2d 742(Mo.App.1993). In Diak, an accountant of a professional corporation resigned his employment and formed a partnership to provide CPA services to the public. The accountant, an employee at will, was not bound by a contract restricting competition with the corporation following termination of his employment. Following his resignation, the accountant continued to work for some of the corporation's former clients, and asked other accountants employed by the corporation to join his partnership. Corporation sued the accountant for breach of fiduciary duty in resigning his employment and entering into a competing accounting business. The corporation sought compensation from the accountant for soliciting business from its clients.

Our court concluded that the corporation was not entitled to compensation simply because the clients followed the accountant to his newly formed partnership. Id. at 747. Noting that our economy is based upon free competition, the court stated that the clients were absolutely privileged to pick their own professional providers. Id.

However, we also noted that if the corporation had wished to protect itself against competition from its accounting employees, the corporation should have sought covenants restricting their competition. Id. at 748. Our court concluded, however, that it did not have to decide if a covenant restricting an accountant's competition was enforceable or not, since the accountant here was an employee at will. Id. at 748 n. 1.

Citing Diak, the trial court herein stated that the contractual provisions, which prevented the employees from performing accounting services for the clients they served while employees of employer, were contrary to public policy and unenforceable. The trial court also acknowledged the footnote in Diak that an employer might be able to restrain its accountant employees from competing with or soliciting its clients with a restrictive covenant. However, the trial court found that employer's restrictive covenants were unenforceable in that they lacked spatial limitations. Accordingly, the trial court dismissed the cause of action.

We first address if the trial court's dismissal was proper based upon public policy grounds. Employer is correct that Diak did not hold that covenants not to compete among accountants are against public policy. Diak essentially held that where an accountant employee at will, not subject to a restrictive covenant, leaves an employer and solicits the accounting work of employer's clients, the employee is free to do so, and it is not a breach of any fiduciary duty owed to the former employer. Our court specifically pointed out in Diak that if the employer wished to protect itself from competition from its accounting employees, it should have inserted restrictive covenants within an employment contract. However, Diak did not decide whether restrictive covenants among accountants were enforceable.

Employees do not cite any authority other than Diak to support their position that the restrictive covenants are against public policy in the accounting profession. Other jurisdictions have held that restrictive covenants in accountants' employment contracts are enforceable and not against public policy. See Perry v. Moran, 109 Wash.2d 691, 748 P.2d 224 (1987); Wolf & Co. v. Waldron, 51 Ill.App.3d 239, 9 Ill.Dec. 346, 366 N.E.2d 603 (1977); Thompson, Breeding, et al. v. Bowlin, 765 S.W.2d 743 (Tenn.App.1987); Ebbeskotte v. Tyler, 127 Ind.App. 433, 142 N.E.2d 905 (1957); Enforceability of Covenant Against Competition in Accountant's Employment Contract, 15 A.L.R.4th 559 (1982).

Missouri courts recognize that public policy approves employment contracts containing restrictive covenants because the employer has a proprietary right in its stock of customers and their good will, and if the covenant is otherwise reasonable, the court will protect the asset against appropriation by an employee. Empire Gas Corp. v. Graham, 654 S.W.2d 329, 331 (Mo.App.1983). In Willman v. Beheler, 499 S.W.2d 770, 777 (Mo.1973), our Supreme Court, in upholding a restrictive covenant among doctors, rejected the notion that public policy should prevent the enforcement of restrictive covenants. The court noted that "[t]here is a counterbalancing public policy which recognizes the interest of the public in protecting the freedom of persons to contract and in enforcing contractual rights and obligations." Id. Although Diak expressed a policy that clients are privileged to pick their own accountants, the holding of Diak was premised on the fact that the accountant was an employee at will....