Singer v. Habif, Arogeti & Wynne, P.C., 38878

• Decision Date: 01 December 1982
• Docket Number: No. 38878,38878
• Citation: 297 S.E.2d 473,250 Ga. 376
• Parties: , 1982-83 Trade Cases P 65,158 SINGER v. HABIF, AROGETI & WYNNE, P.C.
• Court: Georgia Supreme Court

Page 473

297 S.E.2d 473

250 Ga. 376, 1982-83 Trade Cases P 65,158

SINGER v. HABIF, AROGETI & WYNNE, P.C.

No. 38878.

Supreme Court of Georgia.

Dec. 1, 1982.

Paul Webb, Jr., Harold T. Daniel, Jr., Keith M. Wiener, Webb, Daniel & Betts, Atlanta, for Walter M. Singer.

Alan E. Lubel, J. Kirk Quillian, Mitchell S. Rosen, Troutman, Sanders, Lockerman & Ashmore, Atlanta, for Habif, Arogeti & Wynne, P.C.

BELL, Justice.

This case is on appeal from an order of the DeKalb County Superior Court granting a preliminary injunction enjoining Singer, a certified public accountant, from soliciting any accounting business from any current clients of his former employer, the appellees (Habif, Arogeti & Wynne, P.C., hereinafter referred to as HAW).

On or about September 1, 1978, Singer executed an employment agreement with HAW. Paragraph 10 of this agreement contained a covenant in which Singer agreed 1) that for a period of 24 months from the date of termination of employment 2) that he would not represent, or accept employment or remuneration, of any kind [either directly, indirectly, or in association with other accounting or CPA firms] 3) from, by, for, or in behalf of any clients ¹ of HAW 4) within the territorial limitations of the Atlanta metropolitan area ² or any other county (in or out of the State) in which clients of HAW are located.

Singer effectively resigned from HAW on November 10, 1981 and opened his own accounting practice. By letter dated November 11, 1981, Singer informed his clients and friends that he had terminated his employment with HAW and was opening his own practice. Subsequently, a number of clients who were using HAW switched and engaged Singer as their accountant.

On December 9, 1981, HAW filed suit in DeKalb Superior Court seeking injunctive relief against Singer. On February 3, 1982, the trial court granted HAW's motion for a preliminary injunction. Singer appeals.

The grant of injunctive relief could have been properly based on either the restrictive covenant or on the theory that Singer, as an officer of HAW, breached his fiduciary duty to HAW by appropriating business opportunities (i.e. clients) of HAW. See, Code Ann. § 22-714.

We find that neither of these grounds supports the grant of injunctive relief, and we reverse on this issue.

1) We first address the issue of whether the restrictive covenant could support the grant of injunctive relief. HAW concedes that the covenant would fail under this Court's cases prior to Puritan/Churchill Chemical Co. v. McDaniel, 248 Ga. 850, 286 S.E.2d 297 (1982); however, HAW argues that Puritan/Churchill introduced a new balancing test into the law of restrictive covenants pursuant to which injunctive relief was proper. We do not find that Puritan/Churchill introduced such a new balancing test; therefore, we will analyze this restrictive covenant under the traditional test set forth in Marcoin v. Waldron, 244 Ga. 169(2), 259 S.E.2d 433 (1979).

Under that test, "Restrictive covenants in employment contracts, being in partial restraint of trade, are enforceable only if strictly limited in time and territorial effect and are otherwise reasonable considering the business interest of the employer sought to be protected and the effect on the employee." Marcoin, supra, 244 Ga. p. 171, 259 S.E.2d 433. In this case, we find the covenant unreasonable because it overprotects the legitimate interests of HAW and unreasonably affects Singer by prohibiting him from accepting or soliciting work from any clients of HAW.

We will first examine the legitimate business interests that HAW needs to protect. HAW placed Singer in a position of trust and confidence by allowing him to handle clients. Through this representation, and because of the intimate nature of the professional-client relationship, Singer has most certainly gained a degree of trust, confidence, and rapport with his clients. Because of this relationship between its accountants and its clients, HAW legitimately needs to protect itself from the risk that the accountant may later abuse the trust placed in him and use his intimacy with various clients to appropriate or "pirate" them for his own benefit. See, Blake, Employee Agreements Not to Compete, 73 Harv.L.Rev. 625, 651, 657 (1960).

However, HAW has done more than protect itself against these risks. First, the restrictive covenant provides that Singer cannot accept employment from clients of HAW. This provision would prohibit Singer from accepting employment from a client of HAW who comes to him, without any prior solicitation on his part, and requests that he be their accountant. This provision prohibits more than the active solicitation or diversion of clients, and we find that it constitutes an unreasonable restraint of trade as it overprotects HAW's interests and unreasonably impacts on Singer and on the public's ability to choose the professional services it prefers. For a case reaching a similar result see Evans Laboratories, Inc. v. Melder, 262 Ark. 868, 562 S.W.2d 62 (1978).

In addition, this covenant is unreasonable "considering the business interest of the employer sought to be protected" because it prohibits Singer from working for clients of HAW for whom he did not perform services while at HAW. Without the benefit of the trust and confidence built up through the professional-client relationship, Singer does not have the ability to unduly influence clients for his own benefit and therefore, he does not hold an unfair competitive edge over HAW in relation to those clients from which HAW would need protection. ³ ...