Smith, Waters, Kuehn, Burnett & Hughes, Ltd. v. Burnett

• Citation: 192 Ill.App.3d 693,139 Ill.Dec. 617,548 N.E.2d 1331
• Decision Date: 20 December 1989
• Docket Number: No. 3-89-0380,3-89-0380
• Parties: , 139 Ill.Dec. 617 SMITH, WATERS, KUEHN, BURNETT & HUGHES, LTD., and Lester Berry Smith, Plaintiffs-Appellees, v. Robert W. BURNETT, Defendant-Appellant.
• Court: United States Appellate Court of Illinois

Page 1331

548 N.E.2d 1331

192 Ill.App.3d 693, 139 Ill.Dec. 617

SMITH, WATERS, KUEHN, BURNETT & HUGHES, LTD., and Lester

Berry Smith, Plaintiffs-Appellees, v. Robert W. BURNETT, Defendant-Appellant.

No. 3-89-0380.

Appellate Court of Illinois,

Third District.

Dec. 20, 1989.

Rehearing Denied Feb. 7, 1990.

James D. Broadway, Daniel L. Johns (argued), Westervelt, Johnson, Nicoll & Keller, Peoria, for Robert W. Burnett.

Walter W. Winget, James F. Kane (argued), Winget & Kane, Andrew W. Covey (argued), Baymiller, Christison & Radley, Peoria, for Smith, Waters, Kuehn, Burnett, and Lester Berry Smith.

Justice DUNN delivered the opinion of the court:

Defendant, Robert Burnett (Burnett), appeals from an order of the circuit court of Peoria County granting a preliminary injunction to plaintiffs, Lester Berry Smith (Smith) and Smith, Waters, Kuehn, Burnett & Hughes, Ltd. (SWKB & H). The order restrained Burnett, an attorney, from soliciting clients for worker's compensation and personal injury cases in most Illinois counties. Burnett argues that the order should be reversed because: (1) plaintiffs failed to establish the requisites for injunctive relief; (2) the compensation provision in his employment agreement with SWKB & H was vague and indefinite, rendering the agreement unenforceable; (3) such a restriction on an attorney's ability to practice law violates public policy; and (4) the restrictive covenants in the employment contract were unenforceable. We reverse and remand.

SWKB & H, formerly known as Lester Berry Smith, Ltd., is a professional corporation engaged in the practice of law. The firm has an office in Peoria and specializes in representing injured parties in personal injury and worker's compensation cases. The firm has an extensive practice throughout southern and central Illinois. Burnett began working for Lester Berry Smith, Ltd., in 1981.

In 1984, Smith, the sole shareholder, decided to sell his stock in the firm. Burnett and three other attorneys from the firm agreed to purchase the stock in February of that year. On February 7, 1984, Smith and the firm executed a contract that was labeled as a consulting agreement. Under the terms of this agreement, Smith was to receive 10% of the total fees collected by the firm for the next 10 years and certain other remuneration. The agreement further provided that Smith could provide consulting services for the firm for three years but was not required to do so.

Section 5.02 of the contract prohibited Smith from soliciting or accepting business from any firm clients for a period of 10 years. This provision also barred Smith during the same period from opening an office within a 50-mile radius of a certain intersection in Peoria, a certain intersection in Urbana, and the county courthouse in Effingham.

The recitals in the beginning of the agreement included the following statement:

"The Consultant will be effectively precluded from receiving the remuneration specified in this Agreement unless each of the Shareholders enter into employment agreements incident to which each is precluded from competing with the Corporation during and after the cessation of their employment with the Corporation for a period of time."

Each of the four new shareholders, including Burnett, signed employment agreements with the corporation the same day Smith entered into the consulting agreement.

Burnett's employment agreement contained the following relevant provisions:

"03.01 The Corporation hereby offers to employ the Employee to perform such services in respect of the Business as may periodically be designated by the Corporation and in accordance with such rules, regulations and procedures as may periodically be promulgated by the Corporation.

03.02 The Employee hereby accepts the Corporation's offer and agrees to work full time and devote the Employee's attention and best abilities exclusively to the services of the Corporation. The Employee shall refrain from engaging in, directly or indirectly, as an employee or otherwise, any other activity for monetary gain.

* * * * * *

04.01 The services shall commence this date and shall continue for an initial term ending March 1, 1994."

Plaintiffs contend that section 3.02 of the contract is a negative covenant which prohibits Burnett from working for another employer or performing legal services on his own during the term of the agreement which is set forth in section 4.01. Whenever the term "negative covenant" is used in the remainder of this opinion in relation to the employment agreement, it refers to section 3.02. The term "restrictive covenant," when used in relation to the employment agreement, refers to section 6.02. This provision of the contract prohibits Burnett from doing any of the following during the term of the agreement and for 36 months thereafter: (1) contacting any SWKB & H client for purposes of solicitation; (2) accepting business from any client of the firm; (3) communicating any information concerning firm clients to any person; and (4) having an office within 50 miles of a certain street intersection in Peoria, the courthouse in Effingham, or an intersection in Urbana.

The compensation provision of Burnett's employment contract is found in section 5.00 which states as follows:

"The Corporation shall pay the Employee, and the Employee agrees to accept for services rendered on behalf of the Corporation, a fixed salary computed at an annual rate periodically determined by the Parties, payable as determined by the Parties."

Burnett left a letter of resignation on his desk at SWKB & H on May 27, 1989, and opened his own law office in Naperville, Illinois, in Du Page County. On June 6, plaintiffs filed their complaint for preliminary and permanent injunctive relief against Burnett, including an order restraining him from practicing law in Illinois with anyone except SWKB & H until March 1, 1994.

A hearing concerning plaintiffs' request for a preliminary injunction was held on June 13, 1989. Michael Waters testified at the hearing that he was an attorney who worked for SWKB & H and was one of its shareholders. Waters stated that 90% to 95% of the firm's cases were personal injury or worker's compensation cases, and the firm took cases from almost anywhere in Illinois south of Interstate 80. Burnett was in charge of the firm's worker's compensation calls for the Peoria area and the Champaign area. He also handled some cases on the firm's Danville call.

Waters stated that due to the nature of the firm's practice, union business agents were important sources of client referrals and it was essential to maintain contact with these agents. Many union members turned to the agents for advice when they needed to hire attorneys. Burnett kept in contact with the business agents in the Champaign and Danville areas. According to Waters, Burnett had a unique ability to maintain the trust of the agents in those areas.

Smith introduced Burnett to the business agents in the Champaign and Danville areas. Before Smith sold his stock, the firm would rotate attorneys into different areas regularly so they would not develop too close a relationship with the business agents or other important contacts. Smith also did not allow the firm's attorneys to meet with clients outside the office without his permission. These policies were discontinued after Smith sold his stock because the four new shareholders all signed 10-year employment contracts. Waters stated that Burnett could not have developed his extensive contacts with the business agents and other union personnel were it not for Smith's introductions.

According to Waters, Burnett possessed confidential information about the firm. This included information about sources of referrals other than business agents, about the financial condition of the firm, and about clients. Waters testified that defendant received over $500,000 in compensation from the firm since signing the employment agreement in 1984, including more than $200,000 in 1988.

In Waters's opinion, Burnett's departure had caused harm to the firm. On May 30, 1989, the day Burnett's resignation letter was found and the following day, a number of clients called and discharged the firm. One client stated that he did not believe the firm had the manpower to handle his case. Waters testified that it would be very difficult to measure in terms of dollars the amount of damage that resulted from Burnett's departure because it would be hard to determine the fees that would have been generated from the clients who discharged the firm and difficult to determine how many potential clients were lost as a result of Burnett's actions.

Brian Kuehn, one of the other shareholders at SWKB & H, also testified. Kuehn stated that Burnett knew about the firm's financial condition and this was very important because many of the clients were not able to finance their litigation. Burnett was also aware that Smith was no longer an active member of the firm.

Kuehn felt it was possible that the names of many union business agents could be discovered merely by telephoning the unions. Burnett was aware, however, that in several unions, the union steward was the primary source of referral rather than the business agents. The names of those stewards would be difficult to discover.

Burnett testified that he informed his colleagues at SWKB & H on or about March 7, 1989, that he would soon be leaving the firm. After leaving SWBK & H, he opened the law office of Robert Burnett, Ltd., in Naperville, Illinois. Burnett admitted that he placed advertisements in local newspapers in Champaign and Danville which appeared shortly after he left SWBK & H. These ads for his new office mentioned his availability for worker's compensation and personal injury cases.

Burnett testified that after he opened the new office, he accepted business from only one SWBK & H client, and that was with the firm's permission. Burnett told other SWKB & H...