Spann v. Lovett & Co.

• Decision Date: 01 February 2012
• Docket Number: No. CA 11–511.,CA 11–511.
• Citation: 2012 Ark. App. 107,389 S.W.3d 77
• Parties: Creed SPANN, Gary Beckwith, and Spann & Associates, Limited, Appellants v. LOVETT & COMPANY, LIMITED, Appellee.
• Court: Arkansas Court of Appeals

2012 Ark. App. 107

389 S.W.3d 77

Creed SPANN, Gary Beckwith, and Spann & Associates, Limited, Appellants

v.LOVETT & COMPANY, LIMITED, Appellee.

No. CA 11–511.

Court of Appeals of Arkansas.

Feb. 1, 2012.

Joseph A. Strode, Pine Bluff, and Tanya Briana Spavins, Little Rock, for appellant.

Jim L. Julian, Little Rock, for appellee.

RAYMOND R. ABRAMSON, Judge.

[Ark. App. 1]This lawsuit arises from an accounting firm's agreement to purchase another firm's office in Pine Bluff, as well as subsequent disputes. After the purchaser sued the seller and recovered a substantial jury verdict for breach of contract, the trial court awarded prejudgment interest and attorney's fees. We affirm the judgment in all respects.

Appellant Creed Spann established an accounting firm, appellant Spann & Associates, Limited, in Pine Bluff, and it thrived. Around 2000, Spann & Associates opened an additional office in Hot Springs, which also did well. Appellant Gary Beckwith went to work with Spann & Associates and became a shareholder. Scott Lovett, who has practiced as an accountant for over forty years, established appellee Lovett & Company, Limited. On June 30, 2005, Spann & Associates sold its Pine Bluff office to appellee, as set forth in a written purchase agreement, for $850,000. The assets transferred included all tangible personal [Ark. App. 2]property located at the office; the telephone numbers and post-office box; and “all client lists, billing information, and records arising out of the business.” Spann & Associates expressly assigned to Lovett all goodwill, client lists, and records with an attached client list and a list of excluded clients.

The parties agreed that appellee would deliver $700,000 in cash to Spann & Associates at closing and a promissory note in the amount of $150,000, due on October 15, 2006. Section 2.4 of the contract set forth the allocation of the consideration for purposes of state and federal tax reporting: $5,000 corresponded to the covenant not to compete; $733,500 was given for the client lists and files; and $111,500 was allocated to the furniture, fixtures, and equipment. Appellee assumed some maintenance and utility contracts.

The closing agreement provided in Section 2.3 that the price would be adjusted, and Spann & Associates would refund a portion of the purchase price to appellee, if the business did not generate $850,000 in fees the first year that appellee owned the business: ¹

(c) If the Professional Fees are less than $700,000, then Seller shall refund to Buyer an amount equal to $700,000 less the Professional Fees. Any amount to be refunded by Seller to Buyer under this paragraph shall bear interest at the rate of 3% per annum which shall accrue from June 30, 2005 until paid. Interest shall be computed on the basis of a 365–day year. Seller shall make this refund payment plus interest to Buyer on or before October 15, 2006.

The contract defined “professional fees” as follows:

1.7. Professional Fees. The term Professional Fees shall mean all fees collected from the Clients during the period of July 1, 2005 through September30, 2006 based on billings for services rendered by Buyer during the period of July 1, 2005 through June 30, 2006 without regard to where the work is performed or from where the bills [Ark. App. 3]are sent. All services rendered by Buyer through June 30, 2006 shall be billed to the Clients on or before July 10, 2006. The term Professional Fees does not include expenses such as travel, postage, and copying which are billed to the Clients.

The purchase agreement's covenant not to compete provided:

7.1. Covenant Not to Compete. In consideration for the payment of the Purchase Consideration, Seller, and its shareholders, Creed Spann and Gary Beckwith, individually, shall refrain, directly or indirectly, as employee, shareholder, director, officer or agent, from carrying on an accounting business in the geographical area covering a fifty mile radius from Pine Bluff, Arkansas, and for a period of five (5) years from the Closing Date.

7.2. Excluded Clients of Seller. Excluded from the covenant not to compete under this Article 7 are those specific clients listed in Exhibit D attached hereto.

Exhibit D, which listed the clients excluded from the covenant not to compete, began as follows:

The following represents those clients who may be included in the sale of the Pine Bluff office by virtue of the fact that these clients might be within the fifty mile radius of Pine Bluff, Arkansas, but they are not being serviced out of the Pine Bluff office of Spann and Associates and they have not been serviced by that office for some time.

The purchase agreement also provided that Creed Spann would, on a reasonable basis, render services to the clients between July 1, 2005, and July 30, 2008, for compensation and, for no compensation, answer questions and make introductions during the transition. The contract further provided that Michele Birge, one of Spann & Associates' employees, would be available to work at least fifty percent of the time for the Pine Bluff office; appellee agreed to reimburse Spann & Associates accordingly. Birge and two other employees of Spann & Associates, Tammy Corkins and Catherine Milum, also signed agreements not to compete with appellee, which Creed Spann agreed to guarantee. Birge's contract included the following provision:

[Ark. App. 4]1. Except as provided for in paragraph 2 below, Birge agrees that she shall refrain, directly or indirectly, as employee, shareholder, director, officer or agent, or in any other capacity from carrying on an accounting business which solicits any client which is an existing client of the office of Spann & Associates, Ltd.'s located in Pine Bluff, Arkansas, as of June 30, 2005, or from carrying on an accounting business in the geographical area covering a fifty mile radius from Pine Bluff, Arkansas, and for a period of five (5) years from June 30, 2005. Excluded from this agreement not to compete are those specific clients listed on Exhibit A attached hereto.

The other agreements contained similar language. After the sale, Corkins continued to work in the Pine Bluff office, and Spann & Associates purchased her interest in its business. Milum became an employee of appellee. Creed Spann, as president, signed the contract for Spann & Associates; he and Beckwith, “shareholders,” also signed “individually.”

Appellee did not receive $850,000 in fees during the first year. A number of clients whose files were intended to be conveyed by the agreement decided to leave the Pine Bluff office; some of them went to Spann & Associates in Hot Springs. Appellee sued appellants in November 2007 for fraud and breach of contract, alleging that appellants had breached the covenant not to compete and requesting a reduction of the purchase price. Appellants raised a number of affirmative defenses, including first material breach in appellee's failure to timely bill clients; failure to give credit for receipts for services rendered by Spann on behalf of appellee; failure to bill for services rendered by Scott Lovett; waiver; and estoppel. Appellants also argued that the noncompetition clause was invalid and unenforceable. They filed a counterclaim for a full accounting and the balance due from appellee.

In an amended complaint, appellee alleged that it had collected only $487,578 for work performed during the first year. It alleged that Spann & Associates had rendered accounting services to persons and businesses on the protected client list and clients that resided in the [Ark. App. 5]geographical area (other than the clients on the excluded client list). Appellee sought damages for breach of the “true-up” provision and the noncompetition clause, plus attorney's fees. It also alleged fraud and tortious interference. Appellants brought a counterclaim for an accounting, wrongful termination of Creed Spann's employment agreement, declaratory judgment regarding the covenant not to compete, and fraud.

Appellee moved for partial summary judgment on its breach-of-contract claims. Appellants moved for partial summary judgment on appellee's claims for breach of the noncompetition agreement, fraud, and tortious interference. They also asked the court to declare the noncompetition agreement unenforceable and void. In a second motion for partial summary judgment, Lovett sought judgment on appellants' counterclaim and first-material-breach defense. Lovett filed a motion in limine to prohibit the introduction of evidence regarding the meaning of the noncompetition agreement.

On July 6, 2009, the circuit court granted Lovett summary judgment on the issue of the breach of the covenant not to compete and denied appellants' motion on that issue.² The court also granted appellee summary judgment on the meaning of that section of the contract concerning Creed Spann's services; appellants' first-breach defense; and appellants' counterclaim for wrongful termination. It granted summary judgment to Lovett on [Ark. App. 6]appellants' counterclaim for, and defense of, fraud. It granted summary judgment to appellants on Lovett's claims of fraud and tortious interference. The court denied Lovett's motion for summary judgment on the issue of the breach of the price-adjustment provision, stating that whether any shortfalls under that provision were caused by Lovett's fault was an issue of fact for the jury. It also denied Lovett's motion for summary judgment on the issue of appellant's first-breach defense, stating that the issues of whether Lovett first breached the contract, and whether that breach was material, were fact questions for the jury.

At trial, appellee presented the testimony of Scott Lovett, Tammy Corkins, James McClellan, Kevin White, Gary Beckwith, and Steve Schroeder. McClellan, a civil engineer, measured the distances between the Pine Bluff office and certain clients. A map plotting these points was admitted into evidence. White, a CPA,...