Thompson, Breeding, Dunn, Creswell & Sparks v. Bowlin

• Decision Date: 12 November 1987
• Citation: Thompson, Breeding, Dunn, Creswell & Sparks v. Bowlin, 765 S.W.2d 743 (Tenn. App. 1987)
• Parties: THOMPSON, BREEDING, DUNN, CRESWELL & SPARKS, a partnership, Plaintiff-Appellant, v. Lynn C. BOWLIN, Defendant-Appellee.
• Court: Tennessee Court of Appeals

Page 743

765 S.W.2d 743

THOMPSON, BREEDING, DUNN, CRESWELL & SPARKS, a partnership Plaintiff-Appellant, v. Lynn C. BOWLIN, Defendant-Appellee.

765 S.W.2d 743

Court of Appeals of Tennessee,

Western Section, at Jackson.

Nov. 12, 1987.

Application to Appeal Denied by

Supreme Court Aug. 15, 1988.

William B. Acree, Jr., Elam, Glasgow, Tanner & Acree, Union City, for plaintiff-appellant.

Randall Burcham, Burcham & Fox, Union City, for defendant-appellee.

FARMER, Judge.

This is an action for breach of an employment contract.

Thompson, Breeding, Dunn, Creswell & Sparks (Partnership), a partnership of certified public accountants, brought suit against its former employee, Lynn Bowlin, to enforce the terms of an employment contract (Contract) signed by the parties when Bowlin became employed by the Partnership. The pertinent provisions of the Contract are as follows:

5. The employee hereby agrees that for a period of three years after the termination of his employment by the company, either voluntary or involuntary, he will not on either his own account or as a member of a firm, or on behalf of another employer, or otherwise, directly or indirectly, work as a tax consultant, accountant auditor, or bookkeeper for or solicit such business from, any client of the company.

....

8. In the event that the employee violates the terms of any part of this agreement[,] the company shall have the right to apply to any court or [sic] competent jurisdiction for an injunction restraining the employee from further violation. The employee further agrees that he will pay on demand to the company as liquidated damages for any violation of paragraph (5) of this agreement a sum equivalent to the fees charged by the company in the preceding twelve months to the client or clients for whom any work was done or solicited.

Bowlin worked as an accountant for the Partnership from June 1981 until December 1985 when he resigned after refusing a second offer to become a partner. Thereafter he opened his own accounting office in Union City. In January 1986, the Partnership notified Bowlin twice of its intention to enforce the Contract. Bowlin responded that, based on legal advice, he felt that the Contract was "overly restrictive, and if enforceable at all, is so only to a diminished degree." However, he further stated he had no intention of soliciting the Partnership's clients.

In May the Partnership filed a complaint alleging that Bowlin breached the Contract by not only performing accounting services for its clients, but also actively soliciting their business. It is undisputed that the defendant performed services for approximately twenty clients that the Partnership had serviced in 1985. The Partnership initially sought injunctive relief against Bowlin, as well as damages based on paragraph 8 of the Contract.

Bowlin answered by merely denying these charges. At trial, however, the Chancellor permitted him to introduce evidence, over the Partnership's objections, which constituted affirmative defenses not previously pled. Apparently the most persuasive of these was the fact that Bowlin obtained acknowledgements or releases from the Partnership's clients before he performed any work for them.

As a result of this testimony, the lack of any territorial limitation in the Contract, and his finding that the word "client" was ambiguous, the Chancellor concluded that paragraph 5 of the Contract was unreasonable and placed an impossible burden on Bowlin to determine what clients he could accept. The Chancellor therefore found the Contract to be unenforceable and dismissed the Partnership's suit.

The Partnership has abandoned its claim for injunctive relief and is now only seeking damages. It has raised two issues on appeal. The first issue concerns whether the Chancellor erred in allowing Bowlin to introduce evidence relative to affirmative defenses not raised in his pleadings.

"An affirmative defense is one that wholly or partly avoids the cause of action asserted by the preceding pleading by new allegations that admit part or all of the cause of action, but avoids liability because of a legally sufficient excuse, justification, or other matter negating the alleged breach or wrong." Pivnick, Tenn. Circuit Court Prac. (2nd Ed.), Sec. 12-4. A party relying upon matter that constitutes such an avoidance or affirmative defense must set forth the defense in short, plain terms in its pleading. T.R.C.P. 8.03 and Committee Comments. If an affirmative defense is not set forth in an original pleading, it is waived. T.R.C.P. 12.08. See e.g., Smartt v. Fleming, 481 S.W.2d 774 (Tenn.App.1972).

In his answer to the complaint, Bowlin failed to raise any affirmative defenses; therefore, he waived them. As a result, testimony permitted over objections by the Partnership that went to the issues of these affirmative defenses was admitted in error. Notwithstanding the error of allowing evidence of the acknowledgements or releases obtained from the Partnership's clients, this Court would emphasize that a disinterested third party cannot sign an acknowledgement and thereby release a party to a contract from his contractual obligations.

The second issue on appeal is whether the Chancellor erred in finding that paragraph 5 of the Contract was unreasonable and placed an impossible burden on Bowlin. "Agreements in restraint of trade, such as covenants restricting competition, are not invalid per se. Although disfavored by law, such agreements are valid and will be enforced, provided they are deemed reasonable under the particular circumstances." Allright Auto Parks, Inc. v. Berry, 409 S.W.2d 361, 363 (Tenn.1966). The Tennessee Supreme Court in Central Adjustment Bureau, Inc. v. Ingram, 678 S.W.2d 28 (Tenn.1984), adopted a "rule of reasonableness" to be used when construing covenants not to compete.

This rule provides that unless the circumstances indicate bad faith on the part of the employer, a court will enforce covenants not to compete to the extent ... necessary to protect the employer's interest "without imposing undue hardship on the employee when the public interest is not adversely affected." (citation omitted)

Id. at 37....