Partnership withdrawal.A California appellate court A court having jurisdiction to review decisions of a trial-level or other lower court. An unsuccessful party in a lawsuit must file an appeal with an appellate court in order to have the decision reviewed. upheld a verdict in favor of the former accounting firm of Weber, Lipshie & Co., which had sought to enforce a partnership restrictive covenant restrictive covenant In property law, an agreement acknowledged in a deed or lease that restricts the free use or occupancy of property, such as by forbidding commercial use or certain types of structures. against a departing partner, Paul Christian. When Christian became a partner, he agreed that if he withdrew or was expelled from the partnership he would not, for five years, service any of the firm's accounts. He also agreed that, if he did violate the agreement, he would pay damages to the firm equal to double the firm's charges for those clients for the 12 months immediately preceding its loss (the "liquidated damages Monetary compensation for a loss, detriment, or injury to a person or a person's rights or property, awarded by a court judgment or by a contract stipulation regarding breach of contract. " provision of the contract). After Christian left, certain clients took their business to him. The firm sued Christian for liquidated damages in accordance with the contract and Christian cross-complained for breach of contract. The trial court concluded the liquidated damages provision was an invalid penalty and instructed a jury to determine whether the terms of the restrictive covenant were reasonable, whether Christian had breached the agreement and, if so, what damages flowed from this breach. The jury awarded Weber $447,136.75 -- exactly the adjusted net fees billed to the affected clients during the 12 months preceding Christian's departure. This was thus about half the double charges in the agreement. Despite this verdict, the court ordered a new trial to determine whether Weber had good cause to expel ex·pel tr.v. ex·pelled, ex·pel·ling, ex·pels 1. To force or drive out: expel an invader. 2. Christian from the partnership. Both parties appealed this ruling: Basically, the firm wanted to pay less than the jury award. The appellate court ruled that not only was the restrictive covenant enforceable but so was the liquidated damages provision. The trial court's granting o a new trial was in error. The covenant was enforceable regardless of the reason or Christian's expulsion EXPULSION. The act of depriving a member of a body politic, corporate, or of a society, of his right of membership therein, by the vote of such body or society, for some violation of hi's. . The court therefore reversed the order granting a new trial and directed a new judgment to Weber in the amount of the liquidated damages provision of the contract. This case is contrary to the trend in many jurisdictions to modify or rule restrictive covenants Restrictive covenants Provisions that place constraints on the operations of borrowers, such as restrictions on working capital, fixed assets, future borrowing, and payment of dividends. as unenforceable Adj. 1. unenforceable - not enforceable; not capable of being brought about by compulsion; "an unenforceable law"; "unenforceable reforms" enforceable - capable of being enforced . It is also remarkable for its enforcement of a penal liquidated damages provision that doubled the firm's actual fees. This ruling makes it clear that a firm can place substantial restrictions on competition from departing partners long after the partner has left the firm.(Weber, Lipshie & Co. v. Paul D. Christian, 97 C.D.O.S. 846) |
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