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Rhoads v. Clifton

OPINION FILED OCTOBER 27, 1980.

JERRY L. RHOADS, PLAINTIFF-APPELLEE AND CROSS-APPELLANT,

v.

CLIFTON, GUNDERSON & CO., DEFENDANT-APPELLANT AND CROSS-APPELLEE.



APPEAL from the Circuit Court of Tazewell County; the Hon. IVAN L. YONTZ, Judge, presiding.

MR. JUSTICE STENGEL DELIVERED THE OPINION OF THE COURT:

Rehearing denied November 25, 1980.

Plaintiff Jerry Rhoads, a former partner in defendant Clifton, Gunderson & Co., a partnership engaged in the practice of public accounting and business consulting, filed this action, seeking to have section 37 of the partnership agreement restricting his right to compete (hereinafter the "non-competition clause") declared invalid, and seeking damages under sections 19 and 36 of the agreement. The trial court directed a verdict in favor of defendant partnership with respect to the validity of the non-competition clause. The other issues were submitted to the jury which awarded plaintiff $4,800 under section 19 and $10,000 under section 36. Defendant appeals from the judgment entered on this verdict, and plaintiff cross-appeals from the directed verdict on the validity of the non-competition clause.

The evidence at trial established that plaintiff became a partner in Clifton, Gunderson & Co. on December 1, 1972. Section 33 of the partnership agreement, relating to expulsion of partners from the firm, provided, in part:

"In the event that the Partnership Board determines after fair consideration and hearing that any partner's affiliation with this firm has become detrimental to the best interest of the firm, such partner may be asked to withdraw, and in the event of such request, he shall withdraw or shall be expelled."

In April of 1977 the partnership board adopted a resolution that plaintiff be given an opportunity to withdraw on the following terms:

"(1) [that] the withdrawal be effective as of April 30, 1977;

(2) that he be paid his partnership equity as provided in Section 19 * * *; and

(3) that he may elect to not compete as provided in Section 37 * * *, and, in such an event, he would be entitled to additional payments computed as provided in Section 36 * * *."

The resolution further provided that upon plaintiff's request, the board would assemble for a hearing within 8 days, and that if plaintiff failed to withdraw or to ask for a hearing, he would be expelled effective April 30, 1977, pursuant to section 33.

On April 27, Robert Coker, the managing partner, met with plaintiff and gave him a copy of the board's resolution. Coker also gave plaintiff two documents with a space for his signature at the bottom. Each document stated that plaintiff was withdrawing effective April 30, 1977, and would receive his partnership equity under section 19. One of the documents stated that plaintiff agreed not to compete as provided in section 37 and would receive additional payments under section 36. The other stated that plaintiff intended to compete and was waiving any additional payments under section 36.

Plaintiff never signed either document. For the next several weeks he negotiated with members of the partnership concerning the terms of the withdrawal. During that period of time, under the name of J.L. Rhoads & Co., he performed business consulting services for Roosevelt Memorial Hospital, Inc., a client he had served as a member of defendant partnership. The check in payment for these services was sent to Clifton, Gunderson & Co. which subsequently sent plaintiff a letter terminating the negotiations. Clifton, Gunderson & Co. sent plaintiff a check in payment of his capital account under section 19. He received no additional benefits under section 36. Since plaintiff received that letter, he has continued to perform accounting and business consulting services for clients he served while a member of defendant partnership.

We will first consider plaintiff's cross-appeal. Section 33, relating to expulsion, provides, in part:

"If the expelled partner chooses in writing not to compete as provided in the section Non-competition (Section 37), he shall be entitled to additional ...


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