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07/31/87 Clifton, Gunderson & v. Eugene F. Richter

July 31, 1987

CLIFTON, GUNDERSON & COMPANY, A PARTNERSHIP, PLAINTIFF-APPELLANT

v.

EUGENE F. RICHTER, DEFENDANT-APPELLEE



APPELLATE COURT OF ILLINOIS, THIRD DISTRICT

511 N.E.2d 971, 158 Ill. App. 3d 789, 110 Ill. Dec. 794 1987.IL.1102

Appeal from the Circuit Court of Whiteside County; the Hon. John M. Telleen, Judge, presiding.

APPELLATE Judges:

JUSTICE SCOTT delivered the opinion of the court. BARRY, P.J., and STOUDER, J., concur.

DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE SCOTT

The plaintiff certified public accounting firm, Clifton, Gunderson & Company, sued its former employee, the defendant Eugene F. Richter, for violating a no-compete clause in his employment contract with the firm. The firm also sought a preliminary injunction against the employee's violating the clause. The firm brought this appeal from the court's denial of a preliminary injunction. We reverse.

The employee is not a CPA; the firm employed him as a staff accountant. While working at the firm, the employee did bookkeeping, tax returns, farm tax client interviewing, individual and corporate tax returns, and audit support work. He was responsible for various firm clients.

The employee worked at the firm part time from 1972 to 1974 and full time both from 1974 to 1976 and from 1977 to 1986. In his 1976 to 1977 absence from the firm, the employee was employed by a car dealer. In 1977 and thereafter, the employee's written employment contract with the firm included the following no-compete clause:

"6. The Employee hereby agrees that for a period three years after the termination of employment hereunder, either voluntarily or involuntarily, will not on the Employee's own account or as a member of any firm or on behalf of another Employer, or otherwise, directly or indirectly, work as a Certified Public Accountant, Tax Preparer or Consultant, Accountant, Auditor, or Bookkeeper for or solicit such business within a radius of 27 miles of Clinton or DeWitt, Iowa. The Employee further agrees that for a period of three years after the termination of employment hereunder, either voluntarily or involuntarily, will not on the Employee's own account or a member of any firm, or on behalf of another Employer, or otherwise, directly or indirectly, perform services as a Certified Public Accountant, Tax Preparer or Consultant, Accountant, Auditor, or Bookkeeper for or solicit any client of the Employer. The Employee further agrees to pay on demand to the Employer as liquidated damages for any violation of this paragraph as follows:

(a) One-half (1/2) of the amount of fees paid by such client to Employer during the past 24 months, if such client discontinues placing all of the same work with Employer.

(b) If only solicitation occurs and client remains with Employer, damages are hereby agreed to be in the amount of $500 for each solicitation.

The above does not prevent the Employee from accepting employment on a full-time basis for a firm in private industry, including clients within the territory outlined above."

Approximately one month after he voluntarily left the firm's employment in 1986, the employee set up and advertised a business in his home, approximately two miles from Clinton, Iowa. The business was organized to do bookkeeping, payroll taxes and reports, individual and business taxes, and farm records and taxes. A partner of the firm testified that the employee's new business had solicited or received commitments of future work from former firm clients. The employee's business also had performed accounting services for former firm clients. The partners cited one bankruptcy estate accountant's letter which the employee had prepared in his business, three former clients whom the employee had contacted regarding his new business, and an unspecified number of corporate tax clients who had informed the firm of their intent to hire the employee rather than the firm.

In denying the preliminary injunction, the court emphasized that the firm had an adequate legal remedy given the liquidated damages provision and the no-compete clause. Thereafter, the court denied the firm's motion for reconsideration and again referred to the liquidated damages clause. It also noted that the instant ...


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