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Dam, Snell, and Taveirne, Ltd. v. Verchota

August 10, 2001


Appeal from the Circuit Court of Lake County. No. 00-CH-1318 Honorable John R. Goshgarian, Judge, Presiding

The opinion of the court was delivered by: Justice Geiger


Defendant Mary Seda, a/k/a Mary Miller (Miller), appeals from the February 27, 2001, order of the circuit court of Lake County entering a preliminary injunction preventing her from performing any accounting services on behalf of the clients of her former employer, plaintiff Dam, Snell and Taveirne, Ltd. (DST). On appeal, Miller argues that (1) the restrictive covenant contained in her employment agreement was invalid as a matter of law; and (2) the trial court abused its discretion in entering the preliminary injunction. We affirm.

The facts relevant to the instant appeal are as follows. DST is a corporation engaged in public accounting and financial consulting. At the time in question, DST maintained offices in Libertyville, Fox Lake, and Crystal Lake. Defendant Miller was an unlicensed accountant and was hired by DST in May 1994 to work in the Crystal Lake office. At the time Miller was hired, she signed an employment agreement that contained a restrictive covenant. The covenant provided, in relevant part, as follows:

"In the event of termination of this agreement by either party, the Employee agrees that he/she shall not, either directly or indirectly, in a professional capacity as an individual, a partner of another firm, or as an employee of another individual or firm, for a period of two (2) years after such termination, perform any accounting services as a public accountant for any person, firm or corporation, which is on the Employer's client list at the time of employee termination. This provision also applies to the clients of any predecessor firm that has since merged or been acquired by the Employer."

In the Crystal Lake office, Miller worked under the direction of John Verchota, who was one of the directors and shareholders of DST. Verchota had been responsible for opening and managing the Crystal Lake office on behalf of DST. Early in 1999, Miller and Verchota became romantically involved.

On August 1, 2000, Verchota terminated his employment with DST to begin his own accounting practice in Crystal Lake. Immediately after his resignation, Verchota began soliciting his clients to go with him to his new accounting firm. On August 4, 2000, Miller advised DST that she was resigning from the firm and that her last day of employment would be August 18, 2000. Miller subsequently joined Verchota's new firm, which was called Miller-Verchota.

On November 3, 2000, DST filed a six-count complaint naming Miller, Verchota, and another former DST employee, Aimie Ettner, as defendants. The only count of the complaint that is relevant to the instant appeal is count III, which sought the entry of injunctive relief against Miller. The count alleged that, since the termination of her employment with DST, Miller had begun working at Miller-Verchota, where she was performing various accounting services for former clients of DST. DST alleged that such conduct was a breach of the restrictive covenant contained in Miller's employment agreement and requested that Miller be enjoined from performing any accounting work on behalf of any individuals or entities who had been clients of DST at the time Miller terminated her employment there.

DST subsequently filed a petition for a preliminary injunction against Miller. At the hearing on the petition, Miller testified that she began to work for DST on May 2, 1994, at which time she signed the employment agreement. Prior to her employment with DST, Miller had her own accounting business with approximately 25 business clients and 40 to 50 individual clients. Miller estimated that she brought 80% to 90% of her clients with her to DST. Miller did not have an accounting degree or license at the time she worked for DST. She performed various services on behalf of DST clients, including bookkeeping, payroll, computer training, preparing corporate and personal tax returns, and installing rudimentary accounting systems.

Miller testified that she had not decided to resign from DST until August 4, 2000, which was the day that she tendered her resignation. Miller testified that she decided to resign after another DST employee, Aimee Ettner, had quit. Miller's resignation letter indicated that she was giving a 14-day notice and would continue working through August 18, 2000. Miller acknowledged that, during this 14-day period, she worked for only 1½ hours on August 17, 2000, and for 2 hours on August 18, 2000. Miller testified that she was unable to work for most of this period because she had suffered a rotator cuff tear. Miller began working at the offices of Miller-Verchota on August 21, 2000.

On cross-examination, Miller testified that since joining Miller-Verchota she had performed accounting services on behalf of businesses or individuals who had been DST clients prior to August 18, 2000. However, Miller believed that she had not violated her employment agreement because these clients were no longer DST clients on the date that she terminated her employment with DST on August 18, 2000. In support of her position, Miller explained that Verchota had written a letter to DST on August 10, 2000, identifying approximately 100 clients who were transferring their business to Miller-Verchota and who should be removed immediately from DST's client list. Miller therefore explained that these people and businesses were no longer DST clients by the time she had joined Miller-Verchota.

John Verchota testified he was a certified public accountant and had opened and managed DST's Crystal Lake office. Verchota acknowledged that he began a romantic relationship with Miller in 1999 and that he and Miller began living together early in 2000. Verchota testified that he decided to leave DST on July 25, 2000, and that he prepared a letter to DST making his resignation effective as of August 1, 2000. Verchota testified that he never discussed the matter with Miller prior to July 25, 2000.

Verchota further testified that on August 1, 2000, he prepared and distributed letters to approximately 100 DST clients advising them of his departure from DST and inviting them to follow him to Miller-Verchota. Verchota testified that he did not receive any assistance from Miller in preparing these letters. Unlike Miller, Verchota had not executed an employment agreement with DST that restricted his business activities upon his departure from the firm. Verchota received responses to his letters from many DST clients who indicated that they wished Verchota to continue to provide their accounting services. On August 10, 2000, Miller wrote a letter to DST requesting that these clients be removed from DST's client list. Verchota testified that Miller owns 30% of Miller-Verchota.

Leonard Dam testified that we was the founder of DST. Dam testified that DST has been providing comprehensive accounting and financial services for the past 30 years. The Crystal Lake office had approximately 350 to 400 of the 4,400 clients that were serviced by DST's three offices. A client list was admitted into evidence that identified all of the clients of DST's three offices as of the time Miller terminated her employment. Dam testified that, prior to the departure of Miller and Verchota, DST had spent approximately $190,000 in marketing efforts to develop clientele for the Crystal Lake office. DST targeted as potential clients businesses that had gross revenues between $300,000 and $10 million. The average longevity of DST's clients was substantial, and the revenue that DST received from particular clients often increased as the clients became more comfortable utilizing the services of DST. Dam testified that the actual damages sustained by the loss of the clients at the Crystal Lake ...

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