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July 10, 2003


The opinion of the court was delivered by: Marvin Aspen, Chief Judge, District


Plaintiff Shapiro, Olefsky & Company ("Shapiro-Olefsky") filed a two-count complaint against Defendant Stanley Cohen ("Cohen"), alleging breach of contractual obligations arising from a covenant not to compete (Count I), and fraudulent misrepresentations relating to that covenant (Count II). Presently before us is Cohen's motion to dismiss Shapiro-Olefsky's complaint. For the reasons set forth below, we deny Defendant's motion.


On October 28, 1996, Cohen agreed to sell his accounting practice, the Cohen Group ("Cohen Group"), in an Asset Purchase Agreement to Shapiro-Olefsky, Shapiro-Olefsky purchased certain client lists, work papers, and goodwill from the Cohen Group. Shapiro-Olefsky paid Cohen $175,000 for the assets on October 28, 1996. The parties also executed a Promissory Note ("note" or "promissory note") for an additional $241,000, plus interest, payable to Cohen on May 1, 1998. The promissory note sewed [ Page 2]

as compensation to Cohen for his adherence to the covenant not to compete and non-solicitation agreement ("non-compete agreement" or "agreement"). The non-compete agreement prohibited Cohen from servicing his former clients and certain Shapiro-Olefsky clients for the next three years. Under the agreement, a "client" was any person or entity for whom Shapiro-Olefsky or the Cohen Group had performed services in the three years immediately preceding October 28, 1996.*fn2 The non-compete agreement contained a liquidated damages clause, which required Cohen to pay Shapiro-Olefsky two hundred percent (200%) of his annual billings in the event of a breach. The agreement also stated that any breach by Cohen would cause the amount then unpaid under the promissory note to become null and void. Further, Cohen stipulated that the duration and geographical scope of the agreement were fair and reasonable in the accounting field at that time. He also agreed that the agreement did not deprive him of the ability to support himself or his family.

The promissory note provided for a recalculation of the principal and revision of the restricted client list on November 1, 1997. On April 18, 1998, the parties executed an amendment to the promissory note (the "amendment"), which stated that the principal amount of the promissory note had been reduced from $241,000 to $175,000 as of November 1, 1997.

Shapiro-Olefsky claims that between October 1996 and April 1998 Cohen provided accounting services for numerous individuals in violation of the terms of the non-compete agreement. Specifically, Shapiro-Olefsky alleges that Cohen performed services for Dr. Michael Gaynor ("Dr. Gaynor") at three important time intervals. First, Cohen had performed services for Dr. Gaynor immediately preceding the signing of the non-compete agreement on October 28, 1996, which places Dr. Gaynor within the list of restricted clients. Second, Cohen allegedly performed services for Dr. Gaynor between the October [ Page 3]

28, 1996 signing of the non-compete agreement and the April 18, 1998 amendment to the non-compete. Shapiro-Olefsky alleges that Cohen's work during this time period violated the non-competition agreement. Third, Shapiro-Olefsky claims Cohen continued to perform services for Dr. Gaynor after the execution of the amendment.*fn3

The amendment specifically allowed Cohen to perform accounting services for certain individuals and entities for whom Cohen had previously been prohibited from servicing.*fn4 Despite this change, the amendment provided that the non-compete agreement would remain in "full force and effect." On May 1, 1998, Shapiro-Olefsky, believing that Cohen's signature on the amendment represented his continued adherence to the terms of the non-compete agreement, paid Cohen the amount due under the note, as amended. Shapiro-Olefsky claims that it "recently discovered evidence that Cohen violated the terms of the non-compete agreement prior to its expiration and prior to the execution of the amendment." Pl. First Am, Compl. ¶ 17. Shapiro-Olefsky filed suit against Cohen alleging breach of contract and fraudulent misrepresentations. [ Page 4]


A. Standard of Review

The purpose of a motion to dismiss under Rule 12(b)(6) is to decide the adequacy of the complaint, not the merits of the case. See Gibson v. City of Chicago, 910 F.2d 1510, 1520 (7th Cir. 1990). In considering a motion to dismiss, we must accept all well-pled allegations in the complaint as true and draw all reasonable inferences in the plaintiff's favor. See MCM Partners, Inc. v. Andrews-Bartlett & Assoc., Inc., 62 F.3d 967, 972 (7th Cir. 1995), aff'd 161 F.3d 443 (7th Cir. 1998), cert. denied 528 U.S. 810 (1999). Therefore, a complaint should not be dismissed "unless it appears beyond all doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v, Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 102, 2 L.Ed.2d 80 (1957). Moreover, a party pleading facts constituting fraud or mistake must do so with particularity. See Fed.R.Civ.P. 9(b).

B. Discussion

Count I: Breach of ...

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