Ales v. Anderson, Gabelmann, Lower & Whitlow, P.C.

728 N.W.2d 832, 2007 Iowa Sup. LEXIS 37, 2007 WL 778444
CourtSupreme Court of Iowa
DecidedMarch 16, 2007
Docket04-2073
StatusPublished
Cited by22 cases

This text of 728 N.W.2d 832 (Ales v. Anderson, Gabelmann, Lower & Whitlow, P.C.) is published on Counsel Stack Legal Research, covering Supreme Court of Iowa primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Ales v. Anderson, Gabelmann, Lower & Whitlow, P.C., 728 N.W.2d 832, 2007 Iowa Sup. LEXIS 37, 2007 WL 778444 (iowa 2007).

Opinion

*835 WIGGINS, Justice.

An unsuccessful party to an arbitration proceeding that involved a covenant not to compete appeals a district court decision confirming in part and vacating in part the arbitration award. The district court confirmed the award finding a breach of the covenant not to compete occurred. It also confirmed the damages the arbitrator assessed for the breach. The district court vacated the arbitrator’s attorney’s fees and costs determination and remanded the case back to the arbitrator to determine an attorney’s fees and costs award consistent with its decision. Because we agree substantial evidence supports the arbitrator’s determination that the covenant not to compete was breached and the damages he awarded for that breach, we affirm that part of the district court’s decision. However, because we find substantial evidence only supported part of the arbitrator’s award regarding the attorney’s fees and costs, we reverse the judgment of the district court, vacate the portion of the arbitration award regarding the fees and costs not supported by substantial evidence, and confirm the portion of the award regarding the fees and costs supported by substantial evidence. We also remand the matter to the district court to determine an appropriate award for the fees and costs incurred by the prevailing party in the district court and on this appeal.

I. Background Facts and Proceedings.

Christopher Ales is a certified public accountant. After working for over ten years in the tax department of two corporations, Ales opened his own accounting practice. In December 1998 Ales merged his solo-practice with Anderson, Gabel-mann, P.C. Anderson, Gabelmann, P.C., now known as Anderson, Gabelmann, Lower, Whitlow, P.C. (AGLW), is a public accounting firm located in Bettendorf, Iowa. AGLW agreed to purchase Ales’ customer list for a one-third interest in the firm and a $205,000 promissory note (the “Old Note”).

Before coming to AGLW, Ales began working on residential building projects for low-income residents, commonly referred to as section 42 projects. Ales continued to work on section 42 projects while employed by AGLW. By May 2000 friction had built between Ales and his partners. Ales described this as “the beginning of the end,” and discussions began regarding Ales leaving AGLW. By December 1 Ales and AGLW entered into an agreement that provided the terms of Ales’ separation from AGLW.

Under the agreement, AGLW purchased Ales’ 1000 shares of stock in the firm, his revalued client list, the Old Note, and Ales’ covenant not to compete. Ales received $345,000 in consideration for these assets in the form of a promissory note (the “New Note”). Ales also agreed “upon reasonable request” to “use commercially reasonable efforts to assist [AGLW] in retaining the clients on the Client List for the mutual benefit of all parties to this Agreement.”

The covenant not to compete stated for a five-year period Ales promises, within a fifty-mile radius from any office of AGLW established as of December 1, 2000, not to

(a) provide like or similar services to those provided by [AGLW] directly or indirectly, to any of [AGLWj’s clients (past or present) or (b) either alone or in association with others, directly or indirectly, organize, own, control, lend financial support to, manage, operate, join, or become associated with, represent, advise, render services to, or become employed by or participate in any entity providing like or similar services to those provided by [AGLW].

*836 Exempt from the covenant not to compete were (1) any activities carried out by Ales, directly or indirectly, in association with his section 42 projects; (2) services provided by Ales to Watts Trucking Service, Inc. and its related entities and individuals; and (3) services provided by Ales to any company in which Ales held a fifty percent or more interest.

The agreement also gave AGLW the right to offset against the New Note “an amount equal to the last two year’s fees collected by [AGLW] from the client with whom Ales is alleged to have violated the covenant not to compete.” The agreement further provided if a dispute regarding the agreement arose, the parties would submit the dispute to binding arbitration under chapter 679A of the Iowa Code. Finally, the agreement provided the prevailing party in any arbitration proceeding would be entitled to reimbursement from the non-prevailing party of the actual attorney’s fees and costs involved in pursuing or defending the claim.

After the agreement was signed, Ales remained in the AGLW offices under a new leasing agreement. In February 2001 Ales moved his operations to his home. Eventually by April or May Ales moved his office to Renwick House, a historic home converted into office space. Renwick House is located within fifty miles of AGLW’s offices. Ales continued to work as a developer of section 42 projects through his various companies.

Diane Artioli, a certified public accountant, previously worked as a part-time accountant for AGLW from 1998 to 2001. After leaving AGLW, Artioli began working for another company, but by January 2002 Artioli had opened her own practice. She first rented office space in Davenport. After Artioli opened her office, a number of AGLW clients started requesting her services. At this time, Artioli also started doing work for Ales and his companies. In June 2002 Artioli closed her Davenport office and began to work at Renwick House.

On September 17 AGLW notified Ales that it had “determined that [Ales was] in violation of the Covenant Not To Compete ... by providing like or similar services as those provide by [AGLW], directly or indirectly, to certain of [AGLW] ’s clients.” AGLW indicated the basis for its finding was that: (1) as of March 8, 2002, clients Erickson Truck/Jack Erickson Companies, KCM Construction/Kyle Meier Companies, D & D Chevrolet/Kilberg Companies, Gary Clapp, Richard Yerington, Dr. Margaret Millar, Ed Mowen, Richard Henson, and Roy Harper notified AGLW that Artioli would be providing their professional accounting, tax, and consulting services; (2) Ales continued to hold himself out as a practicing certified public accountant and indirectly started accounting operations by hiring Artioli and another employee to provide accounting or similar services from Ales’ offices; and (3) Ales worked directly and/or indirectly and/or in association with Artioli by providing, directly or indirectly, organization, control, financial support, cost-sharing arrangements, management, operating assistance, association, representation, and advisement, as evidenced by Artioli working out of and utilizing staff within Ales’ office building; and this evidenced that Ales was participating with Artioli to provide like or similar services to those provided by AGLW. Due to these allegations, AGLW offset the New Note by $154,305, representing the last two years of fees collected by AGLW from the these clients.

AGLW sent an additional notice to Ales on July 1, 2003. In this notice, AGLW alleged Ales had violated the covenant not to compete by providing services to the Premier Properties group of corporations *837 and Dr. Alan Kendall.

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Cite This Page — Counsel Stack

Bluebook (online)
728 N.W.2d 832, 2007 Iowa Sup. LEXIS 37, 2007 WL 778444, Counsel Stack Legal Research, https://law.counselstack.com/opinion/ales-v-anderson-gabelmann-lower-whitlow-pc-iowa-2007.