Lynch v. Bailey

275 A.D.2d 527

This text of 275 A.D.2d 527 (Lynch v. Bailey) is published on Counsel Stack Legal Research, covering Appellate Division of the Supreme Court of the State of New York primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Lynch v. Bailey, 275 A.D.2d 527 (N.Y. Ct. App. 1949).

Opinion

Dore, J.

Plaintiff, an accountant, former partner of defendants’ accountancy firm, appeals from judgment after trial at Special Term in defendants’ favor enforcing against plaintiff a restrictive covenant in the partnership agreement. The covenant, so far as relevant, provides that if a partner voluntarily withdraws from the firm he will not for four years thereafter either individually, as 'a member of a partnership, or as an employee, practice accountancy within 100 miles of any city in which the partnership or any associated partnership is located at the time of the withdrawal.

Before becoming members of defendant partnership, plaintiff and defendants had as members of three prior separate firms practiced accountancy for many years. By the partnership agreement in question, the members of those three firms including plaintiff and all defendants became members of defendants’ new firm which opened for business on September 1, 1947.

On October 10, 1947, the new firm’s partnership management committee, of which defendant Bailey, chief executive of the partnership, was chairman, notified plaintiff that he should move [529]*529from New York to Hartford, Connecticut, and take charge of an office for the new firm to he opened there. As plaintiff had his residence and his family, and had practiced accountancy in New York City during most of his adult life, he objected to the change on such grounds and also on the ground that it would not be for the best interests of the firm. Bailey told plaintiff that if he did not go to Hartford the matter was serious and his participation in the firm would be reviewed and might be reduced. Defendant Smart, plaintiff’s former associate in one of the prior firms and a member of the management committee of the new firm, also told plaintiff that if he did not go to Hartford plaintiff’s participation would'be coldly ” reviewed with a view to a substantial reduction thereof. Plaintiff conferred with Bailey and later asked Smart to speak to Bailey for him in an effort to convince Bailey that the move was a bad one for the firm as well as for plaintiff. Smart did so, but Bailey remained adamant. After further but futile efforts to settle the issue amicably, plaintiff on October 30, 1947, informed the new firm that in view of the unsatisfactory discussions with respect to his position in the firm that brought in question the security of his future prospects, he had no alternative but to withdraw as a member, and gave notice of his intent to do so effective January 31,1948.

Thereafter efforts were made to agree on a modus vivendi that would enable plaintiff to practice his profession without defendants claiming infringement. These efforts came to no fruitful outcome although plaintiff, in spite of the fact that he had been with the new firm for only two months, offered to assure defendants he would not infringe on defendants ’ own clientele. When it was obvious that no 'reasonable arrangement could be reached, plaintiff brought this suit asking for a declaratory judgment holding the restrictive covenant invalid and enjoining defendants from enforcing it.

In a decision and opinion embodying the court’s findings and conclusions, the court held after trial that plaintiff’s withdrawal was voluntary and the restrictive clause valid and binding on plaintiff, supported by consideration and mutuality; that the arrangement was analogous to the sale of a business and the public interest could not be harmed; and that if plaintiff practiced accountancy outside the area and genuinely in good faith maintained his residence outside such area, he would not violate the contract by occasionally going into the restricted area but would violate if he used such trips to get new clients therein ; the court also held that Hartford, Connecticut, was outside of the 100 mile area. Judgment was directed accordingly.

[530]*530Plaintiff contends that his withdrawal was not voluntary and, accordingly, the restrictive clause is not applicable; that such clause is void as against public policy, being unreasonably broad in its scope and resulting in hardship to plaintiff disproportionate to any proper need for defendants’ protection; and that the clause is also void for lack of mutuality and consideration.

Defendants urge that the nature of professional partnerships requires the protection of the restrictive covenant herein, as the partnership agreement provides that on withdrawal a partner would have no interest in the firm name or good will and, accordingly, the parties intended to contribute to the firm as partnership property all of their clientele and professional good will; and the only way to protect such good will is to prevent a withdrawing partner from trading in competition with the firm on the good will he had previously dedicated to the firm. Defendants also point out that a restrictive covenant is enforced against a vendor of a business because it is fair to prevent him from trading on the good will he has conveyed in the sale, and cite numerous cases having relation to the sale of a business or the sale of stock such as Diamond Match Co. v. Roeber (106 N. Y. 473); Wirth & Hamid Fair Booking, Inc., v. Wirth (240 App. Div. 413, mod. 265 N. Y. 214), and Alden v. Wright (175 App. Div. 692). Defendants also rely on employer-employee cases upholding wide territorial restrictions against former employees such as Magnolia Metal Co. v. Price (65 App. Div. 276). Defendants further contend that the time and scope of the restriction herein are reasonable, and the covenant is supported by consideration and mutuality, the consideration being the mutual promises of the parties at the time the entire partnership agreement was executed.

We are not called upon to decide generally whether any agreement of a partner not to compete with his former partnership is void or opposed to public policy; the sole issue is: whether this particular agreement in the light of its extent, scope and purpose and all the facts and circumstances presented, is invalid and void. The new firm has offices in New York, Detroit, Chicago, Minneapolis, Dayton, Cleveland, Pittsburgh, St. Louis, Los Angeles and Seattle. If valid, the restrictive clause here in question bars plaintiff, who has practiced accounting for over twenty-five years, from practicing his profession in twenty of the principal commercial centers of the United States, although defendants have only ten offices in those areas. Plaintiff had his residence and his family and practiced for the greater part of his adult life in New York City. The trial court conceded that enforce[531]*531ment of the covenant bears heavily on plaintiff and prevents him from practicing accountancy in a very large portion of the northeastern part of the United States, a considerable part of the State of Washington and a part of the State of California. The restrictive clause does not contain any terms under which a court may consider the area as divisible and thus hold it enforcible within reasonable limits; it must stand or fall as a whole.

To be able to practice his profession as plaintiff has on a national scale, he would have to be connected with a firm engaged in that type of practice. With the restrictive covenant here in question, it would be practically impossible for him to do so since such practice would normally require unrestricted practice from time to time within the restricted areas including New York, Chicago, Pittsburgh and Philadelphia, and other important commercial centers within the 100-mile restrictive covenant.

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Bluebook (online)
275 A.D.2d 527, Counsel Stack Legal Research, https://law.counselstack.com/opinion/lynch-v-bailey-nyappdiv-1949.