180 Conn. App. 744
Conn. App. Ct.2018Background
- DeLeo was an equity partner in an accounting LLP; after a 2013 dispute over his relationship with a staff accountant, he and managing partner Cirone agreed he would depart and he ceased working at the firm on June 30, 2013.
- After departure Cirone transferred DeLeo’s interest to himself and later gave 1% to a contract partner, Tyransky; DeLeo then sued alleging he still owned 38% and seeking dissolution, restoration of rights, an accounting, and damages for breach of fiduciary duty and conversion.
- Defendants counterclaimed that DeLeo voluntarily withdrew (or was terminated for cause), that his payout was limited by the partnership agreement (accrual basis capital), and that a noncompete/forfeiture clause required DeLeo to compensate the firm for servicing former clients.
- The trial court found DeLeo voluntarily withdrew, credited Cirone’s testimony, applied the partnership’s voluntary withdrawal terms and the partnership’s calculation of accrual basis capital, and treated the noncompete provision as a liquidated-damages clause, awarding the defendants damages.
- On appeal DeLeo challenged (1) the trial court’s failure to order dissolution (single-partner partnership argument), (2) alleged estoppel barring his challenge to the noncompete, (3) the finding that Cirone did not waive enforcement of the noncompete, and (4) the court’s conclusion that the noncompete was enforceable.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether court committed plain error by not dissolving the partnership as a single-partner entity | DeLeo: partnership became single-partner on his withdrawal and thus must be dissolved | Defendants: claim contradicts trial positions and record is inadequate | Court: declined plain error review—record not factually adequate, claim not raised at trial, reversal not warranted |
| Whether DeLeo was estopped from challenging enforceability of the noncompete | DeLeo: inclusion of noncompete payment in divorce mediation doesn't estop him | Defendants: that inclusion and his conduct bar the challenge | Court: did not actually apply judicial estoppel; trial court analyzed merits and credibility, so no estoppel error |
| Whether Cirone waived enforcement of the noncompete | DeLeo: Cirone’s statements and conduct implied waiver and induced reliance | Cirone: consistently invoked the partnership agreement and never promised waiver | Court: found no waiver—findings supported by record and not clearly erroneous |
| Whether the noncompete/forfeiture provision is enforceable (liquidated damages vs. restraint) | DeLeo: provision is an unreasonable restraint on trade and must be judged for reasonableness | Defendants: provision is liquidated damages and not subject to noncompete reasonableness test | Court: provision is functionally a covenant-not-to-compete (forfeiture/disincentive) and must be tested for reasonableness; remanded to assess reasonableness |
Key Cases Cited
- Deming v. Nationwide Mut. Ins. Co., 279 Conn. 745 (Conn. 2006) (forfeiture provisions that deter competition must be analyzed under covenant-not-to-compete reasonableness test)
- Holloway v. Faw, Casson & Co., 319 Md. 324 (Md. 1990) (forfeiture clauses in partnership agreements resemble covenants not to compete and warrant similar analysis)
- New Haven Tobacco Co. v. Perrelli, 18 Conn. App. 531 (Conn. App. 1989) (restraints after termination are valid only if reasonable given employer, employee, and public interests)