202 Conn.App. 650
Conn. App. Ct.2021Background
- DeLeo was a certified public accountant who became an equity partner in an accounting LLP; after a 2005 merger his client book represented ~25–30% of the firm’s clients.
- The written partnership agreement (2009) contained a noncompete: 5‑year post‑withdrawal restriction and a forfeiture/compensation formula requiring payment equal to 150% of average annual fees billed by the partnership for a covered client (payable over 36 months); forfeiture of deferred payments also applied.
- DeLeo left the partnership in mid‑2013; the partnership sought to enforce the noncompete and recovered a damages judgment of ~$740,783; DeLeo appealed.
- This court (DeLeo I) reversed the damages award and remanded for the trial court to assess the noncompete’s reasonableness under Scott’s multifactor test.
- On remand the trial court found the covenant unreasonable and unenforceable because (inter alia) the five‑year scope and client coverage were disproportionate, enforcement would deprive DeLeo of his livelihood, no specialized trade secrets were obtained, and public access to DeLeo’s services would be impaired; this appeal followed.
Issues
| Issue | DeLeo's Argument | Equale & Cirone's Argument | Held |
|---|---|---|---|
| Whether the partnership noncompete is a reasonable restraint of trade | The covenant is unreasonable and unenforceable under Scott because its duration, client scope, and 150% fee are disproportionate and would prevent him from practicing | The covenant is a voluntary, negotiated term among sophisticated partners and is needed to protect the firm’s goodwill; a 5‑year term is reasonable | Court affirmed: covenant is an unreasonable restraint of trade and unenforceable given the court’s factual findings |
| Whether voluntariness and equal bargaining power require enforcement | Voluntariness is insufficient to save an otherwise unreasonable restraint | Because partners were sophisticated with equal bargaining power, the covenant should be enforced | Held: voluntariness/equal bargaining power do not control; Scott’s reasonableness analysis governs |
| Whether the partnership had a legitimate proprietary interest (goodwill/trade secrets) justifying the restraint | Firm did not contribute uniquely to DeLeo’s client goodwill and DeLeo did not acquire proprietary trade secrets | Firm has a protectable interest in retaining former clients and preventing piracy by a departing partner | Held: although the firm has an interest, the covenant is broader than necessary; no specialized knowledge or trade secrets justified such an onerous restraint |
| Whether the covenant unreasonably burdens the public and DeLeo’s ability to work (duration & public interest) | Five years and the blanket client coverage would deprive DeLeo of his practice and impede clients’ choice | Five years is not per se unreasonable; other accountants are available in the area | Held: five‑year duration and client coverage here are excessive, would jeopardize DeLeo’s livelihood and the public’s ability to retain him, so the covenant is unreasonable |
Key Cases Cited
- Scott v. General Iron & Welding Co., 171 Conn. 132 (Conn. 1976) (establishes multifactor reasonableness test for restrictive covenants)
- Mattis v. Lally, 138 Conn. 51 (Conn. 1951) (upheld a five‑year covenant where the sale purchased goodwill and restrictions were narrowly tailored)
- Robert S. Weiss & Associates, Inc. v. Wiederlight, 208 Conn. 525 (Conn. 1988) (employer may be protected where employee acquired special familiarity with employer’s clients/business)
- Holloway v. Faw, Casson & Co., 319 Md. 324 (Md. 1990) (accountant‑partner case applying a fact‑specific reasonableness inquiry to a five‑year covenant)
- Pandolphe’s Auto Parts, Inc. v. Manchester, 181 Conn. 217 (Conn. 1980) (review standards for appellate consideration of trial court legal conclusions)
- Deming v. Nationwide Mut. Ins. Co., 279 Conn. 745 (Conn. 2006) (cited for comparative authority on restrictive covenant analyses)