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Schuhalter v. Salerno

Decided: February 21, 1995.

MURRAY SCHUHALTER AND M. SCHUHALTER & CO., P.C. (FORMERLY SCHUHALTER, SALERNO & CO., P.C.), A NEW JERSEY PROFESSIONAL CORPORATION, PLAINTIFFS-APPELLANT AND CROSS-RESPONDENTS,
v.
ANTHONY V. SALERNO, ANTHONY V. SALERNO & CO., P.A., A.V. SALERNO, A PROFESSIONAL ASSOCIATION, HOWARD R. BERLLY, DENNIS A. CANNON AND HERBERT WEBER, DEFENDANTS-RESPONDENTS AND CROSS-APPELLANTS.



On appeal from the Superior Court, Law Division, Essex County.

Before Judges Gaulkin, Kestin and A. A. Rodriguez

The opinion of the court was delivered by

GAULKIN, P.J.A.D.

In 1987, Murray Schuhalter and Anthony V. Salerno, principals in an accounting firm known as Schuhalter, Salerno & Co., P.C., (S&S) entered into an agreement for dissolution of the firm and apportionment of its assets and business. The agreement designated certain firm clients as Salerno's and the remainder as Schuhalter's, and restricted each of the principals from soliciting or serving the other's clients. Schuhalter brought this action in 1989, alleging, among other matters, that Salerno had breached the agreement by soliciting and serving Schuhalter's clients. Schuhalter also joined as defendants Howard R. Berlly, Dennis A. Cannon and Herbert Weber, former S&S employees who joined Salerno following the dissolution. The defendants asserted a number of counterclaims, including a claim that Schuhalter had wrongfully withheld monies due under the agreement. All the claims and counterclaims were dismissed before or at trial, except for two: the jury awarded Schuhalter $3000 in fees due under the agreement and found no cause for action on Salerno's claim for wrongful withholding of fees by Schuhalter. Schuhalter appeals, and Salerno cross-appeals, both asserting errors in the dismissal of the claims not submitted to the jury.

I

Schuhalter's central contention is that the Law Division wrongly held "that the parties' arms-length agreement was void as against public policy to the extent it conditioned, in any respect, the ability of a former accounting partner to work for former clients of the partnership."

The dissolution agreement named particular S&S clients as Salerno's; the remaining clients were regarded as Schuhalter's. The parties agreed to "cooperate with the other to avoid placing a client of the other in a position of embarrassment or discomfort in continuing to engage [Schuhalter] or Salerno as that client's accountant." If a client of one "express[es] discomfort and/or dissatisfaction to the other," . . . the recipient "shall promptly notify the other of the tenor and substance of the conversation(s)."

Section 4.7a of the agreement then provided that if the client

nevertheless expresses a desire to engage the other as that client's accountant, the other may, at . . . his option, accept such engagement from the client after giving notice to the other party, and in the event of acceptance of such engagement, . . . he shall pay to the other party (the former accountant) a sum equal to the billings of fees to such client by the other party (the former accountant) for the last full year, consisting of the 12 months immediately preceding, in sixty (60) consecutive equal monthly installments, without interest, the first installment being due and payable on the first day of the month following the date on which the party (the new accountant) accepting such client renders services to that client.

Finally, in Sections 12.1 and 12.2, Salerno and Schuhalter mutually covenanted that for two years after the dissolution neither would solicit or serve the other's clients except as allowed by Section 4.7a.

The First Count of Schuhalter's complaint alleged that Salerno violated the agreement by soliciting and serving Schuhalter's clients. Salerno denied those allegations and asserted that the restrictive provisions of the agreement were "unenforceable as violative of the public policy of the State of New Jersey." After some discovery, Salerno moved for partial summary judgment dismissing the First Count. A Law Division Judge denied that application with the following explanation:

With respect to the question of the validity of the so-called restrictive covenant, however, it does not appear that summary judgment can be granted at this posture of the case. There is no question but that the clients of the accountants have the absolute right to choose the firm which shall be responsible for their accounting needs. The question, however, appears to be as to whether or not there was any active solicitation as to some of them or one of them as the case may be. Consequently, partial summary judgment with respect to that aspect of the case shall be denied.

Some months later, Salerno again moved to dismiss the First Count. That motion was heard by a second Judge, who interpreted the prior denial as a holding that "the restrictive covenants [are] unenforceable except as to solicitation." The second Judge found that to be the law of the case, although he frankly acknowledged that "I'm not so sure that if the issue were before me afresh, without a prior ruling by [the first Judge], that I would come to the same result." Based on that ruling,*fn1 and on a finding that there was no proof of Salerno's actual solicitation of Schuhalter's clients, the Judge dismissed the First Count.

The record supports the finding of no actual solicitation. But we conclude that the restrictive covenants are enforceable even in ...


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