ATTORNEY FOR APPELLANT: ATTORNEY FOR APPELLEES:
MICHAEL L. CARMIN STEPHEN A. OLIVER
Andrews, Harrell, Mann, Chapman Boren & Oliver
& Coyne, P.C. Martinsville, Indiana
MICHAEL E. SALLEE, ) SALLEE & COMPANY, ) ) Appellant-Plaintiff, ) ) vs. ) No. 55A01-9808-CV-311 ) JUDITH MASON, KENT MASON, d/b/a ) DATA PROCESSING CENTER, INC., ) ) Appellees-Defendants. )
APPEAL FROM THE MORGAN SUPERIOR COURT
business. Sallee and Judith also negotiated an employment contract ("Employment
Contract") whereby Sallee agreed to employ Judith for ten years.
The Sale Contract and the Employment Contract contained provisions prohibiting Judith from directly or indirectly engaging in the practice of public accounting within an area consisting of Lawrence County and the counties surrounding it. The Sale Contract required Sallee to pay Judith $1,100.00 per month from January 15, 1991, until December 15, 1995. Payments of $1,092.12 per month were to begin on January 15, 1996, and continue for twenty years. If Sallee failed to make a monthly payment when due, it would be converted into an interest-bearing note payable within ninety days. If the note were not satisfied in full within ninety days, the Sale Contract was to terminate, and the noncompetition covenant would be rendered void. In the event of this scenario, Judith would be allowed to take former and new clients, along with their files, and begin to practice public accounting on her own.
The Employment Contract stated that Judith would be employed by Sallee for ten years. However, Sallee could discharge Judith by giving her thirty days written notice if she breached the Employment Contract, demonstrated a pattern of gross negligence or exhibited a decline in moral values. Sallee required Judith to work 2,280 hours per year. Judith was to receive an annual salary of $34,200.00, or $15.00 per hour, payable in bimonthly installments of $1,425.00. The Employment Contract mandated that Sallee review and adjust Judith's salary on an annual basis for cost of living increases beginning in January 1992. A provision was also included which permitted Sallee and Judith to modify the Employment
Contract by written agreement and enforce any obligation notwithstanding allegations of
Sallee also entered into a written contract to employ Judith's husband, Kenneth. Kenneth's contract required him to work 2,100 hours per year. A covenant not to compete was also included which prohibited Kenneth from directly or indirectly engaging in accounting, bookkeeping, or payroll services within Lawrence County for a period of one month for each month he was employed by Sallee. Kenneth was further prohibited from providing any such service to any Sallee client for a period of two years following dismissal from employment. Sallee did allow Kenneth to accept full-time employment with a person or entity that was not a client of or in competition with Sallee.
Within one year of her employment with Sallee, Judith became dissatisfied with her working conditions. On January 1, 1994, Judith, Kenneth, and Sallee had a meeting regarding Judith's employment with the firm. During this meeting, Judith expressed her displeasure about working in excess of the 2,280 hours required by the Employment Contract and not receiving any additional remuneration for it.See footnote 2 Although mentioned on several occasions, Sallee never responded to Judith's allegations that she had not been paid pursuant to the Employment Contract.
On November 4, 1994, Judith sent Sallee a memorandum asking for a meeting to discuss revisions of her Sale Contract and Employment Contract. Sallee agreed to discuss
these items with her on November 8, 1994.See footnote
Sallee and Judith discussed reducing her hours
and accelerating payments under the Sale Contract. On March 4, 1995, Judith submitted a
written proposal to Sallee regarding modification of her Employment Contract, requesting
that Sallee respond in writing. During this time Sallee and Judith continued discussions
regarding workload, stress, and the fact that Judith had mailed resumes in anticipation of
procuring new employment. Sallee responded to Judith's memorandum on March 9, 1995,
by stating that he would make some adjustments to her wages to get her through the tax
season. He also acknowledged that Judith's Employment Contract mandated an annual cost
of living adjustment which would be made retroactively beginning with the next payroll
period. On March 20, 1995, Sallee and Judith met again. Sallee told Judith that if she stayed
through the end of tax season, he would allow her to reopen her practice in Bedford and that
after tax season, they "would just put those contracts on the table." R. at 729. As a result of
Sallee's representations, Judith stopped looking for other employment.
Judith worked throughout the 1995 tax season. On May 9, 1995, the last day of a week-long vacation, Sallee delivered a letter of termination to Judith and Kenneth at their home. When Judith went to work the next morning, Sallee told her that she no longer had a job. Judith reminded Sallee of his promise that they would discuss renegotiating the contracts and permitting her to practice on her own in Bedford. In response, Sallee told Judith to clear her personal effects from her office and leave.
favor of Judith and Kent on all four counts with the exception of Sallee's common law claim
of indemnity. The trial court also granted judgment in favor of Judith on her counterclaim
for breach of Employment Contract. This appeal followed. Additional facts will be provided
On September 1, 1990, Sallee and Kenneth entered into an employment agreement which
included a covenant not to compete. The relevant part provides as follows:
(6) NON-COMPETITION AGREEMENT. The Employee agrees to refrain from directly or indirectly carrying on or engaging in accounting, bookkeeping and payroll services within an area consisting of Lawrence County, Indiana, for a period of time equal to one month for each month, or part thereof, of Employee's service under this Agreement. In no event shall Employee provide such services to any client of the Employer for a period of two years following the termination of this agreement. However, nothing in this agreement shall prevent Employee from accepting full-time employment with any person or business that is not a client of or in competition with the employer.
R. at 681-82.
Kenneth's affidavit shows that after being discharged from Sallee, his only employment has been as an office payroll clerk with Victor Oolitic Stone Company in Bloomington, Monroe County, Indiana. The Victor Oolitic Stone Company is not a client of or in competition with Sallee. Kenneth specifically denied that he has either directly or indirectly performed accounting, bookkeeping, or payroll services either directly or indirectly through DPC. In an attempt to refute Kenneth's denial, Sallee directs our attention to a portion of Judith's deposition in which she and Kenneth discussed starting their own accounting practice. Such discussions do not present an issue of fact because Sallee has not demonstrated that Kenneth is a shareholder or an employee of DPC nor has it shown that Kenneth has worked in the business in a capacity forbidden by the noncompete covenant. Therefore, we find the trial court did not err in finding that Kenneth did not breach his employment contract with Sallee.See footnote 5
673. Sallee presented no evidence that it reviewed Judith's salary in 1992, 1993, and 1994
as required by the Employment Contract. In addition, the record does not reveal that any cost
of living adjustments were made for 1992, 1993, and 1994. The only evidence of a cost of
living adjustment is a sixteen percent retroactive adjustment made to Judith's salary in 1995.
Sallee asserts that Judith relinquished her right to an annual review because she did not
demand one. See Kokomo Veterans, Inc. v. Schick, 439 N.E.2d 639, 645 (Ind. Ct. App.
1982) (stating that the beneficiary of a contractual provision may waive his right to
performance if he was required to act in order to procure the provision's fulfillment).
However, the Employment Contract contains a provision which states that "Employer and
Employee agree that the failure to enforce any provision or obligation under this Agreement
shall not constitute a waiver thereof or serve as a bar to the subsequent enforcement of such
provision or obligation." R. at 676. Because parties are free to contract as they see fit,
Martin Rispens & Son v. Hall Farms, Inc., 621 N.E.2d 1078, 1085 (Ind. 1993), we find that
Judith did not waive her right to an annual review of and cost of living adjustment to her
salary. Thus, again we find no error.
Upon termination, the Employment Contract provided that "the Employer may terminate this agreement by giving thirty (30) days written notice to the Employee." R. at 675. The record shows that Michael Sallee delivered a letter to Judith and Kenneth on May 9, 1995. The letter stated that it was his "understanding that neither of you will be returning to your employment" although neither Judith nor Kenneth had tendered a resignation to Sallee. R. at 743. The letter makes no mention of a thirty-day notice as required by the
Employment Contract. The letter delivered by Michael Sallee was sufficient support for the
finding that Sallee did not give Judith the requisite thirty-day notice required for dismissal
from her employment. Because there is a sufficient quantum of proof showing that Sallee
was the first party to materially breach the Employment Contract, Judith was then no longer
required to abide by the covenant not to compete.See footnote
Licocci v. Cardinal Assocs., Inc., 492
N.E.2d 48, 52 (Ind. Ct. App. 1986).
Sallee next contends that there is insufficient evidence to support the trial court's finding that it was the first party to breach the Sale Contract. According to Sallee, Judith was the first party to breach because she first violated the noncompete agreement contained within the Sale Contract by serving her former clients from Sallee. Because of this alleged breach, Sallee stopped making payments under the Sale Contract after May 15, 1995, and brought a declaratory judgment action for a determination of its obligation. We do not agree. The covenant not to compete in the Sale Contract is similar to that contained in the Employment Contract. The noncompete agreement in the Employment Contract does provide that the "covenant shall be read in conjunction with and in addition to its companion provision in the parties' Contract for Sale of Public Accounting Practice." R. at 675. The noncompete provision in the Sale Contract states that Judith will refrain from directly or indirectly carrying on or engaging in any business that is similar to the business being sold
to the Buyer under this contract within Lawrence County and its adjacent counties.See footnote
286. Although not solicited by Judith, Kenneth, or Kent, the majority of DPC's clients are
former Sallee clients. Sallee claims that this constitutes indirectly engaging in the practice
of accountancy in contravention of the agreement.
As a result of Sallee's first material breach of the Employment Contract, we have already determined that Judith was not required to abide by the noncompete agreement contained therein and incorporated by reference into the Sale Contract. In fact, Judith was required to mitigate her damages caused as a result of Sallee's initial breach by seeking employment elsewhere. T & W Bldg. Co. v. Merrillville Sport & Fitness, Inc., 529 N.E.2d 865, 867 (Ind. Ct. App. 1988). Sallee may not now attempt to enforce the noncompete agreement in the Sale Contract which has incorporated by reference the voided noncompete agreement from the Employment Contract. A conflict between the validity of the two noncompete agreements constitutes an ambiguity to be construed against Sallee, the drafter of the Sale Contract. Ruff v. Charter Behavioral Health System, 699 N.E.2d 1171, 1176 (Ind. Ct. App. 1998), trans. denied. By not continuing payments on the Sale Contract, the court did not err in determining that Sallee was the first party to breach the Sale Contract.
remedies clause contained in the Sale Contract precludes such an award because there was
compliance with its provisions. We agree with Sallee.
The remedies clause provides for the following procedure in the event of failure to make payment.
(11) FAILURE TO PAY. Should Buyer fail to pay his monthly payment obligation to Seller within 30 days of the monthly due date as set forth in paragraph three, said payment shall be converted to an interest bearing note at 15% payable within 90 days from the date the note was issued. If the note is not paid within the 90 day period, this agreement shall terminate and Seller shall take all of the client files that she brought into the business plus any new clients she has obtained since September 1, 1990 and re-enter into the practice of public accounting and the non-competition agreement shall be null and void.
R. at 289. At the time of the judgment Sallee had not paid Judith $2,200.00 for the noncompete agreement and $139,131.39 for the client list and goodwill provision of the Sale Contract. We find no evidence in the record that Judith ever converted any past due amounts to an interest-bearing note payable in accordance with the contract. In any event, it is clear from this provision that if Sallee failed to pay the note, Judith's only recourse would be to take her clients and begin practicing accounting without the restrictions of the noncompete agreement. The Sale Contract does not contemplate that she take her clients and continue to receive payment under the Sale Contract. Such an interpretation would create a new contract containing new rights and obligations for the parties which a court is not permitted to do. General Motors Corp. v. Northrop Corp., 685 N.E.2d 127, 135 (Ind. Ct. App. 1997), trans. denied. Hence, we conclude that the trial court erred in awarding Judith $141,339.31
in damages resulting from breach of the Sale Contract because she did not follow the remedy
for failure to pay set forth in the Sale contract.
Bank v. Shortridge, 689 N.E.2d 1248, 1252 (Ind. 1997) (stating that in order to maintain a suit for tortious interference both a breach and damages must be the result of the inducement).
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