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Century Business Services, Inc., et al. v. Thomas L. Barton

November 17, 2011


Civil Appeal from the Cuyahoga County Court of Common Pleas Case No. CV-667264

The opinion of the court was delivered by: Mary Eileen Kilbane, A.J.:

Cite as Century Business Servs., Inc. v. Barton,




BEFORE: Kilbane, A.J., Jones, J., and S. Gallagher, J.

{¶1} Defendants-appellants, Thomas Barton, Anthony Krier, James Stelzer, and John Walter appeal from the judgment of the trial court that granted plaintiff-appellee, Century Business Services, Inc., otherwise known as CBIZ, Inc., and its subsidiary CBIZ BVKT, LLC, d.b.a. CBIZ Accounting & Tax Advisory, LLC (collectively referred to as "CBIZ"), injunctive relief, damages, attorneys' fees, litigation fees, and costs in CBIZ's action for breach of various agreements. For the reasons set forth below, we affirm.

{¶2} This matter arises from a series of agreements that CBIZ entered into with defendants, certified public accountants who are licensed by the state of Minnesota and work in Minnesota. In 1988, Barton was hired by the New Hope, Minnesota accounting firm of Bertram, Vallez, Kaplan & Talbot, Ltd. ("Bertram Vallez"), an accounting firm that performs "attest accounting services," or services such as audits, reviews of financial statements, and examinations of financial information that require an accountant to exercise independence, and non-attest services such as bookkeeping services, payroll services, and tax services.*fn1 According to Minn.Stat. 326A.10, only CPA licensees may perform attest services. Minnesota nonetheless recognizes an "alternative practice structure" under which a company may be compensated for providing staffing and labor for attest accounting services and performing non-attest services. See Minn.Stat. 326A.02.

Barton's Agreements

{¶3} By 1998, Barton had become a shareholder at Bertram Vallez, and defendants Krier, Stelzer, and Walter were also working there under employment agreements. On August 20, 1998, CBIZ, an Ohio company that is not a licensed public accounting firm, bought Bertram Vallez's non-attest accounting practice for $12 million and renamed it "CBIZ BVKT, LLC" ("CBIZ BVKT"). Barton received $184,756 in cash and 12,545 shares of CBIZ stock, plus an "earn-out" payment of $112,320 and an additional 6,815 shares of stock. On August 20, 1998, Barton and other shareholders of Bertram Vallez signed an Agreement and Plan of Merger ("Merger Agreement") and Executive

Employment Agreement.

{¶4} The Merger Agreement agreement prohibited Barton from disclosing confidential information, including information pertaining to clients and prospective clients and information pertaining to employees. The non-competition provision of the Merger Agreement prohibited Barton and the other shareholders from entering into, engaging in, promoting or assisting any business that competes with CBIZ BVKT in the greater Minneapolis metropolitan area encompassing seven counties, for five years from the date of the agreement, which would be August 20, 2003. The non-competition provision additionally prohibited Barton from soliciting clients and prospective clients, inducing CBIZ BVKT employees, agents, and others to terminate their relationship with the corporation, and from employing such individuals for ten years from the date of the agreement or until August 20, 2008.

{¶5} The Merger Agreement further indicated that violations and attempted violations would entitle CBIZ BVKT to liquidated damages entitling CBIZ BVKT to 100 percent of the gross revenue derived from violation of the Merger Agreement.

{¶6} Barton and CBIZ BVKT also signed an Executive Employment Agreement in August 1998. In relevant part, this document provided that Barton's employment would commence on August 20, 1998 and "expire on the seventh anniversary of" that date, or August 20, 2005, but that Barton's obligations under Sections 6-10 of the Executive Employment Agreement "survive expiration of" the seven-year term.

{¶7} Section 6 of the Executive Employment Agreement set forth various restrictions in place "during the period in which the Executive is employed by the Company and for five (5) years thereafter" and provided that Barton would not engage in any business that competes with CBIZ BVKT in the seven counties comprising the greater Minneapolis metropolitan area, would not solicit CBIZ BVKT clients, and would not induce CBIZ BVKT employees and other individuals to terminate their relationship with the corporation, and would not employ such individuals.

{¶8} Section 7 of the Executive Employment Agreement also prohibited Barton from disclosing at any time "Confidential Information," which was defined to include the names, addresses, and telephone numbers of clients and "Qualified Prospective Clients" and employees' compensation rates.

{¶9} Remedies for violations were set forth in Section 10 and included a liquidated damages provision entitling CBIZ BVKT to 100 percent of the gross revenue derived during the two-year period following the violation and also included injunctive relief.

Stelzer's, Walter's, and Krier's Agreements

{¶10} Following the sale of the non-attest accounting services to CBIZ BVKT, Bertram Vallez continued to perform attest accounting services. Bertram Vallez then entered into an Administrative Services Agreement with CBIZ BVKT, wherein it agreed that CBIZ BVKT would provide non-attest accounting services for its clients, and Bertram Vallez would provide only attest accounting services and purchase its professional administrative services from CBIZ BVKT.

{¶11} Upon the execution of the agreements described infra, all of Bertram Vallez's existing employment contracts were terminated. Defendants Stelzer, Walter, and Krier continued to work as at-will employees of CBIZ BVKT. By 2004, CBIZ BVKT informed these employees that they were required to sign a Confidentiality and Non-Solicitation Agreement, which prohibited them from soliciting firm clients and employing firm employees. The Confidentiality and Non-Solicitation Agreement also contained a liquidated damages provision entitling CBIZ BVKT to 100 percent of the gross revenue derived during the 24-month period following the violation. It provided that the agreement would be governed and construed in accordance with the laws of the state of Ohio, and that if disputes arose, the employee would submit to Ohio jurisdiction with venue in Cuyahoga County and would consent to service of process.

2005 Merger

{¶12} In 2005, CBIZ BVKT informed defendants that in order to remain in New Hope, Minnesota, Bertram Vallez would be merged into Mayer Hoffman McCann, P.C. ("MHM"), an entity that was also located in New Hope, Minnesota, and also had an Administrative Services Agreement with CBIZ, under which it provided accounting services under the "alternative practice structure," CBIZ provided personnel to assist with the attest accounting services, and CBIZ performed the non-attest accounting services.

{¶13} Bertram Vallez subsequently consented to the merger and terminated its accounting practice. Defendants signed various agreements with MHM and became employees and shareholders of that entity.

{¶14} By late 2007, CBIZ BVKT informed defendants that CBIZ BVKT's New Hope office was to be consolidated with CBIZ's office in Minneapolis, Minnesota. On August 1, 2008, defendants resigned from CBIZ BVKT and MHM and formed Barton, Walter & Krier, LLC (BWK). On August 2, 2008, under letterhead from the new firm, defendants informed their clients of their resignations, provided them with defendants' new email addresses and phone numbers, and provided them with form letters for terminating their existing relationship with CBIZ BVKT and MHM and for engaging BWK. On August 2, 2008, defendants contacted some of their former co-workers at the New Hope office and offered them positions with BWK. On August 4, 2008, ten other employees resigned from CBIZ BVKT.

{¶15} On August 7, 2008, CBIZ and CBIZ BVKT filed a complaint against defendants*fn2 for breach of the Merger Agreement, breach of the Executive Employment Agreement, breach of the Confidentiality and Non-Solicitation Agreement, breach of duty of loyalty, and trade secret misappropriation. On that same day, CBIZ obtained an ex parte temporary restraining order against defendants, which prohibited them from soliciting CBIZ clients or entering into any business that competes with CBIZ in the greater Minneapolis metropolitan area, and ordering them to return property and "any information of any sort" to CBIZ.

{¶16} The trial court held a consolidated hearing on the preliminary and permanent injunctions on September 4, 2008, per the agreement of the parties.

Thereafter, on October 9, 2008, the trial court granted the preliminary and permanent injunctions, concluding that defendants had breached their Confidentiality and Non-Solicitation Agreement and that CBIZ was entitled to injunctive relief. The court ordered that for a period of five years from the date of its order, Barton was enjoined from engaging in, promoting, assisting or consulting with any business that competes with CBIZ, soliciting, attempting to solicit, and calling upon any of CBIZ's clients or prospective clients, inducing employees, agents, and various others to terminate its relationship with the corporation and employing those individuals. The remaining defendants were similarly enjoined for a two-year period. The court also concluded that plaintiffs were entitled to attorneys' fees and costs associated with the injunctive relief and held a hearing as to the issues of contempt of court, attorneys' fees, and expenses on January 20, 2009.

{¶17} CBIZ's claims for money damages proceeded to a jury trial on January 25, 2010. Timothy Talbot, senior managing director of the Minneapolis CBIZ office, testified that CBIZ bought the non-attest accounting practice from Bertram Vallez for around $12 million. At that time, Barton signed the Merger Agreement and the Executive Employment Agreement, which contained non-competition and non-solicitation provisions. The non-competition term remains in effect for five years after the end of Barton's employment with CBIZ. The agreements provide for injunctive relief plus damages in the amount 100 percent of the fees for that client for two years.

{¶18} Talbot also established that after CBIZ bought Bertram Vallez, its existing employment contracts were terminated. Defendants Krier, Walter, and Stelzer then worked at CBIZ as at-will employees.

{¶19} Talbot stated that in 2008, CBIZ decided to consolidate MHM with its downtown Minneapolis office. Defendants voiced objections to moving downtown, but after a series of meetings, Talbot believed that they had agreed to do so. On the afternoon of Friday, August 1, 2008, however, each of the defendants had left resignation letters on the keyboard of Talbot's computer.

{¶20} CBIZ subsequently retained a forensic computer specialist, Mark Lanterman (Lanterman) of Computer Forensic Services, who established that defendants had downloaded confidential client information, employee personnel information, templates, and spreadsheets. Eventually, Talbot received disengagement letters from approximately 500 of CBIZ's former clients. Talbot acknowledged that Bertram Vallez owned client lists and client files before the merger with CBIZ, and that after Bertram Vallez's merger with CBIZ, client lists were openly shared between the two entities.

{¶21} Michael Gleespen, general counsel for CBIZ, testified that under Minnesota law, it is permissible for CBIZ to provide labor for attest work if the employee remains under the direction and control of a CPA. Further, under Minnesota law, the relationship between the client and the licensee is actually a relationship between the client and the CPA firm, rather than individual accountants. As to confidentiality, Gleespen testified that CBIZ's information and files were protected by a detailed security policy that employees were required to sign.

{¶22} Gleespen further established that the total average billing for all four defendants was $4,474,275.16 in the years 2006 and 2007. Most of the billing reflects work for non-attest services, rather than for attest services. Gleespen indicated that CBIZ had incurred a $7 million loss due to defendants' breach of their contracts.

{¶23} Lanterman testified to the data analysis performed in this matter. Lanterman analyzed the computer hard drives of computers that defendants used for their competing accounting practice, computers they had used at CBIZ, as well as other external storage devices. Using the search terms "CBIZ," "MHM," "BVKT," and variations of those terms, Lanterman determined that data had been copied from defendants' CBIZ computers to other devices and there had been a mass deletion of information from a CBIZ BVKT computer. Lanterman also established that Computer Forensic Services had billed approximately $600,000 for its work in this matter.*fn3

{¶24} Defendant Stelzer testified on cross-examination that he is a licensed CPA and began work for Bertram Vallez in 1993. After resigning from CBIZ in August 2008, he became the managing partner of defendants' new firm, BWK. He admitted to signing the Confidentiality and Non-Solicitation Agreement and that he had solicited clients and employees in violation of that agreement, but he stated that approximately 80 percent of the new firm's clients were former CBIZ clients, and that he continues to perform the same services he had provided for CBIZ.

{¶25} Stelzer next stated that he and the defendants did not want to move to the downtown Minneapolis location, but he admitted that he did not inform CBIZ of his intentions. He was also unaware that CBIZ had continued to maintain office space in New Hope for the convenience of clients and workers. Stelzer admitted to downloading information, including confidential client and billing information, from the CBIZ computer, but he stated that he had done so on a regular basis during his employment with CBIZ. He stated that under Minnesota law, a licensed CPA's information is the property of the individual CPA.

{¶26} Defendant Thomas Barton also testified on cross-examination. He admitted that he signed the Merger Agreement and received $184,000, plus 12,545 shares of CBIZ stock. He later received an additional $112,000 and 6,815 shares of stock. Barton admitted that following his resignation from CBIZ, he solicited CBIZ employees and clients for his new firm, BWK. He has done attest and non-attest work for the clients he solicited.

{¶27} Defendant Anthony Krier admitted on cross-examination that he had taken client information to use at BWK, and he admitted that approximately 80 percent of BWK's clients had been CBIZ clients.

{¶28} Jerome Grisko, president and CEO of CBIZ, Inc., testified that he had served as manager of CBIZ's New Hope office. This office performs attest and non-attest services, but the client list belongs to CBIZ. In 2007, CBIZ's New Hope, Minnesota office had the second highest profit margin of all of the 27 CBIZ offices. The New Hope office was to be consolidated with a downtown office as part of a larger pattern of consolidating nearby offices with complementary services.

{¶29} Forensic accountant Robert Brlas, of BBP Partners, testified as a valuation expert for CBIZ. Brlas stated that he conducted a liquidated damages calculation and a lost profits analysis. Under the liquidated damages calculation, CBIZ had sustained liquidated damages in the amount of $6,423,955. Under the lost profits analysis, CBIZ lost $7,255,024 in profits due to the actions of defendants.

{ΒΆ30} For their case, defendants presented testimony, videotaped depositions, and transcripts of depositions. Michael Kohler, CEO of Millstone Systems, Inc. of Golden Valley, Minnesota, testified that Krier had performed chief financial officer (CFO) functions for his company, and that he had no real relationship with CBIZ. He retained Krier following the split with CBIZ, and he does not want to parse out the attest and non-attest services to ...

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