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Heard, McElroy & Vestal, LLC v. Schmidt

Court of Appeals of Louisiana, Second Circuit

September 25, 2019

HEARD, McELROY & VESTAL, LLC Plaintiff-Appellant
v.
JOHN C. SCHMIDT AND JOHN C. SCHMIDT, CPA, LLC Defendants-Appellees

          Appealed from the First Judicial District Court for the Parish of Caddo, Louisiana Trial Court No. 610442 Honorable Michael A. Pitman, Judge.

          COOK, YANCEY, KING & GALLOWAY By: Bernard S. Johnson Counsel for Appellant

          DOWNER, JONES, MARINO & WILHITE By: Allison A. Jones Counsel for Appellees

          Before WILLIAMS, STEPHENS, and THOMPSON, JJ.

          WILLIAMS, C.J.

         The plaintiff, Heard, McElroy & Vestal, LLC, appeals a judgment granting a preliminary injunction to prohibit the defendants, John Schmidt and John Schmidt, CPA, LLC, ("Schmidt") from carrying on or engaging in a business in competition with plaintiff and from soliciting plaintiff's clients for a two-year period, but allowing Schmidt to work as an employee for a competitor of plaintiff. In its answer to the appeal, Schmidt seeks reversal of that part of the judgment granting a preliminary injunction. In the alternative, Schmidt seeks modification of the judgment to allow Schmidt to engage in his business in competition with plaintiff or to solicit plaintiff's clients. For the following reasons, we affirm.

         FACTS

         In 2011, John Schmidt became a member of Heard, McElroy & Vestal, LLC ("HMV"), an accounting services firm, after working as an employee for several years. In July 2013, John Schmidt CPA, LLC ("Schmidt LLC"), became a corporate member of HMV, replacing Schmidt, who signed the HMV operating agreement individually and on behalf of Schmidt LLC, agreeing to be bound by its provisions. Article 22 of the operating agreement provides that the members of HMV may terminate a member at any time for cause, which includes conduct considered by the other members to be unbecoming to a CPA or detrimental to HMV's reputation. In June 2018, two-thirds of the members voted to terminate Schmidt LLC as a member of HMV for cause, based on a finding that Schmidt had acted in a manner unbecoming to a CPA by failing to advise other members that an HMV employee was planning to leave her job and take a large client of HMV with her and by preparing tax returns for taxpayers without billing them as HMV's clients.

         Under the noncompetition provisions of Article 25 of the operating agreement, once Schmidt LLC was terminated for cause he was prohibited from:

(i) Engaging in the performance of accounting services … practiced by him while a member in HMV for persons who reside, or entities with a place of business located, within the Area in any capacity as a principal or on his own account, or solely or jointly with others as a partner, stockholder or holder of any equity security, or member in a limited liability company, or in any capacity for an entity in which such former member owns or does not own an equity interest, including but not limited to as a director, manager, officer, agent or employee; and/or
(ii) Soliciting clients of HMV that, if a natural person, resides within the Area, or if the client is an entity, has a place of business located within the Area;
(iii) Serving as an executor or trustee for any natural person who resides within the Area that is a client of HMV, or that owned an interest in an entity that has a place of business located within the Area that is a client of HMV; and/or
(iv) Serving as a voting member on the board of Directors of a company nonprofit organization that HMV is auditing at the time of the termination date or at any time during the restricted term. The former member shall resign as a member of the Board of Directors or other governing board of any such company.

         In August 2018, HMV filed a petition seeking preliminary and permanent injunctions, declaratory relief and damages against defendants, John Schmidt and Schmidt LLC (jointly referred to as "Schmidt"). The original and amended petitions alleged that Schmidt had engaged in activities that ...


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