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Weber V. Christian

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Case name, Citation and Court: Weber, Lipshie & Co., Plaintiff and Appellant, v. Paul D. Christian, Defendant and Appellant. 52 Cal.App.4th 645 (1997)
Key facts: When defendant Paul D. Christian (Christian) became a partner in the accounting firm of plaintiff Weber, Lipshie & Co. (Weber), he agreed that in the occasion he withdrew or was expelled from the partnership he would not, for a period of five years, service any of the accounts serviced by Weber (the restricted covenant); he further agreed that the damages to the partnership for the loss of fees from any such clients would be measured by doubling Weber’s time charges for those clients for the twelve months immediately preceding their loss (the measure of damages or liquidated damages provision). After Christian’s expulsion from Weber, certain clients took their business to Christian. Weber sued Christian for liquidated damages in accordance with the agreement, and Christian cross-complained for breach of contract. Even though the trial court denied Christian’s motion for judgment notwithstanding the verdict, the court awarded a new trial, on the ground that it was essential to define whether Weber had decent reason to eject Christian from the partnership.
Issue: 1) Is the restricted covenant reasonable and enforceable regardless of the reason Christian expelled? 2) Did the trial court erroneously fail to enforce the liquidated damages clause?
Rule: Not only is restrictive covenant reasonable and enforceable (under New York law, as agreed by the parties), so is liquidated damages clause (under California Law, as agreed by partiers). Civil Code sec. 1671, sub. (b) provides, “Except as provided in subdivision (c), a provision in a contract liquidating the damages for breach of the contract is valid unless the party seeking to invalidate the provision establishes that the provision was unreasonable under the circumstances existing at the time the contract made.
Analysis: Christian contends mainly that Weber must prove decent reason for expulsion. The pertinent provisions of the signed agreement clearly indicate that the partners . . . may expel a partner by vote of eighty-five percent of remaining partnership units. There is no requirement that expulsion be for cause.
Christian frankly acknowledges that he was conscious of California’s public policy but specifically recommended applying New York law in the course of seeking a summary judgment.
The measure of liquidated damages clause should be remanded for entry of a judgment against Christian in the amount specified by the agreement. If the parties dispute the amount, the trial court should conduct a partial new trial limited to that issue.
Conclusion: The order granting a new trial is overturned. The repudiating Christian’s motion for judgment notwithstanding the verdict is affirmed. The trial court is directed to conduct such further proceeding as may be required to determine the degree of damages in accordance with the method contained in the partnership agreement, and to enter judgment against Christian in that amount. Weber is granted costs on appeal.

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