Peat Marwick Main & Co. v. Haass

In Peat Marwick Main & Co. v. Haass, 818 S.W.2d 381 (Tex. 1991), the Texas Supreme Court held that "a damages provision affecting the right to render personal services operates as a restraint of trade and must be judged by the reasonableness standards for covenants not to compete." Haass, 818 S.W.2d at 382. The underlying dispute in Haass began with the merger of two accounting firms, CJ and MH. Id. The Court recognized that the relevant reasonableness questions with respect to the contractual provision at issue were whether the restraint imposed by the provision was greater than required to protect MH's legitimate interests and whether MH's need outweighed the hardship to Haass or the damage to the public. Id. at 386. The Court in Haass found significant that the contract provisions operated prospectively to include clients that became clients after the departing partner had already left the firm. Id. In addition, the provision also expressly included any of MH's clients worldwide, not just those with whom Haass had some actual contact. Id. The Court stated: "These aspects of the provision the court of appeals concluded were unreasonable because they were overbroad, oppressive to Haass because he "would have to, in effect, take a prospective client's accounting history," and injurious to the public by limiting the choice of accountants. The court of appeals' conclusion is supported by decisions from other jurisdictions. The fundamental legitimate business interest that may be protected by such covenants is in preventing employees or departing partners from using the business contacts and rapport established during the relationship of representing the accounting firm to take the firm's customers with him." Id. at 386-87 . The Court concluded that in the context of the accounting firm merger at the center of dispute in Haass, the protectible fundamental business interest included preserving the client base that MH acquired by merging with CJ. Id. at 387. The Court recognized that in order to meet the reasonableness standard there should be a "connection between the personal involvement of the former firm member with the client." Id. The Court stated that "inhibiting departing partners from engaging accounting services for clients who were acquired after the partner left, or with whom the accountant had no contact while associated with the firm, does not further and is not reasonably necessary to protect" the relevant business interest. Id. at 388. Therefore, the Court held the provision was "overbroad and unreasonable." Id.