Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca8-09-02061/USCOURTS-ca8-09-02061-0/pdf.json

Parties Involved:
Thomas L. Barton
Appellant
Anthony W. Krier
Appellant
Mayer Hoffman McCann, P.C.
Appellee
James N. Stelzer
Appellant
John C. Walter
Appellant

Document Text:

United States Court of Appeals

FOR THE EIGHTH CIRCUIT

___________

No. 09-2061

___________

Mayer Hoffman McCann, P.C., * 

*

Appellee, *

* Appeal from the United States

v. * District Court for the Western

* District of Missouri.

Thomas L. Barton; Anthony W. Krier; *

James N. Stelzer; John C. Walter, *

*

Appellants. *

___________

Submitted: January 13, 2010

Filed: August 11, 2010

___________

Before GRUENDER and SHEPHERD, Circuit Judges, and JARVEY,1

 District Judge.

___________

SHEPHERD, Circuit Judge.

Mayer Hoffman McCann, P.C. (“MHM”), a professional corporation organized

in Missouri, is a national certified public accounting (CPA) firm. MHM sued its

former employees2

 and shareholders—Thomas L. Barton, Anthony W. Krier, James

1

The Honorable John A. Jarvey, United States District Judge for the Southern

District of Iowa, sitting by designation.

2

Although appellants dispute that they were MHM employees, they were at least

at will employees of MHM pursuant to their own contractual agreements with MHM. 

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N. Stelzer, and John C. Walter (collectively, “appellants”), all CPAs licensed by the

State of Minnesota—to enforce restrictive covenants contained in contractual

agreements between the appellants and MHM. Following a bench trial, the district

court3

 granted judgment to MHM, awarding MHM permanent injunctive relief and

$1,369,921 in liquidated damages. Appellants bring this appeal, contending that: (1)

enforcement of the restrictive covenants is contrary to Missouri law and (2) even if the

restrictive covenants are enforceable, the liquidated damages provision is void and

unenforceable under Missouri law. We reject these contentions and affirm the

judgment of the district court. 

I.

From at least 1998 until August 15, 2005, appellants, along with CPA Tim

Talbott, were employees and shareholders of Bertram, Vallez, Kaplan & Talbot

(“Bertram Vallez”), a CPA firm located in New Hope, Minnesota. In August 1998,

Bertram Vallez entered into an Administrative Services Agreement with a predecessor

to CBIZ, Inc. (“CBIZ”),4

 a public company that provides various financial services,

including some accounting services; employee services; and technology solutions. 

Pursuant to the agreement, Bertram Vallez and CBIZ agreed to operate under the

Alternative Practice Structure model (“APS”).5

 Bertram Vallez provided attest

3

The Honorable Gary A. Fenner, United States District Judge for the Western

District of Missouri. 

4

Various subsidiaries of CBIZ, Inc. were associated with Bertram Vallez as well

as MHM. For ease of discussion, we collectively refer to these entities as “CBIZ.”

5

In general, an APS is an accounting firm 

divided into two separate entities, a professional corporation and a

business corporation, separating the attest function activities from the

business services (such as consulting, financial planning, tax compliance

and planning, and other business advisory services). . . . The accounting

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services6

 to clients, and CBIZ (1) performed nonattest services7 for clients and (2)

provided Bertram Vallez with “a variety of management advisory and business-related

services,” including “certain administrative, personnel, marketing, and other support

services.” (Appellants’ App. 165.) In exchange for CBIZ’s provision of

administrative services, Bertram Vallez agreed to pay 85% of its revenues to CBIZ. 

Also in August 1998, Barton executed an Executive Employment Agreement with

CBIZ. Krier, Stelzer, and Walter entered into confidentiality and nonsolicitation

agreements with CBIZ (“Confidentiality Agreements”) on December 31, 2003,

August 17, 2003, and January 30, 2004, respectively.

In 2004, Bertram Vallez met with William Hancock, the president of MHM. 

At that time, MHM and CBIZ operated under an APS. The parties discussed Bertram

Vallez joining MHM’s New Hope office. In additional discussions with CBIZ

firm (professional corporation) performs all attest functions, including

audits, reviews and compilations. It is 100% owned by certified public

accountants and is managed by a “managing member,” who is also a

CPA. The owners of the CPA firm are employees of the CPA firm (as

well as the business services company) and the rest of the personnel are

employees of the business services company. There is a long-term

administrative services agreement between the two, stipulating that

support and personnel staff are made available to the CPA firm by the

business services company. The latter also provides office space,

equipment and recordkeeping for the CPA firm.

James D. Campbell, Alternative Practice Structures, Penn. CPA J. 10, 10-11 (Winter

1999). 

6

“Attest services are required to be performed by a licensed CPA or licensed

CPA firm.” (Trial Tr. vol. II, 215.) In most states, this includes audits and reviews. 

(See id.) 

7

Nonattest services do not require a CPA and include “tax work and consulting

services.” (Trial Tr. vol. II, 215-16.)

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management, Bertram Vallez indicated that they did not want to move to MHM’s

Minneapolis location. There was no binding agreement reached, but Talbot

understood that MHM would maintain its New Hope office for a period of at least

three years.

On August 15, 2005, four agreements relevant to this appeal were executed:

(1) the Termination Agreement between Bertram Vallez and MHM, (2) the Restated

Administrative Services Agreement between MHM and CBIZ, (3) the Subscription

and Affiliation Agreement between each appellant and MHM, and (4) the

Stockholder’s Agreement.8

Under the Termination Agreement, Bertram Vallez agreed to halt its accounting

practice in exchange for MHM’s agreement to provide accounting services to the

Bertram Vallez’s clients. MHM also agreed to include Bertram Vallez as a

predecessor company on its professional liability insurance so that appellants and

Talbott continued to receive insurance coverage for acts that occurred during the time

they worked for Bertram Vallez. 

Pursuant to the Restated Administrative Services Agreement, MHM and CBIZ

agreed to continue operating under the APS, with MHM providing attest services and

CBIZ performing nonattest services as well as administrative and other support

services. In return for CBIZ’s provision of administrative services, MHM agreed to

pay 85% of its attest revenues to CBIZ.

Under the Subscription and Affiliation Agreement, each appellant purchased

1,000 shares of MHM stock. Per the agreement, each appellant “recognize[d] that [he]

may not resell the Shares unless [he] compl[ied] with the terms of the Stockholders

8

Although each appellant executed a separate Stockholder’s Agreement, the

agreements are identical such that we collectively refer to all of them as the

“Stockholder’s Agreement.”

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Agreement, and then, the Shares may only be sold to [MHM] or to individuals who

are not disqualified under applicable law to be stockholders of [MHM].” (Appellants’

App. 40.)

In the Stockholder’s Agreement, subject to certain conditions, MHM agreed to

repurchase each appellant’s shares of MHM stock upon the termination of his

employment with MHM. Appellants agreed that for the “Post-Employment

Restrictive Period,”9

 a period of two years following the termination of their

employment, they would not: (1) solicit, directly or indirectly, or attempt to solicit

MHM’s clients or otherwise interfere with MHM’s relationship with its clients, or

(2) solicit MHM’s employees. Appellants further agreed not to copy, disseminate, or 

9

The Stockholder’s Agreement does not specifically define “Post-Employment

Restrictive Period” but describes it, as relevant here, as “the post employment period

during which the non-competition provision of the Shareholders’ Executive

Employment Agreement or other contractual arrangements with [CBIZ] applies.” 

(Appellants’ Add. 56-57.) The “Restrictive Period” under the Confidentiality

Agreements Krier, Stelzer, and Walter had with CBIZ was two years. Thus, their

“Post-Employment Restrictive Period” under the Stockholder’s Agreement was also

two years. The “Restriction Period” in Barton’s 1998 Executive Employment

Agreement with CBIZ was five years. It follows that Barton’s “Post Employment

Restrictive Period” under the Stockholder’s Agreement would also be five years. 

However, the district court found “that MHM represented at trial that it would only

seek enforcement of Mr. Barton’s restrictive covenant for two years and that the

logistics of policing the agreement of varying lengths between partners of the same

firm warrants enforcement of Barton’s covenant for two years rather than five.” 

Mayer Hoffman McCann, P.C. v. Barton, No. 4:08-CV-00574-GAF, 2009 WL

900741, at *4 (W.D. Mo. Apr. 1, 2009) (unpublished). MHM does not challenge this

factual finding on appeal and, thus, has waived any argument to the contrary. See

Freeman v. Ferguson, 911 F.2d 52, 56 (8th Cir. 1990) (“It is well settled in this circuit

if an issue is not raised on appeal it will be deemed abandoned.” (quotation omitted)). 

Therefore, for purposes of this appeal, Barton’s “Post-Employment Restrictive

Period” was two years.

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use MHM’s confidential information at any time. The specific contractual provisions

are as follows:

5.1 Non-competition.

The Shareholder agrees that during the period in which the

Shareholder is employed by [MHM] and during the Post-Employment

Restrictive Period the Shareholder shall not, without the prior written

consent of [MHM], either directly or indirectly, solicit, attempt to solicit,

take away, attempt to take away, or otherwise interfere with [MHM’s]

relationship with any customer (including any customer in [MHM’s] data

base) . . . . 

5.2 Nonsolicitation.

The Shareholder agrees that he shall not at any time (whether

during or after the Shareholder’s termination of employment with

[MHM]), without the prior written consent of [MHM], either directly or

indirectly (i) solicit (or attempt to solicit), induce (or attempt to induce),

cause or facilitate any employee, director, agent, consultant, independent

contractor, representative or associate of [MHM] to terminate his, her[,]

or its relationship with [MHM], or (ii) solicit (or attempt to solicit),

induce (or attempt to induce), cause [or] facilitate any supplier of

services or products to [MHM] to terminate or change his, her[,] or its

relationship with [MHM], or otherwise interfere with any relationship

between [MHM] and any of [MHM’s] suppliers of products or services.

5.3 Nondisclosure.

The Shareholder agrees that he shall not at any time (whether

during or after the period of his employment with [MHM]) directly or

indirectly copy, disseminate or use, for the Shareholder’s personal

benefit or the benefit of any third party, any Confidential Information,

regardless of how such Confidential Information may have been

acquired, except for the disclosure of such Confidential Information as

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may be (i) in keeping with the performance of the Shareholder’s

employment duties with [MHM], (ii) as required by law, or (iii) as

authorized in writing by [MHM].

(Appellant’s Add. 56-57.) The Stockholder’s Agreement also provides that it is

identical to the stockholders’ agreements executed by MHM and all other MHM

shareholders and that Missouri law governs the rights and obligations of the parties.

From 2005 to 2007, appellants were employees and shareholders of MHM. 

Talbot served as both an employee and shareholder of MHM as well as CBIZ’s

Managing Director of the New Hope office. Appellants had access to a substantial

amount of confidential MHM client information.10 In the fall of 2007, appellants

learned that MHM planned to merge its New Hope office into its Minneapolis office.11

On April 11, 2008, appellants formed Glennco, LLC (which they later renamed

Barton, Walter & Krier, LLC (“BWK”)) in anticipation of their departure from MHM. 

10The Stockholder’s Agreement defines “confidential information” as 

all information or knowledge belonging to, used by, or which is in the

possession of [MHM] relating to [MHM’s] business, business plans,

strategies, pricing, sales methods, customers . . . , technology, programs,

finances, costs, employees (including without limitation, the names,

addresses or telephone numbers of any employees), employee

compensation rates or policies, marketing plans, development plans,

computer programs, computer systems, inventions, developments, trade

secrets, know how or confidences of [MHM] or [MHM’s] business,

without regard to whether any of such Confidential Information may be

deemed confidential or material to any third party, and [MHM] and the

Shareholder hereby stipulate to the confidentiality and materiality of all

such Confidential Information. 

(Appellants’ Add. 57.)

11Within a few weeks of appellants’ departure, MHM did combine its New

Hope office with its Minneapolis office. 

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In July 2008, appellants prepared a one-page letter addressed “To our valued

Clients and Friends,” which was dated August 2, 2008 (“Valued Clients letter”). (See

Appellants’ Appx. 84.) Each appellant had Valued Clients letters for the clients they

had worked with at MHM. The Valued Clients letter states that appellants have

resigned from MHM and are forming a new firm. (See id.) The Valued Clients letter

further states: 

It is my hope that you will join me at our new firm. In order to make the

transition at this time I am providing you with a termination letter to end

your relationship with CBIZ and an engagement letter to begin a new

relationship with [BWK]. It is imperative that we receive these letters

back as soon as possible.

(Id.) The Valued Clients letter also requests that clients “not contact CBIZ to discuss

this matter.” (Id.) 

On Friday, August 1, 2008, appellants left resignation letters on Talbott’s desk

which he found on Monday, August 4. Each letter stated that the appellant was

resigning his employment with MHM effective at 5:00 p.m. on August 1, 2008. The

letter further provided that the appellant was tendering his MHM shares for purchase

by MHM as provided for in the Stockholder’s Agreement.12 Appellants sent identical

letters to Hancock for delivery on August 4. 

From August 2 through August 6, 2008, appellants personally called on MHM

clients and provided them with the Valued Clients letter, engagement letter, and the

termination letter. The appellants also emailed or faxed the letters to other MHM

clients, having obtained email addresses and fax numbers from MHM’s email

12MHM has (1) made a down payment on the amount owed and (2) executed

notes payable to each of the appellants for the remainder to be paid as provided by the

Stockholder’s Agreement.

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contacts. In addition, appellants successfully recruited four MHM employees to go

to work for BWK. 

On August 7, 2008, MHM filed this lawsuit in the Circuit Court of Jackson

County, Missouri, alleging that appellants breached the Stockholder’s Agreement by:

(1) soliciting MHM customers (Count I); (2) soliciting MHM employees (Count II); 

and (3) using and disclosing MHM’s confidential information (Count III).13 The state

court granted MHM’s request for a temporary restraining order (TRO) that same day,

enjoining appellants from: (1) soliciting MHM’s customers and employees and (2)

using trade secrets or confidential information obtained from MHM. The state court

also ordered appellants to return all of MHM’s trade secrets and confidential

information.14 Following the entry of the TRO, BWK computers and devices, as well 

as the BWK server, contained MHM confidential information in documents and

emails.15 In addition, MHM Caseware16 files were saved to the BWK server as late

as September 9, 2008.

On August 11, 2008, appellants removed this action to federal court. After an

evidentiary hearing on September 2, 2008, the district court entered a preliminary

13The complaint also alleged a Count IV, but, as MHM has not pursued it, we

do not address it. See Barton, 2009 WL 900741, at *14 n.3.

14Pursuant to the Stockholder’s Agreement, appellants agreed that, upon their

termination, they would (1) “return promptly to [MHM] all memoranda, notes,

records, reports, manuals, pricing lists, prints and other documents (and all copies

thereof) relating to [MHM’s] business . . . regardless [of] whether any such documents

constitute Confidential Information” and (2) “forward to [MHM] all Confidential

Information,” including such information acquired after their termination. 

(Appellants’ Add. 58.)

15This was revealed by a computer forensic search after this litigation began. 

16To manage its files, MHM uses “Caseware,” a commercial software product

that has been tailored considerably for MHM. 

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injunction, enjoining appellants from: (1) soliciting, directly or indirectly, or

attempting to solicit MHM’s clients and employees; (2) seeking to perform any

additional attest services for MHM clients; and (3) using trade secrets or confidential

information obtained from MHM. The district court also ordered appellants to return

MHM’s trade secrets and confidential information, retaining no copies for themselves. 

The court further ordered that “defendants provide immediate access to BWK’s

computers and servers and the home computers of defendants and their employees for

inspection by a computer forensic expert,” without “delet[ing] or transfer[ring] any

data from these computers until images have been made.” (Order Granting Prelim.

Inj. 2, Sept. 2, 2008)17

The parties filed cross-motions for summary judgment; however, the district

court did not rule on the motions. Following a bench trial, the court determined that:

(1) the Stockholder’s Agreement was supported by sufficient consideration in the

form of mutual promises; (2) MHM had a protectable interest in its customer

relationships, even though some of its clients were formerly Bertram Vallez’s clients; 

(3) the restrictive covenants in the Stockholder’s Agreement are reasonable under

Missouri law; and (4) appellants knowingly and intentionally breached the restrictive

covenants by soliciting MHM’s customers and employees and willfully taking

MHM’s confidential information. 

The court determined that MHM was entitled to liquidated damages because:

(1) there was no evidence suggesting the parties intended the provision to be a

penalty; (2) the undisputed evidence showed that the damages in this case were 

difficult to quantify; and (3) the provision was reasonable and binding under the

circumstances of this case. The court stated that the agreements “point[] to the

17Mark Lanterman, Chief Technology Officer for Computer Forensic Services,

Inc. (“CFS”), conducted a computer forensic search of BWK’s server and computers,

applying the search terms agreed upon by the parties, and located approximately 1,500

files and 64,000 emails containing one or more of the search terms.

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method of calculation found in the relevant CBIZ agreements to determine liquidated

damages[,]” and concluded that “[i]t [was] clear from the circumstances that the

Stockholder’s Agreement refers to MHM’s fees,” not CBIZ’s fees. Mayer Hoffman

McCann P.C. v. Barton, No. 4:08-CV-00574-GAF, 2009 WL 900741, at *21 (W.D.

Mo. Apr. 1, 2009) (unpublished). The court observed that “MHM presented

evidence” that “[t]he total owed to MHM for [appellants’] breach of the Stockholder’s

Agreement[] under the liquidated damages provision of the relevant contracts is

$1,369,921,” MHM’s “total billings between August 1, 2006[,] and July 31, 2008[,]

[for] clients solicited by [the appellants].” Id. at *22.18 Because the appellants

stipulated that they had each solicited all of the MHM clients and the prospective

client included in MHM’s liquidated damage-calculation, the court awarded MHM

$1,369,921 in liquidated damages and found appellants jointly and severally liable for

such damages. The court also granted MHM a permanent injunction, concluding that:

(1) MHM had shown irreparable injury in that at least 124 MHM clients had moved

their business from MHM to BWK after defendants solicited their business and (2)

imposition of such an injunction was not against public policy. The district court

denied appellants’ motion to alter and amend the findings and judgment. Appellants

bring this appeal.

18From August 1, 2006, through July 31, 2007, MHM’s gross fee billings for

the solicited clients totaled $692,905. From August 1, 2007, through July 31, 2008,

MHM’s gross fee billings for the solicited clients totaled $672,859. BWK’s billings

for one “Qualified Prospective Customer,” defined by the Stockholder’s Agreement

as “any person, organization or other entity to which [MHM] . . . submitted a proposal

for attest services at any time during the twelve-month period prior to the termination

of [appellants’] employment[,]” (Appellants’ Add. 56), were $4,158. We note that,

although these amounts total $1,369,922, MHM sought $1,369,921, and the record is

silent as to the reason for this one dollar-difference.

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II. 

As a threshold matter, we note that appellants largely concede the facts

underlying the violations of the restrictive covenants in the Stockholder’s Agreement. 

Rather, the thrust of their appeal is that both the restrictive covenants and the

liquidated damages provision are unenforceable under Missouri law. As an appellate

court sitting in diversity, we review these questions of Missouri law de novo. See

Praetorian Ins. Co. v. Site Inspection, LLC, 604 F.3d 509, 515 (8th Cir. 2010).

A.

Appellants assert that the restrictive covenants are unenforceable under

Missouri law because: (1) there was no consideration given by MHM in exchange for

them; (2) they are not ancillary to the requisite type of agreement; (3) MHM does not

have the required protectable interest; (4) they are not reasonable in scope; and

(5) they aid MHM in its violation of antitrust law. We address each argument in turn.

1.

Appellants first argue that the restrictive covenants fail for lack of

consideration. Just as with every other kind of contract, a contract containing a

restrictive covenant must be supported by consideration. See Sumners v. Serv.

Vending Co., 102 S.W.3d 37, 41 (Mo. Ct. App. 2003) (“Consideration . . . is a basic

element of a valid contract . . . .”). “The burden of showing legally sufficient

consideration rests on the party relying on the contract,” here, MHM. Allison v.

Agribank, FCB, 949 S.W.2d 182, 188 (Mo. Ct. App. 1997) (per curiam) (“As a

general rule, consideration is a necessary element for establishing the existence of a

valid contract.”).

“Consideration . . . is something of value that moves from one party to the

other.” Sumners, 102 S.W.3d at 41. More specifically, consideration is

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a benefit to the party promising, or a loss or detriment to the party to

whom the promise is made. Benefit, as thus employed, means that the

promisor has, in return for his promise, acquired some legal right to

which he would not otherwise have been entitled, and detriment means

that the promisee has, in return for the promise, forborne some legal right

which he otherwise would have been entitled to exercise.

Id. (quotation omitted). A bilateral contract, like the Stockholder’s Agreement, in

which there are “mutual promises imposing some legal duty or liability on each

promisor[,] is supported by sufficient consideration to form a valid, enforceable

contract.” Id.

In Superior Gearbox Co. v. Edwards, 869 S.W.2d 239 (Mo. Ct. App. 1993), the

Missouri Court of Appeals enforced a noncompetition covenant in a stock purchase

agreement. Id. at 243-49. In the stock purchase agreement at issue there, Superior’s

employee, Edwards (1) “acknowledged that the milling machinery and procedures

developed and used by Superior were unique and were a valuable part of the

company’s assets,” and (2) “agreed that, if he should ever cease to be [a Superior

employee], for 10 years thereafter he would not engage in a business anywhere in the

United States that manufactures or sells gearboxes or uses plunge milling procedures

or technologies.” Id. at 243. Per the agreement, Edwards “was to (and did) receive

a five percent annual bonus as long as he remained with Superior.” Id. Eventually,

Edwards left Superior and operated a company in violation of the noncompete clause. 

Id. Superior brought suit against Edwards for breach of contract. Id. at 241. The trial

court granted Superior injunctive relief, enforcing the terms of the noncompete clause. 

Id. The Missouri Court of Appeals affirmed but reduced the 10-year injunction to 5

years. Id. at 248. However, in enforcing the noncompete clause, the court did not

specifically address whether the clause was supported by adequate consideration. See

id. at 243-49. 

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However, in Sturgis Equipment Co. v. Falcon Industries Sales Co., 930 S.W.2d

14 (Mo. Ct. App. 1996), the Missouri Court of Appeals refused to enforce a 

restrictive covenant contained in a buy/sell agreement, concluding that it was not

supported by adequate consideration. Id. at 17.19 There, Edwin Johnson, a salesman

for Sturgis, executed a buy/sell stock agreement, in which he agreed not to compete

with Sturgis for two years following his termination. Id. at 15. In addition, Sturgis

obtained a right of first refusal to purchase Johnson’s stock and was “bound to

purchase any balance remaining unsold at the end of sixty days following . . .

Johnson’s termination.” Id. at 15-16. Eventually, Johnson left Sturgis, without

tendering his stock, and formed his own company that competed with Sturgis. Id. at

16. Sturgis brought suit for breach of contract, and the trial court found for Sturgis

and awarded him $292,663.97 in damages. Id.

However, the Missouri Court of Appeals reversed, holding, in part, that there

was inadequate consideration to support the noncompete clause. Id. at 17. The court

explained:

19“[C]ourts do not [ordinarily] inquire into the adequacy of consideration.” 

Restatement (Second) of Contracts § 79(c); see id. § 79(f) (noting the Restatement’s

rejection of “any supposed requirement of ‘mutuality of obligation’”). Although

Missouri has adopted the Restatement approach, see Valentine’s, Inc. v. Ngo, 251

S.W.3d 352, 354 (Mo. Ct. App. 2008), see also State ex rel. Vincent v. Schneider, 194

S.W.3d 853, 859 (Mo. 2006) (“As long as the requirement of consideration is met,

mutuality of obligation is present, even if one party is more obligated than the other.”

(quotation omitted)), even recent Missouri cases continue to recite mutuality of

obligation as a prerequisite to an enforceable contract, see, e.g., Birkenmeier v. Keller

Biomedical, LLC, No. ED 92671, ___ S.W.3d ___, ___, 2010 WL 1555227, at *9

(Mo. Ct. App. Apr. 20, 2010). We further note that Missouri law provides that “[t]he

ordinary rules of contractual construction and enforcement are not necessarily

applicable to . . . agreements” containing noncompete clauses. See AEE-EMF, Inc.

v. Passmore, 906 S.W.2d 714, 719 (Mo. Ct. App. 1995). Because we are to apply

Missouri law, see Praetorian, 604 F.3d at 515, and Sturgis inquires into the adequacy

of consideration given by an employer in exchange for an employee’s covenant not

to compete, see 930 S.W.2d at 17, we do so here.

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Here, the buy/sell agreement basically stated that in exchange for Sturgis

agreeing to sell stock to Johnson and to buy back Johnson’s stock if he

desired to sell or if his employment terminated, Johnson agreed to not

compete with Sturgis for two years if he voluntarily terminated his

employment. The agreement did not state that the purpose of the

non-compete clause was to protect any special interest of the company.

No additional consideration was specified in the contract. The clause was

not part of an employment contract; Johnson was an employee at will. 

The restriction contained in the buy/sell agreement was greater than

fairly required for Sturgis’ protection and was not supported by

sufficient consideration.

Id. The Sturgis Court also distinguished Superior Gearbox, stating:

There, as part of that covenant, the Superior shareholders acknowledged

that the milling machinery and procedures developed by the company

were unique and were a valuable part of the company’s assets. 

Additionally, as part of the same agreement, the shareholders received

a five percent annual bonus for remaining with Superior.

Sturgis, 930 S.W.2d at 17. Therefore, under Superior Gearbox and Sturgis, Missouri

law does not provide that a stock purchase agreement containing a noncompete clause

can never, as a matter of law, be supported by adequate consideration. Thus, the

question before us is whether the Stockholder’s Agreement at issue here is

distinguishable from the buy/sell stock agreement in Sturgis. 

In the Stockholder’s Agreement, appellants promised not to solicit MHM’s

clients or employees for a period of time following the termination of their

employment with MHM and not to, at any time, disclose or use MHM’s confidential

information. MHM agreed that it would purchase the appellants’ MHM shares within

45 days of the termination of their employment. The Sturgis court held that the

consideration of agreeing to buy back the employee’s stock, without more, was

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insufficient to support the broad non-compete clause at issue there.20 Id. However,

the Sturgis decision recognized the non-compete clause might have been enforced if

the stock purchase agreement had provided sufficient consideration such as “state[ing]

that the purpose of the non-compete clause was to protect any special interest of the

company[, providing] additional consideration[, or being] part of an employment

contract.”21 Id.

As part of the Stockholder’s Agreement in this matter, appellants

“acknowledge[d] that the restrictions contained in Sections 5.1 through 5.3 are

reasonable and necessary to protect the legitimate interests of [MHM].” (Appellant’s

Add. 58.) Those legitimate interests were identified in the Stockholder’s Agreement

and included confidential information or knowledge relating to MHM’s “business

plans, strategies, pricing, sales methods, customers, . . . technology, programs,

finances, costs, employees . . . , employee compensation rates or policies, marketing

20Although we are bound to apply Sturgis, see Am. Family Mut. Ins. Co. v. Co

Fat Le, 439 F.3d 436, 439 (8th Cir. 2006) (“[W]e are bound in our construction of

Missouri law by the decisions of the Missouri courts.”), we note that MHM’s promise

to buy back appellants’ stock in MHM was beneficial to appellants. “Only licensed

professionals who are employed by the professional corporation may be shareholders

or directors. In addition, shares can only be transferred to other individuals licensed

to practice in the same profession.” 1A William Meade Fletcher, Fletcher Cyclopedia

of the Law of Private Corporations § 70.10 (perm. ed., rev. ed. 2002). Thus, there is

no ready market for the sale of shares of a professional corporation’s stock. See id.

Accordingly, “[i]f a buyback is not provided, a minority shareholder who resigns from

or is forced out as an employee of a professional corporation is in a difficult position,

absent a protective shareholders’ agreement.” 1 F. Hodge O’Neal, Robert B.

Thompson, & Blake Thompson, O’Neal and Thompson’s Close Corporations and

LLCs: Law and Practice § 2.9 (rev. 3d ed. 2004).

21A later Missouri Court of Appeals decision has explained that “[t]he essence

of the [Sturgis] holding is that the evidence did not support a finding of knowledge of

trade secrets or of customer contact sufficient to support a restrictive covenant, and

so did not justify any kind of restriction.” Alltype Fire Prot. Co. v. Mayfield, 88

S.W.3d 120, 123-24 (Mo. Ct. App. 2002). 

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plans, development plans, computer programs, computer systems, inventions,

developments, trade secrets, know how or confidences.” (Appellant’s Add. 57.) 

Because this Stockholder’s Agreement clearly provides that the restrictive covenants

are necessary to protect the legitimate interests of the business and identifies those

interests, Sturgis does not bar enforcement of the restrictive covenants. See 930

S.W.2d at 17. Furthermore, the restrictions are not “greater than fairly required” for

MHM’s protection, as was the case in Sturgis. Id. Accordingly, we reject appellants’

argument that the restrictive covenants are unenforceable for lack of consideration. 

2.

Next, appellants assert that Missouri law restricts the kinds of contracts that can

contain restrictive covenants and that the Stockholder’s Agreement does not fall

within this class of contracts. “The purpose of the restrictive covenant is to protect an

employer from unfair competition.” Schmersahl, Treloar & Co. v. McHugh, 28

S.W.3d 345, 350 (Mo. Ct. App. 2000). “Restrictive covenants that limit individuals

in the exercise or pursuit of their occupations, standing alone, are contracts in restraint

of trade that are unlawful in [Missouri]. However, a covenant not to compete that

forms part of a legitimate transaction is often described as an ‘ancillary restraint.’” 

JTL Consulting, L.L.C. v. Shanahan, 190 S.W.3d 389, 396 (Mo. Ct. App. 2006)

(citations omitted). The Missouri Court of Appeals discussed the types of agreements

to which restrictive covenants may be ancillary in Renal Treatment Centers-Mo., Inc.

v. Braxton, 945 S.W.2d 557 (Mo. Ct. App. 1997). The court stated, “Promises

imposing restraints that are ancillary to a valid transaction or relationship include the

employer-employee and buyer-seller relationships and partners against partnerships.” 

Id. at 563. The court also noted that “this [was] not an exclusive list.” Id. (emphasis

added). The Missouri Court of Appeals lengthened this nonexclusive list in JTL

Consulting, to include partnership agreements, independent contractor agreements,

and shareholder agreements in close corporations. 190 S.W.3d at 396.

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Here, MHM is a professional corporation under Missouri law. Professional

corporations are governed by the law of general corporations, but additional statutory

provisions specific to professional corporations must be read in conjunction with, and

take precedence over, general corporation law. See Mo. Rev. Stat. § 356.031. We

find no Missouri authority addressing whether a restrictive covenant can be ancillary

to a shareholder’s agreement for a professional corporation. “When there is no state

supreme court case directly on point, our role is to predict how the state supreme court

would rule if faced with the issues before us.” Northland Cas. Co. v. Meeks, 540 F.3d

869, 874 (8th Cir. 2008) (quotation omitted). Missouri courts have expressly stated

that the list of agreements, which they have recognized as giving rise to a legitimate

interest sufficient to sustain a restrictive covenant, is not exclusive. See JTL

Consulting, 190 S.W.3d at 396; Renal Treatment Centers, 945 S.W.2d at 563. 

Because JTL Consulting provides that restrictive covenants can be ancillary to

shareholder agreements in close corporations, see 190 S.W.3d at 396, and professional

corporations are “a special species of a close corporation,” 1A William Meade

Fletcher, Fletcher Cyclopedia of the Law of Private Corporations § 70.10 (perm. ed.,

rev. ed. 2002), we believe that the Missouri Supreme Court would hold that a

stockholder’s agreement between a professional corporation and a shareholder falls

within the class of contracts wherein restrictive covenants are appropriate. Thus, the

appellants’ assertion that the restrictive covenants cannot be ancillary to the

Stockholder’s Agreement fails.

3.

Appellants also contend that the restrictive covenants are unenforceable for lack

of a protectable interest. Missouri law requires that a party seeking to enforce a

noncompete agreement in an employment situation prove that it has a “legitimate

interest[]” in doing so. See AEE-EMF, Inc. v. Passmore, 906 S.W.2d 714, 719 (Mo.

Ct. App. 1995). “Missouri courts have identified two such ‘protectable interests.’ 

These are customer contacts and trade secrets.” Id. Customer contacts are

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“essentially the influence an employee acquires over his employer’s customers

through personal contact.” McHugh, 28 S.W.3d at 349 (quotation omitted); see also

Schott v. Beussink, 950 S.W.2d 621, 625 (Mo. Ct. App. 1997) (“Missouri courts

recognize that public policy approves employment contracts containing restrictive

covenants because the employer has a proprietary right in its stock of customers and

their goodwill . . . .”). 

MHM’s client contacts are clearly a protectable interest under Missouri law. 

See AEE-EMF, 906 S.W.2d at 719. Appellants do not dispute that they had

substantial contact with, and influence over, their clients while employed by MHM. 

However, they argue that MHM did not have a protectable interest in its client

contacts for two reasons. First, appellants assert that MHM never acquired any rights

to these customer contacts as the contacts remained the property of appellants upon

the dissolution of Bertram Vallez. Second, appellants contend that MHM’s contacts

with the clients appellants solicited cannot be a protectable interest of MHM because

such clients had been appellants’ clients at Bertram Vallez prior to appellants’

execution of the Stockholder’s Agreement. We reject both of appellants’ arguments. 

First, although the Articles of Dissolution for Bertram Vallez provide that its

remaining property was to be distributed among its shareholders, including appellants,

the district court found that the only remaining property owned by Bertram Vallez was

cash. This conclusion is supported by the language of the Termination Agreement,

executed by Bertram Vallez and MHM, which states that Bertram Vallez “wishes to

terminate its practice of public accountancy . . . and to make arrangements for the

future servicing of its clients; and [MHM] is willing to provide accounting services

to the clients of [Bertram Vallez] . . . as of [August 15, 2005].” (Appellants’ App. 97.) 

The agreement further provides: 

1. Orderly Transfer of Client work papers. [Bertram Vallez] hereby

agrees to provide for the orderly transition of client work papers

for clients listed on Schedule A hereto. [MHM] agrees to provide

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accountancy services to the Clients . . . , to retain such client files

for a period of at least seven years . . . and to make such files

available to [Bertram Vallez] and its current owners at its New

Hope office upon reasonable notice.

(Id.) Thus, pursuant to the Termination Agreement, MHM took control of Bertram

Vallez’s client papers. Accordingly, appellants did not retain the rights to Bertram

Vallez’s contacts with the solicited clients.

Second, despite the fact that appellants had a relationship with the MHM clients

that they solicited prior to joining MHM, Missouri law recognizes that “an employer

may protect customer relationships even if the employee had contact with some of the

same customers before joining the employer.” Naegele v. Biomedical Sys. Corp., 272

S.W.3d 385, 389 (Mo. Ct. App. 2008) (emphasis added). In Naegele, the plaintiff,

Mary Anastasia Naegele, was employed by Matria Health Care (“Matria”) for 12

years where she “provid[ed] monitoring services to obstetric physicians specializing

in managing high risk pregnancies.” Id. at 386. She then worked as the national

director of sales for Biomedical Systems Corporation’s (“Biomedical’s”) Women’s

Health Services division, and, in taking the position, she executed a Confidentiality,

Nondisclosure, and Noncompetition Agreement. Id. Naegele eventually decided to

return to Matria. Id. at 387. After informing Biomedical of her decision, she filed a

petition for declaratory judgment, and Biomedical counterclaimed, seeking an

injunction. Id. Following the trial court’s ruling for Biomedical, Naegele appealed,

arguing that “Biomedical had no protectable interest in preexisting customers that she

initially developed a relationship with when she worked at Matria because they were

not contributed as part of an equity investment in a business venture and Biomedical

did not assist in developing these contacts.” Id. at 388-89 (quotations omitted). 

The Missouri Court of Appeals rejected both arguments, explaining:

The fact that Biomedical did not purchase the customer contacts at issue

as part of an equity investment in a business venture is immaterial. As

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Naegele’s employer, Biomedical had the right to require Naegele to

develop strong relationships with any and all customers that she could. 

The evidence in the record showed that Biomedical invested

considerable money, time, and effort to allow Naegele to develop,

maintain, foster and preserve Biomedical’s relationships with its

customers, including the customers Naegele originally met during her

Matria employment. Biomedical had a legitimate business interest in

restraining Naegele from pursuing those customers with whom she

developed or strengthened a relationship while working for Biomedical,

regardless of whether those customer contacts originated with Naegele

while she was working at Matria.

Id. at 389 (emphasis added). Thus, Naegele refutes the appellants’ argument that their

preexisting relationship with MHM’s clients disqualifies MHM’s contacts with such

client from constituting a protectable interest under Missouri law. Accordingly, MHM

had the requisite protectable interest—customer contacts—to enforce the restrictive

covenants at issue.22 

4.

Appellants next assert that the restrictive covenants are unreasonable in scope

and, therefore, unenforceable. “The purpose of restrictive covenants is to protect an

employer from unfair competition by a former employee without imposing

unreasonable restraint on the employee.” AEE-EMF, 906 S.W.2d at 719. Because

“[r]estrictive covenants limit[] the exercise or pursuit of an individual’s occupation

22We note that, contrary to the district court’s determination that appellants

breached the restrictive covenant by soliciting MHM’s employees (Count II), MHM

had no protectable interest in its employees. See McHugh, 28 S.W.3d at 347, 349-51

(holding that Missouri law does not allow covenants not to solicit former coworkers

as such covenants are “in restraint of trade” in that they “restrict[] the flow of

competitive information about the labor market, including the availability of

opportunities and offers of employment to an employer’s at-will workforce”). 

Because MHM was awarded no damages stemming from Count II, our determination

has no impact on the damage award in this case. 

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[and] are in restraint of trade,” such covenants “must be reasonable as to time and

space” in order “to be valid and enforceable.” Id. “The party claiming benefit of a

noncompete clause within a contract has the burden of proving the reasonableness of

the clause.” Id.

The time period for the restrictive covenants at issue here is two years. This

amount of time has been found reasonable under the “overwhelming weight of case

authority” in Missouri. Alltype Fire Prot. Co. v. Mayfield, 88 S.W.3d 120, 123 (Mo.

Ct. App. 2002). Although the restrictive covenants in this case are not restricted

geographically, Missouri law recognizes that a customer restriction may substitute for

an explicit geographical restriction. See Schott, 950 S.W.2d at 623-24, 627

(concluding that a two-year restriction on CPAs soliciting their former employer’s

customers, or doing any accounting work for them, was enforceable, without a

geographical restriction, because “the covenant does not prevent employees from

practicing in any particular geographical area, it merely prohibits them from soliciting

employer’s clients”); Mills v. Murray, 472 S.W.2d 6, 11-12 (Mo. Ct. App. 1971)

(determining that a three-year restrictive covenant was reasonable, even absent a

geographical restriction, because the former employee was only restricted from

soliciting his former employer’s clients such that he could even “conduct a competing

business at [his former employer’s] doorstep as soon as [he] left [his former

employer’s] service”). As the Schott Court observed, where “the specificity of

limitation regarding the class of person with whom contact is prohibited increases, the

need for limitation expressed in territorial terms decreases.” 950 S.W.2d at 627

(quoting Seach v. Richards, Dieterle & Co., 439 N.E.2d 208, 213 (Ind. Ct. App.

1982)). Under Schott and Mills, the restrictive covenant at issue here is not

unenforceable, even though it lacks a geographical restriction, because it only

prohibits appellants from soliciting MHM clients—not from performing services for

MHM’s clients whom the appellants did not solicit. Furthermore, even if the

restrictive covenant completely barred the appellants from doing any accounting work

for MHM clients, the appellants would still be free to provide accounting services to

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all non-MHM clients anywhere. Therefore, the scope of the restrictive covenants at

issue here is reasonable under Missouri law. 

5.

Finally, appellants allege that the restrictive covenants should not be given

effect because they purportedly aid MHM in its alleged violation of antitrust law, i.e.,

MHM and CBIZ’s operation under the APS.23 MHM equates this argument with the

affirmative defense of illegal contract and asserts that the appellants have waived the

argument by failing to raise it until they opposed MHM’s motion for summary

judgment. See Fed. R. Civ. P. 8(c)(1) (listing illegality as an affirmative defense that

must be raised in response to a pleading); Coury v. Prot, 85 F.3d 244, 255 (5th Cir.

1996) (affirming the trial court’s determination that defendant had waived the

affirmative defense of illegality of contract by failing to plead it). However, even if

appellants have not waived their argument, it still fails for two reasons. First,

appellants offer no authority demonstrating that the APS violates antitrust laws, and

we find none. Second, appellants’ argument is inconsistent with the purposes of

antitrust law. “Heavy-handed competitive tactics alone do not constitute an antitrust

violation . . . .” R.W. Int’l Corp. v. Welch Food, Inc., 13 F.3d 478, 487 (1st Cir.

1994).

The purpose of the [Sherman Antitrust] Act is not to protect businesses

from the working of the market; it is to protect the public from the failure

of the market. The law directs itself not against conduct which is

competitive, even severely so, but against conduct which unfairly tends

to destroy competition itself. It does so not out of solicitude for private

concerns but out of concern for the public interest.

23The appellants do not argue that the restrictive covenants themselves violate

antitrust laws. See McDonald v. Johnson & Johnson, 722 F.2d 1370, 1378 (8th Cir.

1983) (“[C]ovenants not to compete generally are not violative of the antitrust laws.”). 

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Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447, 458 (1993). Here, appellants do

not invoke the protections of antitrust law in order to protect the public. Rather, they

do so in order to avoid their contractual obligations that, as the preceding analysis

establishes, are enforceable under Missouri law. Accordingly, we find appellants

injection of antitrust law into this contractual dispute inappropriate.24

 In sum, we reject each of appellants’ arguments and hold that the restrictive

covenants contained in the Stockholder’s Agreement are enforceable.

B.

Appellants next contend that, even if this court concludes that the restrictive

covenants are enforceable, the award of liquidated damages must be reversed because

the liquidated damages clause in the Stockholder’s Agreement is unenforceable for

two reasons. First, appellants assert that the clause improperly calculates damages

based on CBIZ’s revenues rather than MHM’s revenues. Second, appellants argue

that, even if the district court was correct in its determination that the clause refers to

MHM’s revenues, it does not approximate MHM’s actual loss because MHM pays

85% of its revenues to CBIZ.

24We also note that the Code of Professional Conduct of the American Institute

of Certified Public Accountants (“AICPA Code of Professional Conduct”), available

at http://www.aicpa.org/Research/Standards/CodeofConduct/Pages/default.aspx (last

visited June 1, 2010), referenced by both Missouri and Minnesota law, see Mo. Rev.

Stat. § 326.256.1-.2; Minn. Stat. § 326A.02 subd. 5(5), expressly allows accounting

firms to operate under the APS. See AICA Code of Professional Conduct,

Interpretations 101-14, 505-3.

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In Missouri,

[t]he general rule is liquidated damages clauses are valid and

enforceable, while penalty clauses are invalid. Liquidated damages are

a measure of compensation which, at the time of contracting, the parties

agree shall represent damages in case of breach. Penalty clauses, on the

other hand, are a punishment for breach.

Valentine’s, Inc. v. Ngo, 251 S.W.3d 352, 354 (Mo. App. Ct. 2008) (quotation

omitted). Thus, the issue here is whether the parties intended the provision to be a

form of recoverable compensation—liquidated damages—or an unenforceable penalty

provision meant to compel performance. In order to distinguish between the two, we

ask whether: “(1) the amount fixed as damages [is] a reasonable forecast for the harm

caused by the breach; and (2) the harm [is] of a kind difficult to accurately estimate.” 

Id. (quotation omitted). If both requirements are met, the liquidated damages

provision is valid. Id.

The “Liquidated Damages”25 clause at issue here provides, in pertinent part:

The Shareholder agrees that, in the event any revenues become payable

to the Shareholder or to any other person[,] firm[,] or entity with which

the Shareholder is affiliated in any capacity, as a result of a violation by

the Shareholder of any of the covenants contained in this Agreement, the

Shareholder shall pay to [MHM], or shall cause the person, firm[,] or

entity with which [the] Shareholder is affiliated to pay to [MHM], an

amount equal to the damages calculated pursuant to the shareholder’s

Executive Employment Agreement or other contractual arrangements

with CBIZ shall apply.

25“While the label the parties attach to a provision is not conclusive, it is a

circumstance to be considered when deciding whether the provision is to be

considered liquidated damages or a penalty.” Diffley v. Royal Papers, Inc., 948

S.W.2d 244, 247 (Mo. Ct. App. 1997). Thus, the fact that the clause at issue is

entitled “Liquidated Damages” at least supports a determination that it is not an

invalid penalty clause. 

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(Appellants’ Add. 58.) Thus, although this provision provides for liquidated damages

in the event of breach, the measure for such damages is not contained therein. Rather, 

the clause references, for this measure, the appellants’ agreements with CBIZ. This

reference is the basis for appellants’ first argument—that the liquidated damage

provision is unenforceable because it purportedly calculates damages based on CBIZ’s

revenue not MHM’s revenue. However, we agree with the district court’s

determination that, although the Stockholder’s Agreement borrowed the calculation

for liquidated damages from appellants’ agreements with CBIZ, MHM’s fees were to

be used in the calculation, not CBIZ’s. CBIZ was not a party to the Stockholder’s

Agreement, and the purpose of the Liquidated Damages provision is to compensate

MHM for appellants breach of their promises not to solicit MHM’s clients, compete

with MHM, or disclose MHM’s confidential information. Therefore, as the district

court correctly determined, the amount of liquidated damages is MHM’s gross billings

for their former clients from August 1, 2006 through July 31, 2008.26

Appellants also argue that the liquidated damages provision is a penalty in that

“[t]he amount fixed is not reasonable because it does not approximate the actual loss

that could result to MHM for the breach.” (Appellants’ Br. 60.) Appellants’ argument

is based on the fact that, under the Restated Administrative Services Agreement,

MHM provides 85% of the fees it collects to CBIZ. However, appellants do not

dispute that MHM was entitled to collect 100% of the gross fees from its clients or

that MHM lost those fees when MHM clients, who appellants solicited, transferred

their business to BWK. Furthermore, appellants provide no authority to support their

position that the liquidated damages measure is unreasonable unless it is measured by

MHM’s net profits instead of the amount agreed upon in the Stockholder’s

Agreement. 

26Although it appears that the language in Barton’s Executive Agreement (the

only appellant who had such an agreement) contained a different measure for

liquidated damages, appellants do not raise this issue on appeal. Therefore, we do not

address it. See Freeman, 911 F.2d at 56.

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As previously stated, Missouri imposes two requirements in order for a

liquidated damages clause to be enforceable—that the measure provided is “a

reasonable forecast for the harm caused by the breach” and “the harm [is] of a kind

difficult to accurately estimate.” Valentine’s, 251 S.W.3d at 354 (quotation omitted).

The “reasonable forecast for the harm” requirement is satisfied here in that MHM

receives an amount equal to the fees it received from the solicited client in the two

years preceding the solicitation. With regard to the second requirement, appellants do

not contend that the harm to MHM is of a kind that is easy to estimate. Furthermore,

even had appellants made such an argument, we would reject it because, at the time

the Stockholder’s Agreement was executed, the parties could not have estimated the

loss MHM would incur in the event appellants breached the agreements by soliciting

MHM clients. See id. at 355 (“Where the difficulty of proof of loss is great, the court

allows significant latitude in setting the amount of anticipated damages.”). 

Accordingly, the liquidated damages clause is not an unenforceable penalty. 

Therefore, we affirm the award of liquidated damages in the amount of $1,369,921. 

III.

For the foregoing reasons, we affirm the judgment of the district court. 

______________________________

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