No. 71-178.Colorado Court of Appeals, Division II.
Filed: September 14, 1971. Certiorari Denied November 29, 1971.Rehearing Denied October 5, 1971. Not Selected for Official Publication.
Action by withdrawing partner to recover his share of medical partnership assets and for determination of former partners’ rights to withhold sum from plaintiff’s share as liquidated damages under covenant not to compete. The District Court for the County of Arapahoe, William B. Naugle, J., awarded plaintiff his share of assets less deduction for liquidated damages, and plaintiff appealed. The Court of Appeals, Pierce, J., held that partnership agreement was in effect at time of plaintiff’s withdrawal and plaintiff was therefore bound by provision of agreement not to compete. The Court further held that liquidated damage provision was valid and enforceable, Supreme Court No. 24539.
Affirmed.
1. Partnership * 230, 263
Where medical partnership agreement provided that it would govern so long as business was continued, that any change in parties would constitute resulting association a new partnership, that new partnership would be governed by agreement as long as all parties were either original parties or had agreed by letter agreement that agreement would apply at any particular time on basis of then existing partners but that if partner withdrew and remaining partners elected to continue such partner would have his interest valued as specified, partnership was not dissolved on resignation of physician who had become alleged partner following original agreement, notwithstanding that remaining partners had not elected to continue or that one original partner, who subsequently withdrew, informed remaining partners of his desire to discontinue; thus, original partner who withdrew was bound by provision of agreement governing covenant not to compete.
2. Partnership * 71
Partnership agreement should be interpreted so as to give full force and effect to each and every provision.
3. Damages * 79(3)
Where a contract has been made not to engage in particular profession within a stated area, it is court policy to construe such agreement as being for liquidated damages rather than a penalty when the evidence shows that the stipulated amount of
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damages is reasonable and is not unjust, oppressive, or disproportionate to the damage that would result from the breach of such a covenant.
4. Damages * 79(3)
Provision of medical partnership agreement that if withdrawing partner entered into practice of medicine within five-mile radius of clinic within two years from date of withdrawal and without approval of prior partners, such partner would forfeit $1,300 per month for each month he had been member of partnership up to limit of $15,600 and that such amount would be deemed liquidated damages, was a valid and enforceable liquidated damages provision.
John A, Criswell, Englewood, for plaintiff in error.
Sternberg, Madsen Taylor, Alan L. Sternberg, Ralph C. Taylor, Littleton, for defendants in error.
PIERCE, Judge.
This case was transferred from the Supreme Court pursuant to statute.
The parties to this appeal retain their order of appearance below and will be referred to by their trial court designations or by name.
This matter arose following plaintiff’s withdrawal from a medical partnership which he and defendants had formed, by a written partnership agreement executed in July 1966, for the operation of a clinic. Plaintiff instituted this action to recover his share of partnership assets and for a determination of defendants’ right to withhold $15,600 from plaintiff’s share as liquidated damages under a noncompetition provision in the partnership agreement.
Subsequent to a full hearing, the trial court determined that the liquidated damages provision of the agreement was enforceable and awarded plaintiff his share of the partnership assets, less a $15,600 deduction as liquidated damages. Although plaintiff asserts numerous grounds as error, only those dispositive of this appeal will be discussed.
Paragraph 10.5 of the partnership agreement sets forth the liquidated damages provision in question. It provides, in pertinent part, as follows:
“10.5 In the event a partner voluntarily withdraws, or in the event he is offered the opportunity to continue with the partnership upon retirement or following an involuntary withdrawal, and the remaining partners elect to continue the partnership pursuant to the terms of this Agreement, the partner withdrawing shall have his partnership interests valued and paid as in Subparagraphs (a) and (b) of Paragraph 10.3 of this Article, subject, however, to the following specific limitations: If such withdrawing partner enters into the practice of medicine (other than as approved by a majority of the partnership as hereinafter provided) within a five-mile radius of the Littleton Clinic within two years from the date of withdrawal as above provided, the withdrawing partner shall forfeit the amount of One Thousand Three Hundred Dollars ($1,300.00) per month for each month that such partner has been a member of this partnership, but not to exceed Fifteen Thousand Six Hundred Dollars ($15,600.00). Such amount shall be deemed to be liquidated damages.”
The record indicates that, by amendment to the partnership agreement, one Dr. Clyde Penner was purportedly admitted to the partnership in late January of 1968. Within one week of his admission, Dr. Penner resigned from the partnership, and the original partners thereafter “rescinded” their signatures to the amendment. Although there was considerable dispute as to whether Dr. Penner was, in fact, ever a partner, the trial court made no specific finding on that matter.
After Dr. Penner’s withdrawal, plaintiff wrote a letter to defendants, stating, in part:
“It is my belief that the courts will find that the present partnership contract
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will have to be renegotiated if the partnership is to continue to exist. I do not desire to enter into a further partnership agreement of any nature. Should the courts find to the contrary, I intend to resign from the partnership sometime in the future.”
By a subsequent letter dated March 18, 1968, addressed to the partnership, plaintiff stated his belief that the partnership had been dissolved by Dr. Penner’s withdrawal and that plaintiff did not wish to continue as a partner. Plaintiff later advised the clinic that he would cease his practice there but that he intended to practice within a five-mile radius of the clinic and requested the partners’ permission to do so. Defendants responded by reaffirming their previous position that plaintiff was still a partner under the 1966 agreement, and advised him that they considered its terms and provisions to be in full force and effect. Plaintiff thereafter discontinued his practice at the clinic and entered into private practice at a location within five miles of the clinic.
I.
Plaintiff claims he was not bound by paragraph 10.5 of the partnership agreement, on the ground that the partnership was dissolved upon Dr. Penner’s resignation, and that paragraph 10.5 was only operative if the remaining partners “elect to continue the partnership pursuant to the terms of the Agreement.” Plaintiff contends that defendants made no such election to continue under the original agreement and that he expressly informed defendants of his desire to discontinue his status as a partner under the agreement.
[2] It is also evident from paragraph 3.3 that, as to “original partners,” no election to be bound by the terms of the original partnership agreement is required in order for the provisions of said agreement to remain in effect. Thus, under the 1966 agreement, plaintiff’s status as a partner did not change prior to plaintiff’s withdrawal from the partnership, and the terms of said agreement were therefore binding upon him. In accordance with well-established principles of law, paragraphs 3.3 and 10.5 should be interpreted so as to give full force and effect to both provisions. Grimes v. Barndollar, 58 Colo. 421, 148 P. 256. This the trial court did, and we affirm.“It is agreed that this Partnership Agreement shall govern the operation of the partnership business and profession so long as the same is continued, whether by the parties hereto, or by some of them, or by additional parties who agree to the terms hereof. It is recognized that any change in the parties resulting from death or withdrawal of the parties or from the addition of new parties constitutes the resulting business association a new partnership; but it is agreed that such partnership shall be governed by this Agreement so long as all of the parties are either original parties hereto or have agreed by letter agreement with the other partners to be bound by the terms of this Agreement. It is intended that all provisions of this Agreement shall be applied at any particular time on the basis of the then existing number and identity of the partners.” (Emphasis supplied)
For the reasons stated above, plaintiff’s further argument that, upon Dr. Grund’s withdrawal from the partnership, the entity was dissolved and therefore defendants were not entitled to enforce paragraph 10.5 against him, must also be rejected. The trial court properly concluded that under paragraph 3.3 the continued existence of the partnership, absent the plaintiff, was established.
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II.
Plaintiff’s next assignment of error is the trial court’s finding that paragraph 10.5 of the partnership agreement was a valid and enforceable liquidated damage provision rather than an unenforceable penalty or forfeiture. We cannot agree with plaintiff’s contention.
[4] In this case, where the trial court found, upon competent evidence, that it was the intention of the parties to provide for liquidated damages in the agreement and the method for assessing those damages was reasonable, we hold its determination that paragraph 10.5 was a valid and enforceable liquidated damages provision was proper. Broderick Wood Products Co. v. United States, 195 F.2d 433; Burns Trading Co. v. Welborn, 81 F.2d 691. See Marvin v. Pueblo Dairymen’s Cooperative, Inc., 131 Colo. 601, 284 P.2d 238; C. McCormick, Damages § 149.“There is no way of calculating the future loss that will be suffered through the loss of this group of patients * * * It is obvious that the measure selected is reasonably related to the anticipated loss. The interest in accounts receivable of a partner who was nearing parity would be much greater than that of one at the bottom of the scale, and a better established partner usually would take a much greater share of business from the clinic than would a partner who was not as well established.”
Plaintiff’s further assignments of error have been fully considered and we find them to be without merit.
Judgment affirmed.
COYTE and DWYER, JJ., concur.
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