Howard v. Babcock

In 1982, partners in law firm Parker, Stanbury, McGee, Babcock & Combs (Parker) entered a partnership agreement that said partners who left and started a competing practice nearby would forfeit withdrawal benefits except for capital, including the share of profits a partner would have received over the next year had the partner stayed with the firm. When partners Theodore Howard and two others (the Howard partners) (plaintiffs) left and started a directly competing firm (Howard), Parker clients switched to Howard in about 200 pending cases. Parker’s assets included firm capital, accounts receivable, and open files with ongoing work. Parker paid the Howard partners their shares of firm capital but nothing for accounts receivable or ongoing work. The Howard partners sued Parker partner George Babcock and five others (defendants) challenging the forfeiture provision as unenforceable. The trial court upheld the provision and ordered the Howard partners to provide an accounting of the net profits billed or collected from former Parker clients for the entire year, then ordered the Howard partners to pay the remaining Parker partners $383,686, reflecting 82.5 percent of the profits the Howard partners earned after leaving Parker. The Howard partners appealed. The appellate court reversed, finding the provision an unenforceable noncompete agreement. The California Supreme Court granted review.