Opinion
No. CV 03 0286221
April 16, 2004
MEMORANDUM OF DECISION
The plaintiff, Group Concepts, Inc. (Group Concepts), brings this action against the defendant, Tina M. Barberino, seeking injunctive relief and damages on the grounds of breach of a consulting and a non-competition agreement. Presently before the court is Group Concepts' application for temporary injunction and order to show cause, filed on December 8, 2003. A hearing was held on February 23, 2004.
In consideration of the evidence and the credibility of the witnesses, the court finds the following facts: Group Concepts is a Connecticut corporation and a successor of Group Concepts Management, Inc. Group Concepts is engaged in the business of condominium association management and has a place of business in Hamden, Connecticut. On September 11, 2002, Group Concepts and an individual named Bernard Diego entered into a stock purchase agreement with the defendant and Alan Barberino for the purchase of Barberino Real Estate, Inc., a company engaged in the business of condominium and property management, operating in Wallingford, Meriden and Southington, Connecticut. In connection with this purchase, the defendant and Group Concepts entered into a consulting and non-competition agreement (non-compete) that included provisions restricting the defendant from competing with Group Concepts anywhere within the state of Connecticut until September 30, 2004, and from soliciting any of the clients listed on schedule B of the stock purchase agreement for a period of three years. The consideration for the stock purchase and the non-compete was $84,500.
The non-compete states in relevant part:
2. Tina covenants and agrees that until September 30, 2004, she shall not compete as owner, employee or agent, directly or indirectly with the business of the Corporation or Buyer as an apartment/condominium/commercial management company as it pertains to the property management industry conducted anywhere within the State of Connecticut. Furthermore, Tina personally or as an owner, employer, employee or in any capacity shall not solicit any of the clients listed on the schedule B or any of the Buyer's clients for a period of three years. Tina will conduct business pertaining to real estate sales leasing and mortgage financing.
6. Tina represents that the foregoing territorial and time restrictions are reasonably and properly required for the adequate protection of the Corporation and that in the event that any such territorial or time limitation is deemed to be unreasonably [sic] by a court of competent Jurisdiction, then, he/she agrees and submits to the reduction of either of said territorial or time limitations to such an area or periods said court shall deem reasonable.
On October 5, 2003, the defendant began working for Ennis Property Management, Inc. (Ennis) in Meriden, Connecticut. Ennis competes directly with Group Concepts. The condominium association management business is highly competitive and Ennis has sent solicitation letters to clients listed on schedule B of the stock purchase agreement and Group Concepts has lost accounts to Ennis that had previously been managed by Barberino Real Estate, Inc. Moreover, at Ennis, the defendant engages in aspects of property management, such as receiving and handling telephone complaints and attending association meetings to assist Rob Ennis, the owner of Ennis.
On December 8, 2003, Group Concepts filed the instant application for temporary injunction and order to show cause, seeking to enjoin the defendant's alleged violation of the non-compete. A hearing was held on February 23, 2004.
I DISCUSSION A Standard for Temporary Injunction
"The principal purpose of a temporary injunction is to preserve the status quo until the rights of the parties can be finally determined after a hearing on the merits." (Internal quotation marks omitted.) Clinton v. Middlesex Mutual Assurance Co., 37 Conn. App. 269, 270, 655 A.2d 814 (1995). The plaintiff has the burden of proving by a preponderance of the evidence the following four-element test for the issuance of a temporary injunction: "(1) the plaintiff ha[s] no adequate legal remedy; (2) the plaintiff would suffer irreparable injury absent [the injunction]; (3) the plaintiff [is] likely to prevail . . . and (4) the balance of the equities favor[s] the issuance of [the injunction]." Waterbury Teachers Assn. v. Freedom of Information Commission, 230 Conn. 441, 446, 645 A.2d 978 (1994).
"The standard for granting a temporary injunction to enforce a covenant not to compete, however, is somewhat different in that the plaintiff does not need to prove irreparable harm," Century 21 Access America v. Lisboa, Superior Court, judicial district of Ansonia-Milford at Milford, Docket No. CV 03 081901 (July 22, 2003, Ronan, J.) ( 35 Conn. L. Rptr. 272, 273). "While ordinarily proof of imminent harm is essential, in this type of case there is no such requirement. It has long been recognized in this state that a restrictive covenant is a valuable business asset which is entitled to protection . . . Irreparable harm would invariably result from a violation of the defendant's promises . . . The reason for this is that such a plaintiff's actual injury is not susceptible of determination to its entire extent but is estimable largely by conjecture and prediction." (Internal quotation marks omitted.) Id., quoting Sagarino v. SCI Connecticut Funeral Services, Inc., Superior Court, judicial district of New Britain, Docket No. CV 000499737 (May 22, 2000, Aurigemma, J.) ( 27 Conn. L. Rptr. 281); see also Mattis v. Lally, 138 Conn. 51, 56, 82 A.2d 155 (1951) (finding that "irreparable damage would inevitably result from a violation of the defendant's promises").
"The standard is also different in that the plaintiff does not have to demonstrate that there is no adequate remedy at law." Century 21 Access America v. Lisboa, supra, 35 Conn. L. Rptr. 273. "[W]hile the plaintiff could maintain a claim for damages as to each violation that causes injury the difficulty of proof and the inefficiency of repetitive suits render inadequate the use of successive remedies at law, and injunctive relief is therefore warranted to protect the plaintiff from harm which the restrictive covenant was intended to prevent." (Internal quotation marks omitted.) Id., quoting Sagarino v. SCI Connecticut Funeral Services, Inc., supra, Superior Court, Docket No. CV 00 0499737; see also Berin v. Olson, 183 Conn. 337, 342-43, 439 A.2d 357 (1981).
As to the remaining elements of the four-part analysis used to determine whether a temporary injunction should be issued, Group Concepts must demonstrate that it is likely to prevail and that the balance of the equities favors the issuance of the injunction.
B The Arguments
The defendant argues that a temporary injunction should not issue for the reason that she has not violated the non-compete because "she is a licensed real estate agent and she also is involved in showing properties, and facilitating home inspections." Pursuant to the non-compete, however, she agreed that, until September 30, 2004, she would "not compete as owner, employee or agent, directly or indirectly with the business of the Corporation or Buyer as an apartment/condominium/commercial management company as it pertains to the property management industry . . ." Her employment with Ennis, a company engaged in property management and a direct competitor of Group Concepts, violates the non-compete. Moreover, the defendant is engaged at Ennis in aspects directly pertaining to the property management industry, such as attending association meetings and handling complaints. It matters not, as she argues, that she does not "handle" the accounts of former clients of Barberino Real Estate, Inc. Her presence at Ennis brings with it her experience, reputation and good will, all of which have value to Ennis in its admitted attempts to expand its property management business and to obtain the most valuable accounts.
The primary thrust of the defendant's arguments with regard to whether Group Concepts is likely to prevail on the merits is that the non-compete is unreasonable and is, therefore, unenforceable. She contends that its geographic restriction, which encompasses the entire state of Connecticut, is overly broad. Hence, the covenant as a whole should be held unenforceable. In support of her argument, the defendant relies on the doctrine set forth in CT Page 6395 Scott v. General Iron Welding Co., 171 Conn. 132, 137, 368 A.2d 111 (1976), regarding restrictive covenants ancillary to employment.
"A covenant that restricts the activities of an employee following the termination of his employment is valid and enforceable if the restraint is reasonable . . . There are five criteria by which the reasonableness of a restrictive covenant must be evaluated: (1) the length of time the restriction is to be in effect; (2) the geographic area covered by the restriction; (3) the degree of protection afforded to the party in whose favor the covenant is made; (4) the restrictions on the employee's ability to pursue his occupation; and (5) the extent of interference with the public's interests." (Citation omitted.) New Haven Tobacco Co. v. Perrelli, 18 Conn. App. 531, 533-34, 559 A.2d 715, cert. denied, 212 Conn. 809, 564 A.2d 1073 (1989); see also Scott v. General Iron Welding Co., supra, 171 Conn. 137. A finding that any one of the five criteria is unreasonable would invalidate the non-compete. New Haven Tobacco Co. v. Perrelli, supra, 18 Conn. App. 534. The burden is on a defendant to demonstrate the unreasonableness of the covenant's restrictions. Milaneseo v. Calvanese, 92 Conn. 641, 642, 103 A. 841 (1918); see also Mattis v. Lally, supra, 138 Conn. 55.
Although New Haven Tobacco Co. v. Perrelli, supra, 18 Conn. App. 533-34, and Scott v. General Iron Welding Co., supra, 171 Conn. 137, provide an analytical framework, the standard set forth in those cases is not the applicable test for a covenant made in connection with sale of a business, such as the one between Group Concepts and the defendant in the present case. "[C]ourts have generally been more willing to uphold promises to refrain from competition made in connection with sales of goodwill than those made in connection with contracts of employment . . . Restrictive stipulations given at the time of a sale of a business are more readily enforceable than in the case of employer-employee relationship. When a covenant not to compete is given in connection with a sale of business, `a large scope for freedom of contract and a correspondingly large restraint of trade is allowable.' Samuel Stores, Inc. v. Abrams, 94 Conn. 248, 253, 108 A. 541 (1919) . . . This is because restrictive covenants add to the value of the business leased or sold and add to the value of business leased or purchased." (Citations omitted; internal quotation marks omitted.) Sagarino v. SCI Connecticut Funeral Services, Inc., supra, Superior Court, Docket No. CV 00 0499737 ( 27 Conn. L. Rptr. 281).
"The value of good will purchased by a vendor of a business which has obtained a restrictive covenant as part of the purchase of a business was explained . . . in [ Mattis v. Lally, supra, 138 Conn. 54-55]." Id. In Mattis, the court upheld a barber shop's non-compete clause and held that a territory of a mile radius from the seller's business was not excessive because "the rest of the state and the world is open to him." Mattis v. Lally, supra, 138 Conn. 56. The Mattis court stated that "[g]ood will . . . means an established business at a given place with the patronage that to the name and the location. It is the probability that old customers will resort to the old place . . . Having paid for `good will,' the plaintiff [in Mattis] was entitled to have reasonable limitations placed upon the activities of the defendant to protect his purchase. If the plaintiff could hold the patronage of the defendant's old customers and secure that of others who might be lacking for the services of a barber at the established location, he would be reasonably assured of carrying on the business profitably. If, however, the defendant should open up another shop in the immediately vicinity, it was to be expected that his old personal customers and others would seek his services." (Citation omitted.) Id., 54-55. The Mattis court, upholding the restrictive covenant given by the seller of the business, wrote: "The plaintiff, however, had purchased the business for a substantial consideration and in good faith, relying upon the restrictive clause for protection . . . To excuse [the defendant] from the performance of his agreement would amount to returning to him a large part of what he has sold and would work a real hardship on the plaintiff." (Citation omitted.) Id., 55-56.
Moreover, in paragraph 6 of the non-compete in the present case, the parties have agreed to enforce the entire covenant even if the court determines that a modification of its geographic scope is required. Such modification comports with current jurisprudence. "There is a line of authority which states that if the territory specified in the contract is by the phraseology of the contract so described as to be divisible, the contract is separable and may be enforced as to such portions of the territory so described as are reasonable. This is the so-called `blue-pencil rule' and applies only to cases where the contract in terms specifies several distinct areas, so that erasing the description of one or more of those areas leaves the description of an area for which the restriction is reasonable." Timenterial, Inc. v. Dagata, 29 Conn. Sup. 180, 184, CT Page 6397 277 A.2d 512 (1971); see also Beit v. Beit, 135 Conn. 195, 204-05, 63 A.2d 161 (1948). "Severance can be effected by striking out restrictions which are excessive with respect to area." Timenterial, Inc. v. Dagata, supra, 29 Conn. Sup. 184. "Where the covenant is intended by the parties to be an entirety, it cannot properly be so divided by a court that it will be held good for a certain area but invalid for another; indeed . . . this would be to make an agreement for the parties into which they did not voluntarily enter." Beit v. Beit, supra, 135 Conn. 205.
Although the geographical restriction in the non-compete in the present case appears to represent an entirety, "[w]hether the promises in a contract will be treated as severable or not is primarily a matter of the intent of the parties, determined by a fair construction of all the provisions of the contract . . . There is undoubtedly a strong tendency on the part of courts to regard as divisible restraints of trade which are unreasonable in the extent of area covered and to hold them invalid only so far as necessary for the protection of the covenantee, where the terms of the promise permit that to be done without clearly violating the intent of the parties." (Citations omitted; emphasis added.) Id., 204. In the present case, paragraph 6 of the non-compete expresses the intent of Group Concepts and the defendant to submit to the reduction of territorial or time limitations as the court deems reasonable while otherwise preserving the terms of the non-compete.
C Group Concepts' Burden and the Balance of the Equities
As previously stated, the plaintiff has the burden of proving by a preponderance of the evidence the four-element test for the issuance of a temporary injunction: "(1) the plaintiff ha[s] no adequate legal remedy; (2) the plaintiff would suffer irreparable injury absent [the injunction]; (3) the plaintiff [is] likely to prevail . . . and (4) the balance of the equities favor[s] the issuance of [the injunction]." Waterbury Teachers Assn. v. Freedom of Information Commission, supra, 230 Conn. 446. As discussed above, the first and second prongs of the test for the issuance of a temporary injunction to enforce a non-compete agreement are taken as satisfied. See Century 21 Access America v. Lisboa, supra, 35 Conn. L. Rptr. 273. Moreover, the plaintiff has presented sufficient evidence to satisfy those two elements of the test.
As to the third element, a preponderance of the evidence indicates that Group Concepts would likely prevail on the merits of its case.
Finally, a balance of the equities also favors Group Concepts. "Even in cases where the seller will experience significant hardship from the enforcement of a restrictive covenant, the court will enforce the covenant if it has resulted from the sale and purchase of a business for which the buyer has paid substantial consideration." Sagarino v. SCI Connecticut Funeral Services, Inc., supra, Superior Court, Docket No. CV 00 0499737; see also Mattis v. Lally, supra, 138 Conn. 55-56. In the present case, Group Concepts paid substantial consideration and the defendant has failed to meet her burden of establishing that the covenant works any undue hardship on her.
D Fashioning the Temporary Injunction
Having determined that a temporary injunction is warranted, the court must now determine its proper scope. Restrictive covenants may be held invalid where they are so broad as to "prevent a party from carrying on his usual vocation and earning a livelihood"; Mattis v. Lally, supra, 138 Conn. 56; and "the application of a restrictive covenant will be confined to a geographical area which is reasonable in view of the particular situation." Scott v. General Iron Welding Co., supra, 171 Conn. 138. The Mattis court, upholding a barber shop's non-compete clause, held that a territory of a mile radius from the seller's business was not excessive because "the rest of the state and the world is open to him." Mattis v. Lally, supra, 138 Conn. 56. In Eastcoast Guitar Center, Inc. v. Tedesco, Superior Court, judicial district of Danbury, Docket No. CV 990337066 (February 7, 2000, Petroni, J.), however, the court, finding that the geographic area in the non-compete agreement was too broad and not reasonable or necessary to protect the plaintiff's business, reduced the proscribed territory from a 100-mile radius to a thirty-mile radius from the plaintiff's store.
In the present case, the non-compete prohibits conduct within the state of Connecticut. According to the defendant, a reasonable territorial range of a property management company is reflected in schedule B, which contains the list of the addresses of the defendant's clients at the time of the stock purchase agreement. Nine Connecticut towns are represented on schedule B: Meriden, East Haven, Cheshire, Wallingford, New Haven, Plainville, Newington, Southington and Farmington.
The court takes judicial notice of the fact that every town represented on schedule B is part of either Hartford County or New Haven County. See General Statutes § 6-1. Judicial notice may be taken without notifying the parties for matters of established fact, the accuracy of which cannot be questioned. Moore v. Moore, 173 Conn. 120, 121-22, 376 A.2d 1085 (1977). A reasonable geographic restriction should insulate that which Group Concepts and the defendant promised to protect through the non-compete; a restrictive covenant's `reasonableness' is based partly on the protections afforded to the party in whose interest the restriction applies. See New Haven Tobacco Co. v. Perrelli, supra, 18 Conn. App. 534.
The court notes that both parties consented though paragraph 6 of the non-compete to the "reduction of territorial . . . limitation to such an area . . . said court shall deem reasonable." For the purpose of preserving the status quo and affording due protection to Group Concepts, the court finds in the particular context of these two parties that a reasonable geographic area in which the defendant may not work, directly or indirectly, in the property management industry is in Hartford County and New Haven County.
Based on the foregoing, the application is granted and a temporary injunction shall issue enjoining the defendant, until September 30, 2004, from competing as owner, employer, employee or agent, directly or indirectly, with the business of Group Concepts in the property management industry anywhere within either Hartford County or New Haven County. Until September 30, 2004, the defendant may only be engaged in the property management industry if both the work itself and the entity engaged in the work are outside of Hartford County and New Haven County.
Furthermore, a temporary injunction shall issue enjoining the defendant, whether as an owner, employer, employee or agent, from soliciting any of the clients listed on schedule B or any of Group Concepts' clients until September 11, 2005, a period of three years from the date of the stock purchase agreement.
II ORDER
(1) Until September 30, 2004, the defendant is enjoined from performing any property management work in either Hartford County or New Haven County, and is enjoined from working:
(a) for any company engaged in the property management industry that has an office in either Hartford County or New Haven County, even if the work she performs is outside of Hartford County or New Haven County; or
(b) for any company that performs any property management work in Hartford County or New Haven County, even if the company is not located in Hartford County or New Haven County.
(2) Until September 11, 2005, the defendant is enjoined from soliciting any of the clients listed on schedule B or any of Group Concepts' clients.
The parties are to contact the caseflow coordinator for further scheduling in this matter.
BY THE COURT
Tanzer, Judge