Opinion
No. 15–2959.
04-07-2016
Dwight TRIMM, Plaintiff, v. Debra FREESE, Defendant.
Sara W. McGinty, Esq., Sara W. McGinty, P.C., Rosendale, Counsel for Plaintiff, movant. Adam T. Mandell, Esq., Maynard, O'Connor, Smith & Catalinotto, LLP, Saugerties, Counsel for Defendant, cross-movant.
Sara W. McGinty, Esq., Sara W. McGinty, P.C., Rosendale, Counsel for Plaintiff, movant.
Adam T. Mandell, Esq., Maynard, O'Connor, Smith & Catalinotto, LLP, Saugerties, Counsel for Defendant, cross-movant.
LISA M. FISHER, J.
This matter involves the sale of a window cleaning business from Defendant to Plaintiff for the sum of $6,000.00. Such contract was made between the parties without legal representation, and signed on September 15, 2014. Pertinently, the contract contained “a no competition claus [sic] between [Defendant] and [Plaintiff]. [Defendant] agrees not to open window cleaning company in the future also not to contact current customer list or future customers .” Plaintiff paid a lump sum of $4,000.00, and the remaining balance was secured by a promissory note. The balance was satisfied in full on or about November 15, 2014. According to Plaintiff, Defendant reported the business allegedly had an annual income between $40,000 and $70,000.
In March 2015, Plaintiff contends he began receiving telephone calls from customers on the customer list seeking to reschedule appointments that Plaintiff did not arrange. Plaintiff alleges one customer told him that Defendant stated the sale of the business did not “work out” and she resumed services. When Plaintiff began to call from the customer list for spring cleaning, allegedly two customers told Plaintiff they already scheduled with Defendant. A third customer had scheduled a cleaning with Plaintiff, but was “confused” because Defendant subsequently solicited him for her cleaning service.
On August 17, 2015, Plaintiff's counsel sent a cease and desist letter to Defendant. According to Plaintiff and his counsel's affirmation, Defendant presented herself at Plaintiff's counsel's office (before Defendant was represented) and acknowledged she had provided window cleaning services to her former clients. Defendant also admitted to owning a separate business listed on Angie's List with a new telephone number for the business, and stated she would remove it; Plaintiff contends she still has not removed it.
Unlike Plaintiff, Defendant does not submit an affidavit with personal knowledge. Only her attorney submits an affirmation, which is without probative value as to the facts since he does not have personal knowledge. (See Gillis v. Herzog Supply Company, Inc., 121 A.D.3d 1334, 1336, 995 N.Y.S.2d 314 [3d Dept 2014] ; see also 1375 Equities Corp. v. Buildgreen Solutions, 120 A.D.3d 783, 992 N.Y.S.2d 288 [2d Dept 2014] ; Brown v. Smith, 85 A.D.3d 1648, 924 N.Y.S.2d 867 [4th Dept 2011] ; Conti v. City of Niagara Falls Water Bd., 82 A.D.3d 1633, 919 N.Y.S.2d 639 [4th Dept 2011].) For instance, “[u]pon information and belief” precedes an important rebuttal and fact-supplying sentence which highlights the lack of personal knowledge, thus this sentence is ignored by the Court as it is without probative value. Notwithstanding, the attorney affirmation is able to competently provide the fact that Defendant offered to return the $6,000.00, the procedural history of the matter and application, and the applicable law.
Plaintiff's Order to Show Cause seeks an Order 1) requiring Defendant to immediately cease and desist from contacting persons on the business customer list by any means or manner, 2) requiring Defendant to immediately cease and desist from operating a window cleaning company or soliciting customers for such services within a 50–mile radius of Kingston, New York, and 3) for such other and further relief as this Court may seem just and equitable.
Oral argument was held on the Order to Show Cause. Defendant was unrepresented on the date of oral argument, and the Court, finding Plaintiff would be irreparably injured, issued a temporary restraining order (hereinafter “TRO”) on November 2, 2015, granting the relief Plaintiff sought pending full submission and a decision on the matter.
Defendant cross-moves for an Order pursuant to CPLR R. 3211(a)(7) to dismiss the Complaint, or in the alternative pursuant to CPLR § 6314 to vacate the TRO, in addition to 1) denying Plaintiff's Order to Show Cause for a preliminary injunction, 2) granting Defendant additional time to serve her Answer, and 3) for such and further relief as to the Court seems just and proper.
Legal Application
For a motion to dismiss for failure to state a cause of action pursuant to CPLR R. 3211(a)(7), the court is to afford the complaint liberal construction (CPLR § 3026 ), “accept the facts as alleged in the complaint as true, accord plaintiffs the benefit of every possible favorable inference, and determine only whether the facts as alleged fit within any cognizable legal theory.” (Leon v. Martinez, 84 N.Y.2d 83, 87 [1994], citing Morone v. Morone, 50 N.Y.2d 481 [1980] ; Rovello v. Orofino Realty, 40 N.Y.2d 633 [1976] ; accord Rodriguez v. Jacoby & Meyers, LP, 126 A.D.3d 1183, 1185, 3 N.Y.S.3d 793 [3d Dept 2015] ; He v. Realty USA, 121 A.D.3d 1336, 1339, 996 N.Y.S.2d 734 [3d Dept 2014].) Therefore, “[i]f [the court] find[s] that the plaintiff is entitled to a recovery upon any reasonable view of the stated facts, [the court's] judicial inquiry is complete and [the court] must declare the plaintiff's complaint to be legally sufficient.” (219 Broadway Corp. v. Alexander's Inc., 46 N.Y.2d 506, 509 [1979].)
Defendant argues that the Complaint fails because the non-compete clause is invalid and unenforceable as it is not limited in duration or geographic area. She relies on several applicable cases for the proposition that “[c]ovenants not to compete will be enforced if reasonably limited as to time, geographic area and scope, are necessary to protect the employer's interests, not harmful to the public, and not unduly burdensome” (Mandell Affirmation, ¶ 12, citing Battenkill Veterinary Equine P.C. v. Cangelosi, 1 A.D.3d 856, 857–58, 768 N.Y.S.2d 504 [3d Dept 2003] ; Gelder Med. Group v. Webber, 41 N.Y.2d 680, 683 [1977] ; Albany Med. Coll. v. Lobel, 296 A.D.2d 701, 702, 745 N.Y.S.2d 250 [3d Dept 2002] ).
However, these cases pertain to an “employer's interests ” as to an employee leaving the employer's place of business—not necessarily the sale of a business and its “good will.” Even though the contract was drafted by legal laypersons, it is clear that the contract purported to sell the business and its “good will” by the attempted covenants. The distinction between covenants involving departing employees and the sale of a business was explicitly addressed in Mohawk Maintenance Co. v. Kessler (52 N.Y.2d 276, 437 N.Y.S.2d 646, 419 N.E.2d 324 ), wherein the Court of Appeals rejected arguments similar to Defendant's.
In Mohawk, even though there were express covenants, the Court of Appeals found that the sale of a business contained an “implied covenant” to “refrain from soliciting former customers following the sale of the good will' of a business” (Mohawk, 52 N.Y.2d at 284, 437 N.Y.S.2d 646, 419 N.E.2d 324 ). It was held that such implied covenant “must logically be regarded as permanent one that is not subject to divestiture upon the passage of a reasonable period of time” (Mohawk, 52 N.Y.2d at 284–85, 437 N.Y.S.2d 646, 419 N.E.2d 324 [reasoning that the implied covenant imposed by law is necessary to “prevent the seller from taking back that which he has purported to sell.”] ). Even though the parties had agreed to other, less-restrictive non-compete covenants, the Court of Appeals still applied a permanent durational prohibition on soliciting former customers. (See Mohawk, 52 N.Y.2d at 286, 437 N.Y.S.2d 646, 419 N.E.2d 324 [“In the present case, there can be little doubt that a transfer of good will' was intended, even though the contract of sale did not expressly provide as much. ”] [emphasis added].)
Indeed, “[i]t is the settled law of this State that one who sells a business to another has a legal duty to refrain from acting to impair the good will' transferred to the purchaser in exchange for part of the purchase price” (see Hyde Park Prods. Corp. v. Maximillian Learner Corp., 65 N.Y.2d 316, 321 [1985], citing Mohawk, 52 N.Y.2d at 284, 437 N.Y.S.2d 646, 419 N.E.2d 324 ; Von Bremen v. MacMonnies, 200 N.Y. 41, 50–51 [1910] ; see also Bessemer Trust Co., N.A. v. Branin, 16 N.Y.3d 549, 556 [2011].) “[T]he modern trend in the case law seems to be in favor of according such covenants full effect when they are not unduly burdensome, particularly in cases where the agreement in question is made in connection with the sale of a business and its accompanying good will' “ (Mohawk, 52 N.Y.2d at 284, 437 N.Y.S.2d 646, 419 N.E.2d 324, citing Reed, Roberts Assoc. v. Strauman, 40 N.Y.2d 303, 307 [1976] ; Purchasing Assoc., Inc. v. Weitz, 13 N.Y.2d 267 [1963] [“Where, for instance, there is a sale of a business, involving as it does the transfer of its good will as a going concern, the courts will enforce an incidental covenant by the seller not to compete with the buyer after the sale.”] ).
However, the requirement that such covenants be “reasonable” in scope has “never been completely abandoned and remains an important part of our case law” (Mohawk, 52 N.Y.2d at 284, 437 N.Y.S.2d 646, 419 N.E.2d 324 ). Therefore, while the seller of a business for “good will” may not solicit former customers, “absent an express or restrictive covenant not to compete, a seller of good will' who lawfully competes with a purchaser may advertise to the public” and therefore open a business in direct competition with the sold business. (See Bessemer, 16 N.Y.3d at 558, 925 N.Y.S.2d 371, 949 N.E.2d 462 ; Hyde Park Prods., 65 N.Y.2d at 321, 491 N.Y.S.2d 302, 480 N.E.2d 1084.) Even so, “[a] seller, of course, is not free to tout his new business venture simply because a former client has fortuitously communicated with him first” (Bessemer, 16 N.Y.3d at 558, 925 N.Y.S.2d 371, 949 N.E.2d 462, citing Von Bremen, 200 N.Y. at 51, 93 N.E. 186 [finding, even when contacted first, a seller cannot “disparage[ ] the purchaser of his business” and thus a seller is precluded from “destroy[ing] or depreciat[ing] the thing which he has sold”] ).
Since the Complaint sets forth that the Defendant has violated the non-compete covenant by contacting customers from the sold-business' customer list, and the facts of a Complaint are accepted as true (Leon, 84 N.Y.2d at 87, 614 N.Y.S.2d 972, 638 N.E.2d 511 ), and operation of law creates an implied covenant to permanently not solicit former customers, all of which may entitle Plaintiff to a recovery under a reasonable view of the stated facts (219 Broadway, 46 N.Y.2d at 509, 414 N.Y.S.2d 889, 387 N.E.2d 1205 ), the Complaint is therefore legally sufficient and the branch of Defendant's motion seeking to dismiss the Complaint for an invalid and enforceable non-compete clause is denied.
Thus, Defendant's motion to vacate the portion of the TRO restricting and enjoining her from contacting persons on the customer list is also denied. It should be noted that the Court considered permitting Defendant to contact individuals on the customer list who contacted her first. But given the unrebutted statements that Defendant allegedly told customers that the sale of the business to Plaintiff did not “work out[,]” which impermissibly destroys or depreciates the business which she sold to Plaintiff (Bessemer, 16 N.Y.3d at 558, 925 N.Y.S.2d 371, 949 N.E.2d 462 ; Von Bremen, 200 N.Y. at 51, 93 N.E. 186 ), and the lack of any competent evidence to the contrary submitted in opposition by Defendant, the Court finds Plaintiff has established “irreparable injury” if Defendant were permitted to converse with any customer from the sold customer list at the present time.
However, the Court reaches a different result as to the second part of the TRO. While there is a well-established implied covenant that Defendant permanently cannot solicit persons on the sold customer list, and must be careful even if former customers contact her first by not disparaging, destroying, or depreciating the sold-business, Plaintiff does not provide legal authority for, and the Court is unaware of, an implied covenant to not open another competing business absent a covenant not to compete. Since the “reasonableness” test has not been abandoned (Mohawk ), and there is no implied covenant to not open a competing business, Plaintiff is unable to establish “irreparable injury” warranting the TRO or a preliminary injunction enjoining Defendant from operating a window cleaning company because there is no temporal or geological limitation in the covenant not to compete. (See CPLR § 6313[a].)
Inasmuch as it relates to the Angie's List posting, it is clear from the Court of Appeals that “a seller of good will' who lawfully competes with a purchaser may advertise to the public” (see Bessemer, 16 N.Y.3d at 558, 925 N.Y.S.2d 371, 949 N.E.2d 462 ; Hyde Park Prods., 65 N.Y.2d at 321, 491 N.Y.S.2d 302, 480 N.E.2d 1084 ). Whether or not the Angie's List profile/listing is stale or newly posted, the reasonableness of the covenant not to compete in opening a new window cleaning business has not been established. Nor has it been established whether such restriction is unduly burdensome on Defendant. Therefore, at the present time with the present information submitted to the Court, there does not appear to be any lawful prohibition against Defendant operating a competing business. Therefore, the TRO restricting and enjoining Defendant from opening another window cleaning business is vacated.
The Court finds it necessary to explain why such finding that the motion to dismiss is denied because of the implied covenant, but part of the TRO is vacated because of the non-compete covenant, is not as contradictory as it appears at first glance. The initial reason is because of the standard for a motion to dismiss, i.e., whether the facts as accepted as true state a cause of action—which they do—versus the standard for a TRO, i.e., whether Plaintiff has established “irreparable injury,” carry quite different burdens. As also noted above, the implied covenant as to affecting the good will of a business is always read in by operation of law, whereas a covenant not to open a competing business must still satisfy the reasonableness standard and prove to not be unduly burdensome.
More importantly though, the causes of action enumerated in the Complaint do not distinguish or breakdown the components of the non-compete covenant or seek relief premised on the non-compete covenant specifically. Rather, they seek relief on the “terms” of the “contract,” which includes both the express covenants and the implied covenant. For instance, the first cause of action demands specific performance of Defendant's obligations under the contract, which include by operation of law the implied covenant. The second cause of action seeks unjust enrichment for the revenue Defendant has received from the customer list which as affected Plaintiff's revenue. The third cause of action seeks actual damages from income diverted by Defendant from those on the customer list. The fourth cause of action seeks consequential damages for loss in value of the business. The fifth cause of action seeks lost revenue arising from Defendant's breach of the contract, which includes the implied covenant. None of these causes of action specifically rely on the non-compete clause, but rather the terms of the contract which include the implied covenant; this operates to defeat the motion to dismiss.Defendant's motion to dismiss does not attack the causes of action individually, but rather on the basis of the non-compete covenant. Whereas the contract and its implied covenant are still valid.
It should further be noted that Defendant cannot use as a sword against Plaintiff the fact that Defendant offered to return the purchase price Plaintiff paid for the business, as Plaintiff may be entitled to damages beyond the purchase price as afforded to him under contract law.
As to the branch of Defendant's motion seeking to file a late Answer, this is granted as unopposed. It is also the preference of the courts to adjudicate matters on the merits.
To the extent not specifically addressed above, the parties' remaining contentions have been examined and found to be lacking in merit or rendered academic.
Thereby, it is hereby
ORDERED that the branch of Defendant's cross-motion to dismiss is DENIED, in its entirety; and it is further
ORDERED that the branch of Defendant's cross-motion to vacate the TRO issued November 2, 2015, is GRANTED, in part, vacating the branch of the TRO restricting and enjoining Defendant from operating a window cleaning company within a 50–mile radius of Kingston, New York or advertising her services in such area by social media, email, publication or otherwise, and all other relief is DENIED; and it is further
ORDERED that the branch of Defendant's cross-motion to file and serve a late Answer is GRANTED, and Defendant shall do so within 30 days of the signing of this Decision and Order; and it is further
ORDERED that Plaintiff's Order to Show Cause for a TRO is GRANTED, in part, restraining and enjoining Defendant, her associates, agents, and employees from contacting persons on the business customer list as described in Plaintiff's affidavit by any means or manner whatsoever, and all other relief is DENIED.
This constitutes the Decision and Order of the Court. Please note that a copy of this Decision and Order along with the original motion papers are being filed by Chambers with the County Clerk. The original Decision and Order is being returned to the prevailing party, to comply with CPLR R. 2220. Counsel is not relieved from the applicable provisions of this Rule with regard to filing, entry and Notice of Entry.