Courts Permitted to Award Time Limited Alimony for Rehabilitative Purposes

In determining whether alimony should be awarded- as well as the duration and amount of the award- there are several statutory criteria that must be considered.  Although these well-settled factors provide courts and litigants with some direction, there is no precise formula, and judges are afforded significant discretion is fashioning support awards.  In a recent appellate decision, the Court pointed out that in exercising such discretion, trial judges may consider whether time limited alimony is appropriate merely for rehabilitative purposes in cases where a future event will enable an ex-spouse to become self-sufficient.

In Marmo v. Marmo, 131 Conn. App. 43 (2011), the Connecticut Appellate Court explained that although the traditional purpose of alimony is to meet one’s continuing duty to support, courts have begun to limit the duration of alimony awards to encourage the receiving spouse to become self-sufficient.  The underlying policy is that limiting awards may provide an incentive for the spouse receiving support to use diligence in procuring training or skills necessary to attain self-sufficiency.  The Court further explained, “[a]nother valid purpose for time limited alimony is to provide interim support until a future event occurs that makes such support less necessary or unnecessary.”  Id.  For example, interim support may be appropriate until a minor child reaches the age of majority.  Other examples might include bond maturation, trust disbursement, or mortgage maturation. Id.  One caveat to this rule is that there must be sufficient evidence to support a trial court’s finding as to the duration established. Id.

In Marmo, supra, the parties were married for approximately seventeen years.  However, the trial court found that the wife had experience working as a computer department manager of a third party administrator.  Although she left that position due to her pregnancy, at the time of trial she was employed by a local board of education working with computers part-time.  Importantly, the wife testified that she was in the process of completing a bachelor’s degree to enable her to obtain a teaching certificate.  She expected to complete her degree in December, 2009 and obtain her certification two years later, at which time she planned to teach computer technology in elementary or middle school.  The wife further testified that she intended to sell the marital residence when the children were out of high school.  Without necessarily explaining its rationale, the trial court awarded the wife alimony in the amount of $825.00 per week for a period of four years.

The Appellate Court ultimately held that the trial court’s alimony award was appropriate.  In support of its decision, the Court noted the foregoing evidence, ultimately concluding that the time limited award met the purpose of helping the wife rehabilitate and become self-sufficient.  Essentially, the Court awarded her support until she was able regain full time employment, which also coincided, in terms of timing, with the parties’ children graduating from high school.

Should you have any questions regarding alimony in the context of a divorce proceeding or post-judgment modification, please do not hesitate to contact Maya Murphy, P.C.  Attorney DeMeola welcomes inquires and can be reached in the Westport office by telephone at (203) 221-3100 or by e-mail at mdemeola@mayalaw.com.

 

Court Awards Wife Alimony in Addition to a Portion of Husband’s Business

It is well recognized that in dissolution actions, a trial court may exercise broad discretion when dividing property and awarding alimony, as long as it considers all relevant statutory criteria.  For many reasons, one of which is that a trial judge has the benefit of observing witnesses first hand, an appellate court will not disturb a trial court’s decision unless there has been a clear abuse of discretion.  This of course is a very heavy burden for an appellant to satisfy, but the standard makes sense, and is not insurmountable.  That being said, the appellate process presents its own challenges and to the extent an appellate court may exercise its own discretion to arrive at a desired result, it can be relatively unpredictable.

In a recent appellate decision, the Court addressed whether it was appropriate for a trial judge to award a wife alimony in addition to a portion of the husband’s business, which provided his sole stream of income.  In McRae v. McRae, 129 Conn. App. 171 (2011), the defendant owned a software production company, while the wife owned a decorative painting business.  The main issue of contention at trial concerned the value of the husband’s company.  Both parties utilized business valuation experts who introduced testimony on the issue, and after hearing evidence, the Court relied on the husband’s expert.  Interestingly, the Court also made findings as to the parties’ respective earning capacities, as opposed to their actual earnings.  The Court ultimately divided the marital property equally, including the husband’s business as part of the marital estate.  In addition, the Court awarded the wife periodic alimony for a term of ten years.

On appeal, the defendant argued that the trial court’s decision to take his business into account in both the property division scheme and the award of alimony constitutes improper double dipping, a generally recognized concept.  The Appellate Court affirmed the Trial Court’s decision on two main grounds.  First, it held that although C.G.S.A. § 46b-81 allows a trial court to consider its property division order when fashioning an alimony award, nothing in the statutory framework forbids a court from awarding periodic alimony to one spouse when the court has made an equitable distribution of the other spouse’s closely held business.  The Court also held that the trial court specifically based the alimony award on the parties’ earning capacities- not the husband’s business- which it is permitted to do.  This case further exemplifies not only the broad discretion a trial court is permitted to exercise in the context of a dissolution action, but also illustrates the degree of deference the Appellate Court will afford a trial judge when reviewing the underlying decision.

Should you have any questions regarding matrimonial cases, please do not hesitate to contact our office.  Attorney DeMeola welcomes inquiries regarding matrimonial matters and can be reached in the firm’s Westport office by telephone at (203) 221-3100 or by e-mail at mdemeola@mayalaw.com

 

Considering Fault in a “No-Fault” Jurisdiction

During an initial telephone call or divorce consultation, prospective clients often ask whether Connecticut is in fact a no-fault jurisdiction.  People typically equate that concept with the idea that marital property will automatically be divided equally, with each party receiving fifty percent.  Although Connecticut is indeed a no-fault jurisdiction, one should not presume that, regardless of the circumstances giving rise to the dissolution, each party will necessarily receive fifty percent of the marital estate.

To be sure, there are several recognized grounds for a dissolution of marriage, many of which constitute the common understanding of “fault.” As set forth in Connecticut General Statutes § 46b-40, a Court may consider causes such as: 1) adultery; 2) fraudulent contract; 3) wilful desertion; 4) habitual intemperance; and 5) intolerable cruelty.  If proven, a finding of fault may impact orders regarding property division and/or financial awards.

Connecticut is often referred to as a no-fault jurisdiction because a Court may dissolve a marriage simply because it has broken down irretrievably.  Although this provision allows couples to get divorced without proving fault on the part of either party, it does not mean the causes for the breakdown of the marriage, if there are any, are always irrelevant.  It simply means that a Court is not required to find fault before it dissolves a marriage.  Posada v. Posada, 179 Conn. 568 (1980).  This allows parties to obtain a divorce without exposing their private affairs in a public forum.

Importantly, even if a Court specifies that a dissolution is predicated on an “irretrievable breakdown” in the relationship, it is not precluded from considering causes when entering orders regarding property division and/or when making financial awards. Sweet v. Sweet, 190 Conn. 657 (1983).   Indeed, under C.G.S.A. §46b-81, the Court must consider the causes for the dissolution of marriage in fashioning orders regarding property division, and under C.G.S.A. §46b-82, must consider the causes for the dissolution in fashioning alimony orders.

As each matrimonial case presents its own unique circumstances, it is very important to understand the parameters of the factors set forth above, and the degree to which Courts will consider fault in a particular case.  It is also important to understand how to present such circumstances in an effective and meaningful way.  Should you have any questions regarding your own case, please do not hesitate to contact our office.  Attorney DeMeola welcomes inquiries regarding matrimonial matters and can be reached in the firm’s Westport office by telephone at (203) 221-3100 or by e-mail at mdemeola@mayalaw.com

 

Court Orders Father to Pay College Tuition Up to Full UCONN Cap

A recent Connecticut Appellate Court decision emphasizes the importance of formulating clear and unambiguous language when crafting an agreement regarding the payment of college expenses under Connecticut General Statutes §46b-56.  In Loso v. Loso, 132 Conn. App. 257 (2011), the parties entered into a post-judgment agreement pursuant to which the defendant is obligated “to pay for one-half the cost of [his daughter’s] college educational expenses for a four year degree net of scholarships or grants subject to the limitation that said cost shall not exceed the tuition for a full-time residential student at UCONN-Storrs.”

The Plaintiff subsequently filed a motion for contempt, alleging that the defendant was obligated to pay one-half the cost of their daughter’s fall 2010 semester at Sacred Heart University, which included charges for a meal plan, health insurance, recreation and athletic fees, housing and tuition.  The defendant contended that his obligation was capped at one-half the tuition for a full-time residential student at UCONN Storrs.  After reviewing the plain language of the agreement, however, the Court held that the defendant was indeed responsible for one-half of the daughter’s educational expenses- not just tuition- but further held that his obligation was capped at the full amount of tuition for a student at UCONN Storrs, not one-half.  It appears this issue could have been avoided altogether had the defendant specified that he would pay one-half of the college expenses up to one-half the amount charged by the University of Connecticut for a full-time residential student.

Once again, this case illustrates the importance of drafting clear and unambiguous language when crafting a provision regarding the payment of college expenses to ensure that the agreement accurately reflects the parties’ intentions.  This is particularly true when a child will be attending an institution which costs more than the University of Connecticut, as a party could be ordered to pay well in excess of the expected amount.

Should you have any questions regarding payment of college expenses in the context of a post-judgment matrimonial case, please do not hesitate to contact our office.  Attorney DeMeola welcomes inquiries regarding matrimonial matters and can be reached in the firm’s Westport office by telephone at (203) 221-3100 or by e-mail at mdemeola@mayalaw.com

Court Rules it Has Authority to Award Child Support and Alimony Even if Parties are Living Together

In a dissolution action currently pending in the Stamford Superior Court, Judge Tierney recently ruled on what appears to be an issue of first impression regarding pendente lite child support and alimony.  In Peterson v. Peterson, Superior Court, Judicial District of Stamford, Docket No. FSTFA094015636S (Sept. 21, 2011, Tierney, J.), the parties were married on May 23, 1985 in Salt Lake City, Utah.  They are both in their early fifties and are both in good health.  The wife is a Program Administrator earning $3,287 per month, and the husband is a lawyer who, at one time, earned approximately $500,000 annually, plus bonuses.

Despite the fact that the parties continued residing in the marital home during the pendency of the action, the Wife requested unallocated alimony and child support in the amount of $6,500.00 per month.  The court framed the principal issue as follows: “Does the Superior Court have the authority to enter pendente lite alimony and child support orders when the parties are residing together?”

Generally speaking, in determining pendente lite alimony and child support, one must consider the factors set forth in Connecticut General Statutes §§ 46b-83 and 46b-84.  With respect to pendente lite child support, those factors include the respective abilities of the parents to provide such maintenance, as well as the age, health, station, occupation, earning capacity, amount and sources of income, estate, vocational skills and employability of each of the parents, and the age, health, station, occupation, educational status and expectation, amount and sources of income, vocational skills, employability, estate and needs of the child.  With respect to pendente lite alimony, the court must consider the length of the marriage, the age, health, station, occupation, amount and sources of income, vocational skills, employability, estate and needs of each of the parties, and, in the case of a parent to whom the custody of minor children has been awarded, the desirability of such parent’s securing employment.

After setting forth case law precedent and relevant legislative developments, the Court in Peterson found that §§ 46b-83 and 46b-84 are silent as to whether the parties must live separate and apart in order for the Court to enter pendente lite alimony and child support orders.  Indeed, as the Court explained, “Nowhere in these statutes does there exist any requirement that the parties live separate and apart as a condition of a pendente lite alimony order.”  Id.  The court further found that older decisions citing “abandoned” and “living apart” as conditions of pendente lite alimony have been rejected by more recent decisions that do not mention either phrase.  Thus, Judge Tierney ultimately held that there is no current statutory or case law authority to support the proposition that parties must be living apart in order for the Court to enter pendente lite alimony or child support, and, therefore, the Superior Court has the authority to enter such orders even when the two parties continue to reside together.

Attorney DeMeola practices out of Maya Murphy’s Westport office.  He welcomes inquiries and can be reached by telephone at (203) 221-3100 or by e-mail at mdemeola@mayalaw.com.

Court Denies Enforcement Due to Inconsistencies & Absence of Valid Contract

Court Denies Enforcement Due to Inconsistencies & Absence of Valid Contract

Luongo Construction & Development, LLC v. Keim, 2008 Conn. Super. LEXIS 1182

Luongo Construction & Development was a limited liability corporation organized under Connecticut law with headquarters in Wallingford, CT that was engaged in the modular home industry.  The company employed Mr. Melvin Keim at its office and allegedly executed a “Non-Compete Agreement” with him on March 15, 2006.  The agreement prohibited Mr. Keim from competing with Luongo by engaging in the modular home industry within fifty miles of Wallingford, CT for a period of five years following his termination.  Luongo brought an action against Mr. Keim to enforce the provisions of the non-compete agreement when he began to work for another company in the same industry.

The court rejected Luongo’s request for injunctive relief and enforcement of the agreement because it concluded that there was no valid or enforceable contract executed by the parties.  Luongo submitted the non-compete agreement to the court in two forms: first as an attachment to its application for preliminary injunctive relief (hereafter referred to as “Attachment”) and then as “Exhibit A” for evidence during the hearings regarding its application for an injunction (hereafter referred to as “Exhibit”).  The court noted that while the documents had similarities, there were many significant differences.  Firstly, the court identified that the documents were both photocopies since the originals could not be located, they were generic agreements that did not specifically mention Mr. Keim’s name, were dated March 15, 2006, and bore the same three signatures (Mr. Michael Luongo, Mr. Keim, and Mr. Robert G. Wetmore, the witness and Commissioner of the Superior Court).

The court went on to identify the numerous differences between the two documents and concluded that they were material differences that substantially affected the nature of the agreement’s obligations and validity.  The following differences were cited as damaging to the agreements’ integrity and enforceability: Attachment contained a different provision concerning working for a competing business, Attachment prohibited engagement in the “financial planning business” while Exhibit prohibited engagement in the “modular home business”, and the documents had significant drafting differences with respect to its provisions and formatting”.  Furthermore, the court noted that the parties were never in each other’s presence to actually witness the other party sign the agreements.

After an in-depth analysis of the agreements and taking testimony from both side, the court held that there was not a valid and legally enforceable contract executed by the parties.  The court specifically stated that “The inconsistency of these two agreement also militates toward the court’s finding that there is insufficient evidence to support a probable cause finding of a bona fide agreement signed by the parties”.  In order for parties to create a valid contract, there has be an offer and acceptance between the parties based on a mutual understanding of the terms and obligations.  Courts have long held that mutual assent or a meeting of minds is required for a valid and legally binding contract.  In this case, the court concluded that there was not an enforceable employment contract between the parties and subsequently denied Luongo’s request for injunctive relief to enforce the provisions of the non-compete agreement.

If you have any questions relating to your non-compete agreement or would like to discuss any element of your employment agreement, please contact Joseph C. Maya, Esq. by phone at (203) 221-3100 or via e-mail at JMaya@Mayalaw.com.

Court Enforces Non-Compete Agreements Connected to Franchise Agreements

Court Enforces Non-Compete Agreements Connected to Franchise Agreements

Carvel Corporation v. DePaola, 2001 Conn. Super. LEXIS 1190

Carvel Corporation sells retail manufacturing licenses and related goods/services to franchises that operate Carvel ice cream stores.  Misters Leopold and David DePaola operated two such Carvel stores in Waterbury, Connecticut.  The two men contracted with Carvel on November 1, 1990 to obtain a retail manufacturer’s license for Carvel franchise store # 1578 for a period of ten years.  The parties entered into non-compete and trade secrets agreements on March 22, 1991.  Later that year, on September 11, 1997, the DePaolas entered into an agreement for a license for Carvel franchise store # 2704.  Several restrictive covenants accompanied this second franchise agreement.  The DePaolas were prohibited from operating ice cream stores within two miles of their previous Carvel locations for a period of three years following the abandonment or expiration of each respective license agreement.  Additionally, the covenants stated that legal disputes would be “interpreted, governed, and construed pursuant to New York law”.

On October 31, 2000 the first license agreement expired but Carvel alleged that the DePaolas continued to operate that location as an independent ice cream store.  The company learned a few weeks later that the DePaolas had begun to operate the second location in the same manner, as an independent ice cream store not classified as a Carvel franchise.  Carvel Corp. sued the DePaolas for breach of the restrictive covenants and specifically claimed that they would disclose valuable and proprietary trade secrets during their current and future business activities.  Carvel requested that the court issue two injunctions: one to order the DePaolas to cease using and to return any and all Carvel property and a second to cease the operation of their independent ice cream stores in order to comply with the non-compete agreements.  The DePaolas were compliant with returning Carvel property but took issue with the company’s request that they cease their operations of the two ice cream stores.  The agreement had a choice of law provision designating New York law as controlling, but the Superior Court of Connecticut sitting in New Britain was able to adjudicate the case because of the similarities in New York and Connecticut laws’ treatment of non-compete and other employment agreements.

The court found in favor of Carvel Corporation and ordered that the DePaolas cease their operations of their two independent ice cream stores in Waterbury, CT in order to comply with the non-compete agreement.  To reach its decision regarding the enforceability of the underlying employment contract between the parties, the court analyzed whether Carvel had a legitimate business interest that warranted protection, the degree to which the restrictions were reasonable, and to what extent the restrictions would make the DePaolas bear occupational hardships.

The court held that Carvel did have a legitimate business interest that was threatened by the DePaolas’ continued business activities.  While the company did not exercise physical control or have a leasehold interest over the stores, the company had an interest in its goodwill and name recognition that was connected to the customers of the DePaolas’ ice cream stores.  Next, the court held that the restrictions, both time and geographical, were reasonable in scope and enforceable by an injunction.  The stated purpose of the restrictions was to “prevent dilution of the exclusivity of the valuable Carvel know-how and Carvel trade secrets”.  The restrictions enumerated in the non-compete agreement were firm enough to protect Carvel’s legitimate interest but limited enough so as not to unnecessary restrict the DePaolas’ economic activities.

The DePaolas claimed that should an injunction be issued, they would “lose both their income and their investment” because the “hardships would be immediate, devastating, and irreparable”.  The court rejected this argument however and held that the DePaolas had entered into the agreements on their own accord without coercion and as such were responsible to bear the risk of hardships that may be the product of the agreements’ terms.

In light of a legitimate business interest and reasonable restrictions, the court granted Carvel’s request for an injunction restraining the DePaolas’ actions in order to prevent further violations of the legally binding non-compete agreements.

If you have any questions relating to your non-compete agreement or would like to discuss any element of your employment agreement, please contact Joseph C. Maya, Esq. by phone at (203) 221-3100 or via e-mail at JMaya@Mayalaw.com.

Applying Basic Contract Principles to the Enforcement of Non-Compete Agreements

Applying Basic Contract Principles to the Enforcement of Non-Compete Agreements

North American Outdoor Products, Inc. v. Dawson, 2004 Conn. Super. LEXIS 2677

North American Outdoor Products, Inc. (NAOP) was a company created to facilitate sales of outdoor goods to mass retail merchants.  The company marketed products such as instant garages, sporting goods, shelters, and canopies.  Mr. Curt Dawson worked for NAOP in its sales and marketing department from February 1999 to April 2, 2004.  He worked as the National Sales Manager for a period of time in Florida but returned to work in Connecticut when NAOP agreed in a January 2003 meeting to an annual raise of $25,000.00 and related moving expenses.

In March 2003, management requested that Mr. Dawson sign an Employee Agreement that contained and explained several restrictive covenants that would become effective upon termination.  The agreement prohibited him from competing with NAOP for twelve months following termination as well as soliciting any entity that NAOP had transacted with in the three-year period prior to termination.  Mr. Dawson signed and returned the employment and non-compete agreement on March 26, 2003 but a representative for the company did not sign the document at that time.  A representative for NAOP only signed the document on March 20, 2004 when the company learned of Mr. Dawson’s intent to voluntarily terminate his employment.

NAOP brought legal action against Mr. Dawson and sought an injunctive order from the court to enforce the provisions of the non-compete agreement.  Mr. Dawson however presented multiple defenses as to why the restrictive covenants were unenforceable: 1) lack of consideration, 2) unreasonable time and geographical restrictions, 3) unclean hands on the part of NAOP, and 4) lack of necessary signatures.  The court found in favor of Mr. Dawson, held that the non-compete agreement was unenforceable, and denied NAOP’s request for injunctive relief.

Under Connecticut law, a non-compete agreement must have sufficient consideration to make the document legally binding upon the parties.  For enforcement of a restrictive covenant, the employee must receive something in exchange for his or her covenant.  The agreement at hand did not bestow any new benefit upon Mr. Dawson and stated that his continued employment was the consideration for the agreement.  Connecticut courts have concluded however that “continued employment is not [sufficient] consideration for a covenant not to compete entered into after the beginning of the employment”.  NAOP claimed that the raise and moving expenses promised in January 2003 demonstrated adequate consideration but the court rejected this notion because those promises bore no substantial connection to the written agreement from March 2003.

Furthermore, the court concluded that the covenant not to complete was unenforceable because of inherent ambiguities in its language.  Courts cannot create a binding contract in the absence of a meeting of the minds between the parties.  The plaintiff, in this case NAOP, bears the burden of proof with respect to demonstrating a meeting of the minds in order to prove its version/interpretation of the alleged contract.  The court looked to the plain language of the agreement to ascertain whether it articulated clear and concise provisions that led to a meeting of the minds between Mr. Dawson and NAOP.  The court concluded that the agreement was unclear about material details, namely the effective date of the provisions and the identification of the specific parties.  The agreement was a bilateral document that required signatures of both parties in order to be complete and become legally binding.  The absence of NAOP’s signature at the same time as Mr. Dawson’s thus rendered the agreement unenforceable.

If you have any questions relating to your non-compete agreement or would like to discuss any element of your employment agreement, please contact Joseph C. Maya, Esq. by phone at (203) 221-3100 or via e-mail at JMaya@Mayalaw.com.

Application of FINRA Rules & Regulations for Bank’s Non-Compete Agreement

Application of FINRA Rules & Regulations for Bank’s Non-Compete Agreement

Webster Bank, N.A. v. Cahill, 2009 Conn. Super. LEXIS 1672

Webster Bank is a regional commercial bank with business operations in lower New England that employed Mr. Daniel Cahill from April 11, 2995 to February 12, 2009.  He was hired as a teller in the bank’s Bristol, CT office and was promoted to a financial consultant in 2001 to work for Webster Investment Services, the securities division of Webster Bank.  The bank entered into a corporate arrangement with UVEST in 2007 and Mr. Cahill (and similar employees) had to sign a dual employment agreement.  The contract detailed the terms of his employment and contained multiple restrictive covenants.  Mr. Cahill was prohibited from engaging in competing business activities within twenty-five miles of his base of operations for one year following his termination and was subject to an indefinite non-disclosure clause for Webster and UVEST’s confidential and proprietary information.

Mr. Cahill faxed in a letter of resignation to Webster on February 12, 2009 and the next day began working for RBC Bank in its Hartford, CT office where he essentially performed the same duties as he done during his employment with Webster.  Webster sued Mr. Cahill in Connecticut state court for the enforcement of the restrictive covenants contained in the dual employment agreement.  Mr. Cahill admitted that RBC was a direct competitor of Webster, that his new office is within the twenty-five mile radius prohibited area, that he had taken with him a list of 2,900-3,000 Webster customers, and had send solicitation letter on RBC’s stationary to all of those customers.  Of these solicitations, 350-400 accounts transferred their assets to RBC, amounting to a loss of approximately $5 million in assets under management for Webster.

Mr. Cahill admitted that he violated the terms of the dual employment contract but argued that the court should not enforce the non-compete agreement because he was a “licensed and registered securities dealer and a financial representative”, and therefore the  rules and regulations of Financial Industry Regulatory Authority (FINRA) governed and he had done nothing wrong.  He contended that under FINRA regulations, in an agreement referred to as the “Protocol”, he was permitted to take a copy of the customer list when he moved from Webster to RBC.  These regulations permit taking a copy of names, addresses, phone numbers, and email addresses but not account numbers.  The court found the assertion that it lacked jurisdiction unpersuasive and noted that FINRA was not controlling since neither Webster Bank nor UVEST were signatory members of the “Protocol”.

The court concluded that it did have jurisdiction over the case and next looked to whether the non-compete agreement was valid and enforceable under Connecticut law.  Webster had a legitimate business interest that the court held warranted protection in the form of an injunction to restrict Mr. Cahill’s activities.  An injunction, according to the court, was necessary to maintain the status quo and protect the interests of the parties involved in the legal dispute.  The court held that the restrictions were reasonable in scope and did not overtly favor one party over the other.  After establishing a need for an injunction and the reasonableness of the restrictions, the court ordered the enforcement of the non-compete agreement.

If you have any questions relating to your non-compete agreement or would like to discuss any element of your employment agreement, please contact Joseph C. Maya, Esq. by phone at (203) 221-3100 or via e-mail at JMaya@Mayalaw.com.

Change in Business Services/Products Doesn’t Invalidate a Non-Compete Agreement

Change in Business Services/Products Doesn’t Invalidate a Non-Compete Agreement

DiscoveryTel SPC, Inc. v. Pinho, 2010 Conn. Super. LEXIS 2683

In 2002, DiscoveryTel SPC hired Mr. Ismael Pinho as its chief financial officer (CFO) as an at will employee.  The parties later executed an employment agreement on December 27, 2004 that would go into effect January 1, 2005.  The employment contract modified Mr. Pinho’s employment from at will to a one-year automatic renewable basis and outlined his salary, incentive bonuses, vacation, personal days, insurances, severance package, and several restrictive covenants.  Mr. Pinho was prohibited from directly or indirectly competing with DiscoveryTel by being involved in the purchase and/or sale of international voice and traffic data systems during the term of the employment agreement or during any period for which he was receiving severance pay.  Additionally, the agreement stated that he was bound by an indefinite non-disclosure clause pertaining to DiscoveryTel’s confidential and proprietary information.  In between 2004 and 2010, DiscoveryTel experienced a corporate reorganization and shifted its focus and the services it provided.  By 2010, it was no longer engaged in the purchase and/or sale of international voice and data traffic but instead facilitated the sale of telephone traffic.

Mr. Pinho informed the president of DiscoveryTel in a May 21, 2010 letter that he had accepted a position with World Telecom Exchange Communications, LLC (WTEC) and would be starting at the new company on June 1, 2010.  DiscoveryTel brought suit and requested that the court grant its request for an injunction to prevent any violations of the restrictive covenants in connection to Mr. Pinho’s new employment.  Mr. Pinho did not have an issue with the non-disclosure clause in the employment contract but asserted that his mere employment with WTEC was not a violation of the non-compete agreement.  He contended that the agreement did not prohibit working for a competitor but rather specifically from “being involved in ‘any business relating to the purchase and sale of international voice and data traffic’”.  He went on to argue that engaging in this sector of the industry should not violate a non-compete agreement because DiscoveryTel was no longer engaged in that specific industry activity.  Additionally, he argued that the agreement had inadequate consideration and was therefore unenforceable.

The court found these arguments unconvincing however and granted DiscoveryTel’s request for injunctive relief and restrained Mr. Pinho from working for WTEC until December 31, 2010 (the end of the current employment term) in order to prevent further violations of the non-compete agreement.  It looked to the modification in the nature of Mr. Pinho’s employment (from at will to a contract renewable on an annual basis) and enhanced benefits (mainly the introduction of a severance package) in the employment agreement to conclude that there was sufficient consideration.  Finally, the court analyzed whether Mr. Pinho’s activities as an employee of WTEC violated the covenant, taking into account DiscoveryTel’s reorganization and shift in focus.  The court ultimately held that Mr. Pinho had indeed violated the non-compete agreement by working at WTEC and that a mere change in business services/products did not render the non-compete agreement invalid or release Mr. Pinho from its obligations.

If you have any questions relating to your non-compete agreement or would like to discuss any element of your employment agreement, please contact Joseph C. Maya, Esq. by phone at (203) 221-3100 or via e-mail at JMaya@Mayalaw.com.

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