Posts tagged with "business asset"

Contractual Imposition of a Penalty for Breach Violates Connecticut Law & Policy

Leave a reply
PRF of Connecticut, Inc. v. Gosselin, 1993 Conn. Super. LEXIS 3201
Case Background

Mr. Stan Manousos and Mr. Edward Kennedy were part owners of Park, Ride & Fly, Inc., the largest operator of valet parking lots servicing Bradley International Airport.  In late 1991 they expressed interest in purchasing Airport Valet from Mr. Robert Gosselin in order to expand their business operations.  The parties executed a lease-purchase agreement on March 31, 1992, because Manousos and Kennedy did not have enough cash on hand to outright acquire Airport Valet.  They insisted on a non-compete agreement in conjunction with the lease-purchase agreement because they did not want Mr. Gosselin to use his experience in the valet parking industry to compete with them while he was receiving the lease payments.

The main stipulations of the restrictive covenant were that Mr. Gosselin was prohibited from competing, directly or indirectly, in the operation of any commercial parking lot with five (5) miles of Bradley International Airport for five (5) years following the execution of the agreement.  Pursuant to the agreement, Mr. Manousos and Mr. Kennedy were entitled to enforcement of the non-compete agreement and could withhold payments otherwise due under the lease-purchase agreement in the event of a breach.

Clause Change in the Agreement

Before executing the non-compete agreement, Mr. Gosselin had his son changed the working of a specific clause that served as an exception to the general prohibition on competing business activities.  The clause originally stated that Mr. Gosselin could continue to provide valet services to “patrons of the Brady International Inn”, a hotel that he had owed for quite some time prior to the transaction with Mr. Manousos and Mr. Kennedy where “patrons” referred to persons that were overnight guests at the Bradley International Inn.

The change to the provision made it read: “it shall not be a violation of this Non-Compete Agreement for Gosselin to provide parking and shuttle services at Bradley International Inn”.  This change would allow Mr. Gosselin to provide services to a broader customer base that just those identified as overnight guests of the Bradley International Inn.

Mr. Manousos and Mr. Kennedy discovered this change to the non-compete agreement in the fall of 1992 after a few incidents with customers and closely examining the language of the contract.  They commenced an action against Mr. Gosselin requesting the enforcement of the covenant not to compete.  Mr. Gosselin argued that the non-compete agreement was unenforceable because it constituted an unreasonable restraint of trade. The court disagreed with this contention and held that the restrictions contained in the non-compete agreement were reasonable, lawful, and enforceable.

The Court’s Decision

The court reiterated the policy that a non-compete agreement ancillary to a lawfully executed contract is legitimate and enforceable if the restrain is reasonable given the specific circumstances of the parties and their transaction.  Furthermore, the court noted that the execution of the lease-purchase contract was predicated on the inclusion of a covenant not to compete and was a valuable business asset for Mr. Manousos and Mr. Kennedy.

The court recognized Mr. Manousos and Mr. Kennedy’s reliance on the non-compete agreement when executing the lease-purchase agreement and concluded that they were entitled to enforcement of its provisions.  Accordingly, the court enjoined Mr. Gosselin from directly or indirectly competing in the commercial parking industry servicing Bradley International Airport within five miles of the airport until April 1, 1997 (the expiration of the proscribed five year prohibition in the non-compete agreement).

Additionally, the court clarified that any valet services provided at the Bradley International Inn to persons other than “registered overnight guests” would constitute a violation.  The court however determined that Mr. Manousos and Mr. Kennedy could not withhold the lease payments because the imposition of a penalty for breach of contract is invalid and in violation of Connecticut law and policy.  A liquidated damages clause may be enforceable under certain conditions but the court determined that the amount identified by the parties was unreasonable and therefore unenforceable.

–

The lawyers at Maya Murphy, P.C., are experienced and knowledgeable employment and corporate law practitioners and assist clients in New York, Bridgeport, Darien, Fairfield, Greenwich, New Canaan, Norwalk, Stamford, Westport, and elsewhere in Fairfield County.  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.

Policy of Enforcing Connecticut Non-Compete Agreements to Protect Employer’s Interests

Leave a reply

Torrington Creamery, Inc. v. Davenport, 126 Conn. 515 pertains to a dispute regarding a non-compete agreement between an employer and employee in the dairy products industry in 1940.  While this case is by no means recent, it is a seminal case that lays the groundwork for the policy of enforcing non-compete agreements in Connecticut on the grounds of protecting the employer’s interest.  Specifically, this is one of the first Connecticut cases to address the enforceability of a company’s non-compete agreements when another company acquires it.

Case Background

The High Brook Corporation employed Mr. Preston Davenport as a farm manager and superintendent beginning in 1932 at its Torrington, Connecticut location.  The company produced and distributed dairy products in the towns of Torrington, Litchfield, Winsted, Thomaston, New Milford, New Preston, and Greenwich, all towns in western or southwestern Connecticut.  High Brook changed its name to The Sunny Valley Corporation in March 1938 and on April 15, 1938, had Mr. Davenport sign an employment contract.

The contract specified that Mr. Davenport would receive a fixed compensation with no set duration and that he would be subject to several restrictive covenants.  A non-solicitation clause prohibited Mr. Davenport from soliciting, either directly or indirectly, Sunny Valley or its successor’s customers for a period of two years.  Meanwhile, a non-compete clause prohibited Mr. Davenport from engaging in the dairy production and distribution industry in the towns where Sunny Valley operated.

Another clause in the employment agreement stipulated that a court’s invalidation of a portion of the agreement would not affect the legally binding nature of the other provisions.  Sunny Valley sold its operations and assets to Torrington Creamery, Inc. in October 1938 and the company discharged Mr. Davenport from employment on October 18, 1938.  He proceeded to start his own dairy production and distribution business in February 1939 in the towns of Torrington and Litchfield.

The Court’s Decision 

Torrington Creamery sued Mr. Davenport to enforce the duration and geographical limitations of the restrictive covenant he had signed with Sunny Valley Corporation.  The Superior Court in Litchfield County found in favor of Torrington Creamery, Mr. Davenport appealed the decision, and the case went on to the Connecticut Supreme Court where it affirmed the lower court’s decision.

The Supreme Court found the terms of the non-compete agreement to be reasonable and necessary for the protection of Torrington Creamery’s business interests.  The notion of “protecting an employer’s business interests” is a driving force and major policy concern when deciding whether to enforce a non-compete agreement under Connecticut law.  Restrictive covenants become valuable assets of the employer and courts generally hold that the employer is entitled to the right to safeguard these assets.

Equally as important, the court held that the employer benefits contained in a restrictive covenant can be assigned to a purchaser in the event of the sale of the business and its assets.  Thus, when a company acquires another company, it gains the legal authority to enforce the acquired company’s valid non-compete agreements.  Courts view restrictive covenants as valuable business assets that provide for the necessary protection of the employer and any successor company.

–

The lawyers at Maya Murphy, P.C., are experienced and knowledgeable employment and corporate law practitioners and assist clients in New York, Bridgeport, Darien, Fairfield, Greenwich, New Canaan, Norwalk, Stamford, Westport, and elsewhere in Fairfield County.  If you have any questions relating to your non-compete agreement or would 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.