Posts tagged with "purchase agreement"

Three-Year Restriction Found Unreasonable in CPA Non-Compete Agreement

Haims, Buzzeo & Co. v. Wikstrom, 2003 Conn. Super. LEXIS 2539

Ms. Nancy Wikstrom owned a certified public accounting firm, Wikstrom & Company, which she sold to Haims, Buzzeo & Co. (HBC) on January 1, 2001. The purchase agreement outlined the obligations of the respective parties and contained a covenant not to compete. Ms. Wikstrom was to stay on as an employee of HBC, continuing to work as a certified public accountant (CPA) and she agreed to bring her clients’ business to the firm. The non-compete agreement prohibited her, for a period of three years following termination, from soliciting clients and engaging in competing business activities within the city of Stamford, Connecticut. In exchange for these covenants, Ms. Wikstrom was to receive employment, $30,000 monthly payments to begin on January 1, 2010, and compensation for the sale of her former company’s good will and stock.
The merger of the two accounting firms did not go very well and Ms. Wikstrom left HBC in March 2002 due to dramatic differences in business personality and management style. She proceeded to start her own accounting firm, the Wikstrom Group, located in Stamford that provided the same accounting services as HBC. HBC interpreted these actions as clear violations of the non-compete agreement and sued Ms. Wikstrom in Connecticut state court for breach of the restrictive covenant. The company specifically claimed that she had “actively and purposefully tried to induce her former clients to come with her to the new accounting practice she created, and otherwise attempted to hinder and damage the plaintiffs in their practice”. Ms. Wikstrom however claimed that the agreement was unenforceable and that she did not violated any legally binding clauses contained in the purchase and employment agreements.
The court ultimately denied HBC’s request for an injunction preventing further violations of the non-compete agreement and concluded that the agreement was in fact unenforceable. It reached this decision based on several factors: 1) HBS had failed to demonstrate it was likely to succeed on the merits of the case and 2) the company failed to prove that it had incurred irreparable harm because of Ms. Wikstrom’s actions. After examining the facts of the case and the provisions of the non-compete agreement, the court held that injunctive relief was inappropriate and HBC was not entitled to an injunction restraining Ms. Wikstrom’s business actions.
The company was not able to meet the burden of proof required to demonstrate to the court that it was likely to succeed on the merits of the case. Most notably, the court addressed the reasonability and enforceability of the restrictions contained in the restrictive covenant. The geographical limitation was reasonable in scope but this was not true for the three-year time restriction. This, according to the court, was unreasonable because Ms. Wikstrom had been practicing as a CPA for over thirty years, had many long-standing loyal clients, and needed income from her chosen profession to sustain herself. The three-year period was too long, in the opinion of the court, and unnecessarily restricted her business actions and ability to pursue her occupation.
Furthermore, HBC did not demonstrate that it had incurred irreparable harm or that it was likely to do so in the future. The only clients that left HBC where those that were clients of Wikstrom & Company prior to the merger of the two accounting firms. The court noted that those clients would actually be harmed if an injunction was granted and held that its denial was the only way to maintain the status quo between the parties. By denying the request for an injunction, the court permitted HBC and Ms. Wikstrom’s new company to carrying on their business activities as they had been doing the previous eighteen months (since Ms. Wikstrom voluntarily terminated her employment with HBC).
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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Enforcing Non-Competes Associated with Sale of Company and Goodwill

Enforcing Non-Competes Associated with Sale of Company and Goodwill
Kim’s Hair Studio, LLC v. Rogers, 2005 Conn. Super. LEXIS 1805

Ms. Dorothy Rogers owned a hair salon in Higganum, Connecticut called Dotties Creative Cuts and entered into an agreement to sell the company’s “assets, goodwill, and client lists” to Kim’s Hair Studio, LLC for the amount of $20,000. This transaction essentially made Ms. Rogers a new employee of Kim’s hair Studio and as such, she was required to sign a non-compete agreement that prohibited her from offering competing services for twelve months after her termination within ten miles of 323 Saybrook Road, the primary work location of Kim’s Hair Studio. The parties executed non-compete and confidentiality agreements on August 23, 2004. Ms. Rogers did not like how the salon was being run by the company’s management and voluntarily terminated her employment in order to work at a new hair salon that was located a mere one-half mile away. Ms. Rogers additionally removed a rolodex containing Kim’s Hair Studio’s client information and began to contact them to solicit their business. Kim’s Hair Studio sued Ms. Rogers and requested that the court enforce the non-compete and confidentiality agreements.
The court granted the request for an injunction and ordered the enforcement of the agreements’ provisions. It concluded that the restrictions were reasonable in scope and that Ms. Rogers’ action had amounted to a breach of the covenant between the two parties. Kim’s Hair Studio had legitimate interests in executing non-compete agreements with its employees because its goodwill and client clients were essential assets that Kim’s Hair Studio invested resources in to acquire and maintain. The restrictive covenants were designed to prevent the loss or infringement of these assets and ensure that Kim’s Hair Studio was not negatively affected due to an employee’s termination, whether voluntary or involuntary in nature.
The court reasoned that a party is entitled to an injunction restraining further breach of a restrictive covenant when it demonstrates that the other party has or is very likely to breach the agreement. Additionally, the court noted Connecticut courts’ willingness to enforce a non-compete agreement when it is made in connection with the sale of a company and its goodwill. These legal principles, in conjunction with reasonable and limited restrictions, allowed the court to conclude that the non-compete agreement between Ms. Rogers and Kim’s Hair Studio was valid and enforceable under Connecticut law.
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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