Posts tagged with "temporary injunction"

Four-Prong Test Applied to Enforce Non-Compete Provision in a Franchise Agreement

Money Mailer Franchise Corporation v. Wheeler, 2008 Conn. Super. LEXIS 2260
Case Details

Mr. Douglas Wheeler entered into a Franchise Agreement with Money Mailer Franchise Corporation on February 28, 2003, wherein he was assigned a mailing territory comprised of thirteen zip codes in Fairfield and New Haven counties.  Money Mailer was a business that franchised a system of providing direct mail order advertising and related services.  The Franchise Agreement contained a non-compete covenant.

The non-compete prohibited Mr. Wheeler from engaging “in any Competitive Activities with the Territory [his thirteen zip codes] or within the territory of any other “Money Mailer” franchise then in operation” for a period of two years following termination.  This essentially obligated Mr. Wheeler to not engage in any competing business enterprise within fifty miles of any Money Mailer franchise.

Mr. Wheeler sold his franchise to Mr. Javier Ferrer on October 31, 2007 for $130,000.  He executed an additional non-compete agreement in connection with this transaction wherein he promised not to compete for three years following the closing of the deal.  In February 2008, he began to work as an Independent Contractor for Direct Advantage, a direct competitor engaged in the same business(es) as Money Mailer.

Money Mailer sued Mr. Wheeler for breach of the Franchise Agreement and requested that the court enforce the provisions contained in the non-compete agreement.  Mr. Wheeler acknowledged that he was involved in the exact same business addressed and prohibited in the non-compete agreement and admitted to soliciting several of Money mailer’s previous and current customers.

The Court’s Decision

The Connecticut state court granted Money Mailer’s request for injunctive relief and ordered the enforcement of the restrictive covenant.  The court stated that the purpose of injunctive relief was to preserve the status quo of the parties until the case was definitively decided.

It further noted the relevant standard of review for granting a request for an injunction and specified four factors: 1) no adequate remedy at law, 2) plaintiff would experience irreparable harm if the request was not granted, 3) plaintiff was likely to prevail on the merits of the case, and 4) an injunction would sustain the balance of the parties’ equities.  The court concluded that Money Mailer’s case met all of these requisite factors and its complaint warranted relief in the form of a temporary injunction.

The court concluded that an injunctive order was necessary to balance the parties’ interests during the legal proceedings and that the temporary injunction would essentially restore the parties to their relative positions before the alleged violation of the non-compete agreement.  Money Mailer was able to demonstrate that Mr. Wheeler’s actions had a detrimental impact its business interests.

Additionally, the court found that Money Mailer was likely to prevail on the merits of its complaint, specifically citing that Mr. Wheeler’s own testimony provided abundant evidence of activities that should trigger the enforcement of the restrictive covenant.  For these enumerated reasons, the court granted Money Mailer’s request for an injunction restraining Mr. Wheeler from further violations of the non-compete provisions contained in the Franchise Agreement executed between the parties in 2003.

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.

Test for Granting a Temporary Injunction for Breach of Connecticut Non-Compete

Group Concepts, Inc. v. Barberino, 2004 Conn. Super. LEXIS 1036
Case Background

Group Concepts, Inc. is a Connecticut corporation that is in the business of condominium association management and has its office in Hamden.  The company entered into a stock purchase agreement on September 11, 2002, to purchase Barberino Real Estate, Inc., a company that managed condominiums and other properties.  Group Concepts had Ms. Tina Barberino sign a non-compete agreement as part of the acquisition transaction.  In exchange for $84,500, Ms. Barberino agreed not to compete with Group Concepts “within the state of Connecticut until September 2004 and from soliciting any of the clients listed on schedule B of the stock purchase agreement for a period of three years”.

Ms. Barberino began to work at Ennis Property Management, Inc. on October 5, 2003 and competed directly with Group Concepts within the state of Connecticut.  She contacted clients enumerated on schedule B of the stock purchase agreement and Group Concepts lost several accounts because of Ms. Barberino’s actions.

Group Concepts sued Ms. Barberino in Connecticut state court for breach of the non-compete agreement and requested an injunction to prevent further violations of the restrictive covenant.  The court granted Group Concepts’ request for an injunction and ordered the enforcement of the non-compete clause through September 30, 2004 and the non-solicitation clause through September 11, 2005, the respective dates as stated in the restrictive covenant.

The Court’s Decision

In order for a court to grant a temporary injunction, the moving party must submit evidence that demonstrates: 1) it does not have an adequate legal remedy, 2) it would suffer irreparable injury absent the injunction, 3) it would likely prevail on the merits of the case, and 4) the injunction would balance the equities of the parties involved in the dispute.  The court said it need not apply the entire test in this case and only analyzed the third and fourth components to hold that the agreement was enforceable and an injunction was warranted.

The court concluded that a preponderance of the evidence submitted by the parties indicated that Group Concepts would most likely prevail on the merits of its suit.  The provisions of the non-compete agreement were reasonable and the facts of the case clearly pointed to a cognizant breach of the non-compete agreement.  The court concluded that the overall fact pattern of the case demonstrated that Group Concepts would likely prevail on the merits and held that the company met this requirement for the granting of the injunction request.

The court also held that an injunction would balance the equities of the parties.  The court felt that an injunction and enforcement of the non-compete was necessary to protect Group Concepts from experiencing a significant business hardship in connection to Ms. Barberino’s breach of the covenant.  Group Concepts paid substantial consideration ($84,500) for its acquisition of Ms. Barberino’s company and relied on it to prevent Ms. Barberino from breaching the non-compete and non-solicitation provisions.  An injunction would prevent Group Concepts from experiencing adverse business trends because of Ms. Barberino’s undeniably unlawful breach of the non-compete agreement.

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.

Court Enforces Non-Compete and Rejects “Ambiguous Language” and “Unreasonable Restrictions” Defenses

Century 21 Access America v. Lisboa, 2003 Conn. Super. LEXIS 2085
Case Background

Century 21 Access America was a residential real estate sales company based in Milford, Connecticut that employed Ms. Nereida Lisboa as a salesperson from April 2002 until April 2003.  Her employment was contingent upon signing an Independent Contractor Agreement on April 24, 2002, wherein paragraph twelve constituted a non-compete clause.

The restrictive covenant prohibited Ms. Lisboa for a period of two years from working at a competing company located within fifteen miles of Milford, Connecticut.  Once Ms. Lisboa voluntarily terminated her employment with Century 21, she immediately began to work for William Raveis Real Estate, a direct competitor located directly across the street.  Century 21 sued Ms. Lisboa for breach of the non-compete agreement and requested that the court enforce the provisions of the covenant.

Defense Claims

Connecticut courts have the authority to exercise equitable power to order a temporary injunction pending final determination of the order, upon the moving party demonstrating that it will incur irreparable harm in the absence of such an injunctive order.  The court found that an injunction was warranted and proper in this case and as such, granted Century 21’s request for an injunctive order to restrain Ms. Lisboa from further violations of the covenant not to compete.  Ms. Lisboa offered several defenses to invalidate the agreement, including a claim that the language of the agreement was ambiguous and another claim that the provisions were unreasonable.  The court ultimately rejected both of these assertions and held in favor of Century 21.

The challenging party bears the burden of proof to show that an agreement is invalid and should not be binding upon the signatory parties.  The court found no merit in Ms. Lisboa’s claim that the agreement was ambiguous and that she was not obligated to refrain from any specific business activity.  The court stated that “although the covenant is neither a model of clarity or precise craftsmanship, the defendant [Ms. Lisboa] fails to demonstrate how the covenant’s language, in and of itself, is ambiguous”.

Reasonable Restrictions

The court further dissected Ms. Lisboa’s defenses and shot down her claim that the restrictions were unreasonable.  It is well established in Connecticut law that a company has a proprietary right to its clients and is thus entitled to protection for that right.  Century 21 had a legitimate business interest worthy of protection based on the fact that Ms. Lisboa could use information gained from Century 21’s client lists and the time she spent with the company to solicit business for herself and her new company to the detriment of Century 21.

The company was well within its rights to employ reasonable restrictions to protect this legitimate business interest.  Ms. Lisboa’s license to engage in the real estate industry is valid throughout the state of Connecticut and the covenant only restricted her business activities within a relatively small area with a fifteen-mile radius.  This, in combination with a limited time restriction, made the court conclude that the geographical restriction was in fact reasonable and enforceable.

The court identified a legitimate business interest that required protection and concluded that the provisions of the covenant not to compete were reasonable, leading it the grant Century 21’s request for injunctive relief in the form of enforcement of the non-compete agreement.

 

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.

Non-Compete Agreements (Restrictive Covenants) for Practicing Physicians in New York and Connecticut: Just How Enforceable Are They?

A restrictive covenant (often referred to as a non-compete clause or a covenant not to compete) is a clause contained in an employment contract through which the employee agrees not to pursue a similar profession or trade, placing them in competition with the employer, after the employment relationship is terminated.  This clause or covenant is often put in place to prevent a former employee from using information he or she obtained through the course of their employment to gain a competitive advantage over their former employer.  

If you are currently employed as a physician and your employment agreement contains a provision similar to the type of covenant described above, you probably want to understand how a Court will determine the validity of such a clause in order to understand how such a clause will impact your future as a physician after the termination of your current employment contract, joinder and/or partnership agreement.

Below is a summary on the way Courts are handling the non-compete clauses included in the employment contracts of physicians employed in Connecticut and New York.  This review and analysis consists of two separate, but related parts.  First, a Court must determine whether the non-compete clause is valid, and therefore enforceable.  Second, if a clause is valid, as a way to prevent you from pursuing your newly found employment opportunity, your employer may ask the Court to grant a temporary and/or permanent injunction.

The second section of this analysis focuses on whether a Court will grant your employer’s request for a temporary or permanent injunction.  If granted, this injunction would prevent you from obtaining employment in any manner which violates the restrictive covenant.

The Validity and Enforceability of Physician Non-Compete Clauses in New York and Connecticut

The laws governing the validity and enforceability of non-compete clauses in New York and Connecticut are fairly similar.  In both states Courts seek to determine if the restraints provided for under the non-compete clause are reasonable.  In making that determination, Courts consider the following factors:  (1) the employer’s need to protect legitimate business interests (such as trade secrets and customer lists), (2) the employee’s need to earn a living and support his or her family, (3) the public’s need to secure the employee’s presence in the labor pool, and (4) the amount of time, and the area restricted under the covenant.

Employer’s Need to Protect Legitimate Business Interests:

In general, Courts have found an employer to have a legitimate business interest in situations where the employer needs to protect against the former employee’s use of a trade secret or a highly valuable patient list.  If the employer is not able to protect the employee from using such things in the course of their future employment, the employer’s business will noticeably suffer.  This is what the Courts will try and protect against through the enforcement of the restrictive covenant.

In Connecticut, however, it is important to note that it is not the employer who needs to prove a legitimate business interest, but instead, the employee who needs to disprove the employer’s need to protect legitimate business interests through enforcement of the non-compete clause.

Employee’s Need to Earn a Living:

When considering the impact of the enforcement of a non-compete clause on the earning potential of a former employee, Courts will try to determine if enforcement of a restrictive covenant will unreasonably prevent the employee from earning a living, and therefore being able to support themselves.  Significantly, Courts noted, however, that this does not mean the operation of a covenant not to compete must maintain a former employee’s income at present levels in order to be found reasonable.  It is the burden of the former employee to prove that if the covenant is enforced it will substantially damage his or her ability to earn a living.

The Public’s Need to Secure Employee’s Services:

The principal objection to restrictive covenants in physician employment contracts is that they can potentially interfere with continuity of care for a patient.  Therefore, a Court is more reluctant to enforce a covenant if the covenant would impact the care of the former employee’s current patients.  There are however, many covenants that are drafted to allow a physician to continue providing post-operative, or other limited care, for current patients.  If a restrictive covenant will allow for such continuity of care, the Court is more likely to find its restrictions reasonable, and enforceable.

Time and Area Restrictions:

The amount of time, and the area restricted under non-compete clauses varies greatly between different employment agreements, depending on the type of services involved and the location of the parties.  In making a finding, Courts will look to whether or not the time and area restrictions are reasonable.  Recent decisions held clauses limiting the former employee for up to a period of five years within a thirty mile radius reasonable.  Reasonableness depends, however, on the specific circumstances of the case.

Other Considerations:

Courts also consider the bargaining power between the parties to the employment contract in determining the reasonableness of a restrictive covenant.  Some Courts may be more reluctant to find a restrictive covenant unenforceable where the employment agreement is created between partners to a practice, rather then when the agreement is held between an employer and an employee.  The Courts have explained this discrepancy on the parties’ ability to negotiate the terms of the employment agreement.  A partner will most likely have a greater ability to negotiate the terms of the contract, than will an employee.

Injunctive Relief:

An injunction is an equitable remedy in the form of a Court order, whereby a party is required to do, or to refrain from doing, certain acts. In this case, those certain acts would include being employed in a way which would violate the restrictive covenant.  When considering an employer’s request for a temporary or permanent injunction, the Courts in New York and Connecticut consider whether the employer has demonstrated that he or she would suffer irreparable injury in the absence of an injunction, that he or she is likely to prevail on the merits of the case, and that the balancing of equities favors the issuance of an injunction.

Irreparable Harm:

In considering the irreparable harm an employer may suffer, a Court will rely on factors such as the employer’s revenues, patient flow and the employer’s ability to maintain their business on a long-term basis.  Such calculations will consider only the employer’s losses, and not the former employee’s gains.

Balancing of the Equities:

When balancing the equities, Courts consider the following: the effect the injunctive relief will have on the employer’s business, the effect that the injunctive relief will have on the employee’s earning potential, and the effect that an injunction will have on the public.  In determining the effect on the employer, the Court analyzes how the employer will benefit from the injunctive relief.

As for the effect on the employee, the Court considers the options available to the employee if the relief is granted.  If the employee can reasonably continue to earn a living, Courts are more willing to grant the employer’s injunctive relief request.  In considering the public interest, Courts look at factors such as the hardship the injunctive relief would have on a doctor’s existing patients and the doctor’s contributions to the surrounding community that would be limited by the granting of injunctive relief.

Connecticut – Adequate Remedy at Law:

In addition to the above factors, Connecticut Courts consider whether the employer has no other adequate remedy at law available to them.  Although some Connecticut Courts have held that the lack of an adequate remedy at law is presumed to be established where a party seeks to enforce a covenant not to compete, not all Courts have relied on that.

The Courts that do rely on that theory, however, state that it is only a rebuttable presumption; meaning that it may be possible for the employee to convince the Court that this presumption does not apply in a certain situation.

The Connecticut Courts that have not followed that presumption have held the presumption to apply only in the limited instances where the calculation of damages may be difficult or impossible and therefore limits the employer’s potential remedies.  These Courts have found that employers have an adequate remedy at law where they are in a position to bring a breach of contract claim, meaning that the employer is able to calculate the damages suffered as a result of the former employee’s actions.

Physician Restrictive Covenant Cases in Connecticut:

As a way of bringing together the above information, and to demonstrate the effects of certain factual situations on an outcome, the following illustrations provide examples of restrictive covenant cases heard and decided by the Connecticut Courts in recent years.

Restrictive covenant valid, Injunction denied:

Opticare, P.C. v. Zimmerman, 2008 Conn. Super. LEXIS 759 (2008).

In this Connecticut case, a doctor entered into an employment contract with physician practice group which provided, among other things, that in the event the doctor voluntarily left the practice but intended to continue practicing medicine he would be prohibited from practicing the type of medicine he practiced with the group, within a specific area for a period of 18 months.  The restricted area was in the shape of a hexagon and ranged from between fifteen to thirty miles from the locations in which the doctor had been employed with the practice group.

After 22 years of employment, the doctor left the physician practice group and opened his own office, practicing the same kind of medicine as he had been, before the 18 month time period had passed and less than four miles away from his former employer’s office.  Upon learning of the physician’s new practice, the practice group asked the Court to grant injunctive relief to prohibit the physician from continuing his practice in violation of the restrictive covenant.

Court Denies Group’s Request:

In denying the group’s request, the Court determined that although the restrictive covenant was valid, the group did not establish a showing of irreparable harm.  The practice group was still in business, and it had failed to demonstrate that the practice was permanently harmed in any way.  The Court also determined that the employer had available to them an adequate remedy at law because the employer had the ability to calculate the damages incurred as a result of the physician’s actions.

Finally, the Court found that the equities balanced in favor of the former employee, due in part to the fact that the doctor frequently donated his time to assisting uninsured premature infants at local hospitals and that an injunction would place an undue hardship on his current patients.

Restrictive covenant valid:

Fairfield County Bariatrics v. Ehrlich, 2010 Conn. Super. LEXIS 568 (2010).

The case of Fairfield County Bariatrics v. Ehrlich, is a case in which the restrictive covenant was deemed valid and injunctive relief was granted to the employer.  It involved a situation where a physician developed a very prominent practice performing bariatric surgeries for the physician practice group with whom he was employed and was a one-third shareholder.

As part of his employment with the physician practice group, the physician signed an employment agreement which, among other things, provided that for a period of two years following the termination of his employment, the physician could not practice medicine or general surgery within 15 miles of the practice’s office, and that he could not practice bariatric surgery in five local hospitals.

Following his termination from the group, the physician retrieved a list of the patients he had treated during his employment with the physician practice group.  The physician contacted each patient and informed them that he was no longer associated with the group and directed them to contact him at his new office.

The physician’s new office was located within the restricted area provided for in the employment agreement.  Additionally, the physician continued to perform bariatric surgeries at the hospitals restricted under the restrictive covenant in the employment agreement.

Injunction granted:

The Court held the restrictive covenant valid, finding the length of time and area of coverage to be within reasonable limitations.  Furthermore, the Court determined that the physician practice group had legitimate business interests that needed the protection of the restrictive covenant.

The Court relied on the practice’s fear that because of the extremely large amount of bariatric surgeries the physician performed on a yearly basis, if the physician were allowed to continue practicing bariatric surgeries at the hospitals within the county, it would drastically dilute the number of surgeries performed at the hospitals in which the practice performed those surgeries.

Additionally, the Court determined that the physician’s ability to earn an income was not so restricted by the covenant as to make it unreasonable.  Under the covenant, the physician was able to perform surgeries throughout the majority of the county in which he resided, and was able to continue providing post-operative care for his current patients.

Finally, the Court determined that the public’s need to secure the physician’s services would only be slightly impacted and that because the physician was still able to provide post-operative care, the public’s need did not render this covenant invalid.

Continuing in their decision, the Court granted the practice’s request for injunctive relief as the Court believed the practice was likely to prevail at a trial.  In its decision the Court found the physician practice group would suffer irreparable harm if injunctive relief were not granted as it was able to demonstrate the physician had the ability to drastically dilute the number of available surgeries.  As for the balance of equities, the Court determined the harm the physician practice group could potentially suffer if their request was denied was much greater than the harm the physician would suffer if the relief was granted.

Restrictive covenant invalid:

Merryfield Animal Hosp. v. Mackay, 2002 Conn. Super. LEXIS 2628 (2002).

In this Connecticut case, the Court determined that the restrictive covenant included in the employment agreement was invalid.  Consequently, the Court denied the employer’s request for injunctive relief.  The doctor in this case had been employed under an employment agreement that contained a non-compete provision.

This provision restricted the employee from owning, managing, operating, controlling, participating in, or being employed or in any way connected with an organization providing the services provided by the employer for a period of two years after his termination, and within a seven mile radius from the employer’s locations.

Shortly after his termination the physician obtained employment with a different practice group performing the same services he had been for his former employer. His new employment was located within the seven mile radius restricted under the restrictive covenant.  The employer turned to the Court, seeking a temporary injunction which would order the doctor to comply with the specific provisions of the restrictive covenant.

Injunction denied:

Although the Court found the time and area restrictions provided for in the restrictive covenant reasonable, it ultimately determined that the covenant was unenforceable and therefore denied the employer’s request.  In doing so the Court relied exclusively on its finding that the restriction under the covenant was overly broad and not reasonably necessary for the fair protection of the group’s business.

If enforced, the language of the covenant would have prevented the doctor, not only from his new position, but even from employment that could in no way bring him in competition with his former employer. Finding the expansive limitations provided for by the language of the restrictive covenant unreasonable, the Court determined the covenant unenforceable, and consequently denied the employer’s request for injunctive relief.

Restrictive covenant invalid, Injunction denied:

Merryfield Animal Hosp. v. Mackay, 2002 Conn. Super. LEXIS 4099 (2002).

A Connecticut Court determined the restrictive covenant at question in this case to be overly protective of the employer’s interest, and therefore determined that the covenant was invalid.  Pursuant to the terms of that clause the doctor in this case agreed he would not involve himself with or be employed by a business providing the professional services he provided for the practice within a seven-mile radius of the practice, and for two years after his employment contract terminated. 

After providing written notice of his termination, the doctor accepted a position with another practice, located slightly less than seven miles from his former employer’s office.  During the course of his new employment the doctor did not solicit any of his former employer’s patients and even rejected any patients he knew to have been patients of his old practice.

The Court, therefore found no evidence of a legitimate business interest that the practice needed to protect.  Furthermore, the practice was unable to demonstrate it suffered or would suffer any loss as a result of the doctor’s actions.  Consequently, the Court determined the restrictive covenant was unenforceable and denied the practice’s request for injunctive relief.

Physician Restrictive Covenant Cases in New York:

As a way of bringing together the above information, and to demonstrate the effects of certain factual situations on an outcome, the following illustrations provide examples of restrictive covenant cases heard and decided by New York Courts.

Restrictive covenant valid:

Millet v. Slocum, 4 A.D.2d 528 (1957).

Following the termination of his employment as a partner in a physician partnership, the physician in this case brought an action before the Court asking the Court to render the restrictive covenant contained in his employment agreement unenforceable.  Under the terms of his employment agreement, following his termination, the physician was barred from practicing medicine or surgery within a 25 mile radius from the city in which the partnership was located for a two-year period.  The partnership, in response, asked the Court for injunctive relief which would prevent the physician from practicing in contravention of the employment agreement.

Before working with this partnership, the physician never worked as a physician in New York State.  During the time the physician served the partnership he developed a professional reputation for competence and earned the trust of the partnership’s patients. As a result, the Court concluded that if the physician were able to directly compete with the partnership, the remaining partners would suffer a loss of patients and good will.

Injunction denied:

Considering next, the physician’s ability to earn a living, the Court decided that the hardship imposed on the physician was not, when balanced with the needs of the partnership, sufficient to invalidate the covenant.  The physician had the ability to practice medicine and surgery anywhere outside of the 25 mile radius, and the Court noted that since he had been able to come to New York and build such a strong professional reputation when beginning his work with the practice, it would not be so unreasonable for him to do so again.  The Court therefore, concluded that the restrictive covenant was valid and enforceable.

Despite the validity of the restrictive covenant, the Court denied the partnership’s request for injunctive relief based on its finding that the partnership breached the partnership agreement when it expelled the physician from the partnership without justification, as was required pursuant to the agreement.  The Court held the partnership’s actions constituted such a breach of the partnership agreement as to not entitle the partnership to the injunctive relief requested.

Restrictive covenant valid:

Gelder Medical Group v. Webber, 41 N.Y.2d 680 (1977).

After a few years of employment as a partner to a partnership practice, the physician in this case was expelled pursuant to the partnership agreement.  Under the terms of the partnership agreement, the physician had agreed not to practice his profession within a radius of 30 miles of the village in which the partnership was located for a period of five years.

Disregarding the restrictive covenant, the physician resumed his surgical practice as a single practitioner, practicing in the same village as the partnership and within two months of his expulsion.  The partnership, in an effort to protect its practice, asked the Court to enforce the restrictive covenant and grant injunctive relief.

Injunction granted:

The Court ultimately determined this restrictive covenant was valid.  Its decision was due, in part, to the small size of the village in which the partnership was located and had built its practice.  In such a small area, the threat of competition from the physician, if allowed, could result in serious damage to the partnership’s number of patients and its revenues.  The Court also considered the impact that the covenant could have on the physician’s ability to earn a living and found that throughout the course of his career, this physician had repeatedly changed professional associations within a range of thousands of miles.

Therefore, the Court did not credit the physician’s argument that relocating his practice would unreasonably impair his ability to earn an income.  Finally, the Court considered the interest of the public and noted the public would not be affected by the enforcement of this covenant, as they could easily obtain the services provided by the physician elsewhere.  Granting the employer’s injunction, the Court noted that the damage the partnership would suffer without injunctive relief, when balanced with the losses the physician may face if the covenant were enforced, justified the enforcement of this restrictive covenant.

Restrictive covenant invalid, Injunction denied:

Michael I. Weintraub, M. D., P. C. v. Schwartz, 131 A.D.2d 663 (1987). 

The physician in this case had been employed by a certain professional practice group for a period of two years at the time his employment contract was terminated.  Pursuant to the terms of his employment agreement, the physician was restricted from engaging in the type of services he performed for the physician practice group within a five mile radius from the professional practice’s office, and within a five mile radius of any hospital at which he had worked at on behalf of the professional practice for a period of one year after the effective date of his termination.

Before that one-year period lapsed the physician established an office to perform the restricted type of services within five miles from a hospital where the physician worked on the group’s behalf.  The professional group initiated an action against the physician to enforce the restrictive covenant and prevent him from breaching his employment agreement.

In reviewing the restrictive covenant, the Court determined the provision restricting the physician from practicing within five miles of the group’s offices was reasonable and enforceable.  The Court, however, found the portion of the covenant prohibiting the physician from practicing within a five-mile radius of any hospital where he worked on the group’s behalf was overly broad and oppressive, and thus unenforceable.

If the physician had been required to follow the terms of the covenant it would essentially prohibit him from practicing at or near any of the major hospitals in the two nearest counties.  The Court furthered noted an absence of evidence indicating the group’s business related concerns were implicated in any manner through the physician’s breach of the restrictive covenant.  Consequently, the Court denied the group’s motion for injunctive relief.

Restrictive Covenant Severed:

Karpinski v. Ingrasci, 28 N.Y.2d 45 (1971).

In the following case the Court held even though the restrictive covenant contained an unreasonable provision, the remaining restrictions provided for under the agreement would be enforceable against the former physician employee.  In essence, the Court severed the unreasonable restriction from the restrictive covenant, and held the remainder to be valid.  This situation involved a dentist employed by an oral surgeon.  As part of his employment with the oral surgeon he agreed to never practice dentistry or oral surgery in any of the surrounding counties except in association with the oral surgeon.

Upon voluntarily ending his employment with the oral surgeon, the dentist opened his own office in violation of the restrictive covenant.  After the competition created by the dentist’s new office forced the oral surgeon to close one of his offices, the oral surgeon asked the Court to enforce the restrictive covenant.

The Court ultimately held the employer was entitled to an injunction barring the dentist from practicing oral surgery in the five specified counties named in the covenant, but that the covenant’s restriction on the practice of dentistry was too broad.  Since the oral surgeon’s business consisted only of performing oral surgeries and related operations, a dental practice providing only dentistry services, and no oral surgery services, would provide no direct competition.

The Court, therefore determining the restriction on the practice of dentistry to be too broad, severed that restriction from the covenant, but enforced the remaining provisions of the agreement.

Contact Us:

Situations involving these restrictive covenants, or non-compete agreements, are very fact specific, requiring case by case analysis and determinations.  Determining the consequences of your employment agreement and your options will require an in-depth review.  A violation of a restrictive covenant, if such covenant is in fact enforceable, may result in other contractual claims being brought against you by a former employer.  If you have any questions relating to your restrictive covenant or would like to discuss any element of your employment agreement, please contact Joseph Maya, Esq. by phone at (203) 221-3100 or via e-mail at JMaya@Mayalaw.com.

Two-Prong Test for Temporary Injunction for Breach of Non-Solicitation Agreement

Integrated Corporate Relations, Inc. v. Bidz, Inc., 2009 Conn. Super. LEXIS 2212
Case Background

Integrated Corporate Relations, Inc. was a Westport-based parties relations and public consulting firm that contracted with Bidz, Inc., a California corporation, to perform various investor relations services.  The agreement between the companies contained a non-solicitation clause that prohibited Bidz from soliciting, hiring, or otherwise engaging any of Integrated’s personnel during the agreement and for one year following its termination.  Integrated stated that this was their standard practice with clients in order to protect its legitimate business interests and the resources it had spent to develop its business model.  It also claimed that it incurs a hardship when an employee leaves because it must find a suitable replacement.

Integrated hired Mr. Andrew Greenebaum in 2003 as an at-will employee at the company’s Los Angeles office to work as a Senior Managing Director where he was the primary manager of Bidz’s account.  Mr. Greenebaum worked in this capacity until his resignation on February 27, 2009 at which point he founded his own company, Addo Communications, Inc. with another former Integrated employee.  Bidz terminated its business relationship with Integrated on March 30, 2009 and shortly thereafter contracted with Mr. Greenebaum and Addo for investor relations services.

Granting Temporary Injunction

Integrated sued Bidz when it learned of this new business relationship and claimed that Bidz had violated the non-solicitation agreement in their contract.  The company requested equitable relief and called for the enforcement of the restrictive covenant.  Integrated requested a temporary injunction while the case was being decided in order to prevent further violations of the agreement.  The court’s holding in this case pertains to the issue of whether to grant a temporary injunction.

The court outlined that the primary 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”.  Connecticut courts will generally grant temporary injunctions when the moving party: 1) demonstrates “it is likely to succeed on the merits of its case” and 2) that it will “suffer immediate and irreparable harm if the injunction is not granted”.  The court concluded that Integrated failed to meet either of these requirements and denied the company’s request for a temporary injunction.

The Court’s Decision

The court concluded that Integrated lacked a meritorious claim regarding a breach of the employment contract by Bidz contracting with one of its former employees.  The non-solicitation agreement in question is one between a consulting company and a client, not between a company and its employee(s).  Integrated failed to present any case from any jurisdiction in the United States where a court recognized this business arrangement as an interest that warranted legal protection.

This, according to this court, meant that Integrated lacked a legitimate business interest that a temporary injunction would be necessary to protect.  Additionally, Integrated failed to present evidence that Bidz had actually “solicited” Mr. Greenebaum and purposefully induced him to terminate his employment with Integrated.  The court used these two factors to hold that that Integrated would most likely not succeed on the merits of its case.

Conclusions

The facts of the case also led the court to conclude that Integrated would not experience imminent and irreparable harm if it failed to issue an injunction.  The court held that this was requisite for granting a temporary injunction and commented “Connecticut law supports a distinctly moderated level of proof required to establish the elements of irreparable harm”.  Even though Connecticut courts require only a “moderated level of proof”, the moving party must demonstrate some degree of imminent, irreparable harm.  The only loss that Integrated could demonstrate was that two employees terminated their employment and started their own company.  They were both at-will employees however and could have done so at any point in time, regardless of Bidz’s action.

In conclusion, the court held that Integrated failed to meet the requirements that would warrant a temporary injunction against Bidz to prevent it from transacting with Mr. Greenebaum and his company Addo.

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.

Covenants Not To Compete in Franchise Agreements

Covenants Not To Compete in Franchise Agreements
Pirtek USA, LLC v. Zaetz, 408 F.Supp.2d 81

Pirtek USA, LLC was a franchise company that operated as a business system “consisting of the sale, assembly and installation of industrial and hydraulic hoses, fixed tube assemblies and related components and services”. Pirtek entered into a Franchise Agreement with Mr. Irwin Zaetz in September 1999 to license him to operate a Pirtek business. The agreement contained a non-compete clause that prohibited Mr. Zaetz from operating or working for a competing business within a limited geographical area for a two-year period after the termination of the franchise agreement. Pirtek and Mr. Zaetz terminated their franchise agreement on April 22, 2005 and the parties went their separate ways. Pirtek was able to sell that particular franchise to another party, Ms. Ashely Geddes, while Mr. Zaetz and his son proceeded to operate their own business, Hose Medic. This new company provided many of the same services as Pirtek franchises and covered the same general geographical area. Additionally, the registered address for Hose Medic was the same one Mr. Zaetz used to register his franchise with Pirtek.
Pirtek alleged that Mr. Zaetz used his son’s company as a front to avoid the enforcement of the covenant not to compete. More specifically, the company alleged that Mr. Zaetz used Pirtek’s proprietary information to help his son base the new company on the Pirtek business model. Pirtek sued Mr. Zaetz in federal court and requested that the court issue a temporary injunction to prevent further contractual violations while the court tried the case. The court denied its request and refused to issue a temporary injunction.
Pirtek sued on three accounts, claiming that Mr. Zaetz breached the non-compete by 1) operating a competing hose installation and repair business, 2) infringing on its intellectual property rights, and 3) violating several post-termination provisions of the franchise agreement. The court found that Pirtek did not meet the burden of proof necessary to show that Mr. Zaetz was in breach of the non-compete. Pirtek asserted that their business interests were threatened by Mr. Zaetz’s use of the words “hose”, “assembly”, and a graphic of a cog when advertising and discussing the new company. This, according to this court, was an unfounded assertion because the words were too general to create confusion among consumers and negatively affect Pirtek’s business operations. Pirtek was not able to establish that it had suffered any hardship or was likely to do so in the future if an injunction was not issued. Imminent harm, according to the courts, is a requisite factor for granting a temporary injunction, and a court is not obligated to grant one if this crucial factor is missing.
The court pointed out however that the denial of the temporary injunction did not necessary mean that Pirtek would not be able to obtain a permanent injunction later. It counseled Pirtek that later stages of litigation could result in the enforcement of the covenant. It noted that Pirtek had some strong evidence to present and use in subsequent stages of the case but that its current request must be denied because it “failed to demonstrate irreparable harm”.
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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Covenants Not To Compete in Franchise Agreements

Covenants Not To Compete in Franchise Agreements
Pirtek USA, LLC v. Zaetz, 408 F.Supp.2d 81

Pirtek USA, LLC was a franchise company that operated as a business system “consisting of the sale, assembly and installation of industrial and hydraulic hoses, fixed tube assemblies and related components and services”. Pirtek entered into a Franchise Agreement with Mr. Irwin Zaetz in September 1999 to license him to operate a Pirtek business. The agreement contained a non-compete clause that prohibited Mr. Zaetz from operating or working for a competing business within a limited geographical area for a two-year period after the termination of the franchise agreement. Pirtek and Mr. Zaetz terminated their franchise agreement on April 22, 2005 and the parties went their separate ways. Pirtek was able to sell that particular franchise to another party, Ms. Ashely Geddes, while Mr. Zaetz and his son proceeded to operate their own business, Hose Medic. This new company provided many of the same services as Pirtek franchises and covered the same general geographical area. Additionally, the registered address for Hose Medic was the same one Mr. Zaetz used to register his franchise with Pirtek.
Pirtek alleged that Mr. Zaetz used his son’s company as a front to avoid the enforcement of the covenant not to compete. More specifically, the company alleged that Mr. Zaetz used Pirtek’s proprietary information to help his son base the new company on the Pirtek business model. Pirtek sued Mr. Zaetz in federal court and requested that the court issue a temporary injunction to prevent further contractual violations while the court tried the case. The court denied its request and refused to issue a temporary injunction.
Pirtek sued on three accounts, claiming that Mr. Zaetz breached the non-compete by 1) operating a competing hose installation and repair business, 2) infringing on its intellectual property rights, and 3) violating several post-termination provisions of the franchise agreement. The court found that Pirtek did not meet the burden of proof necessary to show that Mr. Zaetz was in breach of the non-compete. Pirtek asserted that their business interests were threatened by Mr. Zaetz’s use of the words “hose”, “assembly”, and a graphic of a cog when advertising and discussing the new company. This, according to this court, was an unfounded assertion because the words were too general to create confusion among consumers and negatively affect Pirtek’s business operations. Pirtek was not able to establish that it had suffered any hardship or was likely to do so in the future if an injunction was not issued. Imminent harm, according to the courts, is a requisite factor for granting a temporary injunction, and a court is not obligated to grant one if this crucial factor is missing.
The court pointed out however that the denial of the temporary injunction did not necessary mean that Pirtek would not be able to obtain a permanent injunction later. It counseled Pirtek that later stages of litigation could result in the enforcement of the covenant. It noted that Pirtek had some strong evidence to present and use in subsequent stages of the case but that its current request must be denied because it “failed to demonstrate irreparable harm”.
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.

Continue Reading