Posts tagged with "transaction"

Termination Does Not Invalidate a Non-Compete Agreement

Built In America, Inc. v. Morris, 2001 Conn. Super. LEXIS 2953

Mr. Michael Morris was the owner of Built In America, Inc. until he sold his entire stock in the company to Mr. Marc Costa in October 2000.  The parties executed a Purchase and Sale Agreement that legally transferred the stock and ownership of the company.  The transaction included an employment contract for an initial period of two years and a non-compete clause that became effective upon Mr. Morris’s termination from the company.

The company terminated Mr. Morris in April 2001 and he proceeded to work in direct competition with his former employer.  Mr. Costa and Built In America sued Mr. Morris for violation of the non-compete agreement and asked the court to enforce the agreement’s provisions.  Mr. Morris argued that the restrictive covenant was null and void because the company had breached the employment agreement when it unlawfully terminated his employment.

The Court’s Decision

The court found in favor of Built In America, ordered the enforcement of the covenant not to compete, and issued an injunction.  There was no dispute over the reasonableness of the covenant, only a dispute over whether it became void when the company allegedly improperly terminated Mr. Morris.  Built In America cited previous Connecticut cases, most notably Robert S. Weiss & Associates, Inc. v. Wiederlight (208 Conn. 525 (1988)), where the court held that termination did not invalidate a non-compete agreement.

Furthermore, the court concluded that the company was justified with respect to its decision to terminate Mr. Morris’s employment, stating that his “behavior was so outrageous that one is left to believe he was inviting his discharge”.  The court ultimately concluded that the covenant was legally binding and ordered its enforcement.


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.

Enforcing Non-Competes Associated with Sale of Company and Goodwill

Kim’s Hair Studio, LLC v. Rogers, 2005 Conn. Super. LEXIS 1805
Case Background

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’s Decision

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.

 

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.

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

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.

Court Enforces Non-Compete Against Connecticut Ophthalmologist

Musto v. OptiCare Eye Health Centers, 2000 Conn. Super. LEXIS 2298
Employment Background

Dr. Anthony Musto owned an eye care services professional corporation with two other doctors from 1973 to 1996.  He worked as a private practice ophthalmologist in the greater Bridgeport area until the three doctors sold the practice to OptiCare Eye Health Centers, Inc. on July 31, 1996.  Dr. Musto owned one-third of the shares of the business, sold them to OptiCare for a profit of $590,000, and signed an employment agreement with OptiCare to work as an ophthalmologist on their payroll.

He worked as an OptiCare employee from August 1, 1996, to August 4, 2000, providing management with a one-year written notice of voluntary termination on August 1, 1999.  Following his termination, Dr. Musto proceeded to open a private practice office in Fairfield and perform surgeries at Bridgeport Hospital, including three extremely rare procedures: dactocystorhinostomy, blethoroplasty, and removal of eyelid tumors.

The Non-Compete Agreement

Dr. Musto signed a non-compete agreement with OptiCare as part of his employment contract and initialed each page to demonstrate he understood the agreement’s obligations and restrictions.  The restrictive covenant stipulated that Dr. Musto be prohibited from engaging in the practice of ophthalmology or ophthalmic surgery for a period of eighteen months following termination with fifteen miles of OptiCare’s Stratford or Bridgeport offices.

OptiCare sued to prevent further violations of the non-compete agreement because of Dr. Musto’s new practice in Fairfield, a location clearly within fifteen miles of the identified OptiCare offices.  The company sought to enjoin him from performing general ophthalmic surgeries at Bridgeport Hospital, also located within the geographical restrictions, but did not ask the court to prevent him from performing the three rare surgeries since he was the only doctor on staff at the hospital with the requisite expertise and knowledge to perform them.  Dr. Musto however argued before the court that the restrictions contained in the agreement were unreasonable and the court should deny OptiCare’s request for their enforcement.

The Court’s Decision

The court held that the non-compete agreement was in fact reasonable and granted OptiCare’s request for its enforcement.  The court granted the request, stating, “Where the context of the covenant not to compete is the sale of the good will of an established business, the courts recognize that enforcement of the covenant is necessary to prevent the seller from depriving the buyer of the value of the transaction”.  When OptiCare acquired Dr. Musto’s professional corporation, it purchased the asset of continued patronage from people who had been patients of that practice, and the court concluded that OptiCare was entitled to protection of this valuable asset.

When determining whether a restrictive covenant is reasonable, the court must determine if it affords more than fair and just protection to the party in whose favor it operates without unduly interfering with public interest.  The eighteen-month duration was deemed reasonable because it was short enough not to cause any unwarranted or extreme hardships on Dr. Musto’s ability to start another practice.  Additionally the court concluded that the fifteen-mile restriction was reasonable because it was not a distance greater than what was necessary to protect the good will asset that OptiCare acquired from Mr. Musto and his partners.

 

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.