Eric Woods, LLC v. Schrade, Index No. A811-2014, 10/2/14 (Platkin, J.).

By Andrea Bonilla┃Staff Writer

Contract; breach; non-competition agreement; preliminary injunction

On August 29, 2011, plaintiff purchased an Allstate insurance agency from defendant pursuant to an Asset Purchase Agreement (“APA”). Included in this purchase were “any and all customer lists and customer files used and maintained in connection with the Business” and “any and all goodwill of Seller.”  As required by the APA and in partial consideration for the sale of the business, defendant entered into a Non-Competition Agreement (“Agreement”). In order to protect plaintiff, the business, and plaintiff’s investment in the business, the parties included a post-sale covenant against competition and solicitation in the Agreement. The covenant stated that for a period of five years, beginning on August 29, 2011, defendant would not: (1) sell policies of insurance of any kind or nature within a twenty five mile radius of his former office, excluding Saratoga County; (2) canvas, solicit, or accept any business from any customers/policyholders listed in the “Book of Business” and he would not for any reason request or advise any of the aforesaid customers to withdraw or cancel any of their insurance business with plaintiff regardless of their place of business or residence; or (3) solicit for employment any employee of plaintiff, or encourage any employee to leave the employ of plaintiff. The Agreement also stated that these limitations were reasonable and properly required for the protection of plaintiff’s business and affairs. The parties agreed that, since defendant possessed “Confidential Information” concerning the purchased business, defendant would not “duplicate, remove, download, use or disclose . . . any such Confidential Information.” Finally, recognizing that breach of this Agreement would cause plaintiff to suffer unascertainable and irreparable damages, defendant consented to the entry of injunctive relief “without the necessity of posting a bond.” The parties also agreed that the non-prevailing party in any potential litigation to enforce terms of the covenants would be responsible for legal fees and all other expenses of the prevailing party.

In January 2014, plaintiff’s sole member became aware that defendant’s accountant had transferred several personal policies to defendant’s new insurance agency located in Saratoga County. On March 24, 2014, the member learned that defendant was taking over the local GEICO office in Albany, NY, which was located about ten miles away from plaintiff’s agency. The member alleged that defendant engaged in a “full scale marketing effort” for his new GEICO insurance agency. As a result, the member claimed that he lost clients to defendant.

On September 8, 2014 plaintiff commenced this action to enforce the terms of the Agreement. The Court granted plaintiff’s motion for a preliminary injunction, finding that plaintiff demonstrated a “clear likelihood of success on the merits.” The Court applied the standard of reasonableness applicable to post-sale covenants. In finding that plaintiff showed a “clear likelihood of success in establishing that the scope and duration of the covenant are reasonable,” the Court reasoned that the covenant reasonably protects plaintiff’s legitimate interest in the enjoyment of a valuable asset that it purchased, the geographic component of the covenant reasonably serves to protect the goodwill of the transferred business, and the twenty five mile radius falls within the prevailing notions of reasonableness. As to duration, the Court reasoned that covenants of similar duration “routinely are given in commercial transactions in which the goodwill of an existing enterprise is purchased.” The Court found that the reasonableness of the covenant was confirmed by defendant’s own acknowledgments in the “Reasonableness of Limitations” and that the terms of the covenant were the result of “arm’s length negotiation.” The Court found that the elements of imminent and irreparable harm had been established, reasoning that irreparable harm is presumed where the covenant to compete is part of the consideration for the sale of an existing business with its goodwill. Further, defendant recognized that breach of the covenant may give rise to unascertainable damages that would cause plaintiff irreparable damage in the absence of enforcement. The Court found that the balance of the equities tipped in plaintiff’s favor because the burdens associated with the requested injunctive relief were self-created. The Court also found defendant’s claim of undue delay unmeritorious since defendant consented to the entry of injunctive relief. Further, defendant did not allege nor establish elements of equitable estoppel or laches. Finally, the Court found that no financial undertaking was required since the Agreement authorized entry of an injunction “without the necessity of posting a bond.”

Eric Woods, LLC v. Schrade, Index No. A811-2014, 10/2/14 (Platkin, J.).

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