Emerging Vision, Inc. v Main Place Opt., Inc.
Annotate this CaseDecided on February 24, 2006
Supreme Court, Nassau County
Emerging Vision, Inc., f/k/a Sterling Vision, Inc., Plaintiff,
against
Main Place Optical, Inc., AM-CLAR, INC., AMTON OPTICAL, INC., DR. DENNIS OSIAK, DR. EUGENE BORYSZAK and DR. RICHARD TARBELL, Defendants.
16088-05
COUNSEL FOR PLAINTIFF
Rosenberg, Calica & Birney, LLP
100 Garden City Plaza, Suite 408
Garden City, New York 11530
COUNSEL FOR DEFENDANTS
Meggesto, Crossett & Valerino, LLP
313 East Willow Street - Suite 201
Syracuse, New York 13203-1977
Leonard B. Austin, J.
Plaintiff, Emerging Vision, Inc., f/k/a Sterling Optical, Inc., ("EVI") , moves for an order, pursuant to CPLR 2221 and 5019, granting reconsideration of this Court's order of January 11, 2006 and, upon reconsideration, issue a preliminary injunction enjoining the Defendants from operating a non-Sterling Optical retail optical store at the former location of Sterling Optical Store No. 25 for a period of two (2) years within a five (5) mile radius of that location.
BACKGROUND
EVI franchises Sterling Optical Centers. EVI is the successor-in-interest to Sterling Optical Corp.
Store No. 25 was franchised to Defendant Main Place Optical, Inc. ("Main Place") by a franchise agreement dated October 9, 1992. Main Place operated a Sterling Optical retail store in the Main Place Mall in Buffalo, New York pursuant to the franchise agreement.
Defendants Dennis Osiak, ("Osiak"), Eugene Boryszak, ("Boryszak") and Richard Tarbell ("Tarbell") were the principals of Main Place. They agreed to personally guarantee Main Place's obligations under the terms of the franchise agreement. They agreed to be personally bound by the terms of the franchise agreement including the provisions of the restrictive covenant.
Paragraph 19(b) of the Store No. 25 franchise agreement provides that after the termination of the franchise agreement, Main Place, Osiak, Boryszak and Tarbell would not operate a non-Sterling Optical retail store for a period of two (2) years within a radius of five (5) miles of Store No. 25.
By letter dated August 5, 2005, EVI advised Main Place, Osiak, Boryszak and Tarbell that they were in default of the provision of the franchise agreement. The letter further advised them that if their defaults were not cured within the cure period established by the franchise agreement, the franchise agreement would be terminated.
The defaults were not cured or remedied. By letter dated August 30, 2005[FN1], EVI advised Main Place, Osiak, Boryszak and Tarbell that the franchise agreement for Store No. 25 was being terminated.
Even though Main Place's Sterling Optical franchise had been terminated, Main Place continued to operate a retail optical store using the Sterling Optical name. As a result, EVI commence this action. Upon commencement of this action, EVI, moved by order to show cause, [*2]for a preliminary injunction enjoining the Defendants from using the Sterling Optical name in connection with the operation of Main Place and from operating a non-Sterling Optical retail store in violation of the restrictive covenants contained in the franchise agreements for Store No. 25, Store No. 30 and Store No. 302.
By order dated January 11, 2006, this Court granted EVI a preliminary injunction enjoining Main Place from using the Sterling Optical trade name, trade and service marks, signs and/or commercial symbols in connection with the operation of Store No. 25 and from operating a non-Sterling Optical retail store at the location of Store No. 25.
Main Place was located in the Main Place Mall in downtown Buffalo, New York. Upon the issuance of the order, Main Place closed Store No. 25. The principals of Store No. 25, Osiak, Boryszak and Tarbell reopened Main Place Optical in a location across the hall from where Store No. 25 had been located. Defendants simply moved their furniture, fixtures, equipment and inventory from Store No. 25 to their new location.
Am-Clar Optical, Inc. ("Am-Clar") operates Sterling Optical Store No. 30 in Williamsville, New York and Sterling Optical Store No 302 in Amherst, New York pursuant to the terms of franchise agreements of which EVI, as successor-in-interest to Sterling Optical, Inc. is the franchisor. Osiak and Tarbell are the principals and shareholders of Am-Clar.
Paragraph 5(B) of the Store No. 30 and Store No. 302 franchise agreements prohibits the shareholders or any member of the immediate family of the family of a shareholder in the franchise from having "...any direct or indirect interest, as owner, investor, partner, lender, director, officer, employee, consultant, representative or agent, or in any other capacity in any entity which owns, develops, operates or franchises or licenses others to operate retain optical stores, centers or businesses" as long as the e franchise agreement is in affect. This provision has an exception which permits the franchisee to operate other Sterling Optical retail stores and which permits the
franchisee to own less than five percent (5%) of the stock in publicly traded companies that engage in the retail optical business.
EVI now moves for reargument asserting that this Court's January 11, 2006 order misconstrued the facts and misapplied the law when it declined to compel enforcement of the restrictive covenant contained in the franchise agreements. EVI asserts that this Court's January 6, 2006 order should be corrected to compel compliance with the restrictive covenants.
EVI also seeks renewal asserting that Osiak and Tarbell are in violation of Paragraph 5(B) of the franchise agreements of Store Nos. 30 and 302 by operating Main Place Optical which is conceded to now be a non-franchise retail store.
DISCUSSION
A. Reargument and CPLR 5019
CPLR 2221(d) permits the court to consider a motion to reargue provided that the motion is so designated, is based upon matters of law or fact alleged to have been overlooked by the court in deciding the prior motion and is made within thirty (30) days of service of the order with notice of entry from which reargument is sought.
A motion to reargue is addressed to the discretion of the court and may be granted upon a showing that the court overlooked or misapprehended the facts or law or for some other reason improperly decided the prior motion. Hoey-Kennedy v. Kennedy, 294 AD2d 573 (2nd Dept. 2002); and Long v. Long, 251 AD2d 631 (2nd Dept. 1998). [*3]
A motion to reargue cannot be used as a means by which the unsuccessful party can obtain a second opportunity to argue issues previously decided or to present new or different arguments relating to the issues previously decided. McGill v. Goldman, 261 AD2d 593 (2nd Dept. 1999); and Pahl Equipment Corp. v. Kassis, 182 AD2d 22 (1st Dept. 1992).
CPLR 5019 permits the court to correct or cure ministerial mistakes, defects or irregularities which do not effect substantial rights of the parties. Haggerty v. Market Basket Enterprises, Inc., 8 AD3d 618 (2nd Dept. 2004). See also, Herpe v. Herpe, 225 NY 323 (1919). CPLR 5019 is not designed to permit the court to exercise discretion or make new findings of fact. Siegel, New York Practice 4th §420.
CPLR 5019 is not applicable to this motion. EVI does not assert that there were any mistakes, defects or irregularities in the papers or procedures used by the Court in deciding the prior motion. EVI is seeking to have the Court reconsider and change its prior determination based upon the Court having misconstrued or misapplied the law or the facts.
EVI asserts that this Court's prior order is inconsistent in that, on the one hand, it held that it held that the two (2) year, five (5) mile restrictive covenant contained in the Store No. 25 franchise agreement was reasonable in time and geography and then, on the other hand, in failing to issue a preliminary injunction enjoining the Defendants from violating the restrictive covenant.
In deciding the prior motion, the Court did not have to reach the issue of the whether the restrictive covenant was reasonable in time and scope. In deciding the prior motion, the Court relied upon Paragraph 18(B)and (C) of the franchise agreement which prohibits the franchisee from using the Sterling Optical mark, trade name, service mark or proprietary information upon the termination of the franchise agreement. Even in the absence of a restrictive covenant, EVI, as franchisor, would have a legitimate interest in protecting the use of its mark, proprietary information and trade secrets and preventing a former franchisee from using the mark and confidential information after the franchise agreement had expired or been terminated. See, Wyndham Co. v. Wyndham Hotel Corp., 261 AD2d 242 (1st Dept. 1999); Props for Today, Inc. v. Kaplan 163 AD2d 177 (1st Dept. 1990); and First Coin Investors, Inc. v. First American Coin and Currency, Inc., 96 AD2d 925 (2nd Dept. 1983). The franchise agreement obligated franchisee to discontinue the use of the Sterling Optical name and remove all signs and other materials identifying the location as a Sterling Optical Center upon the termination of the franchise agreement and to cease using and return to EVI all confidential business systems and confidential information upon the termination of the franchise. The preliminary injunction issued by this Court in its January 6, 2006 order provides this relief.
The underlying factual basis for the within motion is that Osiak and Tarbell have, since the initial motion was heard and decided, or shortly will open a non-Sterling Optical retail store in the Main Place Mall directly across from the former location of Store No. 25. Since this application is based upon new facts, reargument is improper.
In deciding the prior motion, the Court did not misapprehend the law or the facts.
Based upon the facts presented and the law, EVI had established an entitlement to the precise relief that the Court granted.
B. Renewal
CPLR 2221(e) permits the court to grant renewal upon a showing of new facts not presented to the court upon the prior motion which would have changed the court's prior determination or if there has been a change of law which would changed the prior determination. [*4]The party seeking renewal must establish the existence of a justifiable reason for its failure to present the facts on the prior motion. CPLR 2221(e)(3).
The party seeking renewal must demonstrate that the facts were in existence when the prior motion was made but were unknown to the moving party and, therefore, not provided to the court. Orange and Rockland Utilities, Inc. v. Assessor of the Town of Haverstraw, 304 AD2d 668 (2nd Dept. 2003). The party seeking renewal must also demonstrate that it could not have discovered these new facts through the exercise of due diligence before the motion was made. In re Eshaghian, 7 AD3d 707 (2nd Dept., 2004); and Yarde v. New York City Transit Auth., 4 AD3d 352 (2nd Dept. 2004).
EVI's motion is not based upon facts that existed when this Court heard and decided the prior motion. This motion is based upon events and facts that took place after the court heard the prior motion and issued its January 6, 2006 order.
Since this motion is not based upon facts that existed but were not provided to the Court when deciding the prior motion, renewal must be denied.
C. Current Motion
Denying EVI's motion on the grounds that it is improperly designated as a motion to reargue or renew would be exalting form over substance. This motion is based upon facts which did not exist and which the Court could not and did not address when it decided the prior motion for a preliminary injunction. This motion is an application for a preliminary injunction based upon a different set of facts.
Had Defendants simply closed Store No. 25 and not opened a non-Sterling Optical retail optical store across the hall in the Main Place Mall, this motion would be unnecessary. However, this is not what occurred.
The Defendants have moved their business across the hall in the Main Place Mall. They are operating what is essentially the same business, using the same fixtures, equipment and inventory at the almost the same location under the trade name of Main Place Optical.
Paragraph 5(B) of the Store No. 30 and Store No. 302 prohibits the Osiak and Tarbell from having an interest in a non-Sterling Optical retail optical store during the term of the franchise agreements for those stores. Osiak and Tarbell do not deny that they have an interest in Main Place Optical or that the franchise agreements for Store No. 30 and Store No 302 are still in effect.
Osiak and Tarbell have violated Paragraph 5(B) of the Store No. 30 and Store No. 302 franchise agreements by having an interest in and operating Main Place Optical. Paragraph 17(D) of the Store No. 30 and Store No. 302 franchise agreements permits the franchisor to seek and obtain preliminary injunctive relief if the franchisees engage in conduct which violates the franchise agreements.
Even if the franchise agreements did not contain such a provision, EVI would be entitled to a preliminary injunction. A franchisor has a right to injunctive relief to protect the use of its trade secrets by a non-franchisee. Carvel Corp.v. Rait, 117 AD2d 485 (2nd Dept. 1986). As principals in Store No. 30 and Store No. 302, Osiak and Tarbell are privy to current trade secrets of and business information of EVI. Most certainly they could use this information in connection with their operation of Main Place Optical, a non-Sterling retail optical store. The purpose of Paragraph 5(B) is to prevent a franchisee from obtaining the information and benefits of being a franchisee and then using that information to operate a non-franchise location and to prevent a franchisee from diverting business from a franchise to a non-franchise location. These [*5]purposes are reasonably and clearly served by enjoining a franchisee from operating a non-franchise business. Accordingly, Osiak and Tarbell must be enjoined from operating Main Place Optical as long as they or members of their immediate families continue to have an interest in Store No.25 and Store No. 302.
Boryszak does not have an interest in Store No. 25 or Store No. 302. Thus, he is not bound by the provisions of those stores franchise agreements. However, Boryszak would have available for his use at Main Place Optical Sterling's proprietary or confidential information by virtue of Osiak and Tarbell having an interest in Sterling Optical franchises. Boryszak should not be able to obtain and benefit indirectly from the Sterling Optical information he cannot obtain directly. This is especially true in this case since Boryszak is a former franchisee whose franchise was terminated because of breaches and defaults under the franchise agreement. Sterling must be able to protect its confidential and proprietary information from use by a non-franchisee.
Store No. 25 had a restrictive covenant which prohibited any of the principals in Main Place from operating a non-Sterling Optical Retail store for a period of two (2) years and within a radius of five (5) miles of the location of Store No. 25 after the franchise agreement was terminated.
Restrictive covenants must serve a legitimate business interest of one of the parties. Peoples Savings Bank of Yonkers, NY v. County Dollar Corp., 43 AD2d 327 (2nd Dept.), aff'd., 35 NY2d 836 (1974). A franchisor has an interest in protecting its territory in order to be able to obtain another franchisee. Carvel Corp. v. Eisenberg, supra. Xerox Corp. v. Neises, 31 AD2d 195 (1st Dept. 1968); and Rudiger v. Kenyon, 32 Misc 2d 804 (Sup.Ct., Monroe Co. 1962). Preventing the Defendants from operating a non-Sterling Optical Center in the Main Place Mall clearly serves the business purposes of EVI by permitting it to obtain another franchisee for that location without competition from its former franchisee.
A restrictive covenant is enforceable if it is reasonable in time and geography, protects the legitimate business interest of the franchisor, does not impose unreasonably burdens on the franchisee and does not injure the public. BDO Seidman v. Hirshberg, 93 NY2d 382 (1999); and Reed, Roberts Assocs, Inc. v. Strauman, 40 NY2d 303 (1976). A restrictive covenant which is reasonable temporally and geographically will be enforced to protect from unfair competition stemming from the use of trade secrets or confidential information. IVI Environmental, Inc. v. McGovern, 269 AD2d 497 (2nd Dept. 2000); and Family Affair Haircutters, Inc. v. Detling, 110 AD2d 745 (2nd Dept. 1985). The Court need not address whether the five mile or two year limit is reasonable. Opening a non-Sterling Optical retail store across the hall in the mall where Main Place had been located within days of its Sterling Optical franchise being terminated would unquestionably violate any enforceable restrictive covenant.
Defendants do not assert that the provisions of the restrictive covenant in the Main Place or Am-Clar franchise agreements are unenforceable. Defendants assert that since the Court did not explicitly enjoin them from opening a non-Sterling Optical store at another location in the Main Place Mall, the conduct is permitted. This Court disagrees.
The Defendant's opening Main Place Optical violates the spirit if not the letter of this Court's prior order. It was clearly the intent of this Court when enjoining the Defendant's from operating a non-Sterling Optical Center at the location of Store No. 25 to enjoin the Defendants from operating a non-Sterling Optical retail store in the Main Place Mall.
Furthermore, Defendants opening a non-Sterling Optical retail store in the same mall as [*6]the Sterling Optical franchise while the Defendants still have access to Sterling
Optical's proprietary and confidential information constitutes unfair competition which the Court should enjoin.
In order to obtain a preliminary injunction, the party seeking the relief must demonstrate a likelihood of success on the merits, that irreparable harm will occur if the preliminary injunction is not issued and a balancing of the equities favors the issuance of the preliminary injunction. Doe v. Axelrod, 73 NY2d 748 (1988); W.T. Grant Co. v. Srogi, 52 NY2d 496 (1981); Schweizer v. Town of Smithtown, 19 AD3d 682 (2nd Dept. 2005); and Hightower v. Reid, 5 AD3d 440 (2nd Dept. 2004).. EVI has established all of these elements required to obtain a preliminary injunction.
Finally, having determined that a further preliminary injunction is warranted, the Court is required to set an undertaking to be posted by Plaintiff in the event that is later determined that the preliminary injunction was inadvertently granted. CPLR 6312(b); Margolie v. Encounter, Inc., 42 NY2d 475 (1975); Ying Fung Moy v. Hohi Umeki, 10 AD3d 604 (2nd Dept. 2004); and Hightower v. Reid, supra. In its order of January 11, 2006, this Court directed the posting of an undertaking in the sum of $7,500 with regard to the preliminary injunction therein granted. With the additional, expanded injunctive relief granted on this motion, an additional undertaking of $27,500 is appropriate.
Accordingly, it is,
ORDERED, that Plaintiff's motion to renew and reargue is denied; and it is further,
ORDERED, that Plaintiff's application for a preliminary injunction enjoining the Defendants Osiak, Boryszak and Tarbell from operating a non-Sterling Optical Center at the Main Place Mall, Buffalo, New York or anywhere within the proscribed five (5) mile radius is granted; and it is further,
ORDERED, that preliminary injunction is conditioned upon the Plaintiff posting a bond in the sum of $27,500 within ten (10) business days of the date of this order. Such undertaking may be in the form of a surety deposited with the County Clerk, Nassau County or by posting such a sum in an interest bearing escrow account to be maintained by Plaintiff's attorneys. Such undertaking shall remain in effect until further order of this Court or stipulation executed by the parties or their counsel. In the event the undertaking is not posting in accordance herewith, Plaintiff's motion is denied in its entirety.
This constitutes the decision and order of this Court.
Dated: Mineola, NY_______________________________
February 24, 2006 Hon. LEONARD B. AUSTIN, J.S.C.
Footnotes
Footnote 1: In the papers submitted in opposition to the original motion, the letter terminating the franchise agreement was stated by Main Place to have been dated August 30, 2004. In its decision, this Court incorporated that error into its prior order. Counsel for the parties have stipulated that the correct date is August 30, 2005.
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