Riedman Corp. v Gallager

[*1] Riedman Corp. v Gallager 2006 NY Slip Op 52627(U) [21 Misc 3d 1112(A)] Decided on September 26, 2006 Supreme Court, Onondaga County Murphy, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on September 26, 2006
Supreme Court, Onondaga County

Riedman Corporation and BROWN & BROWN, INC., Plaintiffs,

against

Robert D. Gallager and HATCH-LEONARD/MARKIN SHAW, INC., Defendants.



01-0459



WOODS OVIATT GILMAN LLP

By: William P. Smith, Jr., Esq.

Attorneys for Plaintiffs

700 Crossroads Building

2 State Street

Rochester, New York 14614

SUGARMAN LAW FIRM

By: Timothy J. Perry, Esq.

Attorneys for Defendants

360 South Warren Street

Fifth Floor

Syracuse, New York 13202

James P. Murphy, J.

In this action commenced by the plaintiffs seeking damages for an alleged breach of an employment agreement dated July 17, 1996, the defendants seek summary judgment pursuant to CPLR § 3212, dismissing the plaintiffs' Amended Summons and Complaint dated February 12, 2001. Plaintiffs' Amended Complaint alleges that defendant Robert D. Gallager ("Gallager") breached his employment agreement when he left Riedman Corporation ("Riedman") to work for

defendant Hatch-Leonard/Markin Shaw, Inc., ("Hatch Leonard") in January, 2001. Plaintiffs further allege that defendant Gallager continued to service certain insurance customers who [*2]requested that the defendant remain their broker after his change of employment. Plaintiffs further seek commissions alleging that defendant Gallager's accounts were "purchased" by Riedman at the time defendant Gallager left Haylor, Freyer & Coon ("HFC") to work for Riedman.

The undisputed facts are as follows. In July, 1996, defendant Gallager left his employer, HFC, to work for Riedman as an insurance agent. The parties entered into a letter employment agreement dated July 17, 1996, which states in pertinent part that if the employment is terminated for any reason, then defendant Gallager agrees not to "directly or indirectly on his own account or an association with any other person or firm, solicit or accept insurance business from any customers" of Riedman or its predecessors. The agreement further states in pertinent part, "the restriction shall be in effect for a period of two years following the termination of employment pursuant to this agreement and shall apply not only to existing customers of the company but to any new customer contact initiated by you during the term of this agreement."

In addition, HFC, Riedman and Gallager entered into a three-party agreement dated September 12, 1996, wherein Riedman signed a promissory note in the amount of $200,000.00, payable to HFC, and further paid HFC $50,000.00 simultaneously with the signing of the three-party agreement. Plaintiff contends that this agreement allows it to collect on HFC's account receivables, and further authorizes defendant Gallager and Riedman to assume all responsibility for the renewal of insurance coverage.

In support of defendants' motion for summary judgment, defendants contend that the employment agreement dated July 17, 1996, is unenforceable in that defendant Gallager's services as an insurance agent were not unique or extraordinary. Moreover, the three-party agreement dated September 12, 1996, makes no reference to any type of sales accounts to Riedman and releases defendant Gallager from his employment agreement so that he could freely go out and solicit his prior clients on behalf of Riedman. Finally, defendants argue that the agreement between Gallager, Riedman and HFC dated September 12, 1996, was not one under which Gallager sold a book of business to his new employer, but was instead one which "would permit plaintiff to enjoy the benefits of defendant's services to former clients without concern that HFC would assert a right to a portion of the commissions earned by defendant in connection with these clients."

In opposition, plaintiffs contend that there is an enforceable non-compete agreement with Gallager, and that they have a protectable interest as set forth in the September 12, 1996, agreement, as Riedman's payment of $250,000.00 to defendant Hatch-Leonard prevents defendant Gallager from soliciting or the acceptance of a specified number of limited insurance clients.

On summary judgment, it is well settled that the moving party must "establish his cause of action or defense sufficiently to warrant the court as a matter of law in directing judgment in his favor (CPLR 3212, sub. [b], and he must do so by tender of evidentiary proof in admissible form." See, Friends of Animals v. Associated Fur Mfrs., 46 NY2d 1065 (1979). The burden then shifts to the non-moving parties to lay bare their proof to show that a genuine question of fact exists. See, Oswald v. City of Niagara, 13 AD3d 1155 (4th Dept. 1988).

It is well settled that clauses in employment contracts that prevent an employee from [*3]pursuing a similar vocation after termination are disfavored in law. See, Columbia Ribbon & Carbon Manufacturing Co. v. A-1-A Corporation, 42 NY2d 496 (1977). In addition, a restrictive covenant or non-compete agreement will only be subject to specific enforcement to the extent that it is reasonable in time and area and necessary to protect the employer's legitimate interest. See, Reed, Roberts Associates v. Strauman, 40 NY2d 303. Moreover, an employee's services must be unique or extraordinary so as to merit a special protection to the employer. See, Cool Insuring Agency, Inc. v. Rogers, 125 AD2d 758 (3d Dept. 1986); see also, Newco Waste Systems, Inc. v. Swartzenberg, 125 AD2d 1004 (4th Dept. 1986) where the court concluded that a chief operating officer who was highly paid did not cause special harm to his employer by leaving and that his services were not special or unique to merit special protection. See, Newco at 1005.

In Cool Insuring Agency, the Appellate Division reversed the lower court and vacated the award of a preliminary injunction to the plaintiff stating that plaintiff had not submitted proof that defendant's services were unique, or extraordinary in the functions of an insurance agent, nor was there any proof that customer lists in the commercial insurance industry were considered to be confidential. See, Cool Insuring Agency at 759; see also, Riedman Agency v. Musnicki, 79 AD2d 1094 (4th Dept. 1981), where the Appellate Division, Fourth Department, held that an insurance customer list is not a trade secret, and that the insurance business is not unique. See, Riedman at 1094. In addition, the courts have held that an employment agreement is unenforceable by reason of its overreaching and unlimited geographic scope. See, Lynch v. Bailey, 300 NY 615 (1949); see also, Judge v. Bartlett Pontiff Stewart & Rhodes, 197 AD2d 148 (3d Dept. 1994).

In the case at bar, the Court finds that the defendants have met their burden of proof entitling them to summary judgment. Here, the non-compete provisions of the employment agreement between plaintiff Riedman and defendant Gallager dated July 17, 1996, is unenforceable, in that defendant Gallager's services as an insurance salesman were not unique or extraordinary. See, Riedman at 1094. In addition, there is no proof or evidence submitted by the plaintiff that defendant Gallager had confidential information of Riedman, trade secrets or customer lists that were not otherwise accessible to those in the industry. Finally, the Court finds that the employment agreement is unenforceable in that it is overbroad in scope. Here, the employment agreement contains no geographical limits, and thus constitutes an unlawful and unreasonable restraint on defendant Gallager's ability to earn a living. See, Buffalo Imprints v. Scinta, 144 AD2d 1025 (4th Dept. 1988).

Defendants having met their burden, the burden then shifts to the plaintiff to lay bare its proof in admissible form. In opposition, plaintiffs contend that the goodwill of its customers or clients are being exploited by the defendants, citing the case of BDO Seidman v. Hirshberg, 93 NY2d 382 (1999) in support. While plaintiff Riedman contends that it has a protectable interest in defendant Gallager's accounts because of its $250,000.00 payment to Hatch Leonard, the Court finds that plaintiff Riedman has failed to meet its burden of proof that it has a "legitimate interest in preventing former employees from exploiting or appropriating the goodwill of a client or customer, which had been maintained at the employer's expense, to the employer's competitive detriment." See, BDO Seidman at 392.

In the instant case, defendant Gallager brought his own business and clients with him to [*4]his new employment at Riedman, and plaintiff has utterly failed to show that any of defendant's customer relationships were created and maintained at the plaintiff's expense. Nor has plaintiff submitted any proof that Gallager had used any confidential firm information to attract plaintiff's clients with whom defendant Gallager had not had a relationship while employed there. See, BDO Seidman at 392.

Moreover, the Court finds that plaintiff Riedman has failed to meet its burden showing that the agreement between Riedman and HFC was one under which Gallager sold a "book of business" to Riedman Corporation. The courts have recognized that "when parties set down their agreement in a clear, complete document, their writing should as a rule be enforced according to its terms." See, WWW Association v. Giancotieri, 77 NY2d 157 (1990). Moreover, it is the plain and ordinary meaning of the terms of the agreement which governs. See, Greater Johnstown School District v. Frontier Insurance Company, 252 AD2d 615 (3d Dept. 1998). In addition, the courts will not look to extrinsic evidence to ascertain the parties' intent in drafting a particular provision unless it is ambiguous. See, Wood v. Maggie's Tavern, 257 AD2d 733 (3d Dept. 1999). Finally, whether a contractual provision is ambiguous is a question of law for the court to determine. See, Schreiber v. Cimato, 281 AD2d 961 (4th Dept. 2001).

A plain reading of the three-party agreement makes no reference to any specific insurance accounts, and contrary to plaintiffs' contentions, the agreement does not contain any language relating to a purchase and sale of a "book of business." The Court finds that the three-party agreement is, as a matter of law, unambiguous in its terms, and that the three-party agreement must be viewed on its face, within the four corners of the document. The Court, therefore, finds that the three-party agreement is solely Riedman and Gallager's desire to obtain a release of "Gallager's obligations to HFC under the employment agreement."

Finally, the Court is very mindful of powerful public policy considerations against the sanctioning or limiting of one's livelihood. The courts of New York are very hesitant to enjoin a party from engaging in legitimate business competition. See, Buffalo Imprints v. Scinta at 1025.

Based on the foregoing, the Court grants defendants' motion for summary judgment in its entirety and dismisses the plaintiffs' Amended Complaint dated February 12, 2001. The above constitutes the Decision and Order of this Court.

Dated:September 29, 2006

E N T E R_______________________________________

James P. Murphy

Justice of the Supreme Court