Casual Water Bridgehampton, LLC v Casual Water Ltd.

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Casual Water Bridgehampton, LLC v Casual Water Ltd. 2012 NY Slip Op 32037(U) July 31, 2012 Sup Ct, Suffolk County Docket Number: 16781-12 Judge: Thomas F. Whelan Republished from New York State Unified Court System's E-Courts Service. Search E-Courts (http://www.nycourts.gov/ecourts) for any additional information on this case. This opinion is uncorrected and not selected for official publication. [* 1] "HORII'ORM Orml,R INDEX No. coPY 16781-12 SUPREME COURT - STATE OF NEW YORK IAS. PART 45 - SUFFOLK COUNTY PRESENT: H(m. THOMAS F. WHELAN Justice of the Supreme Court MOTION DATE 6/15/12 AD.!. DATES 6/29/12 Mot. Seq. # 001 - MG Mot Seq. # 002 - MD (moot) Prehminary Conf: 10/5/12 CDlSP Y_ N _x_ ---------------------------------------------------------------)( CASUAL WATER BRIDGEHAMPTON, LLC, Plaintiff, PHILLIPS LYTELL LLI' Attys. For Plaintiff 437 Madison Ave. New York, NY 10022 -againstCASUAL WATER LTD., GREGORYI'. KJR WAN and MICHAEL HARTMAN, AUSTIN M. MANGHAN, III, ESQ. Atty. For Defendants 21 West Second St. Riverhead, NY 11901 Defendants. ---------------------------------------------------------------)( Upon the following papers numbered 1 to 12 read on this motion for preliminarv injunctive motion to vacate order ; Notice of Motion/Order to Show Cause and supporting papers 1 Cross Motion and supporting papers 4-6 ; Ans\vering Affidavits and supporting papers 7 Replying Affidavits and supporting papers 8-9 , Other 10 (defendants' memorandum); memorandum); 12 (reply memorandum) ; Calld /Inti Itetllilig ("ume! ill $tlppmt Mid "prosed to the hiot;OIl) it relief and cross 3 ,Notice of , 11 (plaintiffs is, ORDERED that this motion (#001) by the plaintiff for preliminary injLU1ctiverelief restraining the defendants from competing with the plaintifrs pool servicing business in the areas identified by zip codes in the moving papers and from aiding and abetting the acquisition of new accounts by any other pool servicing companies who conduct business in the areas identified by said zip codes, is considered under CPLR 6311 and is granted subject to the conditions imposed below; and it is further ORDERED that the motion (#002) by the defendants to vacate the temporary restraining order dated June 1,2012, enjoining the defendants from competing with the plaintiff's pool servicing business in the areas identified by zip codes in the moving papers and from adding and abetting the acquisition of new accounts by any other pool servicing companies who conduct business in the areas identified by said zip codes is considered under Al1icle 64 of the CPLR and is denied as moot in view of the agreement reached by the parties on June 15, 2012; and it is further ORDERED that a preliminary conference is scheduled for October 5, 2012, at 9:30 a.m., in Part 45, at the courthouse located at 1 Court Street - Annex, Riverhead, New York. Counsel are directed to appear at said conference ready to proceed accordingly. [* 2] Casual Water liridgehampton. LtC v Casual Water Ltd. ct als lndex No. 12-l67Hl Page 2 In f-'ebruary and MayoI' 2008, the plaintiff purchased from defendant, Casual Water. LTD. (hereinalicr "LTD'') the pool service and maintenance portions of the LTD defendant's pool construction. service and maintenance busmess. The {()rmer purchase encompassed 90 existing accounts of Acquired Subscribers and future Subscribers located in certain geographical areas dcfined by zip code 11932. The latter purchase encompassed 60 existing accounts of Acquired Subscribers and future Subscribers located in certain geographical areas defined by ;Lip code. Also purchased by the plamtiff was the good will attributable to the pool servicing and ma1l1tenance business established by the LTD dclcndant and certain inventory and equipment. The sales were memorialized in two separate written agreements (collectively the "Sale Agrcements'') which were executed by, among others, the plaintiff its principal, the LTD defendant and two of its principals, both of whom have been joined herein as party defendants. The terms of the Sale Agreements obligated the plaintiff, as purchaser, to use its best efforts in securing customer satisfaction by performing its contractual obligations to service and maintain pools and spas in accordance with the highest standards of professional behavior and ethics so as to protect and enhance the Casual Water name and logo, but only with respect to the 150 Acquired Subscribers whose accounts and contracts were subject to transfer to the plaintiff at the closing of the purchase agrcements (see <11]6 of the "Sale Agreements"). In addition, the plaintiff as purchaser, agreed to support all w;:manties related to sellers' installed pools. The tenns onl7 in the Sales Agreements also obligated the plaintiff as purchaser, ·'to refer all construction related business in the aforementioned zip codes to the sellcr'·. In'l 7 of the Sale Agreement dated February 6, 2008 , the LTD defendant agreed '-not to at any time to solicit or service any of the Acquired Subscribers sold to the purchaser under this agreement". The LTD defendant further agreed "to refer all new Subscribers in zip codes 11932 to purchaser. Seller will not support or refer subscribers to any other servicing organizations in zip code 11932". Similar language set forth in'l 7 of the Sale Agreement dated May 21, 200S, stated that the LTD defendant agreed "not to at any time solicIt or service any of the Acquired Subscribers sold to Purchaser pursuant to lhis agrecmcnt." The LTD defendant further agreed "to refer all new Subscribers in zip codes 11901, 11931,.. 1]971,11978 to Purchaser. Seller will not support or refer Subscribers to any other :icrvicing organinltions in zip codes 11901, 11931.. 1] 97], 11978". The Sale Agrecmcnts llirther provided that both the purcha:ier and the seller "would execute Non-compete Agreements in the forms annexed hereto in schedule B". The Sales Agreement in ']13 declared that ·-this agreement may not be terminated by either party absent a material breach". Two Non-Compete Agreements of the type that wcre referred to in '1 7 oj" the purchase agreements dated February 6. 2008 (the "Bridgehampton NOll-Compete Agreement") and May :2]. ZOOS (the "West Non-Compete Agrcemcnt") were indeed executed by all signatories of each respective purchase agreement. In I of the Bridgehampton Non-Compete Agrccmcnt. the defendants agreed as follows: '1 Seller. Kirwin and llar1man hereby warrant and agree that they shall not: represent. I. Compete. directly or indirectly in any manner with Purchaser or engage in the business of [* 3] Casual Water Bridgehampton, LLC v Casual Water Ltd. et als Index No. J2-16781 Page 3 swimming pool or spa servicing or maintenance. within the zip code 11932. II. Aid. assist or support any other swimming pool or spa servicing or maintenance organii'.ation except for purchaser In Zip code 11932. By similar language set forth in ~ 1 of the West Non-Compete Agreement, the defendants agreed as follow: Sel1cr. Kirwin and Ilartman hereby represent, warrant and agree that they shall notJ. Compete, directly or indirectly in any manner with Purchaser or engage in the business of swimming pool or spa servicing or maintenance, within the zip codes 1190 I, 11931. 11931, 11935. 11939 11977 and 11978. ii. Aid, assist or support any other swimming pool or spa servicing or maintenance organization except for purchaser in the aforementioned zip codes. [n '11 orthe Non-Compete Agreements, the individual defendants further agreed to as follows: Each of the principals signing this agreement individually agree not to compete in the pool/spa construction and servicing business in Suffolk County New York for a period of three years after leaving the employment of either the Seller or the Purchaser. The Non-Compete Agreements also provided that in the event of a "breach", the nOI1breaching party would be entitled to injunctive relief restraining the breaching pmiy. It also contained an acknowledgment that injunctive relief would not be precluded by the availability of other remedies, such as money damages, as such damages were deemed insu!lieicnt. In its complaint, the plain tilT alleges that in or around December 201 L the defendant approached the plaintitl about renegotiating the parties' Sale and Non-Compete Agreement (see '1 26 of the complaint). [n or around April 2012. the plaintiff informed defendant Kirwan, that it was not interested in renegotiating the parties' Sale and Non·Compete Agreements on the terms that LTD had proposed. Shortly thereafter, the plaintiff alleges that the defendants informed the plaintiff that they had no intention of continuing to honor the Sale and Non-Compete Agreements and intended to service and maintain pools and spas within the Sold TClTitory (see ~ 28 of the complaint). On or about May 7, 20]2, the defendants purportedly sent a fonnal letter to the plaintiff and a related company, Causal Water East LLC inf'orming the plaintiff thm they were intending to cancel the Sale and Non-Compete Agreements without providing any specificity (see '1 29 of the complaint). The plaintitr further alleges that since LTD ended the agreements, the defendants arc intentionally steering customers away from the plaintiff (see 4j\ 31 of the complaint). Additionally. the plaintiff alleges that the defendants failed to f'orward customers· messages to the plaintiff and have attempted to recruit the plaintiffs employees. Furthermore, the plaintiff alleges that LTD has a continual workll1g relationship with Shinnecock Pools. another servicing company within the Sold Territ0ry (set' ~ 24 of the complaint)_ [* 4] Causal Waler Bridgehampton. LLC v Casual Water LTD Index No. 16781120 J 2 Page 4 By the instant mOl ion. the plaintiff seeks preliminary injunctive relief of the same nature and character as that demanded by it on a permanent basis in the single cause of action set forth in its complaint. The plaintiff relics heavily on its claims that the defendants violated the Non- Compete Agreement by soliciting customers and employees, failing to handle messages properly. and supporting a competing pool service business in the area covered by the sale agreements and agreed that in the Non-Compete Agreement that such a violation would entitle the plaintilT to a preliminary injunction notwithstanding that money damages may also be an available remedy to the plaintiff The defendants oppose the motion and rely upon the fact allegedly underlying the counterClal111S asserted in their answer wherein the defendants seek money damages 1)'0111 the plaintiff due 10 its purported breach of its obligations to provide top quality service to its customers and restraint fi'om conducting pool construction within the Sold Territories. For the reasons stated. the instant motion is granted, conditionally, to the extent set forth below. It is axiomatic thallo be entitled to a preliminary injunction, a movant must establish (I) the likelihood of success on the merits; (2) irreparable injury absent granting the preliminary injunction: and (3) a balancing of the equities in the movant's favor (see WheatonlTMW Fourtlt Ave., LP v New Vork City Dept. of Bldgs., 65 AD3d to51, 886 NYS2d 41 r2d Dept 2009J; Pear/green Corp. v Vtlll Chi Cltu, 8 AD3d 460. 778 NYS2d 516 r2d Dept 2004]). The decision to grant a prehminary injunction is committed to the sound discretion of the court (see Tatum v Newell Fwulillg, LLC, 63 AD3d 911,880 NYS2d 542 l2d Dept 2009]; Bergen-Fine v Oi/Heat IIISI., fnc., 280 ADld 504, 720 NYS2d 378 l"2d Dcpt 2001]), as the remedy is considered to be a drastic one (see Doe v Axelrod. 73 NY2d 748, 536 NYS2d 44 [1988]). Consequently, a clear legal right to reJieC which is plain from undisputed facts, must be established (see WlIeatolllTMW FourtlI Ave. LP v New York Ci()I Dept. of Bldgs., 65 AD3d 1051, supra: Gagnon Bus Co., Illc. v Vallo Trallsp., Ltd., 13 AD3d 334, 786 NYS2d 107 [2d Dept 2004l; Blueberries Gourmet v A vi,Realty. 255 JlD2d 348, 681l NYS2d 557 [2d Dcpt 19981). Although generally disfavored by the courts. covcnants not to compete will be enlorced if rcasonubly limited as to time. geographic area, and scope, but only where shown to be necessary to protect The employer's interests. not harmful to the public. and not unduly burdensome (see BlJO Seidmall v Hirshberg, 93 NY2d 382. 690 NYS2d 854 [1999]: Ricca v Ouzoullifm. 51 AD3d 997. 859 NYS.2d 238 [2d Dept 2008]). Even ifoverly broad, covenants not to compete may be enforced in part by the courts in order to serve the interests or the parties under the circumstances of a particular case (see BDO Seidmun v Hinhberg. 93 NY2d 382, supra al 397). Where. however. the relationshIp of The parties is that of seller and purchaser of all or pari 01' the good will of a going business, the courts will enforce an incidental covenant not TO compete by the seller (see Purchasing Assoc. Illc. l' Wei/:. 13 NY2d 267. 246 NYS2d 600 [1963 D. This common law covcnam is implied in law and is not subject to a test or reasonableness and is of indefinite duration (see Mohawk AJ/aillteuallce Co., Iuc. v Kessler, 52 NY2d 276. 437 NYS2d 646 [1981 I). As recently stated by the Court of Appeals. a seller of goodwill has an "implied covenant"" or a "duty to reli"<lln Ii-om soliciting former customers. which arises upon the sale of the 'good will' of an established business" (Bessemer Tmst Co. v Brallill, 16 NY3d 549. 556. 925 NYS2d 371 (20 I I): quoting A10lUlwk Maintenallce Co. l' Kessler. 52 NY2d 276. _'J/{!)/"a). This implied covcnant is permanent and not subject to divesliture alter a reasonable amount of time has passed (hi.). The dUlY nol to solicit fonlll'r clients arising from the sale of goodwill is distmct from the [* 5] Causal Watt.::rBridgehampton, LLC v Casual Water LTD Index No. 16781/2012 Page 5 dUlYn0110 compcle in Ihe industry which may only anse out of an express agreement (see Mohawk Maintellallce Co. I' Kessler. 52 NY2d at 285. supra). /\ seller's "implied covenanf' not to solicit his former customers is "a permanent one that is not subject 10 divestiture upon the- passage of a reasonable period or timc" (hI. at 285). Upon the sale of "good will.·· a "purchaser acquires the righl to expect that the firm's established customers will continue to patronize the business" (ld . ¢ citing People e..\"" Johnson Co. v Roberts. 159 NY 70, 80-84, 53 NE 685 [1899]). This is so reI. bccause the essence of these types of transactions is. in etfect. an attempt to transfer the loyalties of the business' customers from the seller, who cultivated and created them. to the new proprietor (see Bessemer Trust Co. I' Branin. 16 NY3d 549. supra). The parties to a sale of a business agreement may, however, chose to negotiate and expressly define the reach of the limitation imposed upon the seller with respect to its solicitation of its former cllstomers and other forms of competition with the purchaser and where the parties do so, the more general implied covenant is lost (see MGM Ct. Reporting Serv., Inc. v Greenberg. 74 NY2d 691. 543 NYS2d 376 ["19891). Nevertheless. where a plaintiff seeks preliminary injunellve relief in a suit to enforce a restrictive covenant tha! was given ancillary to the sale of the good will of a business, some courts have held that the plaintiff need not demonstrate actlla! loss of customers since irn:::parable harm is presumed to have occurred upon the plaintiff's demonstration of a likelihood of success on the merits (see Manhattan Real Estate Equities Group, LLC I' Pine Equity. 16 /\D3d 292, 791 NYS2d 418 [1st Dept 2005J; Frank May Assoc. Inc. v Boughton, 281 AD2d 673, 721 NYS2d 154 [3d Ocpt 2001]). Where thc parties expressly agree in writing that eithcr may obtain injunctive rdief for a breach of the covenant and that irreparable harm is agreed to due to the insufficiency of money damages, a showing of irreparable harm is not required (see New York Real Estate lnst., fllc. v Edelmall, 42 AD3d 321,839 NYS2d 488 [1st Dcpt 2007]). Upon application of the foregoing legal maxims to the facLsadduced on the instant motion, the court !lnds that the plaintiff has established its entitlement to the preliminary llljunctive relief requested. The moving papers further established that a balance of the equities tips in favor of the plaintiff as purchaser of the good will of the pool/spa service and maintenance busll1cSS In the specified geographical areas under the terms of the transactional agreements at issue herein. The defendants' claims that the Non-Compete Agreements arc unenforceable because of its decision to terminate the Sale Agreements due to alleged breaches by pbintitT are unavailing since no proof of any breaches, let alone of a material breach. was advanced by the defendanls in their opposing papers. The defendants failed to set-forth sufficient proof to support their allegation that "marble dustl11g" subcontracted out by the pla1l1tiffto another company is considered pool construction. The Sales and Non-Compete Agreements fail 10 define the relevant term "pool eonstTuction'" The conl1icting submissions in regards 10 this issue necessilate the necd fer further discovery. Under these circumsl.ances, thiS motion (#001) by the plaintiff is granted, conditionally_ 10 Ihe following extcnt· that the defendants arc hereby preliminarily enjolllcd and restrained, pursuanl 10 CPLR 6311. from: (a) competillg. either direcdy or indirectly. in any manner with Casual Waler Bridgehampton LLC or engaging m the business of swimming pool or spa servicing or maintenance within Ihe zip codes 11932. 11901. 11931, 11935. 11939, 11942. 11944. 11946, 11947. 11948. 11952,11956,11957.11958.11959,11960,11964,11965. 11968, 11969. 11970.11971. 11977, J 1978.: or (b) aiding, assisting or supporting any other swimming pool or spa servicing or mamtcnance organi;r.atio n. except for Casual Water Bridgehampton LLC. in zip codes 11932. [* 6] Causal Water Bridgehampton. LLC v Casual Water LTD Index No. 167S1/2012 Page 6 11901. 11931. 11935. 11939. 11942. 11944. 11946. 11947. 11948. 11952. 11956. 11957. 11958, 11959.11960.11964.11965,11968.11969.11970.11971. 11977.11978. The preliminary injunction granted herein is conditioned upon the pJaintitls posting of an undertaking in the amount of $1 0,000.00 in the form required by ep!,R 2512. withm 45 days of the date or this order and the plaintiffs service a copy of this order. together with proof of the posting of such undertaking. upon the defendants' counseL In the event that the plaintiff fails to timely post the undertaking required by the temlS of this order. the preliminary injunction herein granted shall terminate on the 45th day following the date of this order. This constitutes the decision and order of this Court. [)ATED~liR 'LAN. J.5.c.

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