Matter of Richard Manno & Co. Inc. v Manno

[*1] Matter of Richard Manno & Co. Inc. v Manno 2012 NY Slip Op 50224(U) Decided on February 6, 2012 Supreme Court, Suffolk County Whelan, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 February 6, 2012
Supreme Court, Suffolk County

In the Matter of the Application of Richard Manno & Co., Inc., Petitioner, For a preliminary injunction in connection with an Arbitration pursuant to CPLR § 7502(c)

against

Anthony Manno and Anthony Manno & Co., Inc., Respondents



11-37982



VISHNICK, McGOVERN, MILIZIO, LLP

Attys. For Petitioner

3000 Marcus Ave

Lake Success, NY 11042

SETH ROSENFELD, ESQ

Atty. For Respondents

672 Dogwood Ave. # 167

Franklin Square, NY 11010

Thomas F. Whelan, J.

The petitioner interposed this application pursuant to CPLR 7502[c] for preliminary injunctive relief pending determination of the issues set forth in an arbitration proceeding which the petitioner commenced against respondent, Anthony Manno. For the reasons set forth below, the instant application is denied and all temporary restraints issued against the respondents by prior orders of this court are hereby lifted and removed.

Respondent, Anthony Manno, was employed by the petitioner, a company which manufactures and sells steel fasteners and machined parts in the United States. In October of 2010, the petitioner and respondent, Anthony Manno entered into a severance agreement. In exchange for his resignation and the execution of a releases and other consideration, the petitioner agreed to pay Mr. Manno $100,000.00 immediately and to pay future lump sum payments as well as monthly and other periodic payments for designated terms. The payments were conditioned upon Mr. Manno's freedom from engagement in acts defined as "Cause" in ¶ 9 of the severance agreement. If the petitioner, in its sole discretion, determined that Mr. Manno engaged in any of the acts defined as "Cause", his post-employment benefits would be forfeited and the obligations of the petitioner to pay would terminate. The forfeiture provisions set forth in ¶ 9 are as follows:

9. Notwithstanding any of the other terms of this Agreement, the Company may terminate any and all remaining payment obligations hereunder at any time prior to the expiration of this Agreement for Cause, in which case all of the Company's obligations under paragraphs 1b, 1c, 1d, 1e and 1f shall cease. For purposes of this Agreement, the term "Cause" shall mean that in the judgment of the

company you (i) have engaged in any business or practice or became employed in any position that the Company, in its sole discretion, deems to be in competition with the Company. Notwithstanding the foregoing, it is expressly agreed that you may go into business for yourself in competition with the Company, except that you agree not to do business with, be involved with or otherwise cooperate with or become employed by or with a domestic company which is a direct competitor of the Company; or (ii) have directly or indirectly solicited, induced, aided or suggested to any employee, customer or entity that you are aware is actively being solicited to enter into a relationship with the Company, or any vendor, agency or customer of the Company, to leave such employ, to cease discussions, to terminate such relationships or to cease doing business or in any way diminish the amount of business they doe with the Company [emphasis added].

The petitioner claims that in or about January of 2011, respondent Richard Manno formed his own company, namely, co-respondent, Anthony Manno & Co., Inc., which thereafter became engaged in the domestic manufacture and sale steel fasteners and machined parts in violation of subsection (i) of the above quoted ¶ 9 of the October 18, 2010 severance agreement. [*2]The petitioner further claims that the respondents have interfered with the business relations between the petitioner and its customers by engagement in the activities contemplated by subdivision (ii) of the above cited paragraph of the severance agreement. By reason of these perceived transgressions and violations of the severance agreement and a failure on the part of Mr. Manno to halt such business practices, the petitioner demanded arbitration on December 5, 2012.

On December13, 2011, the petitioner commenced this proceeding for injunctive relief restraining the respondents from engaging in the "domestic manufacture and sale of domestically manufactured steel fasteners and other machined parts that directly compete with the Petitioner's products", pending determination of the arbitration proceeding. The petitioner further demands injunctive relief restraining the respondents from soliciting the petitioner's customers and from engaging in one or more of the activities contemplated by subdivision (ii) of the above cited ¶ 9 of the October 18, 2010 severance agreement. The respondents oppose the application and seek termination of the temporary restraints imposed by the terms of the December 13, 2011 order to show cause which served as the process paper in this proceeding.

The issuance of an injunction in aid of arbitration is governed by CPLR 7502[c]. Pursuant thereto, the Supreme Court may grant a preliminary injunction "in connection with an arbitration that is pending or that is to be commenced inside or outside this state" but such relief may be granted "only upon the ground that the [arbitration] award to which the applicant may be entitled may be rendered ineffectual without such provisional relief" (CPLR 7502[c] ). A party seeking relief under this provision must also make a showing of the traditional equitable criteria for the granting of temporary relief under CPLR article 63 (see Winter v Brown, 49 AD3d 526, 853 NYS2d 361[2 Dept 2008]; Matter of K.W.F. Realty Corp. v Kaufman, 16 AD3d 688, 793 NYS2d 67 [2d Dept 2005]). In this regard, it is clear that a party may obtain temporary injunctive relief only upon a demonstration of (1) irreparable injury absent the grant of such relief, (2) a likelihood of success on the merits, and (3) a balancing of the equities in that party's favor (see W.T. Grant Co. v. Srogi, 52 NY2d 496, 517, 438 N.Y.S.2d 761[1981]; Advanced Digital Sec. Solutions, Inc. v Samsung, 53 AD3d 612, 862 NYS2d 551 [2 Dept 2008]; Winter v Brown, 49 AD3d 526, supra; New York City Off—Track Betting Corp. v. New York Racing Assn., 250 AD2d 437, 673 NYS2d 387 [2d Dept 1988]).

Here, neither the petitioner's moving papers nor its submissions in reply established that the arbitration award which it seeks would be rendered ineffectual without the grant of some or all of the provisional relief demanded herein. The petitioner's demand for arbitration includes a demand for the forfeiture of monies paid under ¶ 1 of the severance agreement upon the application of the forfeiture provisions set forth in ¶ 9 thereof. It also includes demands for recovery of amounts already paid and "lost profits". The petitioner's arbitration demand further includes a request for the issuance of a permanent injunction of the same type and scope demanded in this proceeding. Since no res or asset to which an arbitration award may attach has been shown to be in jeopardy of loss or destruction, no showing that an arbitration award in favor of the petitioner would be rendered ineffectual absent the granting of the restraints requested has [*3]been made.

Nor did the moving papers establish the petitioner's entitlement to injunctive relief under CPLR 6301. As indicated above, a party may obtain temporary injunctive relief only upon a demonstration of (1) irreparable injury absent the grant of such relief, (2) a likelihood of success on the merits, and (3) a balancing of the equities in that party's favor (see W.T. Grant Co. v. Srogi, 52 NY2d 496, 517, supra; Winter v Brown, 49 AD3d 526, surpa). Factors militating against the granting of preliminary injunctive relief include: 1) that the movant can be fully recompensed by a monetary award or other adequate remedy at law (see Mar v Liquid Mgt. Partners, LLC, 62 AD3d 762, 880 NYS2d 647 [2d Dept 2009]; Dana Distr., Inc. v Crown Imports, LLC, 48 AD3d 613, 853 NYS2d 111 [2d Dept 2008]; White Bay Enter. v Newsday, Inc., 258 AD2d 520, 685 NYS2d 257 [1999]); 2) that the granting of the requested injunctive relief would confer upon the plaintiff the ultimate relief requested in the action (see Wheaton/TMW Fourth Ave. LP v New York City Dept. of Bldgs., 65 AD3d 1051, supra; SHS Baisley, LLC v Res Land, Inc., 18 AD3d 727, 795 NYS2d 690 [2d Dept. 2005]); and 3) that an alteration rather than a preservation of the status quo of the parties or res at issue would result from a granting of provisional injunctive relief (see Board of Mgrs. of Wharfside Condominium v Nehrich, 73 AD3d 822, 900 NYS2d 747 [2d Dept 2010] Automated Waste Disposal, Inc. v Mid-Hudson Waste, Inc., 50 AD3d 1072, 857 NYS2d 648 [2d Dept 2008]; Matter of 35 New York City Police Officers v City of New York, 34 AD3d 392, 826 NYS2d 22 [1st Dept 2006]).

Well established legal maximums provide that non-compete restrictive covenants in employment contracts are judicially enforceable only to the extent that such covenants pass the test of reasonableness (see BDO Seidman v Hirshberg, 93 NY2d 382, 690 NYS2d 854 [1999]). Under the reasonableness standard, a restrictive covenant will only be subject to specific enforcement to the extent that it is reasonable in time and area, necessary to protect the employer's legitimate interests, not harmful to the general public and not unreasonably burdensome to the employee (see Reed, Roberts Assocs. v. Strauman, 40 NY2d 303, 307, 386 N.Y.S.2d 677 [1976]).

However, under certain limited circumstances, an exception known as the "employee choice doctrine", renders the reasonableness standard inapplicable. Such circumstances arise when economic relief is sought by a former employer under the terms of a contract that provide a voluntarily departing employee with post-employment benefits conditioned upon such employee's compliance with a restrictive covenant. In Morris v Schroder Capital Management International (7 NY3d 616, 825 NYS2d 697 [2006]), the Court of Appeals explained that the employee choice doctrine is the result of distinctions between employment contracts that contain non-compete clauses and post-employment benefit contracts that condition receipt of such benefits upon a covenant not to compete. In this regard, the Court of Appeals stated as follows:

At the outset, we note that noncompete clauses in employment contracts are not favored and will only be enforced to the extent reasonable and necessary to protect valid business interests (see BDO Seidman v. Hirshberg, 93 NY2d 382, 690 N.Y.S.2d 854, 712 N.E.2d 1220 [1999]; Post v. [*4]Merrill Lynch, Pierce, Fenner & Smith, 48 NY2d 84, 421 N.Y.S.2d 847, 397 N.E.2d 358 [1979] ). We have recognized an exception to the general disfavor of noncompete provisions, however, in the "employee choice" doctrine. This exception applies in cases where an employer conditions receipt of postemployment benefits upon compliance with a restrictive covenant FN2 (Post v. Merrill Lynch, Pierce, Fenner & Smith, 48 NY2d 84, 421 N.Y.S.2d 847, 397 N.E.2d 358 [1979] ). The doctrine rests on the premise that if the employee is given the choice of preserving his rights under his contract by refraining from competition or risking forfeiture of such rights by exercising his right to compete, there is no unreasonable restraint upon an employee's liberty to earn a living (see Kristt v. Whelan, 4 AD2d 195, 199, 164 N.Y.S.2d 239 [1st Dept.1957], affd. without op. 5 NY2d 807, 181 N.Y.S.2d 205, 155 N.E.2d 116 [1958]; see also Post, 48 NY2d at 88—89, 421 N.Y.S.2d 847, 397 N.E.2d 358). It assumes that an employee who leaves his employer makes an informed choice between forfeiting his benefit or retaining the benefit by avoiding competitive employment (Kristt, 4 AD2d at 199, 164 N.Y.S.2d 239). FN2. The "employee choice" doctrine is applicable

in cases involving economic relief, rather than

injunctive relief [emphais added].

(Morris v Schroder Capital Management Intern., 7 NY3d 616, 620-621; 825 NYS2d 697 [2006]).

The severance agreement at issue here is a post-employment benefits contract wherein benefits in the form of monies payable to Mr. Manno upon, and for years a number of years following his voluntary separation from the petitioner, are subject to forfeiture in the event Mr. Manno, among other things, cooperates, does business with or becomes employed by domestic companies that compete directly with the petitioner. Subparagraphs (i) and (ii) of ¶ 9 of the severance agreement identifies conduct which constitutes "Cause" for the termination of the petitioner's "remaining payment obligations" to Manno. Nestled in between the two clauses is an acknowledgment by the petitioner that Mr. Manno, "may go into business for yourself in competition with the Company". This is followed immediately by an agreed to limitation by Manno that he would "not to do business with, be involved with or otherwise cooperate with or become employed by or with a domestic company which is a direct competitor of the Company". No other promises of restraint on the part of Mr. Manno are set forth, as all of the other provisions of ¶ 9 of the severance agreement pertain to activity which may constitute "Cause" for the forfeiture of payments otherwise due Mr. Manno should he engage in such activity.

Assuming, without so finding, that Subparagraph (i) ¶ 9 of the subject severance agreement contains a non-compete restrictive covenant, it would not be enforceable without regard to the standards of reasonableness which covenants not to compete are regularly measured. Application of the reasonableness standard is consistent with those portions of the Morris decision wherein the Court of Appeals noted that the "employee choice doctrine" exception is applicable only in cases involving economic relief and not to those for injunctive [*5]relief (see Morris v Schroder Capital Management Intern., supra, at FN2 at 7 NY3d p. 621; cf., Tasciyan v Marsh USA, Inc., 2007 WL 950091 [SDNY 2007]). It is also consistent with the long standing rule that the availability of equitable relief diminishes appreciably once an employment contract has terminated and that such circumstances limit the availability of equitable relief in cases wherein it is necessary to prevent injury from unfair competition or similar tortious behavior or to enforce an express and valid anti-competitive covenant (see American Broadcasting Co. v Wolf, 52 NY2d 394, 420, 438 NYS2d 482 [1981]).

Here, the petitioner failed to demonstrate Mr. Manno's violation of an enforceable non-compete restrictive covenant by his formation of, and employment with, his co- respondent company, Anthony Manno & Co., Inc., and that by reason thereof, the petitioner is entitled to the temporary restraints demanded. The language employed by the petitioner in drafting the contract forfeiture provisions containing the purported covenant do not give rise to any clear right to relief under the case authorities cited above. Consistent with the petitioner's express acknowledgment of Manno's right to "go into business for yourself in competition with the Company", Mr. Manno has formed his own company which competes with petitioner as it does with other domestic sellers and/or manufacturers of steel fasteners and like items. The court thus rejects the petitioner's claims that the restraint against doing business with or becoming employed by domestic competitors of the petitioner that follows the express acknowledgment of permissible activities, prohibits Mr. Manno's continuation of his current business activities. Even if it were otherwise, the limited restraint relied upon the petitioner fails to satisfy the reasonableness test applicable thereto under the holding in Morris. The petitioner thus failed to demonstrate a likelihood of success on the merits of its underlying claims for permanent injunctive relief. In addition, because the only actionable harm here appears to be economic in nature, and compensable by way of the money damages demanded by the petitioner from the arbitrator, the element of irreparable harm is missing. Finally, the injunctive relief sought from this court, provisionally, is part of the relief demanded by the petitioner from the arbitrator. Since an award of such relief by this court would confer upon the petitioner, provisionally, the ultimate relief sought in the arbitration proceeding, a balance of the equities favors the position of the respondents, rather than that of the petitioner.

In view of the foregoing, the petition is in all respects denied. The temporary restraints imposed upon the business activities of the respondent in effect under the prior orders of this court are hereby lifted and vacated.

Dated: February 6th 2012______________________________

THOMAS F. WHELAN, J.S.C.