Ciolli v Grimaldi

[*1] Ciolli v Grimaldi 2012 NY Slip Op 52314(U) Decided on December 19, 2012 Supreme Court, Queens County Agate, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 December 19, 2012
Supreme Court, Queens County

Frank Ciolli AND PATTABE, INC., Plaintiffs,

against

Patsy Grimaldi AND CAROL GRIMALDI, Defendants.



18903/12



Attorneys on case: For Plaintiff: Tedone and Tedone

Capital One Bank Building

983 Willis Avenue

Albertson, NY 11507

And Attorney for Defendant:Vernon and Ginsburg, LLP

261 Madison Avenue, 26th Floor

New York, NY 10016

Augustus C. Agate, J.

The following papers numbered 1 to 9 read on this Order to Show Cause by the plaintiff for an order enjoining the defendants from using, occupying, conducting or maintaining a pizzeria business at premises located at 19 Old Fulton Street, Brooklyn, New York.

PAPERS

NUMBERED

Notice of Motion - Affidavits -Exhibits................ 1 - 3

Affidavit in Opposition - Exhibits..................... 4 - 6

Replying Affidavit..................................... 7 - 9

Defendants' Memorandum of Law

Upon the foregoing papers it is ordered that this Order to Show Cause by plaintiff for an order enjoining the defendants from using, occupying, conducting or maintaining a pizzeria business at premises located at 19 Old Fulton Street, Brooklyn, [*2]New York is decided as follows:

This is an action for a preliminary and permanent injunction whereby plaintiff Frank Ciolli seeks to enjoin the defendants from operating a pizzeria/restaurant, located at 19 Old Fulton Street in Brooklyn, New York. Pursuant to an agreement dated September 29, 1998, plaintiff Frank Ciolli purchased defendants' pizzeria business, which they owned and operated for eight years under the name "Grimaldi's Pizzeria" at 19 Old Fulton Street in Brooklyn. Grimaldi's was well-known for its coal-fired brick oven. The purchase price for the business was $500,000.00, and the Agreement provided that the sale would occur in two parts - defendants would initially sell 40 percent of the business for $200,000.00, and the defendants would sell the remaining 60 percent for $300,000.00 no later then September 29, 1999. Paragraph 2.01 of the Agreement provided that plaintiff would purchase all of the shares of the common stock of Pattabe, Inc., the corporation which owned the assets of Grimaldi's Pizzeria. The Agreement further provided that plaintiff would purchase the "right title and interest that Pattabe, Inc. has in the business, leasehold, and any and all trade names and trademarks owned by Pattabe, Inc. The sale also included "all inventory, fixtures, equipment, the current telephone number and all assets customarily used in the conduct and operation of the business."

In 2010, litigation erupted between plaintiff and plaintiff's landlord, Dorothy Waxman, regarding the lease for the subject premises. As a result of this litigation, plaintiff was forced to vacate the premises in December 2011. Plaintiff thereafter leased premises located at 1 Front Street, which was adjacent to 19 Old Fulton Street, to operate his pizzeria. Subsequently, plaintiff learned that defendants, the original owners of "Grimaldi's Pizzeria," arranged with the landlord of 19 Old Fulton Street to re-enter the premises and re-open their pizzeria, now under the name "Juliana's Pizza." In September 2012, plaintiff commenced the instant action to enjoin the defendants from operating a pizzeria business at 19 Old Fulton Street alleging, inter alia, that such action will result in unfair competition.

In support of the motion for a preliminary injunction, plaintiff asserts that when he purchased the pizzeria from defendants, he purchased not only the actual assets of the business but all of the commercial goodwill as well. According to plaintiff, at the time he purchased the business, Grimaldi's Pizzeria had developed a substantial commercial goodwill and enjoyed a regular and steady stream of local customers and customers throughout New York City. Plaintiff argues that if [*3]defendants are permitted to re-enter the premises and open a new pizzeria there, it would impair the goodwill of the business they sold him and cause irreparable injury to his business. Plaintiff maintains that were the defendants to re-open in the subject location, they would recapture many customers of Grimaldi's Pizzeria and would be engaging in unfair competition.

In opposition, defendants contend that there is nothing in the Sales Agreement between the parties that prevents them from operating a pizzeria at the subject location at this time. Defendants argue that although the Agreement contains a restrictive covenant, the time period in the covenant has expired. Defendants further argue that there is no evidence that they intended to sell the goodwill of the business. Defendants also state that even if a transfer of the goodwill was implied, they did nothing to violate such transfer of goodwill.

A preliminary injunction is a drastic remedy which will not be granted unless a clear right thereto is established under the law and the undisputed facts upon the moving papers. (Putter v Singer, 73 AD3d 1147, 1149 [2d Dept 2010]; William M. Blake Agency, Inc. v Leon, 283 AD2d 423, 424 [2d Dept 2001].) The decision to grant a preliminary injunction is a matter ordinarily committed to sound discretion of the court hearing the motion. (Dixon v Malouf, 61 AD3d 630, 630 [2d Dept 2009]; Automated Waste Disposal, Inc. v Mid-Hudson Waste, Inc., 50 AD3d 1072, 1073 [2d Dept 2008]; Nelson, L.P. v Jannace, 248 AD2d 448, 448-449 [2d Dept 1998].) In order to demonstrate entitlement to a preliminary injunction, the movant must establish (1) a probability of success on the merits, (2) the danger of irreparable injury in the absence of injunctive relief, and (3) a balancing of the equities in favor of the movant. (Aetna Ins. Co. v Capasso, 75 NY2d 860, 862 [1990]; Doe v Axelrod, 73 NY2d 748, 750 [1988]; Matter of Advanced Digital Sec. Solutions, Inc. v Samsung Techwin Co., 53 AD3d 612, 613 [2d Dept 2008].)

A restrictive covenant barring one party from competing with another will be enforced where it is reasonable as to time and area, necessary to protect legitimate interests, not harmful to the public and not unduly burdensome. (BDO Seidman v Hirshberg, 93 NY2d 382, 389 [1999]; Gelder Med. Group v Webber, 41 NY2d 680, 683 [1977]; Ricca v Ouzounian, 51 AD3d 997, 998 [2d Dept 2008]; Penny W. Budoff, P.C. v Jenkins, 143 AD2d 250, 252 [2d Dept 1988].) As long as restrictive covenants are limited and reasonable, courts are hesitant to interfere with the strong public policy in favor of allowing individuals to dispose of their property freely and to enter into binding contracts. (Purchasing Assocs., Inc. v Weitz, 13 NY2d 267, 271 [1963].) A [*4]restrictive covenant not to compete will be difficult to enforce, however, once the time period set forth in the agreement has expired. (see First American Tit. Ins. Co. Of New York v Benchmark Tit. Agency LLC, 48 AD3d 327, 327 [1st Dept 2008].)

In the case at bar, the court finds that plaintiff is unable to establish a likelihood of success on the merits. Paragraph 7.01 of the Sales Agreement, entitled "Restrictive Covenant", provides that "[t]he Sellers ... Agree that they will not engage in the same or similar business to that of Pattabe, Inc. ... within a radius of 3 miles in all directions from the premises, for a term of 10 years from the date of the purchase of the remaining sixty percent." As noted above, the remaining 60 percent of the pizzeria was to be sold no later than September 29, 1999. Thus, pursuant to the express terms of the Agreement, the restrictive covenant herein expired no later than September 29, 2009, more than three years ago. Since the restrictive covenant has expired, defendants are now entitled to open a pizzeria in the subject location and compete with the plaintiff. Inasmuch as the parties negotiated and expressly defined the restrictions on competition, this court cannot now imply a more general restriction into the contract. (see MGM Ct. Reporting Serv. v Greenberg, 74 NY2d 691, 693 [1989].)

There is also nothing to indicate that the parties intended a greater or more extensive restrictive covenant than that set forth in paragraph 7.01 of the Agreement. Indeed, paragraph 11.01 of the Agreement, entitled "Entire Understanding" states that "[t]his writing contains the entire agreement between the parties, and supersedes all prior agreements or understandings between the parties. There have been no representations by the parties except those set forth in this agreement." Similarly, paragraph 20, entitled "Complete Agreement" provides that "[t]his Agreement constitutes the complete agreement and understanding among the parties hereto with respect to the matters set forth herein ... Both parties hereto acknowledge and represent that they are not relying on any oral statements or representations which may have been made prior to the execution of this Agreement, but instead are relying solely on the representations, warranties and other statements made herein." Therefore, inasmuch as this agreement constitutes the entire agreement between the parties, plaintiff cannot properly argue that the clear terms of the restrictive covenant are inapplicable herein. (see General Bank v Mark II Imports, Inc., 293 AD2d 328, 329 [1st Dept 2002].)

Plaintiff further contends that the Agreement included the sale of the pizzeria's "goodwill." "Goodwill" of a business [*5]refers to the favor the management wins from the public and the probability that old customers will continue to patronize the business. (Richard A. Lord, Williston on Contracts § 13.8 [4th ed 2012] The Sales Agreement here does contain any references to the pizzeria's goodwill. However, that fact alone is not controlling. A transfer of goodwill can be intended even where the contract of sale does not expressly provide for it. (see Mohawk Maintenance Co. v Kessler, 52 NY2d 276, 286 [1981]; Merry v Hoopes, 111 NY 415 [1888].)

Even if the goodwill of the defendants' business was transferred to the plaintiff, however, there is no evidence that defendants took any action to impair the goodwill. Upon the sale of the goodwill of an established business, a seller has an implied covenant or duty to refrain from soliciting former customers. (Bessemer Trust Co., N.A. v Branin, 16 NY3d 549, 556 [2011]; see Hyde Park Prods. Corp. v Lerner Corp., 65 NY2d 316, 321 [1985].) In the matter at hand, there is no proof that the defendants took any affirmative steps to actively solicit any of the plaintiff's customers. For example, there is no evidence that defendants sent targeted mailings or made individualized telephone calls to former customers advising them of their return to their prior location. (see Bessemer Trust Co., N.A. v Branin, 16 NY3d at 558.) Rather, defendants are merely engaging in healthy competition which this court cannot enjoin once a restrictive covenant has expired. Indeed, "the seller of a business is free to subsequently compete with the purchaserand "even accept the trade of his former customers, provided that he does not actively solicit such trade.'" (Bessemer Trust Co., N.A. v Branin, 16 NY3d at 557 [quoting Mohawk Maintenance Co. v Kessler, 52 NY2d at 285 [1981].) The seller is even permitted to advertise the competing business provided that the advertisements are aimed at the general public. (Bessemer Trust Co., N.A. v Branin, 16 NY3d at 558.) As the Court of Appeals has stated, the seller of a business "remains free to pursue his own economic interests without constraint unless the purchaser has managed to extract from him an express promise to refrain from competing." (Mohawk Maintenance Co. v Kessler, 52 NY2d at 283.)

Plaintiff's argument that he would sustain approximately a 30 percent loss to his business if defendants are not enjoined from opening the pizzeria is not a sufficient basis to grant the injunction. Plaintiff has failed to present any proof or documentation to support his claim. Any anticipation of lost profits herein is based solely on undue speculation. (Hunts Point Realty Corp. v Pacifico, 56 AD3d 721, 722 [2d Dept 2008].) [*6]

Plaintiff is also unable to establish that his business will be irreparably harmedin the absence of a preliminary injunction. As discussed above, defendants will not be in violation of any restrictive covenant barring them from competing with the plaintiff. (cf. FTI Consulting, Inc. v Price WaterhouseCoopers, LLP, 8 AD3d 145, 146 [1st Dept 2004].)In addition, defendants have been away from the subject location for 14 years, and neither the plaintiff nor this court can predict what impact defendants' return will have on plaintiff's business. Indeed, there is no reason to believe that many of plaintiff's devoted and loyal customers, who regularly patronized his pizzeria during the past 14 years, will not continue to do so in his new location, which is only steps away. Plaintiff even states that he increased the customers and clientele after the business was sold to him and, thus, it is likely that these "new customers" will follow him to 1 Front Street. The court further notes that plaintiff learned in November 2011 that defendants intended to return to the subject location. However, this action was not commenced until September 2012. Inasmuch as plaintiff waited almost one year to bring this action, it is difficult for him to now argue that he will suffer irreparable harm if defendants are not enjoined form returning to their old location. (see Lidogoster v Krasnerman, 119 Misc 2d 678, 680 [Sup Ct, Kings County 1983].)

Finally, the court finds that the balancing of the equities does not favor the plaintiff. The restrictive covenant not to compete expired under the clear and unambiguous terms of the Sales Agreement. Defendants adhered to the terms of the covenant and did not seek to re-open their pizzeria until the restrictive covenant expired. Defendants cannot now be prohibited from operating a business at the location of their choice as long as they are not in violation of any contractual provision.

Accordingly, this Order to Show Cause by the plaintiff for an order enjoining the defendants from using, occupying, conducting or maintaining a pizzeria business at premises located at 19 Old Fulton Street, Brooklyn, New York is denied.

Dated: December 19, 2012AUGUSTUS C. AGATE, J.S.C.