Manhattan Real Estate Equities Group LLC v Pine Equity NY, Inc.

[*1] Manhattan Real Estate Equities Group LLC v Pine Equity NY, Inc. 2004 NY Slip Op 51869(U) Decided on August 3, 2004 Supreme Court, New York County Cahn, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 August 3, 2004
Supreme Court, New York County

Manhattan Real Estate Equities Group LLC, Plaintiff,

against

Pine Equity NY, Inc., PINE EQUITY INTERNATIONAL, LLC, WORLDWIDE PROPERTIES LLC, ROY INVESTMENT NY CORP., OXFORD CAPITAL, LLC, MANHATTAN LANDMARK REALTY LLC, OREN YERUSHALMY, OFER RESLES, TALI GEVA, BEN FRIEDMAN and DOV RON, Defendants.



603259/03

Herman Cahn, J.

Plaintiff moves to preliminarily enjoin defendants from engaging in claimed wrongful competition, CPLR 6301, et seq.

BACKGROUND

Defendant Pine Equity NY, Inc., was formed in New York by defendants Oren Yerushalmy and Ofer Resles in 1994. Its primary business was to purchase apartments in New York for resale to Israeli investors. Pine Equity's affiliate, defendant Roy Investment NY Corp., furnished and managed the apartments, for placement on the market as furnished rentals. The sale of Pine Equity's inventory within the New York market was typically handled by defendant Manhattan Landmark Realty LLC.

In September 2000, plaintiff Manhattan Real Estate Equities Group LLC was formed in New York by defendant Worldwide Properties LLC (formed in New York by Yerushalmy and Resles) and Dashkal Corp., to engage in similar business. Pursuant to a "Founders' Agreement," Worldwide and Dashkal each owned fifty percent of plaintiff.

Due to internal disputes among Worldwide, Dashkal, and their principals, Worldwide and Dashkal entered into a "Transfer of Membership Interests Agreement," dated January 17, 2002, ("Transfer Agreement") which replaced the Founders' Agreement and severing said parties' affiliation (Order to Show Cause Ex. A). By the Transfer Agreement, Worldwide transferred its membership in plaintiff to Dashkal for $2,650,000.00.

The Transfer Agreement provides, in pertinent part, as follows: [*2]

Non-Compete

9.1.WWP Group or their assigns, heirs, Affiliates shall not sell apartments located in New York City to residents of the State of Israel from the date of this Agreement until the earlier of January 1, 2006 or when Manhattan Group ceases operations (the "Period"). This provision is limited specifically to apartments and does not prohibit WWP Group, its assigns, heirs, Affiliates or Oxford Capital LLC or its Affiliates from the sale of any other type or size of real property which includes, but not limited to, the sale of buildings, including apartment buildings. This provision does not in any way limit WWP Group or its assigns, heirs, or affiliates from consummating any transactions that are listed in Annex B.

9.2.For the Period, WWP, and any controlling company of WWP or any company controlled by WWP or under the control of any of WWP, Oren Yerushalmy, Ofer Resles, their assigns, heirs, and Affiliates, shall not: (1) hold more than 5% (five percent) of the entire issued capital or interests of a public company, or hold any securities or interests in a private company, which engages primarily in selling apartments located in New York City to residents of the State of Israel (the "Prohibited Activity"); (2) compete, directly or indirectly, provide services and or consult in any other capacity in connection with the Prohibited Activity to any person, a department or section of any business or venture; (3) be nominated as a director or a member or a manager in a company or in any other entity which is engaged in the Prohibited Activity.

9.3.For three years from the date of this Agreement, WWP Group shall not, directly or indirectly, solicit or encourage any employee of Manhattan Group or Dashkal, to leave the employ of Manhattan Group or Dashkal. WWP Group will inquire of a job applicant if the applicant has, within 12 months preceding the interview for the job, worked for Manhattan Group or Dashkal. If the applicant states that he or she did work for Manhattan Group or Dashkal within the specified period, WWP Group is prohibited from hiring that job applicant. If the applicant states that he or she did not work for Manhattan group or Dashkal, WWP Group is free to employ such applicant and it will not be construed under this agreement a breach of this paragraph if the job applicant was untruthful in his or her response. Furthermore, this paragraph does not prohibit the hiring of a Manhattan Group or Dashkal employee who was working for Manhattan Group or Dashkal and was fired from his/her job.

The complaint alleges that Pine Equity is competing with plaintiff in violation of the foregoing provisions, and that defendants Tali Geva, Ben Friedman, and Dov Ron, former employees of plaintiff, are now employed by Pine Equity in violation of same. Plaintiff moves for a preliminary injunction enjoining such activity.

DISCUSSION

A party is entitled to a preliminary injunction only after it demonstrates that it is [*3]likely to succeed on the merits; will suffer irreparable harm in the absence of the requested relief; and the equities balance in its favor (W.T. Grant Co. v Srogi, 52 NY2d 496 [1981]; Nesis v Paris Intl. Lighting, Inc., 184 AD2d 485 [1st Dept 1992]).

Likelihood of Success:

Plaintiff offers several items of evidence in support of its claim that Pine Equity breached the non-compete clause contained in sections 9.1 and 9.2 of the Transfer Agreement. For example, plaintiff procured copies of two contracts in which Pine Equity agreed to sell apartments in New York City to Israeli investors (Order to Show Cause Exs. D, E). Defendants do not refute the authenticity of the contracts, responding, merely, that the two transactions never closed (Resles Aff. ¶ 23; Geva Aff. ¶ 23).

Plaintiff also submitted copies of internet web pages advertising Pine Equity's business, which targeted Hebrew speaking and other foreign language speaking investors to purchase apartments in New York City (Order to Show Cause Exs. B, C; Safran Aff. ¶ 16). While defendants claim that the web sites were published before the Transfer Agreement was entered into (Resles Aff. ¶ 41), plaintiff submits a web page domain search report, indicating that the site was created after the date of the Transfer Agreement was entered into (Roschelle Aff. ¶ 16, Ex. B). Further, plaintiff offers an admission from Pine Equity that it currently engages in the business of selling New York City apartments to Israeli investors, made in an appellate brief submitted September 24, 2003 involving a previously filed action (Pine Equity NY, Inc. v Manhattan Real Estate Equities Group LLC, index No. 601803/02) (Safran Aff. ¶ 22, Ex. G at 6). Pine Equity now states that it was a typographical error (Defendants' Mem. at 24 n. 11).

Although the foregoing indicia of breach exist, likelihood of success depends upon a basic determination as to the enforceability of the non-compete clauses. The clauses prohibit Pine Equity from engaging in any business pertaining to the sale of New York City apartments to Israeli residents for a period of almost four years. Restrictive covenants incident to the sale of a business are generally enforceable as long as they are reasonable as to time and geographical scope (e.g., Purchasing Assocs., Inc. v Weitz, 13 NY2d 267 [1963], rearg denied 14 NY2d 584 [1964]). "This rule is grounded, most reasonably, on the premise that a buyer of a business should be permitted to restrict his seller's freedom of trade so as to prevent the latter from recapturing and utilizing, by his competition, the good will of the very business which he transferred for value" (id., at 271).

The restrictive covenant of almost four years, limited to New York business activities, is a reasonable means of protecting plaintiff's valuable ownership rights which it acquired at substantial cost (Gelder Med. Group v Webber, 41 NY2d 680 [1977]; Karpinski v Ingrasci, 28 NY2d 45 [1971]). However, it should be noted that the issue of the reasonableness of restrictive covenants usually arises in the context of attempting to prevent an individual from competing. The issue rarely, if ever, is considered in the context of a business entity's competition. Thus, the restrictive covenant involved here, really concerns only the entities.

In addition, while restrictive covenants involving individual employees are scrutinized more closely than those involving business entities, the restrictions here against solicitation and employment involving the hiring of former employees of plaintiff are similarly reasonable (Bates Chevrolet Corp. v Haven Chevrolet, Inc., 13 AD2d 27 [upholding five year [*4]restrictive covenant against former employees due to training gained by employees' during the course of employment], lv & rearg denied 13 AD2d 912 [1st Dept 1961]).[FN1]

Plaintiff claims that defendant Friedman worked for defendant Roy Investment NY Corp. while still employed by plaintiff, and worked full-time for Roy Investment after resigning from plaintiff. Plaintiff offers various items of evidence to support this claim, including a copy of what is purported to be a lease signed by Friedman working as an agent for Roy Investment while still in plaintiff's employ (Roschelle Aff. ¶ 24, Ex. D).

With respect to defendant Geva, plaintiff claims that Pine Equity induced her to act in an insubordinate manner, thereby provoking plaintiff to terminate her employment so that she could accept a position with Pine Equity. In support of its claim, plaintiff points to Geva's admission in her affidavit that she had a position at Pine Equity waiting for her upon her leaving plaintiff (see, Geva Aff. ¶ 15). Plaintiff's counsel posits that Geva must have communicated with someone at Pine Equity concerning future employment prior to leaving plaintiff's employ (Roschelle Aff. ¶ 30).

As to Geva, a hearing is required before the issue can be ruled upon.

Plaintiff finally asserts that Pine Equity hired defendant Ron less than twelve months after his resignation from plaintiff, which, if proven, would violate the terms of the Transfer Agreement (Ron Aff. ¶ 5). Plaintiff offers an admission from Ron stating that he was not fired by plaintiff (which would have permitted Pine Equity to hire him); rather, he voluntarily resigned from plaintiff and took up employment with Pine Equity in direct contravention of the Agreement (id.). The court has been advised that plaintiff has withdrawn the application as to Ron.

Because the clauses are reasonable as to time and scope, and, thus, enforceable; and because there are indications of breaches by the defendants, plaintiff has shown a likelihood of success on the merits.

Irreparable Harm and Balancing of Equities:

As the Court of Appeals has recognized, reasonably tailored restrictive covenants are important means of preventing a seller "from recapturing and utilizing, by his competition, the good will of the very business which he transferred for value" (Purchasing Assocs., Inc., [*5]supra, at 271). "Loss of goodwill," in turn, "is difficult to quantify, [and] can constitute irreparable injury even if monetary damages, as well as injunctive relief, are requested" (Battenkill Veterinary Equine P.C. v Cangelosi, 1 AD3d 856 [3d Dept 2003]).

Moreover, the equities balance in plaintiff's favor. Defendants are not being deprived of a livelihood, as they are free to practice their trade outside the geographical scope covered by the Transfer Agreement (Battenkill Veterinary Equine, P.C., supra).

The temporary restraining order heretofore made herein, will continue until a long-form order is signed herein, except as to Ron, against whom the TRO is vacated.

Accordingly, plaintiff's motion for a preliminary injunction is granted.

Settle order.

Dated:August 3, 2004

E N T E R :

/S/

J. S. C. Footnotes

Footnote 1:As the First Department reasoned in Bates Chevrolet Corp.: Although the proof in this case did not show that [defendant] acquired any knowledge of any trade secrets or unique business methods, it did show that he became familiar with discounts expected by plaintiff's customers and of their special needs. It is apparent also that he established a personal relationship with many customers, became acquainted with purchasing agents for . . . owners, entertained prospects at plaintiff's expense, and built up customer confidence in plaintiff's business. . . . Presumably, [defendant] was fairly rewarded, and his employer was entitled to preserve by contractual arrangement the opportunities allowed him. This it did, and by a negative covenant reasonably limited to the purpose. (13 AD2d at 30.)