Gilman & Ciocia, Inc. v Thomas Randello
Annotate this CaseDecided on June 11, 2007
Supreme Court, Dutchess County
Gilman & Ciocia, Inc., Plaintiff,
against
Thomas Randello and Linsco Private Ledger Corp., d/b/a LPL Financial Services, Defendants.
4219/2004
VERONICA A. MCMILLAN, ESQ.
Lewis & Greer, P.C.
Attorneys for Plaintiff
510 Haight Street
P.O. Box 2990
Poughkeepsie, NY 12603
KENNETH L. KUTNER, ESQ.
Attorney for Defendant
100 Park Avenue - 29th Floor
New York, NY 10017
Christine A. Sproat, J.
Plaintiff Gilman & Ciocia ("Plaintiff") moves for an order, pursuant to CPLR §3212, granting it summary judgment on the issue of liability against defendant Thomas Randello ("Randello").
Defendants cross-move for summary judgment, pursuant to CPLR §3212, seeking judgment dismissing the complaint alleging there are no triable issues of fact, granting defendants judgment on their counterclaims and directing an inquest to determine the amount of money that Plaintiff owes Randello from commissions previously earned, together with costs and disbursements.
Upon the foregoing papers it is hereby ORDERED that the Plaintiff's motion for summary judgment is denied and the Defendants' cross-motion for summary judgment is granted to the extent that the Plaintiff's complaint against them is dismissed. The portion of Defendants' cross-motion seeking judgment on the counterclaims and the scheduling of an inquest is denied since Defendants have failed to establish such counterclaims "sufficiently to warrant the Court as a matter of law in directing judgment" in their favor (CPLR §3212(b). All other requested relief is denied.
In the instant action, Plaintiff alleges that Randello breached the confidentiality and
anti-piracy provisions of the Tax Preparer Employment Agreement ("TPEA") that Randello
entered into with Plaintiff on or about January 5, 2004. Plaintiff is a Delaware corporation
authorized to do business in New York and engages in the business of tax and financial planning
services with over 30 branch offices in various states. Randello is a financial planner and tax
preparer who began working part-time for the Plaintiff in the fall of 2000 and in 2001 became a
full-time employee. Randello voluntarily resigned from his employment with the Plaintiff in July
2004. Randello thereafter was employed by Defendant Linsco Private Ledger Corp. until
November 2005. In December 2005 Randello became employed with Kovack Securities, Inc.
Plaintiff asserts that Randello violated the fourth paragraph of the TPEA. The confidentiality and
anti-piracy provision in paragraph four reads as follows:
(a)The Employee expressly recognizes the confidentiality of the Company's
customer lists and files ("Confidential Information"). The Employee shall not disclose the name
of any customer nor [*2]discuss the confidential contents of any
customer file with any third party not in the employ of the Company. At no time during the term
of the Agreement, nor for three years after its termination, shall the Employee, either directly or
indirectly knowingly do work for, serve, solicit or advertise for, any customer of the Company.
Indirectly shall include acting as an officer, director, stockholder, consultant or advisor, partner
or employee of any business. For the purposes of this Agreement, a Company customer is any
person or entity for whom the Company has prepared a tax return in the current tax season or in
the previous two tax seasons, or a person or entity who has made contact with a Company office
during the current tax season.
(b)This section shall apply to the furnishing of financial planning and investment
services as well as to the provision of tax return preparation services. The Employee and the
Company agree that the liquidated damages to the Company for providing tax return services,
financial planning or investment services in violation of this section shall be $200 per violation
or twice the sum of the revenue received by the Company during the previous 24 months from
customer(s) affected (whichever amount is greater) to compensate the Company for permanent
loss of such customer(s). For providing financial planning or investment services in violation of
this section, the liquidated damages shall be the gross dealer concessions earned by the Company
and its financial planners from the customer in the two cumulative years preceding the violation.
Said liquidated damages shall be paid in full within ten (10) days after each respective violation.
It is agreed that the remedies in this section shall not be exclusive but cumulative with other
remedies available at law or in equity.(Exhibit A, TPEA).
In support of its motion for summary judgment, Plaintiff alleges that while working at Linsco Private Ledger Corp. d/b/a LPL Financial Services ("LPL") Randello contacted and performed financial planning services for Plaintiff's clients. In connection with this litigation, Randello admitted calling Gilman & Ciocia clients in September 2004 and has supplied the names of the individuals for whom he performed tax preparation services. (Exhibit F, page 17). However, Randello maintains that the non-compete clause in the employment agreement is unenforceable.
New York State has adopted the prevailing common law standard of reasonableness in determining the validity of employee agreements not to compete.BDO Seidman v. Hirshberg, 93 NY2d 382, 389 (1999). This standard applies a three part analysis, in which all three parts have to be satisfied. "A restraint is reasonable only if it: (1) is no greater than is required for the protection of the legitimate interest of the employer, (2) does not impose undue hardship on the employee, and (3) is not injurious to the public." Id. at 388-389. A violation of any prong renders the covenant invalid.Plaintiff's TPEA non-compete covenant is overbroad, imposes a restriction that is greater than required to protect the legitimate interest of the employer, and imposes an undue burden on Randello. The employment agreement does not contain any geographical limitation and provides that the employee shall not "either directly or indirectly knowingly do work for, serve, solicit or advertise, any customer of the Company." (Exhibit A, TPEA). A covenant is overbroad if it seeks to bar the employee from rendering services to clients with whom the employee has never developed a relationship with during the course of his [*3]prior employment. BDO Seidman, 93 NY2d at 393. The Plaintiff's TPEA seeks to bar Randello from soliciting, serving, or working for, any customer of the company. The language of the clause is so broad that it includes all customers, including customers that Randello never even had contact with during the course of his employment. In addition, the agreement's failure to specify a geographic area is problematic in light of the fact that Plaintiff has over thirty branch offices in various states.
Clearly, restrictive covenants in employment agreements have to be reasonable as to both time and area. (Scott, Stackrow & Company, C.P.A.'s v. Skavina, 9 AD3d 805 (3rd Dept. 2004), leave to appeal denied 3 NY3d 612 (2004).) The restrictive covenant at issue in Scott failed to contain a geographical limitation, prevented the former employee from soliciting or working for any client of the employer, and the restriction was for two years. Id. at 806. The Appellate Division in Scott affirmed the trial court's decision in granting the defendant employee's motion for summary judgment dismissing the complaint. Similarly, Plaintiff's restrictive covenant is not reasonable in time and area because it does not state a geographical limitation and bars the employee from soliciting any customer for three years. Furthermore, Plaintiff's restrictive covenant imposes an undue burden on Randello barring him from dealing with any customer of the company. Consequently, the restrictive covenant is unenforceable as overbroad and, therefore, the Plaintiff's motion for summary judgment on the issue of liability must be denied.
Nor should the restrictive covenant in Plaintiff's TPEA be partially enforced as in BDO Seidman v. Hirshberg, 93 NY2d 382. The Court in BDO Seidman held that a non-compete agreement that included customers who the employee did not have any contact with was overbroad and unenforceable (Id. at 392), however, that provision could be struck from the agreement. The Court enforced the rest of the agreement because it imposed an 18 month time limitation and limited the geographical area to Buffalo. The Court of Appeals modified the Appellate Division's ruling to the extent that the restrictive covenant was partially enforceable, granted plaintiff's motion for partial summary judgment and denied defendant's motion for summary judgment. Id. at 397. The restrictive covenant at issue herein does not contain a geographical limitation, the time limit is for three years and prohibited Randello from soliciting the accounting firm's entire client base, all factors which militate against partial enforcement (see Scott, supra at 806, 807).
Accordingly, upon this review the Court determines that the contested restrictive covenant in the Plaintiff's TPEA is overly broad in its entirety. The Plaintiff's motion for partial summary judgment is denied and Defendants' motion for summary judgment dismissing the complaint is hereby granted.
This matter is adjourned to July 10, 2007 at 9:30 a.m. for a Pre-Trial Conference.
This constitutes the decision and order of this court.
So ordered.
Dated: June 11, 2007
Poughkeepsie, New York
____________________________________
HON. CHRISTINE A. SPROAT
Supreme Court Justice
[*4]
TO:
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