Casual Water E., LLC v Casual Water Ltd.

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Casual Water E., LLC v Casual Water Ltd. 2012 NY Slip Op 31571(U) June 11, 2012 Supreme Court, Suffolk County Docket Number: 14037/12 Judge: Thomas F. Whelan Republished from New York State Unified Court System's E-Courts Service. Search E-Courts ( for any additional information on this case. This opinion is uncorrected and not selected for official publication. [* 1] SHORT FORM ORDER INDEX No. 14037-12 copy SUPREME COURT-STATE OF NEW YORK IAS. COMMERCIAL PART 45 - SUFFOLK COUNTY PRESENT: Han. THOMAS F. WHELAN Justice of the Supreme Court ---------------------------------------------------------------X CASUAL WATER EAST, LLC, Plaintiff, MOTION DATE 5/18/12 ADJ. DATES Mot. Seq. # 001 - MG CDISP Y__ N -"-- PHILLIPS LYTELL LLP Attys. For Plaintiff 437 Madison Ave. New York, NY 10022 -againstCASUAL WATER LTD., GREGORYP. KIRWAN and MICHAEL HARTMAN, AUSTIN M. MANGHAN, !II, ESQ. Atty. For Defendants 21 West Second St. Riverhead, NY 11901 Defendants. ---------------------------------------------------------------X Upon the following papers numbered I to 10 read on this motion for preliminarv injunctive relief _______________ ; Notice of Motion/Order to Show Cause and supporring papers~; Notice of Cross Motion and supporting papers ; AnswcringAffidavits and supporting papers ; Replying Affidavits and supporting papers 4-5 ; Other 6 (memorandum) 7-9 (defendants' memorandum): 10 (memorandum) ; (alld llftCI heal illg C,"Jl:lJIjelil' juppellt lll.d oppcH"d to tllc 1l11"11iol~ is, it ORDERED that this motion (#001) by the plaintiff for preliminary injunctive relief restraining the defendants from competing with the plaintiffs 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 63] I and is granted subject to the conditions imposed below. In November of 2007, the plaintiff purchased from defendant, Casual Water, LTD, [hereinafter "L TD"J the pool service and maintenance portions of the LTD defendant's pool construction, service and maintenance business. The purchase encompassed 143 existing accounts of Acquired Subscribers and future Subscribers located in certain geographical areas defined by zip code. Also purchased by the plaintiff was the good will attributable to the pool servicing and maintenance business established by the LTD defendant and certain inventory and equipment. The sale was memorialized in a written agreement which was executed by, among others, the plaintiff, two of its principals, the LTD defendant and two of its principals, both of whom have been joined herein as party defendants. The terms of the purchase agreement obligated the plaintiff, as purchaser, to use its best efforts in securing customer satisfaction by performing its contraclual obligations to service and maintain pools and ~pas 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 143 Acquired Subscribers whose accounts and contracts were subject to transfer to the plaintiff at the closing ofthe purchase agreement (see ~ 7 of the purchase "Agreement"; see a/so ~ 1(a) of the purchase of "Agreement" attached as exhibit 1 to [* 2] Causal Water EasL LLC v Casual Water LTD Index No. 1403712012 Page 2 the complaint). In addition, the plaintiff, as purchaser, agreed to support all warranties related to sellers' installed pools. The terms or~ 9 also obligated the plaintiff, as purchaser, -'to refer all construction related business in the aforementioned zip codes to the seller". In '19 or the purchase agreement, the LTD defendant agreed "not to at any time to solicit or service <myof the Acquired Subscribers sold to the purchaser under this agreement'". The LTD defendant further agreed "to refer all new Subscribers in zip codes 11976, 11963 11930, and 11954 to purchascr. Seller will not support or refer subscribers to any other servicing organil"-iltionsin zip code 11976 . 11930 and 11954". The purchase agreement further provided that both the purchaser and the seller "would execute Noncompete Agreements in the forms annexed hereto 111 schedule 0'". The purchase agreement further provided in 15 that "this agreement may not be terminated by either party absent a material breach" '1 A Non-Compete Agreement of the type referred to in '19 orthe purchase agreement of November 13,2007 was indeed executed by all signatories to said purchase agreement. In ~ 1 thereof, the defendants agreed as follows: Seller, Kirwin and Hartman hereby represent, warrant and agree that they shall not: i. 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 11976,11963,11962,11975,11937,11930 and 11954. ii. Aid, assist or support any other swimming pool or spa servicing or maintenance organization except for purchaser in zip codes 11976, 11963, 11962, 11975, 11937, ]]930and 1]954. The individual defendants further agreed in subparagraph iv or~ 1 of the Non-compete agreement as follows: iv, 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 Agreement also provided that in the event of a ยท'breaeh". the non-breaching party would be entitled to injunctive relief restraining the breaching party. (t also contained an acknowledgmcnt that injunctive relief would not be precluded by the availability of olher remedies, such as money damages, as such damages were deemed insufficient. In its complaint, the plaintiff alleges that in December of 2011 and February of 2012. the defendants announced that they wanted to terminate the purchase agreement oJ'Novembcr 13,2007 so that they could start servicing pools and spas within geographical areas that wcre the subject of said agreement. On March 21. 2012, the defendants advised the plaintiff that they were taking away onc of the plaintiff's customers (see 4J 22 of the complaint). In April of20 12, the defendants allegedly advised [* 3] Causal Water East. U.C v Casual Water LTD Index No. 14037/2012 Page 3 the plaintiff that the LTD defendant had secured five accounts that had belonged to the plaintiff. Also, in April 01'2012, the plaintiff was advised by a customer that it had received a servicing contract from {he LTD defendant. On or about May 2,2012, the defendants purportedly advised the plaintiff in writing that the -'old deal was dead" and that they had no intention of further performing any of the obligations imposed therein. Two days thereafter, the complaint was filed and the action was initialized by the plaintiff s submission of an order to shc)\vcause by which this motion was interposed By the instant motion, 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 relies heavily on its claims that the defendants violated the Non-Compete Agreement by soliciting and servicing accounts belonging to the plaintiff in the area covered by the purchase agreement and agreed that In the the Non-Compete Agreement that such a violation would entitle the plaintiff 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 counterclaims asserted in their answer wherein the defendants seek money damages from the plaintifTduc to its purported breach of its obligations to provide top quality service to its customers. The opposing papers do, however, contain admissions on the pal1 of the LTD defendant that it or its agents have serviced two subscribers formerly serviced by the plaintiff under the terms of the purchase agreement. The defendants nevertheless claim the servicing of these two accounts does not constitute a breach of the purchase agreement, because the plaintiff breached said agreement first by failing to provide quality service to account subscribers. For the reasons stated, the II1stantmotion is granted, conditionally, to the extent set forth below. It is axiomatic that to be entitled to a preliminary injunction, a movant must establish (1) 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 WheatolllTMW Fourth Ave., LP v New York City Dept. oIBldgs., 65 AD3d 1051,886 NYS2d 41 [2d Dept2009}; Pear/green Corp. v You Chi ellll, 8 AD3d 460, 778 NYS2d 516 [2d Dept 2004]). The decision to grant a preliminary injunction is committed to the sound discretion of the court (see Tatum v Newell Fuuding, LLC, 63 AD3d 911, 880 NYS2d 542 [2d Dcpt 2009]; Bergen-Fine v Dill/eat Inst., fnc., 280 AD2d 504, 720 NYS2d 378 [2d Dert 2001]), as the remedy is considered to be a drastic one (see Doe v Axelrod, 73 NY2d 748, 536 NYS2d 4411988]). Consequently, a clear legal right to relief, which is plain from undisputed facts, must be established (see WheatolllTMW Fourth Ave. LP v New York City Dept. of Bldgs., 65 AD3d 1051, supra. Gagnon Bus Co., Illc. v Vallo Tramp., Ltd., 13 AD3d 334, 786 NYS2d 107 [2d Oept 2004]; Blueberries Gourmet vAvis Realty, 255 AD2d 348, 680 NYS2d 557 [2d Dept 1998.1). Although generally disfavored by the courts. covenants not to compete will be enforced if reasonably limited as to time, geographic area, Jnd scope, but only where shown to be necessary to protect the employer's interests, not harmful to the public, and not unduly burdensome (see BDO Seidman v Hirshberg, 93 NY2d 382, 690 NYS2d 85411999]; Ricca v Ouzoullian, 51 AD3d 997, 859 NYS.2d 238 [2d Dept 2008]). Even if overly broad, covenants not to compete may be enforced in pan by the courts in order to serve the interests of the parties under the circumstances of a particular case (see BDO Seidman v Hirshberg, 93 NY2d 382, supra at 397). Where, however, the relationship of the parties is that of seller and purchaser of all or part of the good will of a going business, the courts will enforce an incidental covenant not to compete by the seller (see Purchasing Assoc. fllc. v Weitz, 13NY2d 267, 246 NYS2d 600 [1963]). This common law covenant is implied In law and is not subject to a test of reasonableness and is of indefinite duration (see Mo/tawk Maintenance Co., fnc. v Kessler, 52 NY2d 276, 437 NYS2d 646 [1981]). [* 4] Causal Water East, I J.C v Casual Watcr LTD Index No 1403712012 Page 4 As recently stated by the Court of Appeals, a seller of goodwill has an "implied covenant"' or a "'duty to refrain from soliciting former customers, which arises upon the salc orthe 'good will' of an established business" (Bessemer Trust Co. v Branin, 16 NY3d 549, 556. 925 NYS2d 371 (2011); quoting Mohawk Maint. Co. v Kessler, 52 NY2d 276, supra). This implied covenant is permanent and not subject to divestiture alter a reasonable amount of time has passed (itl). The duty not to solicit former clients arising from the sale of goodwill is distinct from the duty not to compete in the industry which may only arise out of an express agreemeOl.(~ee A4ohawk, 52 NY2d at 285, supra). A seller's '"implied covenant" not to solicit his former customers is "a permanent one that is not subject to divestiture upon the passage oCa reasonable period of time" (id. at 285). Upon the sale of'"good wlll," a "purchaser acquires the right to expect that the firm's established customers will continue to patronize thc business" (id., citing People ex rei. Johnsoll Co. v Roberts, 159 NY 70, 80-84, 53 NE 68511 899]). This is so because the essence of these types of transactions is, in effect, an attempt to transfer the loyalties of the business' customers from the seller, who cultivated and created them, to the ncw proprictor (see Bessemer Trust Co. v 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 ils former customers and other forms of competition with the purchaser and where the parties do so, the more general implied covenant is lost (see MGM Ct. ReportingServ., fllc. v Greellherg, 74 NY2d 691,543 NYS2d 376 [1989J). Nevertheless. where a plaintiff seeks preliminary injunctive rcliefin a suit to enforce a restrictive covenant that was given ancillary to the sale of the good will of a business, some courts have held that the plaintiff need not demonstrate actual loss of customers since irreparable harm is presumed to have occurred upon the plaintifrs demonstration of a likelihood of success on the merits (see Manhattan Real Estate Equities Group, LLC v Pine Equity, 16 AD3d 292, 791 NYS2d 418 [1st Dept 2005}; Frank May Assoc. fllc. v Boughton, 281 AD2d 673, 721 NYS2d 154 [3d Dept 200 I D. Wherc the parties expressly agree in writing that either may obtain injunctive relief for a breach orthe 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 fnst., fllc. v Edelman. 42 A03d 321, 839 NYS2d 488 [Is[ Dept 2007J). Upon application of the foregoing legal maxims to the facts adduced on the instant motion, the court finds that the plaintiff has established its entitlement to the preliminary injunctive relief requested. A demonstration of a likelihood of success on the merits of the plaintiffs claims for reliefin this action is apparent from the moving papers and from the defendants' admission in their opposing papers that they are servicing subscribers' accounts that were the subject of the purchasc and/or Non-Compete agreements executed on November 13,2007. 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 business in the specified geographical areas under the terms of the transactional agreements at issue herein. The defendants' claims that the purchase agreement terminated prior to the defendants' engagcment" in any competition of the plajnlin~ by solicitation of its former clients or otherwise, is unavailing since no proof of any breach, let alone of a material breach, was advanced by the defendants in their opposing papers. Under these circumstances, this motion (#001) by the plaintifT is granted, conditionally, to the following extent: that the defendants are hereby preliminarily enjoined and restrained, pursuant to CPLR 63fl, from: (a) competing, either directly or indirectly, in any manner with Casual Water East LLC or engaging in the business of swimming pool or spa servicing or maintenance within the zip codes 11930, 11937, 11954, 11962, 11963, 11975 and 11976; or (b) aiding, assisting or supporting any other swimming pool or spa servicing or maintenance organization, except for Casual Water East LLC, in zip codes 11930, 11937. 11954, 11962, 11963, 11975 and 11976. [* 5] Causal Water East. LLC v Casual Water LTD Index No. 14037/2012 Page 5 The preliminary lI1Junction granted herein is condItioned upon the plaintiffs posting of an undertaking in the in the amount of $10,000.00 in the form required by Crr.R 2512, within 45 days of the dale ofthis order and the plaintiffs service a copy of this order- together with proof obhe posting ofsueh undertaking, upon the defendants' counsel. In the event that the plaintiff fails to timely post the undertaking required by the terms of this order, the preliminary injunction herein granted shall terminate. on the 45th day following the date of this order.