Leon M. Reimer & Co., PC v. Cipolla

• Decision Date: 06 June 1996
• Docket Number: No. 94 CV 7073.,94 CV 7073.
• Citation: 929 F. Supp. 154
• Parties: LEON M. REIMER & CO., P.C., Plaintiff, v. Joseph P. CIPOLLA, Jr., Defendant.
• Court: U.S. District Court — Southern District of New York

929 F. Supp. 154

LEON M. REIMER & CO., P.C., Plaintiff, v. Joseph P. CIPOLLA, Jr., Defendant.

No. 94 CV 7073.

United States District Court, S.D. New York.

June 6, 1996.

Stephen J. King, Frydman Beck King & Arad, New York, NY, for Plaintiff.

Joseph P. Cipolla, Paramus, NJ, pro se.

MEMORANDUM DECISION AND ORDER

PARKER, District Judge.

Plaintiff, Leon Reimer & Co., P.C. ("Reimer") brings this diversity action against pro se Defendant, Joseph P. Cipolla, Jr., ("Cipolla") seeking declaratory and injunctive relief and damages arising out of an alleged breach of contract and breach of fiduciary duties. Cipolla moves for summary judgment pursuant to Rule 56 of the Fed.R.Civ.P. For the reasons stated below, the motion is denied in part and granted in part.

BACKGROUND

Cipolla, a certified public accountant, worked for Reimer, a Certified Public Accounting firm, from October 7, 1990 through July 15 1994. The present dispute arises from two provisions in Reimer's employment agreement.¹ The first, Section 3, provides:

(a) In the event Employee accepts an engagement from a client of the Corporation during the two (2) year period following the Termination Date, Employee shall immediately advise the Corporation and pay to the Corporation, one and one half (1½) times the annual gross fees charged to such client by the Corporation during the last full year (twelve consecutive months) in which such client employed the services of the Corporation. Such payment to the Corporation shall be made by Employee within fifteen (15) days of his/her accepting any such engagement.

(b) Employee shall be exempt from paying such amount described in Section 3(a) above if: (i) Employee has obtained Leon Reimer's express written confirmation that Employee was responsible for bringing said client to the Corporation; and (ii) said written confirmation was given to Employee prior to said client becoming a client of the Corporation.

The second, Section 2, provides in part:

Employee will use the Confidential Information only while working for the Corporation and only in connection with his/her duties related thereto and will cease using said information on the day that Employee ceases to work for the corporation. Employee agrees to promptly return all books, records, documents, and property of the Corporation on the Termination Date. Furthermore, such Confidential Information shall at no time be disclosed to any unauthorized person.

Cohane Rafferty was a client of Reimer, serviced by Cipolla. When Cipolla left Reimer in July, 1994, he told certain of his clients, including Cohane Rafferty, that he was leaving Reimer and joining a new partnership, Cipolla, Burke, Grbelja & Co. ("Cipolla Burke"). Subsequently, certain clients retained Cipolla Burke. Cipolla's solicitation and retention of these clients occurred without the knowledge and consent of Reimer. Moreover, before leaving Reimer, Cipolla apparently copied and took with him certain Reimer files generated as a result of its work for Cohane Rafferty. This litigation followed.

DISCUSSION

A. Summary Judgment Standard

Under Rule 56(c) of the Federal Rules of Civil Procedure, a "motion for summary judgment must be granted if the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). The moving party must initially satisfy a burden of demonstrating the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323-25, 106 S.Ct. 2548, 2552-54, 91 L.Ed.2d 265 (1986), see also Gallo v. Prudential Residential Servs. Ltd., 22 F.3d 1219, 1223 (2d Cir.1994). The nonmoving party must meet a burden of coming forward with "specific facts, showing that there is a genuine issue of fact for trial," Fed.R.Civ.P. 56(e) by a showing sufficient to establish the existence of every element essential to the party's case, and on, which the party will bear the burden of proof at trial.

In deciding whether a genuine issue of material fact exists, "the court is required to draw all factual inferences in favor of the party against whom summary judgment is sought." Ramseur v. Chase Manhattan Bank, 865 F.2d 460, 465 (2d Cir.1989). The Court is to inquire whether "there is sufficient evidence favoring the nonmoving party for a jury to return a verdict for the party," Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S.Ct. 2505, 2511, 91 L.Ed.2d 202 (1986), however, and to grant summary judgment where the nonmovant's evidence is merely colorable, conclusory, speculative or not significantly probative. Knight v. United States Fire Ins., 804 F.2d 9, 12-15 (2d Cir.1986), cert. denied, 480 U.S. 932, 107 S.Ct. 1570, 94 L.Ed.2d 762 (1987).

B. Section 3

Counts (sic) One and Three² of the complaint allege that Cipolla violated Section 3 of the Agreements.³ Cipolla argues that since Section 3 is overly broad and overly restrictive, it is unenforceable. At the outset, we note that Section 3 does not expressly prohibit Cipolla from providing accounting services to Reimer's clients. Rather it provides that if he does so in the absence of advance, written permission, Cipolla must pay Reimer one and one half times the annual gross fees charged to that client by Reimer during the last full year in which that client employed Reimer's services. Most courts have analyzed such provisions in accounting firm agreements as covenants not to compete that must be reasonable in terms of restraint of trade principles in order to be enforceable. See Rhoads v. Clifton, Gunderson & Co., 89 Ill.App.3d 751, 44 Ill.Dec. 914, 411 N.E.2d 1380 (1980); Holloway v. Faw, Casson & Co., 319 Md. 324, 355, 572 A.2d 510, 514-15 (Sup. Ct.Md.1990); Philip G. Johnson & Co. v. Salmen, 211 Neb. 123, 127-28, 317 N.W.2d 900, 903 (Sup.Ct.Neb.1982); Smith, Batchelder & Rugg v. Foster, 119 N.H. 679, 683-84, 406 A.2d 1310, 1312-13 (Sup.Ct.N.H.1979); McElreath v. Riquelmy, 444 S.W.2d 853 (Tex.Civ.App.1969); Foti v. Cook, 220 Va. 800, 263 S.E.2d 430 (Sup.Ct.Va.1980); Perry v. Moran, 109 Wash.2d 691, 748 P.2d 224 (1987), modified on other grounds on reconsideration, 111 Wash.2d 885, 766 P.2d 1096 (1989), cert. denied, 492 U.S. 911, 109 S.Ct. 3228, 106 L.Ed.2d 577 (1989); see also Olliver/Pilcher Indus. v. Daniels, 148 Ariz. 530, 531-32, 715 P.2d 1218, 1219-20 (Ariz.1986).

Both Reimer and Cipolla, however, seem to agree that Section 3 is appropriately characterized as something other than a covenant not to compete. Cipolla argues that it is an unenforceable penalty and Reimer argues that it is a reimbursement clause. Nonetheless, even those courts that have declined to define similar provisions as restraints on trade have still required them to be reasonable to be enforced. See Follmer, Rudzewicz & Co. v. Kosco, 420 Mich. 394, 408, 362 N.W.2d 676, 683 (1984) ("whether such an agreement is characterized as in restraint on trade or not, it must be reasonable to be enforced"); Dobbins, DeGuire & Tucker, P.C. v. Rutherford, MacDonald & Olson, 218 Mont. 392, 708 P.2d 577 (Sup.Ct.Mont.1985); Isler v. Shuck, 38 Or.App. 233, 589 P.2d 1180, 1182-83 (Sup.Ct.Or.1979). The reasonableness test adopted by those courts, however, are "essentially indistinguishable from the ones applied to covenants not to compete." See Peat Marwick Main & Co. v. Haass, 818 S.W.2d 381, 385 (Sup.Ct.Tex.1991) (citing Annotation, Covenants To Reimburse Former Employer For Lost Business, 52 A.L.R. 142 (1987)).⁴ Accordingly, we analyze the Agreements in question for their reasonableness.

Parties to employment contracts have considerable latitude in structuring and controlling their relationships. However, it is well established that agreements which restrict employment opportunities are generally disfavored. See Consol. Brands, Inc. v. Mondi, 638 F.Supp. 152, 156 (E.D.N.Y.1986) ("such covenants are viewed unfavorably by the New York Courts and are not liberally construed"); Columbia Ribbon & Carbon Mfg. Co. v. A-1-A Corp., 42 N.Y.2d 496, 398 N.Y.S.2d 1004, 1006, 369 N.E.2d 4, 6 (Ct.App. 1977) ("Restrictive covenants which tend to prevent an employee from pursuing a similar vocation after termination of employment are disfavored by the law"); Contempo Com. v. MJM Creative Services, 182 A.D.2d 351, 582 N.Y.S.2d 667 (A.D. 1 Dept.1992); Metropolitan Medical Group v. Eaton, 154 A.D.2d 252, 546 N.Y.S.2d 90 (A.D. 1 Dept.1989).

To be reasonable, an agreement not to compete must satisfy each of four conditions: "(1) the time and geographical scope of the restriction must be reasonable; (2) the burden on the employee must not be unreasonable; (3) the general public must not be harmed; and (4) the restriction must be necessary for the employer's protection." Mallory Factor, Inc. v. Schwartz, 146 A.D.2d 465, 536 N.Y.S.2d 752, 753 (1989) (citations omitted)⁵; American Institute of Chemical Engineers v. Reber-Friel Co., 682 F.2d 382, 387 (2d Cir.1982); Innovative Networks, Inc. v. Satellite Airlines Ticketing Centers, 871 F.Supp. 709, 728 (S.D.N.Y.1995).

The record does not suggest that enforcement of Section 3 imposes unreasonable time limitations, nor does Cipolla document general harm to the public.⁶ The relevant concerns here are the related questions of whether the means Reimer fashioned are reasonable ones for the protection of its business.

We will first examine the legitimate business interests that Reimer needs to protect. New York courts typically do not require any novelty in the ex-employees services nor must any confidential or customer information be demonstrated before a restrictive covenant may be enforced. See Arthur Young & Co. v. Black, 97 A.D.2d 369, 466 N.Y.S.2d 10 (1st Dept.1983), appeal dismissed, 61 N.Y.2d 712, 472 N.Y.S.2d 620, 460 N.E.2d 1105 (1984) and Arthur Young & Co. v. Galasso, 142 Misc.2d 738, 538 N.Y.S.2d 424 (Sup.Ct.1989).

Here, Reimer placed...