Brown & Brown, Inc. v. Theresa A. Johnson & Lawley Benefits Grp., LLC

• Citation: 2014 N.Y. Slip Op. 00822,115 A.D.3d 162,980 N.Y.S.2d 631
• Parties: BROWN & BROWN, INC. and Brown & Brown of New York, Inc., Plaintiffs–Respondents–Appellants, v. Theresa A. JOHNSON and Lawley Benefits Group, LLC, Defendants–Appellants–Respondents. (Appeal No. 1.)
• Decision Date: 07 February 2014
• Court: New York Supreme Court Appellate Division

115 A.D.3d 162

980 N.Y.S.2d 631

2014 N.Y. Slip Op. 00822

BROWN & BROWN, INC. and Brown & Brown of New York, Inc., Plaintiffs–Respondents–Appellants,

v.Theresa A. JOHNSON and Lawley Benefits Group, LLC, Defendants–Appellants–Respondents. (Appeal No. 1.)

Supreme Court, Appellate Division, Fourth Department, New York.

Feb. 7, 2014.

Phillips Lytle LLP, Buffalo (Preston L. Zarlock of Counsel), for Defendants–Appellants–Respondents.

Ward Greenberg Heller & Reidy LLP, Rochester, Littler Mendelson, P.C., New York City (David S. Warner of Counsel), for Plaintiffs–Respondents–Appellants.

PRESENT: FAHEY, J.P., PERADOTTO, LINDLEY, SCONIERS, AND WHALEN, JJ.

Opinion by WHALEN, J.

I

Defendant Theresa A. Johnson was hired by plaintiffs, insurance intermediaries, in December 2006 to provide actuarial analysis for plaintiffs. On her first day of work, Johnson was presented with a number of documents to sign, including an Employment Agreement (hereinafter, Agreement), which contained the three covenants at issue in this dispute: a non-solicitation covenant, which prohibited Johnson from soliciting or servicing any client of plaintiffs' New York offices for two years after termination of Johnson's employment; a confidentiality covenant, which prohibited Johnson from disclosing plaintiffs' confidential information or using it for her own purposes; and a non-inducement covenant, which prohibited Johnson from inducing plaintiffs' New York employees to leave plaintiffs' employment for two years after termination of Johnson's employment. The Agreement also stated that it would be governed by and construed and enforced according to Florida law.

Plaintiffs terminated Johnson from her position on February 25, 2011. Shortly thereafter, Johnson was hired by defendant Lawley Benefits Group, LLC (Lawley). Plaintiffs subsequently commenced this action. The first two causes of action were against Johnson only: breach of contract, for violation of the non-solicitation, confidentiality, and non-inducement covenants in the Agreement; and misappropriation of confidential and proprietary information, which information plaintiffs alleged constituted trade secrets. As against Johnson and Lawley, plaintiffs' third cause of action alleged tortious interference with plaintiffs' prospective and existing business relations. As against Lawley only, plaintiffs' fourth cause of action alleged that Lawley tortiously interfered with the Agreement and induced Johnson to breach the Agreement. Defendants subsequently moved for, inter alia, summary judgment dismissing the complaint. Supreme Court initially determined that the Florida choice-of-law provision in the Agreement was unenforceable because the Agreement bore no reasonable relationship to the state of Florida, and thus the court determined that New York law would apply. The court granted defendants'motion with respect to the first cause of action, except to the extent that plaintiffs could establish that Johnson violated the non-solicitation covenant of the Agreement. The court further granted defendants' motion with respect to the second and third causes of action, and denied the motion with respect to the fourth cause of action. In appeal No. 1, defendants appeal and plaintiffs cross-appeal from that order.

Plaintiffs subsequently moved for leave to reargue, contending that the court erred in dismissing that part of plaintiffs' first cause of action alleging that Johnson breached the non-inducement covenant of the Agreement because defendants' motion did not address that covenant and defendants therefore failed to meet their burden. The court granted plaintiffs' motion for leave to reargue and, upon reargument, the court reinstated that part of the first cause of action alleging that Johnson breached the non-inducement covenant. In appeal No. 2, defendants appeal from that order.

II

Initially, we reject plaintiffs' contention that defendants' motion for summary judgment should have been denied because it was premature. That contention is not properly before us inasmuch as plaintiffs have raised it for the first time on appeal ( see Bradley v. Benchmark Mgt. Corp., 294 A.D.2d 879, 880, 741 N.Y.S.2d 797). In any event, plaintiffs “ ‘failed to demonstrate that facts essential to oppose the motion were in [defendants'] exclusive knowledge and possession and could be obtained by discovery’ ” (M & T Bank v. HR Staffing Solutions, Inc. [appeal No. 2], 106 A.D.3d 1498, 1499, 964 N.Y.S.2d 847;seeCPLR 3212[f] ).

As another threshold matter, we must determine whether the court properly held that the Florida choice-of-law provision in the Agreement is unenforceable and that the law of New York governs this dispute. It is well settled that there is a “ ‘strong public policy favoring individuals ordering and deciding their own interests through contractual arrangements' ” ( Bloomfield v. Bloomfield, 97 N.Y.2d 188, 193, 738 N.Y.S.2d 650, 764 N.E.2d 950, quoting Matter of Greiff, 92 N.Y.2d 341, 344, 680 N.Y.S.2d 894, 703 N.E.2d 752). Thus, New York courts generally will enforce a choice-of-law provision in order to “effectuate the parties' intent” ( Welsbach Elec. Corp. v. MasTec N. Am., Inc., 7 N.Y.3d 624, 629, 825 N.Y.S.2d 692, 859 N.E.2d 498). The chosen law, however, must “bear[ ] a reasonable relationship to the parties or the transaction” and must not be “ ‘truly obnoxious' ” to New York's public policy ( id., quoting Cooney v. Osgood Mach., 81 N.Y.2d 66, 79, 595 N.Y.S.2d 919, 612 N.E.2d 277;see Matter of Frankel v. Citicorp Ins. Servs., Inc., 80 A.D.3d 280, 286, 913 N.Y.S.2d 254).

We agree with plaintiffs that the court erred in determining that the choice-of-law provision in the Agreement was unenforceable because Florida law bears no reasonable relationship to the parties or the transaction. Plaintiff Brown & Brown, Inc. (BBI) is a Florida corporation with its principal place of business in Florida, and it is the parent corporation of plaintiff Brown & Brown of New York, Inc. (BBNY). The Agreement stated that it was “made and entered into by and among [BBI], a Florida corporation (‘ Parent ’), [BBNY], a New York corporation (collectively with Parent, the ‘ Company ’), and [Johnson], a resident of the State of New York.” Plaintiffs submitted evidence that BBI directed sales strategies, set sales goals, and provided promotional and educational material for BBNY. Plaintiffs also submitted evidence that Johnson's salarywas administered in Florida and paid from a Florida bank account, and that Johnson and her supervisor traveled to Florida to attend training sessions and meet with BBI employees. We therefore conclude that Florida law “bears a reasonable relationship to the parties or the transaction” ( Welsbach, 7 N.Y.3d at 629, 825 N.Y.S.2d 692, 859 N.E.2d 498;see Finucane v. Interior Constr. Corp., 264 A.D.2d 618, 620, 695 N.Y.S.2d 322).

We nevertheless conclude that the Florida choice-of-law provision in the Agreement is unenforceable because it is “ ‘truly obnoxious' ” to New York public policy ( Welsbach, 7 N.Y.3d at 629, 825 N.Y.S.2d 692, 859 N.E.2d 498). In New York, agreements that restrict an employee from competing with his or her employer upon termination of employment are judicially disfavored because “ ‘powerful considerations of public policy ... militate against sanctioning the loss of a [person's] livelihood’ ” ( Reed, Roberts Assoc. v. Strauman, 40 N.Y.2d 303, 307, 386 N.Y.S.2d 677, 353 N.E.2d 590,rearg. denied40 N.Y.2d 918, 389 N.Y.S.2d 1027, 357 N.E.2d 1033, quoting Purchasing Assoc. v. Weitz, 13 N.Y.2d 267, 272, 246 N.Y.S.2d 600, 196 N.E.2d 245,rearg. denied14 N.Y.2d 584, 248 N.Y.S.2d 1027, 198 N.E.2d 270;see Columbia Ribbon & Carbon Mfg. Co. v. A–1–A Corp., 42 N.Y.2d 496, 499, 398 N.Y.S.2d 1004, 369 N.E.2d 4;D & W Diesel v. McIntosh, 307 A.D.2d 750, 750, 762 N.Y.S.2d 851). “So potent is this policy that covenants tending to restrain anyone from engaging in any lawful vocation are almost uniformly disfavored and are sustained only to the extent that they are reasonably necessary to protect the legitimate interests of the employer and not unduly harsh or burdensome to the one restrained ” ( Post v. Merrill Lynch, Pierce, Fenner & Smith, 48 N.Y.2d 84, 86–87, 421 N.Y.S.2d 847, 397 N.E.2d 358,rearg. denied48 N.Y.2d 975, 425 N.Y.S.2d 1029, 401 N.E.2d 433 [emphasis added] ). The determination whether a restrictive covenant is reasonable involves the application of a three-pronged test: “[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” ( BDO Seidman v. Hirshberg, 93 N.Y.2d 382, 388–389, 690 N.Y.S.2d 854, 712 N.E.2d 1220 [emphasis omitted] ). “A violation of any prong renders the covenant invalid” ( id. at 389, 690 N.Y.S.2d 854, 712 N.E.2d 1220). Thus, under New York law, a restrictive covenant that imposes an undue hardship on the restrained employee is invalid and unenforceable ( see id.). Employee non-compete agreements “will be carefully scrutinized by the courts” to ensure that they comply with the “prevailing standard of reasonableness” ( id. at 388–389, 690 N.Y.S.2d 854, 712 N.E.2d 1220).

By contrast, Florida law expressly forbids courts from considering the hardship imposed upon an employee in evaluating the reasonableness of a restrictive covenant. Florida Statutes § 542.335(1)(g)(1) provides that, “[i]n determining the enforceability of a restrictive covenant, a court ... [s]hall not consider any individualized economic or other hardship that might be caused to the person against whom enforcement is sought ” (emphasis added). The statute, effective July 1, 1996, also provides that a court considering the enforceability of a restrictive covenant must construe the covenant “in favor of providing reasonable protection to all legitimate business interests established by the person seeking...