Consol. Brands, Inc. v. Mondi

• Decision Date: 16 June 1986
• Docket Number: No. 86 CV 1305.,86 CV 1305.
• Parties: CONSOLIDATED BRANDS, INC., Plaintiff, v. Nicholas A. MONDI, Dominick F. Mondi, Patricia Yates, Salvatore Pelleriti and Brunswick Beverages, Ltd., Defendants.
• Court: U.S. District Court — Eastern District of New York

638 F. Supp. 152

CONSOLIDATED BRANDS, INC., Plaintiff, v. Nicholas A. MONDI, Dominick F. Mondi, Patricia Yates, Salvatore Pelleriti and Brunswick Beverages, Ltd., Defendants.

No. 86 CV 1305.

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

June 16, 1986.

Winick & Rich, P.C., New York City, for plaintiff, by Richard M. Howard.

Thomas J. Shamy, New Brunswick, N.J., for defendants.

PLATT, District Judge.

INTRODUCTION

This action containing seventeen claims for relief sounding in misappropriation of trade secrets, unfair competition, defamation, interference with contract and conversion of property was commenced on April 23, 1986 with the filing of the complaint and an order to show cause for a preliminary injunction. The jurisdiction of this Court was invoked under the diversity statute, 28 U.S.C. § 1332(a) (1982), the plaintiff being a New York corporation and the defendants all residing or doing business in New Jersey with the exception of Dominick Mondi, a resident of California. The amount in controversy, exclusive of interest and costs, exceeds $10,000. Venue in the Eastern District of New York is proper pursuant to 28 U.S.C. § 1391(a) (1982).

The order to show cause was returnable on May 2, 1986. At that time the Court conducted a condensed hearing during which both sides offered testimony and documentary evidence in support of its position. The Court reserved decision and now considers the matter.

BACKGROUND

The facts precipitating this law suit must be sketched briefly. The plaintiff is a New York corporation engaged in the distribution of food products and the manufacturing and selling of fountain syrups. In December 1982 Consolidated Brands, Inc. (CBI) purchased all of the assets of Somerset Syrups (Somerset), a small competitor servicing approximately 300 customers in central New Jersey. Somerset was wholly owned by Dominick Mondi and at the time of the sale was being run entirely by his son Nicholas Mondi (Nicholas). Tr. at 46. The purchase price was $100,000, of which $65,000 was allocated to the customer list¹ "developed by Somerset after years of arduous effort." Aff. of Anthony Forgione, Pres., CBI, at ¶ 8 (emphasis added). The sale was partially structured as a four-year lease of Somerset's premises at $2,000 per month with an agreement to sell on January 3, 1987 for $110,000.² Pl's Exs. 2 & 3. The sales contract between the corporations, which was signed by Dominick Mondi as President, contained a restrictive covenant prohibiting the seller from engaging in the same business within a 50-mile radius for four years. Pl's Ex. 4.

After the sale of Somerset, Nicholas Mondi was retained as the branch manager of CBI's new Somerset division and remained in its employ for four months. Initially Nicholas was given a written contract with a restrictive covenant but after consulting with his attorney he never executed it. Tr. at 49. After four months Nicholas left CBI and embarked upon a hot dog stand venture, but in nine months found himself unemployed. CBI was eager to rehire him at that time because business in its Somerset division was flagging. The number of customers had dipped from 300 to about 175 because, Nicholas testified, according to Mr. Horne, an officer of CBI, "the person in charge couldn't handle it, didn't know the business at that time, and he wanted me Nicholas to come back knowing the business in the area, to rebuild, — and the customers, to rebuild that business for him." Tr. at 50.

Nicholas agreed to return and from 1984 to April 1986 he was employed as a salesman at a salary of $200 per week.³ No contract was ever signed defining this employment relationship. During the two years that Nicholas worked for CBI as a sales person the number of customers climbed from 175 to 250 or 275. Tr. at 52. The employment relationship appeared to be satisfactory until a dispute arose between Nicholas and CBI regarding the sale of Somerset's real property to CBI as scheduled in the 1982 contract.⁴ The dispute led to Mondi's termination on April 1, 1986. Two weeks later he, along with Patricia Yates (Yates) and Salvatore Pelleriti (Pelleriti), two other former CBI employees, formed a new company, Brunswick Beverages, Ltd.,⁵ and began soliciting former Somerset customers. According to the plaintiff, in doing so defendant Mondi breached a restrictive covenant and all three defendants breached their fiduciary duties by misappropriating CBI's confidential information. Additionally, CBI claims that the defendants spread false and defamatory information that plaintiff had gone out of business and that they criminally converted CBI's CO2 tanks. To put an immediate halt to this behavior plaintiff brought this application for a preliminary injunction.

DISCUSSION

The law in the Second Circuit governing the granting of a preliminary injunction is now well settled. In Triebwasser & Katz v. American Telephone & Telegraph Co., 535 F.2d 1356, 1359 (2d Cir.1976), the Court of Appeals acknowledged that irreparable harm is "a fundamental and traditional requirement of all preliminary relief," citing Doran v. Salem Inn, Inc., 422 U.S. 922, 931, 95 S.Ct. 2561, 2567, 45 L.Ed.2d 648 (1975). Reasoning that if a showing of irreparable harm is required where a plaintiff must also establish probable success on the merits, "then a fortiori where the plaintiff establishes something less than probable success as to the merits, need for proof of the threat of irreparable damage is even more pronounced. In sum the balancing of hardships test ... necessarily includes the showing of irreparable harm." 535 F.2d at 1359.

Thus, to obtain a preliminary injunction in this Circuit a movant must establish: (1) irreparable harm and (2) either (a) likelihood of success on the merits, or (b) sufficiently serious questions going to the merits and a balance of hardships tipping in movant's favor. See Power Test Petroleum Distributors v. Calcu Gas, 754 F.2d 91, 95 (2d Cir.1985); Gemini Supply Corp. v. Zeitlin, 590 F.Supp. 153, 155-56 (E.D.N. Y.1984).

A. Irreparable Harm

This prong of the test is critical to plaintiff's application and, therefore, warrants close and careful scrutiny by the Court. A successful plaintiff must demonstrate that absent interim relief it will suffer an injury that is neither remote nor speculative, but actual and imminent. In the instant action plaintiff asserts that if a preliminary injunction does not issue preventing the defendants from using CBI's confidential information, the defendants will "enjoy an unfair advantage over other competitors, rendering the purchase of the assets of Somerset by CBI a worthless transaction and leaving a definite likelihood that CBI would lose substantial business." Pl's Mem. at 3.

The Court cannot agree that the scenario plaintiff describes presents a high risk of irreparable injury. The mere fact that three of CBI's former employees have formed their own company and are now operating out of Nicholas Mondi's garage, Tr. at 75, in competition with other syrup vendors including their former employer does not necessarily mean that CBI will lose substantial business. CBI is free to compete with Brunswick Beverages, Ltd., and retain or woo back any of its old customers it may have lost. Alternatively, CBI may decide to relinquish its central New Jersey market and expand its sales in areas closer to its home base.

Moreover, even if plaintiff should lose business due to defendant's entry into the market and after a full trial on the merits plaintiff is awarded a permanent injunction, this Court believes that any interim injury suffered by CBI would be compensable with money damages. Irreparable harm is established not only where the injury is actual and imminent but where no adequate legal remedy exists which would redress the harm, therefore mandating the exercise of the Court's equity powers. This sound precept that "equity should not intervene where there is an adequate remedy at law," is well known and honored in this Circuit. Loveridge v. Pendleton Woolen Mills, Inc., 788 F.2d 914, 918 (2d Cir. 1986); see also, e.g., Jackson Dairy, Inc. v. H.P. Hood & Sons, Inc., 596 F.2d 70, 72 (2d Cir.1979) ("irreparable injury means injury for which a monetary award cannot be adequate compensation."); Triebwasser & Katz v. American Telephone & Telegraph Co., 535 F.2d 1356, 1359 (2d Cir.1976) ("equity cannot intervene where there is an adequate remedy at law"). Loss of business, if it is not remote or speculative but actual, is a quantifiable injury. Plaintiff has been in the syrup business for many years and could undoubtedly convert a loss of 25% of its customers for a given period into a dollar figure. An award of such amount coupled with a permanent injunction enjoining defendants from poaching plaintiff's customers should provide adequate redress if plaintiff prevails at the trial on the merits.

B. Likelihood of Success on the Merits

Although a failure to show irreparable harm is dispositive of plaintiff's application, the Court will nevertheless apply the remaining tests to the facts at bar because it will lend further support to the Court's decision.

Plaintiff's attempt to restrain defendants from competing in the syrup distribution market in central New Jersey proceeds on two theories. The first is a breach of contract theory based on the clause in the contract of sale prohibiting any competing enterprise within a fifty mile radius for four years which term will not expire until December 1986. The Court finds this theory to be without merit. The contract of sale was signed by Dominick Mondi, who is now retired and residing in California and who is not a principal in Brunswick Beverages, Ltd. Nicholas Mondi witnessed his father's signature and ought not be bound when such covenants are viewed unfavorably by the New York Courts and are not liberally construed. Restrictive covenants are narrowly read because sound public policy considerations strongly militate against...