Csi Grp., LLP v. Harper

• Decision Date: 20 September 2017
• Citation: Csi Grp., LLP v. Harper, 153 A.D.3d 1314, 61 N.Y.S.3d 592 (N.Y. App. Div. 2017)
• Parties: CSI GROUP, LLP, et al., respondents, v. Martin W. HARPER, et al., appellants, et al., defendants.
• Court: New York Supreme Court — Appellate Division

153 A.D.3d 1314

61 N.Y.S.3d 592

CSI GROUP, LLP, et al., respondents,

v.Martin W. HARPER, et al., appellants, et al., defendants.

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

Sept. 20, 2017.

Kramer Levin Naftalis & Frankel LLP, New York, NY (Robert N. Holtzman and Katrina L. Baker of counsel), for appellants.

Fredric R. Grae, Staten Island, NY (Robert M. Greco of counsel), for respondents.

LEONARD B. AUSTIN, J.P., SYLVIA O. HINDS–RADIX, COLLEEN D. DUFFY, and FRANCESCA E. CONNOLLY, JJ.

In an action, inter alia, to recover damages for breach of contract, the defendants Martin W. Harper, Martin Harper Associates, and Broadway Wealth Management, LLC, doing business as Broadway Asset Management, appeal, as limited by their brief, from so much of an order of the Supreme Court,

Richmond County (Straniere, J.), dated April 1, 2015, as, upon reargument, adhered to its original determination in an order dated November 3, 2014, denying their prior motion for summary judgment dismissing the first through eleventh and the thirteenth causes of action, and so much of the twelfth cause of action as alleged the conversion of clients and the revenue from those clients insofar as asserted against them, and on the issue of liability on the counterclaim of the defendant Martin W. Harper.

ORDERED that the order dated April 1, 2015, is reversed insofar as appealed from, on the law, with costs, and, upon reargument, the appellants' prior motion for summary judgment dismissing the first through eleventh and the thirteenth causes of action, and so much of the twelfth cause of action as alleged the conversion of clients and the revenue from those clients insofar as asserted against them, and on the issue of liability on the counterclaim of the defendant Martin W. Harper is granted.

On October 16, 2007, the defendant Martin W. Harper sold his tax preparation, accounting, and financial management practice, including his client list, the name "Harper Associates, LLC," and an office lease in Hicksville to the plaintiff CSI Group, LLP (hereinafter CSI). The purchase agreement provided that the total purchase price was allocated 90% to the client list and 10% to goodwill. The closing date, as defined in the purchase agreement, was the date it was signed, October 16, 2007. As part of the purchase price, Harper agreed to work for CSI for a period of five years and to restrictive covenants not to compete with the plaintiffs and not to solicit any "tax client" for a period of five years from the closing date. The purchase agreement also provided that if a payment default by CSI persisted for 30 days, all remaining payments would be accelerated and Harper would be entitled to recover his attorney's fees incurred to collect the payments due.

For the next five years, Harper worked exclusively for CSI out of his former Hicksville office. On October 16, 2012, Harper terminated his association with the plaintiffs. In January 2013, Harper began to solicit and serve some of his former clients in space leased in the same office building through his new firm, Broadway Wealth Management, LLC, doing business as Broadway Asset Management (hereinafter Broadway Wealth).

The plaintiffs then commenced this action against, among others, Harper, Martin Harper Associates, and Broadway Wealth (hereinafter collectively the appellants), alleging 13 causes of action, including breach of contract, fraud, unfair competition, and conversion. In an order dated November 3, 2014, the Supreme Court denied the appellants' motion for summary judgment dismissing the first through eleventh and thirteenth causes of action, and so much of the twelfth cause of action as alleged the conversion of clients and the revenue from those clients insofar as asserted against them, and on the issue of liability on a counterclaim interposed by Harper. In the order appealed from, the court, upon reargument, adhered to the original determination.

The Supreme Court, upon reargument, should have awarded the appellants summary judgment dismissing the first cause of action, which alleged that the appellants breached the purchase agreement by soliciting and servicing their former clients. Because Harper sold his practice to CSI, and CSI acquired the goodwill of Harper Associates, LLC, in the transaction, the enforceability of the nonsolicitation clause against Harper is evaluated pursuant to the standard applicable to the sale of a business rather than the "stricter standard of reasonableness" applicable to employment contracts ( Reed, Roberts Assoc. v. Strauman, 40 N.Y.2d 303, 307, 386 N.Y.S.2d 677, 353 N.E.2d 590 ; see Genesee Val. Trust Co. v. Waterford Group, LLC, 130 A.D.3d 1555, 1557–1558, 14 N.Y.S.3d 605 ; Weiser LLP v. Coopersmith, 51 A.D.3d 583, 583–584, 859 N.Y.S.2d 634 ; Kraft Agency v. Delmonico, 110 A.D.2d 177, 182–183, 494 N.Y.S.2d 77 ). When the goodwill of a business is sold, irrespective of any term in the contract, the seller is prevented by an "implied covenant" from depreciating the value of the goodwill by approaching his former customers and attempting to regain their patronage ( Mohawk Maintenance Co. v. Kessler, 52 N.Y.2d 276, 284, 437 N.Y.S.2d 646, 419 N.E.2d 324 ). The goodwill of a business, an intangible asset which may be transferred from the seller to the purchaser, has been defined as the right of the purchaser "to expect that the firm's established customers will continue to patronize the business" ( id. at 285, 437 N.Y.S.2d 646, 419 N.E.2d 324 ; see Purchasing Assoc. v. Weitz, 13 N.Y.2d 267, 271, 246 N.Y.S.2d 600, 196 N.E.2d 245 ; Kraft Agency v. Delmonico, 110 A.D.2d at 181, 494 N.Y.S.2d 77 ).

The appellants established their prima facie entitlement to summary judgment dismissing the first cause of action through the submission of evidence demonstrating that Harper did not solicit his former clients or perform any tax, financial, or accounting services outside of his employment with CSI prior to October 16, 2012. In opposition, the plaintiffs failed to raise a triable issue of fact. The plaintiffs' reliance upon Mohawk Maintenance Co. v. Kessler , 52 N.Y.2d 276, 437 N.Y.S.2d 646, 419 N.E.2d 324, wherein an implied covenant was imposed upon the seller of a business to permanently refrain from soliciting former customers after the sale of a business and its goodwill, is misplaced. The unlimited implied restrictions set forth therein are inapplicable, where, as here, the parties specifically negotiated and expressly agreed to impose a less onerous restriction upon the seller after the sale, and to thereby forgo the implied covenant recognized in Mohawk, by entering into an express nonsolicitation agreement which was of limited duration and restricted only to "tax clients" (see MGM Ct. Reporting Serv. v. Greenberg, 74 N.Y.2d 691, 543 N.Y.S.2d 376, 541 N.E.2d 405 ; First Am. Tit. Ins. Co. of N.Y., Inc. v. Benchmark Tit. Agency LLC, 48 A.D.3d 327, 851 N.Y.S.2d 523 ; Mitel Telecomunications Sys. v. Napolitano, 226 A.D.2d 165, 165, 640 N.Y.S.2d 113 ; Goldome Corp. v. Wittig, 221 A.D.2d 931, 932, 634 N.Y.S.2d 308 ).

Moreover, the Supreme Court, upon reargument, should have granted those branches of the appellants' motion which were to dismiss the second cause of action, which alleged breach of the implied covenant of good faith and fair dealing, and the fifth cause of action, which alleged misappropriation of funds, as the appellants demonstrated, prima facie, that they are duplicative of the breach of contract cause of action (see New York Univ. v. Continental Ins. Co., 87 N.Y.2d 308, 319–320, 639 N.Y.S.2d 283, 662 N.E.2d 763 ; Cortazar v. Tomasino, 150 A.D.3d 668, 54 N.Y.S.3d 89 ; Refreshment Mgt. Servs., Corp. v. Complete Off. Supply Warehouse Corp., 89 A.D.3d 913, 915, 933 N.Y.S.2d 312 ; Fada Intl. Corp. v. Cheung, 57 A.D.3d 406, 870 N.Y.S.2d 23 ). Furthermore, the appellants demonstrated their prima facie entitlement to summary judgment dismissing the thirteenth cause of action, which alleged unjust enrichment, as the existence of a valid contract governing the subject matter generally precludes recovery in quasi contract for events arising out of the same subject matter (see EBC I, Inc. v. Goldman, Sachs & Co., 5 N.Y.3d 11, 23, 799 N.Y.S.2d 170, 832 N.E.2d 26 ; Clark–Fitzpatrick, Inc. v. Long Is. R.R. Co., 70 N.Y.2d 382, 388, 521 N.Y.S.2d 653, 516 N.E.2d 190 ). In opposition, the plaintiffs failed to raise a triable issue of fact.

The appellants demonstrated their prima facie entitlement to judgment as a matter of law dismissing the third cause of action, which alleged fraudulent inducement, by establishing, through the submission of the deposition transcript of CSI's principal, who negotiated the sale with Harper, that no misrepresentations or omissions of fact were made by Harper that induced CSI to enter into the purchase agreement (see Lama Holding Co. v. Smith Barney, 88 N.Y.2d 413, 421, 646 N.Y.S.2d 76, 668 N.E.2d 1370 ; Blagio Rest., Inc. v. C.E. Props., Inc., 127 A.D.3d 1006, 1008, 7 N.Y.S.3d 468 ; River Ridge Living Ctr., LLC v. ADL Data Sys., Inc., 98 A.D.3d 724, 725, 950 N.Y.S.2d 179 ). Moreover, while the plaintiffs alleged that Harper misrepresented his intent to retire at the end of the five-year term of the purchase agreement, such a representation does not constitute actionable fraud because it is a mere expression of future expectations (see Blagio Rest., Inc. v. C.E. Props., Inc., 127 A.D.3d at 1008, 7 N.Y.S.3d 468 ; Deutsche Bank Natl. Trust Co. v. Sinclair, 68 A.D.3d 914, 916, 891 N.Y.S.2d 445 ; Adrien v. Estate of Zurita, 29 A.D.3d 498, 814 N.Y.S.2d 709 ). In opposition, the plaintiffs failed to raise a triable issue of fact. Accordingly, the Supreme Court, upon reargument, should have granted that branch of the appellants' motion which was for summary judgment dismissing the fraudulent inducement cause of action.

The Supreme Court, upon reargument, also should have granted that branch of the appellants' motion which was for...