Greenwich Mills Co., Inc. v. Barrie House Coffee Co., Inc.

• Decision Date: 14 February 1983
• Citation: 91 A.D.2d 398,459 N.Y.S.2d 454
• Parties: GREENWICH MILLS CO., INC., Respondent, v. BARRIE HOUSE COFFEE COMPANY, INC. et al., Appellants.
• Court: New York Supreme Court — Appellate Division

Page 454

459 N.Y.S.2d 454

91 A.D.2d 398

GREENWICH MILLS CO., INC., Respondent, v. BARRIE HOUSE COFFEE COMPANY, INC. et al., Appellants.

Supreme Court, Appellate Division,

Second Department.

Feb. 14, 1983.

Kobrick & Rosen, New York City (Saul Kobrick, New York City and Ralph Cherchian, Forest Hills, of counsel), for appellants.

Brauner, Baron, Rosenzweig, Kligler, Sparber & Bauman, New York City (Howard L. Simon and Steven R. Uffner, New York City, of counsel), for respondent.

Before MOLLEN, P. J., and TITONE, WEINSTEIN and RUBIN, JJ.

WEINSTEIN, Justice.

Irwin Sheifetz, Robert Ulrich, and Angelo Calagridus are former salesmen of Greenwich Mills Co., a firm engaged in the business of supplying coffee, tea and similar commodities to restaurants, hotels and stores in metropolitan New York City. As a condition of his employment with Greenwich Mills, Sheifetz had agreed not to "solicit * * * the custom, trade, business, or patronage of the Employer" for a period of nine months after the termination of his employment with Greenwich Mills. Ulrich and Calagridus had made similar agreements, to be effective for one year after they left Greenwich Mills' employ.

The three salesmen left their positions with Greenwich Mills in 1976 or 1977, and assumed similar positions with Barrie House Coffee Company, a competitor of Greenwich Mills. According to the allegations of the complaint, customers of Greenwich Mills ceased making purchases from Greenwich Mills, and switched their commercial allegiance to Barrie House, within the periods of the respective nonsolicitation covenants. Greenwich Mills thus instituted various causes of action against Barrie House and the three salesmen for breach of, and inducement to breach, the nonsolicitation covenants. The complaint seeks $142,500 in compensatory damages, and $150,000 in punitive damages.

The defendants, who have not thus far denied that they solicited business from the customers in question during the periods of the nonsolicitation covenants, moved for partial summary judgment, asserting that the covenants were unenforceable. They argued that covenants such as are involved herein are valid only if the services rendered by the covenantors are unique (which is clearly not the case here) or the covenants are designed to protect trade secrets; here, defendants argued that Greenwich Mills' customers are commonly known and easily ascertainable by those in the industry. In opposition, Greenwich Mills stated inter alia, that the three salesmen in question indeed had access to confidential information concerning the preferences of various customers for particular precise blends of coffee, and the prices the customers were willing to pay for those blends.

Special Term denied the motion for partial summary judgment, concluding that the restrictive covenants are not unenforceable as a matter of law, and that the question of whether some of Greenwich Mills' customers switched commercial allegiance in response to solicitation, or by their own volition, was a question of fact requiring a trial. We are now called upon to determine certain issues bearing on the validity of the nonsolicitation covenants.

Courts have struggled for many years in trying to balance the conflicting policy considerations brought into play by restrictive employment covenants (see Simons v. Fried, 302 N.Y. 323, 98 N.E.2d 456). On the one hand, it is recognized that there are "powerful considerations of public policy which militate against sanctioning the loss of a man's livelihood" (Purchasing Assoc. v. Weitz, 13 N.Y.2d 267, 272, 246 N.Y.S.2d 600, 196 N.E.2d 245; see, also, Oregon Steam Nav. Co. v. Winsor, 87 U.S. 64, 22 L.Ed. 315; Paramont Pad Co. v. Baumrind, 4 N.Y.2d 393, 175 N.Y.S.2d 809, 151 N.E.2d 609; Service Systems Corp. v. Harris, 41 A.D.2d 20, 23, 341 N.Y.S.2d 702). On the other hand, "the courts must also recognize the legitimate interest an employer has in safeguarding that which has made his business successful and to protect himself against deliberate surreptitious commercial piracy" (Reed, Roberts Assoc. v. Strauman, 40 N.Y.2d 303, 308, 386 N.Y.S.2d 677, 353 N.E.2d 590, mot. for rearg. den. 40 N.Y.2d 918, 389 N.Y.S.2d 1027, 357 N.E.2d 1033). Indeed, the First Department in Bates Chevrolet Corp. v. Haven Chevrolet, 13 A.D.2d 27, 29, 213 N.Y.S.2d 577, mod. 16 A.D.2d 917, 229 N.Y.S.2d 168, affd. 13 N.Y.2d 644, 240 N.Y.S.2d 759, 191 N.E.2d 290, went so far as to consider it "axiomatic" that a restrictive employment covenant is enforceable, provided that

"it is reasonably necessary for the protection of the employer and is reasonably limited as to time and place * * * In the case of employment contracts, in contrast to agreements for the sale of businesses, a significant consideration in determining the reasonableness of covenants against competition is the hardship which may be worked upon the employee in pursuing a livelihood and putting to gainful use the skills and experience he has acquired in his trade * * * Such concern for earning a living does not, however, immunize an employee from contractual restraints against capitalizing on his acquaintance with his former employer's customers or the favor he found with them."

Not surprisingly, then, "no hard-and-fast rules have yet been formulated and courts have been continuously engaged in the ongoing task of determining what restrictions are reasonable given the peculiar circumstances and context of each individual case * * * Courts must respond to each case as it presents itself, and often times * * * must resolve seemingly divergent considerations of public polic (Matter of Sprinzen [Nomberg], 46 N.Y.2d 623, 628-629, 415 N.Y.S.2d 974, 389 N.E.2d 456). ¹

Certain general principles have, however, been enunciated. A restrictive employment covenant will be subject to specific enforcement only if it is reasonable in time and area, necessary to protect the employer's legitimate interests while being not unreasonably burdensome to the employee, and not harmful to the general public (see Reed, Roberts Assoc. v. Strauman, supra ). Clearly, however, the application of these rules depends entirely on the totality of circumstances. Under certain circumstances, a covenant which is to be effective forever (see Karpinski v. Ingrasci, 28 N.Y.2d 45, 320 N.Y.S.2d 1, 268 N.E.2d 751) or for five years (see Gelder Med. Group v. Webber, 41 N.Y.2d 680, 394 N.Y.S.2d 867, 363 N.E.2d 573) will be enforceable, whereas under other circumstances, a three-year (see Reed, Roberts Assoc. v. Strauman, supra) or a two-year (see Columbia Ribbon & Carbon Mfg. Co. v. A-1-A Corp., 42 N.Y.2d 496, 398 N.Y.S.2d 1004, 369 N.E.2d 4) covenant will not. Likewise, much will depend on whether the covenant involves a total ban on competition with the former employer or, as here, the far lesser restriction of a ban on solicitation of its customers. In this connection, we note the decision in Mohawk Maintenance Co. v. Kessler, 52 N.Y.2d 276, 437 N.Y.S.2d 646, 419 N.E.2d 324, wherein it was held that the seller of a business has a legal duty to refrain indefinitely, and not just for a reasonable period of time, from soliciting customers from the purchaser of the business, whether or not there is an express agreement to that effect, in light of the fact that the purchaser is deemed to have purchased the "goodwill" of the business. Moreover, a court, upon finding part of a restrictive employment covenant to be enforceable and part not so, may sever the respective portions of the covenant and give effect only to the enforceable part (see Karpinski v. Ingrasci, supra; American Yearbook Co. v. St. Pierre, 56 A.D.2d 832, 392 N.Y.S.2d 66). But a severance of the impermissible portions from the valid portions in order to uphold the covenant to the extent that it is reasonable is not always justified by the circumstances of the particular case (see Columbia Ribbon & Carbon Mfg. Co. v. A-1-A Corp., supra).

Since the instant matter is before the court now in the context of a motion for partial summary judgment, without a trial or even full discovery having yet been held, it is impossible to judge the validity of the covenants in question in light of these considerations. Greenwich Mills has placed in the record certain facts bearing upon the alleged reasonableness of the covenants, and a trial will be necessary to determine their reasonableness, as well as to determine if the covenants actually were violated. However, the issue which constitutes the crux of this motion for partial summary judgment can indeed be resolved now. That issue is the extent to which trade secrets, or some other special circumstance (set forth infra ), must be present in order to render a nonsolicitation agreement enforceable.

It is clear that in the absence of an express nonsolicitation agreement, an ex-employee not in possession of trade secrets will not be precluded from soliciting his former employer's customers (see Leo Silfen, Inc. v. Cream, 29 N.Y.2d 387, 328 N.Y.S.2d 423, 278 N.E.2d 636; S. Tepfer & Sons, Inc. v. Zschaler, 25 A.D.2d 786, 269 N.Y.S.2d 552), unless he has engaged in an act such as stealing or memorizing his employer's customer lists (see Lincoln Steel Prods. v. Schuster, 49 A.D.2d 618, 371 N.Y.S.2d 157). The ex-employee's knowledge of trade secrets will, on the other hand, bar him from so soliciting, even without an express agreement (see Town & Country House & Home Serv. v. Newbery, 3 N.Y.2d 554, 170 N.Y.S.2d 328, 147 N.E.2d 724; Lepel High Frequency Labs. v. Capita, 278 N.Y. 661, 16 N.E.2d 392). At the other extreme, a broad noncompetition covenant, as opposed to a less restrictive nonsolicitation covenant, will also not be enforced absent some circumstance such as the employee's possession of a trade secret (see Reed, Roberts Assoc. v. Strauman, 40 N.Y.2d 303, 386 N.Y.S.2d 677, 353 N.E.2d 590, supra) or some unique or extraordinary ability or skill of the employee (see Purchasing Assoc. v. Weitz,...