Hyde Park Products Corp. v. Maximilian Lerner Corp.

• Decision Date: 11 June 1985
• Parties: , 480 N.E.2d 1084 HYDE PARK PRODUCTS CORPORATION et al., Respondents, v. MAXIMILIAN LERNER CORPORATION et al., Appellants.
• Court: New York Court of Appeals Court of Appeals

Page 302

491 N.Y.S.2d 302

65 N.Y.2d 316, 480 N.E.2d 1084

HYDE PARK PRODUCTS CORPORATION et al., Respondents, v. MAXIMILIAN LERNER CORPORATION et al., Appellants.

Court of Appeals of New York.

June 11, 1985.

Warren B. Silberkleit, White Plains, for appellants.

Martin I. Kaminsky and Edward T. McDermott, New York City, for respondents.

OPINION OF THE COURT

ALEXANDER, Judge.

Plaintiffs, Hyde Park Products Corp. and its president Edmund J. Lang, seek injunctive relief, an accounting and damages resulting from alleged "business torts" committed by defendants, Maximilian Lerner Corp. and its president Maximilian Lerner. They charge defendants with breach of fiduciary duty, unfair competition and breach of the implied covenant to refrain from impairing or recapturing the "good will" of Hyde Park that had been transferred to Lang upon the sale of Lerner's interest in the business.

We are called upon on this appeal to determine the appropriateness of the relief granted by Supreme Court.

For approximately 20 years prior to 1970, plaintiff Lang developed and operated Hyde Park, a sole proprietorship engaged primarily in the purchase and resale of peat moss in the eastern United States. During this period, Lang employed Lerner as a salesman on a salary and commission basis. In June 1970, Lang restructured the business to make Lerner a 50% stockholder and an officer and director. Personal differences arose between them some years later and Lerner commenced a proceeding to dissolve Hyde Park. The dispute ultimately was submitted to an arbitrator and an award made under which Lang would make a cash offer to purchase Lerner's 50% interest, and Lerner could elect either to accept Lang's offer or to make a counteroffer to purchase Lang's interest for the same price plus $75,000. Lerner chose to accept Lang's offer of $525,000 and the sale was consummated in March 1978. The trial court found that this purchase price exceeded the value of the tangible assets of the business by more than $200,000, and that this excess was paid for Hyde Park's goodwill.

Immediately upon the sale of his interest in Hyde Park to Lang, Lerner established Maximilian Lerner Corp., and proceeded to engage in the peat moss and gardening products business. Lerner affirmatively solicited Hyde Park customers in an effort to wean them away from Hyde Park, and in doing so, he systematically used Hyde Park's customer lists and records that he had copied while he was Hyde Park's sales manager. Hyde Park commenced this action in 1979 seeking injunctive relief, damages and an accounting.

Following a trial on liability, the court found that Lerner's conduct was "in violation of the covenant which the law implies upon the sale of a business together with its good will--a covenant which enjoins the covert recapture by the seller of that which he has already sold (Mohawk Maintenance Co. v. Kessler, 52 N.Y.2d 276, 437 N.Y.S.2d 646, 419 N.E.2d 324; Planet Mfg. Corp. v. Goldstein, 54 A.D.2d 896, 387 N.Y.S.2d 899)" and issued a permanent injunction barring defendants from soliciting and selling to "Hyde Park customers", who were defined by the court as (1) any customer who bought from Hyde Park during any three of five enumerated periods, with certain exceptions, and (2) any customer who bought both in 1976 and 1977 and also in 1978 prior to August 1, 1978. A schedule listing these customers was annexed to the injunction.

The court also determined that damages should be awarded, but was of the view that the theories advanced by plaintiff upon which damages should be measured "may well have a speculative character". These theories included the diminution of Hyde Park's profit rates and loss of "growth opportunities" which the court thought may be attributable to general business conditions or other economic developmen in the industry itself, unrelated to Lerner's improper competition. Citing Ronson Art Metal Works v. Gibson Lighter Mfg. Co., 205 Misc. 155, 164, 127 N.Y.S.2d 786, mod. 283 App.Div. 937, 130 N.Y.S.2d 814, the court nonetheless determined that defendants should not escape scot-free from their wrongdoing, and held that "the proper measure of damages would appear to be the profits that defendants made upon the sales they improperly made to Hyde Park customers from March 24, 1978 to the hearing date." Defendants were directed to account for such profits and a reference was ordered to determine their amount and the entry of judgment therefor.

At the hearing before the referee only evidence as to defendants' profits from sales to Hyde Park customers listed on the schedule attached to the injunction was received. The referee refused to allow evidence that some of the sales by defendants to the listed Hyde Park customers did not result from improper solicitation by Lerner or that the purchasers were no longer "customers" of Hyde Park at the time of any such sale or that some purchasers were "mega-purchasers", whom the court had expressly excluded from the strictures of the injunction. The referee determined that defendants' profits on sales to Hyde Park customers were $98,801.74, and judgment was entered in plaintiffs' favor for that amount plus interest. The Appellate Division affirmed, 99 A.D.2d 930, 472 N.Y.S.2d 524, without opinion, and this court granted defendants leave to appeal (62 N.Y.2d 605, 479 N.Y.S.2d 1025, 467 N.E.2d 895).

On this appeal defendants argue, inter alia, that because the court found that plaintiffs had failed to prove any loss resulting from the solicitation of Hyde Park customers, only nominal damages were properly recoverable; that the injunction is overly broad in that it bars all future "sales" to Hyde Park "customers", including "mega-purchasers", instead of only enjoining improper solicitation; that in computing defendants' profits as the measure of plaintiffs' damages, the referee improperly excluded proffered evidence that some of defendants' sales to Hyde Park customers were not the result of improper solicitation, that some of the listed businesses were no longer Hyde Park customers at the time of the sales and that some of the "customers" listed on the schedule attached to the injunction were "mega-purchasers".

It is the settled law of this State that one who sells a business to another has a legal duty to refrain from acting to impair the "good will" transferred to the purchaser in exchange for part of the purchase price (Mohawk Maintenance Co. v. Kessler, 52 N.Y.2d 276, 437 N.Y.S.2d 646, 419 N.E.2d 324; Von Bremen v. MacMonnies, 200 N.Y. 41, 93 N.E. 186; Planet Mfg. Corp. v. Goldstein, 54 A.D.2d 896, 387 N.Y.S.2d 899). Defendant Lerner contends, however, that because the sale to Lang resulted from an arbitration award it was "involuntary", and that he was thus "under no legal...