J.H. Renarde, Inc. v. Sims

• Decision Date: 19 February 1998
• Citation: 312 N.J.Super. 195,711 A.2d 410
• Parties: J.H. RENARDE, INC. t/a Renarde Salon, Plaintiff, v. Robin SIMS and Anna Hazard, Defendants.
• Court: New Jersey Superior Court

Page 195

312 N.J.Super. 195

711 A.2d 410

J.H. RENARDE, INC. t/a Renarde Salon, Plaintiff, v.Robin SIMS and Anna Hazard, Defendants.

Superior Court of New Jersey,

Chancery Division,

Monmouth County.

Feb. 19, 1998. ¹

Ben A. Montenegro, Brick Town, for plaintiff, Wilbert & Montenegro.

Carmine R. Villani, Manasquan, for defendants, Zavaglia, Villani & DeLuca.

FISHER, P.J.Ch.

I

THE FACTS

The facts of this case are relatively simple. However, the legal arguments raised--including an issue not mentioned in a reported decision in this State for 70 years--are hotly debated and require close analysis.

PlaintiffJ.H. Renarde, Inc., which operates a hairstyling salon in Wall Township, filed a complaint on February 3, 1998 against two former employees, defendantsRobin Sims and Anna Hazard.Defendant Sims had been employed with plaintiff or its predecessor since sometime in 1988 and defendant Hazard since June 1996.On January 17, 1998defendants' employment with plaintiff ceased.Approximately two weeks later, defendant Sims opened a hairstyling business in Manasquan, New Jersey where defendant Hazard is now also employed.Defendant Sims' employment agreement with plaintiff's predecessor, and defendant Hazard's employment agreement with plaintiff, expressly prohibit them from competing with plaintiff within 9 miles of plaintiff's place of business for a 9 month period.Defendants' new business is located approximately 3 miles from plaintiff's business.

Plaintiff seeks an order prohibiting defendants from competing at such close range.

II

PLAINTIFF'S APPLICATION FOR AN INTERLOCUTORY INJUNCTION

Plaintiff's claim for an interlocutory injunction can only succeed if all the factors to be considered by the court favor such relief.

AReasonable Probability of Success

A party seeking an interlocutory injunction must first demonstrate a reasonable probability of success on the merits.Crowe v. DeGioia, 90 N.J. 126, 447 A.2d 173(1982).

Defendant Sims was employed by Renarde Limited, Inc. from 1988 to 1993.On or about July 16, 1993, plaintiff purchased the business from Renarde Limited, Inc.Nevertheless, defendant Sims' employment with the business continued uninterrupted until the events in the last few weeks which gave rise to this lawsuit.In 1988, defendant Sims entered into an employment contract with Renarde Limited, Inc., plaintiff's predecessor.That contract set forth the compensation to be received by defendant and indicated also that as an employee she would have access to the employer's clientele and trade secrets.By way of that contract defendant Sims also agreed to the following restrictive covenant:

The Employee, upon termination of his/her employment with Employer, whether by resignation or discharge, agrees that he/she shall not, directly or indirectly, for a period of nine (9) months following such termination and within a radius of nine (9) miles of Employer's principal place of business at 192 Highway 35, Wall Township, New Jersey, enter into or engage in a business similar to that of the Employer or otherwise in competition with the business of the Employer, either as an individual or independent contractor, or as a partner or joint venturer, or as an employee or agent of any person or commercial enterprise, or as a shareholder, officer or director of a corporation, or otherwise and in any other capacity whatsoever.

Gogan Certif., Exhibit B.²

Defendant Sims claims that she did not agree not to compete with plaintiff and that her agreement to refrain from competing with plaintiff's predecessor was not assignable.In addition, both defendants claim that the covenant is an unreasonable restraint of trade and should not be enforced.

1.Assignability

Defendant Sims' chief argument in opposition to the issuance of injunctive relief rests with the fact that her restrictive covenant was entered into with plaintiff's predecessor, not plaintiff.That is, of course, an undisputed fact.But plaintiff relies upon the additional fact that its predecessor assigned its rights under the contract with defendant Sims to the plaintiff.See, Gogan Certif., Exhibit A ³.To that defendant argues her contract with the predecessor did not expressly permit assignment and, moreover, that such contracts cannot be assigned as a matter of law.

Initially, it should be observed that the contract is silent as to either party's ability to assign its rights or obligations.The document does not say that it may be assigned nor does it say that it may not be assigned.As a general matter, contract rights and obligations may be freely assigned in the absence of some express contractual prohibition.See, Aronsohn v. Mandara, 98 N.J. 92, 99, 484 A.2d 675(1984);Restatement, Contracts, 2d § 317(2)(c).Thus, contrary to defendant's position, the mere silence of the writing in question does not bar plaintiff's claim.That leaves the matter of whether the assignment of the right to enforce the restrictive covenant is forbidden by law or "inoperative on grounds of public policy."Restatement, supra, § 317(2)(b).Since defendant has advised of no statutory prohibition, the court need only consider whether the assignment is contrary to public policy.

Defendant's argument is centered on the theory--which is more than theory--that a court will not compel specific performance of a personal services contract against an employee.Defendant cites Board of Education of Bor. of Flemington v. State Board of Education, 81 N.J.L. 211, 81 A. 163(Sup.Ct.1911) to support this, but it is only necessary to recall that the Civil War was fought over a similar theory.One of the results of that conflict was the Thirteenth Amendment and a ban on involuntary servitude.Yes, there is no question that this court will not compel defendant Sims to continue working for plaintiff.That is what the Flemington case says, and that is a result the Thirteenth Amendment compels, but that is not the issue in this case.Plaintiff has not asked this court to compel defendant Sims to continue working for it.

The question is whether a purchaser of a business may enforce a promise not to compete previously made by an employee of that business to the seller of the business.Certainly the Thirteenth Amendment does not speak to that and neither does the Flemington case.That question has, however, been affirmatively answered in this state, albeit not in many years.

The issue was considered by Vice-Chancellor Berry in A. Fink & Sons v. Goldberg, 101 N.J.Eq. 644, 139 A. 408(Ch.1927).That case decides the precise issue and while this court, being co-equal to the Fink court is not bound by it, see, e.g., Wolf v. Home Ins. Co., 100 N.J.Super. 27, 241 A.2d 28(Law Div.1968), aff'd103 N.J.Super. 357, 247 A.2d 345(App.Div.1968), its analysis is convincing and no reason can be conjured as to why a successor employer may not enforce such a covenant.Our Supreme Court, for example, has upheld covenants not to compete which run with land and which would impact on successors to land interests, Davidson Bros. v. D. Katz & Sons, 121 N.J. 196, 579 A.2d 288(1990)(a non-competitive covenant restraining property from use as a supermarket for 40 years held not unenforceable as against public policy) and it can thus be concluded that modern courts are not hostile toward binding strangers to such covenants.In short, in upholding the assignment of a restrictive covenant, Vice-Chancellor Berry's reasoning is sound and compelling; he said:

Upon the sale of a business a restrictive covenant made in connection with such sale is assignable without express words to that effect and passes as an incident of the business sold even though not specifically assigned.This necessarily follows if "the agreement can have no independent existence or vitality aside from the business," and this is because it was made for the benefit of the business and not the individual parties to the contract.Upon principle I can see no reason why a restrictive covenant in a contract between employer and employee should not also be assignable as an incident of the business even if not made so by express words.

101 N.J.Eq. at 646-647, 139 A. 408.

It is true that an interlocutory injunction should not issue when a legal question upon which the case turns is not free from doubt.Accident Index Bureau, Inc. v. Male, 95 N.J.Super. 39, 50, 229 A.2d 812(App.Div.1967), aff'd51 N.J. 107, 237 A.2d 880(1968), app.dis. 393 U.S. 530, 89 S.Ct. 872, 21 L.Ed.2d 754(1969).It is also true that this particular issue has been decided differently in other jurisdictions.There are those jurisdictions which follow Fink, see, Equifax Services, Inc. v. Hitz, 905 F.2d 1355, 1361(10th Cir.1990)(Kansas law);Norman Ellis Corp. v. Lippus, 13 Misc.2d 432, 176 N.Y.S.2d 5, 6(Sup.Ct.1955);In re Hearing Centers of America, Inc., 106 B.R. 719(Bankr.M.D.Fla.1989)(Florida law); and there are those which do not, see, Smith, Bell & Hauck, Inc. v. Cullins, 123 Vt. 96, 101, 183 A.2d 528, 532(1962);Sisco v. Empiregas, Inc. of Belle Mina, 286 Ala. 72, 75, 237 So.2d 463, 466-467(1970);Perthou v. Stewart, 243 F.Supp. 655(D.Ore.1965);Orkin Exterminating Co., Inc. v. Burnett, 259 Iowa 1218, 1228, 146 N.W.2d 320, 327(1966).The latter view appears to have sprung from Smith, Bell which based its hostility toward assignment on certain quaint notions of employment contracts ⁴ which this court is not impressed by.In this court's view, it is preferable to assume that when a business is sold, the purchaser and the employee expect, without new negotiations between them, that the purchaser will honor the employment contract and that the employees, who choose to remain, will honor the promises made to the former employer ⁵.This thought lies at the heart of Vice-Chancellor Berry's Fink opinion, which accurately sets forth the current philosophy of the courts of this State.

For these reasons, defendant Sims' arguments that her contract with plai...