Twitchell Tech. Prod. v. Mechoshade Sys.

• Court: New York Supreme Court — Appellate Division
• Writing for the Court: CONNOLLY, J.P.
• Citation: Twitchell Tech. Prod. v. Mechoshade Sys., 208 N.Y.S.3d 657 (N.Y. App. Div. 2024)
• Decision Date: 27 March 2024
• Parties: TWITCHELL TECHNICAL PRODUCTS, LLC, appellant, v. MECHOSHADE SYSTEMS, LLC, respondent.
• topic: Commercial Litigation,Contracts,Corporate / Commercial

208 N.Y.S.3d 657

TWITCHELL TECHNICAL PRODUCTS, LLC, appellant,

v.MECHOSHADE SYSTEMS, LLC, respondent.

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

Argued—October 27, 2023

March 27, 2024

APPEAL by the plaintiff, in an action for a judgment declaring that a certain restrictive covenant is invalid and unenforceable, from an order of the Supreme Court (Leonard Livote, J.), entered June 29, 2021, in Queens County. The order denied the plaintiff's motion pursuant to CPLR 3211(a) to dismiss the defendant’s counterclaims.

Karten Muchin Rosenman LLP, New York, NY (Mark T. Ciani, Craig Convissar, Robert T. Smith, Mary C. Fleming, pro hac vice, Charles L. Perry, pro hac vice, and Terrence J. Fleming, pro hac vice, of counsel), for appellant.

Fried, Frank, Harris, Shriver & Jacobson LLP, New York, NY (Joshua D. Roth, Shira Sandler, and Bryan McIntyre of counsel), for respondent.

FRANCESCA E. CONNOLLY, J.P., ROBERT J. MILLER, LARA J. GENOVESI, DEBORAH A. DOWLING, JJ.

OPINION & ORDER

CONNOLLY, J.P.

This appeal requires us to analyze the factors to consider when evaluating whether a restrictive covenant in an ordinary commercial contract is enforceable. Although there is a dearth of New York state case law on this issue, we agree with those courts that have analyzed these types of covenants under a rule of reason, considering (1) whether the covenant protects a legitimate business interest; (2) the reasonableness of the geographic scope and temporal duration; and (3) the degree of hardship upon the party against whom the covenant is enforced.

This appeal also requires us to consider whether courts have the power to sever and grant partial enforcement of overly broad restrictive covenants in ordinary commercial contracts. Because the Court of Appeals has held that courts have such power with regard to overly broad restrictive covenants in employment agreements (see BDO Seidman v. Hirshberg, 93 N.Y.2d 382, 395, 690 N.Y.S.2d 854, 712 N.E.2d 1220), we similarly hold that courts have the power to sever and grant partial enforcement of overly broad restrictive covenants in ordinary commercial contracts and may do so under the appropriate circumstances.

I. Factual and Procedural Background

This appeal relates to the motion of the plaintiff, Twitchell Technical Products, LLC (hereinafter Twitchell), pursuant to CPLR 3211(a) to dismiss the counterclaims of the defendant, Mechoshade Systems, LLC (hereinafter Mechoshade). We accept the following facts as alleged in Mechoshade’s counterclaims as true for purposes of this CPLR 3211(a) motion (see Leon v. Martinez, 84 N.Y.2d 83, 87, 614 N.Y.S.2d 972, 638 N.E.2d 511).

Mechoshade has manufactured solar roller shades for approximately 50 years. One of the challenges associated with manufacturing solar roller shades is procuring fabrics that can be repeatedly rolled up and down without damaging the fabric, and to that end, Mechoshade committed its own resources to developing fabrics for use in solar roller shades. In the late 1970s, Mechoshade approached Twitchell about manufacturing fabric for Mechoshade’s solar roller shades. At that time, Twitchell had never manufactured fabric for solar roller shades, but it had manufactured fabrics for other purposes and owned commercial looms, as well as other necessary equipment. Mechoshade and Twitchell agreed to co-develop fabric for solar roller shades. Mechoshade invested its time and money, including in excess of $100,000, to help Twitchell develop fabrics of different colors, weaves, and densities. Among other things, Mechoshade funded a university study to analyze the different types of weaves, colors, and densities that could be used with various kinds of glazing. This study resulted in certain developments, which are still incorporated in a large portion of Mechoshade’s products today and from which Twitchell also benefϊtted. In addition, through various marketing and advertising initiatives, Mechoshade built and promoted the solar roller shade market.

After operating pursuant to a "handshake" agreement for a number of years, Twitchell and Mechoshade, both represented by attorneys, negotiated two nearly identical distribution agreements (hereinafter the agreements), one governing North America (hereinafter the North America agreement) and the other governing the rest of the world. Pursuant to the agreements, which were entered into on June 1, 1989, Twitchell agreed to manufacture fabric for Mechoshade on an exclusive basis for use in Mechoshade’s solar roller shades. Section 1 of the North America agreement provided that Twitchell appointed Mechoshade as its sole distributor of Twitchell’s products in the Window Shading Product Line. In connection therewith, Twitchell granted Mechoshade the right to promote and sell throughout North America the Window Shading Product Line, and Twitchell granted Mechoshade certain rights to use certain trademarks and logos. The Window Shading Product Line was defined as

"[o]perable and fixed interior shading, exterior vertical window shading, and greenhouse shading for use with glazed windows, greenhouses and skylights for the contract, commercial, institutional, residential and hospitality markets. The Window Shading Product Line shall not include shading for operable or fixed exterior awnings, or products made for any use in cars or trucks or for use as exterior fixed screening (collectively, the ‘Non–Competing Industries’)."

Section 2.2 of the North America agreement provided that the " ‘[p]atterns, colors, weaves and textures individually or in combination, which are designed, developed and produced by … [Twitchell] for … [Mechoshade] pursuant to this Agreement shall be exclusive designs for … [Mechoshade].’ "

Section 11.1 of the agreements contained identical restrictive covenants (hereinafter the restrictive covenants) that provided that in the event of termination of the agreement,

"all weaves, patterns, designs and colors produced by [Twitchell] for [Mechoshade] for the Window Shading Product Line shall remain the exclusive designs of [Mechoshade] and shall not be sold to dealers, manufacturers or distributors in the window shading market; provided, however, that [Twitchell] shall be free to produce and sell new and different designs, weaves, patterns and colors for distribution into the window shading market but shall not offer for sale to the window shading market slightly modified fabrics which are substantially similar to [Mechoshade’s] exclusive fabrics."

After more than 30 years of working together, in 2018, Mechoshade informed Twitchell that it was terminating the agreements, effective May 31, 2019. By letter dated July 30, 2020, Mechoshade "reminded" Twitchell of its contractual obligations in the restrictive covenants in the agreements.

By summons and complaint, Twitchell commenced this action seeking a declaration that the restrictive covenants in the agreements are "invalid, unlawful and unenforceable, and that Twitchell is not restricted in its manufacture or sale of fabric, or in its component elements of weaves, patterns, designs, colors, or otherwise." As exhibits to the complaint, Twitchell attached, among other things, a copy of the North America agreement, as well as printouts from Mechoshade’s website, and printouts from websites of two of Mechoshade’s alleged competitors, who are not parties to this action.

Mechoshade interposed an answer with counterclaims. The first counterclaim sought a declaration that (1) the agreements, "in relevant part, remain in full force and effect"; (2) the restrictive covenants contained in the agreements are "enforceable, in whole or in part"; and (3) "Twitchell is precluded from selling the fabrics it actually manufactured for [Mechoshade] in the Window Shading Product Line or any fabrics that are ‘substantially similar’ thereto to other dealers, manufacturers or distributors in the window shading market." The second counterclaim sought a permanent injunction.

Twitchell did not interpose a reply to the counterclaims. Instead, Twitchell moved pursuant to CPLR 3211(a)(1) and (7) to dismiss Mechoshade’s counterclaims, contending that Mechoshade’s counterclaims failed to plead facts supporting that the restrictive covenants in the agreements were enforceable and that Twitchell’s documentary evidence established that the restrictive covenants were unenforceable. Mechoshade opposed the motion, contending that Twitchell relied upon materials that did not constitute documentary evidence within the meaning of CPLR 3211(a)(1) and that Mechoshade sufficiently alleged that the restrictive covenants were valid and enforceable in their entirety. Mechoshade also contended that even if the Supreme Court were to ultimately determine that the restrictive covenants were overly broad, the court’s power to sever and partially enforce overly broad restrictive covenants warranted denial of Twitchell’s motion to dismiss the counterclaims.

In an order entered June 29, 2021, the Supreme Court denied Twitchell’s motion. Twitchell appeals. Because Twitchell failed to meet its burden on this motion pursuant to CPLR 3211(a), we affirm.

II. CPLR 3211(a)(1)

[1] A motion to dismiss a counterclaim pursuant to CPLR 3211(a)(1) on the ground that it is barred by documentary evidence may be granted only if the documentary evidence utterly refutes the defendant’s factual allegations, "conclusively establishing a defense [to the counterclaim] as a matter of law" (Goshen v. Mutual Life Ins. Co. of N.Y., 98 N.Y.2d 314, 326, 746 N.Y.S.2d 858, 774 N.E.2d 1190). Thus, on this motion to dismiss the counterclaims, Twitchell bears the burden of demonstrating that the proffered documentary evidence conclusively refutes Mechoshade’s factual allegations (see Kolchins v. Evolution Mkts., Inc., 31 N.Y.3d 100, 106, 73 N.Y.S.3d 519, 96 N.E.3d 784).

[2, 3] "[N]ot all printed materials constitute documentary evidence under CPLR 3211(a)(1)" (Flushing Sav. Bank, FSB v. Siunykalimi, 94 A.D.3d...