Brown & Brown v. Theresa A. Johnson

This opinion is uncorrected and subject to revision before

publication in the New York Reports.

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No. 92

Brown & Brown, Inc., et al.,

Appellants,

v.

Theresa A. Johnson, et al.,

Respondents.

(AD No. CA 13-00340)

Alun W. Griffiths, for appellants.

Preston L. Zarlock, for respondents.

STEIN, J.:

On this appeal, we hold that applying Florida law on

restrictive covenants related to the non-solicitation of

customers by a former employee would violate the public policy of

this state. Therefore, the choice-of-law provision in the

parties' employment agreement purporting to apply Florida law is

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unenforceable as to the non-solicitation provision of that

agreement. Applying New York law, we also conclude that factual

issues exist which prevent us from determining whether partial

enforcement of the agreement's non-solicitation provision is

appropriate. Hence, we remit for further proceedings.

I.

Plaintiffs are insurance intermediaries. Plaintiff

Brown & Brown, Inc. (BBI) is a Florida corporation. Its New York

subsidiary, plaintiff Brown & Brown of New York, Inc. (BBNY), is

licensed to handle insurance in New York. BBNY recruited

defendant Theresa A. Johnson to leave her former job at Blue

Cross/Blue Shield -- where she was employed as an underwriter and

actuary for over 20 years -- to work for BBNY.

On Johnson's first day, BBNY's employee gave her

documents that included an employment agreement with a

restrictive covenant. As relevant here, the agreement contained

a Florida choice-of-law provision and a non-solicitation

provision. The non-solicitation provision precluded Johnson, for

two years following her termination of employment, from directly

or indirectly soliciting, accepting or servicing any person or

entity "that is a customer or account of the New York offices of

[BBI and BBNY] during the term of this Agreement," as well as

certain prospective customers. In the discussions that took

place before Johnson was hired, this agreement was never

mentioned. While it is undisputed that Johnson and a

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representative of BBNY signed the agreement that first day, the

parties dispute what occurred at the time of the signing.

After working solely in New York for several years,

Johnson was terminated. Less than one month later, Johnson began

working for defendant Lawley Benefits Group, LLC, a competitor of

BBNY; her work with Lawley involved providing services to some of

plaintiffs' former customers. Plaintiffs commenced this action

to enjoin alleged violations of the agreement by Johnson and to

recover damages against both Johnson and Lawley. The complaint

alleged, among other things, that Johnson breached the employment

agreement by soliciting plaintiffs' customers. Defendants

answered the complaint and, within 10 weeks of commencement of

the action and after only limited discovery, moved for summary

judgment dismissing the complaint.

Supreme Court partially granted defendants' motion for

summary judgment, but did not dismiss the portion of the breach

of contract cause of action against Johnson alleging that she

violated the non-solicitation provision by using client

relationships that she initially developed while working for

plaintiffs. In doing so, the court found the choice-of-law

provision in Johnson's employment agreement to be unenforceable.

On the parties' cross appeals, the Appellate Division

modified Supreme Court's order by, among other things, dismissing

in its entirety the portion of the breach of contract cause of

action based on the non-solicitation provision (115 AD3d 162 [4th

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Dept 2014]). The Court held that the Florida choice-of-law

provision was unenforceable as against public policy, and that

the non-solicitation provision was overbroad and unenforceable.

The Appellate Division granted plaintiffs' motion for leave to

appeal, certified a question, and denied defendants' cross motion

for leave.

II.

The employment agreement's choice-of-law provision

states that any disputes will be governed by Florida law. While

parties are generally free to reach agreements on whatever terms

they prefer, courts will not "enforce agreements . . . where the

chosen law violates 'some fundamental principle of justice, some

prevalent conception of good morals, some deep-rooted tradition

of the common weal'" (Welsbach Elec. Corp. v MasTec N. Am., Inc.,

7 NY3d 624, 629 [2006] [footnote omitted], quoting Cooney v

Osgood Mach., 81 NY2d 66, 78 [1993]). This public policy

exception is reserved "for those foreign laws that are truly

obnoxious" (Cooney, 81 NY2d at 79; see Welsbach Elec. Corp., 7

NY3d at 629). The party seeking to invoke the exception bears a

"'heavy burden' of proving that application of [the chosen] law

would be offensive to a fundamental public policy of this State"

(Welsbach Elec. Corp., 7 NY3d at 632; see Cooney, 81 NY2d at 80;

Matter of Frankel v Citicorp Ins. Servs., Inc., 80 AD3d 280, 286

[2nd Dept 2010]).

Here, to determine whether the public policy exception

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renders unenforceable the employment agreement's choice of

Florida law, we must compare the Florida statute concerning

restrictive covenants in employment agreements to New York law on

that subject. The law of the two states is similar to the extent

that they both require restrictive covenants to be reasonably

limited in time, scope and geographical area, and to be grounded

in a legitimate business purpose (see Fla Stat § 542.335 [1];

Reed, Roberts Assoc. v Strauman, 40 NY2d 303, 307 [1976]).

However, several aspects of the Florida statute differ

significantly from New York law.

Specifically, Florida law requires a party seeking to

enforce a restrictive covenant only to make a prima facie showing

that the restraint is necessary to protect a legitimate business

interest, at which point the burden shifts to the other party to

show that the restraint is overbroad or unnecessary (see Fla Stat

§ 542.335 [1] [c]). If the latter showing is made, the court is

required to "modify the restraint and grant only the relief

reasonably necessary to protect" the employer's legitimate

business interests (Fla Stat § 542.335 [1] [c]). In contrast to

this focus solely on the employer's business interests, under New

York's three-prong test, "[a] restraint is reasonable only if it:

(1) is no greater than is required for the protection of the

legitimate interest of the employer, (2) does not impose undue

hardship on the employee, and (3) is not injurious to the public.

A violation of any prong renders the covenant invalid" (BDO

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Seidman v Hirshberg, 93 NY2d 382, 388-389 [1999] [internal

citations omitted]; see Natural Organics, Inc. v Kirkendall, 52

AD3d 488, 489 [2nd Dept 2008], lv denied 11 NY3d 707 [2008]; D&W

Diesel v McIntosh, 307 AD2d 750, 750-751 [4th Dept 2003]).

Whereas Florida shifts the burden of proof after the employer

demonstrates its business interests (see Fla Stat § 542.335 [1]

[c]), New York requires the employer to prove all three prongs of

its test before the burden shifts (see BDO Seidman, 93 NY2d at

388-389; see also Natural Organics, Inc., 52 AD3d at 489).

Further, Florida law explicitly prohibits courts from considering

the harm or hardship to the former employee (see Fla Stat §

542.335 [1] [g] [1]). This directly conflicts with New York's

requirement that courts consider, as one of three mandatory

factors, whether the restraint "impose[s] undue hardship on the

employee" (BDO Seidman, 93 NY2d at 388-389).

Additionally, under Florida law, courts are required to

construe restrictive covenants in favor of protecting the

employer's interests, and may not use any rules of contract

interpretation that would require the construction of a

restrictive covenant narrowly or against the restraint or drafter

(see Fla Stat § 542.335 [1] [h]). In contrast, New York law

provides that "[c]ovenants not to compete should be strictly

construed because of the 'powerful considerations of public

policy which militate against sanctioning the loss of a

[person's] livelihood'" (Gramercy Park Animal Ctr. v Novick, 41

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NY2d 874, 874 [1977], quoting Purchasing Assoc. v Weitz, 13 NY2d

267, 272 [1963] [citations omitted]; see BDO Seidman, 93 NY2d at

389; Reed, Roberts Assoc., 40 NY2d at 307 [noting "stricter

standard of reasonableness" in this area, and "judicial disfavor

of these covenants"]; Goodman v New York Oncology Hematology,

P.C., 101 AD3d 1524, 1526 [3rd Dept 2012]).

Considering Florida's nearly-exclusive focus on the

employer's interests, prohibition against narrowly construing

restrictive covenants, and refusal to consider the harm to the

employee -- in contrast with New York's requirements that courts

strictly construe restrictive covenants and balance the interests

of the employer, employee and general public -- defendants met

their "'heavy burden' of proving that application of Florida law

[to the non-solicitation provision of the parties' agreement]

would be offensive to a fundamental public policy of this State"

(Welsbach Elec. Corp., 7 NY3d at 632; see Cooney, 81 NY2d at 80).

Accordingly, the employment agreement's choice-of-law provision

is unenforceable in relation to the non-solicitation provision,

and New York law governs plaintiffs' claim based on Johnson's

alleged breach thereof.

III.

We turn next to the question of whether the non-

solicitation provision should be partially enforced. Under New

York law, the restrictive covenant was overbroad to the extent

that it prohibited Johnson from working with any of plaintiffs'

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New York customers, even those Johnson had never met, did not

know about and for whom she had done no work (see BDO Seidman, 93

NY2d at 392-393; Vital Crane Servs., Inc. v Micucci, 118 AD3d

1404, 1405 [4th Dept 2014]; Weiser LLP v Coopersmith, 74 AD3d

465, 467-468 [1st Dept 2010]; Scott, Stackrow & Co., C.P.A.'s,

P.C. v Skavina, 9 AD3d 805, 806-807 [3rd Dept 2004], lv denied 3

NY3d 612 [2004]). In light of this overbreadth, plaintiffs argue

that the Appellate Division should have partially enforced the

covenant, limiting the non-solicitation provision to prohibit

Johnson only from soliciting any of plaintiffs' customers with

whom she interacted or whose files she had encountered while in

plaintiffs' employ. This Court has "expressly recognized and

applied the judicial power to sever and grant partial enforcement

for an overbroad employee restrictive covenant" (BDO Seidman, 93

NY2d at 394, citing Karpinski v Ingrasci, 28 NY2d 45, 51-52

[1971]; see Trans-Continental Credit & Collection Corp. v Foti,

270 AD2d 250, 251 [2nd Dept 2000]). Where

"the unenforceable portion is not an

essential part of the agreed exchange, a

court should conduct a case specific

analysis, focusing on the conduct of the

employer in imposing the terms of the

agreement. Under this approach, if the

employer demonstrates an absence of

overreaching, coercive use of dominant

bargaining power, or other anti-competitive

misconduct, but has in good faith sought to

protect a legitimate business interest,

consistent with reasonable standards of fair

dealing, partial enforcement may be

justified" (BDO Seidman, 93 NY2d at 394

[internal citation omitted]).

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Here, although the covenant was imposed as a

requirement of Johnson's initial employment and was not presented

to her until her first day of work, the parties dispute whether

she understood the agreement, whether plaintiffs' employee

discussed or explained it to her, what such a discussion

entailed, whether she was required to sign it that day, or if she

could have sought advice from counsel and negotiated the terms of

the agreement (see Vital Crane Servs., Inc., 118 AD3d at 1405;

Scott, Stackrow & Co., C.P.A.'s, P.C., 9 AD3d at 807-808; compare

BDO Seidman, 93 NY2d at 395). The parties' conflicting

affidavits and limited disclosure responses, together with the

fact that Johnson had already left her prior employment -- which

could have caused her to feel pressure to sign the agreement

rather than risk being unemployed -- raise questions about

whether plaintiffs engaged in overreaching or used coercive

dominant bargaining power to obtain the restrictive covenant.

Thus, on this record and at this early stage of the action when

little discovery has taken place, dismissal of the portion of the

breach of contract claim based on the non-solicitation provision

in the employment agreement is inappropriate. Therefore, the

Appellate Division order, insofar as appealed from, should be

reversed, with costs, defendants' motion for summary judgment,

insofar as it sought to dismiss that portion of the first cause

of action for breach of the non-solicitation provision of the

employment agreement, denied and certified question answered in

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the negative.

* * * * * * * * * * * * * * * * *

Order, insofar as appealed from, reversed, with costs,

defendants' motion for summary judgment, insofar as it sought to

dismiss that portion of the first cause of action in the

complaint for breach of the non-solicitation provision in the

parties' employment agreement, denied and certified question

answered in the negative. Opinion by Judge Stein. Chief Judge

Lippman and Judges Read, Pigott and Abdus-Salaam concur. Judges

Rivera and Fahey took no part.

Decided June 11, 2015

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