The opinion
SUPREME COURT OF THE STATE OF NEW YORK
Appellate Division, Fourth Judicial Department
1109
CA 13-00340
PRESENT: FAHEY, J.P., PERADOTTO, LINDLEY, SCONIERS, AND WHALEN, JJ.
BROWN & BROWN, INC. AND BROWN & BROWN OF NEW
YORK, INC., PLAINTIFFS-RESPONDENTS-APPELLANTS,
V OPINION AND ORDER
THERESA A. JOHNSON AND LAWLEY BENEFITS GROUP, LLC,
DEFENDANTS-APPELLANTS-RESPONDENTS.
(APPEAL NO. 1.)
PHILLIPS LYTLE LLP, BUFFALO (PRESTON L. ZARLOCK OF COUNSEL), FOR
DEFENDANTS-APPELLANTS-RESPONDENTS.
WARD GREENBERG HELLER & REIDY LLP, ROCHESTER, LITTLER MENDELSON, P.C.,
NEW YORK CITY (DAVID S. WARNER OF COUNSEL), FOR
PLAINTIFFS-RESPONDENTS-APPELLANTS.
Appeal and cross appeal from an order of the Supreme Court, Erie
County (John A. Michalek, J.), entered August 28, 2012. The order,
among other things, denied in part the motion of defendants for
summary judgment dismissing the complaint.
It is hereby ORDERED that said cross appeal from the order
insofar as it concerns the non-inducement covenant is unanimously
dismissed and the order is modified on the law by granting that part
of the motion with respect to the non-solicitation covenant in the
first cause of action and denying the remainder of the motion and as
modified the order is affirmed without costs.
Opinion by WHALEN, J.:
I
Defendant Theresa A. Johnson was hired by plaintiffs, insurance
intermediaries, in December 2006 to provide actuarial analysis for
plaintiffs. On her first day of work, Johnson was presented with a
number of documents to sign, including an Employment Agreement
(hereinafter, Agreement), which contained the three covenants at issue
in this dispute: a non-solicitation covenant, which prohibited
Johnson from soliciting or servicing any client of plaintiffs’ New
York offices for two years after termination of Johnson’s employment;
a confidentiality covenant, which prohibited Johnson from disclosing
plaintiffs’ confidential information or using it for her own purposes;
and a non-inducement covenant, which prohibited Johnson from inducing
plaintiffs’ New York employees to leave plaintiffs’ employment for two
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CA 13-00340
years after termination of Johnson’s employment. The Agreement also
stated that it would be governed by and construed and enforced
according to Florida law.
Plaintiffs terminated Johnson from her position on February 25,
2011. Shortly thereafter, Johnson was hired by defendant Lawley
Benefits Group, LLC (Lawley). Plaintiffs subsequently commenced this
action. The first two causes of action were against Johnson only:
breach of contract, for violation of the non-solicitation,
confidentiality, and non-inducement covenants in the Agreement; and
misappropriation of confidential and proprietary information, which
information plaintiffs alleged constituted trade secrets. As against
Johnson and Lawley, plaintiffs’ third cause of action alleged tortious
interference with plaintiffs’ prospective and existing business
relations. As against Lawley only, plaintiffs’ fourth cause of action
alleged that Lawley tortiously interfered with the Agreement and
induced Johnson to breach the Agreement. Defendants subsequently
moved for, inter alia, summary judgment dismissing the complaint.
Supreme Court initially determined that the Florida choice-of-law
provision in the Agreement was unenforceable because the Agreement
bore no reasonable relationship to the state of Florida, and thus the
court determined that New York law would apply. The court granted
defendants’ motion with respect to the first cause of action, except
to the extent that plaintiffs could establish that Johnson violated
the non-solicitation covenant of the Agreement. The court further
granted defendants’ motion with respect to the second and third causes
of action, and denied the motion with respect to the fourth cause of
action. In appeal No. 1, defendants appeal and plaintiffs cross-
appeal from that order.
Plaintiffs subsequently moved for leave to reargue, contending
that the court erred in dismissing that part of plaintiffs’ first
cause of action alleging that Johnson breached the non-inducement
covenant of the Agreement because defendants’ motion did not address
that covenant and defendants therefore failed to meet their burden.
The court granted plaintiffs’ motion for leave to reargue and, upon
reargument, the court reinstated that part of the first cause of
action alleging that Johnson breached the non-inducement covenant. In
appeal No. 2, defendants appeal from that order.
II
Initially, we reject plaintiffs’ contention that defendants’
motion for summary judgment should have been denied because it was
premature. That contention is not properly before us inasmuch as
plaintiffs have raised it for the first time on appeal (see Bradley v
Benchmark Mgt. Corp., 294 AD2d 879, 880). In any event, plaintiffs
“ ‘failed to demonstrate that facts essential to oppose the motion
were in [defendants’] exclusive knowledge and possession and could be
obtained by discovery’ ” (M&T Bank v HR Staffing Solutions, Inc.
[appeal No. 2], 106 AD3d 1498, 1499; see CPLR 3212 [f]).
As another threshold matter, we must determine whether the court
properly held that the Florida choice-of-law provision in the
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CA 13-00340
Agreement is unenforceable and that the law of New York governs this
dispute. It is well settled that there is a “ ‘strong public policy
favoring individuals ordering and deciding their own interests through
contractual arrangements’ ” (Bloomfield v Bloomfield, 97 NY2d 188,
193, quoting Matter of Greiff, 92 NY2d 341, 344). Thus, New York
courts generally will enforce a choice-of-law provision in order to
“effectuate the parties’ intent” (Welsbach Elec. Corp. v MasTec N.
Am., Inc., 7 NY3d 624, 629). The chosen law, however, must “bear[] a
reasonable relationship to the parties or the transaction” and must
not be “ ‘truly obnoxious’ ” to New York’s public policy (id., quoting
Cooney v Osgood Mach., 81 NY2d 66, 79; see Matter of Frankel v
Citicorp Ins. Servs., Inc., 80 AD3d 280, 286).
We agree with plaintiffs that the court erred in determining that
the choice-of-law provision in the Agreement was unenforceable because
Florida law bears no reasonable relationship to the parties or the
transaction. Plaintiff Brown & Brown, Inc. (BBI) is a Florida
corporation with its principal place of business in Florida, and it is
the parent corporation of plaintiff Brown & Brown of New York, Inc.
(BBNY). The Agreement stated that it was “made and entered into by
and among [BBI], a Florida corporation (‘Parent’), [BBNY], a New York
corporation (collectively with Parent, the ‘Company’), and [Johnson],
a resident of the State of New York.” Plaintiffs submitted evidence
that BBI directed sales strategies, set sales goals, and provided
promotional and educational material for BBNY. Plaintiffs also
submitted evidence that Johnson’s salary was administered in Florida
and paid from a Florida bank account, and that Johnson and her
supervisor traveled to Florida to attend training sessions and meet
with BBI employees. We therefore conclude that Florida law “bears a
reasonable relationship to the parties or the transaction” (Welsbach,
7 NY3d at 629; see Finucane v Interior Constr. Corp., 264 AD2d 618,
620).
We nevertheless conclude that the Florida choice-of-law provision
in the Agreement is unenforceable because it is “ ‘truly obnoxious’ ”
to New York public policy (Welsbach, 7 NY3d at 629). In New York,
agreements that restrict an employee from competing with his or her
employer upon termination of employment are judicially disfavored
because “ ‘powerful considerations of public policy . . . militate
against sanctioning the loss of a [person’s] livelihood’ ” (Reed,
Roberts Assoc. v Strauman, 40 NY2d 303, 307, rearg denied 40 NY2d 918,
quoting Purchasing Assoc. v Weitz, 13 NY2d 267, 272, rearg denied 14
NY2d 584; see Columbia Ribbon & Carbon Mfg. Co. v A-1-A Corp., 42 NY2d
496, 499; D&W Diesel v McIntosh, 307 AD2d 750, 750). “So potent is
this policy that covenants tending to restrain anyone from engaging in
any lawful vocation are almost uniformly disfavored and are sustained
only to the extent that they are reasonably necessary to protect the
legitimate interests of the employer and not unduly harsh or
burdensome to the one restrained” (Post v Merrill Lynch, Pierce,
Fenner & Smith, 48 NY2d 84, 86-87, rearg denied 48 NY2d 975 [emphasis
added]). The determination whether a restrictive covenant is
reasonable involves the application of a three-pronged test: “[a]
restraint is reasonable only if it: (1) is no greater than is
required for the protection of the legitimate interest of the
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CA 13-00340
employer, (2) does not impose undue hardship on the employee, and (3)
is not injurious to the public” (BDO Seidman v Hirshberg, 93 NY2d 382,
388-389 [emphasis omitted]). “A violation of any prong renders the
covenant invalid” (id. at 389). Thus, under New York law, a
restrictive covenant that imposes an undue hardship on the restrained
employee is invalid and unenforceable (see id.). Employee non-compete
agreements “will be carefully scrutinized by the courts” to ensure
that they comply with the “prevailing standard of reasonableness” (id.
at 388-389).
By contrast, Florida law expressly forbids courts from
considering the hardship imposed upon an employee in evaluating the
reasonableness of a restrictive covenant. Florida Statutes § 542.335
(1) (g) (1) provides that, “[i]n determining the enforceability of a
restrictive covenant, a court . . . [s]hall not consider any
individualized economic or other hardship that might be caused to the
person against whom enforcement is sought” (emphasis added). The
statute, effective July 1, 1996, also provides that a court
considering the enforceability of a restrictive covenant must construe
the covenant “in favor of providing reasonable protection to all
legitimate business interests established by the person seeking
enforcement” and “shall not employ any rule of contract construction
that requires the court to construe a restrictive covenant narrowly,
against the restraint, or against the drafter of the contract” (§
542.335 [1] [h]; see Environmental Servs., Inc. v Carter, 9 So3d 1258,
1262 [Fla Dist Ct App]). Thus, although the statute requires courts
to consider whether the restrictions are reasonably necessary to
protect the legitimate business interests of the party seeking
enforcement (see § 542.335 [1] [c]; Environmental Servs., Inc., 9 So3d
at 1262), the statute prohibits courts from considering the hardship
on the employee against whom enforcement is sought when conducting its
analysis (see Atomic Tattoos, LLC v Morgan, 45 So3d 63, 66 [Fla Dist
Ct App]).
Based on the foregoing, we conclude that Florida law prohibiting
courts from considering the hardship imposed on the person against
whom enforcement is sought is “ ‘truly obnoxious’ ” to New York public
policy (Welsbach, 7 NY3d at 629), inasmuch as under New York law, a
restrictive covenant that imposes an undue hardship on the employee is
invalid and unenforceable for that reason (see BDO Seidman, 93 NY2d at
388-389). Furthermore, while New York judicially disfavors such
restrictive covenants, and New York courts will carefully scrutinize
such agreements and enforce them “only to the extent that they are
reasonably necessary to protect the legitimate interests of the
employer and not unduly harsh or burdensome to the one restrained”
(Post, 48 NY2d at 87; see BDO Seidman, 93 NY2d at 388-389; Columbia
Ribbon & Carbon Mfg. Co., 42 NY2d at 499; Reed, 40 NY2d at 307;
Purchasing Assoc., 13 NY2d at 272), Florida law requires courts to
construe such restrictive covenants in favor of the party seeking to
protect its legitimate business interests (see Florida Statutes §
542.335 [1] [h]).
We are not persuaded by plaintiffs’ argument that the Agreement
at issue here contains no non-compete clause, inasmuch as the term
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CA 13-00340
“restrictive covenants” in the Florida statute encompasses “all
contractual restrictions such as noncompetition/nonsolicitation
agreements, confidentiality agreements, exclusive dealing agreements,
and all other contractual restraints of trade” (Environmental Servs.,
Inc., 9 So3d at 1262). We likewise reject plaintiffs’ contention that
Florida law is not truly obnoxious to New York public policy because
the Florida statute has been interpreted, in practice, to disallow any
undue hardship to the employee. In the case upon which plaintiffs
rely for that proposition, the court wrote that “the covenant may be
unreasonable when it inflicts an unduly harsh or unnecessary result
upon the employee” (Edwards v Harris, 964 So2d 196, 197-198 [Fla Dist
Ct App]). In support of that proposition, however, the court cited
two cases, one decided before the relevant statute became effective
(Auto Club Affiliates, Inc. v Donahey, 281 So2d 239, 241 [Fla Dist Ct
App]), and the other refusing to enforce a restrictive covenant
because it was overly broad, not because it imposed an undue hardship
on the employee (Austin v Mid State Fire Equip. of Cent. Florida,
Inc., 727 So2d 1097, 1098 [Fla Dist Ct App]). We further note that
three other courts similarly have determined that the Florida statute
conflicts with the public policy of their respective states (see
Carson v Obor Holding Co., LLC, 318 Ga App 645, 654, 734 SE2d 477,
484-485; Brown & Brown, Inc. v Mudron, 379 Ill App 3d 724, 727-728,
887 NE2d 437, 440; Unisource Worldwide, Inc. v South Cent. Alabama
Supply, LLC, 199 F Supp 2d 1194, 1201 [Ala]). Based on the foregoing,
we conclude that the Florida choice-of-law provision in the Agreement
is unenforceable and that the court properly determined that the law
of New York should govern this dispute (see generally Matter of
Midland Ins. Co., 16 NY3d 536, 543-544).
III
With respect to plaintiffs’ first cause of action, alleging that
Johnson breached the Agreement, we reject defendants’ contention that
they are entitled to summary judgment dismissing that cause of action
in its entirety because Johnson was involuntarily terminated without
cause. Even assuming, arguendo, that Johnson was terminated without
cause, we conclude that such termination would not render the
restrictive covenants in the Agreement unenforceable. Defendants’
reliance on the Court of Appeals’ decision in Post is misplaced. In
that case, the Court of Appeals held that New York policies “preclude
the enforcement of a forfeiture-for-competition clause where the
termination of employment is involuntary and without cause” (48 NY2d
at 88 [emphasis added]), i.e., a clause requiring the employee to
comply with a restrictive covenant in order to continue receiving
post-employment benefits to which the employee otherwise would be
entitled (see Wise v Transco, Inc., 73 AD2d 1039, 1039). There is no
such clause in the Agreement herein. Contrary to defendants’
contention, this Court’s decision in Eastman Kodak Co. v Carmosino (77
AD3d 1434) did not extend the Post holding to establish a per se rule
that involuntary termination without cause renders all restrictive
covenants unenforceable. Rather, this Court cited Post while
conducting a “balance of the equities” analysis in the context of the
plaintiff’s motion seeking a preliminary injunction (id. at 1436).
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CA 13-00340
Our decision in Eastman Kodak Co. did not impact our decision in Wise,
in which we refused to extend the Post holding to restrictive
covenants that do not involve a forfeiture-for-competition clause. In
any event, there are issues of fact whether Johnson was terminated
without cause.
Although we agree with plaintiffs that the court properly
determined that defendants failed to establish that plaintiffs have no
legitimate interest in protecting their client relationships as a
matter of law, we nevertheless agree with defendants that the non-
solicitation covenant of the Agreement is overbroad and unenforceable.
We therefore conclude that the order in appeal No. 1 should be
modified by granting that part of defendants’ motion with respect to
the first cause of action. We note at the outset that the overbreadth
of the non-solicitation covenant is “an issue of law that ‘could not
have been avoided by [plaintiffs] if brought to [their] attention in a
timely manner’ ” (Paul v Cooper, 45 AD3d 1485, 1486, quoting Oram v
Capone, 206 AD2d 839, 840), and thus it may properly be raised by
defendants for the first time on appeal.
A non-solicitation covenant is overbroad and therefore
unenforceable “if it seeks to bar the employee from soliciting or
providing services to clients with whom the employee never acquired a
relationship through his or her employment” (Scott, Stackrow & Co.,
C.P.A.’s, P.C. v Skavina, 9 AD3d 805, 806, lv denied 3 NY3d 612; see
BDO Seidman, 93 NY2d at 393). Here, the non-solicitation covenant
purported to restrict Johnson from, inter alia, soliciting, diverting,
servicing, or accepting, either directly or indirectly, “any insurance
or bond business of any kind or character from any person, firm,
corporation, or other entity that is a customer or account of the New
York offices of the Company during the term of [the] Agreement” for
two years following the termination of Johnson’s employment, without
regard to whether Johnson acquired a relationship with those clients.
We conclude that the language of the non-solicitation covenant renders
it overbroad and unenforceable (see BDO Seidman, 93 NY2d at 393;
Scott, Stackrow & Co., C.P.A.’s, P.C., 9 AD3d at 806-807).
Plaintiffs contended at oral argument of this appeal that, if
this Court determines that the non-solicitation covenant is overbroad,
we nevertheless should partially enforce the covenant, inasmuch as
plaintiffs seek to prevent Johnson from soliciting and servicing only
those clients with whom Johnson actually developed a relationship
during her employment with plaintiffs. We reject that contention. As
the Court of Appeals stated in BDO Seidman, partial enforcement may be
justified “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” (93 NY2d at 394). “Factors weighing against partial
enforcement are the imposition of the covenant in connection with
hiring or continued employment—as opposed to, for example, imposition
in connection with a promotion to a position of responsibility and
trust—the existence of coercion or a general plan of the employer to
forestall competition, and the employer’s knowledge that the covenant
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CA 13-00340
was overly broad” (Scott, Stackrow & Co., C.P.A.’s, P.C., 9 AD3d at
807). Here, it is undisputed that Johnson was not presented with the
Agreement until her first day of work with plaintiffs, after Johnson
already had left her previous employer. Plaintiffs have made no
showing that, in exchange for signing the Agreement, Johnson received
any benefit from plaintiffs beyond her continued employment (see
Scott, Stackrow & Co., C.P.A.’s, P.C., 9 AD3d at 807-808; cf. BDO
Seidman, 93 NY2d at 395). Furthermore, plaintiffs presented the
Agreement to Johnson in December 2006, more than seven years after BDO
Seidman was decided. We conclude, as the Third Department concluded
in Scott, that the issuance of the decision in BDO Seidman “served as
notice to plaintiff[s] that the agreement at issue here was also
overly broad” (Scott, Stackrow & Co., C.P.A.’s, P.C., 9 AD3d at 808).
Contrary to plaintiffs’ further contention, the fact that the
Agreement contemplated partial enforcement does not require partial
enforcement of the non-solicitation covenant. As the Court of Appeals
wrote in BDO Seidman, it previously “expressly recognized and applied
the judicial power to sever and grant partial enforcement for an
overbroad employee restrictive covenant,” and the decision whether to
do so is left to the discretion of the court after “a case specific
analysis” (93 NY2d at 394). Indeed, the Agreement itself provided
that, in the event that a court declared any of the covenants
unenforceable, “the parties agree that such court shall be authorized
to modify such covenants so as to render . . . [them] valid and
enforceable to the maximum extent possible” (emphasis added).
Furthermore, allowing a former employer the benefit of partial
enforcement of overly broad restrictive covenants simply because the
applicable agreement contemplated partial enforcement would eliminate
consideration of the factors set forth by the Court of Appeals in BDO
Seidman, and would enhance the risk that “employers will use their
superior bargaining position to impose unreasonable anti-competitive
restrictions, uninhibited by the risk that a court will void the
entire agreement, leaving the employee free of any restraint” (93 NY2d
at 394). In our view, the fact that the Agreement here contemplated
partial enforcement does not demonstrate the “absence of overreaching”
on plaintiffs’ part, but, rather, demonstrates that plaintiffs
“imposed the covenant in bad faith, knowing full well that it was
overbroad” (id. at 394-395; see Scott, Stackrow & Co., C.P.A.’s, P.C.,
9 AD3d at 807-808). We therefore conclude that the non-solicitation
covenant should not be partially enforced and must be severed from the
Agreement (see Scott, Stackrow & Co., C.P.A.’s, P.C., 9 AD3d at 807-
808; cf. BDO Seidman, 93 NY2d at 394-395).
We agree with plaintiffs on their cross appeal in appeal No. 1,
however, that the court erred in granting those parts of defendants’
motion for summary judgment dismissing plaintiffs’ first cause of
action with respect to the confidentiality covenant and the second
cause of action, alleging misappropriation of trade secrets. We
therefore conclude that the order in appeal No. 1 should be further
modified accordingly. Whether information sought to be protected from
disclosure is confidential or constitutes a trade secret “is generally
a question of fact” (Ashland Mgt. v Janien, 82 NY2d 395, 407; see
Golden Eagle/Satellite Archery v Epling, 291 AD2d 838, 838). Here,
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CA 13-00340
there is evidence that the information that plaintiffs seek to protect
does not merely consist of “compilations of customer names and
addresses or phone numbers” (Marcone APW, LLC v Servall Co., 85 AD3d
1693, 1695). Viewing the record in the light most favorable to
plaintiffs, as we must in the context of defendants’ motion (see Vega
v Restani Constr. Corp., 18 NY3d 499, 503), we conclude that there are
issues of fact regarding whether the information that plaintiffs seek
to protect is confidential or amounts to trade secrets, whether the
confidentiality covenant was necessary to protect plaintiffs’
legitimate business interests, and whether Johnson violated the
confidentiality covenant or misappropriated plaintiffs’ trade secrets
(see Ashland Mgt. Inc. v Altair Invs. NA, LLC, 59 AD3d 97, 104, mod on
other grounds 14 NY3d 774; Listworks Corp. v LCS Indus., 155 AD2d 305,
305).
Furthermore, we agree with plaintiffs with respect to appeal No.
1 that the court erred in granting that part of defendants’ motion for
summary judgment dismissing plaintiffs’ third cause of action, which
alleged tortious interference with prospective and existing business
relations against Johnson and Lawley. Viewing the facts in the light
most favorable to plaintiffs, we conclude that there are issues of
fact whether defendants interfered with plaintiffs’ business relations
with third parties, whether defendants’ actions amounted to a tort
independent of the tortious interference with business relations, and
whether there was a resulting injury to the business relations (see
Carvel Corp. v Noonan, 3 NY3d 182, 189-190; North State Autobahn, Inc.
v Progressive Ins. Group Co., 102 AD3d 5, 21; John Hancock Life Ins.
Co. v 42 Delaware Ave. Assoc., LLC, 15 AD3d 939, 940-941, lv dismissed
in part and denied in part 5 NY3d 819). We therefore conclude that
the order in appeal No. 1 should be further modified accordingly.
IV
Finally, we reject defendants’ contention in appeal No. 2 that
the court erred, upon reargument, in reinstating that part of
plaintiffs’ first cause of action alleging that Johnson breached the
non-inducement covenant of the Agreement. Defendants did not meet
their burden on that issue by noting gaps in plaintiffs’ proof (see
Edwards v Arlington Mall Assoc., 6 AD3d 1136, 1137).
V
Accordingly, we conclude that the order in appeal No. 1 should be
modified as set forth herein, and that the order in appeal No. 2
should be affirmed.
Entered: February 7, 2014 Frances E. Cafarell
Clerk of the Court