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Current Developments in the Commercial Divisions of the
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Posted: October 13, 2014

Commercial Non-Compete Agreement Enforced as Written, Including the Injunctive Relief and No-Bond Provisions

On October 2, 2014, Justice Platkin of the Albany County Commercial Division issued a decision in Eric Woods, LLC v. Schrade, 2014 NY Slip Op. 51473(U), granting a preliminary injunction to enforce a commercial non-compete agreement.

In Eric Woods, LLC, the plaintiff purchased an Allstate insurance agency from the defendant, including customer files and goodwill. The agreement contained a non-compete agreement in which the defendant agreed (i) not to sell insurance within 25 miles of the former business (except within Saratoga County) for a period of five years, (ii) not to solicit or accept business from former customers for a period of five years, and (iii) that violation of the non-compete provisions would constitute irreparable injury, and consented to entry of injunctive relief without requiring a bond.

Once the plaintiff learned that the defendant had purchased a GEICO insurance agency in Albany County and that his Saratoga County insurance agency was accepting business from former customers, he filed the instant action and moved for a preliminary injunction.

In considering the application, the court first noted that the judicial disfavor of post-employment non-compete agreements does not apply to non-compete agreements incident to the sale of a business:

The sole limitation on the enforceability of such a restrictive covenant is that the restraint imposed be “reasonable,” that is, not more extensive, in terms of time and space, than is reasonably necessary to the buyer for the protection of his legitimate interest in the enjoyment of the asset he bought . . . . Accordingly, the Court must apply the more relaxed standard of reasonableness applicable to post-sale covenants, rather than the stricter post-employment standard emphasized by defendants. For this reason, plaintiff need not demonstrate a “legitimate interest” in enforcing the covenant beyond its protection of the confidential customer/policyholder information and goodwill that in purchased from [the defendant] for value.

(Internal citations omitted.)

The court then considered the traditional preliminary injunction factors, irreparable injury, likelihood of success on the merits, and the balance of the equities.

The court found that the non-compete provisions were likely reasonable, in that the 25-mile radius and the five-year term were both “well within prevailing notions of reasonableness.” (Indeed, the court noted that in similar cases, courts have enforced covenants of unlimited duration.) The court also found that the plaintiff had amply documented the defendant’s breaches of the agreement.

As to irreparable injury, the court found that, in general, “irreparable injury is presumed where the covenant not to compete was part of the consideration for the sale of an existing business with its goodwill,” and also that the defendant conceded irreparable injury in the agreement.

As to the balance of the equities, the defendant made the very common argument that injunctive relief “would cause him severe financial hardship.” The court was unimpressed, finding that because “these hardships largely are self-created,” and the violation was “flagrant”; “the burden imposed upon defendants by the injunction, while substantial, cannot be said to be inequitable.” The court also found that the defendant had not shown that any burden on third parties was severe enough to tip the balance against the plaintiff.

The court also enforced the no-bond provision of the agreement, granting the preliminary injunction without a bond.

This case is a good example of courts enforcing commercial non-compete agreements as written, including a no-bond provision. It may serve as useful precedent for attorneys seeking to enforce such agreements on the issue of balance of the equities: parties opposing preliminary injunctions enforcing non-compete agreements routinely argue some version of “granting the preliminary injunction will ruin my business, but he’s doing just fine under the status quo.” In this case, Justice Platkin rejected that argument in no uncertain terms.

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