Commercial Division Blog

Posted: November 7, 2015 / Categories Commercial, Labor and Employment Law, Injunctions Attachments and Other Preliminary Remedies

Court Refuses to Order Specific Performance of Restrictive Covenant

On October 19, 2015, Justice Ramos of the New York County Commercial Division issued a decision in Marsh USA, Inc. v. Alliant Insurance Services, Inc., 2015 NY Slip Op. 51555(U), refusing to order specific performance of a restrictive covenant.

In Marsh USA, the plaintiff sought specific performance of a restrictive covenant "enjoin[ing] the defendants from (1) soliciting business from or doing business with any client of [the plaintiff] with whom they did business on or after June 1, 2013; (2) soliciting or inducing any employee of [the plaintiff] to terminate his/her employment with [the plaintiff]; and (3) using, disclosing, or making available to any person or entity any confidential business information or trade secrets of [the plaintiff]." The court refused to grant the injunction, explaining, with respect to likelihood of success on the merits:

A claim for breach of contract requires the formation of a valid contract. Since the restrictive covenant must be enforceable for the contract to be valid, [the plaintiff] is only likely to win on the merits of the breach of contract claim if it can rebut the presumption by New York courts that restrictive covenants contained in employment agreements are unenforceable.

In Reed, Roberts Associates, Inc. v Strauman, the court stated that a restrictive covenant would only be specifically enforced in such context if it was necessary to protect the employer's legitimate interests. The Reed court set forth a two-part test for determining whether a restrictive covenant serves the employer's legitimate interest. Under the legitimate interest inquiry, the Reed court held that restrictive covenants will be enforceable only (1) to the extent necessary to prevent the disclosure or use of trade secrets or confidential information, or (2) where an employee's services are unique or extraordinary.

[The plaintiff's] factual assertions - namely, that the Individual Defendants e-mailed rolodexes to themselves - are insufficient to show that the Non-Solicitation Agreements . . . pass the first prong of the legitimate interest test. . . . The Individual Defendants' rolodexes contained publicly available information on current and potential clients that could be found in a phone book or on the Internet, and [the plaintiff] has not sufficiently alleged that the internal memos and newsletters forwarded by the Individual Defendants to personal e-mail addresses contained confidential information or trade secrets.

[The plaintiff] has also failed to adequately show that the Non-Solicitation Agreements pass the second prong of the legitimate interest test. Insurance brokers are generally not considered to be unique or extraordinary employees. While [the plaintiff] undoubtedly relied on the Individual Defendants to maintain the relationships with their respective clients, this reliance does not rise to the level of unique or extraordinary. [The plaintiff] has not otherwise demonstrated that the Individual Defendants were irreplaceable, or that losing the Individual Defendants would cause irreparable injury to [the plaintiff].

(Internal quotations and citations omitted) (emphasis added).