SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - X GLOBAL VISUAL GROUP LLC, Index No. /2017 Plaintiff, -against- KEN STOLLS, Defendant. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - X MEMORANDUM OF LAW PURSUANT TO CPLR 6301 SEEKING INJUNCTIVE RELEIF AGAINST DEFENDANT Preliminary Statement Plaintiff, Global Visual Group LLC ("GVG"), submits this Memorandum of Law in support of its motion pursuant to CPLR Article 63 for a temporary restraining order ("TRO") and preliminary injunction enjoining Defendant Ken Stolls ("Stolls"), from repeatedly breaching the restrictive covenants imposed upon him pursuant to a certain asset purchase agreement (the APA ) entered in December 2016 between GVG, as purchaser, and Lifestyles Forms and Display, Co., Inc., ( Lifestyle Forms ), as Seller, and under a separate employment agreement dated September 1, 2009 entered into between Stolls and Lifestyle Forms (the Stolls Employment Agreement"). Stolls has repeatedly breached those restrictive covenants by directly competing with GVG, by soliciting its customers, by interfering with its goodwill, and its relationships with its customers and vendors. 1 1 of 19
GVG is in the business of selling and distributing mannequins, related forms, and advertising displays to national and international companies, throughout the United States; the same business that Lifestyle Forms was in. Unless Stolls, the former president, and an owner of Lifestyle Forms, is immediately enjoined from his continued violation of the restrictive covenants, which were freely and voluntarily agreed to by him (in the APA, as well as in the Stolls Employment Agreement), GVG will be irreparably damaged. Irreparable injury to GVG's business is presumed from the breach and continuing breach by Stolls of the non-competition, non-solicitation, non-disclosure of Confidential Information and related restrictions (the "Restrictive Covenants") he agreed to. But for the protections afforded GVG in the APA and the Stolls Employment Agreement, GVG would not have purchased all of Lifestyle Forms' assets. In fact, GVG and Lifestyle Forms allocated 100% of the purchase price to goodwill. The Restrictive Covenants, by their plain terms, specifically provide that upon a threatened breach or breach of the Restrictive Covenants, that GVG would have no adequate remedy at law and, accordingly, would be entitled to injunctive relief enjoining Stolls from continuing to breach the Restrictive Covenants without the necessity of posting a bond or other security. 1 By reason of Stolls' threatened breach and continuing breach of the Restrictive Covenants, this Court should grant a TRO and preliminary injunction: (i) Enjoining Stolls from breaching the restrictive covenants contained in the APA, and from competing with GVG in the selling of mannequins and related forms; 1 The Stolls Employment Agreement provides an arbitration clause. However, this application is being brought pursuant to the APA, which does not provide for an arbitration clause. The APA specifically provides GVG with the benefits of the Restrictive Covenants set forth in the Stolls Employment Agreement, which were acquired in the APA. 2 2 of 19
(ii) Enjoining Stolls from soliciting GVG's customers and/or its vendors that were formerly customers and/or vendors of Lifestyle Forms with respect to mannequins and related forms, including, but not limited to PetSmart; (iii) (iv) Enjoining Stolls from using Lifestyles logo Lifestyle Trimco; and Enjoining Stolls from using or disclosing for any purpose whatsoever GVG s Confidential Information; and Background Pursuant to Paragraph 11.1(a) of the APA, Stolls agreed not to directly or indirectly compete with GVG or provide any services that are or may be reasonably considered to be competitive with the Business of GVG. Pursuant to the Stolls Employment Agreement [ 7(a)], Stolls agreed not to compete with Lifestyle Forms with respect to any of its existing accounts, although he was permitted to:... be employed in a competitive business to the Employer if the Employee does not compete with the accounts or customers of the Employer or use Employer's vendors. Stolls, nonetheless asserts that he is not bound by the terms of the APA because he was forced to enter into it under duress and through coercion and misrepresentation and, even if he were so bound, the restrictions contained in the APA are limited to selling and distributing mannequins and related forms at both wholesale and retail. The preamble to the APA describes Lifestyle Forms business as the sale and distribution of mannequins and related forms at both wholesale and retail ( Business ). This first assertion is belied by the many e-mails sent by Stolls leading up to his execution of the APA. His other assertions are inconsistent with GVG s purchase of all of Lifestyle Forms' assets, which was not limited to only mannequins and related forms. Stolls has also asserted that he is not bound by the Employment Agreement because it 3 3 of 19
was never executed by him. This assertion is made notwithstanding the fact that from the date of its execution in September, 2009 through December 31, 2016, both Lifestyle Forms and Stolls abided by its terms. It is also belied by the affidavit of Lloyd Keilson Keilson the president of Lifestyle Forms when the Stolls Employment Agreement was entered into and which he personally retained a copy of for over seven (7) years. The Restrictive Covenants is Binding On Stolls On January 2, 2017, GVG closed on its purchase of all of the assets of Lifestyle Forms. At the time of the execution of the APA and up until the Closing, Stolls was the President of Lifestyle Forms, holding that position continuously from September 2009 through the date of Closing. He was fully compensated under that Agreement through December 31, 2016. One of the many assets purchased by GVG under the APA was the benefits of any Restrictive Covenant in favor of Lifestyle Forms pursuant to any contract including those contained in the Stolls Employment Agreement. APA 1.1(b). The term of the non-compete restriction in the Stolls Employment Agreement is enforceable through December 31, 2017, the date that is one (1) year after the compensation package and profit sharing bonus ceased to be paid to Stolls. Both the APA and the Stolls Employment Agreement contain specific restrictive covenant provisions to ensure that Stolls, as President of Lifestyle Forms, with access to all of Lifestyle Forms' Confidential Information (including, but not limited to its customer lists, potential customers list, vendor lists, financial statements, methods of operations, technologies, trade secrets, strategies, etc.) could not compete with GVG. In the case of the APA, Stolls was restricted from competing with GVG for a three (3) year period following the Closing of the APA and under the terms of the Stolls Employment Agreement, he was restricted for a one (1) 4 4 of 19
year period, which was limited to competition with respect to existing Lifestyle Forms' customers or use of its vendors. For avoidance of doubt, the Stolls Employment Agreement provided that during his employment and for a period of one (1) year period following the date upon which Stolls received his last payment under his Compensation Package or Profit Sharing Bonus, that Stolls: covenants and agrees that he shall not, without the written consent of the Employer, alone or with others, directly or indirectly, participate, engage or become interested in (as owner stockholder, partner, lender or other investor, director, officer, employee, agent consultant or otherwise) any business activity that is in competition with, or otherwise relates to or arises from, the accounts and customers of the Employer, provided, however, that notwithstanding such restrictions, Employee can be employed in a competitive business to the Employer if Employee does not compete with the accounts or customers of the Employer or use Employer s vendors. Stolls Employment Agreement 7a (i) (Emphasis supplied). In addition to not disclosing its Confidential Information or competing with it, Stolls was prohibited from soliciting employees affiliated with Lifestyle Forms for that same one year period, as well as from soliciting employees affiliated with Lifestyle Forms: the Employee covenants and agrees that he shall not, alone or with others, directly or indirectly: Solicit or assist in the solicitation of the customers or clients of the Employer, inclusive of any and all customers and clients of the Employer [Lifestyle Forms]... or Solicit or assist in the solicitation of the vendors of the Employer. Stolls Employment Agreement 7 b (ii) and (iii). (Emphasis supplied). With respect to the non-disclosure of Confidential Information the Stolls Employment Agreement provided as follows: the Employee covenants and agrees that he shall keep strictly confidential all information which Employee presently possesses or which Employee may obtain during the course of Employee s employment with respect to the business 5 5 of 19
practices, finances, customers, affairs, trade secrets and other confidential information of the Employer or information about the Employer not generally known to the public and not disclose the same to any other person, firm or corporation or use the same, pursuant to his employment by the Employer. Stolls Employment Agreement 7 (c). (Emphasis supplied). By executing the Stolls Employment Agreement, Stolls acknowledged that Lifestyle Forms would have no adequate remedy at law if he breached its terms and would be entitled to appropriate equitable and injunctive relief. The relevant provision of the Stolls Employment Agreement is set forth below: The parties acknowledge that in the event of a breach or a threatened breach by the Employee of any of his obligations under this Agreement, the Employer will not have an adequate remedy at law. Accordingly, in the event of any breach or threatened breach by the Employee, the Employer shall be entitled to such equitable and injunctive relief as may be available to restrain the Employee and any business, firm, partnership, individual, corporation or entity participating in the breach or threatened breach from the violation of the provisions of this Agreement. Stolls Employment Agreement 7 (e). (Emphasis supplied). The Stolls Employment Agreement also provided that in the event of a breach, Lifestyles Forms would be entitled to recover its costs and attorneys' fees. The applicable portion of the Stolls Employment Agreement is set forth below: In the event that the Employer institutes any suit to enforce the provisions of this paragraph "7" herein, the Employer shall be entitled to injunctive relief in addition to any other relief or remedy granted as well as the cost of bringing such suit, including reasonable attorneys fees. Stolls Employment Agreement 7(f) (Emphasis supplied). As set forth above, GVG pursuant to the APA acquired all the benefits of the restrictions imposed upon Stolls under the Stolls Employment Agreement. The APA imposed separate restrictions upon Stolls, who agreed to them when he voluntarily and in his individually capacity executed the APA with respect to those restrictions. The parties to the APA acknowledged that 6 6 of 19
GVG would be relying upon the restrictive covenants imposed upon Stolls, and others in entering into it and provided as follows: Section 11.1 Non-Competition; Confidentiality. The Parties agree that Buyer is relying on the covenants and agreements set forth in this Section 11.1, that without such covenants Buyer would not enter into this Agreement or the transactions contemplated hereby, and that the Purchase Price is sufficient consideration to make the covenants and agreements set forth herein enforceable. Seller and each Owner understand and agree that the length of the Term is necessary and appropriate. The APA provides that each Owner (which includes Stolls, Section D, page 1 of the APA) will not, directly or indirectly, compete with the Business in the United States for the three (3) year period immediately following the Closing. The applicable provision is as follows: Section 11.1(a) Non-Competition. In furtherance of the purchase and sale of the Assets by virtue of the transactions contemplated hereby, to more effectively protect the value of the Business, and to induce Buyer to consummate the transactions contemplated hereby, Seller and each Owner covenant and agree that, during the Term, such Person will not, nor will such Person permit any of its or his Affiliates to, directly or indirectly: (i) individually or as an investor, lender, owner, securityholder, partner or member of any other Person, invest in or own, any business that is or may reasonably be considered to be competitive with the Business anywhere within (A) the continental United States (the "Non-Compete Zone"), or (ii) provide services that are or may reasonably be considered to be competitive with the Business anywhere within the Non-Compete Zone. The "Term" is the period beginning on the Closing Date and ending on the third (3rd) anniversary of the Closing Date; provided, however, that in the event of a breach or violation by Seller or any Owners during the Term of this Section 11.1, the Term with respect to such Person shall be extended by a period of time equal to the period of time during which such Person violates the terms of this Section 11.1. (Emphasis Supplied). The APA also provides that Stolls during that time was prohibited from directly or indirectly, soliciting business from any person that is or was a client of the Business within the one (1) year period prior to GVG s of purchased the assets of Lifestyle Forms: Section 11.1(b) Non-Solicitation. Without limiting the generality of the provisions of Section 11.1(a), Seller and Owners hereby covenant and agree that during the Term such Person will not, nor will such Person permit any of its or his Affiliates to, directly or indirectly, solicit, or participate as an employee, agent, consultant, owner, lender, 7 7 of 19
securityholder, director, manager, partner, member or in any other individual or representative capacity in any business which solicits, business from any Person that is or was a client of the Business or any portion thereof during the one (1)-year period preceding the Closing Date, or from any successor in interest to any such Person, in any case for the purpose of securing business or contracts related to the Business or any portion thereof. (Emphasis Supplied). The APA further prohibited Stolls from interfering with GVG's employee relationships and provides as follows: Section 11.1(c) Interference with Relationships. During the Term, neither Seller nor Owners shall directly or indirectly, employ, engage or recruit, solicit, contact or approach for employment or engagement, or participate as an employee, agent, consultant, owner, securityholder, director, manager, partner, member or in any other individual or representative capacity in any business that employs, engages, recruits, solicits, contacts or approaches for employment or engagement, any Person that serves as an employee or consultant of the Business on the date hereof or has served as an employee or consultant of the Business within the two (2) years immediately preceding the date hereof, or otherwise seek or attempt to influence or alter any such Person's relationship with Buyer. Stolls was also prohibited from disparaging GVG. The applicable provision of the APA is set forth below: Section 11.1(d) Non-Disparagement. During the Term, neither Seller nor Owners or any of its or his respective Affiliates shall directly or indirectly make any statement or any other expressions (in writing, orally or otherwise) on television, radio, the internet or other media or to any third party, including in communications with any clients, patients, vendors, prospects and employees, which are in any way disparaging of Buyer or any of its respective Affiliates or the services of Buyer, the Business or any portion thereof. Stolls was also required to keep confidential the Confidential and Proprietary Information he had access to and to not disclose such Confidential Information to any Persons. The applicable portion of the APA is set forth below: Section 11.1(e) Confidentiality. Seller and Owners recognize and acknowledge that as of the Closing, such Person has knowledge of confidential and proprietary information concerning Buyer and the Business, including information relating to financial statements, clients, 8 8 of 19
customers, potential clients, potential customers, employees, suppliers, equipment, designs, drawings, programs, strategies, analyses, profit margins, sales, methods of operation, plans, products, technologies, materials, trade secrets, strategies, prospects or other proprietary information ("Confidential Information"). In light of the foregoing, from and after the Closing, Seller and each Owner (except if applicable in their capacity as an employee or consultant of Buyer) shall maintain the confidentiality of, and refrain from using or disclosing to any Person, all Confidential Information, except to the extent disclosure of any such information is required by Law or is in the public domain through no wrongful act on the part of Seller and each Owner, or any of its or his respective Affiliates or agents. In the event that Seller or Owners reasonably believes after consultation with counsel that such Seller or Owner is required by Law to disclose any Confidential Information, such party will (i) provide Buyer with prompt notice before such disclosure so that Buyer may attempt to obtain a protective order or other assurance that confidential treatment will be accorded to such Confidential Information and (ii) cooperate with Buyer in attempting to obtain such order or assurance. Undeniably, Stolls, as President of Lifestyle Forms, was in the unique position of having access to and knowledge of all of Lifestyle Forms' Confidential and Proprietary Information including, but not limited to, its customer lists, potential customers, business practices, finances, affairs, trade secrets, financial statements, suppliers, programs, strategies, analyses, profit margins, sales methods of operations, plans and products. Essentially Stolls had special knowledge of the entire business of Lifestyle Forms. The APA also contained a "blue pencil" provision to the extent any court of competent jurisdiction determined any restrictive covenant term to be too broad: Section 11.1 (f) Blue-Pencil. If any court of competent jurisdiction shall at any time deem the term of any particular restrictive covenant contained in this Section 11.1 too lengthy or the geographic area covered too extensive, the other provisions of this Section 11.1 shall nevertheless stand, the Term shall be deemed to be the longest period permissible by Law under the circumstances and the geographic area covered shall be deemed to comprise the largest territory permissible by Law under the circumstances. The court in each case shall reduce the Term and/or the geographic area covered to a permissible duration or size. 9 9 of 19
The parties to the APA acknowledged the seriousness of the restrictive covenants regarding non-competition, non-solicitation, non-disclosure, non-interference, and nondisparagement, and provided GVG with right to obtain injunctive relief to enjoin any such breach without the posting of a bond or other security and without having to show it had no adequate remedy at law for such a breach. The applicable provision of the APA is set forth below: Section 11.1(g) Remedies. Seller and each Owner represent that such party is familiar with the covenants not to compete and not to solicit contained herein and is fully aware of his or its obligations hereunder. Seller and each Owner further agree that the length of time, scope and geographic coverage is reasonable given the benefits such party has received hereunder (directly or indirectly through ownership of Seller). Seller and each Owner further agree that such party will not challenge the reasonableness of the time, scope or geographic coverage in any legal proceeding, regardless of who initiates litigation. Seller and each Owner further acknowledge and agree that the covenants set forth in this Section 11.1 are reasonable and necessary for the protection of Buyer's business interests, that the covenants set forth in this Section 11.1 will not interfere with his or its ability to earn a living, that irreparable injury will result to Buyer if such party breaches any of the terms of this Section 11.1, and that in the event of an actual or threatened breach by such party of any of the provisions contained in this Section 11.1, Buyer will have no adequate remedy at Law. Seller and each Owner accordingly agree that in the event of any actual or threatened breach by it or him of any of the provisions contained in this Section 11.1, Buyer shall be entitled to injunctive and other equitable relief without (i) the posting of any bond or other security, (ii) the necessity of showing actual damages and (iii) the necessity of showing that monetary damages are an inadequate remedy. Nothing contained herein shall be construed as prohibiting Buyer from pursuing any other remedies available to it for such breach or threatened breach, including the recovery of any damages that it is able to prove. Seller and each Owner shall be liable for any breach by its or his respective Affiliates of this Section 11.1. In connection with any legal proceedings concerning the restrictions contained in this Section 11.1, the prevailing party shall be entitled to recover from the other party all reasonable attorney's fees and costs incurred in connection with such legal proceedings. The restrictions imposed upon Stolls by the APA were not intended to be limited to only mannequins and related forms as the language in Paragraph 11.1(b) of the APA provides that the 10 10 of 19
Restrictive Covenants shall be applicable to the business or contacts related to the Business of Lifestyle Forms or any portions thereof." Although Stolls takes the position that the business of Lifestyle Forms is narrowly defined in the preamble of the APA, such assertion is inconsistent with the language which states that the restrictions imposed upon him were applicable to Lifestyle Forms Business and "any portions thereof", and are inconsistent with GVG's purchase of all of the assets of Lifestyle Forms, and the parties allocation of 100% of the purchase price to goodwill. The Immediate Breach of The Restrictive Covenants By Stolls On January 2, 2017, GVG and Lifestyle Forms Closed upon the purchase and sale of all of Lifestyle Forms' assets. Almost immediately thereafter, Stolls began to breach the Restrictive Covenants provided for in both the Stolls Employment Agreement and the APA. On January 5, 2017, GVG became aware that Stolls had registered to attend a major industry trade show on behalf of Bernstein Display. Bernstein Display was a direct competitor of Lifestyle Forms and is now a direct competitor of GVG. On January 5, 2017, only days after the Closing of the APA, Bernstein Display and Stolls made the following public announcement: We are excited to announce Ken Stolls has joined force[s] with Bernstein Display. Ken is a second generation industry leader from the iconic Trimco brand. Says Stolls I am thrilled to be partnering with Roger Friedman, Mitch Bernstein and the entire Bernstein Display family. I have always respected how they operate their business; ensuring their customers needs come first. 11 11 of 19
Friedman adds Having Ken join us allows us to offer more products and services to our client-partners and continue to grow our world-class organization. Bernstein continued more products and services will provide our client-partners the ability to leverage their spending dollars better, while streamlining their communication and enhancing their ROI. Not only is the public announcement of joining forces with Bernstein Display a direct violation of both the Stolls Employment Agreement and the APA, but worse yet, in spite of the fact that the trade name "Trimco" was acquired by GVG in its purchase of Lifestyle Forms' assets, Richard Stolls, Ken Stolls father, has attempted to revoke our use of the trade name Trimco although he personally executed the APA, selling the trade name "Trimco" to GVG. Bernstein Display was a direct competitor of Lifestyle Forms and is now a direct competitor of GVG. Evidence of this is as simple as conducting a Google search of Bernstein Display. What comes up is Bernstein Display/Custom Mannequin Manufacturer New York. Bernsteindisplay.com sets forth its products and states that it provides the highest quality mannequins and forms, including pet mannequins. As set forth in GVG s accompany Affidavit of Hillel Tropper, Stolls is not only consulting for Bernstein Display, but within days following the Closing became the President of Bernstein Décor. As is evident from the January 2017 Bernstein Décor catalog, Stolls is directly competing with GVG by both selling mannequins as well as displays (see pages 8 and 14 of the catalog). PetSmart is one of GVG's most significant customers. It was also a significant customer of Lifestyle Forms and was for the one year period prior to the Closing. Lifestyle Forms provided pet mannequins to PetSmart. Notwithstanding the non-solicitation terms set forth in the 12 12 of 19
Stolls Employment Agreement and the APA, is a January 10, 2017 e-mail exchange between Stolls and PetSmart. In that e-mail, Stolls informed PetSmart that he "had parted ways with GVG" and further stated "...[M]ore importantly, going forward, I will STILL be able to provide you/petsmart Doggiekins." Even under the limiting definition of "Business" under the APA, the solicitation and sale of Doggiekins is a direct violation of the APA, as Doggiekins are dog mannequins. This e-mail was sent within days of the Closing of the APA and unequivocally manifests Stolls' intent to maintain PetSmart as his customer and to both compete with GVG, as well as to solicit its customers. Attached to the moving papers is a January 9, 2017 email from Jonathan Lander ("Lander") (an A&T representative) to Stolls. AT&T, as is PetSmart, was a significant customer of Lifestyle Forms for many years, including the one year period prior to the Closing. The email discloses that Stolls advised Lander that he [Stolls] was no longer employed by Lifestyle Forms and that Lander offered Stolls assistance in his new venture, a clear violation of the provisions of both the Stolls Employment Agreement and the APA. Attached to the moving papers is a January 11, 2017 email from Keilson to Solly Tropper and Baruch Travitsky. Keilson was both an officer and principal of Lifestyle Forms. Mr. Keilson s email confirms his communications with Gene Markowitz, a principal of Goldmark, and a significant vendor to Lifestyle Forms (now to GVG) who advised Markowitz that Stolls had cautioned [Goldmark] that it should take steps to ensure that Lifestyle Forms paid Goldmark the balance of the $200,000.00 owed by it. Stolls' communication was designed to negatively impact the relationship between GVG and its vendor, Goldmark. Stolls should not have been communicating with any of GVG's vendors nor should he have tried to interfere with any of GVG's vendor/vendee relationships. 13 13 of 19
Argument THE COURT SHOULD GRANT THE TEMPORARY RESTRAINING ORDER AND PRELIMINARY INJUNCTION CPLR 6301 provides for injunctive relief and a TRO pending the hearing and determination of the preliminary injunction: CPLR 6301. A preliminary injunction may be granted in any action where it appears that the defendant threatens or is about to do, or is doing or procuring or suffering to be done, an act in violation of the plaintiff's rights respecting the subject of the action, and tending to render the judgment ineffectual, or in any action where the plaintiff has demanded and would be entitled to a judgment restraining the defendant from the commission or continuance of an act, which, if committed or continued during the pendency of the action, would produce injury to the to the plaintiff. A temporary restraining order may be granted pending a hearing for a preliminary injunction where it appears that immediate and irreparable injury, loss or damage will result unless the defendant is restrained before the hearing can be had. "To be entitled to a preliminary injunction, the movant must demonstrate by clear and convincing evidence (1) a likelihood of ultimate success on the merits, (2) irreparable injury absent the granting of the preliminary injunction, and (3) that a balancing of the equities favors the movant's position (Apa Sec, Inc. v. Apa, 37 A.D.3d 502, 503, 831 N.Y.S.2d 201 (2d Dept. 2007); W.T. Grant Co. v. Strogi, 52 NY2d 496, 517, 420 NE 2d 952, 438 NYS2d 761 (1981)." EdCia Corp. v. McCormack, 44 A.D. 3d 991, 845 N.Y.S.2d 104 (2d Dept. 2007). The Courts have made clear "that irreparable injury is presumed from the breach of a noncompetition agreement entered into to protect a buyer's purchase of a business and accompanying goodwill." Manhattan Real Estate Equities Group LLC v. Pine Equity, NY, Inc., 16 A.D.3d 292, 791 N.Y.S.2d 418, 419 (1st Dept. 2005). See also Hay Group, Inc. v. Nadal, 170 A.D.2d 398, 566 N.Y.S.2d 616, 618 (1st Dept. 1991) "[A]s the claim is based on the sale of a business and 14 14 of 19
accompanying good will, irreparable injuries were established without the necessity of showing actual loss of customers."; New York Real Estate Inst., Inc. v. Edelman, 42 A.D.3d 321, 839 N.Y.S.2d 488, 489 (1st Dept. 2007) ("[A]side from the legal prescription of irreparable injury from a breach of a noncompetition agreement entered into to protect a buyer's purchase of a business and accompanying goodwill, the parties' agreement specifically so provided and entitled plaintiff to seek, and obtain injunctive relief."); Lund v. Agmata Wash. Enters, Inc., 190 A.D.2d 577, 593 N.Y.S.2d 517, 518 (1st Dept. 1993) ("Plaintiffs have shown entitlement to a preliminary injunction, since the claim is based on the bill of sale of a business and accompanying goodwill, defendant's violation of the covenant establishes irreparable injury." New York's Court of Appeals in Reed, Roberts Associates, Inc. v. Strauman, 40 N.Y 2d 303, 307, 386 N.Y.S.2d 677, 679 (1976), has made clear that in the context of a sale of a business that restrictive covenants are more liberally enforced: Generally negative covenants restricting competition are enforceable only to the extent that they satisfy the overriding requirements of reasonableness. Yet, the formulation of reasonableness may vary with the context and type of restriction imposed. For example, where a business is sold, anti-competition covenants will be enforceable, if reasonable in time, scope and extent. These covenants are designed to protect the goodwill integral to the business from usurpation by the former owner while at the same time allowing an owner to profit from the goodwill which he may have spent years creating. However, where an anticompetition covenant given by an employee to his employer is involved, a stricter standard of reasonableness will be applied. See also Purchasing Associates, Inc. v. Weitz, 13 N.Y.2d 267, 246 N.YS.2d 600, 603 (1963) ("This rule is grounded, most reasonably, on the premise that a buyer of a business should be permitted to restrict his seller's freedom of trade so as to prevent the latter from recapturing and utilizing, by his competition, the good will of the very business which he transferred for value.") 15 15 of 19
In all events, this Court has the power to sever and grant partial enforcement of a restrictive covenant. BDO Seideman v. Hirshberg, 93 N.Y.2d 382, 393-394, 690 N.Y.S.2d 854 (1999). Stolls has unequivocally competed with GVG, has solicited its customers, and is interfering with its relations with its vendors. GVG purchased all of the assets and the goodwill of Lifestyle Forms. With the acquisition of the business came the expectation by GVG that Stolls, the President of Lifestyle Forms, would not undermine the value of the assets it purchased from Lifestyle Forms by directly or indirectly competing against it. The Stolls Employment Agreement and all of the benefits of the restrictive covenants contained therein and which were acquired by GVG pursuant to the APA provided GVG with extensive protections including the right to obtain injunctive relief for any breach of those restrictive covenants. See Stolls Employment Agreement 7. The Stolls Employment Agreement also acknowledged the nation wide area in which Lifestyle Forms sold its products. Similarly, the APA at Section 11 provided for a nation-wide non-compete zone in recognition of Lifestyles Forms sale of products throughout the Continental United States. The APA was very specific that injunctive relief should be granted upon any breach thereof without the necessity to post a bond or security, without the necessity showing irreparable injury, and without the necessity to demonstrate that it had no adequate remedy at law. APA 11.1(g). The restrictive covenants are reasonable as to territory due to the fact that Lifestyle Forms engaged its business throughout the Continental United States. It is also reasonable with respect to its duration. Courts have routinely upheld broad negotiated restrictive covenants. FTI Consulting, Inc. v. Price Waterhouse Coopers, LLP, 8 A.D.3d 145, 779 N.Y.S.2d 56, 57 (1st Dept. 2004) (Court upheld three (3) year nationwide restrictive covenant as asset purchase 16 16 of 19
agreement specifically must be read broadly to include contractual language prohibiting providing services in the United States.); Brintec Corp. v. Akzo, N.V., 129 A.D.2d 447, 448, 514 N.Y.S.2d 18 (1st Dept., 1987) (Court upheld as reasonable restrictive covenant in acquisition agreement containing five year worldwide scope prohibition against directly or indirectly engaging in any line of business presently conducted by purchaser. The Court stated "[P]laintiff has demonstrated a likelihood of success on the merits. If an injunction is not issued, the goodwill of plaintiff's business will suffer irreparable harm."); Hadari v. Leshchinsky, 242 A.D.2d 557, 662 N.Y.S.2d 85 (2d Dept. 1997) (Court upheld as reasonable five year restrictive covenant prohibiting intercom installation, as set forth in the contract of sale, within New York City); Town Line Repairs, Inc. v. Anderson, 90 A.D.2d 517,518, 455 N.Y.S.2d 28 (2d Dept. 1982) ("Purchaser of auto body repair shop granted enforcement of restrictive covenant which lacked a durational limit."). Stolls should not be permitted to continue to defeat the purpose of the Restrictive Covenants imposed upon him in the Stolls Employment Agreement and APA by directly competing against GVG, and by stealing its customers and by using its vendors. Likelihood of Success on the Merits GVG will be able to show a likelihood of success on the merits. The facts are plain that Stolls is directly competing against GVG and attempting to solicit its customers, use its vendors, disparage and otherwise interfere in the relationship between GVG and its vendors. The Irreparable Injury to GVG GVG will be irreparably injured. It entered into the APA with the understanding that neither Stolls nor Lifestyle Forms for a period of three (3) years following the Closing would directly or indirectly compete with it. Case law clearly establishes where, as here, there is a sale 17 17 of 19
of a business together with its goodwill, that there is a presumption of irreparable injury when the former owners of the business compete with the purchaser of that business. Balance of the Equities Stolls undeniably executed the Stolls Employment Agreement and the APA. All that GVG asks is that Stolls abide by that which he agreed to. Accordingly, the equities weigh in favor of GVG. Indeed, recognizing that there may be questions regarding the scope of the employment agreement which must be resolved at trial, GVG seeks on this application only to enforce the restrictive covenants set forth in the APA. No Bond or Security Should be Required Stolls contractually agreed in the APA that there was no necessity for GVG to post a bond or other security as a condition to the issuance of a TRO or preliminary injunction if there was a breach by him of the restrictive covenants in the APA. See APA 11.1(g). Only Injunctive Relief Can Protect the Interests Of GVG. Unless this Court issues a TRO and preliminary injunction, GVG will be powerless to stop Stolls from continuing to breach the Restrictive Covenants imposed upon him in both the APA and the Stolls Employment Agreement. Stolls, unrestrained by the Court, will continue to (i) compete with GVG, (ii) solicit its customers and (iii) continue to interfere with its business relationships. A TRO and preliminary injunction are necessary to preserve the status quo ante and to prevent GVG from suffering further injury during the underlying action so that any final award will not be rendered ineffectual. For the foregoing reasons, the Court should grant a TRO and preliminary injunction providing the following relief: 18 18 of 19
(i) Enjoining Stolls from breaching the restrictive covenants contained in the APA, and from competing with GVG in the selling of mannequins and related forms; (ii) Enjoining Stolls from soliciting GVG's customers and/or its vendors that were formerly customers and/or vendors of Lifestyle Forms with respect to mannequins and related forms, including, but not limited to PetSmart; (iii) (iv) Enjoining Stolls from using Lifestyles logo Lifestyle Trimco; Enjoining Stolls from using or disclosing for any purpose whatsoever GVG s Confidential Information; and (v) Granting GVG costs, reasonable attorney s fees and such other and further relief as this Court may deem just and appropriate. Respectfully submitted, Dated: White Plains, New York February 16, 2017 ANDREW GREENE & ASSOCIATES, P.C. Attorneys for Plaintiff By: Andrew Greene Andrew Greene 202 Mamaroneck Avenue White Plains, NY 10601 914-948-4800 ag@aglaws.net 19 19 of 19