SUPREME COURT OF THE STATE OF NEW YORK

Appellate Division, Fourth Judicial Department

780 

CA 15-00009 

PRESENT: SCUDDER, P.J., SMITH, SCONIERS, VALENTINO, AND DEJOSEPH, JJ. 

 

GENESEE VALLEY TRUST COMPANY AND CANANDAIGUA 

NATIONAL CORPORATION, 

PLAINTIFFS-APPELLANTS-RESPONDENTS, 

V MEMORANDUM AND ORDER

THE WATERFORD GROUP, LLC, BRIAN P. COSTELLO 

AND MICHAEL J. MERRIMAN, 

DEFENDANTS-RESPONDENTS-APPELLANTS.

 

UNDERBERG & KESSLER LLP, ROCHESTER (PAUL F. KENEALLY OF COUNSEL), FOR

PLAINTIFFS-APPELLANTS-RESPONDENTS. 

LECLAIR KORONA GIORDANO COLE LLP, ROCHESTER (JEREMY M. SHER OF

COUNSEL), FOR DEFENDANTS-RESPONDENTS-APPELLANTS. 

 

Appeal and cross appeal from an order and interlocutory judgment

(one paper) of the Supreme Court, Monroe County (Matthew A. Rosenbaum,

J.), entered March 28, 2014. The order and judgment denied the cross

motion of plaintiffs for, inter alia, summary judgment and granted the

motion of defendants for summary judgment in part by issuing a 

declaration that § 7.1 of the employment agreements of defendants

Brian P. Costello and Michael J. Merriman with plaintiff Genesee

Valley Trust Company is invalid and unenforceable and dismissing the

fifth and eighth causes of action.

It is hereby ORDERED that the order and judgment so appealed from

is unanimously modified on the law by vacating the declaration with

respect to defendant Brian P. Costello, denying that part of

defendants’ motion seeking summary judgment dismissing the fifth cause

of action and reinstating that cause of action, and granting that part

of defendants’ motion seeking summary judgment dismissing the fourth

cause of action, and as modified the order and judgment is affirmed

without costs. 

Memorandum: Plaintiff Canandaigua National Corporation (CNC)

purchased plaintiff Genesee Valley Trust Company (GVT), an investment

management firm, on or about January 2, 2008. Defendants Brian P.

Costello and Michael J. Merriman were employees of GVT, and Costello

had been a GVT shareholder and was paid for his shares in the sale to

CNC. Costello and Merriman signed new employment agreements with GVT

that became effective January 3, 2008. Section 7.1 of the agreements

provided that the employee would pay GVT a fee in the event that the

employee solicited and obtained business from GVT clients within a
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CA 15-00009 

year of leaving its employ, and that the amount of the fee would be

based on two times the total amount of fees and payments made to GVT

by the solicited client in the 12 months prior to the employee’s

departure. In addition, section 7.2 prohibited the employee from

soliciting other GVT employees to leave their employment under certain

circumstances. Costello, Merriman, and nonparty Mary O’Brian, another

GVT employee, all left GVT between December 31, 2010 and January 7,

2011, and Costello signed a termination agreement with a clause that

prohibited him from making disparaging statements about GVT. Later in

January 2011, Costello, Merriman, and O’Brian became the sole members

of defendant The Waterford Group, LLC (Waterford), another investment

management firm. 

Plaintiffs commenced this action alleging, inter alia, that

defendants solicited GVT clients to move their business to Waterford,

that Merriman solicited O’Brian to leave GVT and join Waterford in

violation of section 7.2, and that Costello disparaged GVT in

violation of his termination agreement. Plaintiffs sought damages and

a judgment declaring that amounts were due to GVT from Costello and

Merriman pursuant to section 7.1. After obtaining dismissal of

several of plaintiffs’ causes of action on a motion to dismiss,

defendants moved for summary judgment seeking a declaration that

section 7.1 is unenforceable and dismissal of the remaining causes of

action. Plaintiffs cross-moved for, inter alia, summary judgment

seeking a declaration that section 7.1 is enforceable against both

Costello and Merriman. Supreme Court denied plaintiffs’ cross motion

and granted defendants’ motion in part by issuing a declaration that

section 7.1 is “invalid and unenforceable,” and dismissing the fifth

and eighth causes of action on the ground that section 7.2 is likewise

unenforceable. The court denied defendants’ motion with respect to

the fourth cause of action, which alleges that Merriman breached his

duty of fidelity and loyalty to GVT, and the twelfth cause of action,

which alleges that Costello breached the nondisparagement clause of

his termination agreement. Plaintiffs appeal and defendants crossappeal.

We note at the outset that plaintiffs do not contend in their

brief that the court erred in issuing a declaration that section 7.1

is unenforceable against Merriman or that the court erred in

dismissing the eighth cause of action, and we thus deem any issues

with respect to those matters abandoned (see Burton v Matteliano, 81

AD3d 1272, 1275, lv denied 17 NY3d 703).

We agree with plaintiffs that the court erred in granting that

part of defendants’ motion seeking a declaration that section 7.1 is

unenforceable against Costello. We therefore modify the order and

judgment by vacating the declaration with respect to Costello, thereby

allowing the first cause of action to go forward. Because Costello

sold his GVT shares to CNC, and CNC acquired GVT’s goodwill in the

transaction, the enforceability of section 7.1 against Costello should

be evaluated pursuant to the standard applicable to the sale of a

business rather than “the stricter standard of reasonableness”

applicable to employment contracts (Reed, Roberts Assoc. v Strauman,

40 NY2d 303, 307, rearg denied 40 NY2d 918; see Weiser LLP v
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CA 15-00009 

Coopersmith, 51 AD3d 583, 583-584; Kraft Agency v Delmonico, 110 AD2d

177, 182-183). A covenant restricting the right of a seller of a

business to compete with the buyer is enforceable if its duration and

scope are “reasonably necessary to protect the buyer’s legitimate

interest in the purchased asset” (Hadari v Leshchinsky, 242 AD2d 557,

558; see Mohawk Maintenance Co. v Kessler, 52 NY2d 276, 283-284;

Purchasing Assoc. v Weitz, 13 NY2d 267, 271-272, rearg denied 14 NY2d

584), and we conclude that the scope and one-year duration of section

7.1 are reasonably necessary, as applied to Costello, to protect CNC’s

legitimate interest in GVT’s goodwill (see Weiser LLP, 51 AD3d at 583-

584; see also Purchasing Assoc., 13 NY2d at 271-272; Sarantopoulos v

E-Z Cash ATM, Inc., 35 AD3d 708, 709), except relative to clients, if

any, that Costello independently recruited to GVT after it was sold to

CNC (see Weiser LLP v Coopersmith, 74 AD3d 465, 467-468). Absent

anticompetitive misconduct by the employer not present here, a

restrictive covenant that is overbroad in some respect is “partially

enforceable ‘to the extent necessary to protect [the employer’s]

legitimate interest’ ” (Malcolm Pirnie, Inc. v Werthman, 280 AD2d 934,

935; see BDO Seidman v Hirshberg, 93 NY2d 382, 394-395; see also Brown

& Brown, Inc. v Johnson, ___ NY3d ___, ___ [June 11, 2015] and, with

that limited exception, section 7.1 is prima facie enforceable against

Costello. 

In any event, we note that the result would be the same under the

standard applicable to employment contracts, whereby a restrictive

covenant “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” (BDO Seidman, 93 NY2d at 388-389). 

GVT’s interest in protecting its customer relationships and goodwill

for the benefit of CNC is a legitimate interest under that standard as

well (see TBA Global, LLC v Proscenium Events, LLC, 114 AD3d 571, 572;

Gundermann & Gundermann Ins. v Brassill, 46 AD3d 615, 616), and

partially enforcing section 7.1 against Costello will not impose undue

hardship on him or harm the public (see BDO Seidman, 93 NY2d at 393-

394).

We conclude, however, that plaintiffs are not entitled to a

declaration in their favor at this juncture because they have not

established that the damages clause of section 7.1 is enforceable (see

generally id. at 396). As the parties acknowledge, the provision of

section 7.1 governing the amount of the fee to be paid “essentially

represents a liquidated damages clause” (id.), and is thus enforceable

if, at the time the agreement was made, the amount of plaintiffs’

actual loss was “incapable or difficult of precise estimation” and the

amount liquidated was not “plainly or grossly disproportionate to the

probable loss” (Truck Rent-A-Ctr. v Puritan Farms 2nd, 41 NY2d 420,

425; see JMD Holding Corp. v Congress Fin. Corp., 4 NY3d 373, 380). 

Although the record establishes that plaintiffs’ actual damages from

the solicitation of any particular client “are sufficiently difficult

to ascertain to satisfy the first requirement of a valid liquidated

damages provision” (BDO Seidman, 93 NY2d at 396; see Marcone APW, LLC

v Servall Co., 85 AD3d 1693, 1696-1697), and we recognize that
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CA 15-00009 

defendants, as the parties seeking to avoid liquidated damages, bear

the ultimate burden of establishing that the clause is unenforceable

(see 172 Van Duzer Realty Corp. v Globe Alumni Student Assistance

Assn., Inc., 24 NY3d 528, 536; JMD Holding Corp., 4 NY3d at 379-380),

we conclude that the sparse financial information submitted by

plaintiffs on their cross motion “by no means conclusively

demonstrates the absence of gross disproportionality” (BDO Seidman, 93

NY2d at 396-397). Accordingly, “further development of the record on

the liquidated damages formula” at trial is necessary (id. at 397; see

Central Irrigation Supply v Putnam Country Club Assoc., LLC, 27 AD3d

684, 685; Tremco, Inc. v Turk, 170 AD2d 987, 987-988). 

We also agree with plaintiffs that the court erred in granting

that part of defendants’ motion seeking to dismiss the fifth cause of

action on the basis that plaintiffs had no legitimate interest in

enforcing section 7.2 against Merriman in connection with his alleged

solicitation of O’Brian. We therefore further modify the order and

judgment accordingly. A covenant not to solicit employees is 

“ ‘inherently more reasonable and less restrictive’ ” than a covenant

not to compete (OTG Mgt., LLC v Konstantinidis, 40 Misc 3d 617, 621;

see also Natsource LLC v Paribello, 151 F Supp 2d 465, 470-471), and

an employer has a legitimate interest in preventing an employee from

leaving to work for a competitor if the employee has cultivated

personal relationships with clients through the use of the employer’s

resources (see BDO Seidman, 93 NY2d at 391-392; 1 Model Mgt., LLC v

Kavoussi, 82 AD3d 502, 503-504). There is conflicting evidence here

regarding the importance of the personal relationships O’Brian had

with GVT clients, and thus an issue of fact exists whether GVT had a

legitimate interest in preventing Merriman from soliciting her to join

Waterford (see Fewer v GFI Group Inc., 124 AD3d 457, 458).

We agree with defendants on their cross appeal that the court

erred in denying that part of their motion seeking to dismiss the

fourth cause of action, and we therefore further modify the order and

judgment accordingly. The majority of the allegations in that cause

of action were determined in the prior dismissal order to be

insufficiently particularized to satisfy CPLR 3016 (b). Defendants

made a prima facie showing on their motion for summary judgment that

Merriman did not engage in the remaining conduct alleged, and

plaintiffs failed to raise a triable issue of fact (see generally

Zuckerman v City of New York, 49 NY2d 557, 562). Finally, we reject

defendants’ contention that the court erred in denying that part of

their motion seeking to dismiss the twelfth cause of action on the

basis that plaintiffs had not established any damages arising from

Costello’s alleged breach of his termination agreement. Defendants

did not meet their burden on that issue “simply by pointing to gaps in

plaintiff[s’] proof” (Route 104 & Rte. 21 Dev., Inc. v Chevron U.S.A.,

Inc., 96 AD3d 1491, 1492; see Benderson v Ulrich/34 Chestnut St., LLC,

57 AD3d 1417, 1419). 

Entered: July 10, 2015 Frances E. Cafarell

Clerk of the Court