Court Opinion

ID: 4084157
Source: CourtListenerOpinion
Date Created: 2016-10-07 23:51:38.472247+00
Date Added: 2024-06-11T14:33:24.836724
License: Public Domain

SUPREME COURT OF THE STATE OF NEW YORK
           Appellate Division, Fourth Judicial Department

911
CA 12-01639
PRESENT: SMITH, J.P., CARNI, SCONIERS, AND VALENTINO, JJ.

PHILLIP DEL NERO, PLAINTIFF-APPELLANT,

                    V                             MEMORANDUM AND ORDER

MARK COLVIN, DEFENDANT-RESPONDENT.
(APPEAL NO. 2.)

BOUSQUET HOLSTEIN PLLC, SYRACUSE (ROBERT K. WEILER OF COUNSEL), FOR
PLAINTIFF-APPELLANT.

SUGARMAN LAW FIRM, LLP, SYRACUSE (KEVIN R. VAN DUSER OF COUNSEL), FOR
DEFENDANT-RESPONDENT.

     Appeal from an order of the Supreme Court, Onondaga County (Brian
F. DeJoseph, J.), entered June 21, 2012. The order granted the motion
of plaintiff for leave to reargue, and upon reargument, the court
adhered to its original order entered March 14, 2012.

     It is hereby ORDERED that the order so appealed from is
unanimously modified on the law by denying defendant’s motion except
insofar as it sought summary judgment dismissing the seventh cause of
action and reinstating the second amended complaint to that extent and
vacating the third and fourth ordering paragraphs, and by granting
that part of plaintiff’s cross motion with respect to the fifth cause
of action, and as modified the order is affirmed without costs.

     Memorandum: The parties are financial planners who previously
were associated with Ameriprise Financial Services, Inc. (Ameriprise).
After Ameriprise advised plaintiff that his franchise was being
terminated effective June 30, 2009, the parties entered into an
“agreement for purchase and sale of practice” (Agreement), whereby
defendant would purchase plaintiff’s book of business for $511,000, to
be paid at a rate of $7,000 per month over a 73-month period. The
Agreement contained a one-year covenant not to compete stating that,
if plaintiff, his sister, his mother, “or anyone associated with these
individuals solicits the clients covered under this Agreement, then,
at the sole discretion of [defendant], as liquidated damages, all
future payments from the date of any such contact under the terms of
this Agreement will be considered paid in full and no future payments
will be made.” Defendant made two payments under the Agreement, but
then refused to make additional payments on the ground that plaintiff
or his relatives had violated the covenant not to compete. Plaintiff
commenced this action seeking, inter alia, damages for breach of
contract in the amount of the balance due under the Agreement and a
                                 -2-                           911
                                                         CA 12-01639

determination that the liquidated damages provision was an
unenforceable penalty. Defendant asserted a counterclaim for breach
of contract and sought, among other relief, liquidated damages as well
as “direct, incidental and/or consequential damages.”

     Plaintiff appeals from an order in which Supreme Court, upon
granting plaintiff’s motion for leave to reargue, adhered to its prior
decision denying plaintiff’s cross motion for summary judgment and
granting defendant’s motion for summary judgment dismissing the second
amended complaint and for summary judgment on his counterclaim “solely
to the extent that defendant . . . is discharged from any obligations
under the contract.” The order further provided that defendant is not
entitled to any damages on his counterclaim “over and above liquidated
damages.”

     We conclude that the court erred in granting defendant’s motion
except for that part seeking summary judgment dismissing the second
amended complaint with respect to the seventh cause of action, which
sought damages for unjust enrichment. In support of the motion,
defendant contended, inter alia, that the covenant not to compete was
reasonable and encompassed plaintiff’s actions. In order to establish
his entitlement to summary judgment in this case, involving the
interpretation of a contract, defendant had “the burden of
establishing that the construction [he] favors is the only
construction which can fairly be placed thereon” (Arrow Communication
Labs. v Pico Prods., 206 AD2d 922, 923 [internal quotation marks
omitted]; see Morales v Asarese Matters Community Ctr. [appeal No. 2],
103 AD3d 1262, 1263-1264, lv dismissed 21 NY3d 1033; Kibler v Gillard
Constr., Inc., 53 AD3d 1040, 1042). We conclude, however, that the
covenant not to compete is ambiguous concerning the scope of the
activity that is prohibited, e.g., whether the covenant not to compete
prohibits plaintiff from providing his former clients with tax and
business advice. Inasmuch as defendant failed to meet his burden with
respect to the scope of prohibited activity and thus whether plaintiff
engaged in prohibited conduct, “ ‘the intent of the parties must be
determined by evidence outside the contract,’ rendering summary
judgment at this juncture inappropriate” (Suburban Tool & Die Co.,
Inc. v Century Mold Co., Inc., 78 AD3d 1530, 1531). With respect to
the seventh cause of action, i.e., the quasi contract cause of action,
however, we note that “the existence of a valid contract . . .
generally precludes recovery in quasi contract for events arising out
of the same subject matter” (EBC I, Inc. v Goldman, Sachs & Co., 5
NY3d 11, 23). Here, the Agreement governs the sale of the practice,
and thus the court properly granted that part of defendant’s motion.
Consequently, we modify the order by denying defendant’s motion except
insofar as it sought summary judgment dismissing the seventh cause of
action, and we vacate the third ordering paragraph, which granted in
part defendant’s motion for summary judgment with respect to the
counterclaim.

     We also agree with plaintiff with respect to defendant’s
counterclaim that the liquidated damages clause is an unenforceable
penalty. Liquidated damages are enforceable only to the extent that
they constitute “ ‘an estimate, made by the parties at the time they
                                 -3-                           911
                                                         CA 12-01639

enter into their agreement, of the extent of the injury that would be
sustained as a result of breach of the agreement’ ” (JMD Holding Corp.
v Congress Fin. Corp., 4 NY3d 373, 380). Typically, a liquidated
damages clause is enforceable if the stipulated amount of damages
“bears a reasonable proportion to the probable loss and the amount of
actual loss is incapable or difficult of precise estimation” (Truck
Rent-A-Ctr. v Puritan Farms 2nd, 41 NY2d 420, 425; see G3-Purves St.,
LLC v Thomson Purves, LLC, 101 AD3d 37, 41). However, if the clause
provides for damages “ ‘plainly or grossly disproportionate to the
probable loss, the provision calls for a penalty and will not be
enforced’ ” (JMD Holding Corp., 4 NY3d at 380).

     Here, although the amount of actual damages is incapable of
precise estimation, the amount of liquidated damages was grossly
disproportionate to the probable loss and was designed to penalize
plaintiff for his interference with the Agreement, as well as the
interference of others with the Agreement. Moreover, the liquidated
damages clause here eliminates the balance due under the Agreement
based on minor breaches of the covenant not to compete such that it is
an “unconscionable penalty and should not be enforced” (Clubb v ANC
Heating & A.C., 251 AD2d 956, 958). We therefore further modify the
order by vacating the fourth ordering paragraph, which in effect
determined that the liquidated damages provision is enforceable. We
instead conclude that, in the event that it is determined that there
was a breach of contract, the extent of the damages arising therefrom
should likewise be determined by the trier of fact.

     Finally, we note that the court properly determined in its
decision that the covenant not to compete was unreasonable insofar as
it purported to bind “independent third parties,” i.e., plaintiff’s
sister or mother, or “anyone associated with” them, to the Agreement
(see generally Kraft Agency v Delmonico, 110 AD2d 177, 181-184).
Although the order does not so specify, we conclude that the court
thereby granted that part of plaintiff’s cross motion with respect to
the fifth cause of action, seeking a determination that the covenant
not to compete was unenforceable to that extent (see generally BDO
Seidman v Hirshberg, 93 NY2d 382, 394-395). Where there is a conflict
between the order and the decision upon which it is based, the
decision controls (see generally Matter of Edward V., 204 AD2d 1060,
1061), and the order “must be modified to conform to the decision”
(Waul v State of New York, 27 AD3d 1114, 1115, lv denied 7 NY3d 705).
Thus, we further modify the order by granting that part of plaintiff’s
cross motion with respect to the fifth cause of action.

Entered:   November 8, 2013                    Frances E. Cafarell
                                               Clerk of the Court