Court Opinion

ID: 2807346
Source: CourtListenerOpinion
Date Created: 2015-06-11 13:07:35.276536+00
Date Added: 2024-06-11T11:30:04.033353
License: Public Domain

This opinion is uncorrected and subject to revision before
publication in the New York Reports.
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No. 92
Brown & Brown, Inc., et al.,
            Appellants,
        v.
Theresa A. Johnson, et al.,
            Respondents.
(AD No. CA 13-00340)

          Alun W. Griffiths, for appellants.
          Preston L. Zarlock, for respondents.

STEIN, J.:
          On this appeal, we hold that applying Florida law on
restrictive covenants related to the non-solicitation of
customers by a former employee would violate the public policy of
this state.   Therefore, the choice-of-law provision in the
parties' employment agreement purporting to apply Florida law is

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unenforceable as to the non-solicitation provision of that
agreement.   Applying New York law, we also conclude that factual
issues exist which prevent us from determining whether partial
enforcement of the agreement's non-solicitation provision is
appropriate.   Hence, we remit for further proceedings.
                                  I.
          Plaintiffs are insurance intermediaries.    Plaintiff
Brown & Brown, Inc. (BBI) is a Florida corporation.    Its New York
subsidiary, plaintiff Brown & Brown of New York, Inc. (BBNY), is
licensed to handle insurance in New York.    BBNY recruited
defendant Theresa A. Johnson to leave her former job at Blue
Cross/Blue Shield -- where she was employed as an underwriter and
actuary for over 20 years -- to work for BBNY.
          On Johnson's first day, BBNY's employee gave her
documents that included an employment agreement with a
restrictive covenant.   As relevant here, the agreement contained
a Florida choice-of-law provision and a non-solicitation
provision.   The non-solicitation provision precluded Johnson, for
two years following her termination of employment, from directly
or indirectly soliciting, accepting or servicing any person or
entity "that is a customer or account of the New York offices of
[BBI and BBNY] during the term of this Agreement," as well as
certain prospective customers.    In the discussions that took
place before Johnson was hired, this agreement was never
mentioned.   While it is undisputed that Johnson and a

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representative of BBNY signed the agreement that first day, the
parties dispute what occurred at the time of the signing.
          After working solely in New York for several years,
Johnson was terminated.   Less than one month later, Johnson began
working for defendant Lawley Benefits Group, LLC, a competitor of
BBNY; her work with Lawley involved providing services to some of
plaintiffs' former customers.   Plaintiffs commenced this action
to enjoin alleged violations of the agreement by Johnson and to
recover damages against both Johnson and Lawley.   The complaint
alleged, among other things, that Johnson breached the employment
agreement by soliciting plaintiffs' customers.   Defendants
answered the complaint and, within 10 weeks of commencement of
the action and after only limited discovery, moved for summary
judgment dismissing the complaint.
          Supreme Court partially granted defendants' motion for
summary judgment, but did not dismiss the portion of the breach
of contract cause of action against Johnson alleging that she
violated the non-solicitation provision by using client
relationships that she initially developed while working for
plaintiffs.   In doing so, the court found the choice-of-law
provision in Johnson's employment agreement to be unenforceable.
          On the parties' cross appeals, the Appellate Division
modified Supreme Court's order by, among other things, dismissing
in its entirety the portion of the breach of contract cause of
action based on the non-solicitation provision (115 AD3d 162 [4th

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Dept 2014]).    The Court held that the Florida choice-of-law
provision was unenforceable as against public policy, and that
the non-solicitation provision was overbroad and unenforceable.
The Appellate Division granted plaintiffs' motion for leave to
appeal, certified a question, and denied defendants' cross motion
for leave.
                                 II.
          The employment agreement's choice-of-law provision
states that any disputes will be governed by Florida law.     While
parties are generally free to reach agreements on whatever terms
they prefer, courts will not "enforce agreements . . . where the
chosen law violates 'some fundamental principle of justice, some
prevalent conception of good morals, some deep-rooted tradition
of the common weal'" (Welsbach Elec. Corp. v MasTec N. Am., Inc.,
7 NY3d 624, 629 [2006] [footnote omitted], quoting Cooney v
Osgood Mach., 81 NY2d 66, 78 [1993]).    This public policy
exception is reserved "for those foreign laws that are truly
obnoxious" (Cooney, 81 NY2d at 79; see Welsbach Elec. Corp., 7
NY3d at 629).    The party seeking to invoke the exception bears a
"'heavy burden' of proving that application of [the chosen] law
would be offensive to a fundamental public policy of this State"
(Welsbach Elec. Corp., 7 NY3d at 632; see Cooney, 81 NY2d at 80;
Matter of Frankel v Citicorp Ins. Servs., Inc., 80 AD3d 280, 286
[2nd Dept 2010]).
          Here, to determine whether the public policy exception

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renders unenforceable the employment agreement's choice of
Florida law, we must compare the Florida statute concerning
restrictive covenants in employment agreements to New York law on
that subject.   The law of the two states is similar to the extent
that they both require restrictive covenants to be reasonably
limited in time, scope and geographical area, and to be grounded
in a legitimate business purpose (see Fla Stat § 542.335 [1];
Reed, Roberts Assoc. v Strauman, 40 NY2d 303, 307 [1976]).
However, several aspects of the Florida statute differ
significantly from New York law.
          Specifically, Florida law requires a party seeking to
enforce a restrictive covenant only to make a prima facie showing
that the restraint is necessary to protect a legitimate business
interest, at which point the burden shifts to the other party to
show that the restraint is overbroad or unnecessary (see Fla Stat
§ 542.335 [1] [c]).   If the latter showing is made, the court is
required to "modify the restraint and grant only the relief
reasonably necessary to protect" the employer's legitimate
business interests (Fla Stat § 542.335 [1] [c]).   In contrast to
this focus solely on the employer's business interests, under New
York's three-prong test, "[a] restraint 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.
A violation of any prong renders the covenant invalid" (BDO

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Seidman v Hirshberg, 93 NY2d 382, 388-389 [1999] [internal
citations omitted]; see Natural Organics, Inc. v Kirkendall, 52
AD3d 488, 489 [2nd Dept 2008], lv denied 11 NY3d 707 [2008]; D&W
Diesel v McIntosh, 307 AD2d 750, 750-751 [4th Dept 2003]).
Whereas Florida shifts the burden of proof after the employer
demonstrates its business interests (see Fla Stat § 542.335 [1]
[c]), New York requires the employer to prove all three prongs of
its test before the burden shifts (see BDO Seidman, 93 NY2d at
388-389; see also Natural Organics, Inc., 52 AD3d at 489).
Further, Florida law explicitly prohibits courts from considering
the harm or hardship to the former employee (see Fla Stat §
542.335 [1] [g] [1]).   This directly conflicts with New York's
requirement that courts consider, as one of three mandatory
factors, whether the restraint "impose[s] undue hardship on the
employee" (BDO Seidman, 93 NY2d at 388-389).
          Additionally, under Florida law, courts are required to
construe restrictive covenants in favor of protecting the
employer's interests, and may not use any rules of contract
interpretation that would require the construction of a
restrictive covenant narrowly or against the restraint or drafter
(see Fla Stat § 542.335 [1] [h]).   In contrast, New York law
provides that "[c]ovenants not to compete should be strictly
construed because of the 'powerful considerations of public
policy which militate against sanctioning the loss of a
[person's] livelihood'" (Gramercy Park Animal Ctr. v Novick, 41

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NY2d 874, 874 [1977], quoting Purchasing Assoc. v Weitz, 13 NY2d
267, 272 [1963] [citations omitted]; see BDO Seidman, 93 NY2d at
389; Reed, Roberts Assoc., 40 NY2d at 307 [noting "stricter
standard of reasonableness" in this area, and "judicial disfavor
of these covenants"]; Goodman v New York Oncology Hematology,
P.C., 101 AD3d 1524, 1526 [3rd Dept 2012]).
          Considering Florida's nearly-exclusive focus on the
employer's interests, prohibition against narrowly construing
restrictive covenants, and refusal to consider the harm to the
employee -- in contrast with New York's requirements that courts
strictly construe restrictive covenants and balance the interests
of the employer, employee and general public -- defendants met
their "'heavy burden' of proving that application of Florida law
[to the non-solicitation provision of the parties' agreement]
would be offensive to a fundamental public policy of this State"
(Welsbach Elec. Corp., 7 NY3d at 632; see Cooney, 81 NY2d at 80).
Accordingly, the employment agreement's choice-of-law provision
is unenforceable in relation to the non-solicitation provision,
and New York law governs plaintiffs' claim based on Johnson's
alleged breach thereof.
                              III.
          We turn next to the question of whether the non-
solicitation provision should be partially enforced.   Under New
York law, the restrictive covenant was overbroad to the extent
that it prohibited Johnson from working with any of plaintiffs'

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New York customers, even those Johnson had never met, did not
know about and for whom she had done no work (see BDO Seidman, 93
NY2d at 392-393; Vital Crane Servs., Inc. v Micucci, 118 AD3d
1404, 1405 [4th Dept 2014]; Weiser LLP v Coopersmith, 74 AD3d
465, 467-468 [1st Dept 2010]; Scott, Stackrow & Co., C.P.A.'s,
P.C. v Skavina, 9 AD3d 805, 806-807 [3rd Dept 2004], lv denied 3
NY3d 612 [2004]).   In light of this overbreadth, plaintiffs argue
that the Appellate Division should have partially enforced the
covenant, limiting the non-solicitation provision to prohibit
Johnson only from soliciting any of plaintiffs' customers with
whom she interacted or whose files she had encountered while in
plaintiffs' employ.   This Court has "expressly recognized and
applied the judicial power to sever and grant partial enforcement
for an overbroad employee restrictive covenant" (BDO Seidman, 93
NY2d at 394, citing Karpinski v Ingrasci, 28 NY2d 45, 51-52
[1971]; see Trans-Continental Credit & Collection Corp. v Foti,
270 AD2d 250, 251 [2nd Dept 2000]).    Where
          "the unenforceable portion is not an
          essential part of the agreed exchange, a
          court should conduct a case specific
          analysis, focusing on the conduct of the
          employer in imposing the terms of the
          agreement. Under this approach, if the
          employer demonstrates an absence of
          overreaching, coercive use of dominant
          bargaining power, or other anti-competitive
          misconduct, but has in good faith sought to
          protect a legitimate business interest,
          consistent with reasonable standards of fair
          dealing, partial enforcement may be
          justified" (BDO Seidman, 93 NY2d at 394
          [internal citation omitted]).

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          Here, although the covenant was imposed as a
requirement of Johnson's initial employment and was not presented
to her until her first day of work, the parties dispute whether
she understood the agreement, whether plaintiffs' employee
discussed or explained it to her, what such a discussion
entailed, whether she was required to sign it that day, or if she
could have sought advice from counsel and negotiated the terms of
the agreement (see Vital Crane Servs., Inc., 118 AD3d at 1405;
Scott, Stackrow & Co., C.P.A.'s, P.C., 9 AD3d at 807-808; compare
BDO Seidman, 93 NY2d at 395).   The parties' conflicting
affidavits and limited disclosure responses, together with the
fact that Johnson had already left her prior employment -- which
could have caused her to feel pressure to sign the agreement
rather than risk being unemployed -- raise questions about
whether plaintiffs engaged in overreaching or used coercive
dominant bargaining power to obtain the restrictive covenant.
Thus, on this record and at this early stage of the action when
little discovery has taken place, dismissal of the portion of the
breach of contract claim based on the non-solicitation provision
in the employment agreement is inappropriate.   Therefore, the
Appellate Division order, insofar as appealed from, should be
reversed, with costs, defendants' motion for summary judgment,
insofar as it sought to dismiss that portion of the first cause
of action for breach of the non-solicitation provision of the
employment agreement, denied and certified question answered in

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the negative.
*   *   *   *   *   *   *   *     *      *   *   *   *   *   *   *   *
Order, insofar as appealed from, reversed, with costs,
defendants' motion for summary judgment, insofar as it sought to
dismiss that portion of the first cause of action in the
complaint for breach of the non-solicitation provision in the
parties' employment agreement, denied and certified question
answered in the negative. Opinion by Judge Stein. Chief Judge
Lippman and Judges Read, Pigott and Abdus-Salaam concur. Judges
Rivera and Fahey took no part.

Decided June 11, 2015

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