Brown & Brown, Inc. v. JohnsonBrown & Brown, Inc. v. Johnson
- Reporters:
- , ,
- Before:
- Stein
POINTS OF COUNSEL
Satterlee Stephens Burke
Phillips Lytle LLP, Buffalo (Preston L. Zarlock and William J. Simon of counsel), for respondents. I. The Appellate Division correctly rejected the agreement‘s Florida choice-of-law clause. (Purchasing Assoc. v Weitz, 13 NY2d 267; Reed, Roberts Assoc. v Strauman, 40 NY2d 303; Post v Merrill Lynch, Pierce, Fenner & Smith, 48 NY2d 84; BDO Seidman v Hirshberg, 93 NY2d 382; Gramercy Park Animal Ctr. v Novick, 41 NY2d 874; Del Monte Fresh Produce, N.A., Inc. v Chiquita Brands Intl. Inc., 616 F Supp 2d 805; Unisource Worldwide, Inc. v Sоuth Cent. Ala. Supply, LLC, 199 F Supp 2d 1194; Bingham v New York City Tr. Auth., 99 NY2d 355; Haynes v Haynes, 83 NY2d 954; Cooper v City of New York, 81 NY2d 584.) II. The Appellate Division did not abuse its discretion in refusing to partially enforce plaintiffs’ restrictive covenant. (Matter of De Zimm v Connelie, 64 NY2d 860; Pavlou v City of New York, 8 NY3d 961; Holterman v Holterman, 3 NY3d 1; Patrician Plastic Corp. v Bernadel Realty Corp., 25 NY2d 599; Matter of Von Bulow, 63 NY2d 221; AM Medica Communications Group v Kilgallen, 261 F Supp 2d 258; Levo v Greenwald, 66 NY2d 962; Scott, Stackrow & Co., C.P.A.‘s, P.C. v Skavina, 9 AD3d 805; Fullman v R & G Brenner Income Tax Consultants, 24 Misc 3d 1214[A], 2009 NY Slip Op 51451[U]; Pure Power Boot Camp, Inc. v Warrior Fitness Boot Camp, LLC, 813 F Supp 2d 489.) III. The
OPINION OF THE COURT
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 рarties’ employment agreement purporting to apply Florida law is 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 insurаnce 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 аn 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 prospeсtive customers. In the discussions that took place before Johnson was hired, this agreement was never mentioned. While it is undisputed that Johnson and a representative of BBNY signed the agreement that first day, the parties dispute what occurred at the time of the signing.
Supreme Court partially granted defendants’ motion for summary judgment, but did not dismiss thе 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 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 unenforcеable. The Appellate Division granted plaintiffs’ motion for leave to appeal, certified a question, and denied defendants’ cross motion for leave (2014 NY Slip Op 72307[U] [4th Dept 2014]).
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 рrevalent 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 pаrty 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 [2d Dept 2010]).
Here, to determine whether the public policy exception renders unenforceable the employment agreement‘s choice of Florida law, we must compare the Florida statute concerning restrictive covenants in employment agreements to New Yоrk 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
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 prоtect a legitimate business interest, at which point the burden shifts to the other party to show that the restraint is overbroad or unnecessary (see
“[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 Seidman v Hirshberg, 93 NY2d 382, 388-389 [1999] [citations omitted]; see Natural Organics, Inc. v Kirkendall, 52 AD3d 488, 489 [2d 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
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
Considering Florida‘s nеarly-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 bаlance 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 tо 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
“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 оf dominant bargaining power, or other anticompetitive 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 [citation omitted]).
Here, although the covenаnt 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 employ-ment
Chief Judge Lippman and Judges Read, Pigott and Abdus-Salaam concur; Judges Rivera and Fahey taking no part.
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.