CT LLC v. Stephen Palamar (2010)

MEMORANDUM OF DECISION RE PLAINTIFF'S APPLICATION FOR TEMPORARY INJUNCTION-# 101

I. Nature of the Proceedings

This case arises out of an employer (plaintiff) and employee (defendant) relationship that terminated in May 2010, when the defendant, without prior notice, terminated his employment with the plaintiff.   In this action, the plaintiff seeks, inter alia, a permanent and temporary injunction that would prohibit the defendant from competing with the plaintiff in the business of designing and installing metal basement entry doors and accessories in violation of a restrictive covenant not to compete that was signed by the defendant in 2007.

In his verified complaint, signed by the “owner” of the plaintiff and filed on October 7, 2010, the plaintiff avers that it is in the business of installing cellar doors, windows and other accessories.¹  In August 2007, while employed by the plaintiff, the defendant signed a “noncompetition-nondisclosure agreement” wherein the defendant agreed, in the event his employment with the plaintiff was terminated, not to compete with the plaintiff anywhere in the state of Connecticut for a period of three years after said termination.   The plaintiff claims that on May 24, 2010, the defendant left voluntarily without notice and since that time has been doing business as Custom Cellar Doors and has been advertising and performing the same services that he performed while in the plaintiff's employ in direct competition with the plaintiff and in violation of the restrictive covenant.   The plaintiff asserts that the defendant's conduct in competing with the plaintiff has caused and continues to cause the plaintiff irreparable harm, including injury to its goodwill, reputation and name, for which there is no adequate remedy at law.   The plaintiff brings its complaint in two counts, the first alleging a breach of contract, i.e., the restrictive covenant;  the second alleging that the defendant's actions are in violation of the Connecticut's Unfair Trade Practices Act (CUTPA).   In addition to a temporary and permanent injunction enjoining the defendant from installing cellar doors and other accessories, the plaintiff seeks an accounting, compensatory and punitive damages, including attorneys fees, costs, interest and such other relief as deemed appropriate by the court.

On October 12, 2010, the defendant was served in hand with said complaint in addition to an application for a temporary injunction, an order to show cause and a notice of hearing.   The initial hearing date was October 28.   The matter, however, was continued to permit the defendant to obtain counsel.   On November 4, 2010, the court conducted a hearing on the plaintiff's application for a temporary injunction at which both parties appeared with their respective attorneys.   The court heard from three witnesses, to wit, the principal and managing member of the plaintiff, Claude Raffin;  the plaintiff's office manager, Gayle Nelson;  and the defendant.   The court received seven documentary exhibits into evidence, six of which were submitted by the plaintiff and one submitted by the defendant.   After considering the testimony of the witnesses and assessing the credibility of each;  after reviewing each of the exhibits;  and after considering the oral arguments advanced by the parties, for reasons hereinafter stated the court will deny the plaintiff's application for a temporary injunction.   The court finds that the restrictive covenant executed by the defendant is unenforceable as it unfairly and unreasonably restrains competition.

II. Factual Background

Raffin started his business in late 2003.   The business consists of the design and installation of metal outside entry cellar doors and accessories including bottom entry doors, stairs, custom basement windows, window well systems and covers.   The plaintiff has built a business that includes six employees and some temporary employees.   Currently, the plaintiff has orders from fifty customers throughout the state of Connecticut.   Plaintiff's exhibit # 1.   Raffin takes pride that the business he has built has become an expert in the design and installation of what he refers to as “custom-made” cellar doors, although it appears that many of the plaintiff's installations consist of pre-manufactured standard entry doors of the type that are readily available at the Home Depot, a fact confirmed by the defendant.   Plaintiff's exhibits # 4 and # 5 consist of advertisements in the Clipper magazine that contain photos of such doors.   Despite the wide availability of standard cellar doors Raffin boasted that:  “We do custom installation that no one else does!”

The plaintiff hired the defendant as an installer in January 2006, however, in August 2007, the defendant was offered and accepted a promotion to the position of operations foreman.   The promotion was accompanied by a substantial increase in salary (Plaintiff's exhibit # 2);  it was conditioned on the defendant's acceptance and the defendant's signature on a document entitled “Noncompetition And Nondisclosure Agreement.”   Plaintiff's exhibit # 3.   Pertinent to the issues before the court is paragraph 2.2 of said agreement, which prohibited the defendant “for a period of three years following termination of the employee's employment for whatever reason” from competing, as an employee or principal, with the plaintiff in any manner or from connecting with any company “that provides similar services as those provided by [the plaintiff] and is located in the state of Connecticut.”   Emphasis added.   The defendant was further prohibited from establishing a business relationship with any former customers of the plaintiff that would enable the defendant to provide services similar to those he provided while employed by the plaintiff.

Section 1 of the agreement contained an extensive definition of what the plaintiff considered to be “confidential information” which the defendant was prohibited from using in any business that competed with the plaintiff.   No time limits accompanied the prohibitions contained in this section of the agreement.   On August 21, 2007, one week after the offer of promotion, the plaintiff signed the agreement.   The defendant did not recall the execution thereof, however, the agreement was signed in the presence of Ms. Nelson, who did recall the event.

In May 2010, for reasons not disclosed by either party, the defendant decided to terminate his employment without providing any notice to the plaintiff.²  Within a few days thereafter, the defendant registered with the department of consumer affairs as a home improvement contractor.   Plaintiff's exhibit # 6.   After receiving word from some vendors and some of the plaintiff's employees that the defendant was installing basement stairs in competition with the plaintiff, Raffin, upon further investigation, discovered that the defendant was advertising his new business, Custom Cellar Doors, in the September-October and October-November issues of Clipper magazine, the same publication in which the plaintiff promoted its business.³  See Plaintiff's exhibit # 4(a-e) and # 5(a-e).   In comparing the defendant's ad with that of the plaintiff, there is no question that the defendant is advertising “similar” if not identical services to those he performed while employed by the plaintiff.   Both advertisements promote the installation of “bottom entry doors, stairs, custom basement windows, window well systems and covers.”   The plaintiff's ad indicates that the company installs “all types of cellar doors,” while the defendant advertises the ability to install “custom doors of any size and shape.”   Emphasis added.   The plaintiff claims to be “New England's largest cellar door entry specialist,” while the defendant advertises that his business is “serving all Connecticut.”   Both parties guarantee their work;  the plaintiff offers a written guarantee.

The defendant readily admits to the placement of the advertisement in the Fairfield County Clipper magazine.   He testified, however, that since September 2010, he has obtained two jobs, a cellar door installation in Stamford which was completed and a pending order for a similar installation in Norwalk.   The defendant is certainly knowledgeable about basement doors.   He identified the three major manufacturers-Bilko, Gordon and Steelway-all of which provide standard doors.   He explained that his major task while employed by the plaintiff was to perform certain measurements of the foundation and to insert the results on a form or sketch created by Raffin.   It was left to Raffin to determine whether a standard or custom designed door was needed for a particular job.

The defendant claimed that he has been installing the standardized cellar doors that he purchases from Bilko or Gordon.   He has not installed any so-called customized cellar doors, which are only available from Steelway in Pennsylvania.   In response to questions by his attorney, the defendant stated that he is willing to agree to limit his installations to the standard doors and is willing to limit his potential customers to those in Fairfield and New Haven counties.   He is even willing to remove “custom” from his trade name.

The defendant testified he graduated from high school in 1980 and became a certified carpenter in 1989.   His work as a carpenter included the installation of basement doors, which he has been doing since 1985.   He testified that in his experience, “90% of the doors he installed were standard doors” and that most modifications, if required, could be performed with the aid of accessories that are furnished by the manufacturer.   He explained the only additional items needed were common carpentry tools, i.e., a square, a measuring tape, a saw and a hammer.   His new business currently consists of one employee, himself, and a recently purchased 1988 Chevy truck.

Based upon a comparison of the advertisements and the defendant's own admissions, it appears to be undisputed that from the time that Palamar ended his employment with the plaintiff he has been engaged in direct competition with his former employer in violation of section 2.2 of the Noncompetition And Nondisclosure Agreement.   The parties agree, however, that the critical issue that the court must address is whether the restrictive covenant that the defendant agreed to in August 2007 is enforceable under Connecticut law.   In this regard, counsel for each of the parties agreed that the plaintiff has the initial burden of going forward and proving that the restrictive covenant was signed by the defendant and that the defendant is in violation of that covenant.   Once that is established by the plaintiff, counsel agreed that the burden is then upon the defendant to show that the restrictive covenant unduly restricts trade, is against public policy and should therefore not be enforced by the court.

III. Claims of the Parties

A. The Plaintiff's Claim

In response to a query as to why the court should enforce the restrictive covenant, Raffin explained that he has expended a lot of time and money in building his business over the past seven years.   He is concerned that the defendant will promote his new business by contacting customers of the plaintiff, many of whom are likely to contact the plaintiff for maintenance of previous installations or for new work.   He is concerned that, should the defendant be permitted to continue to install basement entry doors and accessories within the state of Connecticut, the business that Raffin worked so hard to build would be placed in serious jeopardy.

Raffin conceded, however, that, although the plaintiff is in violation of the terms of the restrictive covenant by continuing to install basement entry doors in competition with the plaintiff, he is making no claim that the defendant took a list of customers when he departed;  he is not claiming that the defendant removed from the plaintiff's premises any confidential information such as custom designs or plans.   In effect, the plaintiff is not claiming that there is anything unfair in the manner in which the defendant is competing;  it is the fact that he is competing and is in violation of the restrictive covenant that has caused the plaintiff to file this action and, in particular, the application for a temporary injunction.

Despite, on the part of the defendant, the lack of any unfair acts or practices, as alleged by the plaintiff in the CUTPA count of its complaint, the plaintiff argues that as a licensed carpenter, the defendant is free to perform all types of services unconnected with the installation of cellar doors.   Therefore, should the court enforce the restrictive covenant the defendant would not be prohibited from making a living.   Moreover, the plaintiff has built a unique business, has become an expert in the installation of custom cellar doors and has amassed goodwill and a customer base throughout the entire state.   The plaintiff asserts that allowing the defendant to continue to compete within that customer base in violation of an agreement that he signed, which resulted in a significant promotion and higher wages, would be inequitable and would cause irreparable injury to the plaintiff for which there would be no adequate remedy at law.   Given the facts and circumstances of this case, the plaintiff argues that the equities are, on balance, in its favor and support the issuance of a temporary injunction.

B. The Defendant's Position

The defendant argues that the restrictive covenant signed by him in August 2007, lacked “adequate consideration” and is an unreasonable restraint of trade.   The defendant points out that the evidence shows that the plaintiff is currently servicing fifty customers while the defendant, since August, has serviced only two.   The defendant asserts he has a right to earn a living at what he has been doing for twenty-five years;  he has a right to install cellar entry doors and accessories.   He argues that it would be inequitable and unreasonable for the court, via a temporary injunction, to prohibit him from doing so.

IV. Applicable Law

A. Temporary Injunction

The purpose of a temporary injunction is to preserve the status quo by prohibiting the performance of certain acts described in the applicant's verified complaint until final determination of the party's rights after a hearing is held on the merits.  Clinton v. Middlesex Mutual Assurance Company, 37 Conn.App. 269, 270 (1995);  Deming v. Bradstreet, 85 Conn. 650, 659 (1912).   In considering whether to grant or to deny an application for a temporary injunction a court is obligated to consider four factors:  whether or not irreparable or imminent injury is implicated;  whether or not the applicant has an adequate remedy at law;  the likelihood that the applicant will be successful at the trial on the merits;  and whether the balancing of the equities favors or disfavors granting the applicant's request.  Waterbury Teachers Assn. v. Freedom of Information Commission, 230 Conn. 441, 446 (1994).   If the applicant proves that irreparable injury will be the result unless the injunction is granted, the court ought to grant the injunction, unless it is clear that the applicant will not prevail at a trial on the merits.  Olcott v. Pendleton, 128 Conn. 292, 295 (1941).   An irreparable injury is an injury that is of such a nature that it cannot be adequately compensated in damages, or cannot be measured by any pecuniary standard.   Connecticut Assn., Clinical Laboratories v. Conn. Blue Cross, Inc., 31 Conn.Sup. 110, 113 (1973).

B. Restrictive Covenant In Employment

When a temporary injunction involves a restrictive covenant arising out of an employment situation, most trial courts have followed Judge Adams' opinion in POP Radio v. News America Marketing In-Store, 45 Conn.Sup. 566, 577 [40 Conn. L. Rptr. 332] (2005).  “Connecticut law supports a distinctly moderated level of proof required to establish the elements of irreparable harm and lack of an adequate remedy at law necessary for the issuance of a temporary injunction where the circumstances involve an alleged breach of a noncompetition agreement.”   Judge Levin recently held in Fairfield County Bariatrics and Surgical Associates, P.C. v. Timothy B. Ehrlich, MD. et al.   (FBT-CV-10-50291046), Judicial District of Fairfield at Bridgeport, March 8, 2010;  2010 Ct.Sup.6436:  “Specifically, this court holds that irreparable harm and lack of adequate remedy at law are rebuttably presumed where a covenant not to compete, which has been found to impose only a reasonable restraint has been violated.”   Emphasis added.

“By definition, covenants by employees not to compete with their employers after termination of their employment restrain trade in a free market ․ Consequently, these covenants may be against public policy, and, thus, are enforceable only if their imposed restraint is reasonable, an assessment that depends upon the competing needs of the parties as well as the needs of the public.   These needs include:  (1) the employer's need to protect legitimate business interests, such as trade secrets and customer lists;  (2) the employee's need to earn a living;  and (3) the public's need to secure the employee's presence in the labor pool.”  Deming v. Nationwide Mutual Ins. Co., supra, 279 Conn. 761.  “To meet this test successfully, the restraint must be limited in its operation with respect to time and place and afford no more than a fair and just protection to the interests of the party in whose favor it is to operate, without unduly interfering with the public interest.”  Mattis v. Lally, 138 Conn. 51, 54 (1951).  “[W]e have held that time and geographic restrictions in a covenant not to compete are valid if they are reasonably limited and fairly protect the interests of both parties.”  Robert S. Weiss & Associates, Inc. v. Wiederlight, 208 Conn. 525, 530 (1988).   Emphasis added.

“Under the law, restrictive stipulations in agreements between employer and employee are not viewed with the same indulgence as such stipulations between a vendor and a vendee of a business and it's good will.”  Samuel Stores, Inc. v. Abrams, 94 Conn. 248, 252 (1918).   When employee agrees to be subjected to future work restrictions, he or she does so in order to obtain employment and ordinarily gets nothing in return for giving up this important freedom.   Thus, the employee is at a great bargaining disadvantage;  therefore, courts generally give such restrictive covenants great scrutiny since the agreement seriously impairs an employee's ability to make a living once the relationship is terminated.  Fairfield County Bariatrics and Surgical Associates, P.C., supra, citing Rash v. Tocca Clinic Medical Association, 253 Ga. 322, 320 S.E.2d 170 (1984).

In the Fairfield County Bariatrics case, supra (involving the enforcement, via a requested temporary injunction of a restrictive covenant contained in an agreement between the shareholders and principals of the plaintiff corporation, which prevented the defendant physician from practicing bariatric medicine within a certain defined area), Judge Levin, after an extensive review of appellate case law in Connecticut, concluded:  “In every case in which the court upheld a covenant not to compete, the party whom the covenant benefitted was seeking to protect against something other than mere competition-the use of his customer lists, information concerning potential customers in a limited area the employee had acquired, the impairment of good will he had purchased, confidential data or trade secrets or some other advantage the employee had acquired while in his employ which would make his immediate competition unfair.”   Emphasis added.⁴

C. Burden of Proof

As previously noted, at the conclusion of the hearing on the plaintiff's application for temporary injunction, counsel agreed that while the plaintiff had the initial burden of proving that the defendant signed the agreement containing the restrictive covenant and that the defendant was acting in violation thereof, it falls upon the defendant to then persuade the court that the covenant is unenforceable.   In this case, it is virtually undisputed that on August 21, 2007, the defendant signed the agreement at issue, and thereby agreed to the restrictive covenant.   Further, it is undisputed that the defendant is currently installing metal cellar doors and other accessories within the state of Connecticut in apparent violation of the terms of said covenant.   The plaintiff, having met his two-pronged burden, it is up to the defendant to sustain the burden of proving to this court that the restrictive covenant is an unenforceable and unreasonable restraint of trade.   This court finds that the defendant has successfully met that burden.

IV. DISCUSSION

Certainly, Raffin, the plaintiff's principal, has a right to protect a business which he developed over the years through substantial investment of his time and money from being destroyed or seriously impaired via unfair or unscrupulous competitive conduct by a former employee.   The plaintiff clearly has the right to invoke legal process via a request for injunctive relief in order to prevent a former employee from engaging in unfair competition by ignoring the terms of the restrictive covenant not to compete with his former employer that was signed by said employee.   As made apparent by the cases cited herein, however, such a covenant must be reasonably limited as to time and geographic area consistent with the nature of the business that the employer seeks to protect.   Our courts have imposed such limitations in recognition of every person's right to earn a living and the public's need to have that former employee as part of the labor force.   Therefore, restrictive covenants in employment will be enforced by our courts only if the restraint imposed thereby is reasonable.   If the restriction is overly broad the covenant will not be enforced and any requested injunctive relief will be denied, thereby negating any finding of irreparable harm or lack of adequate remedy at law.   Fairfield County Bariatrics, supra.

As noted, Raffin, the plaintiff's principal, confirmed that the defendant did not take any trade secrets, customer lists, confidential data, maps, designs, or schematics when he left the plaintiff's employ in May 2010.   Any unfairness, which Judge Levin discerned was the common thread in the cited appellate cases in which the enforcement of the restrictive employment covenant was upheld, is totally lacking in this case.   The facts do not support any of the allegations contained in the second count of the plaintiff's complaint, i.e., the CUTPA count.

Since leaving his employment with the plaintiff, the defendant has managed to obtain only two customers, while at the time of the hearing, the plaintiff was currently servicing or held orders for fifty customers.   During his employment with the plaintiff (from January 2006 to May 2010) the defendant installed outside metal basement entry doors and accessories which he had been doing since 1985 as part of his trade as a carpenter.   While employed by the plaintiff the defendant was not responsible for nor did he make the decision as to when to install so-called “custom made” cellar doors.   Since his separation from the plaintiff the defendant has been installing standard cellar doors which he obtains from the three major manufacturers.   In the process of doing this work the defendant makes use of the square, a measuring tape, a saw and a hammer-all basic tools of his carpentry trade.   In balancing the equities, while the plaintiff has a right to utilize the court to make sure that his former employee does not engage in unfair competition, the plaintiff does not have a right to use the injunctive process to completely prevent an employee, who possesses all the skills necessary to install outside metal basement entry doors and who had done so for many years prior to commencing employment with the plaintiff, from continuing to pursue his chosen occupation, simply because he opted to sign a restrictive covenant in order to obtain a significant promotion, particularly, when that covenant prevents him from doing so for three years throughout the entire state of Connecticut.

This court finds that covenant under the facts and circumstances of this case and based upon the cited precedent is an unenforceable, unfair and unreasonable restraint of trade and is contrary to the public policy of this state.   Based upon the foregoing, this court finds that it is unlikely that the plaintiff will be successful at a trial on the merits.   The plaintiff's application for a temporary injunction is DENIED.

Wilson J. Trombley, Judge

FOOTNOTES

FN1. General Statutes Sec. 52-471(b) provides:  No injunction may be issued unless the facts stated in the application therefor are verified by the oath of the plaintiff or of some competent witness..  FN1. General Statutes Sec. 52-471(b) provides:  No injunction may be issued unless the facts stated in the application therefor are verified by the oath of the plaintiff or of some competent witness.

FN2. Ms. Nelson, who has been the plaintiff's office manager for the past four years, testified that, due a downturn in the economy in January 2009, the plaintiff was compelled to impose an across-the-board decrease in salaries and wages.   The defendant suffered a $220 reduction from his $1,100 weekly salary.   Nelson explained that the pre-reduction levels were reinstated in two increments long before the defendant terminated his employment in May 2010..  FN2. Ms. Nelson, who has been the plaintiff's office manager for the past four years, testified that, due a downturn in the economy in January 2009, the plaintiff was compelled to impose an across-the-board decrease in salaries and wages.   The defendant suffered a $220 reduction from his $1,100 weekly salary.   Nelson explained that the pre-reduction levels were reinstated in two increments long before the defendant terminated his employment in May 2010.

FN3. Raffin testified that he places advertisements in Clipper magazine in each of the seven counties in the state of Connecticut, while the defendant testified that his ad appeared in the Fairfield County publication only.   The plaintiff was unable to find an advertisement for the defendant's business in any other Clipper publication..  FN3. Raffin testified that he places advertisements in Clipper magazine in each of the seven counties in the state of Connecticut, while the defendant testified that his ad appeared in the Fairfield County publication only.   The plaintiff was unable to find an advertisement for the defendant's business in any other Clipper publication.

FN4. “In that opinion, Judge Levin reviewed the following cases:  Robert S. Weiss and Associates Inc. v. Wiederlight, supra, 208 Conn. 525 (1988);  Scott v. General Iron and Welding Co., 171 Conn. 132 (1976);  Mattis v. Lally, supra, 138 Conn. 51 (1951);  Cook v. Johnson, 47 Conn. 175 (1879);  Domurat v. Mazzaccoli, 138 Conn. 327 (1951);  Torrington Creamery, Inc. v. Davenport, 126 Conn. 515 (1940);  New Haven Tobacco Co. v. Perrelli, 118 Conn.App. 531, cert. denied, 212 Conn. 809 (1989);  May v. Young, 125 Conn. 1 (1938);  Rossler v. Burwell, 119 Conn. 289 (1934);  Samuel Stores, Inc. v. Abrams, supra, 94 Conn. 248 (1918);  Beit v. Beit, 135 Conn. 195 (1948), rearg. denied, 135 Conn. 413 (1949);  and Styles v. Lyon, 87 Conn. 23 (1913)..  FN4. “In that opinion, Judge Levin reviewed the following cases:  Robert S. Weiss and Associates Inc. v. Wiederlight, supra, 208 Conn. 525 (1988);  Scott v. General Iron and Welding Co., 171 Conn. 132 (1976);  Mattis v. Lally, supra, 138 Conn. 51 (1951);  Cook v. Johnson, 47 Conn. 175 (1879);  Domurat v. Mazzaccoli, 138 Conn. 327 (1951);  Torrington Creamery, Inc. v. Davenport, 126 Conn. 515 (1940);  New Haven Tobacco Co. v. Perrelli, 118 Conn.App. 531, cert. denied, 212 Conn. 809 (1989);  May v. Young, 125 Conn. 1 (1938);  Rossler v. Burwell, 119 Conn. 289 (1934);  Samuel Stores, Inc. v. Abrams, supra, 94 Conn. 248 (1918);  Beit v. Beit, 135 Conn. 195 (1948), rearg. denied, 135 Conn. 413 (1949);  and Styles v. Lyon, 87 Conn. 23 (1913).

Trombley, Wilson J., J.