Sotheby's International Realty, Inc. v. Louis B. Jones, Jr. et al. (2011)

Memorandum of Decision on Plaintiff's Application for Temporary Injunction (No.101)

This action arises out of a January 5, 2005 sale of certain business assets and goodwill of William Pitt Real Estate, LLC (not a party to this action) and affiliated persons and entities to Sotheby's International Real Estate, Inc. (SIR) for a consideration of $20 million pursuant to a detailed Asset Purchase Agreement which required, as a condition of the sale, that the seller and its affiliated persons and entities enter into a non-competition agreement with SIR. This action alleges that the defendants Louis B. Jones, Jr. (Jones), LB Jones Co., LLC (Jones LLC), signatories of that non-competition agreement which had a term of ten years are now in breach of that agreement through the instrumentality of the defendant Greenwich Point Properties, LLC of which Jones is a 30% owner.   The complaint, seeking legal and equitable relief has six counts:  (1) breach of the non-competition agreement by Jones and Jones LLC;  (2) GPP's tortious interference with the non-competition agreement;  (3) conversion against all defendants;  (4) Misappropriation of Trade secrets against all defendants;  (5) common law unfair competition against all defendants;  and (6) violation of the Connecticut Unfair Trade Practices Act against all defendants.   No answer has yet been filed.   The case is not yet assigned for trial.   Counsel for the defendants has filed a Amended Disclosure of Defense pursuant to Practice Book § 13-19 that he believes there are the following bona fide defenses to the case:  1. The length of the covenant not to compete is a violation of public policy;  2. Due to changes in the Greenwich real estate market as it applies to brokers, the reasons for the covenant no longer exist and should no longer be enforced;  3. Unclean hands;  and 4. A fundamental unanticipated change in economic condition changes the balance of equities between the parties.   Now before the court is the plaintiff's application for temporary injunction seeking to enjoin the defendants from competing against SIR within the contractual restricted area for the remaining term of the Non-Competition Agreement, accompanied by the affidavit of Kathryn A. Korte, president and CEO of SIR.

The court conducted an evidentiary hearing over a period of two days, and has considered the affidavit, testimony, the exhibits of both parties, and oral argument, and briefs of counsel.

Findings of Fact

The court finds the following facts to have been proved by the plaintiff by a preponderance of the evidence:

1. Plaintiff SIR is a Michigan corporation engaged in the business of residential real estate brokerage throughout the country.   Prior to January 5, 2005 it had a real estate brokerage office in Greenwich.

2. As part of its efforts to expand its market share in the Greenwich SIR acquired the assets of William Pitt Real Estate, LLC (WPRE) relating to WPRE's Greenwich, Old Greenwich, and Litchfield County real estate brokerage operations through an Asset Purchase Agreement dated as of January 5, 2005 for a consideration of $20,000,000 to be paid in full by wire transfer at the closing.   The assets of WPRE acquired by SIR included all the assets used by WPRE and goodwill of WPRE at its locations at 45 Field Point Road, Greenwich, Connecticut;  35 Field Point Road, Greenwich, Connecticut;  41 West Elm Street, Greenwich, Connecticut;  and 255 New Milford Turnpike, Marbledale, New Preston, Connecticut.

3. As of January 5, 2005 WPRE was a Connecticut limited liability company owned wholly by William Pitt Real Estate Management, LLC which was owned equally by its two members:  the defendant Jones LLC (owned and controlled by defendant Jones), and Paul Breunich, LLC (Owned and controlled by non-party Paul Breunich).   Jones was a managing partner of WPRE, as was Breunich.   Jones was in charge of sales and marketing.   Prior to the sale to SIR WPRE had 24 real estate offices, mostly in Fairfield County, using the services of about 600 employees and sales associates.

4. Jones had been involved in the real estate business for about 23 years at the time of the sale.   He started with WPRE in 1997 when he was hired to be president of WPRE. He and Paul Bruenich, through their limited liability companies, purchased WPRE from the Pitt Foundation after the death of the WPRE's founder in 2001.

5. The asset sale closed on January 5, 2005.   All parties were represented by counsel in the negotiation, documentation, and closing of the sale.   The selling parties on the Asset Purchase Agreement (Ex. 1) were WPRE, Jones LLC, Paul Breunich Co, LLC (described collectively as “Seller”), and WPRE Management, LLC (described as the Owner-Member”).

6. Paragraph 3(a)(vii) of the Asset Purchase Agreement provides, as a condition of closing:  “Non-Competition Agreement.   Seller, Owner Member, Paul Bruenich, and Louis B. Jones, Jr. shall have entered into a Non-Competition Agreement with Buyer.”

7. As part of the transaction WPRE, William Pitt Management, LLC, Jones LLC, Paul Bruenich Co., LLC, Jones and Paul Breunich (the latter two individuals designated as “Managers”) entered into a written Agreement Not to Compete dated as of January 5, 2005 with SIR (designated as “Buyer”) (Exhibit 2) by which they agreed:

1.  Each of Seller and Managers shall not at any time prior to the tenth anniversary of the Closing Date, within the Restricted Area, without written permission of Buyer in each instance, directly or indirectly conduct a real estate brokerage business.   For purposes of this Agreement, the term “Restricted Area” shall mean (i) the city of Greenwich, Connecticut, including Old Greenwich, Cos Cob, Byram and Riverside (the boundaries of which are set forth on the map attached hereto as Exhibit A);  and (ii) a 10 mile radius of Seller's current office located at 255 New Milford Turnpike, Marbledale, Connecticut.

For purposes of this Agreement, the term “directly or indirectly conduct a real estate brokerage business” shall include, but not be limited to, any of the following actions by the undersigned:  (i) carrying on or engaging in any such business as a principal, or on his own account, or solely or jointly with others as a director, officer, agent, employee, security holder, consultant, partner, trustee, or beneficiary of a trust, or stockholder or limited partner;  or (ii) carrying on or engaging in negotiations with respect to the acquisition or disposition of any such business or activity in any capacity;  or (iii) lending credit or money for the purpose of establishing or operating any such business or activity;  or (iv) giving advice to any other person, firm, association, corporation, or other entity engaging in any such business, (except that “giving advice”) shall not include normal professional interchange between or among real estate brokers, so long as the undersigned has no family or financial interest in the enterprise(s) with respect to which such advice is being given);  or (v) lending or allowing the skill, knowledge or experience of Seller or Managers to be used in any such business.

Managers represent, stipulate and acknowledge that (I) Managers's experience and capabilities are such that the provisions herein contained will not prevent Managers from earning a livelihood, (ii) the execution of this Agreement was a material inducement to Buyer to enter into the Purchase Agreement and consummate the transaction contemplated thereby, (iii) it would cause buyer serious and irreparable injury and cost if either Manager were to use his ability and knowledge in competition with Buyer, or to otherwise breach the obligations contained herein, and (iv) the restrictions on competition contained herein are fair and reasonable in both geographic and temporal scope.

8. Under Paragraph 6(j) of the asset Purchase Agreement it was acknowledged that Seller [WPRE et als] had on December 22, 2004 signed a Franchise Agreement with Sotheby's International Realty Affiliates (SIRA), under the terms of which SIRA, an affiliate of SIR, promised, with SIR's consent, that it would not expand in the State of Connecticut except for the Permitted Area for a twelve-year period after January 5, 2005 by locating offices outside the Permitted Area so long as Seller has the right to the areas of protection set forth in the Franchise Agreement.

9. The Non-Competition Agreement acknowledges in paragraph 6 that Seller [WPRE et als] under the terms of the foregoing Franchise Agreement is authorized for a term of twelve years to conduct residential real estate brokerage businesses as a franchisee of SIRA, initially out of twenty-one (21) offices located in Fairfield, New Haven, Litchfield, and Hartford counties in Connecticut with said businesses to be conducted under the name “William Pitt SOTHEBY'S INTERNATIONAL REALTY.”

9. Following the closing Jones stayed involved as a Managing Partner of the former WPRE offices outside the Protected Area doing business under the brand William Pitt SOTHEBY'S INTERNATIONAL REALTY until he disassociated from the company on April 2, 2009.

10. Jones admitted in his testimony, and the court finds, that Jones was directly involved in organizing the defendant Greenwich Point Properties, LLC (GPP) with his partner Paul Gaston, for the purpose of conducting a real estate brokerage business at leased premises at 24 East Elm Street, Greenwich Connecticut.   Jones is a 30% owner of GPP and intends to operate a real estate brokerage office at that address.   GPP has become a member of the Greenwich Multiple Listing Service, and Jones is a member of the Greenwich Board of Realtors.   Five GPP sales agents have already been hired.   GPP's business plan contemplates a target share of 10% to 12% of the Greenwich real estate market with approximately 30 full-time and 10 part-time sales associates.   Jones' role at this time is to recruit sales associates.

Other findings of fact may be made in the following discussions.

Conclusions of Law

In deciding whether or not to issue a temporary injunction, the court must consider the following factors:

Irreparable and imminent injury;

Lack of an adequate remedy at law;

Likelihood of success on the merits;

Whether a balancing of the equities favors granting the injunction.

Waterbury Teachers Assn. v. Freedom of Information Commission, 230 Conn. 441, 446, 645 A.2d 978 (1994).  “[I]n exercising its discretion, the court ․ [must] consider and balance the injury complained of with that which will result from interference by injunction ․ The relief granted must be compatible with the equities of the case.”  (Citation omitted;  internal quotation marks omitted.)  Berin v. Olson, 183 Conn. 337, 343, 439 A.2d 357 (1981);  see also Marquardt & Roche/Meditz & Hackett, Inc. v. Riverbend Executive Center, Inc., 74 Conn.App. 412, 421, 812 A.2d 175 (2003).   The court has considered and weighed all of the evidence and, for the reasons to be articulated in a separate opinion to follow, the court has concluded that the plaintiff has established entitlement to a temporary injunction in this case.   Accordingly,

IT IS HEREBY ORDERED THAT:

1. Defendants Louis B. Jones, LB Jones Co., LLC, and Greenwich Point Properties, LLC (collectively, “Defendants”), and all persons actively working in concert with them, be and hereby are enjoined and restrained from directly or indirectly conducting a real estate brokerage business in the Town of Greenwich, Connecticut, including Old Greenwich, Cos Cob, Byram and Riverside, and within a ten-mile radius of 255 New Milford Turnpike, Marbledale, New Preston, Connecticut (the “Restricted Area”).   In addition, Defendants are prohibited from engaging, directly or indirectly, in any of the following actions in the Restricted Area:

(i) carrying on or engaging in any such real estate brokerage business as a principal, or on his own account, or solely or jointly with others as a director, officer, agent, employee, security holder, consultant, partner, trustee, or beneficiary of a trust, or stockholder or limited partner;  or

(ii) carrying on or engaging in negotiations with respect to the acquisition or disposition of any such real estate brokerage business or activity in any capacity;  or

(iii) lending credit or money for the purpose of establishing or operating any such real estate brokerage business or activity;  or

(iv) giving advice to any other person, firm, association, corporation, or other entity engaging in any such real estate brokerage business, (except that “giving advice”) shall not include normal professional interchange between or among real estate brokers, so long as the undersigned has no family or financial interest in the enterprise(s) with respect to which such advice is being given, or

(v) lending or allowing the skill, knowledge or experience of Seller or Managers to be used in any such real estate brokerage business.

2. Said Orders are to remain in effect until January 5, 2015 or until further Order of this Court, whichever shall first occur.

3. These orders are entered without the requirement of posting a bond.

Dated at Stamford, Connecticut February 24, 2011

Alfred J. Jennings, Jr.

Judge Trial Referee

Jennings, Alfred J., J.T.R.