Pascale Sabatasso et al. dba Soho Hair Group–Day Spa v. Katherine Ranciato (2013)

MEMORANDUM OF DECISION

This is a civil action wherein the plaintiffs, Pasquale Sabatasso and Linda Sabatasso dba Soho Hair Group—Day Spa (plaintiffs or SOHO), are seeking injunctive relief, money damages, punitive damages and attorneys fees from the defendant, Linda Ranciato.   SOHO owns and operates a hair dressing salon at 916 Whalley Avenue, New Haven, Connecticut, and Ranciato was employed as a hairdresser and colorist at SOHO from approximately 1992 until 1996, and from 1998 until she resigned in early February 2011.

On October 16, 2012 the plaintiffs filed a six-count amended complaint against the defendant alleging in substance in the first count claiming breach of contract that SOHO and the defendant had entered into a non-competition and confidentiality agreement (agreement) in which the defendant agreed that for twelve months after the termination of her employment at SOHO she would not engage, in a restricted area, in the same kind of services or activities that she had rendered at SOHO. The restricted area was described in the complaint as the area in Connecticut that is located within ten miles from the center of New Haven, and specifically included the towns and cities of New Haven, North Haven, East Haven, West Haven, Hamden, Woodbridge, Orange and Branford.   The first count also alleged that the defendant agreed for twelve months after termination not to solicit any customers of SOHO that she had dealt with in the year prior to the termination of her employment, and for twelve months after termination not to solicit any employees to leave SOHO who were employed by SOHO during the year prior to the termination of her employment.   It is also alleged that the agreement provided that if the defendant violated the non-compete restriction that the number of days that the defendant is in violation will be added to the twelve-month period.   The first count claims that in or about February 2011, the defendant voluntarily terminated her employment with SOHO and commenced employment with a hair salon in North Haven, known as Cleopatra Salon, which renders services and engages in activities similar to those performed at SOHO;  and that since her termination of employment at SOHO the defendant has sold services to, and solicited, SOHO customers in competition with SOHO, and has solicited SOHO employees to leave the employ of SOHO, all in violation of the agreement.   The first count also alleges that during her employment with SOHO the plaintiff violated the agreement in that she engaged in other salon industry related business for compensation without consent of SOHO. The plaintiffs seek money damages for the breach of contract as alleged in the first count.

The second count re-alleges the first count and requests injunctive relief as is allegedly provided for in the agreement in the event that the defendant breaches the restrictive covenants in the agreement.

The third count re-alleges the first count and adds a claim that the defendant had access to the plaintiff's trade secrets during her employment at SOHO and that her present conduct constitutes a misappropriation of trade secrets under General Statutes Section 35–51 et seq., and in that the defendant's conduct was and is willful, wanton and with reckless disregard to SOHO's rights, causing SOHO to suffer damages.

The fourth count re-alleges the allegations of the second and third counts and claims that such conduct by the defendant constitutes unfair acts and/or practices under the Connecticut Unfair Trade Practices Act, General Statutes Sections 42–110a et seq., and that SOHO has been damaged as a result of the defendant's unfair acts and/or practices.

The fifth count re-alleges portions of the second and third counts, alleges a claim of a breach of fiduciary duty, and that the plaintiffs have suffered damages.

The sixth count re-alleges the first count and makes a claim for punitive and exemplary damages.

By way of relief the plaintiff's request that the defendant be enjoined from using SOHO's trade secrets and to maintain confidentiality as to said trade secrets, be enjoined from engaging in activities similar to those performed at SOHO in the restricted area for twelve months from the date of the court's order, be enjoined from soliciting any SOHO customer to engage in activities similar to those performed at SOHO for twelve months from the date of the court's order and be enjoined from soliciting SOHO employees to leave SOHO's employment.   The plaintiffs also request punitive damages pursuant to General Statutes Sections 42–110G and 35–53, and costs and attorney fees pursuant to General Statutes Section 42–110G, 35–53 and paragraph 12 of the agreement.

By way of her answer to the complaint, the defendant admits that she signed the noncompetition and confidentiality agreement and that she commenced employment with Cleopatra Hair Salon, but she denies that she renders services similar to those she performed at SOHO, and she denies that she voluntarily resigned and claims that she was constructively discharged.   All of the other allegations of the complaint are denied.

This case was tried in a court trial before this court on November 27, 28 and 30, 2012.   Post-trial briefs were filed by each party and the plaintiff filed a reply brief.

By way of his briefs the plaintiff claims that he has proven that the defendant has breached the agreement in that she has provided services competitive with SOHO within the restricted area and within one year following her termination, in that she has solicited customers of SOHO that she was involved with during the twelve months prior to her termination, in that she has rendered services competitive with SOHO to such customers, in that she solicited employees of SOHO to leave their employment, in that she engaged in “moonlighting,” and in that she used the name SOHO in her promotions.

By way of her brief the defendant claims that there is no contract because of a failure of consideration, that the non-compete is unenforceable because of unclean hands by the plaintiff, the non-compete is not reasonable, there are no breaches of the contract, and there is no legitimate claim for punitive damages or attorneys fees.

The court finds the following facts and reaches the following conclusions.   On September 21, 2001 and June 29, 2005 SOHO and the defendant entered into identical written agreements entitled Non–Competition And Confidentiality Agreement.   The 2005 agreement was in evidence while the identical 2001 agreement with the defendant was not.   The evidence established that when the 2005 agreement was entered into the identical 2001 agreement was discarded.   The defendant claims that the agreement is void because of a lack of consideration.   The defendant had been employed by the plaintiff as a hair stylist starting in approximately 1992.   She left in January 1996 to have a child and returned approximately two years later.   When the 2001 agreement was signed the defendant received a $1,000 bonus in consideration of the agreement.   The agreements stated that part of the consideration for the agreements was an increase in compensation.   The evidence established that the defendant's overall compensation, her hours, her hourly gross pay and commissions increased after 2001 and after 2005.   The defendant received a new compensation package when she signed the 2005 agreement.   The court finds that there was adequate consideration for the 2001 agreement and the 2005 agreement.

The defendant voluntarily resigned her job at SOHO in early February 2011, and within a few days she and her husband opened a new salon in North Haven known as Cleopatra's.   This salon is located within the restricted area and the defendant performs hair styling, coloring, and other hair services in direct competition with SOHO's.   The defendant admits that since opening Cleopatra's she has rendered hair services to 29 customers with whom she had worked with at SOHO's, and the plaintiff “suspects” that 14 other customers who no longer patronize SOHO are also being serviced by Cleopatra's.   The defendant denies that she has solicited any former customers of SOHO to come to Cleopatra's.

Restrictive employment agreements between employers and employees must be reasonable.  “Anticompetitive or restrictive covenants are frequently found in two distinct classes of contracts:  those between a vendor and a vendee when the goodwill of the subject business is being purchased;  and those between an employer and an employee when an employer is trying to protect his trade secrets, customer lists or “territory.”   Although the latter is not afforded the same degree of indulgence as is the former;  Samuel Stores, Inc. v. Abrams, 94 Conn. 248, 253, 108 A. 541 (1919);  a restrictive covenant in an employment contract need only be reasonable.  “Under the common law, the well-settled rule is that an anticompetitive covenant ancillary to a lawful contract is enforceable if the restraint upon trade is reasonable.”  Elida, Inc. v. Harmor Realty Corporation, 177 Conn. 218, 225, 413 A.2d 1226 (1979);  Scott v. General Iron & Welding Co., 171 Conn. 132, 137, 368 A.2d 111 (1976);  Domurat v. Mazzaccoli, 138 Conn. 327, 330, 84 A.2d 271 (1951);  Mattis v. Lally, 138 Conn. 51, 54, 82 A.2d 155 (1951);  Dick v. Sears–Roebuck & Co., 115 Conn. 122, 126, 160 A. 432 (1932).

“Our Supreme Court has specified five areas in which the reasonability of a restrictive covenant must be evaluated:  (1) the length of time the restriction is to be in effect;  (2) the geographical area covered by the restriction;  (3) the degree of protection afforded to the interest of the party in whose favor the covenant is made;  (4) the restrictions imposed on the employee's ability to pursue his occupation;  and (5) the potential for undue interference with the interests of the public.  Scott v. General Iron & Welding Co., supra.”   New Haven Tobacco Co v. Perrelli, 11 Conn.App. 636.

The plaintiff has approximately 4000 customers located primarily in the eight towns listed in the non-compete agreement.   In order to protect against his former employees using their relationship with his customers to take any of the customers the plaintiff for twenty-five years has required all of his employees to sign the non-compete agreement which is the subject of this case.   He explains the agreement to each new employee and gives them adequate time to consider it.   They are allowed to take it home so that it can be reviewed by anyone of the employee's choosing.

The restrictions on competition in the agreement provide that, within the restricted area, for one year after she ceases employment at SOHO's the defendant agrees that she will not render any services that are the types of services rendered by her at SOHO, and that for one year after termination of employment she will not engage in any activities that are competitive with SOHO to any SOHO customer whom the defendant serviced, or had knowledge of by virtue of being employed by SOHO, or any customer of SOHO that the defendant participated or supervised during the twelve months prior to the termination of her employment with SOHO. The agreement also provides that the defendant agrees that for one year after her termination at SOHO she will not solicit or offer or cause to be offered any employment to any person who was employed by SOHO at any time during the year prior to the termination of the defendant's employment with SOHO. The agreement also provides that the defendant was never to use the name of Pat Sabatasso or SOHO in her promotions, and that during her employment at SOHO's she will not engage in any other industry related business, which is known as “moonlighting.”

The agreement provides that the defendant will not engage in work in the restricted area competitive with SOHO for one year after she terminates her employment at SOHO. The defendant describes this restriction as requiring her to “completely forego income necessary to support her family for a period of one year.”   The one-year restriction applies only to the restricted area which is 10 miles from the center of the city of New Haven.   The length of time and the limited area of the restriction as provided in the agreement has been upheld in many cases.

In a case where the restrictive covenants barred an insurance salesman from engaging in the selling of commercial insurance within Stamford and within ten miles from the outer borders of Stamford for two years after his employment terminated, the Supreme Court held:  “The trial court's conclusion that this restrictive covenant was reasonable is consistent with other cases where we 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.   See Scott v. General Iron & Welding Co., supra, 138, 140 (upholding five-year statement covenant barring employee from working as manager in competing business);  see also Torrington Creamery, Inc. v. Davenport, 126 Conn. 515, 520, 12 A.2d 780 (1940) (upholding two-year restriction applicable to specific and limited geographic area);  Roessler v. Burwell, 119 Conn. 289, 295, 176 A. 126 (1934) (covenant restricting delicatessen products salesman from soliciting employer's customers in specific locality upheld);  cf.  Samuel Stores, Inc. v. Abrams, 94 Conn. 248, 255, 108 A. 541 (1919) (invalidating covenant barring salesman for five years from selling clothes in any city where former employer operates).”  Robert S. Weiss & Associates, Inc. v. Wiederlight, 208 Conn. 525.

Restrictions of one year and 10 miles from the center of the city where the business is located are reasonable limitations and fairly protect the business interest of the plaintiff in maintaining his client base.   The culture at SOHO is for all employees to share in all clients and therefore SOHO and its employees benefit from maintaining a strong client base.   The plaintiff has created a client base by developing a large collection of propriety trade secrets consisting of customer preferences, color formulas and other details of his operation.   The protection of his client base enhances the business of SOHO and works to the financial improvement of all of his employees who share in his clients.

The unrestricted area is approximately a 45–minute drive from the defendant's home which was the length of time she testified it took her to drive to SOHO. The defendant is a highly skilled hair colorist who would have no problem in finding employment outside of the restricted area.   She is part owner of Cleopatra of Waterbury which provides services similar to SOHO and is outside the restricted area.   The defendant testified that “salons are all over the place.”   Other hair stylists have left SOHO and had no problem in finding employment outside the restricted area.   There are approximately 500 hair salons within the restricted area so that clients of the defendant or members of the public would have no problem in finding a substitute hair dresser for the defendant during the one-year period of restriction.

After considering the five areas to be considered in evaluating the reasonableness of a restrictive covenant in a non-compete agreement the court finds that the restrictive covenants in this case are reasonable.

The plaintiff has proven that the defendant has used the name “SOHO” to promote her business as head colorist on Facebook, a public social networking website.   He has also proven that the defendant breached the agreement by moonlighting while she was employed at SOHO. However, there is no evidence as to when the moonlighting occurred or the damages suffered by the plaintiff.

The plaintiff has failed to prove that the defendant has solicited employees to leave SOHO and go to work at Cleopatra's.   The fact that two former employees of SOHO became employees of Cleopatra's does not establish that they were solicited to leave by the defendant.

The agreement provides for both injunctive relief and damages in the event of a breach of the agreement.   The plaintiff is entitled to injunctive relief but the plaintiff has not proven damages.   The plaintiff seeks damages of $24,619, claiming that this loss is the net loss on gross losses totaling $98,476.   Each total is based on the gross income for 2009 and 2010 from the 29 clients that the defendant admitted were customers of his at Cleopatra's and the 14 customers that the plaintiff “suspects” are also customers of Cleopatra's.   The plaintiff has failed to prove that these 43 former clients of SOHO were solicited by the defendant to leave SOHO and become clients of Cleopatra's.   The damages are speculative because, even if the court had found that the defendant did solicit these customers of SOHO, there is no evidence that establishes that, if not for the improper solicitation, they would have stayed as customers of SOHO.

The agreement provides that if any party breaches any of the terms of the agreement that the breaching party shall pay the attorneys fees of the non-breaching party incurred in enforcing the terms of agreement.   The court has found that the defendant has violated the restriction set forth in Section 4(A)(J) by engaging in prohibited activities in the restricted area during the year following her termination from SOHO. A hearing will be held subsequent to the filing of this memorandum to determine the amount of attorneys fees to be awarded.

The defendant claims in her brief that the plaintiff's request for injunctive relief should be denied because the plaintiff comes to this litigation with unclean hands.   The unclean hands are alleged to be that the plaintiff uses the agreement as a sword rather than a shield, that the plaintiff engaged in sexual harassment of the defendant, and that the plaintiff did not provide a safe work environment.

The primary evidence relied on by the defendant to prove that the plaintiff used the agreement as a sword rather than a shield is that when they were discussing the possibility of leaving SOHO, shortly before she terminated her employment, the plaintiff had the non-compete agreement on his desk.   That the plaintiff intended to enforce the agreement if the defendant terminated her employment was a legitimate point for the plaintiff to make during the discussion and did not constitute improper use of the agreement.

The claim of sexual harassment of the defendant by the plaintiff consisted of alleged conduct by the plaintiff in 2005 at a Smashmouth concert, in 2007 at a Fergie concert and at work when the plaintiff would brush up against the defendant.   The evidence concerning the alleged sexual harassment produced by the defendant was her own uncorroborated testimony.   The plaintiff offered the testimony of four employees who testified that there was no sexual harassment by the plaintiff.   During her seventeen years employment at SOHO the defendant had never made any claims of sexual harassment by the plaintiff.   The defendant has failed to prove that she was sexually harassed by the plaintiff.

The claim of an unsafe work environment to help establish the unclean hands of the plaintiff consists of the evidence that one employee had a substance abuse problem that the defendant complained about.   The plaintiff testified that when the other employees complained about the problem he got the employee into a treatment facility.   The defendant did not claim that the work environment was unsafe except in her resignation letter.   The court finds that the defendant has failed to prove that the work environment was unsafe.   The defendant has not proven her claim of unclean hands by the plaintiff.

The third count of the amended complaint alleges that the defendant has misappropriated various materials and information which are trade secrets and confidential information as defined by the Uniform Trade Secrets Act, CGS Section 35–51 et seq.   The plaintiff has failed to prove this allegation.

The plaintiff claims that punitive exemplary damages claimed under the 4th count alleging a violation of CUTPA, and under the 6th Count alleging common-law wanton and reckless disregard of the rights of SOHO, should be awarded because the defendant's breach of contract has been accompanied by substantial aggravating circumstances.   The plaintiff claims in his brief that the defendant breached five provisions of the non-compete agreement in that she worked within the year and within the restricted area, in that she moonlighted, she solicited SOHO customers and SOHO employees, and in that she used the SOHO tradename in promoting her salon on Facebook.   The court has found that the plaintiff has failed to prove that the defendant solicited SOHO customers and SOHO employees.   The plaintiff has proven that the defendant worked within the restricted area and within one year, in competition with SOHO, after her termination of employment at SOHO. The moonlighting, whenever it occurred, and use of the tradename have also been proven but are of minor significance.   The plaintiff has failed to prove that the defendant's misconduct was accompanied by substantial aggravating circumstances that rise to the level of a violation of CUTPA as alleged in the 4th Count, or that the misconduct was sufficiently wanton and reckless to constitute liability as alleged in the 6th count.

The fifth count alleges that as a result of the defendant's misconduct she breached a fiduciary duty which she owed to the plaintiff.  “We have stated that a “fiduciary or confidential relationship is characterized by a unique degree of trust and confidence between the parties, one of whom has superior knowledge, skill or expertise and is under a duty to represent the interests of the other ․ The superior position of the fiduciary or dominant party affords him great opportunity for abuse of the confidence reposed in him.”  (Citations omitted.)  Dunham v. Dunham, supra, 322.  Konover Development Corp. v. Zeller, 228 Conn. 206.   The court finds that the plaintiff has not proven that the defendant hair stylist, employed by a beauty salon, however capable she may be, stands as a fiduciary or dominant party with respect to the owner of the beauty salon.

The plaintiff is directed to file an affidavit of attorneys fees and a proposed injunction on or before May 31, 2013.   The court will hold a hearing on June 5, 2013 at 2:00 p.m. in Courtroom 4D with respect to the request for attorneys fees and the terms of the injunctive relief.

William L. Hadden, Jr.

Judge Trial Referee

Hadden, William L., J.T.R.