Court Denies Preliminary Injunction for Alleged Violation of a Covenant Not to Compete – Matter of Richard Manno & Co., Inc. v. Manno

A business sought to enforce a covenant not to compete against a former employee in Matter of Richard Manno & Co., Inc. v. Manno, requesting a preliminary injunction from the Supreme Court of Suffolk County, New York pending the outcome of arbitration. The agreement between the parties was part of the former employee’s severance agreement rather than a condition of his employment. The court denied the application, finding that a preliminary injunction was not an available remedy under the parties’ agreement.

The petitioner, Richard Manno & Co., Inc. manufactures and distributes steel fasteners and machined parts, with a market covering much of the United States. The respondent, Anthony Manno, was an employee of the petitioner until the two entered into a severance agreement in October 2010, in which the petitioner agreed to make various lump sum payments to the respondent in exchange for his resignation and other consideration. The agreement also included provisions for forfeiture of future payments from the petitioner upon certain acts deemed, in the sole discretion of the petitioner, to be in direct competition with the petitioner’s business. The respondent could not work with a domestic company that directly competed with the petitioner, nor could he solicit any person or business that he knew the petitioner was employing or soliciting.

The respondent allegedly formed his own business, Anthony Manno & Co., Inc., in January 2011 to engage in the same business as the petitioner. The petitioner alleges that this new company violated the non-compete agreement by engaging in direct competition in the U.S. market. It also alleged that the respondent’s new business, through such direct competition, interfered with its business relationships with its clients.

On December 5, 2011, the petitioner formally demanded arbitration of the dispute. It filed an application for a preliminary injunction with the Suffolk County Supreme Court on December 13 to restrain the respondent and his business from engaging in the domestic production and sale of products in direct competition with the petitioner, and from soliciting its customers. It obtained a temporary restraining order when it filed its application.

The court denied the preliminary injunction, finding that the terms of the parties’ severance agreement did not provide for injunction as a form of relief. The court noted the three requirements for a temporary injunction: irreparable harm without the injunction, likelihood of eventual success on the merits, and an overall balance of equities towards the applicant. It noted three factors weighing against an injunction: the possibility of full compensation via monetary damages or other relief, receipt by the applicant of its ultimate relief directly via the injunction, and a change to the status quo as a result of an injunction.

The court found that the “employee choice doctrine” governed the non-compete agreement, since it was part of an agreement at the end of the employee’s time with the company, conditioning his receipt of post-employment benefits, as opposed to part of the initial employment contract. This meant that the non-compete agreement was not subject to the stricter “reasonableness standard” of most such agreements. It also meant, however, that the petitioner did not have cause for an injunction. The only specific penalty for violation of the non-compete agreement, according to its terms, was the forfeiture of future post-employment benefits. The court therefore ruled that the petitioner had not shown cause for an injunction.

The business litigation attorneys at Lubin Austermuehle represent business owners and professionals regarding non-competition agreements and other claims throughout the Chicagoland area, including Cook, DuPage, Lake, Kane, McHenry and Will Counties; and in the Mid-West region, including Indiana, Wisconsin and Iowa. To schedule a confidential consultation with one of our attorneys, please contact us online, at (630) 333-0333.

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