| Weiser LLP v Coopersmith |
| 2008 NY Slip Op 04772 [51 AD3d 583] |
| May 29, 2008 |
| Appellate Division, First Department |
| Weiser LLP, Appellant, v Jeffrey S. Coopersmith et al.,Respondents. |
—[*1] Torys LLP, New York (David Wawro of counsel), for respondents.
Orders, Supreme Court, New York County (Charles E. Ramos, J.), entered June 21, 2007 andAugust 13, 2007, which, after a nonjury trial, granted defendants' motion pursuant to CPLR 4401to dismiss the complaint, except to the extent of directing entry of judgment in the amount$30,513.16 for defendants' retention of certain of plaintiff's accounts receivable, unanimouslymodified, on the law, to reinstate the first cause of action for breach of the restrictive covenant inarticle 14.1 of the subject partnership agreement and seeking damages in accordance with article14.4 thereof, and the second and third causes of action for breach of fiduciary duty, the$30,513.16 award vacated, the matter remanded for further proceedings with respect to the first,second and third causes of action, and otherwise affirmed, with costs in favor of plaintiff payableby defendants.
The trial court found that plaintiff accounting firm (Weiser) failed to establish a prima faciecase against the individual defendants (Coopersmith, Simon and Vogel; collectively the formerpartners), and the firm they formed, for enforcement of the restrictive covenant and liquidateddamages clause in Weiser's 2003 second amended and restated partnership agreement (WPA).This was error. The evidence showed, prima facie, that the restrictive covenant was ancillary tothe merger agreement between Weiser and the former accounting firm of Lopez, Edwards, Frank& Co. LLP (Lopez), and is enforceable because not more extensive than reasonably necessary toprotect Weiser's legitimate interest in enjoying the assets and goodwill it had acquired pursuantto the merger (see Purchasing Assoc. v Weitz, 13 NY2d 267 [1963]; MohawkMaintenance Co. v Kessler, 52 NY2d 276 [1981]). That the former partners held only aminority interest in Lopez and Weiser does not render Purchasing Assoc. inapplicable(see Delta Resources v Harkin, 118 AD2d 133 [1986]; Payment Alliance Intl., Inc. vFerreira, 530 F Supp 2d 477, 483-484 [SD NY 2007], citing Misys Intl. Banking Sys.,Inc. v TwoFour Sys., LLC, 6 Misc 3d 1004[A], 2004 NY Slip Op 51721[U] [Sup Ct, NYCounty 2004]). Moreover, Weiser's 1998 partnership agreement was explicitly referred to in themerger agreement, signed simultaneously with the merger agreement by the Lopez partners,including Cooperman and Vogel, and bound its signatories to any amendments thereto, i.e., theWPA; likewise, Simon signed an admission agreement in which he consented to be bound by the1998 partnership [*2]agreement on terms that the evidence showswere met. We note that we would reach the same result even if we were to review Weiser'sevidence under the more exacting test applicable to employment contracts (see BDO Seidmanv Hirshberg, 93 NY2d 382, 393 [1999]). Weiser's evidence also showed, prima facie, that theamount stipulated as liquidated damages was tied to what an arm's length purchaser would havepaid for a lost client account as a firm asset on a sale of Weiser's practice, and, as such, is areasonable measure of the anticipated probable harm from a breach of the restrictive covenant(id. at 396). Weiser's evidence also made out prima facie claims for breach of fiduciaryduty based on the former partners having engaged in acts, prior to their voluntary withdrawalfrom Weiser, that conflicted with Weiser's interests, including using its staff and equipment to setup their new firm and soliciting its clients and employees to follow them to their new firm(see Birnbaum v Birnbaum, 73 NY2d 461, 465, 466 [1989]; Graubard MollenDannett & Horowitz v Moskovitz, 86 NY2d 112, 120-121 [1995]; Don Buchwald & Assoc., Inc. vMarber-Rich, 11 AD3d 277, 278 [2004]). Such acts by the former partners amounted tomore than merely informing Weiser's clients and employees of their impending withdrawal(see Graubard at 120), and were a plain violation of the WPA. The trial court correctlydismissed Weiser's remaining causes of action. We have considered Weiser's various evidentiaryarguments and find them unavailing. Concur—Lippman, P.J., Tom, Gonzalez, Buckleyand Renwick, JJ.