There are three important “take-aways” from New York Supreme Court Justice Charles E. Ramos’ recent decision in Greystone Funding Corporation v. Kutner: (1) termination “without cause” is not a per se prohibition of enforcement of a non-compete unless the language of the contract as in this case so provides; (2) conclusory allegations of breach of fiduciary duty, tortious interference and unfair competition are inadequate and will be dismissed unless supported by facts on each element of proof; and (3) customer and prospect identity and impressions about them are sufficiently sensitive to warrant cause for sealing of a record under 22 NYCRR § 216.1.
Kutner was a senior mortgage originator for Greystone and had a two-year non-compete provision in his employment agreement. That restriction, however, by its explicit terms expired immediately if Greystone terminated Kutner “without cause” rather than two years hence. Justice Ramos thus dismissed the breach of contract action relying on the terms of the agreement itself and not on any “per se” application of unenforceability. While some believe such a doctrine exists in New York, I have written previously why I believe it does not. See After Termination “Without Cause:” Restrictive Covenants, NYLJ February 8, 2007.
Despite the fact that the Complaint alleged that while still employed by Greystone Kutner had recruited co-workers to join him at a competing mortgage lending business and, upon information and belief, he had formed and actively operated a competing business while still employed by Greystone, Justice Ramos held that the Complaint was not plead with sufficient particularity on each element of each cause of action and dismissed the tortious interference, breach of fiduciary duty, unfair competition and related claims. To my knowledge, it is one of the first New York State court decisions to put plaintiffs to a Twombly and Iqbal standard of pleading in a non-compete case.
Finally, trade secret cases always present the conundrum of pleading with sufficient specificity yet not disclosing actual trade secret and proprietary information so as to lose the protections afforded to such information. Justice Ramos properly found “good cause” as required by 22 NYCRR § 216.1 where the information “contained impressions and contemporaneous notes that could harm Greystone’s competitive advantage by having access to a large compilation of their business leads and their internal and contemporaneous impressions.” Relying on Mancheski v. Gabelli Group Capital Partners, 39 A.D.3d 499, 503 (2d Dept 2007) (argued by this author!), Justice Ramos granted the motion to seal portions of the record in this action.