No. CV 05-4004259-S
July 13, 2006
RULING ON MOTION TO STRIKE
Plaintiff Robert J. Reby Company has filed an eight-count revised complaint against defendants Patrick T. Byrne ("Byrne"), Aspetuck Financial Management, LLC ("Aspetuck"), and several unnamed defendants alleging principally that Byrne, a former employee of the plaintiff, has violated his employment agreement by engaging in solicitation of the plaintiff's clients and using the plaintiff's confidential information. Defendants Byrne and Aspetuck ("the defendants") move to strike count one, alleging breach of contract based on the unauthorized solicitation of the plaintiff's customers, and counts three and four, alleging violations of the Connecticut Unfair Trade Practices Act ("CUTPA"). See General Statutes § 42-110a et seq.
On a motion to strike, this court must construe the allegations in the complaint in a light most favorable to the plaintiff. See Faulkner v. United Technologies Corp., 240 Conn. 576, 580, 693 A.2d 293 (1997). The plaintiff alleges that it is a registered investment advisor that provides financial services to the investing public. Byrne was an employee of the plaintiff from June to July 2005, who worked as a registered representative of an affiliated broker-dealer. During his employment, Byrne signed an employment agreement that provides in critical part: "I shall not solicit or have any contact with any current or former client of the company, or solicit potential clients if such potential clients were identified to me through leads developed during the course of my employment with the company, or otherwise divert or attempt to divert any existing business or clients of the Company." The plaintiff alleges that, after Byrne left its employ, Byrne solicited some of the plaintiff's customers to Aspetuck, his new business.
The defendants contend that the covenant not to solicit customers is an unreasonable restraint on trade and therefore unenforceable. A series of cases has established the governing law. In Scott v. General Iron Welding Co., 171 Conn. 132, 137, 368 A.2d 111 (1976), our Supreme Court held:
The plaintiff does not challenge the notion that whether such a covenant is reasonable is a question of law for the court or that the court can decide this matter on a motion to strike. See Robert S. Weiss Associates, Inc. v. Wiederlight, 208 Conn. 525, 528-29 n. 1, 546 A.2d 216 (1988). See also Hare v. McClellan, 234 Conn. 581, 589, 662 A.2d 1242 (1995) (citing Wiederlight and Scott v. General Iron Welding Co., 171 Conn. 132, 137-38, 368 A.2d 111 (1976) for this proposition).
In order to be valid and binding, a covenant which restricts the activities of an employee following the termination of his employment must be partial and restricted in its operation in respect either to time or place, . . . and must be reasonable — that is, it should afford only a fair protection to the interest of the party in whose favor it is made and must not be so large in its operation as to interfere with the interests of the public.
(Internal quotation marks omitted.) Then, in Robert S. Weiss Associates, Inc. v. Wiederlight, 208 Conn. 525, 529 n. 2, 546 A.2d 216 (1988), the Court explained that, under Scott: "[t]he five factors to be considered in evaluating the reasonableness of a restrictive covenant ancillary to an employment agreement are: "(1) the length of time the restriction operates; (2) the geographical area covered; (3) the fairness of the protection accorded to the employer; (4) the extent of the restraint on the employee's opportunity to pursue his occupation; and (5) the extent of interference with the public's interests."
One year later, the Appellate Court observed that: "[t]he five prong test of Scott is disjunctive, rather than conjunctive; a finding of unreasonableness in any one of the criteria is enough to render the covenant unenforceable." New Haven Tobacco Co. v. Perrelli, 18 Conn.App. 531, 534, 559 A.2d 715, cert. denied, 212 Conn. 809, 564 A.2d 1071 (1989). Subsequently, the Supreme Court summarily affirmed a Superior Court decision stating that, in Wiederlight, "the Supreme Court indicated that time and geographic restrictions are to be reviewed as intertwined considerations when a determination is made on the reasonableness of the limitations of an employee's post-termination activities. A restriction covering a large area might be reasonable if in effect for a brief time, while a restriction covering a small area might be reasonable for a longer time." Van Dyck Printing Co. v. DiNicola, 43 Conn.Sup. 191, 197, 648 A.2d 898 (1993), aff'd, 231 Conn. 272, 648 A.2d 877 (1994).
Some of the plenary Supreme Court statements on this issue seem contradictory. Compare Scott v. General Iron Welding Co., supra, 171 Conn. 137 ("a covenant which restricts the activities of an employee following the termination of his employment must be . . . restricted in its operation in respect either to time or place . . .") (Emphasis added; internal quotation marks omitted) with Elida, Inc. v. Harmor Realty Corp., 177 Conn. 218, 226, 413 A.2d 1226 (1979) ("the restraint must be limited in its operation with respect to time and place . . .") (Emphasis added; internal quotation marks omitted.) The court need not resolve these apparent contradictions in view of the disposition of this motion.
The defendants' principal objection to the covenant here is that there is no time limitation on its restriction of Byrne's solicitation of the plaintiff's customers. While the more recent cases have all involved finite temporal restrictions; see Wiederlight, supra, 208 Conn. 531 (two-year restriction reasonable); Scott, supra, 171 Conn. 140 (five-year restriction); New Haven Tobacco Co. v. Perrelli, supra, 18 Conn.App. 538 (two-year restriction); an older Connecticut case had approved a permanent limitation on a dentist's ability to practice within a ten-mile radius of the person to whom he sold his business. See Cook v. Johnson, 47 Conn. 175, 177-78 (1879).
Significantly, the restriction here, while permanent, only restricts a small segment of Byrne's activities. The covenant at issue is not a pure anticompetitive restriction, as it does not prevent Byrne from engaging in the investment services industry. See New Haven Tobacco Co. v. Perrelli, supra, 18 Conn.App. 534. Indeed, the covenant is not an antisales restriction, as it does not prevent Byrne from selling to the plaintiff's customers, as long as he does not solicit them. Id., 535. See also id., 535 n. 2 ("an antisales covenant . . . imposes a greater burden on the public interest than an antisolicitation covenant . . .") Moreover, although the agreement prohibits Byrne from pursuing the plaintiff's customers wherever they might be located, the agreement does not impose any specific geographical limitation. See id., 535. In theory, Byrne is free to locate next door to the plaintiff. Thus, while the agreement does impose a permanent restriction on some of Byrne's business activities, on the whole the agreement is limited in scope. See Van Dyck Printing Co. v. DiNicola, supra, 43 Conn.Sup. 197.
As the defendants observe, the agreement extends not only to former and current clients, but also to potential clients. But the restriction on solicitation of potential clients applies only "if such potential clients were identified to [Byrne] through leads developed during the course of [Byrne's] employment with the [plaintiff] . . ." Thus, the agreement quite reasonably allows Byrne to solicit potential clients of the plaintiff as long as he did not learn of them through the benefit of his prior employment.
While the court is reluctant to interfere with Byrne's freedom and ability to practice his profession, the court is also reluctant to interfere with the parties' freedom to contract. The restriction on post-employment activities at issue here is one to which Byrne agreed for the purpose of gaining employment with the plaintiff. The plaintiff, for its part, had a legitimate interest in preventing employees, after their employment, from exploiting or appropriating the goodwill of its clients or customers, something the plaintiff had developed at its own expense. Given all these considerations, the court finds the covenant reasonable. Accordingly, the court denies the motion to strike count one.
The defendants also move to strike counts three and four, which allege CUTPA violations based, respectively, on counts one and two. As does count one, count two alleges breach of contract. The distinct aspect of count two is that it alleges that Byrne has used a list or compilation of the plaintiff's customer names and contact information in violation of other provisions of his employment agreement prohibiting post-employment use of confidential information concerning the plaintiff's clients.
Counts three and four merely incorporate the allegations of counts one and two, respectively, and then tack on a boilerplate allegation that these breaches of contract constitute an unfair trade practice in violation of CUTPA. Not every contractual breach, however, rises to the level of a CUTPA violation. See Hudson United Bank v. Cinnamon Bridge Corp., 81 Conn.App. 557, 571, 845 A.2d 417 (2004); Emlee Equipment Leasing Corp. v. Waterbury Transmission, Inc., 41 Conn.Sup. 575, 580, 595 A.2d 951 (1991) ( 3 Conn. L. Rptr. 711). Because in substance the plaintiff has alleged nothing more than a simple breach of contract in counts three and four, the court grants the motion to strike these counts.
The court denies the motion to strike count one and grants the motion to strike counts three and four.
It is so ordered.