Enforcing Restrictive Covenants

CONSUMERS SECURITY GROUP, Plaintiff,
v.
Mitch BENESOWITZ and Michelle Benesowitz, Defendants.

No. 468-04.

Jan. 4, 2007.

Meyer, Suozzi, English & Klein, P.C., Garden City, for Plaintiff.
Greobel & Groebel, Esqs., Mineola, for Defendant.

LEONARD B. AUSTIN, J.
*1 The following papers were read on Plaintiff's motion to hold Defendants in contempt, for summary judgment and to dismiss Defendants' affirmative defenses and counterclaim:

Notice of Motion dated June 12, 2006;

Affidavit of Anthony Losquadro sworn to on May 31, 2006;

Affirmation of Kieran X. Bastible dated June 12, 2006;

Plaintiff's Memorandum of Law;

Affidavit of Mitch Benesowitz sworn to on August 22, 2006;

Affirmation of Mitchell A. Greebel, Esq. dated August 23, 2006;

Affidavit of Anthony Losquadro sworn to on September 29, 2006;

Affidavit of Mitch Benesowitz sworn to on October 6, 2006;

Plaintiff Consumers Security Group, Inc. (“Consumers”) moves to hold the Defendants Mitch Benesowtiz (“Mitch”) and Michelle Benesowitz (“Michellle”) (“collectively “Benesowitz”) in contempt for violating court orders, for summary judgment on its complaint and to dismiss Defendants' affirmative defenses and counterclaims.


BACKGROUND

Benesowitz were the owners of Shelter Security System, Ltd. (“Shelter”).
Shelter was in the business of installing and servicing security systems in the New York metropolitan area.

By Asset Purchase Agreement (“Agreement”) dated June 13, 2000, Security sold its customer list to Consumers. As part of sale of the business from Shelter to Consumers, Mitch and Michelle executed Restrictive Covenants dated June 28, 2000.

This action and application for contempt are predicated upon Mitch's alleged violation of the provisions of the Restrictive Covenant and Covenant Not to Compete.

The relevant portions of the Restrictive Covenant provide:

“··· At no time may Benesowitz solicit or service for alarm service of any nature any of the subscribers included in the Assets acquired by the Company (Consumers) from Shelter Security Systems Ltd. while they are customers of Company and for a period of five years from the datethat such subscriber's alarm service is canceled by company.

2. From the date hereof (June 28, 2000) Benesowitz will not directly or indirectly in the Territory (the City of New York and Nassau County) sell or distribute or solicit or accept orders for the sale and distribution of, or assist or advise any person in connection with the sale of distribution of or the
solicitation of alarm service of any nature and will not interfere or seek to interfere directly or indirectly with the patronage of the customers/subscribers with the Company or communicate with any of the customers/subscribers with the Company or communicate with any of the customers/subscribers relating to alarm service of any nature. Notwithstanding the foregoing, 5 years after a subscriber's contract or alarm service with the Company is terminated, Benesowitz shall be permitted to solicit and provide alarm service to such customer.”

The Asset Purchase Agreement contains the following covenant not to compete:

“10. The Seller (Security) and Shareholders (Mitch and Michelle) agree that they will not any time solicit or service any of the Subscribers sold to Purchaser pursuant to this agreement, unless a subscriber has not done business with Purchaser (Consumers) or its assigns for a period of five years, shall not engage in or be employed in any capacity or consult in the alarm business within the City of New York, and county of Nassau for a period of 3 years from the date of closing ···”

*2 By 2001, disputes had arisen between Consumers and Benesowitz regarding the sale of the business which resulted in litigation. The litigation was settled by “So Ordered” Stipulation (“Stipulation”) dated April 9, 2002. Paragraph 4 of the Stipulation re-affirmed the Asset Sales Agreement of June 13, 2000. It also specifically re-affirmed Paragraph 10 of that Agreement which
contained the restrictive covenant and the Restrictive Covenant Agreements of June 28, 2000.

Consumers alleges that Mitch has been engaged in a course of conduct that violates the restrictive covenants. More specifically, Consumers alleges Mitch has been soliciting business from Shelter customers and has been engaged in a competing business in the restricted area.

When this action was commenced, this Court granted a preliminary injunction enjoining Mitch from soliciting business from current and former customers of Consumers who had been subscribers to Shelter during the pendency of this action.

Consumers alleges that Mitch is, or has been, involved in two separate competing businesses MB Systems and A Plus Security Systems (“A Plus”) in violation of the restrictive covenants. Consumers further alleges Mitch has been soliciting business for MB Systems and A Plus from former Shelter customers.

Consumers alleges that in January 2004, A Plus entered into a central station monitoring agreement with Metrodial. Mitch then directed that fifty accounts that had been sold by Shelter to Consumers be transferred to A Plus.

The address originally provided to Metrodial as the business address for A Plus was Mitch's residence. This address was later changed to a post office box in Cedarhurst. While the application for the post office box was filed in the name of Charles Benesowitz (“Charles”), Mitch's brother, the telephone number on the application for the post office box was that of Mitch's cell phone.

A Plus maintains its business bank account with the Bank of New York. Mitch is an authorized signatory on the account and has regularly signed checks issued on this account in 2004 and 2005.

Mitch denies any active involvement in any competing business or violating the restrictive covenants. He asserts that, from early 2002 through 2004, severe health problems prevented him from engaging in any business activities.

Mitch claims during this period he permitted Charles to use MB Systems to develop an alarm business. Mitch claims he did this at a time when he was hospitalized as a favor to Charles since, due to financial issues, Charles was unable to place any business in his name. Mitch asserts that any accounts that were obtained during this time were solicited by Charles.

Once Charles straightened out his financial affairs, he formed A Plus. The MB accounts that Charles had solicited were then transferred to A Plus.

Mitch asserts that since Charles was pursuing a business opportunity in Michigan, he agreed to be a signatory on the A Plus account. He did this so that checks received by A Plus could be deposited and so that A Plus bills could be paid. The other signatory on the A Plus account is Izaak Gralla, Mitch's brother-in-law.

*3 Mitch also asserts that Consumers has failed to establish that he actively solicited any alarm business. He attributes Consumers loss of customers to the poor business practices of its principal, Anthony Losquadro.Mitch further asserts that many of the purportedly lost customers were not
customers of Shelter who were sold to Consumers. Mitch asserts all that was sold by Shelter to Consumers was the names and addresses of its then existing customers. Mitch asserts that the restrictive covenant did not prohibit him from soliciting or obtaining business from relatives of Shelter customers who had never been Shelter customers or from the new owners of houses of former Shelter customers.

Mitch concedes he was foolish to permit his brother to use his business. But he asserts that his involvement in his brother's business as a signatory to a bank account does not violate the terms of the restrictive covenant.


DISCUSSION

A. Contempt

“In order to find that contempt has occurred in a given case, it must be determined that a lawful order of the court, expressing an unequivocal mandate, wasin effect. It must appear, with reasonable certainty, that the order has been disobeyed (Citations omitted). Moreover, the party to be held in contempt must have had knowledge of the court's order, although its is not necessary that the order actually have been served upon the party. (citations omitted) Finally, prejudice to the right of a party to the litigation must be demonstrated (see Judiciary Law, § 753, subd. A).” Matter of McCormack v. Axelrod, 59 N.Y.2d 574, 583 (1983).

“Civil contempt can be found, notwithstanding scienter, where there has been disobedience of a court order even if it is not deliberate or willful. The mere act of disobedience, regardless of motive, is sufficient if such disobedience defeats, impairs, impedes or prejudices the rights of a party. Walter Doors v. Greenberg, 151 A.D.2d 550 (2nd Dept.1989). See also, Ryan v. Caputo, 222 A.D.2d 438 (2nd Dept.1995).

The party bringing the application for civil contempt bears the burden of proof. Rupp-Elmasri v. Elmasri, 305 A.D.2d 394 (2nd Dept.2003); and Beverina v. West, 257 A.D.2d 957 (3rd Dept.1999). Contempt must be established by clear and convincing evidence. Beverina v. West, supra; and Fierro v. Fierro, 211 A.D.2d 676 (2nd Dept.1995).

While a party may be held in civil contempt withouta hearing where there are no issues of fact, a hearing must be held where the papers establish the existence of issues of fact. Quantum Heating Services, Inc. v. Austern, 100 A.D.2d 843 (2nd Dept.1984). See, Cashman v. Rosenthal, 261 A.D.2d 287 (1st Dept.1999); and Coronet Capital Co. v. Spodek, 202 A.D.2d 20 (1st Dept.1994).Mitch was aware of the April 9, 2002 “So Ordered” Stipulation. He signed it. The Stipulation was “So Ordered”, thus making it an order of this Court.
CPLR 5014; and d HYPERLINK
"http://web2.westlaw.com/find/default.wl?rs=WLW6.11&serialnum=1987071807&fn=_top&sv=Split&tc=-1&findtype=Y&tf=-1&db=155&vr=2.0&rp=%2ffind%2fdefault.wl&mt=StateLitigation" Fuerst v. Fuerst, 131 A.D.2d 426 (2nd Dept.1987).

*4 Mitch also was aware of the order granting a preliminary injunction. For practical purposes, he did not oppose the motion since he asserted he was not violating the provisions of the April 9, 2002 Stipulation or the restrictive covenants.

The Restrictive Covenant prohibits Mitch from soliciting or providing servicing alarm service for any of the former customers of Shelter for a period of 5 years from the date the such service is cancelled by Consumers. The Restrictive Covenant also prohibits Mitch from directly or indirectly selling, distributing or soliciting or assisting or advising any one in the sale or distributions of alarm services for a period of 5 years from the date of the agreement. The agreement also prohibits Mitch from interfering or communicating with Shelter's former customers for a period of 5 years.

Mitch denies engaging in any of the proscribed activities during the 5 year period.

He asserts his sole involvement in the alarm business during the period of the restrictive covenant was to permit his brother to operate an alarm business through MB and to be a signatory on the A Plus bank account.

Consumers has failed to provide any direct evidence that Mitch violated the restrictive covenant. Consumers has not provided the Court with an affidavit from any of its current or former customers indicating the Mitch solicited business from them. The evidence is circumstantial. Since Consumers needs to establish a violation of the court order by clear and convincing evidence, a hearing must be held.

The penalty for civil contempt is to compensate or indemnify the private complainant. State v. Unique Ideas, Inc., 44 N.Y.2d 345 (1978). Judiciary Law § 773 provides that the penalty for civil contempt shall be “··· a fine, sufficient to indemnify the aggrieved party ···” or if the party sustained no actual loss or damage “··· a fine not exceeding complainant's costs and expense, and two hundred fifty dollars.”

In this case the appropriate fine, if any, cannot be determined without a hearing. Consumers seeks to grant Mitch 60 days to purge his contempt and to impose a $1,000 per week fine on Mitch should he not comply with the terms of the restrictive covenant. This is not the penalty statutorily permitted for civil contempt.

If the Court were to adjudge Mitch in contempt, Consumers would obtain as its fine the actual damages it sustained as a result as of Mitch's contempt. See, Corpuel v. Galasso, 240 A.D.2d 531 (2nd Dept.1997). Alternatively, if the Court were to adjudge Mitch in contempt and find that Consumers did not sustain any actual damages, Consumers could recover a fine of up to $250.00 and costs and expenses including its reasonable attorney's fees and disbursements. Glanzman v. Fischman, 143 A.D.2d 880 (2nd Dept.1988).Thus, a hearing is also required to determine if Consumers sustained actual damages and if so,the amount of those damages. Alternatively, if Consumers did not sustain actual damage, the Court must determine the appropriate fine and the costs and expenses Consumers incurred including reasonable attorney's fees.

*5 The court may enjoin a party from violating the terms of a restrictive covenant only for the contractually agreed upon period. Stanley Tulchin Assoc., Inc. v. Vignola, 186 A.D.2d 183 (2nd Dept .1992). The restrictive covenants ran for a period of five years commencing at the latest on June 28, 2000. The order granting a preliminary injunction was dated July 14, 2004. This action was originally supposed to go to trial in June 2005; at or about the time the restrictive covenant was to expire. Although Mitch did not move to vacate the preliminary injunction, it would unfair and improper to hold him in contempt for violating a preliminary injunction premised upon an agreement whose term had
expired. Id.


B. Summary Judgment

A motion for summary judgment must be supported by a copy of the pleadings. CPLR 3212(b). Failure to submit a copy of the pleadings to the motion papers requires the denial of the motion. A & L Scientific Corp. v. Latmore, 265 A.D.2d 355 (2nd Dept.1999); and Deer Park Assoc. v. Robbins Store, Inc., 243 A.D.2d 443 (2nd Dept.1997). Since Consumers has failed to attach a copy of the pleadings to its motion papers, the motion is defective and must be denied.


C. Dismissal of Affirmative Defenses and Counterclaims

Consumers did not attach a copy of the answer to the motion papers. Since the Court does not have a copy of the pleading asserting the affirmative defenses or counterclaims, it cannot determine whether the affirmative defenses or counterclaims are properly plead or meritorious, for that matter. The only mention of the nature of the affirmative defenses and counterclaims is contained in the memorandum of law submitted in support of the motion. The only pleading submitted with the motion is Plaintiff's reply to Defendants' counterclaim. Therefore, the motion to strike the counterclaims and affirmative defenses must be denied.Error! Hyperlink reference not valid.

Error! Hyperlink reference not valid. Defendants are alleged to have pled as their first affirmative defense the complaint fails to state a cause of action. Plaintiff similarly pled the counterclaim fails to state a claim upon which relief may be granted. Failure to state a claim upon which relief can be
granted may not be raised as an affirmative defense. Iannarone v. Gramer, 256 A.D.2d 443 (2nd Dept.1998); and Guglielmo v. Roosevelt Hosp. Staff Housing Co., Inc., 222 A.D.2d 403 (2nd Dept.1995). Had Defendants requested the relief and had Plaintiff submitted proper papers, the motion would have been granted as to these affirmative defenses.

Accordingly, it is,ORDERED, that Plaintiff's motion to hold the Defendants in contempt is granted to the extent that the matter is set down for a hearing on February 20, 2007 at 9:30 a.m. to determine whether Defendants violated the “So Ordered” Stipulation dated April 9, 2002 and/or the order of this Court dated July 14, 2004 and, if necessary, to determine the damages, if any, sustained by Plaintiff as a result thereof; and it is further,

ORDERED, that Plaintiff's motion for summary judgment and to dismiss Defendants affirmative defenses and counterclaim is denied; and it is further,

ORDERED, that counsel shall appear for a status conference on January 19, 2007 at 9:30 a.m.

This constitutes the decision and Order of the Court.