Renaissance Nutrition, Inc. v. Jarrett et al

Filing 60

DECISION AND ORDER DENYING Defendants' 49 Motion for Summary Judgment. Signed by William M. Skretny, Chief Judge U.S.D.C. on 1/7/2012. (MEAL)

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF NEW YORK
RENAISSANCE NUTRITION, INC.,
Plaintiff,
v.

DECISION AND ORDER
08-CV-800S

GEORGE JARRETT and DAN KURTZ,

Defendants.

I. INTRODUCTION
This is the second diversity action filed in this Court by Renaissance Nutrition, Inc.
(“Renaissance”) against two of its former employees, George Jarrett and Dan Kurtz. In the
first, Renaissance alleged that Defendants violated a provision of their employment
contract prohibiting them from engaging in competitive business practices after resigning
from Renaissance.1 In this action, Renaissance alleges that Defendants violated a
separate provision of the contract, the “non-recruitment” or “anti-raiding” clause, which was
meant to restrict Defendants from encouraging other Renaissance employees to leave the
company. Presently before this Court is Defendants’ Motion for Summary Judgment.
(Docket No. 49.) For the following reasons, Defendants’ motion is denied.
II. BACKGROUND
A.

Facts
Because this Court has already detailed many of the facts relevant to this case in

its previously issued Decision and Order, see Renaissance Nutrition Inc., v. Jarrett, No. 061

On July 27, 2011, this Court issued a Decision and Order denying Defendants’ Motion for
Sum m ary Judgm ent in that case, No. 06-CV-380S. A final pre-trial conference is scheduled for March 27,
2012.

1

CV-380S, 2011 WL 3235642, at *1-6 (W.D.N.Y. July 27, 2011), it will only provide a brief
background of the facts here. Renaissance is a vitamin and pre-mix company serving the
dairy industry. (Plaintiff’s Rule 56 Statement of Facts (“Pl.’s State.”) ¶ 10; Docket No. 57.)2
In short, Renaissance alleges that Jarrett and Kurtz, two former top-level employees at
Renaissance, resigned in tandem with plans to develop a rival company, Cows Come First.
They further allege that Defendants actively recruited Don Burkard, Mark Einink, and Mark
Wegner, all former Renaissance employees, to join them in their new venture.3 (Id. ¶¶ 7,
51-54) Each of these three employees, after receiving training in nutrition, management,
and sales, acted as “distributors” for Renaissance – they were essentially salesmen who
promoted and distributed Renaissance’s product. (Id. ¶¶ 11, 12.) Renaissance alleges that
Defendants, in displacing these employees, violated the “non-recruitment” clause in each
of their contracts, which provided:
At no time for a period of five (5) years immediately following
the termination of his employment (contract or payroll) with
Renaissance, whether said termination is occasioned by
Renaissance, [Defendant], or the mutual agreement of said
parties, will he for himself or on behalf of any other person,
firms, partnerships, corporations or company call upon any
salesman or distributors of Renaissance for the purpose of
selling animal feed, mineral or vitamin pre-mixes, which directly
or indirectly compete with the companies products nor directly
or indirectly for himself or on behalf of or in conjunction with
any other persons, firm, partnership, corporation or company
solicit, divert or take away any such distributors or salesman of
Renaissance. The above-stated covenant and agreement shall

2

To the extent that they have not controverted each other's statem ents, this Court has accepted
facts included in Defendants' and Plaintiff's Statem ent of Facts. See Local Rule 56(a)(2) (statem ents of
m aterial fact that are not specifically controverted by the non-m oving party are deem ed adm itted).
3

Renaissance also alleged that Defendants recruited David Burkard (not to be confused with his
brother, Don Burkard), Craig Ingalls, Mike Maloney, and Larry Bock. But Renaissance has indicated it will
stipulate to the dism issal of its claim s regarding these em ployees. (See Plaintiff’s Mem orandum of Law in
Opposition to Defendants’ Motion for Sum m ary Judgm ent, pp. 4-5, n. 4; Docket No. 56.)

2

be limited in geographical area to the market served by
Renaissance at the termination of said employee.4
(Defendants’ Rule 56 Statement of Facts (“Def’s State.”), Exhibit A; Docket No. 49-1.)
Defendants signed this agreement in 1991 at the behest of Craig Brown, the
founder of Renaissance, who required that all members of his “advisory group,” an inner
circle of top employees, sign the agreement. (Def’s State. ¶¶ 8, 17; Pl.’s State. ¶ 25.)
III. DISCUSSION
A.

Summary Judgment Standard
Rule 56 of the Federal Rules of Civil Procedure provides that “[t]he court shall grant

summary judgment if the movant shows that there is no genuine dispute as to any material
fact and the movant is entitled to judgment as a matter of law.” A fact is “material” only if
it “might affect the outcome of the suit under governing law.” Anderson v. Liberty Lobby,
Inc., 477 U.S. 242, 248, 106 S. Ct. 2505, 2510, 91 L. Ed. 2d 202 (1986). A “genuine”
dispute exists “if the evidence is such that a reasonable jury could return a verdict for the
non-moving party.” Id. In determining whether a genuine dispute regarding a material fact
exists, the evidence and the inferences drawn from the evidence “must be viewed in the
light most favorable to the party opposing the motion.” Adickes v. S. H. Kress & Co., 398
U.S. 144, 158–59, 90 S. Ct.1598, 1609, 26 L. Ed. 2d 142 (1970) (internal quotations and
citation omitted).
“Only when reasonable minds could not differ as to the import of evidence is
summary judgment proper.” Bryant v. Maffucci, 923 F.2d 979, 982 (2d Cir. 1991) (citation
4

Defendants each signed identical contracts in 1991. In 2002, both Defendants executed
am endm ents to those contracts, not effecting the substance of the non-recruitm ent clause, for which they
were com pensated $50,000. (Pl.’s State. ¶ 3,4.)
At the tim e Jarrett and Kurtz left, the geographical reach of Renaissance’s m arket included
twenty states. (Defendants’ Rule 56 Statem ent of Facts ¶ 26.)

3

omitted). Indeed, “[i]f, as to the issue on which summary judgment is sought, there is any
evidence in the record from which a reasonable inference could be drawn in favor of the
opposing party, summary judgment is improper.” Sec. Ins. Co. of Hartford v. Old Dominion
Freight Line, Inc., 391 F.3d 77, 82–83 (2d Cir. 2004) (citations omitted). The function of
the court is not “to weigh the evidence and determine the truth of the matter but to
determine whether there is a genuine issue for trial.” Anderson, 477 U.S. at 249.
B.

Defendants’ Motion for Summary Judgment
Defendants make four arguments in support of their motion. First, they argue that

the recruitment clause is invalid because it does not protect a legitimate interest. Second,
they argue that the clause is invalid in that it is too broad in geographic and temporal
scope. Third, they argue that it is invalid because it was procured through coercion. Finally,
in the alternative, they argue that Defendants did not violate the clause.
Plaintiffs respond by arguing that New York courts have upheld recruitment clauses
like the one at issue here;5 that the clause was proper in scope because it only limited
Defendants from purloining its employees, not from engaging in business generally; that
Defendants signed the provision voluntarily; and that it is for a jury to determine whether
Defendants violated the clause.
1.

Legitimate Interest

There appears to be no New York Court of Appeals case discussing the applicable
standard for non-recruitment covenants. In fact, both parties can point to only one New
York case discussing the standard, Lazer Inc. v. Kesselring, 13 Misc. 3d 427, 823 N.Y.S.2d

5

Both parties agree that New York law applies, sufficiently establishing that state’s law as
applicable to this case. See Motorola Credit Corp. v. Uzan, 388 F.3d 39, 61 (2d Cir. 2004) (because
parties relied on New York law, such im plied consent was sufficient to establish choice of law).

4

834 (Sup. Ct. Mon. Cnty. 2005), where the court found that the standard for nonrecruitment covenants should be the same as the more common non-compete covenants.
Although non-recruitment agreements are distinct from non-compete agreements,
Renaissance concedes that the restraint at issue in its case is a post-employment
covenant and, as such, it is subject to the “overriding requirement of reasonableness” as
applied to restrictive covenants, like non-compete agreements, which are directed at
employee conduct. See Reed, Roberts Assoc. v. Strauman, 40 N.Y.2d 303, 307, 353
N.E.2d 590, 386 N.Y.S.2d 677 (1976); BDO Seidman v. Hirshberg, 93 N.Y.2d 382, 388,
712 N.E.2d 1220, 690 N.Y.S.2d 854 (1999). In evaluating the reasonableness of these
covenants, New York courts generally apply a three prong test where the restraint must (1)
be no greater than is required for the protection of the legitimate interest of the employer,
(2) not impose undue hardship on the employee, and (3) not injure the public. BDO
Seidman, 93 N.Y.2d at 388-89.
Thus, it is settled for the purposes of this motion that as a threshold matter,
Renaissance must bring forth sufficient evidence that the covenant protected a legitimate
interest.6 Defendants assert that New York courts have held that legitimate interests are
limited to three areas: an employer’s trade secrets, its confidential customer lists, and its
unique or extraordinary employees. See Reed, Roberts Assoc., 40 N.Y.2d 303; Riedman
Corp. v. Gallager, 48 A.D.3d 1188, 1189, 852 N.Y.S.2d 510 (4th Dep’t 2008).
Renaissance does not argue that Burkard, Einink, or Wegner encroached on its
right to trade secrets or confidential customer lists. Instead, Renaissance argues that the
employees were not “fungible,” seeking to enforce the covenant on the grounds that they
6

Defendants do not argue that the restraint caused undue hardship or injured the public .

5

expended resources in training and educating these employees and that replacing them
would be costly and burdensome. Yet, under New York law these reasons do not render
a non-recruitment restriction valid. See Lazer, 13 Misc. 3d at 433 (collecting cases and
finding that reasons like those listed above are insufficient as a matter of law).
However, Renaissance correctly points out that New York courts have also held that
an employer has a legitimate interest in the protection of client relationships developed at
the employer’s expense. See BDO Seidman, 93 N.Y.2d at 392; Marsh USA Inc, v.
Karasaki, No. 08 Civ. 4195 (JGK), 2008 WL 4778239, at *16 (S.D.N.Y. Oct. 31, 2008)
(applying BDO Seidman and finding plaintiff-employer had a likely chance of success on
the merits because an employer has a legitimate interest in the protection of client
relationships acquired during the course of employment.) Defendants argue that such a
factor should not be considered under New York law, claiming that BDO Seidman
specifically limited those interests to three areas.7 But such a conclusion misinterprets that
case. After a thorough survey of the case law, including BDO Seidman, it becomes clear
that this interest must be considered in making a determination about the reasonableness
7

The court in BDO Seidm an does cite Reed, Roberts Associates, decided 24 years earlier, where
the New York Court of Appeals lim ited legitim ate interests to three areas. More recently, and after BDO
Seidm an, the Fourth Departm ent has stated that legitim ate interests are “limited to the protection of an
em ployer's trade secrets or confidential custom er lists, or protection from an em ployee whose services
are unique or extraordinary.” See Riedm an, 48 A.D.3d at 1189 (em phasis added). But, these findings are
untenable in the face of BDO Seidm an, which further developed the holding in Reed, Roberts Associates
by finding that em ployers have a legitim ate interest in the protection of its client base. Moreover, it
instructed courts to focus on the “particular facts and circum stances” of restrictive covenants. 93 N.Y.2d at
390. Such a context based approach underm ines the conclusion that the analysis should be confined to
predeterm ined areas.
Yet, whether this interest should be considered alone or as a subgroup of the “unique” factor
rem ains unclear. Compare Ticor Title Inc. Co. Cohen, 173 F.3d 63, 72 (2d Cir. 1999) (applying New York
law and finding that an em ployee is unique where the em ployee’s relationship with the custom ers is such
that there is a substantial risk that the em ployee m ay be able to divert all or part of the business) to
Cenveo Corp. v. Diversapack LLC, No. 09 Civ. 7544, 2009 W L 3169484, at *7 (S.D.N.Y. Oct. 1, 2009)
(applying New York law and finding that the protection of the plaintiff com pany's client base is a
stand-alone legitim ate interest).

6

of a restraint.
However, Renaissance cannot simply state that its restraint is valid because it has
a legitimate interest in protecting its clients. Without more, such a blanket rule would
obviate the need for any reasonableness determination because businesses could invoke
the rule in almost any circumstance. Instead, New York case law suggests that
Renaissance must make an enhanced showing that its interests in protecting its clients
outweigh Defendants’ interests in free competition. Although not in chronological order, the
cases detailed below seemingly build upon one another and demonstrate that
Renaissance must show that: (1) the employees diverted by Defendants posed a
substantial risk that if they left, their customers would follow, (2) the departed employees
would engage or did engage in competitive business with Renaissance, and that (3) it
provided substantial resources and assistance in cultivating the customer base such that
it would be unfair to allow employees to steal those customers to compete with it.
Ticor Title provides an example of the first element or factor. There, the court
granted the plaintiff-company a preliminary injunction based on a non-compete clause
because a previous employee took 75% of the clients with him when he left and the
defendant had already solicited one customer to follow him to his new venture. 173 F.3d
at 72. The court in Ticor Title relied on Service Systems Corp. v. Harris, 41 A.D.2d 20,
23-24, 341 N.Y.S.2d 702 (4th Dep't 1973), which held, “an employer has sufficient interest
in retaining present customers to support an employee covenant where the employee's
relationship with the customers is such that there is a substantial risk that the employee
may be able to divert all or part of the business.”
This Court looks to Lazer – the one New York case analyzing a non-recruitment
7

clause – in support of the second factor. There, the court found, “[m]ost important, plaintiff
fail[ed] to raise an issue of fact that [recruited employees’ company] and it are competitors
in any sense of the word other than that any two employers would like the services of a
good employee.” Lazer, 13 Misc. 3d at 433 (emphasis added). Thus, Lazer suggests that
one factor courts should consider, indeed the most important factor, is whether the
employees were recruited to compete with the plaintiff-company.
Finally, BDO Seidman culminates this analysis. It found that if the plaintiff company
helped to cultivate the customers at issue, it has a legitimate interest in protecting them.
BDO Seidman, 93 N.Y.2d at 391-92 (“It follows from the foregoing that BDO’s legitimate
interest here is the protection against Defendant’s competitive use of client relationships
which BDO enabled him to acquire through his performance of [his job] for the firm’s
clientele during the course of his employment.”).
Renaissance provides sufficient facts to demonstrate that it supported Don Burkard,
Einink, and Wegner in developing client relationships, that these employee diverted
customers to Cows Come First, and that they engaged in a competitive business, using
Renaissance’s former customers against them. The restraint at issue was clearly meant
to protect against the very circumstance alleged to have occurred – former employees
resigning and encouraging their co-workers to join them in a competitive business. Under
BDO Seidman, Service Sys. Corp, and Lazer, such a protection is reasonable and
legitimate. See Kelly v. Evolution Markets, Inc., 626 F. Supp. 2d 364, 374, n. 9 (S.D.N.Y.
2009) ([New York] case law implies that if the solicitation [of a co-employee] is directed by
a competitor . . . the restriction is for a legitimate business purpose.”).
Morever, this Court must be cognizant of the fact that the standard for
reasonableness, articulated above, is taken from the non-compete context. An important
8

factor that courts consider in that context is the “strong public policy militating against the
sanctioning of a person’s loss of the ability to earn a livelihood.” Ticor Title, 173 F.3d at 70
(citing Karpinski v. Ingrasci, 28 N.Y.2d 45, 49, 320 N.Y.S.2d 1, 268 N.E.2d 751 (1971)). But
of course, a non-recruitment clause, as opposed to a non-compete clause, does not
infringe on an employees ability to engage in an occupation, but merely infringes on his
ability to recruit former co-workers to engage in competitive businesses. Defendants are
free, under this provision of the contract, to undertake any occupation they choose.
Therefore, the non-recruitment clause is inherently more reasonable and less restrictive
than its counterpart, lending further support to its legitimacy.
Consequently, this Court finds that the covenant protected Renaissance’s legitimate
interest in maintaining its client base. It is accordingly valid and enforceable on this ground.
Defendants’ motion is consequently denied.
2.

Temporal and Geographical Scope

As noted above, restrictive covenants must be no greater than necessary for the
protection of a legitimate interest. See BDO Seidman, 93 N.Y.2d at 388-89. Having
determined that Renaissance’s interest is legitimate, the question turns to whether the
covenant is no greater than necessary. In this vein, the covenant must be reasonably
limited in temporal and geographical scope. Gilman & Ciocia, Inc. v Randello, 55 A.D. 3d
871, 872, 866 N.Y.S.2d 334 (2d Dep’t 2008). Defendants argue that the five-year limitation
spanning twenty states is unreasonable.
Plaintiffs distinguish the covenant at issue here from the more common noncompete agreements and argue that this question is unripe for summary judgment.
This Court agrees. Neither party has presented any case law considering the proper

9

temporal and geographical scope of non-recruitment clauses. Although Defendants do
argue that covenants much shorter in length have failed as a matter a law, those cases
concerned non-compete agreements. As discussed above, while similar, such covenants
are not identical to non-recruitment agreements and the two differ in at least one significant
manner. Thus, this Court finds that without any guiding case law, a deeper factual inquiry
would not only be prudent, but also may prove necessary to determine the reasonableness
of the restraint. As such, Defendants’ motion for summary judgment on this ground is
denied.
3.

Overreaching and Coercion

Covenants like the one at issue here are unenforceable if procured through
inappropriate means. See Scott, Stackrow, & Co. v. Skavina, 9 A.D.3d 805 (3d Dep’t
2004). Such inappropriate means include “overreaching, coercive use of dominant
bargaining power, or other anti-competitive misconduct.” Id. at 807.
Defendants argue that the agreement is invalid because it was procured through
coercion and overreaching. In support of this argument, they point to several facts: it was
presented to them after an all-day meeting; their roles, responsibilities, and compensation
did not change after the agreement was signed; they were provided only one day notice;
and they risked demotion if they did not sign.
Plaintiffs respond by noting that Defendants stayed with the company for fourteen
years after they signed the agreement and that an employer’s forbearance from
discharging employees has been found to be adequate consideration. They also note that
although the 2002 amendments, for which Defendants were each paid $50,000, did not
affect the non-recruitment clause, that clause remained a part of the contract at that time.

10

Finally, although Renaissance admits that Brown was clear that Defendants’ agreement
to the covenant was necessary if they wished to maintain their status in the company, it
notes – without dispute from Defendants – that at no time were Defendants’ jobs as a
whole in jeopardy, just their elevated role in the company.
In Zellner v. Stephen D. Conrad, M.D. P.C., 183 A.D.2d 250, 256, 589 N.Y.S.2d 903
(2d Dep’t 1992), the court found that “[b]ecause in at-will employment the employer has
the right to discharge the employee (or, as here, an independent contractor providing
services under a similar arrangement), without cause, and without being subject to inquiry
as to his or her motives forbearance of that right is a legal detriment which can stand as
consideration for a restrictive covenant.” (Internal citation omitted).8 Such a finding supports
the conclusion that Renaissance’s continued employment of Defendants demonstrates a
lack of coercion. Defendants, on the other hand, do not point to a single case where acts
like those undertaken here were found to be coercive. With no legal authority on point, this
Court is not prepared to rule, as a matter of law, that Renaissance’s actions were so
inappropriate as to warrant invalidating the contract, especially given the unconvincing
reasons provided by Defendants.
4.

Evidence of a Breach

Alternatively, Defendants argue that there is no genuine issue of material fact
showing that they violated the non-recruitment covenant. This Court finds differently.
8

Defendants argue that Zellner is no longer good law in light of the Court of Appeals’ decision in
BDO Seidm an. Even if that were true, the holding in BDO Seidm an does not change the outcom e of this
case. There, the court noted that courts can strike whole non-com pete agreem ents if they are based on
coercion or overreaching. But the BDO Seidm an court refused to strike the whole non-com pete
agreem ent at issue there (opting instead to carve out the unenforceable provisions) partially on the basis
that the agreem ent was connected to a prom otion, not the em ployee’s initial or even continued
em ploym ent. See 93 N.Y.2d at 395. Because the sam e is true here – Defendants’ retention of an elevated
status in the com pany was predicated on the covenant, not their jobs in general – such a conclusion
enhances Renaissance’s argum ent that the agreem ent was not a product of coercion.

11

First, there is no dispute that Don Burkard, Einink, and Wegner have conducted
business with Defendants and that Wegner is now a “profit participant” in Cows Come First,
Defendants’ company. Further, Renaissance has submitted sufficient proof to withstand
summary judgment that these employees left Renaissance at the behest of Defendants.
In short, regarding Don Burkard and Einink, a reasonable jury could conclude that
Defendants played a role – and thus breached their non-recruitment covenant – in a series
of suspicious correlated events whereby Don Burkard and Einink both suddenly lost
customers to Cows Come First, resigned from Renaissance shortly thereafter, waited a
year for their non-compete clauses to expire, and then joined Cows Come First to reunite
with their old, supposedly lost customers.
The evidence is at least equally sufficient concerning Mark Wegner. First, there is
the issue concerning Defendant Jarrett’s laptop purchase. Jarrett bought three computers
and subsequently tried to load those computers with nutritional information important to
Renaissance’s and Cows Come First’s business. He then furnished one of those laptops
to Mark Wegner. According to Renaissance, this shows that Jarrett, Kurtz, and Wegner,
were working together to develop Cows Come First. Further, Renaissance notes Wegner’s
suspicious decision to resign on April 14, 2006, only months before Defendants resigned.
Wegner eventually worked out a deal with Renaissance to stay, but then resigned again
in 2007. He is now a profit partner in Cows Come First. Renaissance also points to
numerous communications between Defendants and Wegner and Wegner’s attempt to
secure a nutritional product, exclusive to Renaissance, for Jarrett.
In sum, Renaissance has put forth a reasonable interpretation of these events,
namely that Jarrett and Kurtz breached the non-recruitment covenant by conspiring with

12

each other and Wegner to leave Renaissance and start Cows Come First. The resolution
of such a claim is for the trier-of-fact, not for this Court on a summary judgment motion.
See Sec. Ins. Co. of Hartford, 391 F.3d at 82-83 (“If, as to the issue on which summary
judgment is sought, there is any evidence in the record from which a reasonable inference
could be drawn in favor of the opposing party, summary judgment is improper.”).
Defendants motion on this ground is consequently denied.
IV. CONCLUSION
For the foregoing reasons, this Court finds that the non-recruitment covenant is valid
and binding and that genuine issues of material fact exist as to whether the covenant was
reasonable in geographic and temporal scope and whether Defendants breached the
covenant; their summary judgment motion is denied in its entirety.
V. ORDERS
IT HEREBY IS ORDERED, that Defendants’ Motion for Summary Judgment (Docket
No. 49) is DENIED.
SO ORDERED.

Dated: January 7, 2012
Buffalo, New York
/s/William M. Skretny
WILLIAM M. SKRETNY
Chief Judge
United States District Court

13