Opinion
No. CV 09 4008249 S
February 4, 2009
MEMORANDUM OF DECISION RE MOTION TO DISMISS
The plaintiff, Booth Waltz Enterprises, Inc. has brought this action to enforce a non-compete agreement it claims that it has with the defendant. The defendant, in his motion to dismiss, claims that the plaintiff does not have standing to enforce the agreement in that the non-compete agreement was between the defendant and Speedway, a non-party to the present action. The defendant is a former sales representative of Speedway, a distribution company. The plaintiff alleges that it purchased Speedway's assets, including its non-compete/non-solicitation agreements and that it may enforce such as against the defendant. The action is brought in two counts.
The plaintiff does business under the name G.H. Berlin Oil Co.
As to count one, the plaintiff alleges as follows. The defendant was an independent sales agent for Speedway Distributors, Inc. (Speedway), a company that distributed after-market automotive products in southern New England. On January 26, 1998, the defendant signed a non-compete agreement with Speedway. It was on that date he began his business relationship with Speedway. In the agreement, the defendant covenanted, for one year after termination of the relationship, not to solicit customers of Speedway on behalf of any competing business or to associate with any business that solicited those customers.
On October 17, 2008, the plaintiff, also a distributor of after-market automotive products, agreed to purchase certain of Speedway's assets, including its non-compete agreements and customer list. With the purchase and sale, Speedway assigned the defendant's non-compete agreement to the plaintiff. Following the sale, the defendant terminated his sales contract and began to violate the non-compete agreement by soliciting Speedway's customers and by using sensitive proprietary information from both Speedway and the plaintiff in competing against the plaintiff. Such activity has caused the plaintiff to lose business and profits.
As to count two, the plaintiff alleges as follows. The defendant's misuse of the customer list and proprietary information has interfered with the plaintiff's ability to conduct business with its customers. Such misuse was done intentionally and with malice toward the plaintiff. The plaintiff seeks money damages, injunctive relief preventing further use of the customer list and of confidential proprietary information, injunctive relief preventing further interference with the plaintiff's business relationships and costs.
On December 19, 2008, the defendant filed the present motion to dismiss for lack of subject matter jurisdiction, accompanied by a memorandum of law. In the motion, the defendant argues that the plaintiff lacks standing to enforce the non-compete agreement the defendant made with Speedway. The plaintiff filed an objection on December 24, 2008. Both parties appeared at short calendar on January 5, 2009, to present arguments and offer evidence relevant to the motion.
"A motion to dismiss . . . properly attacks the jurisdiction of the court, essentially asserting that the plaintiff cannot as a matter of law and fact state a cause of action that should be heard by the court . . . A motion to dismiss tests, inter alia, whether, on the face of the record, the court is without jurisdiction." (Internal quotation marks omitted.) Beecher v. Mohegan Tribe of Indians of Connecticut, 282 Conn. 130, 134, 918 A.2d 880 (2007).
"Pursuant to the rules of practice, a motion to dismiss is the appropriate motion for raising a lack of subject matter jurisdiction." St. George v. Gordon, 264 Conn. 538, 545, 825 A.2d 90 (2003). The issue of standing implicates subject matter jurisdiction and is therefore a basis for granting a motion to dismiss." Id., 544.
"It is well settled that one who [is] neither a party to a contract nor a contemplated beneficiary thereof [lacks standing to] sue to enforce the promises of the contract." (Internal quotation marks omitted.) Tomlinson v. Board of Education, 226 Conn. 704, 718, 629 A.2d 333 (1993). "It is hornbook law, however, that an assignee [of a contract right] stands in the shoes of the assignor." (Internal quotation marks omitted.) Shoreline Communications, Inc. v. Norwich Taxi, LLC, 70 Conn.App. 60, 72, 797 A.2d 1165 (2002). Therefore, a party that has been validly assigned a contract right has standing to enforce that right. See Second Exeter Corp. v. Epstein, 5 Conn.App. 427, 430, 499 A.2d 429 (1985), cert. denied, 198 Conn. 802, 502 A.2d 932 (1986).
The parties dispute whether the defendant's non-compete agreement with Speedway was validly assigned to the plaintiff. Under Connecticut law, "[w]here an employee enters into a restrictive covenant . . . it becomes a valuable asset of the business and upon the sale of that business the benefits of the covenant may be assigned to the purchaser." Torrington Creamery, Inc. v. Davenport, 126 Conn. 515, 521, 12 A.2d 780 (1940).
The defendant argues that, because the plaintiff neither purchased all of the assets of Speedway, merged with Speedway nor purchased Speedway, the non-compete agreement was not validly assigned to the plaintiff. The plaintiff argues in response that it purchased the entire business of Speedway, including the non-compete agreements specifically. Furthermore, it argues, unless the agreement is enforced, the plaintiff will suffer financially from the defendant's competition.
Under Torrington Creamery, Inc., if "the proprietor of the business sells it in its entirety to another, in equity the seller will be deemed to have assigned so much of the benefit of the [non-compete agreement] as is severable and necessary for the protection of the business sold to the purchaser." Id., 521. In Francisco v. Smith, 143 N.Y. 488, 493, 38 N.E. 980 (1894), relied upon by the court in Torrington Creamery, Inc., the New York Court of Appeals stated that "[a non-compete agreement] can have no independent existence or vitality aside from the business [with which it is associated]." In other words, a non-compete agreement is deemed implicitly assigned upon the sale of its corresponding business because such an agreement exists solely to protect that business.
The defendant's non-compete agreement with Speedway was validly assigned to the plaintiff as a part of its purchase of Speedway's assets. The plaintiff purchased essentially the entire business operation of Speedway. It purchased Speedway's customer list, goodwill, non-compete agreements, office and field equipment, business information and trade names. Although Speedway retained its real estate and certain of its debts to suppliers, it no longer engages in the business of after-market automotive products distribution. Thus, the benefit of the non-compete agreement transferred as a right necessarily incidental to the transfer of the business. See Francisco v. Smith, supra, 143 N.Y. 493.
Contrary to the defendant's assertion, an assignee need not obtain absolutely all of the assets of the assignor in order to effect the valid assignment of a non-compete agreement. See Torrington Creamery, Inc. v. Davenport, supra, 126 Conn. 518-21. In Torrington Creamery, Inc., an employee had signed a non-compete agreement with his employer, a corporation that sold milk products in and near Torrington, Connecticut. Id., 516-19. The employer then sold its entire distribution business to the Torrington Creamery, including goodwill, but did not specifically assign its non-compete agreement with the defendant employee. Id., 518-19. The employer continued to exist as an entity and to sell products to Torrington Creamery to distribute, but it no longer distributed products itself. Id. The court determined that the employer had sold its entire business to Torrington Creamery and therefore the benefit of the non-compete agreement was assigned by implication. Id., 521.
The defendant cites two cases where the court held that the respective plaintiffs-assignees lacked standing to enforce non-compete agreements because the assignors had not transferred "all" of their assets. These cases are distinguishable from the present case.
In Blum, Shapiro Company P.C. v. Searles Houser, LLC, Superior Court, judicial district of Hartford, Docket No. CV 99 0586283 (August 11, 1999, Booth, J.), a professional corporation, the plaintiff attempted to "merge" with a limited liability company, in order to create a combined business operation. The court noted that under General Statutes § 34-193(b), such a merger is prohibited. Id. The defendants were employees of the limited liability company and had non-compete agreements with that company. Id. The court found that the informal combining of business operations did not constitute a transfer of "all of the assets" from the limited liability company to the plaintiff, and the non-compete agreements were not assigned by implication. Id. In the present case, which is more analogous to Torrington Creamery, Inc., one company sold its entire business operation to another, leaving the first company entirely without that business.
The defendant also cites Magner International Corp. v. Brett, 960 So.2d 841 (Fla.App. 2007), in which a Florida court applied Connecticut law. Magner involved a corporation, with which the defendant had a non-compete agreement, that divided its domestic and international business operations into two companies. Id., 843. The Florida court held that, because the newly created corporation attempting to enforce the non-compete agreement did not receive the "entire" business, only the international portion, the agreement was not assigned by implication. Id., 845. In the present case, by contrast, the plaintiff purchased Speedway's entire distribution business, not just that portion of the business corresponding to a particular geographic area.
Based upon the court's analysis of the issues and the law the plaintiff clearly has standing to pursue this action. The defendant's motion to dismiss is, therefore, denied.