ALLOY VS. STEVEN L. SHAPIRO (L-3746-19, CAMDEN COUNTY AND STATEWIDE) ( 2021 )

NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
This opinion shall not "constitute precedent or be binding upon any court ." Although it is posted on the
internet, this opinion is binding only on the parties in the case and its use in other cases is limited. R. 1:36-3.
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-3506-19
ALLOY, SILVERSTEIN,
SHAPIRO, ADAMS,
MULFORD, CICALESE,
WILSON & CO., P.A.,
Plaintiff-Appellant,
v.
STEVEN L. SHAPIRO,
Defendant-Respondent.
_________________________
Argued May 25, 2021 – Decided July 7, 2021
Before Judges Fisher, Gilson, and Moynihan.
On appeal from the Superior Court of New Jersey, Law
Division, Camden County, Docket No. L-3746-19.
Steven E. Angstreich argued the cause for appellant
(Weir & Partners, LLP, attorneys; Steven E.
Angstreich, on the briefs).
William M. Tambussi argued the cause for respondent
(Brown & Connery, LLP, attorneys; William M.
Tambussi and Sean P. O'Brien, on the brief).
PER CURIAM
This appeal arises out of a dispute between an accounting firm and an
accountant who had sold his interest in the firm, continued to work at the firm
for thirty years, and then left to join a competing accounting firm. The legal
issue is whether the departing accountant violated a restrictive covenant he
signed in 1989, when he sold his interest in the firm.
Plaintiff Alloy, Silverstein, Shapiro, Adams, Mulford, Cicalese, Wilson &
Co., P.A. (plaintiff or the Firm), appeals from an order granting summary
judgment to defendant Steven Shapiro (defendant or Shapiro) on the basis that
the restrictive covenant had terminated. The Firm argues that the restrictive
covenant is still in effect and it is enforceable despite having no limitation on
duration or geographic scope. Alternatively, the Firm contends that the trial
court erred in not "blue pencil[ing]" the covenant. We disagree and hold that
the restrictive covenant was terminated in 2004, when defendant's Consulting
Agreement with the Firm ended.
I.
Before September 1987, Shapiro and two other accountants – Marvin
Alloy and Raymond Silverstein – owned all the stock in a professional service
corporation, which operated an accounting firm. The Firm was then known as
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Alloy, Silverstein, Shapiro & Co., P.A., and was incorporated in and had its
office in New Jersey.
On September 18, 1987, seven employees of the Firm (the Buyers) entered
into an agreement to acquire the Firm (the Acquisition Agreement) from
Shapiro, Alloy, and Silverstein (the Stockholders). The Acquisition Agreement
called for the Buyers to purchase the stock of the Firm from the Stockholders in
monthly installments over ten years.
The Acquisition Agreement also provided that the Stockholders would
enter into a consulting agreement, under which they would practice as
accountants only for the Firm. In that regard, paragraph 16.3 of the Acquisition
Agreement stated, in relevant part:
[T]he STOCKHOLDERS, shall have executed a
consulting agreement, within which the
STOCKHOLDERS shall covenant that all public
accounting activities to be performed by them
subsequent to the Closing shall be performed solely on
behalf of [the Firm] until the complete satisfaction of
the obligations of [the Firm] pursuant hereto to each
such STOCKHOLDER shall have been satisfied in full,
all in accordance with Section 21 hereinafter.
In addition, the Acquisition Agreement contained a restrictive covenant,
in which the Stockholders agreed that "until the termination of this Agreement,"
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they would practice public accounting for the Firm, and they would not compete
with the Firm or solicit its clients to leave the Firm.
The details of how the Buyers were to pay the Stockholders were set forth
in paragraphs 5 and 8 of the Acquisition Agreement. Those provisions stated
that seventy-five percent of the payment to be made to the Stockholders was in
consideration for the restrictive covenant and the remaining twenty-five percent
was for the stock.
The post-closing relationship of the Stockholders to the Firm was set forth
in paragraph 21 of the Acquisition Agreement. That provision described the
consulting arrangement and stated that the Stockholders would only be working
as public accountants for the Firm.
The duration of the Acquisition Agreement was set forth in paragraph 26.
That provision stated that the agreement was to commence on the date of the
closing and last until "the last payment due [to] the STOCKHOLDERS from
BUYERS and [Firm] shall be made to STOCKHOLDERS."
On August 1, 1989, the Acquisition Agreement was amended, the
acquisition closed, and the Stockholders and Buyers entered into a Consulting
Agreement and a Restrictive Covenant Agreement. The amendments were set
forth in a "Second Agreement to [the] Acquisition Agreement," which
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principally amended provisions concerning the valuation of the stock and how
payments would be made to the Stockholders.
The Consulting Agreement provided that the Stockholders would continue
to perform public accounting for the Firm "until the complete satisfaction of the
obligations of [the Firm] pursuant to the terms of the Acquisition Agreement ."
The Consulting Agreement also set forth a formula under which the
Stockholders would be compensated for their services. In addition, the
Consulting Agreement set forth how the consulting arrangement between the
Stockholders and the Firm would terminate. In that regard, paragraph 10 of the
Consulting Agreement stated:
Upon the complete satisfaction of all obligations due to
STOCKHOLDERS from [the Firm] and BUYERS
pursuant to the provisions hereof and the Acquisition
Agreement, as amended, dated September 18, 1987,
and the collateral documents executed in conjunction
therewith, BUYERS shall be entitled to terminate the
consulting relationship set forth in this agreement and,
upon such termination, all other agreements between
the parties shall likewise be deemed to have been fully
satisfied, completed and terminated.
The Restrictive Covenant Agreement placed limitations on the
Stockholders' right to practice public accounting following the closing. It
provided that the Stockholders would only engage in public accounting for the
Firm "pursuant to the terms of [the] Consulting Agreement." The Restrictive
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Covenant Agreement also placed three limitations on the Stockholders. It
provided that they (1) would not practice public accounting in competition with
the Firm; (2) would not solicit the Firm's clients to leave the Firm; and (3) would
not assist or join with any individual or business entity to compete with the Firm
or to solicit clients from the Firm. The Agreement also carved out services that
were exempt from restriction, allowing the Stockholders to offer their services
apart from the Firm with respect to the acquisition or disposition of real estate
or financial planning.
As consideration for the restrictive covenant, the Firm agreed to pay each
stockholder a sum of money "in accordance with the payment provision set forth
in paragraph 8 of" the Acquisition Agreement. The Restrictive Covenant
Agreement stated that Shapiro would be paid $890,211.93, which under
paragraph 5 of the Acquisition Agreement was seventy-five percent of Shapiro's
payment for the acquisition of his interest in the Firm and the restrictive
covenant. In addition, the Restrictive Covenant Agreement stated that the
Stockholders were agreeing to those restrictions because they were "vital to the
accomplishment of the purposes of all agreements of the parties."
On August 1, 1996, the Stockholders and Buyers entered a "Third
Amendment to the Acquisition Agreement" (Third Agreement). Under that
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Agreement, Shapiro agreed to continue to act as a consultant to the Firm for five
years "following the end of the present agreements." The Third Agreement also
provided a new formula for how Shapiro would be compensated for his
consulting services.
It is undisputed that all payments due to Shapiro and the other
Stockholders under the Acquisition Agreement, Consulting Agreement, and
Restrictive Covenant Agreement were paid by 1999. Accordingly, Shapiro then
acted as a consultant to the Firm under the Third Agreement for five years, from
1999 to 2004. It is also undisputed that the Firm did not enter into a new or
extended consulting agreement with Shapiro after 2004. Instead, after 2004,
Shapiro worked as an employee of the Firm without a governing contract , and
he was paid a salary.
On April 30, 2019, at the age of seventy-nine, Shapiro resigned from the
Firm. Thereafter, he joined another accounting firm that competes with the Firm
and he began to solicit clients of the Firm to work with him and his new firm.
In September 2019, the Firm sued Shapiro, seeking to enjoin him from
competing with the Firm under the Restrictive Covenant Agreement or,
alternatively, to obtain money damages. Following discovery, Shapiro moved
for summary judgment, arguing that the Restrictive Covenant Agreement had
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terminated and no longer bound him. The Firm cross-moved for summary
judgment in its favor.
The trial court heard oral arguments on April 24, 2020. That same day,
the court entered an order granting summary judgment to Shapiro and denying
summary judgment to the Firm. The trial court also ruled: "[T]here is no
enforceable restrictive covenant or lifetime prohibition against [d]efendant,
Steven L. Shapiro, concerning his prior employment with [p]laintiff's firm."
In its oral decision, set forth on the record on April 24, 2020, the trial
court reasoned that under paragraph 10 of the Consulting Agreement, all three
agreements – the Acquisition Agreement, the Consulting Agreement, and the
Restrictive Covenant Agreement – terminated in 2004, when all the Firm's and
Buyers' obligations to Shapiro were satisfied and Shapiro ceased to act as a
consultant to the Firm.
II.
The Firm appeals and makes two arguments, contending that the trial court
erred in (1) determining that the Restrictive Covenant Agreement had
terminated; and (2) not blue penciling the restrictive covenant to give it a two -
year duration following Shapiro's resignation from the Firm in 2019. We reject
both those arguments.
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A.
We review the grant of summary judgment de novo, using "the same
standard that govern[ed] the motion judge's determination." Caraballo v. City
of Jersey City Police Dep't, 237 N.J. 255, 264 (2019) (citing RSI Bank v.
Providence Mut. Fire Ins. Co., 234 N.J. 459, 472 (2018)). We will uphold a
grant of summary judgment if ''the pleadings, depositions, answers to
interrogatories and admissions on file, together with the affidavits, if any, show
that there is no genuine issue as to any material fact challenged and that the
moving party is entitled to a judgment or order as a matter of law." Ibid.(quoting RSI Bank, 234 N.J. at 472); accord Brill v. Guardian Life Ins. Co. of
Am., 142 N.J. 520, 523 (1995).
The controlling issue on this appeal is a question of law involving the
interpretation of the Restrictive Covenant Agreement and its relationship to the
Acquisition Agreement, the Consulting Agreement, and the Third Agreement.
Our standard of review of that legal issue is plenary. Barr v. Barr, 418 N.J.
Super. 18, 31 (App. Div. 2011).
B.
Restrictive covenants are enforceable under New Jersey law, provided
they are reasonable. See Solari Indus., Inc. v. Malady, 55 N.J. 571, 585 (1970);
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see also Whitmyer Bros., Inc. v. Doyle, 58 N.J. 25, 35 (1971); Maw v. Advanced
Clinical Commc'ns, Inc., 179 N.J. 439, 447 (2004). Our Supreme Court has
developed a test, known as the Solari/Whitmyer test, to determine if a restrictive
covenant is reasonable. An agreement is reasonable under that test if it: (1)
protects legitimate interests of the party seeking to enforce the covenant; (2)
does not impose an undue hardship on the party to be restricted; and (3) is not
injurious to the public. Maw, 179 N.J. at 447. "Courts will not[, however,]
enforce a restrictive agreement merely to" prevent competition. Ingersoll-Rand
Co. v. Ciavatta, 110 N.J. 609, 635 (1988).
When a non-compete agreement is "ancillary to the purchase of a
business" it is "accorded far more latitude" than a restrictive covenant ancillary
to an employment agreement. Coskey's Television & Radio Sales & Serv., Inc.
v. Foti, 253 N.J. Super. 626, 633 (App. Div. 1992). Nevertheless, the same
three-part test applies to both types of restrictive covenants. See Graziano v.
Grant, 326 N.J. Super. 328, 344-45 (App. Div. 1999) (applying the same three-
prong Solari/Whitmyer test to determine whether a restrictive covenant ancillary
to the sale of a medical practice was enforceable).
If a restrictive covenant is found to be enforceable, its scope can be limited
concerning the duration of its restriction and the geographic area it covers.
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Coskey's, 253 N.J. Super. at 634 (citing Solari, 55 N.J. at 585). The judicial
refinement of a restrictive covenant is known as "blue penciling." Ibid.The Restrictive Covenant Agreement signed by Shapiro may have been
enforceable, but it would have needed to be limited. The Firm had a legitimate
interest in reasonably protecting its purchase of the stock from Shapiro and the
other two Stockholders. The restriction did not impose an undue hardship on
Shapiro because it allowed him to continue to consult with the Firm.
Nevertheless, the covenant would have needed to be limited in duration and in
geographic scope. If so limited, the covenant may not have been injurious to
the public since it would not have extinguished competition; rather it would have
reasonably protected the Buyers' investment in purchasing the Firm.
Concluding that the restrictive covenant may have been enforceable, however,
does not end the inquiry. We must also interpret and construe the Restrictive
Covenant Agreement's duration.
C.
In interpreting a contract, we look to the plain language of the agreement.
McMahon v. City of Newark, 195 N.J. 526, 545-46 (2008). When the terms of
the contract are clear and unambiguous, courts enforce the terms as written and
do not "make a better contract for either of the parties." Ibid.; Pacifico v.
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Pacifico, 190 N.J. 258, 266 (2007); Watson v. City of E. Orange, 175 N.J. 442,
447 (2003) (Long, J., dissenting). Moreover, when several writings are
produced as part of the same transaction, they can be read together. Shelter Sys.
Grp. Corp. v. Lanni Builders, Inc., 263 N.J. Super. 373, 376 (App. Div. 1993)
(citing Gen. Elec. Credit Corp. v. Castiglione, 142 N.J. Super. 90, 101 (Law Div.
1976)).
A plain reading of the language of the Restrictive Covenant Agreement
makes it clear that it had the same duration as the Acquisition Agreement, the
Consulting Agreement, and the Third Agreement. The Restrictive Covenant
Agreement was entered into in connection with the sale of the stock to the
Buyers. Importantly, the consideration for the Restrictive Covenant Agreement
was seventy-five percent of the value of what the Buyers agreed to pay in the
Acquisition Agreement.
Moreover, the Consulting Agreement and Third Agreement are clear in
stating that they would last for as long as the Buyers are paying the acquisition
costs and one or more of the Stockholders are acting as a consultant to the Firm.
In that regard, the payment under the Restrictive Covenant Agreement was to be
"paid to Stockholders in accordance with the payment provision set forth in
paragraph 8 of" the Acquisition Agreement.
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The Restrictive Covenant Agreement also expressly stated that the
Stockholders' covenants were made pursuant to the Consulting Agreement. The
Consulting Agreement provided that it terminated when the Buyers completely
satisfied their obligations to the Stockholders under the Acquisition Agreement.
The Consulting Agreement also provided that "all other agreements between the
parties shall likewise be deemed to have been fully satisfied, completed and
terminated" when the Stockholders had received all their payments.
The Third Agreement extended Shapiro's consulting relationship with the
Firm for five years, from 1999 to 2004. It is undisputed that Shapiro ceased
acting as a consultant to the Firm after 2004. Instead, from 2005 until April
2019, Shapiro acted as an employee of the Firm with no governing contract. In
summary, reading the agreements in relation to each other, the Restrictive
Covenant Agreement ended when Shapiro ceased to act as a consultant to the
Firm.
That construction is reasonable since it gave the Firm fifteen years of
protection from the time that the parties closed on the Acquisition Agreement.
In that regard, it gave the Firm five years of protection after the Firm had paid
all the acquisition costs, during which time Shapiro continued to act as its
consultant.
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The Firm argues that the Restrictive Covenant Agreement did not have an
express duration and it was without geographic limitation. While the Restrictive
Covenant Agreement was clearly without geographic limitation, for the reasons
already explained we reject the contention that it did not have a time limitation.
The plain language of the Acquisition Agreement, Consulting Agreement,
Restrictive Covenant Agreement, and Third Agreement made it clear that all
those agreements would cease to operate when the final payments for the
acquisition were made and Shapiro was no longer acting as a consultant to the
Firm. Indeed, to read it otherwise would make the Restrictive Covenant
Agreement unenforceable because, after 2004, it would be merely preventing
competition without a time limitation. See ADP, LLC v. Kusins, 460 N.J. Super.
368, 400 (App. Div. 2019) (noting that a restrictive covenant must be
"reasonable in duration" to be enforceable).
The Firm points out that paragraph 10 of the Consulting Agreement gives
it the right to terminate the relationship with Shapiro and does not say that the
consulting relationship will end. We acknowledge that point. Nevertheless, the
Consulting Agreement is clear in providing that "upon such termination [of the
consulting relationship,] all other agreements between the parties shall likewise
be deemed to have been fully satisfied, completed and terminated." Moreover,
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the Third Agreement had an express five-year term that ended in 2004. The
material undisputed fact is that the Firm ended the consulting relationship with
Shapiro in 2004. Consequently, after 2004, all agreements between the Firm
and Shapiro were "fully satisfied, completed and terminated."
Finally, we reject the Firm's contention that the Restrictive Covenant
Agreement should be blue penciled. Because the agreements had a clear
termination event – the ending of the consulting relationship – it would be
rewriting the agreement to add a different termination date. Moreover, even if
we were to conclude that the blue penciling of this restrictive covenant would
be appropriate, the only reasonable thing to do would be to revise it so that it
had a termination date two years beyond the end of the consulting relationship .
In other words, blue penciling would have the Restrictive Covenant Agreement
end in 2006.
In summary, we agree with the trial court that the Restrictive Covenant
Agreement had terminated, and it was no longer enforceable in 2019 when
Shapiro left the Firm.
Affirmed.
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