On October 5, 2022, Justice Masley of the New York County Commercial Division issued decision in AJ Wealth Strategies, LLC v. Smoose, 2022 NY Slip Op. 33400(U), refusing to enforce an overbroad restrictive covenant, explaining:
At argument, AJ asserted that because AJ Partnership has yet to redeem the Incentive Interests, the LPA’s term has not expired. Restrictive covenants cannot extend in perpetuity. Such covenants are unenforceable under New York law.
The servicing and solicitation covenants of the LPA are also overbroad and unenforceable, because they potentially bar defendants from soliciting or providing services to clients with whom defendants had no relationship. While non-competition provision in certain circumstances may be modified to apply to only clients serviced by the former employee, the LPA is so broad that it is simply unenforceable.
Likewise, the LPA’s non-competition provision is overbroad and thus unenforceable because it prohibits defendants from working in connection with any business which is engaged in any business conducted by AJWS or any Affiliate. The broadsweeping language is unrestrained by any limitations keyed to any particular protectable interest. AJ is in the financial planning business and defendants are financial planners. That the market the parties work in is further narrowed by the type of
client served-people with assets over $50 million-is irrelevant since the LPA would bar defendants from the entire financial planning industry. AJ’s covenant impermissibly prohibits defendants from working in their chosen profession, not just the over $50 million niche. This is not a provision that the court could blue-pencil by shortening the time or narrowing the geographic scope, without impermissibly rewriting the provision.Courts will not enforce manifestly overbroad non-compete agreements where less restrictive means will accomplish the same ends. Since the APCP’s specific confidentiality provision is least restrictive, the court’s analysis focuses on the APCP.
The APCPs contain non-solicitation, non-competition, and non-disparagement provisions. However, the non-competition provision expired at the conclusion of the 90-day notice period. While there is some evidence that defendants told Berney that SVB’s technology was superior to AJ’s technology, potentially in violation of the non-disparagement provision, plaintiffs do no seek injunctive relief on the non-disparagement covenant. In any case, the urgent issue here is non-solicitation under the APCPs.
The non-solicitation provision of the APCPs is also not enforceable as a matter of fact and law. The APCPs define Clients to include any Person to whom AJ Wealth Group provides (or is authorized to provide) Services and/or any Person to whom AJ
(Internal quotations and citations omitted).
Wealth Group has provided Services. Like the LPA, the APCPs have no connection to the clients whom defendants serviced. However, unlike the LPA, which is temporally infinite, the APCP is not unenforceable, as it could be edited to apply to only clients serviced by defendants.