On April 17, 2023, Justice Chan of the New York County Commercial Division issued a decision in Millennium Consol. Holdings, LLC v. Bluefin Capital Mgt., LLC, 2023 NY Slip Op. 31271(U), upholding a tortious interference with contract claim based on a non-compete provision, explaining:
Tortious interference with contract requires that four elements be pleaded: the existence of a valid contract between plaintiffs and a third party, defendant’s knowledge of that contract, defendant’s intentional procuring of the breach, and damages. Defendant argues that the complaint fails to plead each of the elements because: first, the restrictive covenants are overbroad and thus cannot be enforced; second, plaintiffs do not properly allege that Zhou breached the confidentiality or non-compete covenants in the agreements; third, plaintiffs do not allege that defendant was not aware of the terms of Millennium’s agreements with Zhou and did not procure any breach; and lastly, plaintiffs fail to allege any damages. Generally, negative covenants restricting competition are enforceable only to the extent that they satisfy the overriding requirement of reasonableness. Yet, the formulation of reasonableness may vary with the context and type of restriction imposed. Here, as Zhou’s work at Millennium in the inter-dealer broker business involved use of plaintiffs’ trading tools, quantitative models and other confidential information, plaintiffs have alleged sufficient facts to support that the agreements’ restrictive covenants were necessary to protect their legitimate business interests, which Zhou himself also expressly acknowledged in the agreements. Also, the complaint alleges that Zhou received post separation compensation in exchange for complying with his restrictive covenants, further evidencing the need and reasonableness of those covenants in protecting plaintiffs from economic injury. As plaintiffs have made sufficient preliminary showing, the court declines to dismiss this claim on this ground at this stage.
Defendant next argues that Zhou did not compete as defined in the agreements or share any confidential information; instead, he merely provided similar services for defendant as he did for plaintiffs. Although defendant is not a FINRA member, plaintiffs have provided documents such as defendant’s SEC filings and webpages establishing that, like Millennium, defendant is also a broker-dealer registered with the SEC that does corporate grade, high yield emerging market fixed income securities trading, with similar securities inventory as plaintiffs, and thus is a competitor to plaintiffs. In this regard, as Zhou commenced employment with defendant within the restricted period to provide similar services, plaintiffs have sufficiently raised a plausible inference that Zhou breached the restrictive covenants.
Defendant’s argument that it did not know the restrictive covenants in the agreements or procure any breaches thereof is also unpersuasive. The complaint alleges that defendant’s general counsel helped Zhou prepare his certification to plaintiffs in March of 2022, addressing the restrictive covenants imposed by plaintiff on Zhou. During March 2022, plaintiffs were also in conversations with a representative of defendant concerning Zhou’s violation. hese facts, viewed together, have raised a plausible inference that defendant has knowledge the terms of the agreements, including the confidentiality and non compete covenants. Finally, as defendant points out, plaintiffs have not precisely quantified the damages in the pleading. However, at this early stage, plaintiff need only plead allegations from which damages attributable to defendants’ conduct might be reasonably inferred. Here, actual damages can be inferred from the complaint as it alleges that plaintiffs have paid Zhou compensation pursuant to the agreements with which defendant tortiously interfered, and that they suffered irreparable harm caused by the misappropriation of their intellectual assets and proprietary and confidential information. Accordingly, defendant’s motion to dismiss the tortious interference with contract claim is denied.
(Internal quotations and citations omitted).