Automated Cash Transactions, LLC v. Weiner

97-713 (U.S. Dist. Ct. D. N.J. 1997) (Unpublished)
  • Opinion Date: May 23, 1997

EMPLOYER-EMPLOYEE; NON-COMPETITION—A principal of two related companies had an employment agreement with those companies containing a non-compete provision. When the other principal rightfully “closed” the businesses to form a new company of his own in the same industry, he discovered that the first principal had violated the non-compete provision. Nonetheless, the Court would not enforce the non-compete provision because the original companies were now out of business and the second principal was not deemed to be a third party beneficiary of the non-compete provision.

In 1995, Edward Cantor and Myron Weiner entered into a relationship to pursue opportunities in the business of leasing, placing and operating automated teller machines. Weiner formed a limited liability company for this purpose. Several months later Weiner also formed another limited liability company, directing both businesses from his office in Florida. In the employment contracts he had with each entity, Weiner had a noncompetition clause and an agreement not to solicit any person who is or was a customer of either company during the period for which the noncompetition clause was enforceable. In August, 1996, in consideration for additional funds from Cantor, Weiner transferred part of his interest in each company to Cantor, giving Cantor a 65% interest in each company. In February, 1997, Cantor informed Weiner that he planned to close both companies and do business through a separate entity. After gaining access to company records, Cantor discovered that Weiner negotiated with the companies’ business partners to set up separate relationships with them. As a result, the two companies and Cantor applied for, and were granted, preliminary injunctive relief preventing Weiner from engaging in conduct prohibited by the noncompetition clause of Weiner’s employment agreement with each company. The four factors a court considers when deciding whether to grant a preliminary injunction are: (1) whether movant has shown reasonable probability of success on the merits, (2) whether movant will be irreparably injured by denial of such relief, (3) whether preliminary relief will result in greater harm to the nonmoving party, and (4) whether granting preliminary relief will be in the public interest. The District Court ascertained that the injunction granted was a preliminary one because of the possibility that the companies would not continue as viable businesses, in which case they would not be irreparably harmed by Weiner’s noncompliance with his employment contracts.

Cantor testified that Weiner should still be bound by the noncompetition clause because without it, Cantor could be injured personally in his new business. Although Cantor claimed he was a third party beneficiary of Weiner’s employment contracts, the District Court pointed out that third party beneficiary status is dependent on whether parties to a contract intend others to benefit from it or whether the benefit is unintended and incidental. This intent can be ascertained by examining the relevant contractual provisions and the surrounding circumstances. In this case, the noncompetition clauses were silent as to third party beneficiaries, focusing only on the protection of, and potential damage to, the respective companies. The Court not only found that Cantor could benefit only incidentally from these contracts, but also held that even if he had been an intended third party beneficiary of the contract, there is no indication that the parties intended the noncompetition provisions to benefit him personally in any separate business ventures he might undertake. Since no irreparable harm was found to result to either of the companies, the motion for continuation of the preliminary injunction was denied.