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A Royal Flush, Inc. v. Arias

United States District Court, D. Connecticut

September 21, 2018

A ROYAL FLUSH, INC., Plaintiff,
ANIR ARIAS, Defendant.



         On July 30, 2018, A Royal Flush, Inc. (“Plaintiff” or “A Royal Flush”) moved for a preliminary injunction against Anir Arias (“Defendant” or “Mr. Arias”) to enforce written agreements allegedly barring him from working for A Royal Flush competitors in general for one year after leaving the company and, for one competitor, United Site Services, Inc. (“United Site Services”), for two years after leaving the company.

         For the reasons discussed below, the Motion for Preliminary Injunction is GRANTED IN PART AND DENIED IN PART.

         The December 28, 2017 Restrictive Covenants Agreement shall be enforceable against Mr. Arias and, until July 13, 2019, Mr. Arias is enjoined from disclosing any confidential customer information related to A Royal Flush clients, proprietary business information related to A Royal Flush, or working in any capacity where his services would be used for direct competition with A Royal Flush in the States of Connecticut, New York, New Jersey, Massachusetts, and Pennsylvania.

         The July 11, 2018 Employment Agreement, however, cannot provide a basis for a preliminary injunction and the request for such relief under this agreement therefore is denied.


         A. Factual Findings [1]

         For two days, September 6, 2018 and September 12, 2018, the Court heard evidence on A Royal Flush's motion for a preliminary injunction. Twenty-five exhibits were entered into evidence and five witnesses testified: (1) Timothy F. Butler, majority shareholder and Chairman of the Board of Directors of A Royal Flush; (2) Thomas A. Butler, Jr., Chief Executive Officer of A Royal Flush; (3) Alexandra Townsend, a Vice-President of A Royal Flush; (4) Anir Arias, A Royal Flush's former New York Regional Manager and currently an employee for United Site Services; and (5) Ron Carapezzi, the President and Chief Executive Officer of United Site Services. As a result of the evidence presented at the two-day hearing and the parties' written submissions, the Court finds the following:

         Founded more than two decades ago by five friends, A Royal Flush provides portable toilets and trailers for specialty events, municipalities, and construction sites. Memorandum of Law in Support of Plaintiff's Motion for Preliminary Injunction, ECF No. 11. A Royal Flush's principal office is in Bridgeport, Connecticut. Aff. of Timothy F. Butler, Mot. For Preliminary Injunction, ECF No. 13 (“TFB Aff.”). There are additional A Royal Flush offices in Holyoke, Massachusetts; Newark, New Jersey; Philadelphia, Pennsylvania; and the Bronx; New York. Id. A Royal Flush does business throughout the State of Connecticut the five boroughs of New York City and the New York State counties of Westchester, Rockland, Orange, Nassau and Putnam, and Philadelphia, Pennsylvania and the surrounding counties, as well as southeastern and western Massachusetts. Id. According to Timothy Butler, A Royal Flush also does business in Rhode Island and Delaware.

         United Site Services is a major competitor of A Royal Flush and has a significant national presence, with offices in well over twenty states. United Site Services' national presence has grown through acquisitions of other smaller companies, including a prior attempt to purchase A Royal Flush.

         In April of 2017, William A. Malone, A Royal Flush's then president and majority shareholder, committed suicide. Since then, there have been organizational changes as well as employee departures, including Mr. Arias as well as Chris Ploof, A Royal Flush's former event and restrooms trailer specialist, and Anthony Yetskofsky, A Royal Flush's former Fleet Manager. Id. Mr. Arias left A Royal Flush to work for United Site Services in July 2018.

         Mr. Arias began working for A Royal Flush of New York II, Inc. (“A Royal Flush of New York II”), a New York Affiliate of A Royal Flush, in January of 2014. Memorandum in Opposition to Plaintiff's Motion for Preliminary Injunction, ECF No. 33. He rose in the company to become New York/New Jersey Regional Manager, with responsibility for managing A Royal Flush's distribution throughout New York and New Jersey; he ran operations, managed delivery routes, oversaw personnel, coordinated with mechanics, supervised set up and breakdown for special events, and dealt with customer complaints.

         This case centers around three alleged agreements between and among Mr. Arias, A Royal Flush, and A Royal Flush NY: (1) an August 4, 2017 Confidentiality Agreement; (2) a December 28, 2017 Restrictive Covenants Agreement; and (3) a July, 11, 2018 Employment Agreement.

         1. August 4, 2017 Confidentiality Agreement with A Royal Flush

         In August of 2017, A Royal Flush instituted a company-wide policy of requiring the signing of an employee confidentiality and non-disclosure agreement as part of continued employment with A Royal Flush.

         Under this confidentiality agreement, Mr. Arias, then a Senior Dispatcher for the New York Area, agreed that he “will not disclose, use, lecture upon or publish any of the Company's Confidential and Proprietary Information.” Plaintiff's Ex. 2. This prohibition included marketing strategies, customer information, vender information, and service routes. Mr. Arias also agreed that A Royal Flush “shall have the right to enforce this agreement and any of its provisions by injunction.” Id.

         2. December 28, 2017 Restrictive Covenants Agreement with A Royal Flush

         In December 2017, in exchange for accepting a raise, a promotion to regional manager, and a bonus, Mr. Arias signed another agreement: a Restrictive Covenants Agreement that contained non-competition, non-solicitation, and non-disclosure covenants. Plaintiff's Ex. 3. (“Ex. 3”). Four sections of the Restrictive Covenants Agreement are relevant to this case.

         First, Section 2 of the Restrictive Covenants Agreement establishes that “for a period of 12 months from the date of termination, ” Mr. Arias “shall not engage in any business or activity, or legally, equitably, or beneficially, directly or indirectly, in any capacity . . . in the type of business the company is engaged in, and with any business which is in competition with the Company.” Ex. 3.

         Second, Section 7 of the Restrictive Covenants Agreement states that during Mr. Arias' employment, and for a period of twelve months thereafter, he shall not solicit any business from current or prospective customers of the company within the “States of Connecticut and New York, Counties of Westchester and Rockland, the entire state of New Jersey, southeastern Massachusetts and Philadelphia, PA . . .” Ex. 3. Section 7 also contains a non-competition agreement that prohibits Mr. Arias from soliciting “employment or engagement” with a competitor for a period of twelve months. Id.

         Third, Section 9 of the Restrictive Covenants Agreement acknowledges that “the Company shall be entitled to temporary and permanent injunctive relief . . .[and] attorney's fees and costs incurred in connection with enforcing its rights, ” among other remedies.

         Fourth, Section 10 of the Restrictive Covenants Agreement fixes the terms to interpretation and enforcement “according to the laws of the State of New York without giving effect to the principles of conflicts of law thereof.” This section later states that the Restrictive Covenants Agreement shall be binding upon “successors and assigns and may be transferred by the Company or to any successor (whether by merger, consolidation, sale of assets or otherwise) or assigns.” Ex. 3. Finally, this Section permits a court to reform and construe the Restrictive Covenants Agreement “to provide the protected party the maximum protection permissible by law.” Id.

         After signing the Restrictive Covenants Agreement, Mr. Arias took a promotion and advanced role with A Royal Flush. According to Mr. Arias' testimony, he was in charge of dispatch operations for the New York and New Jersey regions. This new role involved supervising dispatch operators, scheduling deliveries, managing truck routes, coordinating with mechanics, addressing customer service issues, and overseeing on-site setup, attendance, and breakdown of portable toilets.

         3. A Royal Flush Absorbs A Royal Flush of New York II

         According to hearing testimony from Timothy and Thomas Butler, A Royal Flush merged with A Royal Flush of New York II, which resulted in A Royal Flush controlling A Royal Flush of New York II's assets and Thomas Butler becoming the majority shareholder of A Royal Flush. Mr. Arias then began receiving his salary from A Royal Flush and became its employee.

         4. Mr. Arias Signs June 2018 Employment Agreement with United Site Services

         On June 18, 2018, Mr. Arias entered an employment agreement with United Site Services. During the course of negotiations, United Site Services sent Mr. Arias his offer for employment as a Premier Trailer Solutions Manager based in Westborough, Massachusetts on June 15, 2018. Plaintiff's Ex. 10 (“Ex. 10”). The agreement notes the existence of the Restrictive Covenants Agreement with A Royal Flush. The offer letter states that Mr. Arias' new role “shall strictly preclude [his] participation in any activities that may be deemed in violation of the provisions of the Restrictive Covenants Agreement.” Id.

         On June 18, 2018, Mr. Arias accepted the terms and signed this offer letter. Id. As a condition of his employment, Mr. Arias signed employment and confidentiality agreements with United Site Services, effective July 9, 2018. Plaintiff's Ex. 11.

         5. Mr. Arias Continues Employment Negotiations with A Royal Flush during the end of June and early July of 2018

         Although Mr. Arias officially began working for United Site Services on July 9, 2018, he continued to work at A Royal Flush until July 13, 2018. TFB Aff. In fact, during this time period, he engaged in ongoing employment negotiations with A Royal Flush until his departure. Around June 22, 2018, Mr. Arias advised A Royal Flush that he had been approached by United Site Services and intended to leave A Royal Flush. A Royal Flush officers and Mr. Arias engaged in back-and-forth negotiation with the goal of keeping Mr. Arias with A Royal Flush. Plaintiff's Exs. 4-6, 8.

         Even before these negotiations, according to the testimony of Timothy Butler, A Royal Flush earlier had agreed to a salary increase, a bonus opportunity, and a new four-door pickup truck for Mr. Arias' personal and professional use. TFB Aff. The negotiations in June of 2018 discussed an additional salary increase, a bonus opportunity, an ownership interest and other benefits. In exchange, Mr. Arias would agree to a new employment agreement, which contained a non-compete provision that prohibited employment with a competitor in any state where A Royal Flush had “offices, facilities or customers” without A Royal Flush consent for a period of one year and a restricted period of two years for United Site Services. Plaintiff's Exs. 5, 6, 7.

         On June 27, 2018, Timothy Butler sent Mr. Arias an e-mail, stating that the Plaintiff's management had agreed to the offer terms Mr. Butler and Mr. Arias discussed. Plaintiff's Ex. 4. Mr. Arias stated that he would review the agreement, when he received it. Id.

         On July 10, 2018, Thomas Butler, Plaintiff's Chief Executive Officer, sent Mr. Arias by e-mail an employment agreement for the position of Regional Manager of A Royal Flush's New York Region. Plaintiff's Ex. 5. This agreement included a salary increase, a guaranteed bonus, use of an employer vehicle, tuition reimbursement, and eligibility to participate in the employer's stock option plan. Id.

         Section 8 of the Employment Agreement outlined new restrictive covenants that would prohibit Mr. Arias from working for a competitor in any state for which the Plaintiff had “office, facilities, or customers, or any state, province, or similar subdivision of any other country in the world in which the [A Royal Flush had] offices, facilities, or customers, without the prior written consent of [A Royal Flush].” Id. The provision further defines a competitor as “any business that Employee knows the Employer conducts or proposes to conduct . . . rental, delivery, installation, maintenance, and removal of portable toilets and restrooms . . .” An additional provision was added for United Site Services, which increased the restricted period to two years. Id. ...

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