By Fredrick P. Niemann, Esq. of Hanlon Niemann, a Freehold, NJ Covenant Not to Compete Attorney

I just read an interesting case involving a breach of a restrictive covenant which involved the sale of a business. The contract of sale included a covenant that barred the sellers from pursuing similar business activities for five years, a typical restriction found in many business sale agreements.

During the restricted term following the sale, the seller started a similar company. The new company solicited business from the buyer’s current and prospective clients. Litigation was filed. The accusations included the following:

  • First, the buyer claimed that the sellers breached their agreement not to compete.
  • Second, the buyer alleged that the sellers tortiously interfered with the buyer’s contracts with current customers and wrongfully solicited the buyer’s prospective clients.
  • Finally, the buyer argued that all of its claims—breach of contract, tortious interference with contract, and tortious interference with prospective economic advantage—showed a purposeful action and a deceptive business practice.

The purpose of this blog is to briefly address the issue of deceptive business practices.

The courts have held repeatedly that a breach of contract alone, no matter how intentional isn’t a deceptive business practice. Instead, a breach of contract becomes an actionable violation only if the breach involves enough “aggravating circumstances.”

To be successful, the plaintiff seller must demonstrate the buyer defendant had “willfully” violated the covenant not to compete when they pursued former customers “actively” and “intentionally.” These adverbs allege only an intentional breach—a breach that, by itself, is not a violation. Despite the shortcomings of the claim, as recited in the complaint, the court held that the buyer’s claim should survive.

To discuss your NJ Covenant Not to Compete matter, please contact Fredrick P. Niemann, Esq. toll-free at (855) 376-5291 or email him at fniemann@hnlawfirm.com. Please ask us about our video conferencing consultations if you are unable to come to our office.