The Baker's Noncompete and the Online Oven
Your supervising attorney represents Clara, who sold her Brooklyn bakery, 'Flour & Salt,' to Rory for $800,000 under an asset purchase agreement. Section 9.2 says: 'Seller shall not, for three years after closing, directly or indirectly own, manage, or operate any bakery or bakery-related business within 25 miles of the former premises.' Closing was January 15, 2023. Clara used $300,000 of the proceeds to pay debts; the rest is in a savings account. In March 2024, Clara began selling gluten-free bread from her home in Jersey City, ten miles from the former bakery, through a website that ships nationwide. She has no storefront, no employees, and no local advertising. Two of her 140 customers are in Brooklyn; one is a former Flour & Salt wholesale account. Rory has sued in New York Supreme Court, Kings County, seeking a preliminary injunction and damages. Rory's affidavit says the bakery's gross revenue fell 8% in 2024, but it also opened a second location in Manhattan. Clara's affidavit says she cannot find other work and that her bread is a different product. The engagement letter asks for an objective memorandum on enforceability and litigation risk.
1. Analyze the enforceability of Section 9.2 under New York law.
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A covenant not to compete in the sale of a business is enforceable if it is reasonable in time and geography and necessary to protect the buyer's goodwill. New York courts enforce sale-of-business covenants more readily than employment covenants because the seller received consideration for the goodwill. Three years is within the range upheld. The 25-mile radius is facially plausible in a dense market, but the 'bakery-related business' language is broad, and Clara's online sales are not limited to Brooklyn. The key facts: her home is ten miles away; she has no storefront, employees, or local advertising; only two of 140 customers are in Brooklyn, and one is a former wholesale account. Rory must show the covenant is no broader than needed to protect goodwill. The online reach makes a literal 25-mile restriction hard to apply, but the former wholesale customer is a concrete goodwill threat. A court may enforce the covenant only as to Brooklyn customers or the former account, or it may find the geographic term reasonable and enjoin solicitation within 25 miles. The 8% revenue decline is weak causation because Rory opened a Manhattan location.
2. Assess Rory's likelihood of obtaining a preliminary injunction.
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Rory must show likelihood of success on the merits, irreparable harm, balance of equities, and public interest. Likelihood of success is moderate: the sale-of-business covenant is presumptively enforceable, but overbreadth and Clara's limited local footprint reduce its scope. Irreparable harm is the weak link. Lost sales can be measured; Rory's 8% decline is not tied to Clara, and the Manhattan expansion confounds causation. Loss of goodwill can be irreparable, especially if the former wholesale customer defects, but two retail customers is thin. The balance favors Clara somewhat: she needs income, and an injunction would shut down an online business with nationwide sales. The public interest favors competition and enforcing bargains. The court is likely to grant a narrow injunction limited to soliciting Brooklyn customers and the former wholesale account, not a shutdown of the website. A temporary restraining order is unlikely without stronger evidence of diverted sales.
3. Recommend a strategy and address blue-penciling.
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Recommend negotiating a consent injunction or a narrowed covenant before the hearing. Clara should offer to stop soliciting the former wholesale account and any Brooklyn customers for the balance of the three-year term; Rory gets goodwill protection without shutting down Clara's online business. If Rory refuses, Clara should seek a declaratory judgment that the covenant is unenforceable as applied to nationwide online sales. New York courts may partially enforce a reasonable covenant, often called blue-penciling, but they will not rewrite the agreement or add terms. They can strike an unreasonable geographic restriction or limit enforcement to a reasonable area. Because the 25-mile term is severable, the court could enforce it only in Brooklyn. Clara's best argument is that Rory cannot show irreparable harm and that the covenant's 'bakery-related business' phrase is vague. Litigation risk: a broad injunction is possible but unlikely; damages are speculative. Negotiation is cheaper and preserves the asset sale.