This story first took place on BusinessDen.com, a BizWest news partner.
Three powerful Denver commercial real estate brokers will remain in the penalty box.
A panel of five judges in New York ruled Thursday against brokers Terrance Hunt, Shane Ozment and Chris Cowan in their appeal of a trial court ruling regarding a non-compete clause enforced by their former employer.
The three, who specialize in selling apartment complexes, many of which sell for nine figures, leapt from Newmark to rival CBRE in May.
Newmark then sued the men in an attempt to enforce a non-compete clause in a contract they signed in 2014, when Newmark bought their former employer, Apartment Realty Advisors of Colorado (ARA). All three held a 1% stake in their former employer.
This clause stipulated that if the men left Newmark, they would not be able to compete with the company for two years. It would drop to one year if the men worked for Newmark for seven years.
But the men’s jump at Newmark came before the seven-year mark.
In July, a judge overseeing the litigation in New York, where Newmark’s headquarters are located, ordered Hunt, Ozment and Cowan to follow an amended version of the non-compete clause. He said they couldn’t compete with Newmark for a year, especially in Colorado.
It is against this decision that the three brokers appealed.
Hunt, Ozment and Cowan had argued that Newmark’s non-competition was “one-sided and unfair because it was meant to apply in perpetuity.” In other words, they said it was unreasonable that even though they had worked for Newmark for 15 years, they still shouldn’t have competed with the company for a year after they left.
The men said non-competition had been used by Newmark as leverage in contract negotiations and amounted to “a blatant restriction on the economic freedom of brokers.” They also said they were unaware in 2014 that the purchase contract they signed contained this particular clause.
The brokers said there would be “irreparable harm” to their careers if they could not act as brokers for a full year.
Newmark, meanwhile, argued at the appeal stage that the non-compete language was reasonable given the nature of commercial real estate.
When Newmark bought ARA, it was essentially about buying “intangible business, which takes the form of client relationships, internal relationships between and among brokers, reputation and brand,” the company said in court documents.
“Because a lot of goodwill is essentially a broker’s network of relationships, that goodwill follows the broker if he moves into a new business without giving his brokerage firm the opportunity to keep it for a while. appropriate period of non-compete, ”Newmark said.
Newmark also pointed out that brokers have collectively received millions in signing bonuses and forgivable loans from CBRE, and that CBRE has essentially prepared for the fact that there may be a period of non-compete.
In upholding the order made by the lower court, the five judges found Newmark’s arguments to be well founded.
“Whether the national scope initially envisioned was reasonable or not, the restricted geographic scope imposed by the motions tribunal is reasonable…. The time period of two years, which was further reduced by the petitions court to one year, is also reasonable, ”says the decision.
In a statement to BusinessDen, an attorney for the three brokers said the decision “was based on a very limited and hastily compiled factual record.”
“We look forward to developing a stronger case in trial court which will paint a more complete and precise picture of the circumstances in which Terrance, Shane and Chris left Newmark and the reasons why Newmark’s claims are unfounded. “Gibson Dunn’s attorney said. said Théodore Boutrus.