Three high-powered Denver commercial real estate brokers will remain in the penalty box.
A five-judge panel in New York on Thursday ruled against brokers Terrance Hunt, Shane Ozment and Chris Cowan in their appeal of a lower trial court’s decision regarding a non-compete clause being enforced by their former employer.
The three men, who specialize in the sale of apartment complexes, many of which sell for nine figures, jumped from Newmark to its rival CBRE in May.
Newmark subsequently sued the men in an effort to enforce a non-compete clause contained in a contract they had signed in 2014, when Newmark purchased their former employer Apartment Realty Advisors of Colorado (ARA). The three had 1 percent ownership stakes in their former employer.
That clause stated that, if the men left Newmark, they would not be able to compete with the company for two years. That would drop to one year if the men worked for Newmark for seven years.
But the men’s jump to Newmark came before the seven-year mark.
In July, a judge overseeing the litigation in New York, where Newmark is headquartered, ordered Hunt, Ozment and Cowan to follow a modified version of the non-compete clause. He said they could not compete with Newmark for one year, specifically in Colorado.
It was that decision that the three brokers appealed.
Hunt, Ozment and Cowan had argued that Newmark’s non-compete was “one-sided and unfair because it purported to apply in perpetuity.” In other words, they said it was unreasonable that, even if they had worked for Newmark for 15 years, they would still have had to not compete with the company for a year upon leaving.
The men said the non-compete was used by Newmark as leverage during contract negotiations and amounted to “a naked restraint on the brokers’ economic freedom.” They also said they were unaware in 2014 that the purchase agreement they signed had that particular clause in it.
The brokers said there would be “irremediable harm” to their careers if they couldn’t 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 purchased ARA, it was essentially buying “intangible goodwill, which takes the form of customer relationships, internal relationships between and among brokers, reputation and branding,” the company said in court documents.
“Because much of the goodwill is essentially a broker’s network of relationships, that goodwill follows the broker if they move to a new firm without providing his brokerage the opportunity to retain it during an appropriate period of non-competition,” Newmark said.
Newmark also highlighted the fact that the brokers had collectively received millions in signing bonuses and forgivable loans from CBRE, and that CBRE had essentially prepared for the fact that there might be a non-compete period.
In upholding the order issued by the lower court, the five judges found that Newmark’s arguments had merit.
“Whether or not the originally contemplated nationwide scope would have been reasonable, the narrowed geographic scope imposed by the motion court is reasonable …. The two year temporal duration, which was further reduced by the motion court to one year, is also reasonable,” the decision reads.
In a statement to BusinessDen, an attorney for the three brokers said the decision “was based on a very limited, hastily compiled factual record.”
“We look forward to developing a more robust record in the trial court, which will paint a fuller and more accurate picture of the circumstances under which Terrance, Shane, and Chris left Newmark and the reasons why Newmark’s claims are baseless,” Gibson Dunn attorney Theodore Boutrous said.