Plaintiffs, Mathias Bruefach ("Mathias"), Steven Bruefach ("Steven") and Edward Wojcik ("Edward"), move for summary judgment in lieu of complaint pursuant to CPLR 3213.

On August 1, 2005, Defendant, Creative Sign Solutions, Inc. ("Creative"), made a promissory note in the principal sum of $235,000 payable to Mathias, Steven and Edward. Each had an equal one-third (1/3) interest in the note. The note was payable in 60 monthly [*2]installments of $4,708.92 which included interest at the rate of 7 ½ % per annum with payment commencing on August 1, 2005. The remaining payments were due on the first day of each month thereafter with the final payment being due on July 1, 2010.

Defendant, Richard Miessmer ("Richard"), executed the note on behalf of Creative and as "Guarantor of payment terms and conditions."

Each monthly payment was to be made in three equal payments to Mathias, Steven and Edward of $1,569.64 .

The note provides the maker will be in default if it fails to pay any monthly installment within five (5) days of the due date.

In the event of default, the entire outstanding principal balance would become immediately due and payable. In the further event of default, interest on the unpaid balance would be payable at the rate of15% per annum.

Creative defaulted in the payment of the note by failing to make the payment due on May 1, 2007. Creative has failed to make any subsequent payments.

The promissory note was used as part of the purchase price relating to Richard's purchase of businesses owned by Mathias, Steven and Edward..

Pursuant to a purchase and sale agreement dated August 1, 2005, Richard purchased three businesses, Clarkworld Enterprises, Inc. ("Clarkworld"), Reiber Signs, Inc.("Reiber") and Redstone Marketing, Inc. ("Redstone"). Mathias was the president of Reiber. Steven was the president of Clarkworld. Edward was the president of Redstone.

Mathias, Steven and Edward each signed a covenant not to compete in connection with the sale of their respective businesses. The covenant not to compete provided that they would not engage directly or indirectly in the trade, occupation or business of the manufacture, sale or installation of outdoor signs for a period of five (5) years within a 25 mile radius of Creative's place of business in Farmingdale.

The covenant contained a non-solicitation provision that prevented Mathias, Steven and Edward from soliciting business from any of the customers on the Clarkworld, Reiber and Redstone customer lists during the five (5) year period or from performing and services, repairs or activity of any nature to the signs provided to these customers during the five (5) year period.

Steven and Edward worked for Creative after Richard purchased their businesses.

In April 2007, Richard began to suspect Steven was working for, or engaging in, a competing business. He discovered an invoice for sign work from Signbrew, Inc. in Syosset with Steven's name on it. The invoice relates to the installation of a neon sign. Steven asserts Signbrew is not a competing business and the work reflected on the invoice does not involve the sale, service or repair of a sign.

Clarkworld's customer list had about 400 names. Prior to April, 2007, Creative was doing business with almost all of theses customers grossing about $20,000 a month in business from these customers.

Between April and July, 2007, almost all of Clarkworld's customers stopped doing business with Creative. Richard believes Steven diverted the business from these customers to a competing business.

Richard alleges another employee of Creative overheard Steven making disparaging remarks about Creative during a telephone conversation with a customer or potential customer. Thus, he discharged Steven in July 2007. Richard believes Steven is now working for [*3]competing sign company in Huntington.

The customers on the customer lists Richard purchased from Mathias and Edward are still doing business with Creative.

Richard claims he stopped paying the note because of Steven's activities.

The holder of a promissory note establishes a prima facie case by submitting proof of the existence of a promissory note executed by the maker containing an unequivocal and unconditional obligations to repay and the maker's default. Constructamax, Inc. v. CBA Assoc., Inc., 294 AD2d 460 (2nd Dept. 2002); and Colonial Commercial Corp. v. Breskel Assoc., 238 AD2d 539 (2nd Dept. 1997). See also, Seaman-Andwall Corp. v. Wright Machine Corp., 31 AD2d 136 (1st Dept. 1968), aff'd, 29 NY2d 617 (1971) and Chemical Bank v. Nemeroff, 233 AD2d 239 (1st Dept. 1996); and Key Bank v. Munkenbeck, 162 AD2d 503 (2nd Dept. 1990).

Once the holder of the promissory note has established a prima facie case, the maker must come forward with evidence establishing the existence of triable issues of fact or a bona fide defense. Colonial Commercial Corp. v. Breskel Assoc., supra; and Silber v. Muschel, 190 AD2d 727 (2nd Dept. 1993).

A violation of the restrictive covenant and covenant not to compete would be a defense to the action on a promissory note only if the promissory note was inextricably intertwined with those covenants. Vecchio v. Colangelo, 274 AD2d 469 (2nd Dept. 2000); and Cohen v. Marvlee, Inc., 208 AD2d 792 (2nd Dept. 1994).

The promissory note is inextricably intertwined with the purchase agreement or the covenant not to compete/restrictive covenant only if some additional performance by Steven was a condition precedent to the payment of the note or Steven's failure to perform his obligations under the purchase agreement altered Creative's payment obligations or Richard's guarantee thereof. Neuhaus v. McGovern, 293 AD2d 727 (2nd Dept. 2002); and East New York Savings Bank v. Baccaray, 214 AD2d 601 (2nd Dept. 1995).

A party seeking summary judgment on a guarantee establishes a prima facie entitlement to judgment as a matter of law by establishing the existence of the underlying obligation, the guarantee and the failure of the prime obligor to make payment in accordance with the terms of the obligations. Royal Commercial Corp. v. Kotrulya, 304 AD2d 742 (2nd Dept. 2003); and E.D.S. Security Systems, Inc. v. Allyn, 262 AD2d 351 (2nd Dept. 1999).

Once the Plaintiff has established a prima facie entitlement to judgment as a matter of law on the guarantee, the Defendant must establish through admissible evidence the existence of a triable issue of fact or the existence of a viable defense to the action on the guarantee. Federal Deposit Ins. Co. v. Jacobs, 185 AD2d 913 (2nd Dept. 1992).

Plaintiffs have established a prima facie entitlement to judgment as a matter of law on the note and the guarantee. Richard admits Creative stopped making payment on the note. The burden then shifts to Defendants to establish a defense on the action.

Steven's activities do not provide Creative or Richard with a defense to the action on the note brought by Mathias or Edward. The note specifically provides for the monthly payment to be divided into three equal shares. Richard does not allege that either Mathias or Edward violated the any of the provisions of the purchase agreement or the covenant not to compete/restrictive covenant. Creative offers no reason why it stopped paying Mathias or Edward. Thus, they should be awarded summary judgment on liability on both the note and the guarantee. [*4]

Steven's alleged activities do not provide a defense on the note or the guarantee. Steven's actions provide Creative and/or Richard with causes of action/counterclaims of inter alia: (1) breach of the a duty of good faith and loyalty in the performance of his duties (Wallack Freight Lines, Inc. v. Next Day Express, Inc., 273 AD2d 462 [2nd Dept. 2000]; and Maritime Fish Prods. v. World-Wide Fish Prods., Inc., 100 AD2d 81 [1st Dept. 1984]); (2) breach of the restrictive covenant/covenant not to compete (BDO Seidman v. Hirshberg, 93 NY2d 382 [1999]: and Mohawk Maintenance Co., Inc. v. Kessler, 52 NY2d 276 [1981]); and (3) breach of the implied covenant that prevents a seller of a business from soliciting business from former customers (Mohawk Maintenance Co. v. Kessler, supra; and Slomin's Inc. v. Gray, 176 AD2d 934 [2nd Dept. 1991]; and Kraft Agency, Inc. v. Delmonico, 110 AD2d 177 [3rd Dept. 1985]).

While Creative and/or Richard may have causes of action against Steven, the existence of these causes of action do not provide a defense to the action on the note for Creative or a defense to the action on the guarantee for Steven. DeLuca v. North Shore Medical Imaging, LLP, 287 AD2d 488 (2nd Dept. 2001).

The precise amount due on the note when Creative defaulted is not clear from the motion papers. Plaintiffs state that the balance due as of the date of default was

$166,200. However, Plaintiffs fail to attach an amortization schedule indicating the amount due. Thus, a hearing is required to determine the amount due on the note as to each Plaintiff.

The note further provides for a late fee of 2% for each payment received more than ten days after the due date. The late fee must be calculated.

The note also provides for the maker, Creative, to pay all reasonable expenses incurred should the holders of the note be required to commence an action to enforce the note. Such provisions are valid and will be enforced. Arent, Fox, Kinter Plotkin & Kahn PLLC v. Lurzer GmbH, 297 AD2d 590 (1st Dept., 2002).

Legal fees are awarded on a quantum meruit basis and cannot be determined summarily. See, Simoni v. Time-Line, Ltd., 272 AD2d 537 (2nd Dept. 2000); and Borg v. Belair Ridged Development Corp., 270 AD2d 377 (2nd Dept. 2000). Therefore, the matter must be referred to Special Referee to hear and determine the reasonable attorney's fees for Plaintiff's attorney in regard to this matter.

However, entry of a judgment on the promissory note on behalf of Steven shall be stayed pending the hearing and determination of any claims Creative or Richard might assert against Steven. See, Illinois McGraw Electric Co. v. John J. Walters, Inc., 7 NY2d 874 (1959); and Titan Corp. v. Cellular Vision Technology & Telecommunications, L.P., 271 AD2d 437 (2nd Dept. 2000); and Tyree Brothers Environmental Services, Inc v. Ferguson Propeller, Inc., 247 AD2d 376 (2nd Dept. 1998). Defendants shall serve a responsive pleading asserting the counterclaims they have against Steven pursuant to CPLR 3213.

Accordingly, it is,

ORDERED, that Plaintiffs motion for summary judgment on the issue of liability is granted; and it is further;

ORDERED, that the matter is respectfully referred to Special Referee Frank Schellace on March 5, 2008 at 9:30 a.m to hear and determine all issues relating to damages, late fees and [*5]attorney's fees due and owing to the Plaintiffs: and it is further,

ORDERED, that counsel for Plaintiffs shall serve and file a Note of Issue and pay all appropriate fees on or before February 20, 2008; and it is further,

ORDERED, that the County Clerk, Nassau County is directed to enter a judgment in favor of Plaintiffs Mathias Bruefach and Edward Wojcik and against Defendants Creative Sign Solutions, Inc. and Richard Miessmer in the sums determined by the Special Referee together with interest at the rate of 15% per annum from April 1, 2007 to the date of entry of judgment together with reasonable attorney's fees, costs and disbursements as taxed by the Clerk: and it is further,

ORDERED, that entry of judgment on behalf of Plaintiff Steven Bruefach against Defendants Creative Sign Solutions, Inc. and Richard Miessmer is stayed pending further order of this Court; and it is further,

ORDERED, that Defendants shall serve a pleading containing such counterclaims as they may assert against Plaintiff Steven Bruefach within thirty days of the date of this order; and it si further,

ORDERED, that counsel for Plaintiff Steven Bruefach and counsel for the Defendants are directed to appear for a preliminary conference on said counterclaims on April 4, 2008 at 9:30 a.m.

This constitutes the decision and Order of the Court.

Dated: Mineola, NY_____________________________

January 9, 2008Hon. Leonard B. Austin, J.S.C.