Opinion
602012/2008.
February 11, 2009.
DECISION AND ORDER
INTRODUCTION
Plaintiff Elite Technology ("Elite" or "Plaintiff") is an office equipment dealer that sells and leases copy machines. Defendants Ti Hung Cheung ("Cheung") and Ciju George ("George") are former employees of Elite. George and Cheung incorporated defendant Right Click, Inc. ("Right Click"), another office equipment dealer, and left Elite to operate it. Elite sued Defendants for: (1)unfair competition; (2)tortious interference with business; and (3)disgorgement of compensation.
Cheung, George, and Right Click will be collectively referred to as "Defendants."
Defendants move to dismiss the verified complaint ("Complaint") for failure to state a cause of action. The motion is granted to the extent that the second and third causes of action are dismissed, but the first cause of action remains.
FACTS
In the Complaint, Elite alleges that it "has generated substantially all of its revenues from the sale, leasing or service of Savin photocopiers to its customers." Complaint ¶ 6. Plaintiff further alleges that George and Cheung were "significant and high-level employees" in Elite's sales department and that they had "controlled access to Elite's trade secrets." Complaint ¶ 8.
Plaintiff avers that Cheung was a sales manager who was assigned to the Manhattan region and that George was one of Elite's senior salesman. Complaint ¶ 7. The Complaint describes Elite's trade secrets as including:
(a)gross sales and leasing data; (b)marketing plans and strategies; (c)details of contracts; (d)actual and prospective customer data, including identities of Elite's customers (i.e., Elite's customer list and customer contacts); (e)pricing and discount information; (f)cost information, including special programs and discount structures negotiated with Savin; and (g)information on sources and nature of financing Elite is able to secure for its customers.
Complaint ¶ 8.
It is alleged that Right Click is Elite's direct competitor because it is an authorized dealer for Panasonic copy machines. Plaintiff claims that Right Click was incorporated in September 2007 and asserts that George and Cheung began their employment with Right Click on or about March 1, 2008. In its first cause of action (unfair competition), Plaintiff alleges that Defendants have and continue to willfully misuse and disclose Elite's confidential trade secrets for their own benefit, irreparably injuring Elite.
In the second cause of action (tortious interference), Plaintiff alleges that Defendants interfered with Elite's "prospective economic advantage and existing business relationships" by using Elite's trade secrets while competing with Elite. Complaint ¶ 41. In the third cause of action (disgorgement of compensation), Elite seeks to recover the compensation it paid to Cheung and George from the date of Right Click's incorporation to the date that they left Elite's employ. It is alleged that they were planning to join Right Click during this time.
In affidavits submitted in support of the motion, Cheung and George aver that: (a)they were not managers; (b)they did not have access to any trade secrets; and (c)they only had knowledge of information that was readily available to all employees. They concede that they did incorporate Right Click before they left Elite's employ. However, they maintain that they did not begin to operate Right Click until after they left Elite. They also state that there was no contractual limitation that prevented them from operating an office equipment dealership in New York upon their separation from Elite. DISCUSSION
In evaluating a motion to dismiss pursuant to CPLR 3211(a) (7), the court is required to accept the allegations of the complaint as true, accord the plaintiff the benefit of every possible favorable inference, and determine only whether the facts as alleged fit within any cognizable legal theory. Leon v. Martinez, 84 NY2d 83, 87-88 (1994). Elite has pled a cognizable cause of action for unfair competition, but does not adequately allege causes of action for tortious interference with business or disgorgement.
A. Unfair Competition
"New York courts have held that the misappropriation and improper use of another's trade secrets is sufficient to constitute a claim for unfair competition." Louis Capital Markets, L.P. v. REFCO Group Ltd., LLC, 9 Misc.3d 283, 289 (Sup.Ct. N.Y. Co. 2005). Such a claim can be brought by an employer against former employees in the absence of a restrictive covenant. See Pearlgreen Corp. v. Yau Chi Chu, 8 A.D.3d 460 (2nd Dept. 2004); Starlight Limousine Serv., Inc. v. Cucinella, 275 A.D.2d 704 (2nd Dept. 2000). Here, Elite has properly stated a cause of action for unfair competition based on the alleged misappropriation of trade secrets. Defendants' opposition merely demonstrates that they dispute the veracity of the allegations.
B. Tortious Interference
Plaintiff's second cause of action contains a claim for tortious interference with existing business relationships and a claim for tortious interference with prospective economic advantage. Elite explains that "this count of the Complaint relates to damages caused to Elite by the defendants' tortious interference with Elite's prospects for future transactions with its existing customers." Affirmation of Allan H. Carlin in Opposition to Motion to Dismiss ¶ 8.
"[A]ctions based on interference with existing business relationships require the existence of a contract." Constantin Assocs. v. Kapetas, 2007 N.Y. Slip Op. 52320(U), at *2, 17 Misc.3d 1137 (A), 851 N.Y.S.2d 68 (Table) (Sup.Ct. N.Y. Co. Dec. 6, 2007) (citing Guard-Life Corp. v. S. Parker Hardware Mfg. Corp., 50 N.Y.2d 183, 189-94 (1980)). Accordingly, it is appropriate to treat a cause of action styled as one for interference with existing business relationships as a claim for tortious interference with contract. Id.
A claim of tortious interference with contract would require allegations of: (1)the existence of a valid contract between Elite and a third-party; (2)Defendants' knowledge of that contract; (3)Defendants' intentional procurement of a breach of the contract without justification; (4)actual breach of the contract; and (5) resulting damages. See id.
Elite has not alleged the existence of a valid contract between it and any of its existing customers that Defendants had knowledge of and intentionally caused to be breached. Accordingly, it has not stated a legally cognizable claim for tortious interference with contract.
A claim for tortious interference with prospective economic advantage would require allegations that; (1) there was an opportunity for Elite to enter into a contract with a third-party; (2) Defendants wrongfully interfered with that opportunity; (3) but for Defendants' conduct, Elite would have entered into the prospective contract; and (4) resulting damages. See id.; see also Vigoda v. DCA Prods. Plus, Inc., 293 A.D.2d 265, 266-67 (1st Dept. 2002). Such a claim can be made with respect to a prospective contract with either a new client or an existing client.
While Elite's allegations are to be liberally construed, Elite "must support [its] claim with more than mere speculation" to withstand a motion to dismiss. Burrowes v. Combs, 25 A.D.3d 370, 373 (1st Dept. 2006), quoted in Kapetas, 2007 N.Y. Slip Op. 52320(U), at *2. A prospective contract must be identified and vague allegations are insufficient. See Gebbia v. Toronto-Dominion Bank, 306 A.D.2d 37, 38 (1st Dept. 2003); Brown v. Bethlehem Terrace Assocs. 136 A.D.2d 222, 225 (3rd Dept. 1988); Kapetas, 2007 N.Y. Slip Op. 52320(U), at *2.
Here, Elite does not specifically allege that it would have entered into a new prospective contract with an existing customer, but for Defendants' wrongful actions. None of Elite's existing clients are identified, and no actual prospective contract is mentioned in the Complaint. Defendants' vague and speculative allegations are insufficient to withstand this motion to disimiss.
C. Disgorgement
Elite claims that it is entitled to the disgorgement of the compensation that it paid to Cheung and George after the formation of Right Click because they "planned to compete against Elite" before they left. Complaint 51. Although disgorgement can be a remedy for a breach of a fiduciary duty, Elite has not alleged that Cheung or George did anything while they were employed with Elite that could constitute a breach of a fiduciary duty.
In a recent decision, the Appellate Division First Department held that "'[a]n employee may create a competing business prior to leaving his employer without breaching any fiduciary duty unless he makes improper use of the employer's time, facilities or proprietary secrets in doing so.'" Ashland Management Inc. v. Altair Invs. NA, LLC, 869 N.Y.S.2d 465, 473 (1st Dept. 2008) (quoting Schneider Leasing Plus v. Stallone, 172 A.D.2d 739, 741 (2nd Dept. 1991), lv. app. dism., 78 N.Y.2d 1043 (1991)).
Here, Elite only alleges that Cheung and George "planned to compete" while they were employed by Elite. It does not allege that they actually did compete during this time or that they engaged in any conduct that would constitute a breach of a fiduciary duty. In their affidavits, Cheung and George unequivocally state that they did not begin to operate Right Click until after they left Elite's employ.
CONCLUSION
Accordingly, it hereby is
ORDERED that Defendants' motion to dismiss is granted to the extent that Plaintiff's second and third causes of action are dismissed; and it is further
ORDERED that the first cause of action remains; and it is further
ORDERED that Defendants shall submit an answer to the remaining first cause of action within twenty days of service of a copy hereof with notice of entry; and it is further
ORDERED that a preliminary conference shall be held in Part