Opinion
Case No.: 99-43997 (MBK), Adv. Pro. No: 01-03367 (MBK).
August 28, 2008
Andrew J. Kyreakakis, Esq., Andrew J. Kyreakakis, P.C., Bloomfield, New Jersey Attorneys for Plaintiffs.
James L. Plosia, Jr., Esq., Apruzzese, McDermott, Mastro Murphy Liberty Corners, New Jersey Attorney for Tri-Cor Defendants.
Stephen B. McNally, Esq., McNally Associates, LLC, Newton, New Jersey Attorneys for Martin Goz, Sr., Arlene Goz and Target Industrial Packaging, Inc.
Neil G. Duffy, III, Esq., Union, New Jersey, Attorney for Glenn Pierson.
Thomas A. McKinney, Esq., Waldman, Renda McKinney, P.A., Hawthorne, New Jersey Attorneys for William Trotta and Nexus Plastics, Inc.
Robert J. Rohrberger, Esq., Mr. Fox Rothschild LLP, Roseland, New Jersey Attorneys for Poly plastic Products, Inc., Beta plastics Corp. Steven Redlich and Alfred Teo.
OPINION
I. INTRODUCTION
This matter comes before the Court on the complaint filed by Plaintiffs, Thomas Fox ("Mr. Fox") and Robert B. Wasserman, Chapter 11 Trustee ("Trustee") for Target Industries, Inc. and Lance Plastics, Inc., (collectively, "Plaintiffs") with respect to their claims against Tri-Cor Corporation, Guy Zimmerman, Donald Merwin, Jeffrey Frawley, Michael Grassman, Shawn Hilling, Dennis Petrey and Donna Zimmerman (the "Tri-Cor Defendants"), together with counterclaims interposed by the Tri-Cor Defendants. The various claims arise out of Chapter 11 bankruptcy proceedings filed by Target Industries, Inc. ("Target") and Lance Plastics, Inc. ("Lance"). Both entities were solely owned by Martin Goz, Sr. ("Mr. Goz"). Target and Lance were engaged in the manufacture, sale and distribution of customized plastic bags. Acting in concert, Lance manufactured plastic bags, which Target Industries then sold and distributed.
This proceeding encompasses multiple claims against several individual and corporate defendants, as reflected in the caption. At a pre-trial conference, the parties agreed that for purposes of trial, the Court would sever the claims against the Tri-Cor Defendants and conduct a trial against these defendants first, to determine liability only. All parties agreed that resolution of the liability issues as to the Tri-Cor Defendants would narrow substantially the issues as to the remaining defendants. Accordingly, consistent with Fed.R.Civ.P. 54(b), made applicable herein pursuant to Fed.R.Bank.P. 7054, the Court determines that there is no just reason for delay in entering final judgment as to fewer than all of the claims or parties in this proceeding.
On or about December 30, 1999, the Debtors filed separate petitions for bankruptcy under Chapter 11 of the Bankruptcy Code. On September 7, 2000, the Court approved the appointments of Robert Wasserman as Chapter 11 Trustee of Lance Plastics's, and Dennis O'Grady as the Chapter 11 Trustee of Target Industries. Subsequently, the Court approved the appointment by the United States Trustee of Robert Wasserman as Trustee over the consolidated estates and, on February 2, 2001, the Court entered an Order substantively consolidating these estates. On or about March 17, 2001, the Trustee shut down Lance, the manufacturing end of the business. Thereafter, the Trustee closed down Target on March 19, 2001. Eventually, Mr. Fox, who previously had loaned substantial sums to Mr. Goz as part of an intended investment in the businesses, purchased the assets of the consolidated bankruptcy estate of Target and Lance. In that purchase, Mr. Fox obtained all of the physical property of Target and Lance in Flanders, New Jersey, accounts receivables and a right to institute actions (by standing in the Trustee's stead) to pursue any claims on behalf of the estate. Mr. Fox instituted several of them, including the instant action filed by Mr. Fox in June of 2001. On April 18, 2002, the Court entered an Order confirming the amended Chapter 11 plan for the Debtors proposed by the Chapter 11 Trustee of the consolidated Debtor estates.
Plaintiffs allege here that immediately after the Court approved the appointment of the Chapter 11 Trustees, in or about September of 2000, Martin Goz, Sr., the former principal and owner of the Debtors, Martin Goz, Jr., and other members of the Goz family implemented a scheme with defendant employees to undermine the Trustee's authority and to defraud Target, Lance and their creditors. As part of this scheme, Plaintiffs allege that the Gozes conspired with certain employees to shut down their manufacturing company and form a new distribution and sales company to appropriate customers of the old distribution company and bring them to a new distribution and sales company, or to their competitors. The Gozes are alleged to have implemented this scheme by forming Target Industrial Packaging, Incorporated ("TIP") and then Tri-Cor Corporation ("Tri-Cor") to serve as the new distribution and sales companies, enlisting the aid of among others, Poly Plastic Products, Inc., to serve as their new manufacturer. In addition, it is claimed that the Defendants falsely informed Target customers that Target had ceased operations and encouraged Target customers to place orders with the new corporation, instead. It is further claimed that the Gozes enlisted the aid of several Target sales personnel to devalue Target and misappropriate numerous items from Target, such as accounts, trade names and other assets, characterized by Plaintiffs, as trade secrets. It is further alleged that the Gozes brought Target sales personnel to work at the Gozes new corporations and encouraged other sales personnel to leave Target and work for competitors.
In their complaint, Plaintiffs seek damages for alleged misappropriation of assets and proprietary information, breach of fiduciary duty, breach of contract, breach of duty of loyalty, breach of implied covenant of good faith and fair dealing, tortious interference, conversion, fraud, civil RICO, and several bankruptcy causes of action. The Tri-Cor Defendants filed counterclaims against Plaintiffs for unfair competition, anti-trust activities, Lanham Ac violations, tortious interference with contractual relations, conversion and defamation.
Both Plaintiffs and Defendants moved for summary judgment before Judge Rosemary Gambardella, the Judge previously assigned to this case, which motions, for the most part, were denied . . . Thereafter, the parties moved before U.S. District Judge Joel Pisano for interlocutory review of the denials of summary judgment. Judge Pisano denied the requests for interlocutory review, and remanded the case to the Bankruptcy Court. The case was thereafter assigned to this Court and trial was conducted on October 2, 3, 4, 2007, November 28, 2007, December 5, 6, 7, 20, 2007, January 31, 2008, and February 1, 8, 13, 27, 29, 2008. The Court heard testimony from J. Alex Kress, Robert Wasserman, Thomas Fox, Martin Goz, Sr., Michael Grassman, Jeffrey Frawley, Donald Merwin, Warren Greenberg and Guy Zimmerman. After the conclusion of the trial, the parties submitted their respective post-trial proposed findings of fact and conclusions of law. The record was closed on July 16, 2008.
In her May 24, 2006, decision Judge Gambardella dismissed only the 18th Count alleging RICO violations and the 10th and 12th Counts as they relate to Defendants who were not parties to employment contracts or commission agreements. All other claims survived summary judgment.
With respect to the Court's findings herein, all of the witnesses proved to be both credible and sincere in their testimony. Not surprisingly, nearly all of the relevant facts were uncontested and the primary differences in testimony lay in the contrasting inferences drawn by the witnesses from the conduct of the participants, together with differing views as to the relevant legal obligations of the parties.
Incorporated as part of the post-trial submissions were proposed final exhibit lists and objections to exhibits introduced at trial. While the parties stipulated into evidence virtually all of the exhibits, there were a few objections raised in the submissions by each side. The Court has reviewed the objections and arguments of counsel and has determined that all of Plaintiffs' exhibits, as reflected in their May 19, 2008, filing with the Court, are admitted into evidence. Moreover, the Court sustains Plaintiffs' objections to Defendants' exhibits D-6, D-7, D-8, D-11 and D-14. Defendants' remaining exhibits are admitted into evidence.
II. JURISDICTION
The Court has jurisdiction over this contested matter under 28 U.S.C. §§ 1334(a) and 157(a) and the Standing Order of the United States District Court dated July 10, 1984, referring all bankruptcy cases to the bankruptcy court. This matter is a core proceeding within the meaning of 28 U.S.C. § 157(b)(2)(E), (F), (H) and (O). The statutory predicates for the relief sought herein are §§ 542, 544, 548, 549, and 550 of the Bankruptcy Code and Fed.R.Bankr.P. 7001.
III. ANALYSIS OF CLAIMS
The following chart identifies, by count, each of the causes of action pursued in the litigation by Plaintiffs: COUNT: CAUSES OF ACTION: 1 2 3 4 5 6 11 USC § 548 7 11 USC § 544 8 9 fn_ 10 11 12 13 14 15 16 17 18
These two Counts are pled as to Defendant Guy Zimmerman, only, and were dismissed by Judge Gambardella in her summary judgment decision as to all other Defendants.
IV. FINDINGS OF FACT
To the extent that any of the findings of fact might constitute conclusions of law, they are adopted as such. Conversely, to the extent that any conclusions of law constitute findings of fact, they are adopted as such.
Martin (Marty) Goz Sr.
1. Mr. Goz incorporated Target in 1975. Lance was incorporated in 1984. Mr. Goz was always a 100% owner of Target and Lance.
Martin Goz
2. Martin Gozdenovich ("Martin") is the son of Marty Goz. In 1995, Martin became the President of Target Industries.
Donna and Guy Zimmermann
3. Donna Zimmerman is the daughter of Martin Goz, Sr. Donna Zimmerman was Director of Human Resources at Target.
4. Guy Zimmerman ("Mr. Zimmerman") is Mr. Goz's son-in-law and the husband of Donna. Guy Zimmerman was employed at Target from 1976 through March 19, 2001 and became an officer of Target.
Business Relationship Between Mr. Goz and Mr. Fox
5. Landfall Associates was a partnership entered between Mr. Fox and Mr. Goz. Landfall Associates entered into two leases, one with Target and one with Lance.
6. Mr. Goz formed Landfall Associates with Mr. Fox to purchase property which would house a new facility at Flanders, New Jersey. Mr. Fox and Mr. Goz each agreed to pay one half of the purchase price for the property.
7. Landfall Associates entered into a lease agreement with Lance which was a fifteen year lease at $12,000 per month for a total annual rent of $144,000. The Target lease with Landfall Associates is for a period of fifteen years for rent in the amount of $120,000 per year.
8. Mr. Fox acknowledged that, in the early 1990s, he invested with Mr. Goz an alleged 1.7 million dollars without having any supporting documentation. He understood that he was to receive an interest in the businesses.
9. In contravention of the alleged agreement, Mr. Goz did not grant Mr. Fox any ownership interest in his companies. Similarly, Mr. Goz did not pay any monies towards the purchase of the Flanders real estate.
10. Mr. Fox moved the contents of three buildings in Wharton where Target and Lance had been operating. He also brought over machinery from Wharton and he also purchased and installed new machinery at the Flanders facility. He transformed it into a much larger operation. Mr. Fox set up the companies in a very modern and efficient operation in Mount Olive Township, Flanders, New Jersey.
11. Mr. Fox constructed a 25,000 square foot addition onto the plant with a 55 foot tower. He also provided silos for storing resin. The operation went from 4 operating lines to 8 operating lines.
12. Mr. Fox testified at his deposition that he had no title at Target or Lance.
13. By order and decision dated July 10, 2002, Hon. Kenneth C. MacKenzie, J.S.C., transferred exclusive ownership of the property to Mr. Fox since he alone had paid for its full purchase price and for the improvements. Mr. Goz agreed that Mr.Fox alone paid the entire purchase price of the property and of the improvements, and thus Mr.Fox became the 100% owner of the property.
Bankruptcy Filings and History
14. Target and Lance filed their respective bankruptcy petitions under Chapter 11 on December 30, 1999.
15. Target's bankruptcy petition lists Target's sales volume for the three years immediately prior to filing as follows: $18,713,094 for 1997; $18,713,824 for 1998; and $16,451,859 for 1999.
16. Congress Financial Corp. ("Congress") provided Target and Lance with financing in the nature of a revolving security agreement, which was collateralized by the accounts receivable. Congress was collecting on the accounts and was lending back to the company under various financing arrangements. Schedule "D" of Target's bankruptcy petition reflects a debt owing to Congress in the amount of $2,691,579.
17. After the bankruptcies were commenced, Congress continued to provide financing to the Debtors on a secured basis. Congress had liens on accounts receivable, manufacturing equipment, furniture, fixtures, all inventory of the two companies, and all general intangibles and other contract rights of the company.
18. Mr. Fox filed two proofs of claim, one against Target and the second against Lance.
19. Mr. Fox's proof of claim against Target totals $1,845,299.60, plus interest. That proof of claim reflects loans that Mr. Fox made to Target in the form of checks payable to Target Industries. Mr. Fox's and his wholly owned corporations' checks payable to Target Industries are attached to this proof of claim.
20. Mr. Fox also filed two additional proofs of claim on behalf of Landfall Associates-one against Target Industries with respect to the rents owed in the amount of $1,165,000 and the second against Lance Plastics in the amount of $587,500 with respect to the rents owed, for total rent owed of $1,752,500.
21. In September 2000, the Bankruptcy Court appointed Chapter 11 Trustees for both Target and Lance. Dennis O'Grady was appointed as the Trustee for Target. Robert Wasserman was appointed as the Trustee for Lance. When Lance and Target were thereafter administratively consolidated, Mr. Wasserman became the Trustee for both entities and Mr. O'Grady's law firm became attorney for the Trustee. The estates were substantively consolidated in February 2001.
22. As Chapter 11 Trustee, Mr. Wasserman's functions were, inter alia, to oversee the operations of the businesses, make sure they were in compliance with the United States Trustees guidelines and, if possible, to assist in the reorganization of the business.
Mr. Goz's Proposed Business Plan
23. Mr. Goz's recommendation with respect to re-organizing the Debtors was to close down and liquidate the manufacturing plant, continue Target as a sales company and out source its orders to another company to manufacture. The manufacturer that Mr. Goz proposed was Poly Plastic Products, Inc.
24. Mr. Wasserman was skeptical of the plan as he had knowledge of the principals of Poly Plastics and believed that people who did business with them generally did not come out "on the better side of the road."
Termination of the Tri-Cor Defendants
25. On or about March 16, 2001, Mr. Wasserman, closed Lance, which closing constituted a cessation of plastics manufacturing by Target. Prior to the closing of the plant, production at Lance had slowed considerably in February and March of 2001, due in large part to the fact that Target's cash flow problems were making it difficult for Lance to purchase resin. As a result, there was more outsourcing of sales made by Target salespeople in the weeks prior to the closure of Lance and Target than had previously been the case.
26. On March 19, 2001, at the direction of Trustee, Mr. Goz informed each and every Target employee that their employment had been terminated. No advance notice of these terminations was provided. While the Court is cognizant of the testimony by both Messrs. Fox and Wasserman that the employees were "furloughed", rather than "terminated", there is nothing in the record to suggest that any of the employees were advised that their separation would be anything but permanent. No representations were made to the employees that they may be rehired. Warren Greenberg and Michele Rutkowski remained with the company to assist the Trustee and preserve Debtors' operations. In so doing, after the Tri-Cor Defendants left Target, Mr. Greenberg made arrangements with customers and truckers and shipped out certain previously-filled products and prepared invoices for same.
27. On March 20, 2001, several of the Tri-Cor Defendants, under the explicit direction of Mr. Goz, moved physical equipment from Target's Flanders location to a small van, and put the equipment in storage. The stored equipment was never used at either TIP or Tri-Cor and, when Mr. Goz's negotiations with the Trustee to purchase the Target name and some of its assets failed, all of the equipment was returned.
28. Several of the Tri-Cor Defendants, after their termination, took with them copies of sales-related documents. Information contained in these documents (estimate sheets, sales history logs, customer contact lists) also existed in numerous other files which remained at Target.
29. The documents, which several of the salespersons removed from Target on March 19 or March 20, 2001, were returned to Target after a request for their return was made by the Trustee's attorney.
30. The Trustee's attorney, Alex Kress, acknowledged in his testimony that the company completely ceased operation after March 19, 2001, with the exception of collecting accounts receivable.
Mr. Goz's Offers for the Debtors' Assets
31. In March of 2001, the Trustee solicited offers for the hard and intangible assets of the Debtors.
32. On March 26, 2001, Mr. Goz made an offer to acquire the assets of the companies and primarily the intangible assets, including customer lists and the customer accounts from the Trustee. Mr. Goz initially offered $10,000, plus 25% of the pre-tax profit.
33. Upon the rejection of the initial offer, Mr. Goz thereafter made a further offer to purchase the assets of Target. He increased his offer to $100,000 plus 25% of the pre-tax profit. This was his highest offer. Mr. Goz's offer with respect to purchasing the Debtors' assets included purchasing the Target name and purchasing the accounts.
Mr. Fox Was the Successful Bidder for the Estate's Assets
34. Mr. Wasserman approached Mr. Fox's counsel, Anthony Ambrosio, Esq., and suggested that Mr. Fox might want to step in and purchase the assets of the estate. Mr. Wasserman was particularly concerned that there were post-petition creditors and that the estate had no source or funds to pay them.
35. The Court approved this transaction (Mr. Fox's bid for the assets of the estate in the middle to the latter part of March 2001) by Order dated April 12, 2001. The Trustee was authorized to borrow money from Mr. Fox to satisfy the liens and claims of Target's and Lance's secured creditor, Congress. Paragraph 1 of the Court's Order sets forth that Congress' liens as of the date of the transaction was $1.3 million. This was the amount that Congress required at that time in order to satisfy its liens. The amounts paid under this Order would be in full satisfaction of Congress' liens. The new entity under the control of Mr. Fox, Target Holdings, did not begin taking plastic bag orders until April 22 or April 23, 2001.
36. Pursuant to the sale agreement approved by the Court, Mr. Fox was responsible to pay certain Chapter 11 professional fees; in this regard, he paid $40,000 to the Debtors' firm, $20,000 to Ravin Greenberg, counsel for Lance Plastics' unsecured creditors' committee, and $20,000 to Forman, Holt Eliades, counsel for Target Industries' unsecured creditors' committee. Mr. Fox's payment of that $80,000 was in addition to the $1.3 million he paid to Congress.
37. The total purchase price paid by Mr. Fox for the Debtors' assets was $1,930,000. This consisted of the $1.3 million paid under the April 12, 2001 Order, the $80,000 payment under this Order with respect to the professional fees, a payment up to $400,000 for the payment of the administrative claims, and an additional $150,000 for the unsecured creditors.
38. As part of the agreement, Mr. Fox agreed to release some of his claims against the Debtors. These claims totaled approximately $3 million. Subsequent to the approval of the sale the Trustee submitted a plan of re-organization under Chapter 11 for the Debtors which was finalized and approved by the Court on April 18, 2002.
Warren Greenberg
39. Warren Greenberg commenced his employment at Target Industries on November 17, 1999. He was hired as Target's Chief Financial Officer. Mr. Greenberg was hired after meeting with Martin Goz, Sr., Martin Goz, Jr. and Guy Zimmermann.
40. In or about September or October 2001, Mr. Greenberg became both the Chief Operating Officer and the Chief Financial Officer of Target Holdings.
Guy Zimmermann's Status as an Officer of Target
41. Numerous documents were admitted into evidence which confirm that Mr. Zimmerman was held out to the public and to the employees as an officer of Target. These documents include a September 28, 2000 memorandum signed by Mr. Goz advising all employees at Target that Mr. Zimmerman has been appointed the Vice President of Operations at Target Industries, Inc. This memorandum specifically stated that "He will be responsible for the performance of all departments."
42. Various organizational charts also confirm Mr. Zimmerman was an officer at Target. P-147 is a November 19, 1999, organizational chart which shows that Zimmerman is listed as an executive among the top four people. Mr. Zimmerman reviewed that chart and admitted that the description given to all of the other individuals on that chart was accurate. In addition, Mr. Zimmerman signed corporate resolutions as executive vice president of Target and also executed credit forms as "Vice-President of Sales." Moreover, Mr. Zimmerman was also on the signature card of several bank accounts of Target and Lance.
43. Mr. Zimmerman admitted that the only other persons who were authorized to issue checks at Target over a period of 25 years were officers of Target. He testified that over this 25 year period, only the following had the authority to issue checks to himself: Martin Goz, Sr., Martin Goz, Jr., David Boyne, Gary Landau, and Warren Greenberg (all of whom were chief financial officers/controllers of Target).
44. Notwithstanding his status as an officer, Mr. Zimmerman had no input into the operation of either Target or Lance, nor was he consulted by Marty Goz with respect to financial and/or operational decisions made about Target and/or Lance.
45. Mr. Zimmerman never signed a check at Target without appropriate backup being provided to him for that check; likewise, Mr. Zimmerman never signed a check at Target for anything other than the business operations of Target. In order to facilitate his signing checks at Target, Mr. Zimmerman had a "check stamp" created in his name. Persons other than Mr. Zimmerman had access to and used this stamp.
46. Mr. Zimmerman was almost never the sole signatory on a Target check. An exception to this rule was, in early 2000, after the filing of the bankruptcy in December of 1999, and before Target had new checks printed up, Mr. Zimmerman was a sole signatory on a few Target checks which had "D.I.P." (Debtor in Possession) hand-typed on the front left of the checks. He was the sole signatory because these were "temporary" checks, and they had only one signature line.
47. All checks at Target required two signatures (at least until the appointment of the Trustee). Mr. Zimmerman's responsibility for signing checks was primarily to review expenditures. Mr. Zimmerman had no check signing authority at Target subsequent to the appointment of the Trustee in Bankruptcy in September of 2000.
48. Mr. Zimmerman never signed nor had any access to Target's or Lance's state or federal tax returns.
49. Mr. Zimmerman did not have hiring or firing authority at Target, although he did have some input into those decisions and was sometimes part of the interview process. However, Mr. Zimmerman could only make recommendations concerning hiring or firing, and did not have the ultimate authority to make those decisions. Marty Goz, the sole owner of Target, had that authority, along with Martin Goz.
50. Mr. Zimmerman had no input into decisions concerning salary levels for any employees at Target and/or Lance. He was not even aware of anyone's salary at Target or Lance other than his own.
51. Mr. Zimmerman saw financials of Target after he became vice-president, but he was never shown nor had access to the profit and loss statements, accounts receivable, or accounts payable of either Target or Lance.
52. Mr. Zimmerman had no input into Marty Goz's financial and business dealings with Mr. Fox. The same is true with respect to Target's line of credit business arrangement with Congress Financial.
53. Mr. Zimmerman was not consulted concerning Marty Goz's decision to file bankruptcy for Target and Lance, nor did he have any input into that decision. Mr. Zimmerman had no role in (or knowledge of) the decisions which led Target and Lance to the financial situation which resulted in the filing of the bankruptcies, nor did he have any input into or role concerning the actual decision to file.
54. It was also Mr. Greenberg's understanding that Mr. Zimmerman was an officer of Target Industries. He indicated that Mr. Zimmerman was a signatory on checks, his name was on bank accounts, he signed various applications on behalf of Target, and he conducted interviews.
55. Mr. Goz testified that Mr. Zimmerman was given officer titles to give Mr. Zimmerman "something to feel good about himself". Mr. Zimmerman did not make any decisions for Target.
56. The "officer" titles at Target meant very little. The titles were frequently changed.
Target/Lance Relationship and Product
57. Rather than manufacturing plastic bag products sold by Target salespersons, Target occasionally "outsourced" products to be manufactured. However, the large majority of plastic bag products sold by Target were manufactured by Lance.
58. All of the client specification information — that is, the type of plastic bags being ordered by customers — existed in paper form not only at Target, but at Lance as well. Thus, as of March 19, 2001, any client specification information for orders which were taken at Target and manufactured at Lance also existed at Lance in paper form (as well as in computer form at both Target and Lance).
59. Both Target and Tri-Cor generally sell what are normally considered plastic bags. The bag specifications are length x width x ply.
Target's Place Within the Plastic Bag Manufacturing Industry
60. There are thousands of plastic bag manufacturers in the industry and hundreds of manufacturers that produced the same products manufactured and distributed by Lance and Target.
61. Target did not have any exclusivity agreements with any of its customers which provided that these customers could purchase only from Target. Thus, any of Target's customers had the complete and unfettered right to buy plastic products from any manufacturer that they chose.
62. Customers in the plastic bag industry frequently buy bags from more than one company. In fact, these customers sometimes send RFPs to several plastic bag distribution or manufacturing companies to get the best price for the product. In terms of retention of customers, the volume of business with a customer can and does frequently vary considerably.
Customization of Target's Plastic Bags for Customers
63. Most of the companies that Target serviced through the years were companies that required customized bags for specific industrial use. Thus, Target would have to customize the bag for the specific size and performance for which it would be used by the customer.
64. There are times when a customer wants printing on the plastic bags. If so, Target/Lance would do this printing.
65. The color of the plastic bag is also a variable with respect to the price of the bags.
66. A bag can be FDA approved or non-FDA approved. The difference is that recycled resin cannot be used to manufacture an FDA-approved bag.
67. There is also an additive which can give the bag a "slip" quality.
68. Among the items that Target/Lance had to address for its customers were the resin blend, the size, the shelf life, how long it can be exposed to the sun, whether the bag needs vent holes to let air out, the amount of slip element a particular bag requires, the shrinking requirements of the bag, the color of the bag, the printing requirements on the bag, the packaging of the bag, the strength factor required for the bag's particular use, any needed additives and concentrates, resins to meet FDA requirements for food packaging, the amount of stretching a particular application requires, anti-stat elements to prevent an explosion, preparation of artwork to be imprinted on a customer's bag and the type of pallets required by particular customers.
69. Target's plastic bags were customized to meet the requirements and needs of Target's industrial customers. Different customers require different specifications for the bags to meet their particular business needs. Target would work with those customers to try to meet the specifications that conform with the needs of that customer.
70. Mr. Zimmerman testified that there are numerous different factors and elements that go into manufacturing a bag depending on the specific business requirements of a customer. He confirmed these include different size bags, different coloring, different ship levels, bags with or without pin holes to regulate leakage, different borders, different printing, different folding requirements, different packaging, double or other sealing, different resin levels, different cutting and rolling of bags.
Shipping Procedure
71. Product manufactured at Lance was either shipped by one of two Target trucks (there were 2 full-time truck drivers at Target) directly to customers, or the product was picked up by a freight carrier and the customer picked up the product. The customer could also arrange to have the product picked up at Lance.
72. In a situation where a product was shipped by a freight carrier, a bill of lading was created for such shipping. In some situations, the product was not shipped directly from Lance in Flanders to the customer, but, rather, was shipped to a central freight depot, where it was unloaded, loaded onto another truck, and shipped out on that second truck. In this event, a new bill of lading was created for the shipping from the central freight depot to the customer (or, potentially to a yet another freight depot in another state).
73. For orders taken at Target which were manufactured by an outside vendor (someone other than Lance), the same two shipping options existed for Target: either have a Target truck pick up the product and ship it directly to the customer, or use a common freight carrier. A third option was that the product could be picked up at the outside vendor, brought back to Target, repackaged in a Target product, and shipped to the customer.
74. If an outside vendor used customer specification information to attempt to establish a direct contact with that customer (information obtained because Target was outsourcing a customer order to an outside vendor), Target's remedy in response to such conduct was to stop doing business with that vendor. There was thus an element of trusting outside vendors with customer specification information.
Target's Sales Documents
75. There were three basic customer sales files at Target: an "open order" file, an accounts receivable file, and an accounts paid file. Each customer transaction had a separate "slip file" located in each of the aforementioned file categories. Each of the three separate filing categories had its own distinct file cabinet at Target.
76. No proofs were introduced that any of these files were touched or disturbed in any way by any of the Tri-Cor Defendants on or after March 19, 2001, when they were fired.
Target's Sales Procedures and Process
77. Salespersons at Target obtained customers largely through "cold calling." Information as to whom to call could be obtained from directories, or from a CD data base such as InfoUSA, which costs between $100 and $150. It has listings of approximately 15 million company names, addresses, phone numbers, fax numbers, contact information, etc. The directory is organized by code for various types of industries.
78. During sales calls, Target salespeople would attempt to learn what the customer was paying for plastic bag products from competitors. Often, this information would be shared by the company.
79. A salesperson at Target would sometimes keep a sales estimate form for the sales quotes he was providing to prospective customers. The information contained on quotation sheets and estimate sheets were retained only by the Target salespeople. Never in the 25 year history of Target was a departing Target salesperson told that they could not retain their estimate or quotation sheets (or at least copies thereof).
80. If the salesperson succeeded in making a sale, he or she would fill out a sales order form in triplicate. Once completed, the salesperson would forward all three copies to Target's editing room. On a sales order form was the product specification information, as well as a calculation from the salesperson of cost, profit, etc. The person in the editing room would check this information to ensure correctness. If the information was correct, the sales order form was forwarded to the clerical staff, which would then enter the order into the computer system. At some point in this process, the pink copy of the sales order form was returned to the salesperson for confirmation. The salesperson would keep the "pink" copy of the sales order form. If the product in question was to be produced by Lance, Target would create an internal purchase order from Target to Lance. If the bag order was filled through an outside vendor, an outside purchase order would be created and sent by Target to the outside vendor. This purchase order would, of course, include product specification information, and frequently included the customer's name and address for shipping purposes.
81. Some Target salespeople kept a "sales history log," which was a history of the sales that they made. The information in the sales history log can be compared with the pink copies of the sales order forms which were returned to the salespeople in order to check the accuracy of the sales information and commissions earned.
82. Each month, Target circulated an invoice history reports to each salesperson (just for the sales that each salesperson had made). This was a way for the salespeople to confirm that sales orders had been shipped and when they had been paid. This information was important to the salesperson not only for customer satisfaction purposes, but for the salespeople to calculate and check their commission entitlement.
83. Salespeople at Target were given "price charts" on at least a monthly basis. Listed on the price charts were the price per pound for three different types of resin. As the price of resin changed (due to fluctuations of the price of oil), a new chart would be issued. The other chart given to Target salespeople on at least a monthly basis was a freight chart. With the price chart and the freight chart, the Target salespeople could easily calculate the price quotes they would give to prospective customers.
84. The variables in price for plastic bag products is created almost exclusively from the supply end — based upon the resin price — as opposed to the demand end. The negotiated prices changed almost daily, and certainly no less than monthly. Mr. Fox testified that the biggest variable "by far" in the pricing of plastic bags is the price of oil. The price of oil affects the price of resin, which price, in turn, varies at least monthly.
85. Information regarding the cost on the "supply" end of plastic bags has become public enabling companies such as Laddawn to publish catalogs listing complete bag specification and cost information. Other companies, such as Nexus Plastics, actually have a website which allows anyone with an email address to obtain a price quote for a plastic bag product from Nexus. Other plastic bag supply companies offer the same ability to obtain unsolicited quotes for plastic bag prices. Tri-Cor also has such a website quote available on its website.
Target's Retention Rate
86. Once Target had sold to a customer, the annual retention rate in keeping that customer account, once it was established, was very high-90%-95%.
Confidentiality of Certain Customer-Related Documentation
87. Mr. Goz testified that there was an understanding between Target's management and the sales persons that they would keep the customer related documents of Target confidential.
88. Mr. Grassman locked Target's customer file cabinets on a nightly basis.
89. Customer specification and pricing information was never treated as confidential at Target.
Certain Customer Documentation Was Considered Target's Property
90. Goz considered that all customer-related documents such as invoices, quotations, and purchase orders were property owned by Target, by reason of the investment Target had made in cultivating and establishing these customer accounts. Notwithstanding Mr. Goz's understanding, the Court finds that there was no policy at Target, written or otherwise, with respect to the ability of salespeople to take documents with them after they left Target.
91. Mr. Frawley testified, and the Court accepts, that it was his understanding when he was employed at Target that when a salesperson left the following documents belonged to Target and not to the salesperson: invoices, purchase orders, and sales orders. Notably, Mr. Frawley confirmed, however, that there was no policy, to this effect, written or otherwise. Moreover, Mr. Frawley did not testify that a salesperson's sales notes or invoice history reports, reflecting his commissions owed, belonged to Target.
92. Mr. Merwin also testified that the customer-related documents belonged to Target and not to the salespeople. Again, however, the Court notes that Mr. Merwin was neither asked nor testified that he understood his sales notes or the invoice history to be Target's property, or that there was a policy to this effect.
93. Mr. Greenberg testified that Target considered its sales order form and other sales records to contain proprietary and confidential information with respect to its customers' requirements. Mr. Greenberg was shown Jeff Frawley's invoice history reports which he had taken with him after he left Target, and testified that these invoice history reports were considered to be proprietary and confidential; according to Mr. Greenberg, such documentation was supposed to stay at Target when a salesperson left. However, the Court notes that Mr. Greenberg did not point to any policy, written or otherwise, supporting this assertion (apart from the June 1999 Compensation Plan Summary, discussed later). More importantly, Mr. Greenberg was hired in November of 1999 as a CFO and, thus, the Court accords little weight as to his testimony with respect to Target's treatment of these issues during its 25 year history.
94. Ms. Jean Millman had been employed at Target for approximately 12 years as a salesperson commencing in 1988 until her termination in September 2000. On September 8, 2000, Alex Kress, counsel for the Trustee, sent Ms. Millman a letter, after she was fired, in which he asked her to return various hard assets, such as computers and fax machines, as well as certain files with respect to the customers and contact information for Target's customers. The letter also demanded that Ms. Millman return all Target's files including pinks (sales orders), quotes and ship lists. That letter also demanded that Ms. Millman no longer solicit Target's customers.
95. Mr. Greenberg cited to this incident and, specifically, a November 16, 2000 letter by Donna Zimmerman to Mr. Kress, asking him to contact Ms. Millman to ensure the return of Target's customer related documents, including pinks, quote sheets, and ship lists, as evidence of Target's policy under Mr. Goz. The Court, however, finds that there was no such policy and accepts the Tri-Cor Defendants' contention that Ms. Millman was treated differently by Mr. Goz because she had demonstrated disloyalty to the company while still employed at Target (by attempting to divert sales and falsely informing customers that Target had closed down).
The Tri-Cor Defendants' Employment and Benefits
96. All of the Tri-Cor Defendants were employed by Target Industries. Most of them were employed for decades. Mr. Zimmerman was employed since 1976. Dennis Petrey was employed since 1986. Donald Merwin was employed at Target from 1976 through March 2001. Michael Grassman was employed since 1975.
97. All of the Tri-Cor Defendants received employment compensation and benefits from Target during their employment, including salaries, commissions, 401(K) plans, bonuses, health insurance, life insurance, cars and additional benefits.
Target's Compensation Plan
98. Most, but not all, of the salespeople signed a Compensation Plan Summary ("Plan"), dated July 24, 1998, which laid out the requirements necessary to receive commissions, bonuses and quota points. The Plan was the creation of a sales manager, Lynn Neiverth, and had a twelve month term, lasting between July 1, 1998 and June 30, 1999. Paragraph 3, page 2 of that Plan provides that a salesperson will receive a base salary that is determined by the management of Target and that a salesperson's duties are "to effectively represent the Company in his/her assigned accounts and/or territories by building sales, customer loyalty and allegiance, and by generating new customers." The Plan also provides that the salesperson "is responsible for representing Target Industries to the customer in a professional manner at all times."
99. Paragraph 10 at page 2 of the Plan also states that the expenses relevant to a salesperson's sales activities "which are for the benefit of the Company" would be reimbursed by Target to the salesperson.
100. Paragraph 13 of the Plan provides as follows: "Upon leaving the Company, a Sales Professional shall promptly return all equipment, correspondence, and other papers/materials in his/her possession which relate to the business of Target Industries and shall not retain any copies of same. Target Industries may withhold commissions or salary until the condition is fulfilled." The Plan also specifies that it "supercedes all previous plans and/or policies, and all verbal discussions or understandings, and cannot be changed or added to except by written agreement signed by the appropriate Target management."
101. The employees were required to sign the Plan, in the middle of their employment, without additional consideration (as opposed to signing as a condition of initial employment).
102. It is clear to this Court that the Plan in question did not preclude former Target salespeople from competing with Target by contacting customers with whom they had done business at Target. Nor did the Plan preclude salespeople from obtaining copies of customer documentation and/or information. Rather, the plan merely required a return of Target documents. The "penalty" for failure to comply with these provisions was a withholding of the salesperson's commission pay.
103. There is no mention in the Compensation Plan Summary of any restrictions on actions of departing salespeople, nor is there any mention of any legal ramifications for such competition.
104. The Plan, by its own terms, was effective on July 1, 1998, and terminated on June 30, 1999. The mere fact that the Plan precluded verbal changes without "written agreement signed by the appropriate Target management" does not change the fact that it expired on its own terms, without any further action taken by Target's management.
Reassignment of Customer Accounts Upon Termination of a Salesperson
105. When a salesperson left Target, that salesperson's accounts were reassigned to the other salespeople. Mr. Goz, Mr. Zimmerman and the salespeople all testified that when a salesperson left Target, that salesperson's accounts were re-distributed among the remaining salespeople. The re-distribution efforts were undertaken in an effort to retain the customers. However, the Court finds, as explained in greater detail below, that there were no policies or practice by Target to prevent any former salespeople from also soliciting such business. Among the salespeople who left Target and whose accounts were reassigned to the remaining salespeople were the following: Kristine McArdle, Steve Grimmer, Kevin Curly, Al Haus, Andy Snowden, Greg Dot, Marty Munch, his uncle John Goz, and Martin Goz Jr., Laura Delea, Fred Gott, and Jean Millman.
Departing Salespeople
106. In the 25 year history of Target's operations, numerous salespeople left the employ of Target Industries (almost all voluntarily) and competed with Target by attempting to continue to do business with customers they had established and serviced, and sold while employed at Target.
107. Each of the Tri-Cor Defendants testified that they understood Target and Mr. Goz's approach to competition of departed salespeople as "free and open". That is, each of the Tri-Cor Defendants understood that Mr. Goz took no steps to restrict the activities of salespeople who quit and continued to work in the field. They understood that Mr. Goz never entered into any restrictive covenant or otherwise had any policies or protocols restricting or even attempting to restrict the activities of the departing salespeople.
108. The Tri-Cor Defendants were not aware of any "proprietary" information which existed at Target Industries which such salespeople were not permitted to "know" or use, if and when they left Target and competed by selling to customers they had cultivated and established as Target employees.
109. The Tri-Cor Defendants were aware that numerous Target salespeople had voluntarily left Target and freely competed with Target. They were also aware that many of these departing salespeople had "taken" or tried to "take" their customers with them and serviced these customers at their new business locations, and that they did so without any attempts by Mr. Goz or Target to prohibit or restrict such activities of departed salespeople. The Court does find that with respect to several of Target's customers "taken" by various former salespeople, these customers also continued to be serviced by Target as well. Indeed, there is nothing in the record to suggest that these customers were not also solicited by other distributors, while at the same time being solicited by Target, TIP and/or Tri-Cor.
Absence of Non-Compete Agreements At Target
110. In 25 years of operation, Target never had a restrictive covenant with any Target salesperson. In 25 years of operation, Target never had an employment agreement with any Target salesperson. With respect to Target Industries, Mr. Fox is the only Target employee who ever had an employment agreement. In addition, Mr. Fox was the only former Target employee who had a restrictive covenant contained in an employment agreement. The restrictive covenant in his employment contract with Target had a three year duration.
111. In 25 years of operation, Target never instituted any legal action to restrain the activities of former salespeople who left Target for any reason, and continued to work in the plastic bag sales industry.
112. In 25 years of operation, Target never had any written policies or procedures which limited or attempted to limit the ability of departing salespeople to compete with Target after the salespeople' departure from Target.
113. In 25 years of operation, Target never had any written policy or issued any written document to its employees, stating that salespeople who left Target for whatever reason were not permitted to contact customers with whom they had done business while employed at Target. The only written document which existed in Target's 25 years of operation which dealt even tangentially with the issue of departing salespeople was the July 1, 1998 Compensation Plan Summary. These documents, as determined above, were executed by several of the Tri-Cor Defendants and expired by their own terms on June 30, 2000. As of July 1, 2000, a new commission plan was put in place which replaced and superseded the commission plan set forth in the aforementioned Compensation Plan Summary document.
114. With respect to all these persons who left Target and continued to compete in the field and sell to former Target customers, Mr. Fox had no knowledge that any of these persons were ever sued, threatened, or restricted by Mr. Goz in terms of their leaving and competing with Target. Mr. Fox also agreed that he had no facts to indicate that Target had ever taken any steps to stop any departing salesperson from competing in the field.
115. No one, acting on Target's behalf, either before or after the appointment of the Trustee, ever told or informed any of the Tri-Cor Defendants that there were limitations on what business activities they could engage in after they left Target (either voluntarily or otherwise).
Time and Effort Expended Establishing and Maintaining Customer Accounts
116. Substantial expenses had to be incurred by Target to try to establish Target's customer accounts. These included providing salespeople with company cars, gas money, dinner and lunch money, plane tickets, other travel expenses. The Tri-Cor Defendants acknowledged in their testimony that they were not previously employed in the plastic bag industry and that all of the customers they sold to at Target were developed during their employment at Target. None of the Tri-Cor defendants brought with them into Target their own accounts when they started their employment.
117. Substantial expense and effort also went into establishing a sample to meet a customer's requirements. The process of creating and working on samples was expensive. By way of illustration, the manufacturing plant, working together with the salesperson, would have to ensure the proper thickness, provide the product with a certain strength level, and stretchability, among other requirements.
118. Exhibits such as expense reports, vouchers and cancelled checks were introduced into evidence which established that Target had paid all of the expenses of the salespeople in order to establish, cultivate and service Target's customer accounts.
Tri-Cor Defendants' Actions Prior to March 19, 2001
119. Based on the testimony at trial given by Messrs. Fox, Goz, Zimmerman, Wasserman and Greenberg, the Court is satisfied that each and every one of the Tri-Cor Defendants gave nothing but their best efforts on behalf of Target, prior to the termination of their employment on March 19, 2001. Likewise, none of the Tri-Cor Defendants engaged in any conduct, "disloyal" to the interests of Target, prior to the termination of their employment on March 19, 2001.
120. The Court has listened to a tape and reviewed a transcript of a conversation between Jean Millman [prior to her termination] and Mr. Goz, which occurred in September, 2000, following the appointment of the bankruptcy trustees. In this conversation, Mr. Goz advised Ms. Millman that he has a new company being started and that the salespeople would be leaving Target to join the new entity. In an effort to persuade Ms. Millman to continue working with him, he assured her that he had a supplier for all of the products. Indeed, Mr. Goz confirmed in his testimony that he made the following statements during this conversation: "[E]verybody else is on board, which I'm not supposed to tell you." and "I'm not supposed to be having this conversation." At first blush, the comments made by Mr. Goz during this conversation suggest an efforts on his part, with others, to pirate away business from the debtor corporations in order to advance their personal interests. The facts, as elicited through testimony by Mr. Goz, confirm a far less sinister situation. Anticipating the appointment of Trustees and the strong possibility that the Trustees would seek the immediate closure and liquidation of the businesses, Mr. Goz and certain of the Tri-Cor Defendants simply identified and planned for alternative employment options in the event Target was closed. There is nothing in the record which suggests to the Court that any of the Tri-Cor Defendants acted on these plans between the date of this conversation and March 19, 2001 (the termination of the Tri-Cor Defendants) or were engaged in any disloyal conduct. Rather, the Court finds credible Mr. Goz's testimony that the assurances he had received from the Trustees, as to the continuation of the businesses, gave rise to new hope for successfully emerging out of Chapter 11.
Not an unlikely scenario given the precarious relationship at the time with Target's primary lender, Congress, and the lender's expressed desire to press for an immediate auction sale of the assets and repayment of its secured claim.
The Tri-Cor Defendants' Offers of Re-Employment at Target
121. Some weeks after the termination of their employment, several of the Tri-Cor Defendants had discussions with a consultant employed by Mr. Fox, John Rudy, to explore the possibility of returning to work at Target. On several occasions, Mr. Rudy advised the Tri-Cor Defendants, in separate conversations, that, if they did not come back to work, Mr. Fox would sue them. Several of the Tri-Cor Defendants took these statements to be so threatening that they did not seriously consider going to work for Mr. Fox. At the time of these conversations, however, Mr. Fox had not yet purchased any assets of Target nor had he even been authorized by the Trustee or the Bankruptcy Court to operate Target and/or Lance on an interim basis. On April 12, 2001, Mr. Fox received such permission from the Bankruptcy Court to begin operating Target on an interim basis. Mr. Fox and others under his direction immediately gave offers of re-employment to all of the Tri-Cor salespeople. All of the salespeople rejected the offers of re-employment.
122. There was a meeting at the Riker Danzig law firm in April 2001 which was attended by Mr. Goz, his counsel, Mr. Daggett, Mr. Wasserman, Mr. Kress, Mr. Thomas, Mr. John, Mr. Fox, Mr. Ambrosio, and Mr. John Rudy. At that meeting, the Target participants made an offer to Mr. Goz to have the salesmen return to Target and they would work out an employment relationship with those individuals. Mr. Goz admits that he refused this offer because he had started another company at that time. Given the "embattled" relationship between Mr. Goz and Mr. Fox, together with the obvious support and close relationships between and among Mr. Goz and the Tri-Cor Defendants, the Court is certainly not surprised that any of the Tri-Cor Defendants refused continued employment by Mr. Fox. The Court knows of no such lawful requirement; nor does the offer of re-employment serve to revise history and "morph" the Trustee's termination of the employees into a work "furlough," as advocated by Plaintiffs.
Commencement of Target Holding's Operations
123. Target took no new orders between March 19, 2001 and at least April 12, 2001. Between March 19 and May 1, 2001, there was no distribution of plastic bags from Target.
124. Mr. Fox was authorized by the April 12, 2001 Order to manage the operations of the Debtors for the purpose of preserving the going concern value of the Debtors' business.
125. The manufacturing plant was reopened approximately the week of April 18, 2001. Mr. Fox testified that he began producing plastic products at Lance Plastics at the end of April, 2001.
Target Industrial Packaging
126. Soon after leaving Target, Mr. Goz set up Target Industrial Packaging, Inc. ("TIP"). At TIP, they sold the same type of industrial bags as Target had sold to the identical customers. TIP's sales included orders that had been placed at Target Industries before the salespeople left. The salespeople at TIP solicited Target's former customers.
127. TIP employed the same salespeople and staff as Target Industries employed. TIP was open between April 2, 2001 and April 13, 2001.
128. Mr. Zimmerman signed the incorporation papers for TIP and listed himself as President. However, Marty Goz was the sole owner of TIP for its two week period of operation. The lease where TIP and thereafter Tri-Cor were located was in Martin Goz, Sr.'s name. The lease for the property where TIP and thereafter Tri-Cor were located was signed by Mr. Goz with Lion Technology. The date of the lease is March 22, 2001. The lease covered the period between April 1, 2001 and March 31, 2003. The amount of lease was for $102,400.
129. While at TIP, the Tri-Cor Defendants maintained their relationships with former Target customers. They attempted to sell new products to these customers, and, to the extent possible, to service orders that these customers had placed at Target, but which Target had not filled. Documents admitted into evidence as P-67, P-68 and P-69 establish certain Target's customer orders being taken initially by Target, but ultimately processed by Tri-Cor. While many of these purchase orders reflect dates which pre-dated the Trustee's closure of Target and the vendor identified as "Tri-Cor," the Court is satisfied with the credible explanation offered by Mr. Zimmerman that such information was included erroneously by the customers and reflected the order dates on which the orders were initially given to Target. When Target could not fill the orders, TIP and/or Tri-Cor filled same and invoiced the customer. This represented free and open competition between a Chapter 11 company, which was not in operation for at least a month, and companies which were attempting to preserve and/or reestablish long standing relationships with customers.
It makes no sense that the Tri-Cor Defendants would surreptitiously conduct business as "Tri-Cor" in early March of 2001, when the entity first created after Target's closure was TIP. Accordingly, the Court finds the information contained in these exhibits (P-67, P-68 and P-69) to be inherently unreliable.
130. All of the sales made by TIP, and subsequently Tri-Cor, were outsourced. Neither ever had a manufacturing plant. Both Mr. Goz (as owner of TIP) and Mr. Zimmerman (as owner of Tri-Cor) ensured that any monies either of those two companies received for sales which had been actually made and product delivered by Target were returned to Target.
131. After the closure of Target, Michael Grassman stayed on at Target under the direction of Marty Goz, who wanted to ensure that phone calls from customers which came into Target would be "rerouted" to TIP in an effort to "preserve" business while he was still negotiating to continue operations. This "preservation" work was an effort to inform clients, many of whom had been with Target and the salespeople as customers for more than two decades, what was happening with respect to Target, thus potentially preserving the customer relationship. Thereafter, Mr. Kress, on behalf of the Trustee, sent a letter to Mr. Grassman, instructing him to vacate the premises. Mr. Kress sent similar letters to Tri-Cor Defendants stating that the Tri-Cor Defendants should not do business with, or even attempt to do business with, any former customer of Target.
132. Exhibit P-45 represents correspondence from Mr. Greenberg to the Trustee, dated March 31, 2001, in which he relays warnings given to him by Michele Rutkowski suggesting that in the week before Target's closure, the sales staff were preparing the sales orders by hand and, with respect to shipping, they were leaving directions "wait for instructions". This had not been the normal operating procedure at Target. The standard procedure had been that sales orders would be entered into Target's computer system and processed automatically. The suggestion by Ms. Rutkowski and, thereafter, by Mr. Greenberg to the Trustee was that orders were not going on the books of the corporation but were being redirected elsewhere. The Tri-Cor Defendants do not dispute that this was the practice in the waning days of Target's existence, and offer only Lance's shut-down as explanation. The Court is not swayed by this meager defense and posits that the Tri-Cor Defendants may well have seen the "handwriting on the wall" several days prior to their termination. Notwithstanding, the Court does not accord substantial weight to this evidence, as Mr. Greenberg's own statement in the concluding paragraph of P-45 notes, "I don't believe the practices described above had [sic] been going on long. There was a sincere interest to make the company work. Sales did take somewhat of a down turn but not that much to make a difference between success and failure."
Tri-Cor Industrial Packaging
133. Tri-Cor was opened on April 16, 2001. Mr. Goz selected the name "Tri-Cor", based upon the nature of the products sold. Mr. Zimmerman acknowledged in his testimony that although Mr. Goz had started Tri-Cor after the closure of TIP, Mr. Goz had decided to remove himself from the business; at that point, Mr. Zimmerman took over and incorporated Tri-Cor. Again, this Court finds this approach unsurprising, given Mr. Goz's financial exposure to both Mr. Fox and Congress Financial. It would make little sense to devote time, energy and money into the start up of a new business, simply to create an asset for one's creditors. Mr. Zimmerman testified that Mr. Goz was on the premises of Tri-Cor for a period of approximately 45-60 days and occupied an office at Tri-Cor.
134. Mr. Zimmerman was the only officer at Tri-Cor. Tri-Cor was located at the identical premises as TIP. Tri-Cor continued to use the same telephone number as TIP. Tri-Cor also continued to have the same fax number as TIP. Tri-Cor also continued to employ the identical salespeople and other employees as TIP. Everything remained the same except for the name change from TIP to Tri-Cor and the change in ownership. Evidence was introduced by Plaintiffs which established that there were purchase orders taken by TIP, that were transferred to and ultimately invoiced by Tri-Cor. Likewise, there is evidence in the record which establishes that Tri-Cor was paid for purchase orders which had been filled by TIP. The Court, in reaching its findings, has disregarded the separate corporate identities of TIP and Tri-Cor and treats these entities as one and the same, notwithstanding the different legal ownership.
135. The 12 people working at Tri-Cor included Target's former salespeople, Rick Zimmerman, Donna Zimmerman, and Glenn Pierson. Donna Zimmerman was employed at Tri-Cor where she was handling the company's payables. Michele Rutkowski who had been employed by Target, was also employed at Tri-Cor. Ms. Rutkowski had been employed at Target for approximately 10 1/2 years and was responsible at Target for collections and credit. The Tri-Cor Defendants acknowledged at trial and in pre-trial discovery that they learned certain customer information with respect to Target's customer accounts during their employment at Target. For example, they learned the contact person for each customer account, their telephone numbers, the fax numbers, and the specific type of industrial bag that each customer required. Moreover, the Tri-Cor Defendants admitted that they used the customer relationships that had been established during their many years at Target to solicit and sell to Target's former customers.
136. As set forth above, the Tri-Cor Defendants, first at TIP and then at Tri-Cor, successfully solicited Target's former customers. All of TIP's customers and most of Tri-Cor's customers were Target's former customers. In addition, many customers opted not to give work to Target Holdings, TIP or Tri-Cor due to a desire to avoid any legal conflict.
137. Mr. Zimmerman acknowledged that most of the sales made by Tri-Cor in 2001 were to Target's customers. He also acknowledged that in 2002, most of the sales made by Tri-Cor were to Target's customers. He further testified of the 55 accounts he had at Target, he continues to sell to 22 of these accounts at Tri-Cor today.
138. In 2001 alone Tri-Cor made $2.5 Million out of a total of $3.0 Million in sales to Target's customers. This represents 83% of Tri-Cor's sales. Tri-Cor continues to sell to Target's customers right through the present.
Trustee's Cease and Desist Letters to the Tri-Cor Defendants
139. On March 30, 2001, Mr. Kress sent a cease and desist letter addressed to Target Industrial Packaging, Inc. The Trustee and Mr. Kress had received information from a former employee of the Debtors, Ms. Millman, that TIP was soliciting former customers of Target and asserting that it was the successor to Target. In the March 30, 2001 letter, the Trustee's counsel advised TIP that it was interfering with the assets and the continued operation of Target.
140. On April 24, 2001, Mr. Kress wrote a letter to all of the employees of the Debtors. At that point, Mr. Fox had acquired the assets of the Debtors and had assumed the management and the operation of both companies. The Trustee and Mr. Kress held a concern that the former employees of the company might not have been aware that Mr. Fox, and not Mr. Goz, had purchased the assets of the estate. For this reason, Mr. Kress on behalf of the Trustee, wrote each of the former employees and advised them that Mr. Goz's offer to acquire the assets had been rejected and instructed them to cease and desist selling to the Debtors' customers and otherwise dealing with the proprietary assets of the Debtors including "their accounts, trade names, trade dress, customer artwork, customer product specifications, customer lists, price lists and other confidential and proprietary information and trade secrets". Defendants' counsel stipulated on the record that this letter was sent to all of the Tri-Cor Defendants.
141. On May 10, 2001m Mr. Kress also sent a letter to defendant Dennis Petrey, instructing him to cease and desist from soliciting the Debtors' customer accounts. Mr. Petrey had also been so advised in the April 24, 2001 letter sent by the Trustee's counsel.
Mr. Fox Purchased All the Debtors' Assets
142. On May 15, 2001, the Trustee and Mr. Fox entered into a sale agreement term sheet which reflects the terms of the sale of the assets of the Debtors to Mr. Fox. Paragraph 2 of that agreement identified the following assets purchased by Mr. Fox from the Debtors: cash, machinery, equipment, inventory, insurance policies, and proprietary assets including customer lists, price lists, customer product specifications, customer artwork, printing plates, logos, all trade names, trade dress and other confidential and proprietary information and trade secrets of either of the Debtors.
143. A hearing was held before Judge Gambardella on May 30, 2001, in which the Court approved the sale of the Debtors' assets to Mr. Fox pursuant to the sales agreement. That approval was codified in a June 15, 2001 Order.
144. Mr. Kress confirmed in his testimony that the hearing before Judge Gambardella did not bind Mr. Fox to "close" on the Target/Lance deal.
145. Mr. Wasserman and Mr. Fox had a closing for the sale of the assets on June 29, 2001 and Mr. Wasserman signed a Bill of Sale on that date. Pursuant to the Bill of Sale, the Trustee sold and transferred to Mr. Fox title to "All trade names, trade dress, customer artwork, printing plates, logos, customer product specifications, customer lists, price lists and other confidential and proprietary information and trade secrets of either of the Debtors ("Proprietary Assets"). The Trustee sold the business a on "turnkey basis".
146. By the date on which the parties executed the sales agreement term sheet, and certainly no later than the closing on June 29, 2001, Mr. Fox was well aware that the terminated salespeople were not coming back to work at Target. He was also aware at that time that the terminated salespeople not only did not intend to return to work for Mr. Fox at Target, but were actually working in a competing business. He was also aware that many of the former Target customers were doing business with TIP. Mr. Fox acknowledged that having the salespeople is an important component of goodwill.
147. Mr. Fox testified that he would not have purchased Target if he did not believe he would not have "retained the accounts". Of course, the retention of the accounts was inextricably linked to the Tri-Cor people coming back to work at Target, and Mr. Fox knew, prior to executing an agreement to purchase the assets of Target that the Tri-Cor Defendants were not returning to work at Target. By June 29, 2001, the closing of the sale of Target's assets to Mr. Fox, he knew that he was not buying the accounts, but rather was buying only the right to pursue accounts or a lawsuit in an attempt to recoup same.
Use of Target Customer Lists
148. It is inarguable that a listing of a company's customers would be of significant value to a competitor, yet, the Court is persuaded by several of the salespeople, that a salesperson's relationship with the customer lies at the heart of a company's "goodwill". As testified by Mr. Zimmerman, "my relationships [with customers] help me make sales to those customers". This is consistent with the testimony by the other Tri-Cor Defendants and Mr. Goz throughout the trial — that it is the salesperson's relationship with the customer which is valuable, and, absent that relationship, the customers themselves are of little or no value, because no one "owns" the customer.
149. It was stipulated that Mr. Zimmerman used his customer list, which he had developed while he was employed at Target Industries, to solicit and sell to Target's customers at Tri-Cor. At trial, Mr. Zimmerman admitted that he would not disclose such a customer list to a competitor; in a similar vein, Mr. Zimmerman testified that if he had such a document at Tri-Cor listing customer accounts, sales data, and so on, that this is not the type of information that he would disclose to a competitor. Yet, these admissions are of no moment. As argued by Defendants, the fact that Mr. Zimmerman would not release such information does not mean that this information is considered "confidential" and "proprietary" when a salesperson departs the company. Clearly, no sales company would voluntarily share any customer information with a competitor. Moreover, the manner in which Mr. Zimmerman chooses to treat information at Tri-Cor is irrelevant to the issue of how such information was treated by Mr. Goz as the owner of Target. In this regard, the Court finds it indisputable and dispositive that Target made no attempt in twenty-five years of business (except arguably for the short-lived Competition Plan Summary) to keep information confidential when salespeople left the employ of Target.
Sales History Reports/Sales Notes
150. Mr. Frawley acknowledged in his testimony that by the time he turned his sales notes over to Target, he had already made contact with the customers and quoted them using the Target sales notes. The sales notes included the address and name and contact for each customer, the specific requirements and bag size used by each customer, the dates of the sales made to the customers, the specifications of the bags sold on each date and like information.
151. Mr. Frawley also acknowledged that when he left Target, he took with him Target's invoice history reports. These reports listed the accounts that he had serviced at Target. In addition to the customer names, those invoice history reports contained a specific invoice number, the amount of each invoice, the pounds that were sold, the costs for every invoice including freight charges, and the profits for each invoice.
152. Mr. Petrey also acknowledged in his testimony that he took the sales notes he had developed at Target with him. He explained that those sales notes set forth Target customers' specific plastic bag requirements. Mr. Petrey testified that his sales notes, as well as the knowledge he had in his memory allowed him "to get a pattern of what the [Target's customers] buy and when, and it prevents them from running out of bags".
Misappropriation of Target Asset
153. Plaintiffs claim that the Tri-Cor Defendants took "sales files" and did not return them. Notwithstanding, Plaintiffs have failed to identify a single sales file that is missing and each and every one of the Tri-Cor Defendants absolutely denied taking any sales files and testified that all sales information was intact at Target when they were fired on March 19, 2001. Plaintiffs have failed to carry their burden in this regard. To the extent Mr. Grassman admitted during his testimony that he knew the "property" taken by him and other Tri-Cor salesperson "belonged" to Target, the Court agrees with Defendants' characterization of this testimony that Mr. Grassman was referring only to printers, typewriters and other office equipment which were removed from Target at the direction of Mr. Goz, and, not to personal sales files and the like. These physical assets were returned to Target once Mr. Goz's negotiations concluded unsuccessfully.
V. DISCUSSION
Plaintiffs' Claims
Throughout the course of this litigation, the Tri-Cor Defendants have not contested that upon the closure of Lance and Target by the Trustee, these defendants solicited business, using customer information garnered over their years at Target, and successfully obtained orders from customers previously serviced by Target. Indeed, the Tri-Cor Defendants do not dispute that these very customers came originally to Target through the hard work of Target employees, with all costs relative to customer origination borne by Target. As a result, the core issue before this Court, resolution of which impacts nearly all claims brought by Plaintiffs, is whether such conduct by the Tri-Cor Defendants was wrongful. Simply put, did the Tri-Cor Defendants breach duties of loyalty and/or confidentiality owing to Target by soliciting business from former Target customers? Said differently, are Plaintiffs correct in their assumption that such competitive efforts by the Tri-Cor Defendants, and others, were improper and unlawful? This Court will follow a somewhat comparable analytical approach undertaken by Judge Gambardella in her summary judgment decision, by treating Counts One and Eleven of the Complaint as the portals through which Plaintiffs must pass successfully if they are to prevail on the rest of their causes of action. For the reasons explained below, this Court finds that there were no such breaches of duty or other wrongful conduct by the Tri-Cor Defendants which should give rise to any award of damages, and thus Plaintiffs' journey must end with dismissal of all counts in the Complaint.
The applicable case law and established standards for both Counts One and Eleven are closely intertwined. Count One of the Complaint seeks recovery for alleged misappropriation of Target's proprietary information and trade secrets by the Tri-Cor Defendants. In order to state a claim for misappropriation of proprietary information in New Jersey, Plaintiffs must satisfy the following elements: (1) the existence of proprietary information (2) which is communicated in confidence by the plaintiff to the employee (3) which is disclosed by the employee in breach of that confidence and is (4) acquired by the competitor with knowledge of the breach of confidence and (5) used by the competitor to the detriment of the plaintiff. Finally, the plaintiff must show that they took precautions to maintain the secrecy of the proprietary and confidential information. Rohm and Haas Co. v. ADCO Chemical Co., 689 F.2d 424, 429-30 (3d Cir. 1982) (applying New Jersey law);see also, Adolph Gottscho, Inc. v. American Market Corp., 18 N.J. 467, 474 (1955); Raven v. A. Klein Co., Inc., 195 N.J. Super. 209, 214 (App.Div. 1984). "The key to determining the misuse of information is the relationship of the parties at the time of disclosure and the intended use of the information." Lamorte Burns Co., Inc. v. Walters, 167 N.J. 285, 298-99 (2001).
In determining the level of proprietary interest in information, the Court should look at the lengths the employer took to keep the information confidential, particularly whether the employee to whom the information was disclosed was party to a non-compete or non-disclosure covenant. Lamorte Burns, 167 N.J. at 299, 301; Subcarrier Communications, Inc. v. Day, 299 N.J. Super. 634, 641 (App.Div. 1997); National Tile Board Corp. v. Panelboard Mfg. Co., 27 N.J. Super. 348, 353 (Ch.Div. 1953). "[A]n employee is not compelled to shut his eyes to what goes on in his place of employment nor is he required to wipe his memory clear of those matters which he learns during the course of that employment. So long as no contract express or implied prohibits him from divulging information learned during his employment, the employee may use that information for his own benefit."Subcarrier Comm., 299 N.J. Super. at 641 (quoting National Tile Board, 27 N.J. Super. at 355-56). Thus, where an employee is not a party to a contract, express or implied, which precludes the employee from selling to customers of his former employer, that employee is not required to "shut his eyes" and "to wipe clear his memory" and "may use that information for his own benefit." Subcarrier Comm., 299 N.J. Super. at 641; National Tile Board, 27 N.J. Super. at 356; see also, Lamorte, 167 N.J. at 303.
In this matter, the initial and central inquiry for the Court is whether the identity of Target's customers, together with specific information regarding their plastic bag requirements (i.e., weight, size, color, printing, etc.) constitute proprietary information protected under the law. There is no hard or fast rule that may be used to determine whether certain particular information, for instance, qualifies as a trade secret. As stated by the New Jersey Supreme Court in Sun Dial Corp. v Rideout:
trade secret may consist of a formula, process, device or compilation which one uses in his business and which gives him an opportunity to obtain an advantage over competitors who do not know or use it. Its subject matter must not be a matter of public knowledge or of general knowledge within the industry. Although a substantial measure of secrecy must exist, the secrecy need not be absolute and disclosure to employees involved in its use will not automatically result in the loss of employer's protection.
16 N.J. 252, 257 (1954).
In New Jersey, the legal status of customer lists has been determined on the basis of whether or not a particular business is engaged in providing a service to customers. Customer lists are commonly deemed to be confidential trade secrets where the business at issue is a service business. See AYR Composition v. Rosenberg, 261 NJ Super. at 504; Subcarrier Comm., 299 N.J. Super. at 634 (stating that "customers are not assets where company is a manufacturer or wholesaler dealing with jobbers or retail merchants"); Midland-Ross Corp. v.Yokana, 185 F. Supp. 594, 604 (D.N.J. 1960), aff'd., 293 F.2d 411 (3d Cir. 1961). The distinction has been drawn because in service industries, substantial time and expense is involved in soliciting and obtaining customers out of the general population.See Tatarian v. Aluf Plastics, 2002 WL 1065880 (D.N.J., 2002),citing, Abelene Exterminating Company v. Oser, 125 NJ Eq. 331 (Ch. 1939).
As noted by the AYR court, where a company's business is to provide services, information about customers is a proprietary right of the company because a service company must obtain its customers at the cost of time, trouble and expense; moreover, with a service company, the names and addresses of his customers are not open to or ascertainable by everyone. AYR, 261 N.J. Super at 504. Yet, when the business at issue is a manufacturer or wholesaler, no such restriction applies. See, Haut v. Rossback, 27 Backes 77, 78 (N.J.Ch. 1940). Although there are limited situations where customer lists are afforded protections, "where customers are known in an industry or are easily discernable and personal contacts are taken from job to job . . . a former employee cannot be enjoined from using his or her experience in the industry as a basis for earning a living." Subcarrier Comm., 299 N.J. Super. at 643 (citing with approval Coskey's T.V. Radio Sales Serv., Inc. v. Foti, 253N.J. Super. 626, 629 (App. Div. 1992)); Midland-Ross Corp., 185 F. Supp. at 604.
All parties concede that there are hundreds of thousands of businesses which use plastic bags, and that there are also hundreds, if not thousands, of plastic bag manufacturers in the industry. Prospective customers maintain an extensive choice of suppliers, and in turn, manufacturers/distributors have a near endless pool of potential customers to solicit. Towards this end, customer requirements are circulated widely through RFP's sent by end-users, and also can be culled through "cold-calling". Information about the sales of plastic bags — size, color, pricing information, etc. — is likewise available through industry-distributed catalogs and the internet.
Target and Lance, together, manufactured and distributed plastic bags. The identity of customers who buy such bags, as well as the type of plastic bags they buy, is neither proprietary nor confidential. Accordingly, there is nothing "protected" about a customer list in the plastic bag industry (as opposed to customers in a service industry, in which customers often buy a specialized product, and a customer list is capable of protection under the common law). Target was engaged in the sales of plastic bags, and was not a service business. As testified by Mr. Zimmerman, in this business, he or any salesperson can review any generic list of companies and know precisely what type of bag that company is buying. Thus, knowing this information is of little use in "landing" the customer. Customers are obtained through "cold-calling" and hard work, and retained largely due to the personal relationship the salesperson develops with the client. The fact that Mr. Zimmerman would choose not to share his list of customers at his present company, Tri-Cor, with active competitors does not establish that this information is either proprietary or confidential in the industry. As Mr. Zimmerman testified at trial, he would not want to give even slight advantage to a competitor, but that does not mean that the information with respect to who is buying plastic bags is not "out there" in the business community or available in such "public" publications as InfoUSA
This Court concludes that there is no "proprietary or confidential" information in the plastic bag sales industry. Consistent with such determination, the Court further finds that Target did not treat the identity of the customers, or the type of plastic bags that its customers ordered, as "proprietary" or "confidential" during its 25 year history of operations prior to March of 2001. Each of the Tri-Cor Defendants testified, without contradiction, that they knew who their customers were, and either could or did easily recreate their list of customers from memory or from database such as InfoUSA. There is nothing "confidential" or "proprietary" about knowing the identity of one's customers. Target had never treated this information as confidential. While Lance manufactured most of the products sold by Target, Plaintiffs conceded at trial that many orders were outsourced to third-party manufacturers, who were competitors in the industry and "drop-shipped" to the customer. Thus, competitors, at times, were accorded access to Target's customer information and only the "honor system" prevented these manufacturers from pirating these customers. More significantly, numerous salespeople who had left Target, on their own accord, continued to pursue business with customers to whom they had sold plastic bags while employed at Target. Mr. Goz, testified that this was in fact the practice at Target and in the industry generally. He stated that he did not believe restrictive covenants were worth the effort in the generic field of plastic bag sales, and explained that he made no attempts whatsoever to stop departing salespeople from freely competing with Target.
Plaintiffs repeatedly assert that the Tri-Cor Defendants were not permitted to use their knowledge of plastic bag sales to certain customers when they went to work at TIP and then Tri-Cor. This position is inconsistent with New Jersey law, as discussed at length herein, and such efforts are permitted in the absence of a restrictive covenant. If Target intended to prevent its departing salesperson from "using what it had learned" at Target, the only legally cognizable way it could have done so would have been to require its employees to execute restrictive covenants. In this case, Plaintiffs have not proved the existence of any restrictive covenant(s); nor have Plaintiffs established that, in the absence of a restrictive covenant, Target took affirmative steps, by way of policy or action, to keep confidential the names of their customers (or what their customers ordered) or, alternatively, put in place policies or to restrict the activities of departing salespeople. It has long been established that former employees are allowed to compete with prior employers as long as the same is done honestly and after the employee leaves his or her employment. United Board Carton Corp. v. Britting, 63 N.J. Super. 517 (Chan. Div. 1959). With respect to employees leaving one business to continue to apply their chosen field of endeavor with another business, as long as one acts within the "rules of the game", such conduct is not to be sanctioned. Lamorte, supra, 167 N.J. at 285. The use of information gleaned from invoice history reports, sales history logs and/or sales notes retained by the Tri-Cor Defendants fall within the accepted "rules of the game' and do not give rise to any cause of action, as asserted by Plaintiffs. These documents either were provided by management or created by the sales staff, for their personal use, without any restrictions placed on their use or disposition. There is nothing in the record to reflect that either Target's management or the Trustee ever issued guidelines or policies with respect to retention of the documents and information.
Accordingly, this Court finds that there has been no misappropriation of trade secrets or proprietary information by the Tri-Cor Defendants. There is no indication that the generic customer information used by the Defendants after they were fired was in any way "proprietary", and the record is devoid of any proofs that Target had taken any steps to treat the information as such. As to the allegation of "misappropriation of assets", Target's customers were not "assets" of Target. In this matter, neither the owner of Target, Marty Goz, nor the Trustee, Robert Wasserman, Esq. ever acted as though Target's customers were an "owned asset". The inevitable conclusion that must be reached is that information regarding Target's sale of plastic bags, the customers to which the bags were sold and specifications concerning those sales (the size of the bags, color, etc.), were not "confidential and proprietary information" and, accordingly, such information could not possibly be considered as a "asset" of the estate as a matter of law. Logically, if this were not the case, then any third party competing with the Debtor by contacting its customers would be violating the automatic stay pursuant to 11 U.S.C. § 362(a) by attempting to take possession of estate assets. This is simply nonsensical.
As noted in the submissions made on behalf of the Tri-Cor Defendants, Plaintiffs' reliance on cases that hold that customer lists can be confidential are distinguishable. First, there is no evidence in the record that the Tri-Cor Defendants took any customer lists compiled by Target. Second, the cases which hold that "customer lists" are to be afforded protection all involved companies that were engaged in a service business. Neither Target nor Lance were service businesses. Manufacturer and distributor customer lists are not entitled to protection because, as noted above, customers are known in the industry, and contacts are taken from job to job. See, Subcarrier Comm., 299 N.J. Super. at 643. Service businesses are distinguished from manufacturers, distributors, wholesalers and jobbers because those businesses provide a product based on a skill. Examples of the true service industries are professional offices, such as doctors, lawyers, and accountants, travel agencies, banks, brokerage houses, insurance companies, financial services, health care, and retail establishments. Based on the foregoing, Count One of the Complaint must be dismissed with prejudice.
Plaintiffs' failure to establish the misappropriation of estate assets, or wrongful conduct of any kind with respect to Target's assets, warrants dismissal of Count 4 (Turnover), Count 5 (Avoidance of Post-Petition Transfers) and Count 15 (Conversion). These Counts rest upon a shared premise that information taken and used by the Defendants were assets of the Debtor estates. With regard to Counts 6 and 7 of the Complaint (Avoidance of Fraudulent Transfers), Plaintiffs have not established the elements necessary to prove such causes of action. The bankruptcy code provides trustees with the power to undo certain transactions entered into by debtors prior to filing bankruptcy which were designed to, or had the effect of, frustrating recovery by creditors. 11 U.S.C. § 548 grants the trustee the power to avoid transfers accomplished with either actual or constructive fraudulent intent. This Section provides that a trustee:
Section 542(a) of the Bankruptcy Code provides that an entity must deliver to the Trustee and account for estate property in its possession or compensate the estate for the value of such property. As explained above, there is no indication that the customer information used by the Tri-Cor Defendants after they were fired was "proprietary", and thus estate assets subject to protection. Likewise, Target's customers were not "assets" of Target, subject to turn over.
Section 549 of the Bankruptcy Code provides that all transfers of estate property effectuated after the bankruptcy petition is filed and without prior authorization of the Court can be avoided by the trustee and the property must be returned to the estate. There has been no "transfer of property" in this matter, because Target's former customers were not "property of the estate" such that the Tri-Cor Defendants could not continue to do business with these customers after they were fired by Target. Likewise, Plaintiffs have not proved any transfers to the Tri-Cor Defendants of other assets belonging to Target.
To constitute an act of conversion, "[i]t is sufficient if the owner has been deprived of his property by the act of another assuming an unauthorized dominion and control over it. It is the effect of the act which constitutes the conversion." Cameco v. Gedicki, 299 N.J. Super. 203, 217 (App.Div. 1997). A cause of action for conversion only lies when tangible personal property is at issue. Id. For the same reasons discussed above with regard to alleged post-petition transfers, Plaintiffs cannot succeed on this cause of action. With respect to certain office equipment and computers taken by Tri-Cor Defendants at Mr. Goz's direction, the unrebutted testimony at trial confirms that such items were returned subsequently and there are no proofs of injury relative to the temporary loss of these assets.
Section 544(b) of the Bankruptcy Code provides in pertinent part that:
the trustee may avoid any transfer of an interest of the debtor in property . . . that is voidable under applicable law by a creditor holding an unsecured claim. . . .
This section of the Bankruptcy Code permits the trustee to bring state law fraudulent conveyance and other similar actions that an unsecured creditor could bring. In re All American Petroleum Corp. Debtor; Ackerman, Chapter 7 Trustee v. Kovac, 259 B.R. 6 (Bankr. S.D.N.Y. 2001). Under this section of the Code, a transfer will be voided where valuable estate assets have been transferred to another entity without valuable consideration. Plaintiffs contend that the Tri-Cor Defendants' receipt of Target's assets is violative of the Uniform Fraudulent Transfer Act, N.J. S.A. 25:2-20 et seq. The Court notes, however, that the existence of a Section 544(b) cause of action "depends upon whether . . . a creditor existing at the time the transfers were made . . . still had a viable claim against the debtor at the time the bankruptcy was filed. Acequia, Inc. v.Clinton (In re Acequia, Inc.), 34 F.3d 800, 807 ((9th Cir. 1994) (internal citations omitted) (emphasis added)). The burden rests squarely on the plaintiff to "demonstrate the existence of an actual creditor with a viable cause of action." Global Crossing Estate Representative v. Winnick, No. 04 Civ. 2558 (GEL), 2006 WL 2212776, at *10 (S.D.N.Y Aug. 3, 2006) (internal citations omitted). Among other deficiencies with respect to this claim, Plaintiffs have failed to establish the identity of an actual creditor who could have maintained such a claim.
[M]ay avoid any transfer of an interest of the debtor in property, or any obligation incurred by the debtor, that was made or incurred on or within one year before the date of the filing of the petition, if the debtor voluntarily or involuntarily-
(A) made such transfer or incurred such obligation with actual intent to hinder, delay, or defraud any entity to which the debtor was or became, on or after the date that such transfer was made or such obligation incurred, indebted; or
(B)(I) received less than a reasonably equivalent value in exchange for such transfer or obligation; and (ii) was insolvent on the date that such transfer was made or such obligation was incurred, or became insolvent as a result of such transfer or obligation (emphasis added;
Sectopm 548(a)(1)(A) provides for avoidance of actual fraudulent transfers, while § 548(a)(1)(B) provides for the avoidance of constructively fraudulent transfers. The purpose of fraudulent conveyance law is "to make available to creditors those assets of the debtor that are rightfully a part of the bankruptcy estate, even if they have been transferred away."Buncher Co. v. Official Comm. of Unsecured Creditors of GenFarm Ltd., 229 F.3d 245, 250 (3d Cir. 2000); See also, In re Murphy, 331 B.R. 107 (Bankr.S.D.N.Y. 2005). Plaintiffs herein have not satisfied any of the requisite criteria, i.e., that any of the Debtors' assets were transferred for inadequate consideration, to or for the benefit of any of the Tri-Cor Defendants, within one year prior to the bankruptcy filings, or that the Debtors were insolvent at the time of such transfers (or rendered insolvent thereby). Accordingly, Counts Six and Seven are also dismissed with prejudice.
The Court now turns to Count Eleven of the Complaint, which alleges that the Defendants breached the duty of loyalty and confidentiality that was owed to Target. In New Jersey, "[a]n employee owes a duty of loyalty to the employer, and must not, while employed, act contrary to the employer's interest." Auxton, 174 N.J. Super. at 425; see also, Cameco, Inc. v. Gedicke, 299 N.J. Super. 203, 213 (App.Div. 1997), aff'd,. as modified, 157 N.J. 504 (1999). During the period of employment, the employee has a duty not to compete with the employer's business. United Board Carton Corp. v. Britting, 63 N.J. Super. 517, 524 (Ch.Div. 1960), aff'd,. 61 N.J. Super. 340 (App.Div. 1960). The scope of the duty of loyalty may vary with the nature of the employee-employer relationship. See, Cameco, 157 N.J. at 516. "Employees occupying a position of trust and confidence . . . owe a higher duty than those performing low level tasks."Id. Moreover, the duty of loyalty includes a duty of confidentiality which requires employees not to disclose the employer's confidential and proprietary business information during or after the employment has ended. Sun Dial, 16 N.J at 259. However, an employee "is under no obligation to force himself to forget what he may recall of the information contained [in customer lists]."Midland-Ross Corp., 185 F. Supp. at 604.
An employee who is not bound by a covenant not to compete after the termination of employment may anticipate future termination of employment and, while still employed, make arrangements for new employment with a competitor or the establishment of his own business in competition with his employer. Auxton, 174 N.J. Super. at 423-24. As the Third Circuit has held, "[a]n employee after leaving the service of an employer may carry on the same business on his own and use for his own benefits the things he has learned while in the earlier employment . . . Necessarily the former employee may use what he learned in the former employer's business while engaged in business for himself or some business competing with the former employer."Midland-Ross Corp. v. Yokana, 293 F.2d at 412. Further, "`[a]n employer may not prevent an employee from using the general skills in an industry which have been built up over the employee's tenure with the employer.'" Laidlaw, Inc. v. Student Tranp. of Amer., Inc., 20 F. Supp. 2d 727, 760 (D.N.J. 1998) (quoting Coskey's T.V. Radio, 253 N.J. Super. at 629.
Both Plaintiffs and Defendants have pointed to the New Jersey Supreme Court's ruling in the Lamorte, supra, as supporting judgment in their favor. The Lamorte case involved the misappropriation of confidential information from an employer by an employee who then utilized the information to start a competing business. Specifically, Lamorte was an insurance company engaged in the business of investigating and adjusting claims for both marine and non-marine liability insurers. Lamorte hired an employee named Walters to manage a branch office of the company. Walters was introduced to many of Lamorte's existing clients, but was expected to locate, establish and maintain new clients. Shortly after beginning his employment at Lamorte, Walters signed an employee agreement that essentially prevented him from disclosing any information that he obtained in the course of his employment. In addition, the agreement contained a non-compete clause that prevented Walters from soliciting or accepting claims that were handled by Lamorte for 12 months after his termination. The agreement apparently was never signed by both parties in that case.
Approximately six years later, Walters considered starting his own competing business. To that end, he approached another Lamorte employee, Nixon, and, eventually incorporated a new business. From that point on, even while attending to duties at Lamorte, whenever they worked on insurance claims for Lamorte, both men pirated information from the clients' files to create a solicitation list. The list contained clients' names, addresses, phone and fax numbers, file numbers, claims incident dates, claim contact information and the names of the injured third parties. As the list was compiled, the information was transferred to Walters' home computer. A little more than a year after incorporating the new business, Walters and Nixon had arranged for office space, computer equipment and telecommunications services for the business and set a date on which to resign. Then Lamorte asked each to sign a more restrictive employment agreement which would have prevented all work with clients of Lamorte for one year, rather than just preventing work on active claims files. Both Walters and Nixon avoided signing the agreements prior to resigning; ultimately, they cleaned out their desks and faxed letters of resignation to Lamorte.
The following day Walters and Nixon began faxing solicitation letters to Lamorte clients which specifically listed the claims that were currently pending and being handled by Lamorte. A substantial portion of Lamorte's customers solicited by Walters and Nixon agreed to transfer their claims to them. However, no solicitation took place prior to Walters and Nixon resigning. Lamorte brought suit against Walters and Nixon for breach of the duty of loyalty and tortious interference with Lamorte's economic advantage. Walters claimed that the information taken was not confidential or proprietary because it could have been obtained simply by calling the clients. Moreover, Walters argued that he was never told that the information he took was confidential.
The Supreme Court of New Jersey noted that a threshold issue was whether the clients' claim information taken from Lamorte by the Defendants was legally protectable. First, the Court noted that in New Jersey customer lists of service businesses have been afforded protection as trade secrets, citingAYR Composition v. Rosenberg, 261 N.J. Super. 495 (App. Div. 1993). However, the Court determined that it was not necessary for information to rise to the level of a trade secret in order to be protected, citing Platinum Management v. Dahms, 285 N.J. Super. 274 (Law. Div. 1971). Instead, the Court held that the relevant inquiry focuses on the understanding of the parties at the time the information was disclosed and the intended use of that information. Lamorte, 167 N.J. at 298-299. The Lamorte court found that the specific information provided to defendants by their employer for the sole purpose of servicing the plaintiff's customers was legally protectable as confidential and proprietary information. The Lamorte court noted that the information surreptitiously gathered by defendants from plaintiffs was not generally available to the public, went beyond mere names of Plaintiff's clients, included specific information concerning claims, names of the injured parties and type and date of injury; such information would give the defendants an advantage in soliciting clients once they had resigned. Having determined that the information taken by Walters and Nixon was legally protectable, the Court applied the duty of loyalty standard. Noting the basic common sense nature of the duty of loyalty, the Court stated:
In evaluating an employee's conduct under the breach of the duty of loyalty standard, the employee's level of trust and confidence, the existence of an anti-competition contractual provision, and the egregiousness of the conduct are important factors to consider in the analysis.
Lamorte, 167 N.J. at 303 (citing Cameco, 157 N.J. at 516-18).
This Court reads Lamorte as offering minimal support for Plaintiffs' claims. In this regard, the following factors inLamorte, critical to the court's decision, are wholly absent from the case at bar: (1) the existence of a non-compete agreement, (2) the fact that Lamorte was a "service" business, (3) the voluntary termination of employment by the defendants, (4) the pirating of employer accounts and claim information while employed, (5) the organization of a competing business while still employed, and (6) the solicitation of clients for defendants' new company while still employed. The Tri-Cor Defendants were fired without notice on March 19, 2001, when the facilities were closed by the Trustee. At the time of closure, no agreement existed between the Trustee and any third party to purchase and continue the business; rather, the secured lender was advocating for a quick auction liquidation. Nowhere does the record suggest that the employees were advised that there separation would be anything but permanent. No representations were made to the employees that they may be rehired by Mr. Fox. The fact that they may have been offered re-employment two or three weeks later is of no moment.
There is no evidence that the Tri-Cor Defendants were secretly misappropriating confidential and proprietary information for use in their own business established during their employment with Target. It is undisputed that the Tri-Cor Defendants were not bound by a covenant not to compete upon termination of their employment. Once they left Target's employ, or more accurately, once they were terminated from Target on March 19, 2001, the Tri-Cor Defendants were free to compete with Target by soliciting its customers. There is no evidence that the Tri-Cor Defendants did anything to compete with Target prior to their termination. Rather, the "competing" entity, TIP, did not come into existence until April 2, 2001. Clearly, there were no pre-termination disloyal acts committed by any of the Tri-Cor defendants and this case thus stands in stark contrast to the facts in theLamorte matter.
Plaintiffs' own witness, Warren Greenberg, acknowledged that the Tri-Cor Defendants were working diligently for Target up until March 19, 2001.
The Tri-Cor Defendants have called this Court's attention to the decision of the New Jersey Appellate Division in RIA International, LLC v. Siegel, Appellate Division Docket No. A4002-01-T5 (February 21, 2003). In RIA International, the defendant was a sales representative for a distribution company. As part of her employment, defendant was required to sign a confidentiality agreement, which was binding on her during her employment and for three years after. The confidentiality agreement precluded the disclosure of confidential information to third parties without written consent. Defendant's employment with plaintiff ended in August 1997. The Appellate Division affirmed the trial court's determination that knowledge of plaintiff's customers was not confidential or proprietary information. Although she contacted customers with whom she had prior dealings, there was no evidence that she took customer lists. "Knowledge of customers with whom she dealt with while working for plaintiff did not rise to the level of confidential information." Id. at 4-5. The Appellate Division noted that defendant was permitted to compete with plaintiff after her termination and her contacting customers is not barred by the confidentiality agreement. Id. at 5. Importantly, citing Lamorte, the Court noted that, while New Jersey law, may, in some circumstances, afford protection to customer lists of service business as trade secrets, plaintiff was not a service business.Id.
The Court is cognizant that Plaintiffs have introduced some evidence that Mr. Goz and certain Tri-Cor Defendants did undertake limited steps to continue in the plastic bag business as a new entity, in the event the Trustee opted to close the facilities. Frankly, it would be shocking if the employees of a Chapter 11 debtor were to sit on their hands and wait for the guillotine to fall, without anticipating and planning for continued employment as a means of protection for their families and futures. The Court is convinced that the Tri-Cor Defendants offered both Target and the Trustee their best and loyal efforts up to the end, primarily in the hope and expectation that Mr. Goz could purchase the business assets from the estate. Nothing in the law mandates that the Tri-Cor Defendants, upon being terminated by the Trustee and seeing Mr. Goz's purchase efforts rebuffed, pursue new careers in unrelated industries, or cast aside the years of acquired specialized knowledge and experience.
Also referenced in the post-trial submissions is Judge Bassler's decision in Tatarian, supra. This case is decidedly on point as to the issues at bar and bottomed on facts which are strikingly similar to the matter sub judice. In Tatarian, API Industries, a manufacturer of a variety of plastic bags and trash liners, sold the bags through independent representatives, distributors, and wholesalers. On March 30, 1992, Jack Tatarian was hired by API Industries to be their "National Sales Manager." Tatarian developed client specific information and client prospect specific information, in order to service the needs of API's clients. This information included names of clients, points of contact at the clients, and actual or potential bag requirements for the clients he serviced. Tatarian was also given contact information for any of API's existing clients that were assigned to him. Although API emphasized to its employees the need for confidentiality to be maintained as to sales and pricing information, API did not have Tatarian sign a confidentiality agreement. However, API did supply employees with an Employee Handbook, which outlined the company's stance on maintaining confidentiality even after someone leaves their employment. While Tatarian acknowledged having been provided with a copy of API's Employee Handbook, he claimed to have never discussed the contents with his superiors, or to even have read it. All of the knowledge or information Tatarian gained about the plastic bag industry generally and about API's clients in particular was acquired by him during his period of employment at API, largely with the financial support and encouragement of API.
On February 28, 2001, API terminated Tatarian for "unsatisfactory performance," and on August 1, 2002, Tatarian accepted an offer of employment from Spectrowax, which also was a distributor of plastic bags and other products. Once Tatarian joined Spectrowax, he contacted a number of API's clients to inform them of his new business circumstances, and to solicit their business for Spectrowax, which he was successful at on several occasions. There was no evidence that Tatarian had either in his memory or in his physical possession any trade secret or confidential information regarding API's manufacturing processes, marketing plans, or business strategies. There was also no evidence that Tatarian made plans to solicit away API's customers while he was still employed by API.
API brought claims for Misappropriation of Trade Secrets/Confidential Information (Count I), Unfair Competition (Count II), Tortious Interference (Count III IV), Breach of Duty of Loyalty (Count V), and Conversion (Count VI), and the issue before Judge Bassler for the United States District Court for the District of New Jersey was whether, under New Jersey law, an involuntarily terminated former employee, in the absence of an express non-competition or confidentiality agreement, could solicit his former employer's customers using alleged proprietary knowledge of customer information acquired solely during his earlier employment.
After an exhaustive review of New Jersey case law, Judge Bassler concluded that the names and contact information of Defendants' customers were not protectable as either trade secrets or confidential information. The Court held that the mere fact that the plaintiff had mentally catalogued information about clients he serviced while employed at defendant, in the absence of a restrictive covenant, did not create a legal cause of action to preclude Tatarian's use of that information learned.Tatarian, 2002 WL 1065880 (D.N.J) *9. Having thus concluded that the names and contact information of customers was not protectable as a trade secret or confidential information, Judge Bassler concluded that API was not likely to succeed on a claim of misappropriation. Id.. With language which this Court finds instructive to the matter at bar, Judge Bassler ruled:
Unlike the defendant in Lamorte, Tatarian did not begin an "intentiona[l] . . . process of subverting [his] employer's business while still employed." Claimants' protestations to the contrary, Tatarian did not use confidential information when he contacted those API clients known to him, even if API sought to keep the identity of its customers known from the general public. Instead, Tatarian's conduct was more properly characterized as an instance where:
a former employee, not bound by a restrictive covenant and not guilty of any breach of trust, after the termination of his employment, [permissibly elects] to compete honestly with his former employer, even to the extent of soliciting the customers of his former employer with whom he became acquainted in the course of his employment.
United Board Carton Corp. v. Britting, 63 N.J.Super. 517, 523 (Chan. 1959). Mindful that New Jersey courts have "been careful to distinguish between former employees `honestly' competing with the old employer for the latter's customers and the `pirating' of the former employer's business by dishonorable and disloyal means," Id. at 525, on the facts before the Court Tatarian's conduct does not justify issuance of an injunction on breach of Duty of Loyalty grounds.
Id.
Applying the same analysis as did Judge Bassler, it is clear that Plaintiffs cannot sustain their burden of proofs under Count Eleven of the Complaint. Notably, Plaintiffs cannot overcome the fact that none of the Tri-Cor Defendants had any contracts with Target, much less a restrictive covenant. The Compensation Plan Summaries executed by several of the Defendants expired in June of 1999, to be replaced by a new Commission Plan. In any event, those Plans simply spoke in terms of a return of documents, and did not even attempt to limit the competitive activities of departing salespeople. Morever, as Judge Bassler concluded in Tatarian, the names and contact information of Target's customers were not protectable as either trade secrets or confidential information. The mere fact that the Tri-Cor Defendants may have mentally catalogued information about clients serviced while employed at Target, in the absence of a restrictive covenant, does not create a legal cause of action to preclude their use of that acquired information. The existence of such a restrictive covenant is the best evidence that a company such as Target took affirmative steps and offered consideration to prevent its employees from competing after their departure. Finally, as discussed at length elsewhere, there is nothing "proprietary" or "confidential" about the plastic bag sales industry. This Court agrees that knowledge of any pricing structure is of little to no value to a competitor, given the fluctuating price of plastic bags due to changes in oil prices. Knowledge of specific customer requirements for Target's customers is also neither "proprietary" nor "confidential", for the reasons elaborated above. In sum, the Tri-Cor Defendants were at-will employees who, at the time of their unilateral termination, had no restrictive covenants with their former employer, working in a sales industry which sold a generic product and did nothing but give their best efforts for their former employer at the time of their termination. Thus, Plaintiffs have failed to sustain their burden of proof to state a cause of action under Count Eleven of the Complaint for breach of a common law duty of loyalty or confidentiality.
Having determined that the Tri-Cor Defendants did not engage in improper or unlawful activities, the Court does not see how the Plaintiffs can sustain any of the remaining causes of action in the Complaint. This includes Counts Six and Nine of the Complaint, which were directed solely against Mr. Zimmerman and predicated on his alleged status as an "insider" of Target. As discussed above in the Court's Findings of Fact, No. (s) 41-56, numerous documents were admitted into evidence which convinces the Court that Mr. Zimmerman was held out to both the public and to the employees as an officer of Target. These documents include a memorandum issued by Mr. Goz, signature cards maintained at banks, organizational charts circulated to employees, lease agreements and checks. While Mr. Zimmerman's voice in operations may have been limited by his father-in-law's choice, it is clear that Mr. Zimmerman did maintain responsibility with respect to hiring and firing decisions, issuance of checks, general oversight over sales, and execution of agreements binding the company. Yet, it is also clear to the Court that these very areas of responsibility were assumed by the Trustee- and only the Trustee-upon Mr. Wasserman's appointment. During the critical period in which Mr. Zimmerman is alleged to have engaged in wrongful conduct, the Trustee displaced Mr. Zimmerman with respect to the very responsibilities which cloak him with the status as an "insider".
As the parties have adequately briefed the elements of each of the causes of action set forth in the remaining Counts of the Complaint, the Court will not do so again herein.
Defendants' Counterclaims :
The Tri-Cor Defendants have filed counterclaims against Plaintiffs for unfair competition, anti-trust, Lanham Act violations, tortious interference with contractual relations, conversion and defamation. The evidence introduced at trial is insufficient to grant relief for any of these claims. However, in light of Plaintiffs' inability to establish any wrongful conduct on the part of the Tri-Cor Defendants, there is no legal or equitable basis to set-off and or subordinate any amounts due and owing against the allowed administrative claims held by any of these Defendants, and they are to be paid forthwith.
All parties are to bear their respective costs and attorneys fees.
V. CONCLUSION
Based upon the foregoing analysis and above-cited findings of fact and the legal authorities cited herein, the Court grants judgment against the Plaintiffs and in favor of the Tri-Cor Defendants. Counsel for the Tri-Cor Defendants is directed to submit an appropriate judgment, upon five days notice to all parties. Counsel for Plaintiffs and remaining Defendants are to contact Chambers to schedule a status conference with respect to the remaining claims.