Opinion
01 Civ. 2683 (SAS)
September 20, 2001
Eric Lee, Esq., Atlas Pearlman, P.A., Fort Lauderdale, FL, Mark A. Berman, Esq., Gafner Shore, New York, NY, Attorneys for plaintiffs.
Charles E. Knapp, Esq., New York, NY, Law Offices of Charles E. Knapp, P.C., New York, NY, Attorney for defendant.
Brendan O'Rourke, Esq., Proskauer Rose LLP, New York, NY, Attorney for defendant.
OPINION AND ORDER
Plaintiffs, NetTech Solutions, L.L.C. ("NetTech") and ePark, L.L.C. ("ePark"), are suing B.E.A.C., L.L.C. ("BEAC"), Control Systems, Inc. ("Control"), Barry Lazowski, ZipPark.com, and Federal APD, Inc. ("Federal"), for copyright infringement of NetTech's Valet 2000 System Software and accompanying documentation ("Valet 2000"). Plaintiffs also assert common law claims of unfair competition and breach of contract. BEAC, Control, Lazowski and ZipPark.com (collectively the "moving defendants") now seek summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure. For the reasons stated below, the moving defendants' motion is denied in part and granted in part.
Federal, a manufacturer of parking revenue control equipment that has had a business relationship with Control dating back to 1988, see Affidavit of Barry Lazowski in Support of Defendants' Motion for Summary Judgment ("Lazowski Aff.") ¶ 6, does not join its co-defendants in moving for summary judgment at this time.
The moving defendants do not seek summary judgment with respect to plaintiffs' copyright claim. Due to its highly technical nature, plaintiffs' copyright claim is being addressed separately, by agreement between the parties, through a Court appointed Special Master. See 8/3/01 Order. The parties were directed to provide the Special Master with their pleadings as well as the software and/or documentation relevant to this claim. See id. After a review of these materials, the Special Master will prepare a report summarizing his findings and conclusions for the Court.See id. As of the date of this Opinion and Order, no report has been filed.
I. LEGAL STANDARD
Rule 56 provides for summary judgment "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). "An issue of fact is 'material' for these purposes if it might affect the outcome of the suit under the governing law [while] fain issue of fact is 'genuine' if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Shade v. Hous. Auth. of City of New Haven, 251 F.3d 307, 314 (2d Cir. 2001) (quotation marks and citations omitted). "In determining whether a genuine issue of material fact exists, a court must resolve all ambiguities and draw all reasonable inferences against the moving party."Flanigan v. General Elec. Co., 242 F.3d 78, 83 (2d Cir. 2001).
II. BACKGROUND
A. NetTech, BEAC, Control and Lazowski
Founded in 1996, NetTech provides information processing services and database management systems to customers nationwide. See Affidavit of Seth Daley, President of NetTech and President and Manager of ePark, in Opposition to Defendants' Motion for Summary Judgment ("Daley Aff.") ¶ 4.
In 1988, Lazowski founded Control, a company whose business concerns parking access and revenue control in the parking garage industry. See Lazowski Aff. ¶¶ 4, 6. Lazowski is the company's President and sole shareholder. See 8/23/00 Deposition of Barry Lazowski ("Lazowski Dep."), attached as Ex. C to the Affirmation of Charles Knapp, counsel for the moving defendants ("Knapp Aff."). at 7. Lazowski is also the President of BEAC, an investment vehicle with no employees. See Lazowski Aff. ¶ 4. BEAC's limited liability members are Lazowski, his wife, and his two daughters. See Lazowski Dep. at 9.
B. The Relationship of the Principal Parties
In July 1997, Control asked NetTech to create valet-related software for New York Hospital, one of Control's customers. See Defendants' Statement of Facts Pursuant to Local Rule 56.1 ("Defs. 56.1") ¶ 6. At the time, NetTech had no previous experience with the valet parking industry. See Plaintiffs' Statement of Facts Pursuant to Local Rule 56.1 ("Pls. 56.1") ¶ 6. After NetTech completed the job, Control and NetTech began to discuss creating software that could be used by garages throughout New York. See Defs. 56.1 ¶ 11; 6/14/01 Deposition of John Coyle, Vice-President of NetTech, attached as Ex. D to Knapp Aff., at 23-25. With input from Lazowski, NetTech developed the product, which was initially called the Valet Automated Management System ("VAMS"). See Pls. 56.1 ¶ 9; Daley Aff. ¶¶ 5, 8, 10. NetTech then created a website for Control to display VAMS. See Defs. 56.1 ¶ 12.
NetTech further developed VAMS, using information gleaned from conversations with Lazowski. See Daley Aff. ¶ 10. The product eventually became known as Valet 2000 and is a computer system for valet and self-park facilities that provides comprehensive revenue management, automated financial reporting, and secure, accurate transactions. See id. ¶ 5, 6. Valet 2000's source code and software were developed by NetTech's programmer, Miguel Gonzalez. See Pls. 56.1 ¶ 17. On or about August 7, 1998, NetTech registered Valet 2000 with the United States Copyright Office. See Daley Aff. ¶ 11.
1. The ePark Agreement
During the development of Valet 2000, NetTech and Lazowski, acting on behalf of Control, discussed a business arrangement that would maximize the marketing and sale of licenses to use the product. See id. ¶ 8. As a result, on March 25, 1999, the parties created ePark, a limited liability company, with NetTech holding 51% of ePark's shares, and BEAC — which Lazowski created for purposes of this joint venture — holding. the remaining 49% (the "epark Agreement"). See Defs. 56.1; ePark Agreement, attached as Ex. 1 to Daley Aff., § 2.1.
a. The Duties of the Parties
NetTech's duties under the ePark Agreement included:
(1) maintaining a sufficient level of inventory of Valet 2000; (2) providing future updates and upgrades of Valet 2000; (3) providing reasonable software support and maintenance, as well as training for Control's employees; and (4) warranting the software. See ePark Agreement § 2.2. BEAC's duties included: (1) using its best efforts to market and sell the product on a local and national level; (2) providing a professional sales plan; (3) arranging a third-party hardware integrator/installer for Valet 2000; and (4) providing customer support for Valet 2000. See id. § 2.3. On the same day the parties executed the ePark Agreement, BEAC entered into a separate Service Agreement with Control to provide the services required under the ePark Agreement. See Defs. 56.1 ¶ 15; Lazowski Dep. ¶ 30; Service Agreement, attached as Ex. A to Reply Affidavit of Barry Lazowski ("Lazowski Reply Aff."), § 1. Lazowski executed the Service Agreement as President of both BEAC and Control. See Service Agreement at 6.
b. The Rights Associated with the Valet 2000 and the Confidentiality Provisions of the ePark Agreement
Pursuant to Article III of the ePark Agreement, BEAC, Control and ePark each agreed that NetTech owned all intellectual property rights associated with Valet 2000. See ePark Agreement §§ 3.1, 3.2. BEAC and Control further agreed not to alter, modify, change, decompile, disassemble or reverse engineer the Valet 2000 software or try to discover or disclose NetTech's trade secrets by disassembling, recompiling or otherwise reverse engineering the Valet 2000 software. See id. § 3.2. Control also agreed to keep all trade secrets and proprietary information relating to Valet 2000 confidential. See id. § 3.3. In addition, during the life of the ePark Agreement,
NetTech, ePark, B.E.A.C. and Control agree[d] not to collaborate with a competitor of any of the parties to develop, market or assist in the development/marketing of, a software product directly competitive with the [Valet 2000]. In the event that B.E.A.C., Control, or NetTech develop[ed] a concept for a related software product, the party that presents the concept for said product [was obligated to] first offer the product concept to ePark. In the event that ePark decline[d] to pursue the development of the product, the party that presented said product, being either Control, B.E.A.C., or NetTech [was] free to offer the product idea to a third party.Id. § 3.5.
2. The Relationship Sours
Although the parties dispute why their relationship soured, plaintiffs contend that BEAC and Control failed to provide adequate sales and support services as required under the ePark Agreement. See Daley Aff. ¶ 14. As a result, NetTech decided its best option was to immediately terminate their business relationship. See id. ¶ 15.
a. The Correspondence
In a letter dated February 16, 2000, Seth Daley, NetTech's President, offered Lazowski two options:
1. Purchase the Valet 2000 and Valet 2000 Remote software from NetTech at a price of $500,000. The price in [sic] nonnegotiable and payable in a lump sum. [or]
2. NetTech and BEAC will dissolve ePark and each go our separate ways. Kindly bare [sic] in mind that there is significant liability in supporting the existing Valet 2000 customers.
2/16/00 Letter from Daley to Lazowski, attached as Ex. A to Lazowski Aff. Lazowski responded to Daley that, before Control could reply to Daley's offer to sell Valet 2000, the company would need to inspect the software. See 2/25/00 Letter from Lazowski to Daley, attached as Ex. C to Lazowski Aff. With respect to option two — the dissolution of ePark — Lazowski stated that if they failed to reach an agreement to sell Valet 2000, they would later discuss the details of ePark's dissolution.See id.
Daley then notified Lazowski that an independent software consultant could review the software after the proper non-disclosure and non-compete clauses were signed. See 2/28/00 Letter from Daley to Lazowski, attached as Ex. D to Lazowski Aff. In addition, Daley again offered Lazowski the dissolution option, this time stating that
NetTech will dissolve ePark and not pursue any legal action against Control Systems or BEAC, LLC, for breach of contract. NetTech will remove any support liability from Control Systems and continue to support the existing Valet 2000 clients.Id. The tone of Daley's letter and the parties' business relationship in general upset Lazowski, see Lazowski Aff. ¶ 41, who responded by stating:
Given my lack of faith in you [Daley], it is apparent that even having the software analyzed is a waste of time since you are not truly interested in selling it at any fair price. Since ePark is doomed to deadlock, I am forced to conclude that the most efficient way to proceed is to accept your second option: (a) ePark is dissolved (that is to say that its affairs are wound down, no new business is taken on, its assets marshalled, its creditors and taxes paid and the remaining assets are distributed to the shareholders) and (b) NetTech provides both Control Systems Inc. and BEAC, LLC with general releases and indemnifications.
3/1/00 Letter from Lazowski to Daley, attached as Ex. E to Lazowski Aff.
The next day Daley sent Lazowski a letter proposing terms for ePark's dissolution and requesting that Lazowski sign and date the letter if he agreed. See 3/2/00 Letter from Daley to Lazowski, attached as Ex. E to Lazowski Aff. Lazowski did not sign the letter and instead insisted that Daley provide Control and BEAC with an executed general release and indemnification prior to epark's dissolution. See 3/3/00 Letter from Lazowski to Daley, attached as Ex. 6 to Daley Aff. In response, Daley faxed a letter to Lazowski stating that
[a]fter conferring with two corporate attorneys . . . it has been determined that there is no need for, nor will there be provided any indemnification of B.E.A.C., L.L.C. or Control Systems, Inc. by NetTech Solutions, L.L.C. Pursuant to L.L.C. guidelines, each member of an L.L.C. is liable only for the total amount of capital contributions to the L.L.C. In B.E.A.C., L.L.C.'s case, the total liability is $4.90. The liability of $4.90 expires one year from the date of filing the Delaware certificate of dissolution. There should be no further discussion about indemnification.
3/3/00 Letter from Daley to Lazowski, attached as Ex. 7 to Daley Aff. Lazowski responded a few days later contending that
the issue of the release and indemnification was part of your [Daley's] February 28 proposal, which you referred to as Option 2 to resolve this matter. You may wish to refresh your memory on this point. In any event, we accepted your proposal and fully expect you to live up to your end of the bargain.
3/6/00 Letter from Lazowski to Daley, attached as Ex. 8 to Daley Aff. That same day, Daley wrote to Lazowksi that
[w]ith regards to [the] letter dated February 28, 2000, I stated in Option 2 that "NetTech will remove any support liability from Control Systems and continue to support the existing Valet 2000 clients." This statement is quite clear. NetTech will release B.E.A.C. [,] L.L.C. from supporting the product. The statement does not say anything about indemnification.
3/6/00 Letter from Daley to Lazowski, attached as Ex. 9 to Daley Aff. Lazowski responded by again reiterating his position that option two, as set forth in the February 28 letter, included the provision of a general release and indemnification to both Control and BEAC prior to ePark's dissolution. See 3/7/00 Letter from Lazowski to Daley, attached as Ex. 10 to Daley Aff.
In an effort to clarify any misunderstanding, Daley set forth what NetTech would do in consideration for BEAC and Control's agreement to dissolve ePark:
1. "NetTech will dissolve ePark and not pursue any legal action against Control Systems or BEAC, LLC, for breach of contract." This means that NetTech will not commence legal action against B.E.A.C., L.L.C. or Control Systems. Inc. for breach of the ePark. L.L.C. contract/agreement. This does not mean that NetTech Solutions, L.L.C. intends to indemnify any of the parties nor will NetTech Solutions, L.L.C. do so.
2. "NetTech will remove any support liability from Control Systems and continue to support the existing Valet 2000 clients." This means that NetTech Solutions. L.L.C. is going to continue to support the product and maintain a help desk, which NetTech has been doing all along. Instead of a customer calling Control Systems and getting either; [sic] no return phone call, inadequate help, or being just told to call NetTech Solutions, the customer will be calling NetTech Solutions directly.
Barry [Lazowski], there is no attempt by me to "get out of" any commitment. We are just ending the ePark, L.L.C. corporation. The epark, L.L.C. operating agreement and the established guidelines for a L.L.C. restrict the amount of liability of B.E.A.C., L.L.C. to $4.90. I cannot help but wonder why you keep insisting [on] indemnification when it is not warranted and not stipulated in any of ePark, L.L.C.'s operating agreements.
The quoted language was taken from Daley's February 28, 2000 letter.
3/7/00 Letter from Daley to Lazowski, attached as Ex. F to Lazowski Aff. (emphasis in original). Although he dropped his request for indemnification, Lazowski wrote to Daley the next day again insisting on a general release, stating that ePark's dissolution could proceed the moment such a release was executed. See 3/8/00 Letter from Lazowski to Daley, attached as Ex. F to Lakowski Aff. Daley responded that a release was "not warranted" and "would not be provided." 3/9/00 Letter from Daley to Lazowski, attached as Ex. 11 to Daley Aff. At this point, Lazowski abandoned his request for a release and "decided to trust Daley to live up to his agreement of a general waiver, based on his clear statement in his correspondence." Lazowski Reply Aff. ¶ 20. Lazowski and Daley ceased any discussion of a release or indemnification, and NetTech began the dissolution process.
By mid-March, NetTech began advising ePark's customers that NetTech no longer had a business arrangement with Control. See Pls. 56.1 ¶ 23. NetTech began servicing ePark's customers. directly and billing them for its services. See id. ¶ 24. On April 28, 2000, Daley sent Lazowski a letter enclosing a copy of the dissolution letter that had been mailed to the Delaware Secretary of State and informed him that ePark was officially dissolved as of that date. See 4/28/00 Letter from Daley to Lazowski, attached as Ex. H to Lazowski Aff.
At a trade show in Florida a few weeks later, NetTech discovered that Lazowski was exhibiting a concept for another parking related product — ZipPark, see Daley Aff. ¶¶ 40, 41, which NetTech alleges infringes upon the Valet 2000. Soon after the trade show, ePark's dissolution papers were returned by the Delaware Secretary of State because of a technical deficiency. See id ¶¶ 42, 43. NetTech decided not to correct the deficiency in the dissolution papers and ePark was never formally dissolved. See id. ¶ 43.
All parties appear to agree that New York law governs plaintiffs' common law claims.
The moving defendants seek summary judgment on four grounds. First, in consideration for BEAC and Control's agreement to dissolve ePark, plaintiffs waived any claims against them for breach of the ePark Agreement. Second, plaintiffs' federal copyright claim preempts their unfair competition claims. Third, plaintiffs' claims are factually baseless. Fourth, plaintiffs' claims against Lazowski in his individual capacity must be dismissed because there are no facts warranting the piercing of the corporate veil. Each argument is addressed below.
Waiver is an affirmative defense. See Fed.R.Civ.P. 8(c). Generally, affirmative defenses are considered to have been waived unless defendants plead them in their answer. See Reforestacion Cafetalera Agro — Industrial S.A. v. Campesino Food Corp., No. 97 Civ. 5553, 1999 WL 4964, at *3 (S.D.N.Y. Jan. 6, 1999). In this case, although the moving defendants did not explicitly plead waiver as a defense, they did assert the related defense of estoppel. Specifically, they asserted that plaintiffs'
action is barred by estoppel, as [p]laintiffs, in consideration for BEAC's agreement to dissolve ePark . . . agreed that they would not "commence legal action against [BEAC or Control] for breach of the ePark, L.L.C. contract/agreement."
Answer of Moving Defendants, Third Affirmative Defense. Plaintiffs were put on notice of a possible waiver defense and fully briefed the waiver issue without objection. The Court will therefore treat the defense as timely raised. See Mooney v. City of New York, 219 F.3d 123, 127 n. 2 (2d Cir. 2000) (holding that the waiver defense had not been waived where plaintiff responded to the defense without objection); Carlisle Ventures, Inc. v. Banco Espanol De Credito, S.A., No. 94 Civ. 5835, 1998 WL 259928, at *23 n. 11 (S.D.N.Y. May 21, 1998), rev'd on other grounds, 176 F.3d 601 (2d Cir. 1999) (stating that because defendant "fully briefed [the waiver] issue in its opposition to the plaintiff's motion for partial summary judgment", the court would treat the defense as timely raised).
A. Waiver
Plaintiffs allege that BEAC and Control breached the provisions set forth in Article III of the ePark Agreement by (1) misappropriating confidential information; (2) collaborating with competitors to develop a competing product to the Valet 2000; and (3) failing to present any software it developed to ePark. See Complaint ("Compl.") ¶¶ 84-86. The moving defendants argue that plaintiffs' correspondence and actions establish plaintiffs' waiver of these claims in consideration for BEAC and Control's agreement to dissolve ePark. Plaintiffs disagree and further argue that, even assuming there was a waiver, it only covered claims for breaches concerning BEAC and Control's failure to market, sell, support and service the Valet 2000 — claims not asserted in this action.
1. Standard
"A waiver is an intentional abandonment or relinquishment of a known right or advantage which, but for such waiver, the party would have enjoyed." Alsens Am. Portland Cement Works v. Degnon Contracting Co., 222 N.Y. 34, 37 (1917); see also Voest-Alpine Int'l Corp. v. Chase Manhattan Bank. N.A., 707 F.2d 680, 685 (2d Cir. 1983). Waiver is "essentially a matter of intention", see Alsens, 222 N.Y. at 37, and is thus most commonly "proved through declarations, acts and nonfeasance which permit different inferences to be drawn and 'do not directly, unmistakably or unequivocally establish it.'" Voest-Alpine, 707 F.2d at 685 (quoting Alsens, 222 N.Y. at 37). In these instances the trier of fact must determine intent. See Alsens, 22 N.Y. at 37; see also In re Caldor, Inc., 217 B.R. 121, 133 (Bankr. S.D.N.Y. 1998) (waiver is "generally ill-suited for summary adjudication"); Edrei v. Copenhagen Handelsbank A/S, No. 90 Civ. 1860, 1991 WL 64201, at *11 (S.D.N.Y. Apr. 19, 1991) ("It is long established that, under New York law, the question of waiver is one of fact."). Occasionally, a waiver may be established as a matter of law by the express declaration of a party or in situations "where the party's undisputed acts or language are "so inconsistent with his purpose to stand upon his rights as to leave no opportunity for a reasonable inference to the contrary.'" Voest-Alpine, 707 F.2d at 685 (quoting Alsens, 222 N.Y. at 37)
2. Analysis
While the correspondence clearly shows that the plaintiffs, in an effort to dissolve ePark, relieved BEAC and Control from any obligations and liability associated with the marketing, selling, service and support for the Valet 2000, nowhere in the correspondence is there an express agreement releasing them from their duty to keep information relating to the Valet 2000 confidential, or their duty to refrain from developing a competing product during the life of the ePark Agreement. In response to Daley's February 28 and March 7 letters and throughout the course of the correspondence, Lazowski, on behalf of BEAC and Control, continuously insisted on the execution of a general release and indemnification prior to the dissolution of ePark. Each time Daley refused to provide these documents. The final request for a release came in a letter dated March 8, 2000, in which Lazowski stated
[d]issolution may proceed the moment you [Daley] present us [BEAC and Control] with the executed documents you had promised — although, as I mentioned above, we will insist only on the general release. We leave the indemnification to your own conscience.
3/8/00 Letter, attached as Ex. F to Lazowski Aff. The next day Daley responded by stating that
[t]he words "indemnification" and "release" do not appear in Option 2 of my letter dated February 28, 2000. Your request for these two items [is] not warranted and they will not be provided. This is the last time I will address this issue.
All liability for support ends with the dissolution of ePark. L.L.C. Kindly refrain from further insistence on any type of indemnification and/or release.
With this issue now resolved, we shall proceed with the dissolution.
3/9/00 Letter, attached as Ex. F to Lazowski Aff. (emphasis added). Lazowski did not object to this letter and ePark's dissolution went forward, without either a release or indemnification.
"The acts and language of [a] party must be given . . . their natural and logical effect under the circumstances of [a particular] case."Alsens, 222 N.Y. at 37-38. Further,
where the rights and liabilities of parties depend on contracts, and a variety of transactions and dealings arising therefrom, or where the facts are contradictory and complicated, it is a question for the jury to determine: How far parties have waived any of their legal rights? In all questions of this sort so much depends on the intent with which parties act that it would be impossible for courts to establish any certain rule by which all cases could be governed. They must necessarily be left to the determination of juries, whose peculiar province it is to ascertain the intent of parties as gathered from the various facts and circumstances proved in each particular case. And such we understand to be the doctrine recognized and established by judicial decisions.Id. (quoting Fox v. Harding, 1851 WL 3313, at *4 (Mass. 1851). In drafting the ePark Agreement, NetTech carefully included provisions designed to protect any confidential and proprietary information relating to Valet 2000 and to ensure that Control and BEAC did not help develop a competing product during the life of the ePark Agreement. See ePark Agreement §§ 3.1-3.3, 3.5. Daley continuously rejected Lazowski's requests for a release and indemnification and repeatedly referred to ending BEAC and Control's "liability for support" in return for their agreement to dissolve ePark. Although Daley stated that NetTech would not commence legal action for breach of contract against BEAC and Control if there was an agreement to dissolve ePark, in light of the surrounding circumstances, this statement is subject to differing inferences and does not unequivocally establish plaintiffs' intentional relinquishment of their right to seek relief for defendants' alleged violations of the provisions set forth in Article III of the ePark Agreement.
In addition, "without evidence to the contrary, [a] waiver must be interpreted to encompass only those future claims the parties could have reasonably expected might be brought against each other at the time it was agreed upon." In re Seaman Furniture Co., Inc. v. Seaman Mitchell Assocs., No. 96 Civ. 4268, 1996 WL 741604, at *5 (S.D.N.Y. Dec. 27, 1996). According to Daley, at the time NetTech agreed not to bring claims against BEAC and Control for violations of the ePark Agreement, NetTech
had no knowledge that [the moving] Defendants were in the process of misappropriating trade secrets, designing a competing product, having discussions with [Federal] for the distribution and sale of the competing product, and otherwise directly violating the restrictive covenants of the ePark Agreement.
Had Plaintiffs known of Defendants' activities, Plaintiffs would not have agreed to dissolve ePark and would have brought an action for violating the e[Park] Agreement[.]
Daley Aff. ¶¶ 38, 39. Because a question of fact remains regarding plaintiffs' alleged waiver of the contract claims asserted, the motion for summary judgment on grounds of waiver is denied.
B. Preemption of Plaintiffs' Unfair Competition Claims
Plaintiffs' second and third causes of action allege claims of unfair competition. See Compl. ¶¶ 51-77. The moving defendants argue that plaintiffs' claims of unfair competition are preempted by their federal copyright claim and therefore must be dismissed. The moving defendants are partially correct.
Plaintiffs second and third causes of action are labeled "False Designation of Origin and Unfair Competition" and "Unfair Trade Practices — Unfair Competition".
The essence of an unfair competition claim under New York law is that "the defendant misappropriated the fruit of plaintiff's labors and expenditures by obtaining access to plaintiff's business idea either through fraud or deception, or an abuse of a fiduciary or confidential relationship." SGC Communication Res., LLC v. The Seminar Center, Inc., No. 98 Civ. 2724, 2001 WL 274053, at *8 (S.D.N.Y. Mar. 20, 2001) (quotation marks omitted). The law of unfair competition is "broad and encompasses claims involving the misappropriation of a plaintiff's creative efforts as well as claims for false designation of origin."Twentieth Century Fox Film Corp. v. Marvel Enters., Inc., Nos. 01 Civ. 3016, 01 Civ. 3017, 2001 WL 901242, at *16 (S.D.N.Y. Aug. 9, 2001)
The federal copyright laws preempt state law claims of unfair competition if the claims are based on the copying of a plaintiff's protected expression. See Kregos v. Assoc. Press, 3 F.3d 656, 666 (2d Cir. 1993); Warner Bros. Inc. v. Am. Broad. Cos., Inc., 720 F.2d 231, 246 (2d Cir. 1986); Davis v. Troler, No. 99 Civ. 11056, 2001 WL 829872, at *3 (S.D.N.Y. July 20, 2001). However, unfair competition claims that allege a false. designation of origin or confusion as to source are not preempted because these claims require actual confusion — an "extra element" beyond what is needed to prove a federal copyright violation.See Samara Bros., Inc. v. Wal-Mart Stores, 165 F.3d 120, 131-32 (2d Cir.), rev'd on other grounds, 529 U.S. 205 (2000); see also Twentieth Century Fox, 2001 WL 901242, at *16 (noting that claims of false designation of origin do not assert rights equivalent to those protected by copyright and generally are not preempted); Lone Wolf McQuade Assocs. v. CBS Inc., 961 F. Supp. 587, 598-99 (S.D.N.Y. 1997) (same).
Plaintiffs have alleged an unfair competition claim based on false designation of origin or confusion as to source. See Compl. ¶ 60 ("Defendants' sales, advertising, and marketing campaign caused, and continue to cause, a likelihood of confusion as to the source of the product Defendants sell."), and ¶ 63 ("Defendants' product is clearly calculated to deceive and mislead the purchasers and consumers of plaintiffs' product and actually has deceived and mislead [sic] and continues to deceive and mislead consumers and causes them to buy Defendants' product."). Thus, plaintiffs' claim of unfair competition based on false designation of origin or confusion as to source is not preempted. However, to the extent that plaintiffs' unfair competition claim is based on the copying of Valet 2000, such claim is preempted and therefore dismissed.
C. The Underlying Facts Supporting Plaintiffs' Claims
The moving defendants also argue that plaintiffs' claims premised on the copying of Valet 2000 software and misappropriation of confidential information and trade secrets must fail because they lack a factual basis. Specifically, the moving defendants assert that according to the March 1, 2001 Affidavit of NetTech's computer programmer, Miguel Gonzalez, (1) NetTech developed Valet 2000 software based on specifications and design parameters provided by Lazowski and Control,see 3/1/01 Affidavit of Miguel Gonzalez, attached as Ex. A to Knapp Aff., ¶ 5; (2) no one outside NetTech had access to the Valet 2000 source code, see id. ¶¶ 6, 9, 10; (3) the Valet 2000's source code is impossible to reverse engineer, see id. ¶ 7; and the demonstration program provided to Lazowksi could not be accessed because it contained an encryption key. See id. ¶ 10.
Plaintiffs, in turn, assert that pursuant to Rule 56(f) of the Federal Rules of Civil Procedure, they are entitled to further discovery in order to respond fully to the moving defendants' motion and to prove their claims. In addition, plaintiffs direct the Court's attention to a second affidavit of Miguel Gonzalez, in which he contradicts his previous affidavit and states that (1) although the source code was never provided. to Lazowski, a-fully functional Valet 2000 was provided to Lazowski who had the ability to "copy the executable version of the software, determine the functionality of the software, and otherwise create a product that is based on the Valet 2000 program", see 4/1/01 Affidavit of Miguel Gonzalez, attached as Ex. B to Affirmation of Eric Lee, counsel for the plaintiffs ("Lee Aff. I"), ¶¶ 6-8; (2) Valet 2000 could be recreated by Lazowski through the use of different programming languages utilizing the processes created for the product, see id. ¶ 11; and (3) the ZipPark software appears to function in the same manner as the Valet 2000 and is clearly designed to compete directly with the Valet 2000 in the marketplace. See id. ¶¶ 14, 16.
It is well-settled that "a party may not . . . create a material issue of fact by submitting an affidavit disputing his own prior sworn testimony." Trans-Orient Marine Corp. v. Star Trading Marine Inc., 925 F.2d 566, 572 (2d Cir. 1991). Indeed, "if a party . . . could raise an issue of fact simply by submitting an affidavit contradicting his own prior testimony, this would greatly diminish the utility of summary judgment as a procedure for screening out sham issues of fact." Perma Research and Dev. Co. v. Singer Co., 410 F.2d 572, 578 (2d Cir. 1969). Thus, Gonzalez's second affidavit, by itself, cannot be used to create a genuine issue of material fact. However, plaintiffs credibly assert that additional discovery may be necessary to prove their claims.
To withstand a motion for summary judgment on the grounds that additional discovery is necessary, the party opposing summary judgment "must submit an affidavit showing (1) what facts are sought [to resist the motion] and how they are to be obtained, (2) how those facts are reasonably expected to create a genuine issue of material fact, (3) what effort the affiant has made to obtain them, and (4) why the affiant was unsuccessful in those efforts." Gurary v. Winehouse, 190 F.3d 37, 43 (2d Cir. 1999) (quotation marks omitted); see also John Street Leasehold v. Capital Mgmt. Res., No. 98 Civ. 1965, 2001 WL 310629, at *19 (S.D.N.Y. Mar. 29, 2001). Plaintiffs' counsel, Eric Lee, has submitted an affidavit satisfying these requirements. See Affidavit of Eric Lee ("Lee Aff. II"), attached as Ex. B to Lee Aff. I.
Plaintiffs assert that they have been repeatedly denied discovery by the moving defendants and are entitled to:
(a) communications between the moving defendants and Federal relating to ZipPark. com;
(b) communications between the moving defendants and Advanced Technical Support, Inc. ("ATS") (a software company involved in the creation of the ZipPark product) relating to ZipPark.com and its product;
(c) invoices, purchase orders, and other documents relating to services provided by ATS to moving defendants relating to the ZipPark.com product;
(d) all software programs being created and offered for sale by the moving defendants;
(e) all documents relating to manuals, marketing and promotional materials concerning the ZipPark.com product;
(f) agreements on contracts between moving defendants and ATS;
(g) all information relating to potential customers or clients obtained by the moving defendants at the trade show in Florida;
(h) all documents and information utilized by the moving defendants to market, sell or promote the ZipPark.com products;
(i) documents reflecting the names of all employees of the moving defendants;
(j) all documents relating to the advertising of the ZipPark.com products; and
(k) information relating to when the ZipPark.com name was purchased and when ZipPark.com was incorporated or established.See Lee Aff. II ¶ 18. Plaintiffs assert that all of this information is relevant to proving that the moving defendants misappropriated confidential and proprietary information relating to Valet 2000 and helped develop a competing product. See id. ¶ 19. Plaintiffs also assert that Magistrate Judge Kevin Fox ordered much of this information to be produced, however, there is no written Order or transcript citation memorializing the purported discovery Order. As such, the parties are directed to contact Magistrate Judge Fox and schedule a conference to address any remaining discovery disputes and determine what discovery, if any, plaintiffs are entitled to receive from defendants.
On July 18, 2001, this Court referred the parties to Magistrate Judge Fox for resolution of their discovery disputes.
In turn, the moving defendants have requested (1) a stay of all discovery pending the resolution of this motion and the copyright issues; and (2) an order requiring plaintiffs to divulge the extent of their pre-filing factual inquiry under Rule 11. Both of these requests are denied.
Moreover, the issue at the heart of this action is whether defendants have infringed the copyright of Valet 2000. Because the Special Master's determination as to the infringement issue will necessarily address issues associated with plaintiffs' contract claims, it is prudent to refrain from deciding the sufficiency of plaintiffs' claims until the Court receives the Special Master's report.
D. The Claims Against Lazowski in his Individual Capacity
The moving defendants further argue that plaintiffs' claims against Lazowski in his individual capacity must be dismissed. Plaintiffs assert that numerous factual issues exist regarding the relationship between Lazowski, BEAC, Control and ZipPark.com that preclude the dismissal of these claims.
1. The Contract Claims
Under New York law, the corporate veil may be pierced if a corporation is essentially an alter ego of a family or individual. See Statharos v. New York City, Taxi Limousine Comm'n, 198 F.3d 317, 324 (2d Cir. 1999). In order to pierce the corporate veil on a claim for breach of contract, a plaintiff must show (1) the complete domination of the corporation with respect to the transaction at issue, and (2) that such domination was used to commit a fraud or wrong against the aggrieved party. See Carv Oil v. MG Refining and Mktg., Inc., 90 F. Supp.2d 401, 415 (S.D.N.Y. 2000)
The facts suggest that Lazowski exercised complete dominion and control over all matters concerning BEAC. Lazowski testified that BEAC is a limited liability company "set up as an investment vehicle for profits [derived] from ePark." Lazowski Dep. at 9. BEAC's sole purpose is to make investments and its limited liability members include Lazowski, his wife, and his two daughters. See id. at 9-10. BEAC has no employees and is currently involved in no financial investments or businesses other than its business with ePark. See id.
Furthermore, all of NetTech's dealings with BEAC were through Lazowski. If BEAC did breach the ePark Agreement by misappropriating confidential and proprietary information relating to Valet 2000 and helping develop a competing product, there can be little doubt that Lazowski used his control over BEAC to commit such wrongdoing. Accordingly, the moving defendants' motion to dismiss the breach of contract claims against Lazowski in his individual capacity is denied.
As a separate matter, the moving defendants also appear to argue that Control, a non-signatory to the ePark Agreement, cannot be held liable for the breach of contract claims asserted in this action. While it is well-settled that generally a contract cannot bind a non-signatory, a contract can bind a non-signatory where it was signed by the non-signatory's agent, or assigned to the non-signatory, or where the party who signed the contract is the "alter ego" of the non-signatory. See Global Entm't, Inc. v. New York Tel. Co., No. 00 Civ. 2959, 2000 WL 1672327, at *7 (S.D.N.Y. Nov. 6, 2000).
The facts clearly suggest that Control may be held liable under the ePark Agreement. As noted above, BEAC was merely an investment vehicle. As such, it could not comply with its obligations under the ePark Agreement. Thus, on the same day the ePark Agreement was executed, BEAC simultaneously entered into the Service Agreement with Control. Control (founded by Lazowski — the sole shareholder) has no officers or board of directors. The Service Agreement was signed on behalf of BEAC and Control by Lazowski — who signed his name twice, see Service Agreement at 6, pursuant to which Control was to act as BEAC's "marketing and sales agent and service call provider for the software and the Product for all service related items regarding BEAC's interest in the venture with NetTech Solutions, L.L.C., (the "ePark venture') . . . ."Id. at 1. Control is mentioned throughout the ePark Agreement and is in fact expressly referred to as being bound by the provisions of Article III. Indeed, all of the work under the ePark Agreement was performed by NetTech and Control and if Control is held not to be bound by the confidentiality and non-compete provisions these provisions would be meaningless.
2. The Copyright and Unfair Competition Claims
A plaintiff may pierce the corporate veil in an action for copyright infringement and unfair competition where it is established that the corporate officer is a "moving, active conscious force behind [the defendant corporation's] infringement." Monsanto Co. v. Haskel Trading, Inc., 13 F. Supp.2d 349, 354 (E.D.N.Y. 1998) (quotation marks and citation omitted); see also Mattel, Inc. v. Robarb's. Inc., No. 00 Civ. 4866, 2001 WL 913894, at *8 (S.D.N.Y. Aug. 14, 2001)
Lazowski is a corporate officer of BEAC, Control, and ZipPark.com. See Lazowski Aff. ¶ 1. Although the issue of whether the ZipPark product infringes upon the rights associated with the Valet 2000 will not be decided on this motion, assuming that there was infringement, plaintiffs have presented sufficient facts demonstrating that Lazowski was the moving force behind such infringement. All of NetTech's dealings with BEAC and Control were through Lazowski and Lazowski was the primary actor in the development of ZipPark. As such, the moving defendants' motion to dismiss the claims of copyright infringement and unfair competition against Lazowski in his individual capacity is denied.
IV. CONCLUSION
For the foregoing reasons, the moving defendants' motion for summary judgment with respect to the contract claims and to the claims asserted against Lazowski in his individual capacity is denied. In addition, plaintiffs' unfair competition claim based on false designation of origin or confusion as to source is not preempted by their federal copyright claim. However, to the extent that plaintiffs' claim for unfair competition is based on the copying of Valet 2000, this claim is preempted and therefore dismissed.
The parties are directed to contact Magistrate Judge Fox within ten (10) days of the date of this Opinion and Order to schedule a conference to address any remaining discovery disputes. The parties are further directed to contact this Court after any such disputes have been resolved.
SO ORDERED: