Opinion
No. 04 Civ. 9609 (NRB).
September 22, 2005
Alicyn B. Craig, Esq., McCusker, Anselmi, Rosen, Carvelli Walsh, P.C., New York, NY, Counsel for Plaintiff.
Steven R. Paradise, Esq., Vinson Elkins LLP, New York, NY, Counsel for Defendants Staubach Retail Services, Inc. and Presidio Financial Partners, LLC.
Joel W. Sternman, Esq., Katten Muchin Zavis Rosenman, New York, NY, Counsel for Defendants iStar Financial Inc. and Autostar Realty Operating Partnership, L.P.
MEMORANDUM AND ORDER
Christopher Zikakis ("Zikakis" or "plaintiff") brings this diversity action against Staubach Retail Services, Inc. ("SRS"), Presidio Financial Partners, LLC ("Presidio"), iStar Financial Inc. ("iStar") and Autostar Realty Operating Partnership L.P. ("Autostar") (collectively, "defendants") alleging that defendants improperly used plaintiff's novel idea of forming a real estate investment trust comprised of sale-leaseback transactions within the automotive retailing industry. Defendants have moved to dismiss plaintiff's complaint for failure to state a claim under Fed.R.Civ.P. 12(b)(6). For the reasons set forth below, defendants' motion is granted in its entirety.
Staubach is incorporated in Texas and has an office in Manhattan. Zikakis is a resident of Massachusetts.
BACKGROUND
The following facts are drawn from plaintiff's complaint and, as is appropriate on a motion to dismiss under Fed.R.Civ.P. 12(b)(6), are assumed herein to be true.
Zikakis contacted Staubach, a real estate advisory firm that specializes in investment and financing transactions involving commercial properties nationwide, after learning that Staubach had formed a separate company aimed at providing advisory services to automotive manufacturers and dealers. Knowing that Staubach's existing business consisted in part of facilitating "sale-leaseback transactions," Zikakis contacted Staubach and related to it an idea to form a real estate investment trust ("REIT") "comprised of sale-leaseback transactions within the automotive retailing industry." Compl. ¶ 10. According to the complaint, between December 2002 and March 2003, Zikakis and various Staubach representatives engaged in several meetings at which Zikakis "explained in detail his analysis of why the risks and rewards of sale-leaseback transactions within the automotive retailing industry were attractive as compared to those found in other industries." Id. ¶ 11.
On several occasions, Zikakis met with Staubach's president and C.E.O., Christopher Maguire, to further discuss the REIT idea. Following one such meeting in New York City on June 6, 2003, Zikakis sent to Maguire a "detailed memorandum describing the investment rationale for automobile dealership sale-leaseback transactions." Id. ¶ 14.
On June 28, 2003, Maguire sent Zikakis an e-mail stating that Zikakis was "the right person to help lead (Staubach] in this area" and suggesting that Zikakis work with Staubach on a "contract basis" until Staubach raised sufficient capital to fund the business venture that Zikakis had proposed to Maguire. Id. ¶ 15. Allegedly as an inducement to encourage Zikakis to share his ideas further with Staubach, Maguire told Zikakis that it was Staubach's "customary practice" to form independent companies with partners who came to own and operate individual businesses and that Maguire envisioned a similar "partnership" with Zikakis.Id. ¶¶ 16, 17.
After these conversations, Zikakis engaged in further communications with Maguire in which Zikakis indicated that, although he expected eventually to have a stake in the proposed venture, he was amenable to entering into an "interim relationship" on a "contract basis" with Staubach until the business plan "was more fully developed." Id. ¶ 18. After this conversation, Maguire told Zikakis that Staubach would provide Zikakis the "next week" with a "term sheet" that would describe "proposed terms of a business relationship" between Staubach and Zikakis. Id. ¶ 19.
The "term sheet" did not arrive the next week, and when Zikakis inquired about it, he was told that it would be provided the following week. According to the complaint, this "pattern of delays" continued for several weeks thereafter. Id. ¶ 19. In the meantime, however, on July 17, 2003, Zikakis introduced Maguire to Barclay Jones, who was affiliated with iStar, a potential source of capital for the proposed venture.
Subsequent to the meeting with Jones, Maguire allegedly continued to "promise" Zikakis that a proposed contract was forthcoming. Id. ¶ 19. Zikakis, at Maguire's request, then called an individual named Brodie Cobb, a managing director at Presidio, a potential future partner. During that conversation, Cobb questioned Zikakis about Zikakis's "transactional experience" and then concluded the call. After the call, Zikakis never heard again from Maguire or Cobb, despite his repeated attempts to contact them.
II. The Formation of Autostar
Several months later, Zikakis learned that Staubach, iStar and Presidio had formed Autostar, a REIT "comprised of sale-leaseback transactions within the automobile retailing industry." Id. ¶ 27. The complaint alleges that a July 23, 2004 press release describing the formation of Autostar "parrot[ed] Zikakis' business proposal from June 2003." Id. ¶ 28.
III. Plaintiff's Complaint
On December 7, 2004, plaintiff filed his complaint in this action, asserting seven claims. Claim One alleges that defendants misappropriated plaintiff's idea of forming a REIT comprised of sale-leaseback transactions within the automotive retailing industry. Claim Two alleges that Presidio tortiously interfered with Zikakis's prospective economic gain by "discredit[ing] Zikakis's experience and reputation, and engag[ing] in acts designed to exclude Zikakis from any future business relationship with Staubach." Id. ¶ 25. Claims Three through Five assert that defendants are liable to Zikakis as a result of the conduct described above on theories, respectively, of quantum meruit, promissory estoppel and unjust enrichment. Claims Six and Seven are demands for equitable relief via accounting and constructive trust.
Defendants have moved to dismiss the complaint in its entirety on the ground that plaintiff has failed to state a claim upon which relief can be granted. For the reasons discussed below, we agree.
DISCUSSION
In considering a motion to dismiss, the Court must accept as true all material factual allegations in the complaint. Levy ex rel. Immunogen Inc. v. Southbrook Int'l Invs., Ltd., 263 F.3d 10, 14 (2d Cir. 2001). However, "[c]onclusory allegations or legal conclusions masquerading as factual conclusions will not suffice to prevent a motion to dismiss." Smith v. Local 819 I.B.T. Pension Plan, 291 F.3d 236, 240 (2d Cir. 2002) (quotingGebhardt v. Allspect, Inc., 96 F. Supp. 2d 331, 333 (S.D.N.Y. 2000)). A motion to dismiss may be granted only where "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Still v. DeBuono, 101 F.3d 888, 891 (2d Cir. 1996) (quoting Conley v. Gibson, 355 U.S. 41, 45-46 (1957)).
The parties agree that in this diversity action we must apply New York substantive law in examining the sufficiency of plaintiff's allegations. We examine plaintiff's misappropriation claim first.
I. Misappropriation
As the parties acknowledge, to state a claim under New York law for misappropriation of an idea, plaintiff must satisfy two elements. First, plaintiff must establish that the idea disclosed is novel. Second, plaintiff must establish that a legal relationship existed between the parties. See generally McGhan v. Ebersol, 608 F. Supp. 277, 284 (S.D.N.Y. 1985); Oasis Music, Inc. v. 900 U.S.A., Inc., 161 Misc. 2d 627, 631, 614 N.Y.S.2d 878, 881 (Sup.Ct. N.Y. Co. 1994). The complaint does not allege either of these required elements.
A. Novelty
Novelty of an idea is an essential element of the New York tort of misappropriation. Without it, the idea is not protectable as property. See, e.g., Downey v. General Foods Corp., 31 N.Y.2d 56, 61, 334 N.Y.S.2d 874, 877 (1972) ("[W]hen one submits an idea to another, no promise to pay for its use may be implied, and no asserted agreement enforced, if the elements of novelty and originality are absent, since the property right in an idea is based upon these two elements."). To determine whether an idea is novel, a court must consider what was already in the public domain at the time the idea was disclosed to the alleged misappropriator. A protectable idea must reflect "genuine . . . invention, and not a merely clever or useful adaptation of existing knowledge." Educational Sales Programs, Inc. v. Dreyfus Corp., 65 Misc. 2d 412, 416, 317 N.Y.S.2d 840, 844 (Sup.Ct. N.Y. Co. 1970) (citation omitted). An idea that is merely "a variation on a basic theme" available in the public domain is not novel. Oasis Music, Inc., 161 Misc. 2d at 631-32, 614 N.Y.S.2d at 882; see also Marraccini v. Bertelsmann Music Group Inc., 221 A.D.2d 95, 98, 644 N.Y.S.2d 875, 877 (3d Dep't 1996) (holding that idea that is a "creative variation on [an already public] theme" is not subject to the tort of misappropriation);Educational Sales Programs, Inc., 65 Misc. 2d at 416, 317 N.Y.S.2d at 844 ("Improvement of standard technique or quality, the judicious use of existing means, or the mixture of known ingredients in somewhat different proportions — all the variations on a basic theme — partake more of the nature of elaboration and renovation than of innovation.").
The complaint does not allege a novel idea in this case. By the terms of the complaint itself, plaintiff's idea — to "form a real estate investment trust . . . comprised of sale-leaseback transactions within the automotive retailing industry," Compl. ¶ 10 — is simply a variation on a theme that already existed, not only in the public domain, but in Staubach's business itself. Indeed, the complaint alleges that before plaintiff disclosed his idea to Staubach, he had learned that: (i) Staubach had "formed a company to serve the needs of automotive manufacturers and dealers;" and (ii) Staubach already "had a division that facilitated sale-leaseback transactions." Compl. ¶ 10. The complaint further acknowledges that sale-leaseback transactions were "found in other industries" at the time plaintiff's idea was disclosed. Id. ¶ 11. Thus, the complaint concedes that the type of transaction (sale-leasebacks) and the customer base (automotive manufacturers and dealers) were already well known to Staubach. The only conceivable new element in plaintiff's idea was to offer the transactions to a set of customers — automotive retailers — to whom Staubach apparently did not yet offer them. Clearly, this is a "variation on a basic theme." Oasis Music, Inc., 161 Misc. 2d at 631-32, 614 N.Y.S.2d at 882.
Novelty is appropriately considered at this stage. See Sharp v. Patterson, 03 Civ. 8772, 2004 WL 2480426, at *9 (S.D.N.Y. Nov. 3, 2004) (considering issue of novelty in motion to dismiss and noting that "[i]n some cases an idea may be so unoriginal or lacking in novelty that . . . a court may conclude, as a matter of law, that the idea lacks . . . the originality necessary to support a misappropriation claim." (quoting Nadel v. Play-By-Play Toys Novelties, Inc., 208 F.3d 368, 378-79 (2d Cir. 2000)).
Any contract-based claim would also fail because plaintiff has failed to allege that his idea was novel to the defendants.See Nadel, 208 F.3d at 376.
B. Legal Relationship
Plaintiff also fails to establish that a "legal relationship" existed between the parties. See McGhan, 608 F. Supp. at 284. "The legal relationship between the plaintiff and defendant may be either a fiduciary relationship, or based on an express contract, an implied-in-fact contract, or a quasi-contract."Id., at 284 (citation omitted). Plaintiff has not alleged any basis for concluding that any of these existed here.
Plaintiff cites two cases in support of his argument that there was a legal relationship, but the "industry custom,"Nadel, 208 F.3d at 372, and "unequal bargaining grounds,"Stewart v. World Wrestling Federation Entertainment, Inc., 03 Civ. 2468, 2005 WL 66890, at *4 (S.D.N.Y. Jan. 11, 2005), cited in those cases is simply not alleged here.
Rather, plaintiff alleges facts which suggest that though a relationship between the parties may at one time have been contemplated, none was ever formed. As the complaint alleges, Staubach suggested that plaintiff join it "on a contract basis," and promised to provide "within the `next week' a `term sheet' that would describe the proposed terms of a business relationship." Compl. ¶¶ 15, 19. However, the "draft contract" which would define any such relationship never arrived. Compl. ¶ 20.
II. Tortious Interference
In order to state a claim under New York law for tortious interference with prospective economic advantage, "plaintiffs must prove that: (i) they had a business relationship with a third party; (ii) defendants knew of that relationship and intentionally interfered with it; (iii) defendants either acted solely out of malice or used wrongful means; and (iv) defendants' interference caused injury to the relationship with the third-party." Kirch v. Liberty Media Corp., 04 Civ. 667, 2004 WL 2181383, at *8 (S.D.N.Y. Sept. 27, 2004) (citations omitted). A plaintiff also must allege that he "would have entered into an economic relationship but for the defendant's wrongful conduct."Knight-McConnell v. Cummins, 03 Civ. 5035, 2004 WL 1713824, at *4 (S.D.N.Y. July 29, 2004) (quoting Vigoda v. DCA Prods. Plus Inc., 293 A.D.2d 265, 266-67, 741 N.Y.S.2d 20, 23 (1st Dep't 2002)). At issue here is whether plaintiff has sufficiently pleaded that Presidio acted out of malice or used wrongful means and that plaintiff would have entered into an economic relationship with Staubach but for Presidio's wrongful conduct.
Plaintiff asserts that the complaint pleads both malice and wrongful means when it alleges that "Presidio discredited Zikakis's experience and reputation to Staubach" and also that Presidio "engaged in acts designed to exclude Zikakis from any future business relationship with Staubach based upon the idea, concept and plan for a business venture based on packaging as a REIT or otherwise sale-leaseback transactions within the automotive retailing industry." Compl. ¶ 25. We disagree.
A. Malice
The requirement for malice is satisfied "where a defendant engages in conduct for the sole purpose of inflicting intentional harm on plaintiffs." Carvel Corp. v. Noonan, 3 N.Y.3d 182, 190, 785 N.Y.S.2d 359, 362 (2004) (quotations and citation omitted);Catskill Development, LLC v. Park Place Entm't Corp., 345 F. Supp. 2d 360, 363 (S.D.N.Y. 2004).
According to the complaint, the alleged exclusion by Presidio occurred after plaintiff had spoken with Cobb, who questioned him about his "transactional experience." The complaint offers no facts which suggest that Presidio acted "solely out of malice."Kirch, 2004 WL 2181383, at *9 (quoting Guard-Life Corp. v. S. Parker Hardware Manuf. Corp., 50 N.Y.2d 183, 190-91, 428 N.Y.S.2d 628, 632-33 (1980)). If anything, they suggest the opposite. Plaintiff was questioned by a potential partner about his experience in an area inherently related to the future business. These facts suggest that Presidio was acting in its own, "economic self-interest." Carvel Corp., 3 N.Y.3d at 190, 785 N.Y.S.2d at 363.
B. Wrongful Means
The Court of Appeals of New York has held that "[w]rongful means include physical violence, fraud or misrepresentation, civil suits and criminal prosecutions, and some degrees of economic pressure; they do not, however, include persuasion alone although it is knowingly directed at interference with the contract." Carvel Corp., 3 N.Y.3d at 191, 785 N.Y.S.2d at 363 (quotations and citations omitted). "[A]s a general rule, the defendant's conduct must amount to a crime or an independent tort. Conduct that is not criminal or tortious will generally be `lawful' and thus insufficiently `culpable' to create liability for interference with prospective contracts or other nonbinding economic relations." Id., at 190. For economic pressure to be wrongful it must be "extreme and unfair." Id., at 192-93; see also Treppel v. Biovail Corp., 03 Civ. 3002, 2005 WL 427538, at *9 (S.D.N.Y. Feb. 22, 2005).
The New York Court of Appeals has held that the logic of these holdings applies even where parties are not competitors. Though there may be a stronger argument that a defendant's interference was motivated by spite where the parties are not competitors, such an inference would not be supported in this case because the allegations in the complaint suggest that Presidio's actions were "motivated by legitimate economic self-interest." Carvel Corp., 3 N.Y.3d at 191, 785 N.Y.S.2d at 363.
The complaint does not allege that Presidio used false statements or misrepresentations to discredit or exclude plaintiff. Nor does the complaint allege that Presidio employed any kind of economic pressure. In short, there is no basis from which to conclude that Presidio employed wrongful means.
Nor do we believe that the conduct alleged here was so "egregious" as to trigger any other potential exception which might support a tortious interference claim. See Carvel Corp., 3 N.Y.3d at 189-90, 785 N.Y.S.2d at 361-62.
C. But For Test
Because plaintiff has not alleged malice or wrongful means, his claim of tortious interference with prospective economic advantage fails. It should also be noted that plaintiff alleges no facts which would suggest that he would have entered into an economic relationship with Staubach but for Presidio's conduct. If anything, the facts alleged in the complaint support exactly the opposite inference. Even before Presidio's alleged conduct, Staubach had already engaged in a "pattern of delays" in providing plaintiff with a term sheet. Compl. ¶ 19. Plaintiff's claim for tortious interference with prospective economic advantage therefore fails for this reason as well. III. Quantum Meruit and Unjust Enrichment
As an initial matter, Claims Three, Four and Five are dismissed as to Presidio, iStar and Autostar, as none of these defendants is alleged to have participated in the discussions involving plaintiff's disclosure of the idea. Therefore, the following discussion focuses on defendant Staubach.
Plaintiff asserts that Claims Three, Four and Five "are, in essence, contract-based claims." Opp. at 12. This assertion is belied by the fact that these claims are premised on the very absence of a contract. Even if this were not the case, however, as discussed in Part I.A. above, plaintiff fails to allege novelty to defendants, which is necessary to sustain any contract-based claims.
For purposes of this discussion, we treat plaintiff's quantum meruit and unjust enrichment claims as a single quasi-contract claim. See Mid-Hudson Catskill Rural Migrant Ministry, Inc. v. Fine Host Corp., 418 F.3d 168, 175 (2d Cir. 2005); see also Seiden Assocs., Inc. v. ANC Holdings, Inc., 768 F. Supp. 89, 96 (S.D.N.Y. 1991) ("[U]njust enrichment is a required element for an implied-in-law, or quasi contract, and quantum meruit, meaning `as much as he deserves,' is one measure of liability for the breach of such a contract."), rev'd on other grounds, 959 F.2d 425 (2d Cir. 1992). In order to successfully state his quantum meruit claim, then, plaintiff must show that Staubach was unjustly enriched. See Fercus, S.R.L. v. Palazzo, 98 Civ. 7728, 2000 WL 1118925, at *5 (S.D.N.Y. Aug. 8, 2000). The parties agree that in order "[t]o state a claim for unjust enrichment in New York, a plaintiff must allege that (1) defendant was enriched; (2) the enrichment was at plaintiff's expense; and (3) the circumstances were such that equity and good conscience require defendants to make restitution." Astor Holdings, Inc. v. Roski, 01 Civ. 1905, 2002 WL 72936, at *17 (S.D.N.Y. Jan. 17, 2002).
In view of the lack of novelty discussed above, the circumstances are not such that Staubach should be required to make restitution. See Cunningham v. Merchant-Sterling Corp., 155 Misc. 2d 226, 228-29, 587 N.Y.S.2d 492, 494, (Sup.Ct. N.Y. Co. 1991) (noting that "the submission of an idea to someone else who acts on it does not imply any promise to pay for the use of an idea giving rise to a right of restitution if the elements of originality and novelty of the idea are absent") (citingDowney, 31 N.Y.2d 56, 334 N.Y.S.2d 874). Plaintiff therefore fails to state a claim for unjust enrichment.
IV. Promissory Estoppel
The parties agree that in order to establish a claim for promissory estoppel, plaintiff must allege: "1) a clear and unambiguous promise; 2) reasonable and foreseeable reliance on that promise; and 3) injury to the relying party as a result of the reliance." Sharp v. Patterson, 03 Civ. 8772, 2004 WL 2480426, at *11 (S.D.N.Y. Nov. 3, 2004). Here, the complaint does not allege that Staubach made a clear and unambiguous promise to plaintiff. Rather, the facts alleged make clear that plaintiff shared his ideas with Staubach prior to any communication regarding potential future compensation. In addition, plaintiff waited in vain for a "term sheet" which would describe the terms of any business relationship between the parties. The discussions that surrounded this alleged term sheet were too vague to support a claim for promissory estoppel. See id. at *4. Therefore, plaintiff's claim for promissory estoppel fails.
V. Accounting and Constructive Trust
Plaintiff acknowledges that Claims Six and Seven, for accounting and constructive trust, respectively, are claims for relief that should be imposed only if liability is found under Claims One through Five. Because plaintiff fails to state his substantive claims, Claims Six and Seven are also dismissed.
CONCLUSION
For the reasons set forth above, defendants' motion to dismiss is granted in its entirety, and all claims against defendants are dismissed.IT IS SO ORDERED.