A. Brod, Inc. v Worldwide Dreams, L.L.C.

[*1] A. Brod, Inc. v Worldwide Dreams, L.L.C. 2004 NY Slip Op 51354(U) Decided on September 30, 2004 Supreme Court, New York County Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on September 30, 2004
Supreme Court, New York County

A. BROD, INC., EILEEN BROD, ELIZABETH BROD PFLAUM and MICHAEL A. BROD, Plaintiffs,

against

WORLDWIDE DREAMS, L.L.C., a/k/a WORLDWIDE DREAMS; ABC Corporations, (1-10); ROGER GIMBEL; GEOFFREY GIMBEL and ALLAN FELDMAN, Defendants.



114130/03

Sherry Klein Heitler, J.

Plaintiffs A. Brod, Inc. (A. Brod), Eileen Brod, Elizabeth Brod Phfaum, and Michael Brod (the Brods) moved for a preliminary injunction seeking to enjoin defendant Worldwide Dreams, L.L.C. (WWD) from using, copying, or altering certain computer software and equipment known as ImageInfo (ImageInfo, or the software) (mot. seq. no. 001). On August 8, 2003, this court granted a TRO restraining WWD from copying or altering the software in any way, and a reference was ordered to determine which of the parties owned or had a superior right to ImageInfo.

On February 5, 2004, Special Referee Nicholas Doyle (Special Referee) rendered a report and recommendation to this court, finding that WWD had the superior right to ImageInfo. Based on this determination, plaintiffs here move for an order rejecting the Special Referee's report (mot. seq. no. 003). Defendants cross-move for an order confirming the report.

The facts as summarized by the Special Referee, and undisputed by the parties, are as follows. A. Brod was involved for many years in the women's accessory business. In March 2002, much of the assets of A. Brod were acquired by WWD, an importer and distributor of ladies' accessories. WWD acquired A. Brod's assets as part of a foreclosure sale, due to A. Brod's failure to pay an outstanding loan to HSBC. After WWD acquired A. Brod, each of the Brods entered into employment agreements with WWD, to run a division of WWD called Accessory Street. The Brods commenced their employment with WWD on April 1, 2002.

Prior to their move to WWD, the Brods obtained a lease from non-party Gramercy Leasing Services (Gramercy), for ImageInfo, to which Gramercy had obtained a license. Eileen Brod and Michael Brod personally guaranteed the lease agreement.

Over several years, prior to joining WWD, Elizabeth Brod Phflaum worked with ImageInfo[FN1] [*2]employees to tailor the software to A. Brod's needs. When the Brods entered WWD's employ they brought the modified computer system with them. However, it is undisputed that the Brods defaulted on their lease agreement with Gramercy before they became employees of WWD.

In June 2002, Gramercy commenced an action against A. Brod, Michael Brod, and Eileen Brod seeking only money damages, based on the lease and the personal guarantees. The action was settled in August 2002, requiring Michael and Eileen Brod to pay the sum of $215,000 to Gramercy. At no time did Gramercy ask that the ImageInfo computer system be returned to it, and, as the Special Referee noted, the settlement agreement does not mention ImageInfo at all, nor was a bill of sale transferring the leased material to the Brods produced. There was, in fact, no evidence that the Brods or Gramercy discussed the software at all, at any time before or after the suit was commenced. And, as the Special Referee noted, no one from Gramercy was called by either side to testify at the hearing.

The Brods argued at the reference that the software was either abandoned by Gramercy, so as to become theirs, either when they joined WWD in April 2002, taking the computer system with them, or in August 2002, when Gramercy settled the action with them without having alleged a cause of action for replevin. Alternatively, the Brods claimed that the computer system had been gifted to them by Gramercy.

WWD argued that either the computer system came to it as part of the purchase of the assets from HSBC, or was acquired by WWD pursuant to the Brod's employment agreements.

The Special Referee rejected WWD's arguments, focusing instead on the concept of the abandonment of the computer system. Based on the evidence before him, the Special Referee determined that Gramercy abandoned the software when it commenced the action against A. Brod and Michael and Eileen Brod in June 2002 without seeking replevin of the computer system.

The Special Referee relied on the case of Foulke v New York Consolidated Railroad Co. (228 NY 269 [1920]) for the rule that "[a]n abandonment of property requires an intention to abandon and actual relinquishment of a known right in property" (Special Referee's Report, Ex. 1 to Notice of Motion, at 8), and that abandoned property becomes the property of the first taker at the time of the abandonment. The Special Referee found that, when Gramercy abandoned ImageInfo, WWD was the first to take the software as its own, because it was in possession of the software at the time of its abandonment, maintained the system, and had integrated the software into its business prior to the time of the abandonment.

The Special Referee specifically found that the Brods were not in possession of the computer system at the time of its abandonment in June 2002, and that Gramercy had never given ImageInfo to the Brods as a gift. The Special Referee further found that by attending meetings at WWD, where it was agreed that ImageInfo would be used in other WWD divisions, Eileen Brod tacitly agreed that the system did not belong to the Brods. He noted that the Brods had never claimed that the software belonged to them prior to their termination. Thus, the Special Referee recommended to the court that WWD had a superior right to the ImageInfo system.

In this motion, plaintiffs reiterate the arguments which they made at the reference. In reply to WWD's cross motion and memorandum of law, the Brods also produce several pieces of evidence in an attempt to eliminate the evidentiary deficits which the Special Referee noted in his report. This evidence includes: an affidavit of Robert J. Fine (Fine), president of Gramercy; a recently executed "amendment" to the settlement agreement of August 2002, in which Gramercy allegedly sells [*3]ImageInfo to the Brods as part of the settlement; and a Bill of Sale dated April 15, 2004, allegedly memorializing, in retrospect, the sale of ImageInfo to the Brods.

The crux of Fine's affidavit is Gramercy's assertion that it did not intend to abandon ImageInfo when it commenced suit against the Brods in June 2002 without suing for replevin as Gramercy could always amend the complaint. This directly contradicts the Special Referee's finding that it was irrelevant that Gramercy could have amended, since it did not choose to do so. Further, it is argued that Gramercy still held the right to ImageInfo, and actually sold the software to the Brods, when it settled the action in August 2002. However, there was a lack of evidence regarding this claim at the hearing.

Under CPLR 4320(a), "[a] referee to report shall conduct the trial in the same manner as a court trying an issue without a jury." However, [u]pon the motion of any party or on his own initiative, the judge required to decide the issue may confirm or reject, in whole or in part, the ... report of a referee to report; may make new findings with or without taking additional testimony; and may order a new trial or hearing.

CPLR 4403. The report is not binding, but is intended "merely to inform the conscience of the court." Matter of Gehr v Board of Education of City of Yonkers, 304 NY 436, 440 (1952) (internal quotes and citation omitted); see also Matter of DeFalco v Doetsch, 208 AD2d 1047, 1050 (3rd Dept 1994). However, "[i]t is well settled that a special referee's findings of fact and credibility will generally not be disturbed where substantially supported by the record." RC 27th Avenue Realty Corporation v New York City Housing Authority, 305 AD2d 135, 135 (1st Dept 2003; see also Vastwin Investments, Ltd. v Aquarius Media Corporation, 295 AD2d 216, 217 (1st Dept 2002).

The Special Referee's findings of fact and conclusions of law in the present case are substantially supported by the record, and so, should be afforded due consideration by this court. Although this court has the discretion to consider the Brods' delinquently proffered "new" evidence regardless of the findings of the Special Referee, see CPLR 4403, it is the Brods who carry the burden of proving that ImageInfo belongs to them. Here, the Brods failed to provide Fine, or another representative of Gramercy, to testify at the hearing of this matter, and so, by submitting an affidavit, have denied WWD the opportunity to cross examine Gramercy's witness. The Brods have not claimed that Fine was unavailable at the time of the hearing. Moreover, Fine's affidavit is clearly tailored to the Special Referee's decision and is, therefore, a construct of dubious value. Similarly, the two ad hoc documents, which the Brods have produced as evidence of the alleged sale of the computer equipment by Gramercy to the Brods, have little credibility. Like Fine's affidavit, they were created recently to refute, point-by-point, the findings of the Special Referee, and are an insufficient substitute for testimony that WWD might have challenged through cross examination before the Special Referee.

In any event, the Fine affidavit does little to alter the conclusions reached by the Special Referee. The Fine affidavit contains the statement that Gramercy did not intend to abandon ImageInfo in June 2002, when Gramercy commenced the action against the Brods without making any attempt to recover the software. According to the case of Foulke v New York Consolidated Railroad (228 NY 269, supra), upon which the Special Referee relied, abandonment of property requires "a virtual throwing away of it." Id. at 273. The Special Referee found that the commencement of the action seeking only money damages, and conspicuously lacking any attempt [*4]to regain the software, constituted an intentional abandonment, regardless of the fact that Gramercy might have been able to change its mind by moving to amend. The fact is that Gramercy did not choose to amend. Moreover, under the Special Referee's analysis, once Gramercy had so abandoned the software, it would not have been in a position to change its mind and sell the software to the Brods, since the initial abandonment operated to divest Gramercy of any ownership rights to the software. Therefore, the recent introduction of the affidavit and the modified settlement agreement, and the creation of a bill of sale, are irrelevant, as the evidence produced at the hearing established that Gramercy had no interest in the software to sell to the Brods in August 2002.

Further, there is no evidence that the Brods obtained ownership of the software upon taking it to WWD in April 2002. No evidence of Gramercy's intentions was produced at the hearing and even Fine's late in time affidavit does not claim that Gramercy abandoned the software at that early date.

In sum, this court holds that the factual findings and conclusions of law reached by the Special Referee should not be disturbed, and that the post-hearing evidence produced by the Brods in response to WWD's cross motion lacks credibility, such that the Special Referee's report should be confirmed.

As a result of this determination, plaintiffs' motion for a preliminary injunction must be denied, and the TRO vacated, because plaintiffs have failed to show a likelihood of success on the merits.

Accordingly, it is

ORDERED that the motion to reject the Special Referee's report dated February 5, 2004 (mot. seq. no. 003) is denied; and it is further

ORDERED that the cross motion to confirm the report is granted; and it is further

ORDERED that the plaintiffs' motion for a preliminary injunction (mot. seq. no. 001) is denied; and it is further

ORDERED that the temporary restraining order presently in place is vacated.

This shall constitute the decision and order of the court.

DATED: September 30, 2004

SHERRY KLEIN HEITLER

J.S.C. Footnotes

Footnote 1:ImageInfo apparently went out of business prior to A. Brod's transfer to WWD, having been sold to an entity called QRS.