Woodie v Azteca Intl. Corp.

[*1] Woodie v Azteca Intl. Corp. 2005 NY Slip Op 51401(U) [9 Misc 3d 1104(A)] Decided on July 1, 2005 Supreme Court, New York County Kornreich, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. As corrected in part through May 17, 2010; it will not be published in the printed Official Reports.

Decided on July 1, 2005
Supreme Court, New York County

Phillip R. Woodie, Plaintiff,

against

Azteca International Corporation, d/b/a AZTECA AMERICA; LUIS J. ECHARTE, Individually and as CEO of AZTECA AMERICA; JORGE JAIDAR, individually and as Chief Operating Officer, AZTECA AMERICA; TV ASTECA, S.A. de C..; MARIO SAN ROMAN, COO of TV AZTECA, S.A. de C.., Defendants.



603582/04

Shirley Werner Kornreich, J.

This is an action to recover for alleged fraud, misappropriation, and violations of the New York State Human Rights Law,[FN1] in connection with the termination of an employment relationship. Plaintiff's complaint alleges that he, a veteran of the television broadcast industry for over twenty years, was hired by defendant Azteca International Corporation ("Azteca International") on May 15, 2002, to be its president of sales and marketing. Thereafter, on October 31, 2003, plaintiff allegedly was fired because of his race ("white") and national origin ("American"), and replaced by "a Mexican, Carlos de la Garza, as part of an unlawful scheme... ." Cmplt, para. 3.

Procedural History

Plaintiff's initial complaint was served on defendants Azteca International and Jorge Jaidar on December 7, 2004.[FN2] On December 27, 2004, plaintiff discontinued the defamation and libel causes of action asserted in the complaint. Azteca International and Jaidar ("Moving Defendants") moved to dismiss the initial complaint on January 18, 2005. Moving Defendants [*2]submitted the affirmation of their attorney, a copy of the complaint and a memorandum of law. In opposition, plaintiff submitted a memorandum of law, and Moving Defendants replied.

On March 10, 2005, plaintiff served a Verified Amended Complaint, making further factual allegations, and adding as a defendant Mario San Roman, COO of defendant TV Azteca, S.A. de C.V. ("Azteca TV").[FN3] Moving Defendants served a supplemental affirmation, dated March 23, 2005, responding to the amended complaint. Plaintiff made no further submission.

The Court will now consider Moving Defendants' motion to dismiss the following causes of action in the Verified Amended Complaint: Third (Conversion); Fifth and Sixth (Misappropriation of Trade Secrets and Conversion); and Seventh (Fraud in the Inducement).[FN4]

The Verified Amended Complaint

In his Verified Amended Complaint, plaintiff alleges that he is a veteran of the broadcast television industry, having been employed for over twenty years by major various television broadcasters in the "selling and marketing of advertising time." His employers included Cox Communications, ABC-TV and Univision Television Network, "the leading Spanish language network in the United States," where he worked between 1996 and 2000, ultimately as Senior Vice President of National Sales. As a result of his work experience, plaintiff developed a "proprietary compilation" of approximately 2,400 "names of ad agencies and their clients," who had advertised on "Hispanic television," or had "an interest in placing such advertising."

Azteca International is a wholly owned subsidiary of co-defendant Azteca TV, a Mexican corporation. Azteca International operates the "Azteca America Network," a "Spanish language television broadcast network focused on the Hispanic market in the United States." In February 2002, defendant Luis J. Echarte "recruited and courted" plaintiff to be Azteca International's first president of sales and marketing. At the time, Azteca International was in a "nascent state." It had little sales or marketing infrastructure in the U.S., and was controlled primarily from Azteca TV's Mexico City offices.

Plaintiff's first interview with Mr. Echarte occurred on February 27, 2002, in New York. Plaintiff was then invited to Mexico City for a series of interviews with Echarte and other Azteca TV executives, in March and April of 2002. At the interviews, plaintiff openly discussed his views of how to create a sales and marketing program for the Azteca America Network. Plaintiff emphasized to Echarte and other executives that "he would not accept an offer of employment [*3]unless he was given a three year contract with guaranteed annual salaries of $600,000.00 during the first year, $650,000.00 during the second year, and $700,000.00 during the third year." Plaintiff insisted on these terms, citing the great effort, valuable experience and network of relationships that would be required to "create a company from the ground-up."

During private conversations with plaintiff, and at meetings with plaintiff and two other Azteca TV executives, Mr. Echarte assured him that he would get the three-year contract he had requested. Nevertheless, when plaintiff began work on May 15, 2002, no written agreement had been prepared or executed. Plaintiff continued to work for Azteca International, and pressed for execution of the written agreement. At a meeting on April 21, 2003, Echarte "fraudulently misrepresented" to plaintiff that he would execute plaintiff's contract, stating "OK, we'll do this for you but for no one else." Echarte admonished plaintiff: "don't do anything rash, we'll set up a meeting and get it done." These promises were reiterated to plaintiff by co-defendant Mario San Roman in May, 2003 in New York, and in June, 2003 in Los Angeles. Despite these assurances, no written contract for plaintiff's services was ever prepared or executed.

At about the same time, defendants engineered and carried out a scheme to misappropriate plaintiff's valuable mailing and contact list. Developed over twenty years, the list "has been kept secret by plaintiff from the day he began creating it through to the present." Plaintiff has only one "hard copy" and one computer disc copy, both of which he keeps at home in a secure location. Only plaintiff's personal assistant is allowed to handle the computer disc, for the purpose of generating mailing labels, after which the disc must be returned to plaintiff, who immediately takes it back to his home.

As plaintiff was preparing the invitations for the May 2003 "Up-Front Presentation," in which plaintiff introduced the Azteca America Network to advertisers, defendants deliberately delayed approval of the invitations until the last minute. Defendants insisted that the invitations issue from their offices in Mexico City, and directed plaintiff to send them the disc containing his contact list information. Plaintiff refused at first, but consented after Mr. Jaidar and non-party Mr. Laliere promised him that the list would remain confidential and would promptly be returned. Plaintiff offered to travel to Mexico City to supervise the creation of labels and prevent copying of the list, but was not permitted to do so. Plaintiff repeatedly implored defendants to return the disc, but they never did.

Other guarantees made to plaintiff proved similarly false. Financial support and personnel, promised by defendant, failed to materialize. Plaintiff expended $150,000 of his own funds for office equipment and services, which was not reimbursed for months. Paychecks were delayed. Plaintiff did not report to Echarte as he was initially told, but instead, was "passed around from executive to executive ... until he reported solely to defendant Jorge Jaidar, who had virtually no relevant knowledge or experience and who, while employed at TV Azteca Mexico, had very little authority."

Worse still, plaintiff alleges that defendants knew, at the time they hired him, that "plaintiff would not be permitted to sell" to stations in "four critical U.S. Hispanic markets Los Angeles, San Francisco, Houston and Reno," because Azteca International's affiliate, Pappas Telecasting Co., had an in-house sales staff assigned to sell to those markets. Defendants fraudulently did not disclose this to plaintiff. Defendants also fraudulently withheld from plaintiff information about an agreement between Azteca TV and "Echostar," a satellite [*4]broadcasting company, whereby Echostar was claiming exclusive rights to broadcast all Azteca TV programs in the United States. In addition, defendants failed to deliver on their promises to modify their programming for U.S. audiences, failed to produce certain programs that had been promised to advertisers, failed to subscribe to the Nielsen ratings system, and refused to purchase essential software necessary for plaintiff to perform his job.

Against this hostile backdrop, plaintiff still managed to achieve "outstanding results." He leased New York offices, hired a staff, traveled extensively, held "road shows" and increased ad sales from $36,000 per month in July 2002, to $750,000 per month in November, 2003. Using his extensive network of contacts, plaintiff garnered commitments for $8 million in advertising for the year 2003-2004. This despite a continued "month-to-month decline" in audience ratings for Azteca International programs, and the fact that the percentage of U.S. Hispanic households receiving the Azteca America Network signal "remained stagnant at 39% ... well below what ad agencies and their clients expected and required."

On July 28, 2003, at a meeting in the New York offices of Azteca International, defendants San Roman and Jaidar informed plaintiff that the sales goal for the 2003 calendar year had been established at $7.75 million. San Roman and Jaidar knew this goal to be unrealistic and unattainable, as the year was already half over. Plaintiff, with his small sales staff, expressed to San Roman and Jaidar that the goal was unrealistic, but defendants refused to decrease it. Plaintiff and his staff then continued the work necessary to "lock-in the $8 million in ad commitments for the [following year]... ."

At a meeting on October 31, 2003, Mr. Jaidar announced to plaintiff that he was "terminated immediately and was to immediately turn in his keys." Jaidar proposed that plaintiff sign a separation agreement, and plaintiff refused. Thereafter, defendants refused to reimburse plaintiff $47,805.36 advanced for business expenses of Azteca International. Plaintiff later learned that at the time of his firing, defendants had already hired his replacement, Carlos de la Garza. Mr. Garza is a "Mexican and Hispanic" who had "little-to-no prior experience in the sale or marketing of television advertising." Defendants provided to Garza "the very resources, support and personnel that they denied to plaintiff." Indeed "nearly all, if not all, of the management level employees of Azteca America are Mexican or Hispanic and not-white. Other white Americans, like plaintiff, have been discharged by Azteca America and replaced by Mexicans or other Hispanics, as part of a policy and practice of unlawful discrimination based on race and national origin."

Conclusions of Law

Motion to Dismiss

The Court's task in a CPLR 3211 motion is "to determine whether plaintiff's pleadings state a cause of action." See 511 W. 232nd Owners Corp. v. Jennifer Realty Co., 98 NY2d 144 (2002). The motion must be denied if from the pleadings' four corners factual allegations are discerned which taken together manifest any cause of action cognizable at law." Id. (citations omitted). The Court must "accept the facts as alleged in the complaint as true, accord plaintiff the benefit of every possible favorable inference, and determine only whether the facts as alleged fit within any cognizable legal theory." Leon v. Martinez, 84 NY2d 83, 87-88 (1994). For the reasons that follow, the motion is granted in part, and denied in part.

1.Conversion [*5]

Plaintiff alleges conversion of: (1) $47,805.36 in unreimbursed business expenses; and (2) plaintiff's confidential contact list. Movants argue that the former claim is precluded because "non-payment of a debt cannot sustain a claim for conversion;" and the latter, because "no cause of action lies for the conversion of intangible property under New York law." The Court concludes that plaintiff has stated a claim for conversion of the business expenses, but not the contact list.

Conversion is the exercise of control over personalty contrary to the rights of the owner or one with a superior right of possession. Fiorenti v. Central Emergency Physicians, PLLC, 305 AD2d 453, (2nd Dept. 2003); Hart v. City of Albany, 272 AD2d 668, (3rd Dept. 2000). To establish a conversion claim, a plaintiff must allege that the defendant "exercised unauthorized dominion over the property to the exclusion of the plaintiff's rights." See Aetna Casualty & Surety Co. v. Glass, 75 AD2d 786 (1st Dept. 1980) (citations omitted). "It is well settled that an action will lie for the conversion of money where there is a specific, identifiable fund and an obligation to return or otherwise treat in a particular manner the specific fund in question. Money, specifically identifiable and segregated, can be the subject of a conversion action." Manufacturers Hanover Trust Co. v. Chemical Bank, 160 AD2d 113, 124-125 (1st Dept. 1990) (citations omitted); see also Colodney v. Continuum Health Partners, Inc., 2004 U.S. Dist. LEXIS 6606 (S.D.NY 2004) (failure to reimburse business expenses supported claim for conversion where employee demanded reimbursement and former employer refused); compare Peters Griffin Woodward, Inc. v. WCSC, Inc., 88 AD2d 883, 884 (1st Dept. 1982) (no cause of action for conversion of sales commissions allegedly owed plaintiff because plaintiff "never had ownership, possession or control of the money constituting the ... commissions"). Here, plaintiff alleges that he expended a specified amount of his personal funds on business expenses which were reimbursable pursuant to his employment, and defendants have failed to reimburse him despite "repeated demands." Thus, plaintiff has adequately alleged a claim for conversion of the unreimbursed business expenses.

On the other hand, plaintiff's claim for conversion of his contact list fails as a matter of law. It is well settled that a claim for conversion of intangible property is not actionable under New York law. See Sporn v. MCA Records, Inc., 58 NY2d 482, 489 (1983); MBF Clearing Corp. v. Shine, 212 AD2d 478, 479 (1st Dept. 1995); Rao v. Verde, 222 AD2d 569, 570 (2nd Dept. 1995). A customer list is considered "intangible property." See id. Moreover, no conversion action will lie where the owner of the property is not excluded from possession. See Rao, 222 AD2d at 570. Here, plaintiff maintained his own "hard copy" of the contact list and, thus, was not deprived of the property he alleges was converted. Defendants failure to return the computer disc copy of the list does not support an action for conversion. See Hair Say, Ltd. v. Salon Opus, Inc., 6 Misc 3d 1041A, 6 (Sup. Ct. Nassau Co. 2005) (plaintiff hair salon failed to state cause of action for conversion of customer list by ex-employee hairdressers who took copies of list and started new salon where plaintiff was never deprived of possession of list).

2.Misappropriation of Trade Secrets

Plaintiff has adequately pled a cause of action for misappropriation of trade secrets. The Court of Appeals has adopted the definition of trade secret found in the Restatement of Torts, i.e., "any formula, pattern, device or compilation of information which is used in one's business, and which gives him an opportunity to obtain an advantage over competitors who do not know or [*6]use it." See Ashland Management v. Janien, 82 NY2d 395, 407 (1993) citing Restatement of Torts, § 757, comment b. Accord Marietta Corp. v. Fairhurst, 301 AD2d 734 (3rd Dept. 2003). "The Restatement suggests that in deciding a trade secret claim several factors should be considered: (1) the extent to which the information is known outside of [the] business; (2) the extent to which it is known by employees and others involved in [the] business; (3) the extent of measures taken by [the business] to guard the secrecy of the information; (4) the value of the information to [the business] and [its] competitors; (5) the amount of effort or money expended by [the business] in developing the information; (6) the ease or difficulty with which the information could be properly acquired or duplicated by others" (Restatement of Torts § 757, comment b).

Ashland, 82 NY2d at 407.

"A plaintiff claiming misappropriation of a trade secret must prove: (1) it possessed a trade secret, and (2) defendant is using that trade secret in breach of an agreement, confidence, or duty, or as a result of discovery by improper means." Integrated Cash Management Services, Inc. v. Digital Transactions, Inc., 920 F.2d 171, 173 (2d Cir., 1990) (citations omitted). While the Court is unaware of any specific authority treating a salesperson's personal industry contact list as a trade secret, "[a] customer list will be treated as a trade secret where the names and addresses of the customers are not known in the trade or can be obtained only through extraordinary effort." See Stanley Tulchin Assoc., Inc. v. Vignola, 186 AD2d 183, (2nd Dept. 1992); McLaughlin, Piven, Vogel, Inc. v. W. J. Nolan & Co., 114 AD2d 165, 174 (2nd Dept. 1986). "This is especially so where the customers' patronage had been secured by years of effort and advertising effected by the expenditure of substantial time and money." Leo Silfen, Inc. v. Cream, 29 NY2d 387, 393 (1972). In keeping with the guidance of the Restatement, New York courts have required the proponent of trade secret status for a customer list to show that it "employed precautionary measure[s] to preserve" the list as a secret. See, e.g., Precision Concepts, Inc. v. Bonsanti, 172 AD2d 737 (2nd Dept. 1991). Moreover, there must be a showing that the trade secret was improperly used by the offending party. Falconwood Corp. v. In-Touch Techs., 227 AD2d 215, 216 (1st Dept. 1996).

Plaintiff has sufficiently alleged that the list was a trade secret, i.e., a valuable compilation of business information, developed through significant effort over many years, and maintained in secrecy. See Ashland, 82 NY2d 395. Plaintiff also has sufficiently alleged that defendants used improper means to acquire, and retain the list once it was in their possession. Assuming the truth of plaintiff's factual allegations, defendants insisted, at the last minute, that plaintiff send a copy of his contact list to their Mexico City offices, refused plaintiff's request to bring the list personally and oversee its use, promised to return the list, and then refused to do so. The Court concludes that plaintiff has adequately alleged that defendants acquired and maintained possession of his contact list, through "improper means."

3.Fraudulent Inducement

The elements necessary to make out a cause of action for fraudulent inducement are "representation of a material existing fact, falsity, scienter, deception and injury." Channel [*7]Master Corp. v. Aluminum Ltd. Sales, Inc., 4 NY2d 403, 407 (1958) (citations omitted). "Accordingly, one who fraudulently makes a misrepresentation of intention for the purpose of inducing another to act or refrain from action in reliance thereon in a business transaction is liable for the harm caused by the other's justifiable reliance upon the misrepresentation." Id. (citations, internal quotations marks omitted). In cases of fraudulent misrepresentation alleged in the context of contract discussions and/or performance, courts have required that the plaintiff allege a misrepresentation of a "then-present fact, which would be extraneous to the contract and involve a duty separate from or in addition to that imposed by the contract and not merely a misrepresented intent to perform." See Hawthorne Group, LLC v. RRE Ventures, 7 AD3d 320, 323-324 (1st Dept. 2004) citing Deerfield Communications Corp. v Chesebrough-Ponds, 68 NY2d 954 (1986); see also New York Univ. v. Continental Ins. Co., 87 NY2d 308, 318 (1995) ("[g]eneral allegations that defendant entered into a contract while lacking the intent to perform it are insufficient to support the [fraud] claim") citing Rocanova v. Equitable Life Assur. Soc'y of the United States, 83 NY2d, 603, 614 (1994), Sabo v. Delman, 3 NY2d 155 (1957), Adams v Gillig, 199 NY 314 (1910); Smart Egg Pictures v. New Line Cinema Corp., 213 AD2d 302, 303, (1st Dept. 1995) ("[a] contract claim cannot be converted into a fraud claim merely by the expedient of alleging that a contracting party never intended to perform its promise").

Here, the alleged misrepresentations upon which plaintiff's fraudulent inducement claim is premised are the defendants' promises to: (1) pay a specified salary over three years; (2) give plaintiff the "resources and support" necessary to launch the Azteca America Network; (3) allow plaintiff to hire a proper sales force; (4) have plaintiff report directly to Mr. Echarte; (5) give plaintiff the responsibility to sell to markets in Los Angeles, San Francisco, Houston and Reno; and (6) increase the "coverage" of the network from 39% to 75%. See Memorandum of Law in Opposition to Defendants' Motion to Dismiss, pp. 3-4. None of these were false statements of "then-present" facts. Rather, plaintiff alleges that defendants made promises as to the terms of his employment, with no intent to make good on the promises. The proper remedy for such a claim is a breach of contract action. See New York Univ., 87 NY2d 308. Moreover, by plaintiff's own account, he was an experienced businessman with intimate knowledge of his industry. Nevertheless, he worked for defendants for over a year. Thus, plaintiff's claim of justifiable reliance on defendants' representations is minimally persuasive. Shea v. Hambros PLC, 244 AD2d 39, 46 (1st Dept. 1998) (plaintiff could "hardly claim with any credibility that he, a savvy businessman, entered into the resulting agreements lulled by faith or trust in the parties across the bargaining table, or that he unwittingly gave up some valued right in the bargain"). Thus, the Court concludes that plaintiff has failed to make out a cause of action for fraudulent inducement. Accordingly, it is

ORDERED that the motion of defendants Azteca International Corporation and Jorge Jaidar, to dismiss plaintiff's third, fifth, sixth and seventh causes of action is granted only to the extent that plaintiff's causes of action for: (1) conversion of his mailing and contact list, and (2) fraudulent inducement, are severed and dismissed, the motion is otherwise denied, and the action shall continue.

Date: July 1, 2005 _____________________________________ [*8]

New York, New York SHIRLEY WERNER KORNREICH Footnotes

Footnote 1:The complaint alleges violations of Executive Law § 296 et. seq., and New York Administrative Code § 8-107 et. seq.

Footnote 2:The date of service on the defendants other than Azteca International and Jaidar is unknown, as none of them have appeared.

Footnote 3:The Amended Verified Complaint also broadens the claims against defendants Echarte and Jaidar, suing them as officers of the corporate defendants, as well as in their individual capacities.

Footnote 4:The motion to dismiss was made prior to the filing of the Verified Amended Complaint. Because defendant does not oppose the Verified Amended Complaint as untimely, and submits a supplemental affirmation addressing the new complaint, the Court will treat the instant motion as one to dismiss the Verified Amended Complaint. See Siegel, Practice Commentaries, McKinney's Cons Laws of NY, Book 7B, CPLR C3211:65 at 108 (amendment of complaint after motion to dismiss "does not automatically abate the motion"; moving party 'has the option to decide wehther its motion should be applied to the new pleadings.'") quoting Sage Realty Corp. v. Proskauer, Rose LLP, 251 AD2d 35 (1st Dept. 1998).