Trustforte Corp. v Eisen

[*1] Trustforte Corp. v Eisen 2005 NY Slip Op 52116(U) [10 Misc 3d 1064(A)] Decided on November 15, 2005 Supreme Court, New York County Smith, J. 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 November 15, 2005
Supreme Court, New York County

Trustforte Corporation, HALCYON TECHNOLOGY, INC., RUSSIAN AND SLAVIC AND SLAVIC TRANSLATION SERVICES, INC., and THE LAW OFFICES OF BARRY SILBERZWEIG, P.C., Plaintiffs,

against

Joshua Eisen, IVAN CIMENT, JOSHAU ROSMAN, MORNINGSIDE EVALUATIONS AND CONSULTING, INC., TEKADEMIC HOLDINGS, INC., TEKADEMIC, INC. and JOHN DOES 1-10, Defendants.



600521/2005

Karen S. Smith, J.

Motion sequences 002 and 003 are consolidated for disposition in this decision. In motion sequence 002, defendant Joshua Rosen moves, pursuant to CPLR § 3025, for leave to amend his answer. Under that sequence, plaintiffs cross move, pursuant to CPLR § 2221, for leave to renew and reargue the court's decision and order of July 18, 2005. In Motion Sequence 003, the remaining named defendants ("Eisen defendants") move for leave to amend their answers. Defendants motions are granted to the extent set forth below. Plaintiffs' motion is granted to the extent set forth below.

In this action, plaintiffs Trustforte Corporation, Halcyon Technology, Inc., Russian and Slavic Language Services, Inc., and the Law Offices of Barry Silbersweig, P.C. seek damages against defendants Joshua Eisen, Ivan Ciment, Joshua Rosman, Morningside Evaluations and Consulting, Inc., Morningside Translations, Inc., Tekademic Holdings, Inc., Tekademic Inc., and John Does One through Ten on nine separate causes of action, including breach of contract, theft of trade secrets, unfair competition, breach of duty of loyalty, unjust enrichment, conversion, tortious interference with contract, and tortious interference with prospective business relations. The causes of action for breach of contract and breach of duty of loyalty are alleged against defendant Joshua Eisen only. All the other causes of action are alleged against all the defendants. The relevant facts are set forth in the court's July 18, 2005 decision and are not recited here. In that decision, the court dismissed the sixth cause of action for conversion against defendant Ciment only and the eighth cause of action for tortious interference with contract against all defendants. Defendants now move to amend their answers to assert additional affirmative defenses. The Eisen defendants also seek leave to permit [*2]their proposed amended answer to serve as defendant Ciment's answer.[FN1] Plaintiffs cross move to reargue and renew the court's previous decision dismissing the sixth cause of action against defendant Ciment.

The court will consider plaintiffs' cross-motion to renew and reargue first. The portion of plaintiffs' cross motion seeking leave to reargue the court's July 18, 2005 order dismissing the conversion cause of action against defendant Ciment is granted. However, the court adheres to its original decision.

In the July 18, 2005 order, this court dismissed plaintiffs' cause of action for conversion against defendant Ciment on the grounds that New York law does not recognize a cause of action for conversion of intangible property. Plaintiffs contend that the court misapplied the law in dismissing the conversion cause of action, in that New York courts have broken down the rigid distinction between tangible and intangible property when considering the validity of conversion causes of action. To support this claim, plaintiffs have cited Astroworks, Inc., v. Astroexhibit Inc., (257 F Supp 2d 609 [SDNY 2003]), and Shmueli v. Corcoran Group, (2005 NY Slip Op 35302 [U] [Sup Ct, NY County 2005]). Plaintiffs contend that, in these cases, courts have upheld causes of action for conversion where the property being converted was, at least in part, intangible property.

While, in certain cases, New York courts have recognized conversion causes of action where the property in question is intangible in nature, plaintiffs have still not set forth facts sufficient to support a conversion claim. Conversion is the unauthorized assumption of ownership of and exercise of right over property belonging to another, to the exclusion of the owner's rights therein. (Vigilant Insurance Company of America v. Housing Authority of the City of El Paso, 87 NY2d 36, 45 [1995]). Plaintiffs have not alleged that any of the defendants did anything to exclude plaintiffs from exercising their rights over the information. Rather, the complaint indicates that plaintiffs retained the information in question and were still able to use it.

The cases cited by plaintiffs are readily distinguishable from the allegations in the instant complaint. In Astroworks, the relevant conversion claim was a counterclaim brought by an individual defendant against a corporate plaintiff. (257 F Supp 2d at 613). In that case, the plaintiff's officer and the defendant had collaborated on the development of a website. (Id. at 612). Relations between the parties broke down and the plaintiff's officer registered the domain name of the website in his own name and caused the plaintiff to obtain a copyright over the website. (Id.) When the defendant sought to establish his own website with a similar name and similar content, the plaintiff sued for copyright infringement. (Id.) The court upheld defendant's counterclaim for conversion of the website. (Id. at 618.) In Shmueli, the plaintiff was a former employee of the defendant, a real estate brokerage firm (2005 NY Slip Op 35302 *2). Her cause of action for conversion, which the court upheld, was based on the allegation that the defendant would not let her access a customer list she had developed and stored on the defendant's computer system. (Id.) In both of these cases, the [*3]allegations included claims that the alleged converter acted to exclude plaintiff from the property. In Shmueli, the defendant denied the plaintiff access to her lists. In Astroworks, the plaintiff corporation copyrighted the website, thus preventing the defendant/counter-claimant from creating a legally recognizable and protectable property interest in his idea. In the instant case, plaintiffs have simply alleged that defendant Eisen copied the relevant information, not that he destroyed it or erased it or did anything else that denied plaintiffs access to it. While the property in Shmueli and Astroworks was intangible, the claimants in those cases had alleged that they were excluded from the property. Here, plaintiffs have made no such allegation. Accordingly, their cause of action for conversion cannot lie.

Plaintiffs' argument that conversion is alleged because defendant Eisen made physical copies of the customer lists and other information fails for the same reason. Plaintiffs contend that, because defendant reduced plaintiffs' intangible property to tangible property that he wrongfully took, their cause of action for conversion should stand. To support their claim, plaintiffs cite Sporn v. MCA Records, Inc., (58 NY2d 482 [1983].) In that case, the Court of Appeals held that, while a cause of action for conversion of intangible property would not lie, one would lie when the intangible property was reduced to a tangible form. (Id at 489). In that case, the tangible property in question was the master recording of a song defendants held in their possession that plaintiff contended belonged to him. (Id. at 484). The Sporn case is distinguishable from the instant facts for the same reason that Shmueli and Astroworks are. In Sporn, the plaintiff was excluded from possessing the master recording of his song. In the instant case, while defendant Eisen allegedly copied information that belonged to plaintiffs, neither he nor any of the other defendants are alleged to have done anything to keep plaintiffs from accessing and using this information. Thus, there are insufficient allegations to support a conversion cause of action.

The portion of plaintiffs' motion seeking leave to renew is denied. Plaintiffs have not set forth any facts that were not before the court on the previous motion. Accordingly, the court adheres to its previous decision and order.

Since the allegations set forth to support the conversion claim against Ciment are identical to the allegations supporting the conversion claims against all the other defendants, it was in error for the court not to dismiss the conversion cause of action against all the defendants on the previous motion. Accordingly, the sixth cause of action for conversion is dismissed as against all defendants.

The court now addresses defendants' motions to amend their answers.[FN2] Defendants seek to assert statute of limitations defenses for the causes of action sounding in theft of trade secrets, unfair competition, conversion, tortious interference with a contract, and tortious interference with prospective business relations. They also seek to assert a defense based on the doctrine of law of the case for the conversion cause of action, based on this court's previous holding dismissing that cause of action against defendant Ciment. Plaintiffs argue that the proposed defenses are without merit. Specifically, with regard to the unfair competition claim, plaintiffs assert that the statute of limitations for a cause of action arising from unfair competition is six years and that the conduct [*4]giving rise to the unfair competition claim is ongoing to this day. With regards to the statute of limitations defense for theft of trade secrets, plaintiffs contend that the conduct in question is also of an ongoing nature. With regards to statute of limitations for the tortious interference claims, plaintiffs contend that the cause of action accrues at the time of injury, and that plaintiffs' injuries are ongoing.

CPLR § 3025 (b) provides that a party may seek leave to amend a pleading at any time, and that leave to amend shall be freely given. Leave will only be denied where the proposed amendment is clearly lacking in merit, or where undue prejudice or surprise would result. (Barbour v. Hospital for Special Surgery, 169 AD2d 385, 386 [1991].) CPLR § 3211 (e) states that, where a party has failed to raise the defense of statute of limitations in a motion to dismiss or a responsive pleading, that defense is deemed waived. However, the court may grant leave to amend a pleading to include a statute of limitations defense if adding the pleading does not result in undue prejudice or surprise for the plaintiff. (Armstrong v. Peat, Marwick, Mitchell, & Co., 150 AD2d 189, 190 [1st Dept 1989]).

Causes of action for theft of trade secrets, tortious interference with contract, and tortious interference with prospective business relationships are all governed by the three year statute of limitations. (CPLR §§ 214 (3) & (4); Architectronics, Inc. v. Control Systems, Inc., 935 F Supp 425, 432-433 [SDNY 1996] [applying three year statute of limitations to misappropriation of trade secrets cause of action]; Rosemeier v. Schenker International, Inc., 895 F Supp 65, 66 [EDNY 1995] [applying three year statute of limitations to tortious interference with contract cause of action]; Classic Appraisals Corp. v. DeSantis, 159 AD2d 537 [2nd Dept 1990] [applying three year statute of limitations to tortious interference with prospective business relationship cause of action].) The alleged acts that substantiate plaintiffs' claims against defendants all occurred in 2000, but plaintiffs did not commence this action until 2005. Hence, the statute of limitations defense is a valid pleading and cannot be deemed patently lacking in merit. Plaintiffs' allegations that defendants' conduct supporting the misappropriation of trade secrets is ongoing and that the injuries supporting the tortious interference claims are onging do not conclusively establish that the defenses are patently without merit. They merely raise issues of fact as to when the statute tolls.

With regard to the proposed statute of limitations defense against the unfair competition cause of action, plaintiffs have likewise failed to show that it is without merit. Plaintiffs cite Katz v. Bach Realty, Inc. (192 AD2d 307 [1st Dept 1997]), which held that an unfair competition claim was governed by a six year statute of limitations, to support their position that a statute of limitations defense for unfair competition is invalid, as the alleged acts constituting the claim occurred five ago. Defendants counter by citing Norbrook Labs Ltd. v. G. C. Hanford Manufacturing Co., (297 F Supp 2d 463, 491 [NDNY 2003]) for position that a three year statute of limitations governs unfair competition claims. Hence, defendants argue, the proposed defense has merit, as actions alleged in the complaint occurred in 2000 and plaintiff did not commence this suit until 2005.

The seeming inconsistency between these two holdings is resolved by the United States District Court for the Southern District of New York in Greenlight Capital, Inc. v. GreenLight (Switzerland) S.A. (2005 US Dist LEXIS 2 [SDNY 2005]). In that case, the court addressed a statute of limitations defense to a New York State common law unfair competition claim based upon the use of a similar name in a similar industry. The court noted that New York courts applied the six year statute of limitations in unfair competition actions based on fraud, and applied the three year statute of limitations in actions based on damage to property and actions which impose liability [*5]based on statute. (Id. at *25-*26.) The court reasoned that, as the doctrine of unfair competition encompasses a broad range of unlawful or immoral business practices, the requisite statutory period is equally flexible and will depend on the underlying alleged actions giving rise to the claim. In that case the court concluded that the basis for the unfair competition claim, a company using the name of another company in the same industry, was identical to the type of claims brought under Section 43(a) of the Lanham Act, which was governed by a six year statute of limitations. Accordingly, the court held that the unfair competition was also governed by the six year statute of limitations. This holding is supported by the holdings of the cases both defendants and plaintiffs cite. In Norbrook Labs, Ltd., the underlying alleged facts giving rise to the claim was the misappropriation of trade secrets, which, were it pled as a separate cause of action, would also be governed by the three year statute of limitations. (297 F Supp 2d at 491; Architectronics, Inc., 935 F Supp at 432-433). In Katz, the alleged acts giving rise to the unfair competition claim also gave rise to a breach of fiduciary duty claim, which is governed by the six year statute of limitations. (192 AD2d at 307).

In the complaint, plaintiffs' cause of action for unfair competition is based on allegations that defendants "misappropriated and improperly used Plaintiffs' trade secrets" (Plaintiffs' complaint, ¶ 64). As noted above, a cause of action for misappropriation of trade secrets is governed by a three year statute of limitations. Thus, plaintiffs' unfair competition claim is likewise governed by a three year statute of limitations. Plaintiffs' allegation that the conduct constituting the claim is ongoing is, like the allegations plaintiffs asserted against the tortious interference and misappropriation claims, simply an allegation and does not conclusively preclude defendants from asserting a statute of limitations defense. Accordingly, defendants' proposed statute of limitations defense for the unfair competition cause of action is not patently meritless.

Since plaintiffs have not made any showing that undue prejudice would result if defendants added statute of limitations defenses to their answers, and none of those defenses are patently without merit, the portions of defendants' motions seeking leave to add statute of limitations defenses are granted.

Since none of the parties have objected to the portion of Motion Sequence 003 that seeks to leave to allow defendant Ciment to join the Eisen defendant's proposed answer, that relief is granted.

Since the court has dismissed the conversion cause of action against all defendants, the portion of defendants' motions that seek to amend the pleadings to include defenses for that cause of action are denied as moot. Defendants will prepare new amended answers that delete the proposed defenses to the conversion cause of action.

Accordingly it is hereby

ORDERED that the sixth cause of action asserted in plaintiffs' complaint is dismissed as against all parties; and it is further

ORDERED that defendants motions to amend their answers are granted to the extent that defendants may amend their answers to assert statute of limitations defenses against the second, third, seventh and ninth causes of action, and are denied as to the proposed defenses for the sixth cause of action; and it is further

ORDERED that defendants shall serve copies of their amended answers on plaintiffs within 30 days of the date of this order; and it is further

ORDERED that the portion of plaintiffs' cross-motion seeking leave to reargue the court's July 18, 2005 decision and order is granted and that, upon reargument, the court adheres to its [*6]previous decision and order, and the remainder of plaintiffs' motion is denied;

ORDERED that all parties shall appear before the court for a preliminary conference on December 9, 2005, at 9:30 a.m., at 111 Centre Street, Room 581, New York, New York.

This constitutes the decision and order of the court.

The court will mail copies of this decision and order to counsel for all parties.

Dated: November 15, 2005

New York, New York

ENTER:

KAREN S. SMITH, J.S.C.

Footnotes

Footnote 1:In the court's July 18, 2005 decision, defendant Ciment was ordered to serve an answer to the complaint no later than August 18, 2005. At the time he made his motion to dismiss, Ciment was represented by separate counsel. After the July 18, 2005 decision was issued, Ciment substituted his counsel with the counsel representing Eisen defendants. Accordingly, rather than file a separate answer, Ciment now joins those defendants in moving to amend their answer and proposes that the amended answer proposed in Motion Sequence 003 serve as his answer as well.

Footnote 2:Defendant Rosman, who is represented by his own counsel, has moved separately from the Eisen defendants, who are all represented by the same counsel. However, as both motions seek the same relief and raise the same substantive arguments, the court will treat them as one for the purposes of this decision.