J&L Am. Enters., Ltd. v DSA Direct, LLC

Annotate this Case
[*1] J&L Am. Enters., Ltd. v DSA Direct, LLC 2006 NY Slip Op 50101(U) [10 Misc 3d 1076(A)] Decided on January 27, 2006 Supreme Court, New York County Fried, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 January 27, 2006
Supreme Court, New York County

J&L American Enterprises, Ltd., Plaintiff,

against

DSA Direct, LLC, Defendant.



401937/05



APPEARANCES:

For Plaintiff:

Giaimo Associates, LLP

80-02 Kew Gardens Road

Kew Gardens, New York 11415

(Joseph O. Giaimo)

For Defendants:

Fox Horan & Camerini, LLP

825 Third Avenue New York, NY 10022

(Eric Lindquist, Ariel D. Jasie)

Bernard J. Fried, J.

In this action for breach of contract, tortious interference with contract, breach of fiduciary duty and misappropriation of trade secrets, defendant DSA Direct, LLC moves, pursuant to CPLR 3211 (a) (7), for an order dismissing the amended complaint for failure to state a cause of action. For the reasons set forth below, the motion to dismiss the amended complaint is granted.

Accepting the allegations of the complaint as true (Leon v Martinez, 84 NY2d 83 [1994]), the following facts emerge: defendant is a wholesale distributor of newspapers and magazines which distributes those publications to dealers, such as delis, newsstands, supermarkets and drugstores (the Dealers), in Manhattan, Brooklyn, Staten Island, the Bronx, Connecticut, New Jersey, and other locations (Amended Complaint, ¶ 4). Plaintiff J&L American Enterprises, Ltd., as a subcontractor, distributes newspapers and other publications to retail customers (id., ¶ 3).

In February 1999, plaintiff began working as defendant's sub-distributor in the Bronx (id., ¶ 7). On April 3, 2000, plaintiff and defendant signed a "requirements contract" (the Contract), dated December 1999, pursuant to which plaintiff was required to purchase from defendant its required amount of the publications listed in Schedule A for resale to plaintiff's customers in the Bronx (id., ¶ 8; see Exh A).

Under the Contract, plaintiff paid defendant weekly for the purchased products, [*2]and, by separate oral agreement, a "service charge" for services rendered by defendant, including the use of defendant's computers for billing purposes, and a rental payment for space leased by plaintiff from defendant (id., ¶ 26).

Plaintiff contends that it created a list of its Bronx customers and their identifying information, such as names, locations, and volumes of purchases (the Lists), to aid in the servicing and billing of these customer (id., ¶¶ 12-14). Plaintiff further contends that the Lists are trade secrets owned by plaintiff (id., ¶ 20).

Paragraph 2 (c) of the Contract provides that, upon termination of the Contract, plaintiff must provide defendant with "copies of all records of Distributor relating to this Agreement, including but not limited to obligations and payments due to and received from [Dealers], including those appropriate to the post-termination period and copies of order regulation records and dealer lists of Distributor relating to this Agreement" (id., Exh A, ¶ 2 [c] [emphasis added]). Thus, upon termination of the Contract, the Lists were to be turned over to defendant. Moreover, the Contract included no confidentiality, non-use, non-circumvention, or any other provisions limiting defendant's use of the Lists.

Beginning in February 2005, Roy Newman and Keith Pothoff, defendant's general manager, and an employee of Newsday, notified James Thompson, plaintiff's president and sole stockholder, that the Tribune Company, the owner of Newsday and defendant, had offered to sell defendant to Pothoff and Newman (id., ¶ 28). In connection with the proposed sale, Pothoff and Newman requested that plaintiff convey to defendant its entire operation in the Bronx, including the Lists, as well as plaintiff's separate and unrelated requirements contract with Newsday, from whom plaintiff directly purchased newspapers (id., ¶ 29).

In March 2005, plaintiff refused Pothoff's and Newman's request. Plaintiff contends that Pothoff and Newman, however, continued to harass him, and Pothoff, in his role as an executive of the Tribune Company, Newsday and defendant, threatened to terminate plaintiff's separate and unrelated home delivery sales agents agreement with Newsday (id., ¶ 32). As a result, by letter dated March 11, 2005, plaintiff terminated the Contract but, in accordance with the 90-day notice provision contained in the Contract, continued to purchase its requirements for publication for its Bronx customers from defendant until June 10, 2005 (id.).

Plaintiff alleges that, on June 13, 2005, defendant began interfering with its business and its customers by delivering publications to plaintiff's customers, despite the fact that such publications, which plaintiff now purchases from wholesale sources, are delivered by plaintiff to its customers (id., ¶ 35). Plaintiff further alleges that defendant has notified those customers that plaintiff has no right to collect payment for the products delivered to them by plaintiff, and has directed the customers to pay defendant (id.).

In addition, plaintiff alleges that it has had independent contractor agreements with drivers who, for a fee, deliver plaintiff's publications to its Bronx customers, as well as collect payments from such customers (id., ¶ 36). Plaintiff further alleges that, beginning on June 10, 2005, defendant induced five of plaintiff's 11 drivers to terminate their independent contractor relationship with plaintiff, and enter into an independent contractor relationship with defendant, by offering them a signing bonus, and 20% increase in delivery fees (id., ¶¶ 39-40).

Defendant now moves to dismiss the amended complaint for failure to state a cause of action.

Although on a motion to dismiss, "the pleading is to be afforded a liberal [*3]construction," and "the facts as alleged in the complaint [are presumed] as true" (Leon v Martinez, 84 NY2d at 87; see also Rovello v Orofino Realty Co., 40 NY2d 633 [1976]), a complaint should be dismissed if the facts alleged do not fit within any cognizable legal theory (see e.g. 219 Broadway Corp. v Alexander's, Inc., 46 NY2d 506 [1979]; Callaghan v Goldsweig, 7 AD3d 361 [1st Dept 2004]). Here, construing the complaint in the generous matter to which it is entitled, I nevertheless conclude that plaintiff has failed to state a cause of action with respect to its causes of action against defendant, and that thus, the amended complaint must be dismissed.

I.Tortious Interference With Contract (First and Second Causes of Action)

In its first and second causes of action of the amended complaint, plaintiff seeks a permanent injunction and $1,500,000 in damages, on the ground that the "solicitation of plaintiff's customers, drivers, and continued use of plaintiff's customer list which is a trade secret, and [defendant's] contact with plaintiff's customers, is in violation of the [Contract] and constitutes a [tortious] interference with plaintiff's contractual relationship with its customers" (Amended Complaint, ¶ 42).

To state a claim for tortious interference with contract, a plaintiff must allege (1) the existence of a valid contract between the plaintiff and a third party; (2) the defendant's knowledge of that contract; (3) the defendant's intentional interference with that contract; and (4) resulting breach and damages (Lama Holding Co. v Smith Barney, Inc., 88 NY2d 413 [1996]; accord Foster v Churchill, 87 NY2d 744 [1996]; Vigoda v DCA Productions Plus Inc., 293 AD2d 265 [1st Dept 2002]). All of the elements of the theory must be pleaded in order to avoid dismissal (Bonanni v Straight Arrow Publs., 133 AD2d 585 [1st Dept 1987]).

The primary consideration for a tortious interference with contract claim is the defendant's knowledge at the time that a breach of a valid contractual obligation is induced (Bogoni v Friedlander, 197 AD2d 281 [1st Dept], lv denied 84 NY2d 803 [1994]). Although plaintiff alleges the existence of oral contracts with the Dealers, and it refers to the drivers servicing the Dealers as being independent contractors of plaintiff, plaintiff does not allege that defendant was aware of any contracts between plaintiff and the Dealers or drivers.

Plaintiff also fails to allege that any such contracts were breached, or the terms of any such contracts between plaintiff and the Dealers or drivers. In order to claim tortious interference with contract, a breach of the contract must be shown (Foster v Churchill, 87 NY2d 744 , supra; see also Jack L. Inselman & Co. v FNB Financial Co., 41 NY2d 1078 [1977]). The Court of Appeals has specifically observed: Ever since tortious interference with contractual relations made its first cautious appearance in the New York Reports ... our Court has repeatedly linked availability of the remedy with a breach of contract. Indeed, breach of contract has repeatedly been listed among the elements of a claim for tortious interference with contractual relations.

NBT Bancorp Inc. v Fleet/Norstar Fin. Group, Inc., 87 NY2d 614, 620-621 (1996) (citations omitted). Plaintiff makes no allegation that either the Dealers or the drivers have breached any contract with plaintiff.

In addition, to make out a breach of contract claim, the complaint must "set forth [*4]the terms of the agreement upon which [the breach] is predicated, either by express reference or by attaching a copy of the contract" (Chrysler Capital Corp. v Hilltop Egg Farms, Inc., 129 AD2d 927, 928 [3d Dept 1987] [citations omitted]; see also Caniglia v Chicago Tribune-New York News Syndicate, Inc., 204 AD2d 233 [1st Dept 1994]; Sylmark Holdings Ltd. v Silicone Zone Intl. Ltd., 5 Misc 3d 285 [Sup Ct, NY County 2004]). Plaintiff has not attached a copy of any contract with its customers, nor has it expressly referred to any specific terms that have been breached.

In its opposition to the motion to dismiss, plaintiff contends that defendant must have been aware of the agreements that it had with its customers "by virtue of the fact that delivery of publications to J&L's customers was the underlying purpose for its agreement with DSA" (Pl Opp, at 8). Defendant does not deny that it had knowledge that plaintiff had customers in the Bronx. However, plaintiff has not alleged that defendant was aware of the terms of any agreements between plaintiff and its customers. In the absence of such allegation, plaintiff's tortious interference claim must be dismissed.

Although plaintiff further contends that I must infer that its customers have breached their contracts with it based on the allegation that they have ceased to give plaintiff their business, there are no allegations suggesting that the termination of such contract constituted a breach by plaintiff's customers. Without such an allegation, defendant's alleged actions cannot support a claim for tortious interference with contract (see NBT Bancorp Inc. v Fleet/Norstar Fin. Group, Inc., 87 NY2d 614, supra [tortious interference with contract claim requires allegation that the defendant procured a breach of the contract at issue]).

Accordingly, plaintiff has failed to state the necessary elements of its tortious interference claim, and the first and second causes of action must be dismissed.

II.Unfair Use of Trade Secrets (Third and Fourth Causes of Action)

In its third and fourth causes of action, plaintiff seeks a permanent injunction and punitive damages in the amount of $1,000,000, on the ground that defendant has engaged in unfair use of plaintiff's trade secrets. Specifically, plaintiff alleges that the Lists and billing information which plaintiff stored in the computer it leased from defendant "constitutes a trade secret and confidential information and data" (Amended Complaint, ¶ 48). Plaintiff further alleges that, in the conduct of defendant's competitive business, "it has used and is continuing to use plaintiff's confidential information, data and trade secrets which were unlawfully and illegally copied, transcribed and removed from the computer paid for and used by plaintiff in the course of its Bronx operation" (id., ¶ 50).

To avoid dismissal, plaintiff's allegations of misappropriation of its confidential information must meet the definition of a "trade secret." New York courts generally consider the following factors when deciding whether information merits protection as a trade secret: (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;[*5](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; [and](6) the ease or difficulty with which the information could be properly acquired or duplicated by others.

Ashland Mgt., Inc. v Janien, 82 NY2d 395, 407 (1993) (citation omitted); see also Wiener v Lazard Freres & Co., 241 AD2d 114 (1st Dept 1998).

"[A] trade secret must first of all be secret" (Ashland Mgt., Inc. v Janien, 82 NY2d at 407]). Where an employer's customer lists "are readily ascertainable from sources outside its business, trade secret protection will not attach and their solicitation by the employee will not be enjoined" (Columbia Ribbon & Carbon Mfg. Co. v A-1-A Corp., 42 NY2d 496, 499 [1977]; Buffalo Imprints v Scinta, 144 AD2d 1025 [4th Dept 1988]; Walter Karl, Inc. v Wood,137 AD2d 22 [2d Dept 1988]). Therefore, trade secret protection will not attach where the alleged confidential information is readily ascertainable from non-confidential sources (Zurich Depository Corp. v Gilenson, 121 AD2d 443 [2d Dept 1986]; see also Precision Concepts, Inc. v Bonsanti, 172 AD2d 737 [2d Dept 1991] [failure to make sufficient allegations of precautionary measures employed to protect the secrecy of trade secrets will result in dismissal]).

Here, it is apparent that plaintiff's customer list is not confidential. Plaintiff fails to make any allegations demonstrating the extent of measures taken to guard the Lists' secrecy. In fact, plaintiff's allegations in the amended complaint with respect to the Lists make clear that plaintiff failed to take reasonable measures to protect the Lists' secrecy, and thus completely negates any claim that the Lists are trade secrets.

First, plaintiff admits that section 2 (c) of the Contract required plaintiff, in the event of termination of the Contract by either party, to turn the Lists over to defendant (Amended Complaint, ¶ 21). Obviously, if the Lists were to be turned over to defendant, they cannot constitute trade secrets belonging to plaintiff. Indeed, defendant's use of such information is not restricted in any way by the terms of the Contract. Although "[c]onfidentiality agreements are routinely signed ... where companies seek to protect client bases and trade secrets" (Daly v Metropolitan Life Ins. Co., 4 Misc 3d 887, 893 [Sup Ct, NY County 2004]), here, there exists no confidentiality covenant, or prohibition of the use or disclosure by defendant of any of the information plaintiff is required to provide. Moreover, plaintiff has not even alleged that it informed defendant that it considered the Lists to be secret.

Second, plaintiff admits that the Lists were maintained on defendant's computer system: "plaintiff supplied [defendant] with such data and documents as [defendant] required in order to keep a record in its internal computer for billing purposes" (Complaint, ¶ 17). The information sufficient to generate the bills issued to Dealers clearly included information identifying the Dealers themselves, thus negating any confidentiality claim.

Although plaintiff states, for the first time in its memorandum of law, that it spent "an enormous amount of time and effort" to maintain the Lists in its file in plaintiff's office (Pl Opp, at 11), plaintiff's allegations in the amended complaint clearly demonstrate that: (1) the [*6]information was widely known to plaintiff's employees; and (2) that plaintiff did not take reasonable measures to safeguard the secrecy of the information. Accordingly, plaintiff's claim of confidentiality is completely unsupported, and such information does not merit protection as a trade secret (see Wiener v Lazard Freres & Co., 241 AD2d 114, supra])

Because the allegations of the amended complaint flatly contradict plaintiff's claim for misappropriation of trade secrets, the third and fourth causes of action must be dismissed.

III.Breach of Contract (Fifth Cause of Action)

In its fifth cause of action, plaintiff seeks $1,500,000 for breach of contract. The elements of a breach of contract claim are (1) the making of an agreement; (2) performance of the agreement by one party; (3) breach by the other party; and (4) damages (Furia v Furia, 116 AD2d 694 [2d Dept 1986]; see also Rexnord Holdings, Inc. v Bidermann, 21 F3d 522 [2d Cir 1994]; Bank Itec N.V. v J. Henry Schroder Bank & Trust Co., 612 F Supp 134 [SD NY 1985]). All of the elements of the cause of action must be properly pleaded in order to avoid dismissal (Bonanni v Straight Arrow Publishers, 133 AD2d 585, supra).

A cause of action for breach of contract will be dismissed if it fails to allege the breach of a specific contractual provision (Kraus v Visa Intl. Serv. Assn., 304 AD2d 408 [1st Dept 2003]; Lebow v Kakalios, 156 AD2d 301 [1st Dept 1989]). Here, plaintiff fails to allege the specific contractual provision upon which the claim of breach is based, and its breach of contract claim must thus be dismissed. Although plaintiff alleges that defendant "breached its agreement with plaintiff on or about June 11, 2005, by thereafter unlawfully dealing directly with plaintiff's customers and selling publications to them at severely reduced rates" (Amended Complaint, ¶ 25), this allegation is completely insufficient to support its breach of contract cause of action. Plaintiff fails to allege that the Contract prohibited any sort of dealing between defendant and the Dealers, at reduced rates or otherwise.

Moreover, plaintiff alleges that it unilaterally terminated the contract in March 2005 (id., ¶ 32). The only claimed "breach" of the contract is alleged to have occurred "on or about June 11, 2005" (id., ¶ 25). Obviously, defendant cannot be held liable for a breach of a contract that was terminated by plaintiff three months before the alleged breach occurred.

Plaintiff now attempts to cure its defects in its pleading by stating, in its opposing memorandum, that: (1) the Lists are plaintiff's property; (2) plaintiff did not assign any interest in the Lists to defendant; and (3) defendant has breached the Contract by "unfairly dealing directly" with plaintiff's customers (Pl Opp, at 12). However, these assertions, taken together, do not add up to a breach of a contractual provision. The putative proprietary nature of the Lists is not a term of the Contract, and thus, cannot form the basis of a breach of contract claim. Nor does the Contract contain any provision barring defendant from dealing with any customers of plaintiff. Therefore, plaintiff's allegations are still devoid of any reference to a specific contractual provision that defendant is supposed to have breached.

Because plaintiff has failed to plead the necessary elements of a breach of contract cause of action, the fifth cause of action must be dismissed.

IV.Breach of Fiduciary Duty (Sixth Cause of Action)

In its sixth cause of action, plaintiff seeks $1,500,000 for breach of fiduciary duty. Specifically, plaintiff alleges that "[b]y reason of the agreement between [defendant] and plaintiff, [defendant] has, and had, a fiduciary duty of good faith and fair dealing with plaintiff [*7]and, in particular, not to interfere with plaintiff's customer list, which is a trade secret, and not to contract or deal with plaintiff's customers" (Amended Complaint, ¶ 62). Plaintiff further alleges that, as a result of defendant's conduct, defendant "has breached its fiduciary duty to plaintiff" (id., ¶ 63).

In order to create a fiduciary duty, a special relationship of trust and confidence must exist (Broadway Natl. Bank v Barton-Russell Corp., 154 Misc 2d 181 [Sup Ct, NY County 1992]). Thus, a fiduciary relationship exists only where one entity "is under a duty to act for or to give advice for the benefit of another upon matters within the scope of the relation" (Mandelblatt v Devon Stores, Inc., 132 AD2d 162, 168 [1st Dept 1987]; see also Restatement (Second) of Torts § 874). "[W]hen parties deal at arms length in a commercial transaction, no relation of confidence or trust sufficient to find the existence of a fiduciary relationship will arise absent extraordinary circumstances" (Pan Am Corp. v Delta Air Lines, Inc., 175 BR 438, 511 [SD NY 1994] [citation and quotation omitted]).

Here, plaintiff has failed to plead any facts in the amended complaint that support the existence of a fiduciary relationship between plaintiff and defendant. To the contrary, plaintiff's allegation that "[b]y reason of the agreement between [defendant] and plaintiff, [plaintiff] has, and had, a fiduciary duty of good faith and fair dealing with plaintiff, in particular, not to interfere with plaintiff's customer list" (Amended Complaint, ¶ 62) demonstrates that the relationship between plaintiff and defendant was no more than an arms' length business arrangement. "A conventional business relationship does not create a fiduciary relationship in the absence of additional factors" (RKB Enterprises, Inc. v Ernst & Young, 182 AD2d 971, 972 [3d Dept 1992]). Plaintiff fails to allege any "additional factors," and plaintiff's reference to "a duty of good faith and fair dealing" (Pl Opp, at 12) adds nothing to its claim of breach of fiduciary duty.

The amended complaint fails to allege any facts supporting the existence of a fiduciary relationship, or a breach of a duty arising from any such relationship, and the sixth cause of action must thus be dismissed.

Accordingly, the amended complaint fails to state a cause of action upon which relief may be granted, and is dismissed.

I have considered the remaining claims, and find them to be without merit.

Accordingly, it is

ORDERED that defendant's motion to dismiss is granted, and the complaint is dismissed, with costs and disbursements to defendant as taxed by the Clerk of the Court; and it is further

ORDERED that Clerk is directed to enter judgment accordingly.

Dated: January 27, 2006

ENTER:

_______________________ [*8]

J.S.C.

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