Hartford v DM Transp., Inc.

[*1] Hartford v DM Transp., Inc. 2006 NY Slip Op 51748(U) [13 Misc 3d 1209(A)] Decided on June 28, 2006 Supreme Court, Suffolk County Baisley, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 June 28, 2006
Supreme Court, Suffolk County

The Hartford a/s/o NBTY, Inc., Plaintiff,

against

DM Transport, Inc. and Donald Hoffman, Defendants.



001938/2004



Plaintiff's Attorney:

Lambert & Weiss

By: Daniel W. White, Esq.

61 Broadway

New York, New York 10006

Defendants' Attorneys:

Law Office of Michael J. Regan

By: Michael J. Regan, Esq.

Atty. for DM Transport, Inc. & Donald Hoffman 200 Railroad Avenue

Sayville, New York 11782

Jaspan Schlesinger Hoffman LLP

By: Stanley A. Camhi, Esq.

Atty. for Third-Party Deft. NBTY, Inc.

300 Garden City Plaza

Garden City, New York 11530

Ross & Suchoff, LLC

By: Brian K. Suchoff, Esq.

875 Sixth Avenue

Suite 1905

New York, New York 10001

Paul J. Baisley, J.

Upon the following papers numbered 1 to 13 read on this motion to amend complaint, cross-motion and motion for summary judgment: Notice of Motion and Affirmation in Support 1 and supporting papers Memorandum of Law in Opposition 2; Notice of Cross-motion 3 and supporting papers; Notice of Motion for Summary Judgment 4 and supporting papers; Memorandum in Support 5; Affidavit in Opposition 6; Affidavit in Opposition 7; Affidavit in Opposition 8; Memorandum of Law in Opposition 9; Reply Affirmation 10 and supporting papers; Reply Memorandum of Law 11; Reply Affidavit in Further Support 12; Reply Memorandum of Law 13; it is

ORDERED that the following motions and cross-motion are consolidated for purposes of this decision and determined as set forth hereinafter; and it is further

ORDERED that the motion (motion sequence no. 002) of defendants/third-party plaintiffs DM Transport, Inc. and Donald Hoffman for an order granting the movants leave to file an amended complaint pursuant to CPLR §3025(b) is withdrawn in accordance with the movants' memorandum of law dated February 2, 2006, wherein third-party plaintiffs withdraw their motion to amend the complaint to add fraud claims against Harvey Kamil, president of NBTY, Inc.; and it is further

ORDERED that the cross-motion (motion sequence no. 003) of third-party defendant NBTY, Inc. for an order granting the movant summary judgment pursuant to CPLR 3212 dismissing the third-party complaint is granted; and it is further

ORDERED that the motion (motion sequence no. 004) of plaintiff The Hartford, a/s/o NBTY, Inc., for an order granting summary judgment to plaintiff on its complaint and directing the clerk of the court to enter judgment in its favor in the sum of at least $121,817.00, jointly and severally against defendants DM Transport, Inc. and Donald Hoffman, together with interest and the costs and disbursements of this action, is granted. [*2]

The instant subrogation action was commenced by The Hartford ("Hartford") to recover monies paid to NBTY, Inc. ("NBTY") for a loss sustained by NBTY as a result of the alleged dishonesty of a former employee, Donald Hoffman ("Hoffman"). Plaintiff alleges that Hoffman, while employed by NBTY as its transportation manager, entered into a scheme whereby a corporation that he created, DM Transport, received "kickbacks" for overseas shipments of NBTY goods at inflated prices. The submissions reflect that upon learning of the alleged scheme, NBTY terminated Hoffman's employment, and thereafter filed a $121,817.00 proof-of-loss with its insurer, Hartford, which subsequently paid NBTY the sum of $96,817.00, reflecting the $121,817.00 claim less a $25,000.00 deductible. Hartford thereafter commenced the instant subrogation action against Hoffman and DM Transport, which impleaded NBTY as third-party defendant. Both NBTY and Hartford now move for summary judgment.

The cross-motion (motion sequence no. 003) of NBTY for summary judgment dismissing the first and second causes of action in the third-party complaint, sounding in tortious interference with contract and breach of contract, respectively, is granted. NBTY's submissions establish, prima facie, that it did not interfere with any alleged contract between DM Transport and T.F.S. Cargo, a freight forwarder and customs broker that handled the customs clearance of NBTY's goods when they arrived overseas. Pursuant to the alleged contract, T.F.S. Cargo assertedly agreed to pay DM Transport $2,000.00 for every container NBTY shipped overseas. The submissions reflect that after NBTY learned of the existence of DM Transport and Hoffman's alleged "kickback" scheme, it refused to pay the portion of T.F.S. Cargo's invoices that reflected the amounts that were being "kicked back" to DM Transport. Although third-party plaintiffs allege that T.F.S. Cargo thereafter failed to pay DM Transport the sum of $74,100.00 allegedly owed to it for NBTY shipments, defendants have proffered no evidence that NBTY did or said anything to induce T.F.S. Cargo not to pay DM Transport, or otherwise procured a breach of the alleged contract.

In addition, the submissions establish, prima facie, that NBTY did not have a contract with DM Transport. The deposition testimony of Hoffman's business partner in DM Transport, Michele Falco, establishes that there was no contract between NBTY and DM Transport. The submissions reflect that DM Transport never invoiced NBTY for the services it allegedly performed, and that NBTY did not know of the existence of DM Transport until it received an anonymous letter informing it of the kickback scheme. Defendants have come forward with no admissible evidence to rebut NBTY's prima facie showing of entitlement to summary judgment.

In light of the foregoing, the cross-motion of NBTY is granted, and the third-party complaint is dismissed in its entirety.

The motion (motion sequence no. 004) of plaintiff Hartford for summary judgment is granted. The submissions establish that Hoffman, acting in his capacity as NBTY's transportation manager, arranged with Box Consolidators, Inc., a shipping consolidator, for the shipment of NBTY's products to the United Kingdom at a cost of $1,900.00 per shipping container. The submissions further establish that Hoffman also arranged to have T.F.S. Cargo bill NBTY (actually, its U.K. subsidiary, Holland and Barrett) the sum of $3,900.00 per [*3]container, together with a customs clearance fee, and upon receipt of payment to remit the sum of $1,900.00 to Box Consolidators, Inc. and $2,000.00 to DM Transport, retaining the customs clearance fee for itself. The submissions further establish that DM Transport (of which Hoffman was a 50% shareholder and from which he received a $60,000 annual "salary" in addition to his salary from NBTY) received sums totaling $121,817.00 from shipments of NBTY products as a result of its arrangement with T.F.S. Cargo. Finally, the submissions establish that Hoffman never disclosed to NBTY the existence of DM Transport or his interest therein, from which Hoffman acknowledges that he "stood to gain."

The principle is well established that "[f]undamental to [the employer-employee relationship] is the proposition that an employee is to be loyal to his employer and is prohibited from acting in any manner inconsistent with his agency or trust and is at all times bound to exercise the utmost good faith and loyalty in the performance of his duties'...Clearly, an employee must not seek to acquire indirect advantage from third persons for performing duties and obligations owed to his employer" [citations omitted]. Western Electric Co. v. Brenner, 41 NY2d 291, 392 N.Y.S.2d 409 (1977). Plaintiff's submissions establish, prima facie, that Hoffman engaged in self-dealing and breached his duty of good faith and loyalty to his employer when, while employed by NBTY, he created a corporation for the sole purpose of enriching himself by overcharging NBTY for the cost of shipping NBTY's products overseas. Plaintiff's submissions also establish, prima facie, that plaintiff's subrogor/assignor NBTY suffered damages in the sum of $121,817.00 as a result of Hoffman's actions. Defendants' submissions in opposition to the motion fail to raise a triable question of fact. Hoffman, in his affidavits and in his deposition testimony, admits the substantive allegations of the complaint. His argument that NBTY was not harmed by his actions because it realized a cost savings of almost $6,000 per month compared to the fees it previously paid for overseas shipments is self-serving and does not constitute a defense to plaintiff's claims herein. Western Electric, supra, 41 NY2d at 295 ("an employee who makes a profit or receives a benefit in connection with transactions conducted by him on behalf of his employer is under a duty to give such profit or benefit to his employer"). Moreover, his assertion that DM Transport actually performed substantial services in connection with the shipment of NBTY goods is belied by the testimony of Michele Falco, who testified that Box Consolidators handled the NBTY shipments "door to door," that T.F.S. Cargo cleared the NBTY shipments through customs, and that DM Transport performed only minimal services in connection with each of the NBTY shipments, consisting of occasional telephone calls and preparing and faxing paperwork, comprising a few hours' work at most. Finally, Hoffman's deposition testimony reflected that the services that DM Transport was allegedly performing on behalf of NBTY were virtually identical to those services that he was obligated to perform for NBTY as its employee. In light of the foregoing, there are no material issues of fact that require a trial. Accordingly, plaintiff's motion for summary judgment is granted, and plaintiff is awarded judgment in the sum of $121,817, jointly and severally against defendants DM Transport and Donald Hoffman, together with interest and the costs and disbursements of this action.

Settle judgment.

In light of the foregoing determination, the compliance conference scheduled to be held [*4]before the undersigned on June 29, 2006 at 9:30 a.m. is cancelled.

Date:June 28, 2006______________________________

J.S.C.