24 Seven Inc. v Fiorello
Annotate this CaseDecided on December 21, 2006
Supreme Court, New York County
24 Seven Inc. and 24 Seven Online Inc., Plaintiffs,
against
Christian Fiorello, The Gromwell Group, Sal Furia and Demitra Parets, Defendants.
600547/04
Herman Cahn, J.
This is an action for compensatory and injunctive relief arising out of defendants' alleged misappropriation of plaintiffs' confidential information. Plaintiffs 24 Seven Inc. (24 Seven) and 24 Seven Online Inc. move (seq. no. 012), pursuant to CPLR 3126 and 4403, for an order: (1) confirming the interim report of a Special Referee dated June 5, 2006; (2) directing defendants to pay plaintiffs' attorneys' fees and costs incurred in connection with the contempt phase of the action; and (3) imposing discovery sanctions on defendants.
Defendants Christian Fiorello, Sal Furia, and Demitra Parets (the individual defendants) and The Gromwell Group separately cross-move to reject the Referee's report.
BACKGROUND
24 Seven is a staffing company that places temporary and permanent employees with its clients, who are primarily in the fashion industry. Defendants Fiorello, Furia and Parets are all former employees of 24 Seven who later accepted employment with The Gromwell Group, one of 24 Seven's competitors in the staff placement industry.
On March 12, 2004, the court issued a temporary restraining order (TRO) enjoining The Gromwell Group and Parets "from using confidential information or documents that Parets learned, obtained, created or assisted in creating while in the employ of 24 Seven, Inc. or an affiliate or successor thereof, including but not limited to any confidential information or documents concerning its business, in order to solicit business from any customer [of] 24 Seven, Inc." Defendants were directed to deliver to 24 Seven "all originals and copies or computerized records now possessed by [d]efendants, or which are otherwise subject to the [d]efendants' custody or control, of all documents reflecting or containing confidential information of 24 Seven, Inc."
A second TRO was issued on March 25, 2004 enjoining The Gromwell Group as well as defendants Fiorello and Furia from using confidential information or documents that defendant Furia "learned, obtained, created or assisted in creating" while in plaintiffs' employ, in order to [*2]solicit business from plaintiffs' customers. Defendants were ordered to deliver to 24 Seven "all originals and copies or computerized records now possessed by [d]efendants, or which are otherwise subject to the [d]efendants' custody or control, of all documents reflecting or containing confidential information of either plaintiff."
Plaintiffs moved to hold defendants in contempt for violating the TROs. By decision and order dated September 30, 2005, the court referred the issue of whether defendants violated the TROs to a Special Referee to hear and report. The court also referred the issue of damages to the Referee in the event that the Referee concluded that the TROs had been violated.
This matter was subsequently assigned to Special Referee Louis Crespo. On January 9, 2006, the Referee granted plaintiffs' application to bifurcate the hearings into liability and damages phases. The Referee conducted a twelve-day hearing on January 9, 10, 17, and 18, February 14, 15, and 16, and April 5, 6, 10, 11 and 26, 2006. He heard the testimony of 24 witnesses and reviewed 49 documents admitted into evidence. On June 5, 2006, the Referee issued a 104-page interim report on liability, finding that the individual defendants should be held in civil and criminal contempt of the TROs and that The Gromwell Group should be held in civil contempt.
DISCUSSION
"It is well settled that the report of a Special Referee shall be confirmed whenever the findings contained therein are supported by the record and the Special Referee has clearly defined the issues and resolved matters of credibility, since the Special Referee is considered to be in the best position to determine the issues presented" (Nager v Panadis, 238 AD2d 135, 135-136 [1st Dept 1997] [citations omitted]). Courts have the power to confirm, in whole or in part, the findings and recommendations of a Referee (CPLR 4403; see also Kardanis v Velis, 90 AD2d 727 [1st Dept 1982]).
The movant on a motion for civil contempt bears the burden of proof by clear and convincing evidence (see McCain v Dinkins, 84 NY2d 216, 225 [1994]). " [T]o find that a party is in civil contempt, a lawful judicial order expressing an unequivocal mandate must have been in effect and disobeyed . . . and it must be demonstrated that its failure to comply therewith prejudiced the rights of a party to the litigation'" (Attonito v Maldonado, 3 AD3d 415, 418 [1st Dept], lv denied 2 NY3d 705 [2004], quoting Garcia v Great Atl. & Pac. Tea Co., Inc., 231 AD2d 401, 402 [1st Dept 1996]; see also Judiciary Law § 753 [A] [3]). Willfulness is not a required element (Italian Am. Civic Assn. of Mineola, NY, Inc. v Cataldo, 225 AD2d 733,
733-34 [2d Dept], lv dismissed 88 NY2d 1065 [1996]). The aim of civil contempt is the vindication of a private right of a party to litigation, and any penalty imposed upon the contemnor is designed to compensate the injured private party (see Dept of Envtl. Protection of City of New York v Dept of Envtl. Conservation of State of New York, 70 NY2d 233, 239 [1987]; McCormick v Axelrod, 59 NY2d 574, 583 [1983]).
Criminal contempt requires "[w]ilful disobedience to [a court's] lawful mandate" (Judiciary Law § 750 [A] [3]), which must be proven beyond a reasonable doubt (New York City Coalition to End Lead Poisoning v Giuliani, 245 AD2d 49, 50 [1st Dept 1997]; Gouiran Holdings, Inc. v McCormick, 163 AD2d 44 [1st Dept], lv dismissed 76 NY2d 851 [1990]). The goal of criminal contempt is to vindicate the authority of the court (see McCormick, 59 NY2d at [*3]583).
The Referee found the individual defendants in criminal contempt of the TROs, inasmuch as he found that they had willfully violated the court's orders, and acknowledged that willfulness was an element of criminal contempt, but not of civil contempt (Report at 99).
Pursuant to CPLR 4311, a Referee is bound by the order of reference. On September 30, 2005, upon plaintiffs' motion for contempt, the court referred "[t]he issue of whether or not each or any of the defendants violated [the TROs]." The nature of the relief sought in the motion papers must therefore be examined (see Spector v Allen, 281 NY 251, 256-257 [1939]; New York City Tr. Auth. v Transp Workers Union of Am., 822 NYS2d 579, 588 {35 AD3d 73} [2d Dept 2006]). A review of the motion indicates that it was made pursuant to Judiciary Law § 753, the statute for civil contempt, and contains the warnings required for a motion for civil contempt (Judiciary Law § 756). The order to show cause also sought compensatory relief, rather than punitive relief. The motion papers do not suggest that plaintiffs sought criminal contempt (see Garry v Garry, 121 Misc 2d 81, 84 [Sup Ct, Nassau County 1983]).
Under Judiciary Law § 751 (1), and as a matter of fundamental due process, an alleged contemnor is entitled to know that criminal contempt is being sought before criminal sanctions may be considered (see Bloom v Illinois, 391 US 194, 198 [1968]; Hero Boy, Inc. v Dell'Orto, 306 AD2d 226 [1st Dept 2003]). Because the individual defendants did not have notice that a finding of criminal contempt was sought, the Referee's criminal contempt findings must be rejected (see Page v Cheung on Mansion, Inc., 138 AD2d 324, 325 [1st Dept 1988] [the finding that a landlord had committed criminal contempt was erroneous where motion papers did not specify criminal contempt and landlord was not personally served with papers supporting contempt]; Garry, 121 Misc 2d at 84 [motion papers did not apprise alleged contemnor that criminal contempt was sought]).
With respect to the civil contempt findings, defendants argue that plaintiffs failed to meet their burden of proof by clear and convincing evidence. The "clear and convincing" standard of proof requires a finding of "high probability" (Eichner v Dillon, 73 AD2d 431, 469 [2d Dept 1980], mod on other grounds 52 NY2d 363, cert denied 454 US 858 [1981]). Upon review of the Referee's report and the record, the court finds that the Referee's report is substantially supported by the record as to civil contempt.
As for the first element of civil contempt, the TROs expressed a clear and unequivocal mandate enjoining The Gromwell Group and the individual defendants from using confidential information that either Parets or Furia learned, obtained, created or assisted in creating while employed by 24 Seven. The Gromwell Group and the individual defendants were also ordered to return all documents or records reflecting or containing plaintiffs' confidential information to 24 Seven.
That defendants disobeyed the TROs was also established, with reasonable certainty, by the evidence. 24 Seven's principals testified that its aging reports were confidential and contained trade secrets because they contained client names and contact information. This information was compiled through considerable effort and expense, and was not readily ascertainable by the public (Report at 4-6, 15, 75). "[W]here the customers are not known in the trade or are discoverable only by extraordinary efforts courts have not hesitated to protect customer lists and files as trade secrets. This is especially so where the customers' patronage had [*4]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, 392-93 [1972] [citations omitted]).
Five former employees of The Gromwell Group Alicia Fazio, Claire Lewis, Melissa To, Melissa Angel and Jodi LaBow testified that defendants solicited clients by using plaintiffs' confidential records and trade secrets after March 2004 (Report at 18, 26, 30-31, 35-36). Ms. Fazio, Ms. To and Ms. LaBow also testified that one of The Gromwell Group's principals, Thomas Foley, was aware that the documents were being used on The Gromwell Group's premises during this time period (id. at 19, 26, 34). According to these three witnesses, 24 Seven's confidential documents were shredded and discarded during an incident that occurred in October 2004 (id. at 23, 27-28, 37).
Finally, the court agrees with the Referee's conclusion that plaintiffs were prejudiced by defendants' conduct. Based upon the record before the Referee, defendants obtained a competitive edge by using the documents in violation of the TROs and in contravention of plaintiffs' property interests in the documents (see McCormick, 59 NY2d at 583).
The Gromwell Group challenges the Referee's conclusion that it solicited freelance workers, as not based on competent evidence. Three of plaintiffs' candidates, Rachel Ancliffe, Sarah Levine and Charlene Johnson, testified for plaintiffs that they had been called by The Gromwell Group from early to mid-2004, although they had not submitted resumes to The Gromwell Group (Report at 79-80). Defense counsel objected to their testimony, as to what The Gromwell Group's representatives said to these candidates, as inadmissible hearsay (Jan. 10, 2006 Tr. at 9). The Referee allowed the testimony not for the truth of what the representatives said, but as evidence that the conversations took place (Prince, Richardson on Evidence § 8-101 [Farrell 11th ed]). The Referee properly inferred that The Gromwell Group had solicited these candidates based upon information learned from 24 Seven's confidential documents. In any event, the record is replete with evidence that Fiorello and Furia took 24 Seven's confidential information to The Gromwell Group, and that The Gromwell Group's employees used this information to contact clients (Report at 19-23, 25-27, 29-31, 34-36).
The individual defendants largely disagree with the Referee's credibility findings, and argue that he ignored key exculpatory testimony by witnesses they called. For example, the individual defendants point to Karen Ruiz's testimony that she never saw 24 Seven's confidential documents or witnessed the shredding of documents while she worked at The Gromwell Group. On questions of credibility, the court defers to the Referee's determination of credibility, which is entitled to "great deference" (Leinwand v Leinwand, 203 AD2d 210 [1st Dept 1994]). As for Karen Ruiz's testimony, since the Report clearly mentions her testimony in this regard (see Report at 39), defendants fail to establish that her testimony was ignored. The Referee's findings as to credibility are entitled to great weight, since he had the opportunity to hear and see the witnesses. The individual defendants have failed to show that the Referee was in any way biased.
Plaintiffs' request for an award of attorneys' fees and costs is held in abeyance until the Referee makes a recommendation as to damages. However, the referee is requested to hear and report as to the amount of reasonable attorneys' fees incurred by plaintiff in prosecuting the applications to hold defendants in contempt.
Plaintiffs' application to strike defendants' pleadings is denied. While a court generally [*5]has the power to strike a defendant's answer for a discovery violation (CPLR 3126), a court generally has the power to punish for contempt only by fines or imprisonment, or both (Judiciary Law §§ 751 [1], 753 [A]; Pitterson v Watson, 299 AD2d 467, 468 [2d Dept 2002]). The TROs were not discovery orders within the meaning of the CPLR.
Accordingly, it is
ORDERED that the motion by plaintiffs 24 Seven Inc. and 24 Seven Online Inc. to confirm the interim report of Special Referee Louis Crespo dated June 5, 2006 is granted to the extent that the findings of civil contempt are confirmed, and is otherwise denied; and it is further
ADJUDGED that defendants Christian Fiorello, The Gromwell Group, Sal Furia and Demitra Parets are guilty of civil contempt for their violations of the court's temporary restraining orders dated March 12, 2004 and March 25, 2004; and it is further
ORDERED that the cross motion by defendants Christian Fiorello, Sal Furia and Demitra Parets to reject the report is granted to the extent that the findings of criminal contempt are rejected, and is otherwise denied; and it is further
ORDERED that the cross motion by defendant The Gromwell Group to reject the report
is denied; and it is further
ORDERED that Referee shall hear and report on the issue of plaintiffs' damages incurred on account of defendants' violations of the TROs, and plaintiffs' reasonable attorneys' fees in prosecuting the contempt application.
Dated:December 21, 2006ENTER:
___________/s/_________________
J.S.C.
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