AVGraphics, Inc. v Inc.

[*1] AVGraphics, Inc. v NYSE Group, Inc. 2009 NY Slip Op 50517(U) [22 Misc 3d 1139(A)] Decided on March 20, 2009 Supreme Court, New York County Lehner, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. As corrected in part through April 6, 2009; it will not be published in the printed Official Reports.

Decided on March 20, 2009
Supreme Court, New York County

AVGraphics, Inc., Jean Pierre Azoulay and Daria Mcdermott, Plaintiffs,

against

NYSE Group, Inc. (Successor in Interest to New York Stock Exchange, Inc.), New York Stock Exchange, Inc., John Gregoretti, Tony Walenty, Sam Cocozza, Margaret DeB. Tutwiler, John Thain, Individually and As Employees of NYSE Group, Inc., Anthony E. Wilson, a/k/a Tony Wilson, Dana Gregoretti, and E-Trade Securities LLC, Defendants.



106997/08

Edward H. Lehner, J.

BACKGROUND

In motion sequence number 004, defendants NYSE Group, Inc, New York Stock Exchange, Inc., John Gregoretti, Tony Walenty, Sam Cocozza, Margaret DeB. Tutwiler and John Thain (collectively, NYSE defendants) move, pursuant to CPLR 3211 (a) (7) and 3016 (a), to dismiss the complaint against them.

This case arises out of a written contract between AVGraphics, Inc. (AVGraphics) and New York Stock Exchange, Inc. (NYSE), a predecessor of NYSE Group, Inc. The agreement provided for AVGraphics to supply audio-visual and graphic services, from work space provided at NYSE's offices, for an initial one-year term until December 31, 2005. This agreement was renewed for an additional one year, ending on December 31, 2006. The agreement was not renewed for a third year, but the parties entered into an agreement for the period January 1, 2007 through February 28, 2007, subject to termination thereafter upon 30 days notice by either party. The original agreement contained a non-solicitation clause, stating that NYSE would not solicit the services of AVGRaphics employees for a period of one year after the expiration of the agreement. The agreement entered into on January 1, 2007, [*2]contained no such provision.

AVGraphics was founded by plaintiff Jean Pierre Azoulay (Azoulay). Plaintiff Daria McDermott (McDermott) was employed as Administrative Director of AVGraphics and eventually acquired Azoulay's ownership interest, allegedly at the insistence of NYSE. McDermott signed the agreement commencing January 1, 2007 on behalf of AVGraphics.

The complaint alleges that two former employees of AVGraphics, defendants Anthony Wilson (Wilson) and Dana Gregoretti (Dana), fraudulently accessed Azoulay's E-Trade Securities, LLC (E-Trade) brokerage account on April 20, 2005 and, on that day, purchased shares of Archipelago Holdings, Inc. (Archipelago) in Azoulay's name and for his benefit. This acquisition was made one day before public announcement of a merger between Archipelago and a predecessor of NYSE. Archipelago's stock price rose dramatically on April 21, 2005, when the merger was announced.

The complaint alleges that Wilson and Dana effectuated this trade in Azoulay's account so that Azoulay would be falsely accused of insider trading. None of the NYSE defendants is alleged to have participated in this purchase or to have contemporaneous knowledge of such transaction. The complaint alleges that, more than one year after the occurrence, Wilson and Dana sent e-mails to the NYSE defendants in which they allegedly state that they can destroy Azoulay.

Wilson was fired from his job at AVGraphics in September, 2006, at which time, according to the complaint, he allegedly "extorted and threatened to falsely reveal to authorities that Plaintiff Azoulay had made an illegal trade' with respect to the insider' information AVGraphics management employees had been given with respect to the merger between NYSE and Archipelago" (Complaint, ¶ 46), and "attempted to bribe and extort money from Azoulay" (id., ¶ 47) in return for not reporting him to defendant John Gregoretti, an NYSE employee and father of Dana.

In October, 2006, Azoulay met with defendant Tony Walenty and another non-party NYSE employee to discuss renewing the above-discussed agreement. Allegedly, the parties orally agreed to renew the contract with a 20% cost increase, but this agreement was never reduced to writing.

On December 14, 2006, Azoulay met with NYSE executives who informed him that they were aware of an unlawful E-Trade transaction in his account. Azoulay was striped of his NYSE identification card and escorted from the building. According to the complaint, after Azoulay was escorted from the premises, defendants confiscated his computer and his files, which they have never returned. The complaint also alleges that NYSE refused to continue doing business with [*3]AVGraphics unless Azoulay relinquished his ownership interest in the company and, as a consequence, Azoulay transferred his ownership interest in AVGraphics to McDermott.

The complaint sets forth six causes of action against some or all of the NYSE defendants: (1), breach of contract against NYSE alone; (2), tortious interference with contract against all defendants except E-Trade; (3), tortious interference with contract against all defendants except E-Trade; (4) and (5), conversion against all defendants except E-Trade, Wilson and Dana; and (6), defamation against all defendants except E-Trade.

The complaint also sets forth a seventh cause of action against E-Trade. However, by order of this court on September 26, 2008 the action against E-Trade was severed and set down for arbitration. Further, at oral argument on January 30, 2009, plaintiffs voluntarily withdrew the action with respect to defendants Margaret DeB. Tutwiler and John Thain (tr. p. 25).

Plaintiffs originally filed the identical action in the United States District Court for the Southern District of New York in September of 2007. That federal complaint was amended once, but plaintiffs consented to the dismissal of the federal action on jurisdictional grounds and instituted the instant action.

DISCUSSION

On a motion to dismiss pursuant to CPLR 3211, the pleading should be liberally construed, the facts alleged by the plaintiff should be accepted as true, and all inferences should be drawn in the plaintiff's favor (Leon v Martinez, 84 NY2d 83 [1994]). However, the court must determine whether the alleged facts "fit within any cognizable legal theory." Id. at 88. Further, "[a]llegations consisting of bare legal conclusions ... are not presumed to be true [and] accorded every favorable inference." Biondi v Beekman Hill House Apt. Corp., 257 AD2d 76, 81 (1st Dept 1999), affd 94 NY2d 659 (2000).

The first cause of action, asserted against NYSE alone, alleges a breach of contract based on three theories: (1) a violation of the agreement's restriction of solicitation of AVGraphics employees; (2), a violation of the termination provisions of the agreements; and (3), a violation of the covenant of good faith and fair dealing.

The court notes that the employees of AVGraphics are not alleged to be parties to an employment contract, and therefore, are deemed to be at-will employees. "Where, as here, the allegations concern at-will employees not bound by covenants not to compete, plaintiff has the high burden of asserting that defendant employed wrongful means, such as fraud, misrepresentation [*4]or threats to effect the termination of employment" [internal quotation marks and citations omitted]. Lockheed Martin Corp. v Aatlas Commerce, Inc., 283 AD2d 801, 803 (3d Dept 2001).

In the instant matter, plaintiffs have failed to allege that NYSE engaged in fraud, misrepresentation or threats to solicit AVGraphics' at-will employees, and therefore the first cause of action based on a violation of the non-solicitation provisions of the agreement must fail.

Additionally, the complaint fails to identify any AVGraphics employees who were so solicited, nor does it state that any AVGraphics employees actually left AVGraphics' employment at NYSE's behest. Allegations based on mere conclusory statements that fail to indicate any damage are insufficient to sustain a complaint. Gordon v Dino De Laurentis Corp., 141 AD2d 435 (1st Dept 1988); Arcidiacono v Maizes & Maizes, LLP, 8 AD3d 119 (1st Dept 2004).

Plaintiffs' second theory for their breach of contract claim, that NYSE failed to abide by the agreement's termination provisions, also must fail. The contracts attached to the pleadings indicate that they all had termination dates, and the pleadings do not assert that the contracts were not in full force and effect for their entire term. Hence, NYSE could not have breached a termination provision.

Lastly, plaintiffs' cause of action for breach of contract by NYSE, based on a violation of a covenant of good faith and fair dealing, is similarly unavailing. As stated by the court in The Hawthorne Group, LLC v RRE Ventures (7 AD3d 320, 323 [1st Dept 2004]):

"[A] cause of action for breach of the implied duty

of good faith and fair dealing cannot be maintained

where the alleged breach is intrinsically tied to

the damages allegedly resulting from a breach of

the contract' " [citations omitted].

Plaintiffs have not alleged the violation of any duty specified in the above-referenced contracts, nor have they demonstrated that NYSE assumed a duty separate or distinct from those contractual obligations. Consequently, this cause of action must be dismissed.

The second cause of action alleges tortious interference with contract against all NYSE defendants, plus Wilson and Dana. The alleged interference relates to the solicitation of AVGraphics' employees discussed above.

In Kronos, Inc. v AVX Corp. (81 NY2d 90 [1993]), the Court stated that the [*5]elements necessary to maintain a claim for tortious interference of contract are: "(1) the existence of a contract between plaintiff and a third party, (2) defendant's knowledge of the contract, (3) defendant's intentional inducement of the third party to breach or otherwise render performance impossible, and (4) damages to plaintiff."

Without a contract with a third party that was breached because of NYSE defendants' interference, plaintiffs cannot maintain this cause of action. NBT Bancorp Inc. v Fleet/Norstar Financial Group, Inc., 87 NY2d 614 (1996). Also, as the court stated in Bainton v Baran (287 AD2d 317 [1st Dept 2001]), it is not possible to maintain an action for tortious interference with contract for services that are terminable at will. See also, American Preferred Prescriptions, Inc. v Health Management, Inc., 252 AD3d 414, 417 (1st Dept. 1998); Snyder v. Sony Music Enterprises, Inc., 252 AD2d 294, 299 (1st Dept. 1999). Further, there is no allegation of "wrongful" conduct that would sustain a claim of interference with prospective contractual relations. See, Guard Life Corporation v S. Parker Hardware Manufacturing Corp., 50 NY2d 183, 191-194 (1980). Moreover, the complaint fails to indicate any damages resulting to plaintiffs from the alleged tortious interference, which alone would require dismissal. See Burrowes v Combs, 25 AD3d 370 (1st Dept 2006).

The third cause of action, for tortious interference with contract, is against all of the individual defendants, alleging that they tortiously interfered with the agreements between NYSE and AVGraphics. However, these defendants were all employees of the parties to the contracts in question, and there was no contract with third parties specified in the complaint. This claim alleges acts committed by the individual corporate employees, but there is no particularized pleading that such acts were either beyond the scope of their employment or motivated by their desire for personal gain. See, Chambers Associates LLC v 105 Acquisition LLC, 37 AD3d 365, 365 (1st Dept 2007). In Petkanas v Kooyman, 303 AD2d 303, 305 (1st Dept. 2003), it was ruled: "[A] cause of action seeking to hold corporate officials personally responsible for the corporation's breach of contract is governed by an enhanced pleading standard. Generally, we have construed such a standard to require a particularized pleading of allegations that the acts of the defendant corporate officers which resulted in the tortious interference with contract either were beyond the scope of their employment or, if not, were motivated by their personal gain, as distinguished from gain for the corporation. We have construed personal gain in terms that the challenged acts were undertaken with [*6]malice and were calculated to impair the plaintiff's business for the personal profit of the [individual] defendant " [internal quotation marks and citations omitted].

Since none of the elements necessary to maintain an action for tortious interference with contract exist in the complaint, this cause of action is dismissed.

Plaintiffs' fourth and fifth causes of action assert claims of conversion against all the defendants except E-Trade, Wilson and Dana. The property alleged to have been converted in the fourth cause of action consists of Azoulay's computer, software, hardware, trade secrets, goodwill and other assets. In the fifth cause of action, the property in question is Azoulay's ownership interest in AVGraphics, which was transferred to his co-plaintiff McDermott.

Conversion is defined "as an intentional act of dominion or control over a chattel which so seriously interferes with the right of another to control it that the actor may justly be required to pay the other the full value of the chattel" [internal quotation marks and citation omitted]. Thyroff v Nationwide Mutual Insurance Company, 8 NY3d 283, 288 (2007).

The complaint makes no specific allegations against the individual defendants, but asserts that NYSE "improperly and illegally" confiscated Azoulay's property (Complaint, ¶ 62). The individual defendants, as employees of NYSE, are protected by the corporate veil, and there is no effort to pierce that corporate veil. There is no allegation that these individuals used their positions for personal, as opposed to corporate, gain. Therefore, they cannot be held liable for an alleged conversion. Brito v DILP Corporation, 282 AD2d 320 (1st Dept 2001). While trade secrets and good will are not subject to conversion, the allegations of conversion against NYSE of "computers, software (and) hardware" (complaint ¶ 86) do state a viable claim.

In the fifth cause of action, the complaint alleges that Azoulay was required to turn over his ownership interest in AVGraphics to McDermott in order to continue AVGraphics' relationship with NYSE. Based on that allegation, it is co-plaintiff McDermott who is exercising the dominion and control over Azoulay's property, and so the complaint must be dismissed as to the defendants.

The sixth cause of action alleges defamation. In order to maintain such a cause of action, the claimant must allege in the complaint the particular words complained of and the time, place and manner in which the words were stated must be set forth clearly and not paraphrased. Manas v VMS Associates, 53 AD3d 451 (1st Dept. 2008); Rosenberg v Home Box Office, Inc., 33 AD3d 550 (1st Dept 2006). Since the complaint fails to comply with the foregoing, the claim for defamation is dismissed.

In their opposition, plaintiffs have requested leave to replead should defendants' motion be granted. However, plaintiffs have failed to include a proposed amended complaint, nor have they specified how an amendment would cure the defects discussed above. For these reasons, plaintiffs' request to replead is denied. Automobile Coverage, Inc. v American International Group, Inc., 42 AD3d 405 (1st Dept 2007).

CONCLUSION [*7]

Based on the foregoing, it is hereby

ORDERED that the movants' motion to dismiss the complaint as against them is granted except with respect to the conversion claim discussed above as against NYSE, and the Clerk is directed to enter judgment accordingly, severing the claim as against NYSE.

Dated: March 20, 2009_________________

J.S.C.