RMS Holdings, Inc. v Fujita

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RMS Holdings, Inc. v Fujita 2009 NY Slip Op 33282(U) August 24, 2009 Supreme Court, New York County Docket Number: 41900-08 Judge: Emily Pines Republished from New York State Unified Court System's E-Courts Service. Search E-Courts (http://www.nycourts.gov/ecourts) for any additional information on this case. This opinion is uncorrected and not selected for official publication. [* 1] INDEX NUMBER: qTfl 4 - SUPREME COURT STATE OF NEWY O R K COMMERCIAL DIVISION, PART SUFFOLK 46, COUNTY Original Motion Date: Motion Submit Date: Motion Sequence No s.: Present: HON. EMILY PINES J. S. C. X KMS HOLDINGS, INC., RMS INSUR4NCE BROKERAGE, LLC d/b/a EAST E:ND INSURANCE SERVICES, Plaintiffs, 04-214-2009 06-24-2009 002 MD Attorney for Plaintiff David S. Kritzer & Associates 187 East Main Street Huntington, New York 11743 Attorney for Defendant The Law Offices of Jason I,. Abelove 666 Old Country Road, Suiite 304 Garden City, New York 11530 -againstDAVID FUJITA, JASON WAHL, JASON LUHRS, and SHORELINE INSURANCE BROKERAGE, LLC, Defendants. . -________ X ORDERED, that the motion (motion sequence numer002) by defendants pursuant to CPLR to dismiss the oinplaint is denied; and it is further ORDERED, that a compliance conference is scheduled for September 9, 2009 at 9:30 a.m. before the iiriclersignecl. Plaintiffs commenced this action against defendants seeking damages and injunctive relief arising out of ,-.!enclants a1leged breach of certain restrictive covenants and intentional interference with busliness relations. The ~ubinirsionr, reflect that in or about October 1,2005, plaintiff, RMS Insurance Brokerage LLC ( RMS ) purchased !tic assets oj plaintiff East End Insurance Agency, Inc., d/b/a East End Insurance Services ( East End ) and at the : !ne of the purchase, defendants David Fujita ( Fujita ), Jason Wahl ( Wahl ) and Jason Luhrs ( Luhrs ) were --riiploveesof East End. Each ofthese defendants had entered into employment contracts with East End (which were I RblS is J wholly owned subsidiary of plaintiff, RMS Holdings, Inc. [* 2] .~sjigned RMS on the purchase) containing restrictive covenants. Specifically, on September 15, 2005, Fujita, tc ! ah 1 and Luhrs each executed a separate, yet identical CONFIDENTIALITY AND NONSOLICITATION \ I( iREEMENT (the Agreement ) which contained the following provisions: 3 You understand and agree that, as a result of being employed and trained by EEIS and being given access to EEIS Confidential Information, you will gain valuable skills and will be able to develop contacts and relationships with EEIS employees, customers, and vendors. 4, Therefore, you promise to abide by the following restrictions, which you agree are reasonable and necessary for the protection of EEIS legitimate business interests: (b) You agree that after your employment with EEIS ends, you will not disclose any of EEIS Confidential Information to anyone outside EEIS, except if it is necessary for the performance of your duties for EEIS and you are acting solely in EEIS interests. (c) You agree that when your employment with EEIS ends, you will immediately return to EEIS all originals and copies of any documents and other materials you receive:d or obtained from EEIS during your employment including, but not limited to, keys, customer and/or vendor lists, computer discs and/or programs, CD s, equipment and manuals. (e) You agree that during your employment with EEIS and for twelve months after your employment with EEIS ends, you will not, directly or indirectly, induce, encourage or solicit any other employee or officer of EEIS to leave EEIS employ or assist any person, company or entity to engage in such conduct. (f) You agree that during your employment with EEIS and for twelve months after your employment with EEIS ends, you will not, directly or indirectly, on your own1behalfor on behalf of any person or entity, induce, encourage, solicit or initiate any contact with any customer of EEIS, with the intent of influencing such customer to cease doing business with EEIS or otherwise interfering with EEIS relationship with any of its customers. Subsequently, on or about January 1, 2007, RMS entered into a Producer Employment igreement . with Luhrs which superceded all prior agreements between these partie:s. This Producer I-mployment Agreement also contained a restrictive covenant which provided that: 3. Covenant Not to Solicit and ComDete. (a) Producer agrees, that for a period of two (2) years after the date which Producer ceases, for any reason, to be employed by Broker or any of its affiliates, Producer shall not, directly or indirectly within a territory comprising of and falling within New York City, Nassau and Suffolk Counties and a radius of 50 miles from the corporate borders thereof: At the time the Summons and Complaint was filed, plaintiff was unable to locate the employment tigreerrient with Wahl. However, subsequently same was located and is annexed to the opposition papers. Plaintiff -tates that it will be amending its Complaint to reflect the existence of the agreement with Wahl. Page2 of 5 [* 3] (i) solicit, accept or service any existing or future insurance business; (x) from any customer (including any active and/or prospective customer who is an actual or intended object of substantive solicitation by Broker) that Producer (either alone or in combination with others) solicited,accepted, or serviced during or prior to Producer s employment with Broker or its affiliates (whether pursuant to this Agreement or otherwise); and/or (y) from any of the parents, subsidiaries, associated entities, successors and/or assigns of any such customer; and/or (ii) assist or be employed, retained, or engaged by any person in soliciting, accepting, or servicing any existing or future insurance business: (x) from any of the customers referenced in subparagraph (i) of Section 13(a); or (y) from any of the parents, subsidiaries,associated entities, successors and/or assigns of any such customer; and/or (iii) request, advise, and/or encourage any of the customers referenced in subparagraph (i) of this Section 13(a), or any of the parents, subsidiaries, associated entities, successors and/or assigns of such customers, to withdraw, cancel, curtail, relocate, or assign or reassign to, or place with others any of its existing or future insurance with respect to any new, renewal and/or replacements policies; Plaintifis allege that Wahl terminated his employment with RMS in May of 2008, Fujita in June ) I 2008 arid Luhrs in October of 2008 and thatprior to such termination, defendants Fujita, Wahl and iihrs formed defendant Shoreline Insurance Brokerage, LLC ( Shoreline ). In the First Cause ofAction 1 (igainst Fujita, plaintiffs assert that he breached the Agreement by operating Shoreline, which is located oniy 1 hree tenths of a mile from plaintiffs principal place of business. Moreover, plaintiffs allege that ulita has breached the Agreement by soliciting customers of East End and soliciting other employees 1 leave plaintiffs employ. Plaintiffs seek both injunctive relief enjoining Fujita from breaching the * estrictive covenants and money damages arising from the breach. Similarly, the Second Cause of iction is against Luhrs and alleges that he breaclied the Producer Employment Agreement as a result t ~ the formation of Shoreline, solicitation of East End Customers and solicitation of employees. t Plaintiffs also seek injunctive relief and money damages against Luhrs. The Thiird Cause of Action asserted against all defendants and sounds in tortious interference with business relations. Here, I 1) laintiffs assert that defendants have targeted plaintiffs customers with the intention of diverting them 1I d i e r in,suranceagencies and seek money damages. Defendants now move to dismiss the Complaint on the ground that it fails to state a cause of -1 i 1 on. i Specifically, defendants argue that the restrictive covenants contained within the respective igreeinent; are not enforceable because the plaintiffs customer lists are not a protected trade secret. I hey arguc that the customer lists are readily ascertainable and thus not afforded trade secret protection. With regard to the cause of action alleging tortious interference with business relations, defendants assert rhat plaintiffs have failed to plead the essential elements of this cause of action, specifically, wrongful Page 3 of 5 [* 4] :onduct o the part of defendants which caused third parties to fail to enter into a contractual relationship m uith plaintiffs. Thus, defendants urge the Court to dismiss the Complaint in its entirety. Plilintiffs oppose the motion and argue that defendants opposition wholly ignores the fact that ~e [ endantswere obligated to comply with the subject agreements and that defendants breached those igreemenl s. Plaintiffs assert that the agreements at issue here clearly and unambiguously restricted the I msl-employmentconduct of defendants and included the customer lists in the definition oftrade secrets. i iaintiffs iirgue that the restrictive covenants contained within these agreements are enforceable in that he? are reasonable and specific with regard to geographic scope and time period and do not limit Jet endant:i from earning a livelihood. With regard to the cause of action for tortious interference, iriainriffs ilrgue that they have established wrongful conduct by defendants; to wit, a breach of their iiduciary duty to plaintiffs in the formation of Shoreline prior to the termination of their employment si ith KMS. Thus, plaintiffs request that the motion to dismiss be denied. It i i well settled that on a motion to dismiss pursuant to CPLR $321 1(a)(7), the complaint must f xiiberally construed in the light most favorable to the plaintiff and all allegations mist be accepted as 11 ue. Pacific Carlton Development Corp., u. 752 Pacific, LLC., 62 A.D.3d 677,878 Yi.Y.S.2d ,421 (2d Dept. 2009). The Court must determine whether the facts as alleged fit within any ognizable legal theory. Beja u. Meadowbrook Ford, 48 A.D.3d 495,852 Nr.Y.S.2d 268 (2d 1)ept 2008). - The standard is not whether the complaint states a cause of action, but whether the plaintiff has a cause of action. Morales u. Copy Right, Inc., 28 A.D.3d 440, 813 N.Y.S.2d *-% <I (2d Dept. 2006). Restrictive covenants are generally disfavored by the courts and will only be enforced if :zasonably limited in time and geography, and only as necessary to protect the employer s use of trade wcrets or confidential information. Gilman & Ciocia, Inc., u. Randello, 55 14.D.3d 871,866 Y.Y.S.2d 334 (2d Dept. 2008); Natural Organics u. Kirkendall, 52 A.D.:3d 488,142 92d ilept 2008); Ricca u. Ouzounian, 51 A.D.3d 997, 859 N.Y.S.2d 238 (2d Dept. 2008). oreover, to establish a claim of tortious interference with prospective contractual relations, the riaint iff must prove that the defendant engaged in culpable conduct which interfered with a prospective iontractual relationship between the plaintiff and a third party. Lyons u. Menoudakos & LWenoudalcos, P.C., 63 A.D.3d 801, 880 N.Y.S.2d 509 (2d Dept. 2009); citing, NBT Page 4 of 5 [* 5] Bancorp u. Fleet/Norstar Fin. Group, 87 N.Y.2d 614,641 N.Y.S.2d 581,64 N.E.2d 492 1996). The plaintiff must prove that the motive for the interference was malicious. RSA Distributors, Inc., u. ContractFurnitureSalesLtd., 248A.D.2d 370,669 N.Y.S.2d 842 w d Dept .1998). See also, AnesthesiaAssoc. u. Northern WestchesterHospital, 59 A.D.3d 473, 873 N.Y.S.2d 679 (2d Dept. 2009). Wrongful conduct includes physical violence, i rrtud or misrepresentation, civil suits and criminal prosecutions, and some degrees of economic pressure." Smith u. Meridian Technologies, Inc., 52 A.D.3d 685, 861 N.Y.S.2d 687 (2d l k p i . 2008)(internal quotations omitted). Wriongful conduct could also result from a breach of tiduciary duty. RSA Distributors, supra. in applying the above principles to the case at bar, the Court finds that the Complaint is sufficient IO state a cause of action for breach of the restrictive covenants and tortious interference with business ire I ations. It is undisputed that defendants executed the employment agreements which contained the wstnctive covenants, which, essentially, limited them from soliciting any of plaintiffs customers or mployees for a period of one year (for Fujita and Wahl), and two years (for Luhrs). The Complaint <lileges defendants actively solicited RMS customers and employees in violation of the agreements that ,mirestrictive covenants contained therein. The Court finds that the restrictive covenants were narrowly r:uIorsd to protect plaintiffs legitimate business interests and neither prevent fair competition nor defendants ability to earn a living. Moreover, the allegations that defendants formed a competing orporation while employed by RMS and contacted plaintiffs customers are sufficient to state a cause ii action fi)r tortious interference with business relations. ¬ k e don the foregoing, the motion to dismiss is denied. A compliance conference is scheduled 101 September 9,2009 at 9:30 a.m. before the undersigned. This constitutes the DECISION and ORDER of the Court. n Dated: August 24, 2009 Riverliead, New York Jr S. C. Page5 of 5

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