Constantin Assoc. v Kapetas

[*1] Constantin Assoc. v Kapetas 2007 NY Slip Op 52320(U) [17 Misc 3d 1137(A)] Decided on December 6, 2007 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 December 6, 2007
Supreme Court, New York County

Constantin Associates, Plaintiffs,

against

Salomon Kapetas, Frederic Blanchard, KVB Partners & KVB Partners, Inc., Defendants.



601305/2006



For Plaintiff:

Brian J. O'Connor, Esq.

The O'Connor Law Firm

299 Broadway

Suite 1600

New York, NY 10007

For Defendants:

Richard M. Maltz, Esq.

488 Madison Avenue

9th Floor

New York, NY 10022

Bernard J. Fried, J.

Plaintiff has moved to dismiss defendants' second, third, fourth, and fifth counter-claims, and defendants have cross-moved to dismiss plaintiff's complaint, pursuant to C.P.L.R. §§ 3211(a)(1) & (7). Defendants' fifth counter-claim has been withdrawn, and plaintiff's motion to dismiss that claim need not be addressed.

This case involves various claims by plaintiff Constantin Associates (CA), a dissolved accounting partnership,[FN1] against Salomon Kapetas (Kapetas), Frederic Blanchard (Blanchard), KVB [*2]Partners and KVB Partners, Inc. Kapetas and Blanchard are former employees of CA, and the KVB entities are business entities which Kapetas and Blanchard allegedly formed prior to resigning from their employment. Generally, plaintiff alleges that Kapetas and Blanchard breached the fiduciary duty they owed plaintiff as their employer by setting up a competing business prior to their resignation. Plaintiff also alleges that the KVB entities aided and abetted Kapetas and Blanchard in breaching their fiduciary duty to plaintiff and that all defendants wrongfully used plaintiff's proprietary information to solicit plaintiff's clients. Defendants have counter-claimed, alleging that plaintiff has injured them through defamatory statements and interference with their business activities.

I.Plaintiff's Motion to Dismiss Defendants' Second, Third, and Fourth Counter-claims

First, I address plaintiff's motion to dismiss defendants' second counter-claim for defamation. As applied to the parties in this case, the elements of defamation are: (1) a false and defamatory statement concerning defendants, (2) publication by CA of such statement to a third party, and (3) injury to defendants. See, e.g., Christopher Lisa Matthew Policano, Inc. v. N. Am. Precis Syndicate, Inc., 129 AD2d 488, 514 (1st Dep't 1987) (discussing elements of a defamation claim). Facts pertinent to the defamatory statement, including the time and manner in which the statement was made, the identity of the person to whom the publication was made, and the particular words constituting the defamation, must be pleaded with specificity. C.P.L.R. § 3016(a); see also Vardi v. Mut. Life Ins. Co., 136 AD2d 453, 523 (1st Dep't 1988); Monsanto v. Elec. Data Sys. Corp., 141 AD2d 514 (2d Dep't 1988).However, where the defamatory statement tends to cause harm in one's trade or profession, the complaining party need not plead or prove special damages. See John Langenbacher Co. v. Tolksdorf, 199 AD2d 64 (1st Dep't 1993).

Defendants set forth in their counter-claim several allegedly defamatory statements made by agents of CA. Although some of these allegations lack sufficient specificity under the pleading standards for defamation, defendants have pleaded certain statements with enough specificity to state a cause of action. For instance, defendants set forth a sufficient allegation at paragraph 33(I) of the Second Amended Answer, which identifies the time (on or about March 23, 2006), manner (Serval told him), identity of the person to whom the publication was made (Jacques Wenig), and the particular words ("association of crooks") relevant to the allegation. Paragraph 33(iii), which states, "Serval told Charles O'Quinn, a KVB client, on or about April 13, 2006, that he will do everything to destroy KVB and they were an association of crooks'," also sets forth a sufficient allegation. Because defendants have stated a cause of action based on the strength of at least these allegations, I need not consider CA's lack of sufficiency arguments or its defense raised under Civil Rights Law § 74, as they relate to certain other statements which defendants have alleged.

Next, I address plaintiff's motion to dismiss defendants' third counter-claim for "Tortious Interference with Existing Business Relationships," which I will treat as a claim for tortious interference with contract. While tortious interference with prospective business relationships is actionable under New York law as tortious interference with prospective economic advantage, actions based on interference with existing business relationships require the existence of a contract. See Guard-Life Corp. v. S. Parker Hardware Mfg. Corp., 50 NY2d 183, 189-94 (1980) (discussing the tort of "interference with contract relations"). In this case, a claim of tortious interference with contract would require allegations of: (1) the existence of a valid contract between defendants and [*3]a third-party, (2) CA's knowledge of that contract, (3) CA's intentional procurement of a breach of the contract without justification, (4) actual breach of the contract, and (5) resulting damages. Lama Holding Co. v. Smith Barney, Inc., 88 NY2d 413, 424 (1996).

Defendants have not alleged the existence of a contract between themselves and any third-party. Although the counter-claim mentions several clients, some by name, none of them is identified as having entered a contractual relationship with defendants. As such, defendants have failed to satisfy the first element required to state a claim of tortious interference with an existing contract. This deficiency is fatal to defendants' third counter-claim.

Next, I address defendants' fourth counter-claim for tortious interference with prospective business relations, actionable in New York as "tortious interference with prospective economic advantage." See Snyder v. Sony Music Entertainment, Inc., 252 AD2d 294, 299-300 (1st Dep't 1999). The elements of interference with prospective economic advantage, as applied to this case, are: (1) an opportunity for defendants to enter into a contract with a third party, (2) "wrongful means" whereby CA interfered with that opportunity, (3) that, but for CA's conduct, defendants would have entered the prospective contract, and (4) resulting damages. See, e.g., Vigoda v. DCA Prods. Plus, Inc., 293 AD2d 265, 266-67 (1st Dep't 2002). While these allegations must be construed liberally on motion to dismiss, defendants "must support [their] claim with more than mere speculations." Burrowes v. Combs, 25 AD3d 370, 373 (1st Dep't 2006). "There must be some certainty that the [defendants] would have gotten the contract." Snyder, 252 AD2d at 300.

Defendants have failed to plead all of the elements of their fourth counter-claim. Defendants have identified certain existing or potential clients, some of whose business was allegedly lost as a result of CA's conduct. However, defendants have not identified any contract, from which they were likely to benefit, which was lost to them. Moreover, defendants have failed to allege that "but for" CA's conduct, they would have entered into a contract with a prospective client or entered into a new contract with an existing client. See Bankers Trust Co. v. Bernstein, 169 AD2d 400, 401 (1st Dep't 1991). Therefore, defendants' fourth counter-claim is insufficiently pleaded.

II.Defendants' Cross-Motion to Dismiss Plaintiff's Complaint

Next, I address defendant's motion to dismiss plaintiff's first cause of action alleging that defendants Kapetas, Blanchard, KVB Partners, and KVB Partners, Inc. aided and abetted non-party Jean-Louis Vorburger in breaching his fiduciary duty as a partner in CA. To state a claim for aiding and abetting breach of fiduciary duty, plaintiff must plead the following elements: "(1) a breach by a fiduciary of obligations to another, (2) that the defendant[s] knowingly induced or participated in the breach, and (3) that plaintiff suffered damage as a result of the breach." Kaufman v. Cohen, 307 AD2d 113, 125 (1st Dep't 2003).

As a partner in CA, Vorburger owed plaintiff "a fiduciary duty requiring the punctilio of an honor the most sensitive.'" Gibbs v. Breed, Abbott & Morgan, 271 AD2d 180, 193-94 (1st Dep't 2000) (quoting Meinhard v. Salmon, 249 NY 458, 464 (1928)). Plaintiff's sole factual basis for its allegation that Vorburger breached his fiduciary duty to CA is found at paragraphs 18 through 20 of the Complaint. Those paragraphs allege:

At an unknown date or dates prior to the March 1, 2006 Decision, Order and Judgment, the individual defendants and Vorburger entered into a plan to set up a competing entity. . . . The plan included the recruitment of CA employees; solicitation of CA clients; the misappropriation of CA's [*4]confidential information and contracts; the borrowing of funds; the location of office space; the establishment of business entities and other acts as yet unknown to the plaintiff.

Vorburger's fiduciary duties to CA were extinguished by the March 1, 2006 dissolution order. See In re Silverberg, 81 AD2d 640, 641 (1st Dep't 1981) ("the fiduciary relation between partners terminates upon notice of dissolution"). With respect to Vorburger's conduct during the time that his fiduciary duty existed, plaintiff has alleged only that Vorburger "enter[ed] into a plan to set up a competing entity." The question, then, is whether that conduct alone is sufficient to constitute a breach of fiduciary duty.

The Appellate Division has answered that question in the context of partners in a law firm. See Gibbs 271 AD2d at 193-94. In Gibbs, the court stated that the fiduciary duty which partners owe to the law firm does not prevent them "from making plans while still a member of the firm to compete with it following their departure. What is prohibited is actual competition with the firm while still a member of it." Id. at 193 (internal citations omitted). Although the Gibbs court examined partnership duties in the law firm context, a partner's duty is no different in an accounting firm. Because plaintiff has merely pleaded that Vorburger planned to set up a competing entity, without further alleging that he somehow acted on that plan to the detriment of CA prior to dissolution, plaintiff has not sufficiently pleaded that Vorburger breached the fiduciary duty he owed to the partnership. Absent the first element of the claim, plaintiff's first cause of action is untenable.

Defendants move to dismiss plaintiff's second cause of action alleging that defendants Kapetas and Blanchard breached a fiduciary duty they owed to their employer, CA. A cause of action for breach of fiduciary duty requires: (1) the existence of a duty which defendants owed, based on a relationship of trust and confidence, (2) a breach of that duty by defendants, and (3) that defendants' breach was the proximate cause and cause in fact of plaintiff's loss. As the Court of Appeals described the fiduciary duty an employee owes to his employer: an employee 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." Lamdin v. Broadway Surface Advertising Corp., 272 NY 133, 138 (1936).

Plaintiff's allegation is that, while still employees of CA, Kapetas and Blanchard "solicited CA employees to leave the employ of CA; solicited CA clients to leave CA; misappropriated property of CA and otherwise used the facilities, property and resources of CA to set up a competing entity and to damage CA." (Comp. at ¶ 23.) This activity included Kapetas and Blanchard using CA's "phone system, computers, e-mail, and fax machines" for their own benefit. (Comp. at ¶ 30.) Plaintiff also alleges that, prior to their resignation on March 9, 2006, Kapetas and Blanchard set up KVB Partners and KVB Partners, Inc. as entities competing with CA. (Comp. at ¶¶ 24-25.)

Plaintiff has satisfied the first element of its claim by alleging that Kapetas and Blanchard's conduct occurred between March 6, 2006 and March 9, 2006, while the employer-employee relationship still existed between them and plaintiff. It was only after their March 9 resignation that Kapetas and Blanchard's fiduciary duty to plaintiff ended. See CBS Corp. v. Dumsday, 268 AD2d 350, 353 (1st Dep't 2000) (conditioning employee's duty of loyalty upon the ongoing employment relationship). Plaintiff has alleged the claim's second element, by alleging conduct similar to that which other courts have upheld as a breach of the employee's duty of loyalty. See CBS Corp., 268 AD2d at 353 (claim sufficient where plaintiff alleged that employees planned and formed a [*5]competing corporation using confidential information); see also Bender Ins. Agency, Inc. v. Treiber Ins. Agency, Inc., 283 AD2d 448, 449 (2d Dep't 2001) (claim sufficient where plaintiff alleged that defendant "while still in its employ, used its office facilities and equipment to solicit customers for himself" and his associate). Plaintiff has also pleaded the claim's third element of proximate cause, causation, and damages. (Comp. at ¶ 48.) These allegations are sufficient to state a claim for breach of fiduciary duty against the individual defendants.

I now consider defendants' motion to dismiss plaintiff's third cause of action alleging that KVB Partners and KVB Partners, Inc. aided and abetted defendants Kapetas and Blanchard in breaching the duty of loyalty they owed to their employer, CA. Like plaintiff's first cause of action, this claim requires pleading: (1) a breach by a fiduciary of obligations to another, (2) that the defendant knowingly induced or participated in that breach, and (3) that plaintiff suffered damage as a result of the breach. See Kaufman, 307 AD2d at 125. Although intent to harm is not a requirement, plaintiff must allege that the defendant who aided and abetted had actual knowledge of the breach of duty by the primary violator. See id. "A person knowingly participates in a breach of fiduciary duty only when he or she provides substantial assistance' to the primary violator." Id. "Substantial assistance occurs when a defendant affirmatively assists, helps conceal or fails to act when required to do so, thereby enabling the breach to occur." Id.

Plaintiff has pleaded that Kapetas and Blanchard breached the fiduciary duty they owed to CA as CA's employees, satisfying the first element of its aiding and abetting claim against KVB Partners/KVB Partners, Inc. However, plaintiff has not adequately pleaded that KVB Partners or KVB Partners, Inc. gave Kapetas and Blanchard "substantial assistance" in breaching their duty, the second element of this claim.

Plaintiff alleges that Kapetas and Blanchard formed KVB Partners and KVB Partners, Inc. on "March 6 and/or March 7" of 2006. (Comp. at ¶ 24.) Plaintiff further alleges that Kapetas and Blanchard resigned their employment, extinguishing the duty of loyalty they owed to CA, on March 9, 2006. (Comp. at ¶ 17.) Any assistance that KVB Partners/KVB Partners, Inc. rendered to Kapetas and Blanchard in the alleged breach of their fiduciary duties must have been given between March 6 and March 9. Plaintiff does not allege that KVB Partners/KVB Partners, Inc. supported Kapetas or Blanchard with their assets. Plaintiff does not even allege that the KVB entities had any assets between March 6 and March 9, 2006. Instead, plaintiff alleges that Kapetas and Blanchard "solicited CA clients on behalf of either or both of those entities using the facilities, property, resources, employees and confidential information of CA." (Comp. at ¶ 24 (emphasis added).) Plaintiff further alleges that "Kapetas and Blanchard used CA's office facilities, including CA's phone system, computers, e-mail and fax machines to send notices on behalf of themselves, Vorburger, KVB Partners and KVB Partners, Inc." (Comp. at ¶ 30.) These allegations show that Kapetas and Blanchard, in breaching their fiduciary duty to CA, surreptitiously took all of their support from their employer and not from either KVB entity.

I cannot infer from the facts alleged by plaintiff that either KVB Partners or KVB Partners, Inc. rendered "substantial assistance" to Kapetas or Blanchard between March 6 and March 9, 2006. Quite to the contrary, the overwhelming majority of plaintiff's allegations paint the picture of Kapetas and Blanchard feverishly trying to breath life into the newborn KVB entities. (Comp. at ¶¶ 30, 33-34.) Because plaintiff's allegations demonstrate that Kapetas and Blanchard acted in their [*6]individual capacity for the benefit of the KVB entities, but not that they received "substantial assistance" from KVB Partners/KVB Partners, Inc. in the breach of their fiduciary duties, plaintiff's third cause of action does not state a claim.

Finally, I address defendants' motion to dismiss plaintiff's fourth cause of action against all defendants for unfair competition. The basis for plaintiff's claim is defendants' alleged use of plaintiff's "confidential and proprietary information" in their efforts to acquire the business of plaintiff's customers. (Comp. at ¶ 63.) This claim requires plaintiff to plead that: (1) defendants used customer lists or customer information acquired from plaintiff, (2) the identities of or information about the customers used was not "readily ascertainable outside the employer's business," and that (3) defendants' use of the information was the proximate cause and cause in fact of plaintiff's loss. See Leo Silfen, Inc. v. Cream, 29 NY2d 387 (1972).

Plaintiff has satisfied the first element of its unfair competition claim, alleging that Kapetas and Blanchard "actively solicited CA clients . . . using . . . confidential information of CA." (Comp. at ¶ 24.) Plaintiff has satisfied the second element by pleading that "Kapetas and Blanchard . . . wrongfully retained and/or accessed and copied, and are currently using, CA's confidential and proprietary business information and documents, including, among other things, information from CA's files, including engagement letters." (Comp. at ¶ 29.) See Leo Silfen, Inc., 29 NY2d at 391-92 (defining customer information which is not readily ascertainable as that which is acquired by deliberate means, like studying, copying, or physically taking the plaintiff's files, as opposed to information which is the product of defendants' casual memory). Having also pleaded proximate cause, causation, and damages, plaintiff has sufficiently stated its fourth cause of action.

Accordingly, for the reasons stated above, it is

ORDERED that plaintiff's motion to dismiss defendants' counter-claims and defendants' cross-motion to dismiss the complaint (Motion Seq. No. 003) is granted in part and denied in part; and it is further

ORDERED that defendants' third and fourth counter-claims are dismissed; and it is further

ORDERED that the first and third causes of action in the complaint are dismissed; and it is further

ORDERED that the action in all other respect continues; and it is further

ORDERED that defendants are directed to serve an answer to the remaining causes of action in the complaint and plaintiff is directed to serve an answer to the remaining counter-claims, within ten (10) days after service by plaintiff on defendants of a copy of this Order with notice of entry.

Dated: ___________

ENTER: [*7]

_________________________

J.S.C. Footnotes

Footnote 1:CA was dissolved by Order of Justice Gammerman, J.H.O. Jean-Francois Serval v. Jean-Louis Vorburger, Index No. 600286/2003 (NY Sup. Ct. Mar. 1, 2006).