United Natl. Funding, LLC v Volkmann

[*1] United Natl. Funding, LLC v Volkmann 2009 NY Slip Op 52396(U) [25 Misc 3d 1233(A)] Decided on November 17, 2009 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 November 17, 2009
Supreme Court, New York County

United National Funding, LLC, Plaintiff,

against

Mark Volkmann, JOYCE VOLKMANN and JOSEPH COX, Defendants.



602826/06



For Plaintiff

Hoffinger Stern & Ross, LLP

200 Park Avenue

New York, NY 10166

By: Stephen R. Stern

Eric P. Blaha

For Defendants Mark Volkmann

& Joyce Volkmann

Greenberg Taurig LLP

200 Park Avenue

New York, NY 10166

By: Ronald D. Lefton

Jason A. Scurti

For Defendant Bobby Joe Cox

s/h/a Joseph Cox

Reed Smith LLP

599 Lexington Avenue, 29th Fl.

New York, NY 10022

By: Andrew L. Morrison

Emily B. Kirsch

Geoffrey C. Young

Bernard J. Fried, J.

Plaintiff, United National Funding, LLC (UNF-Nevada),[FN1] a Nevada limited liability company, in the business of high-end life insurance and the financing of insurance premiums, seeks damages and injunctive relief for, among other things, breach of contract. Defendants Mark Volkmann (Volkmann) and Joyce Volkmann (Joyce Volkmann) move to dismiss the First Amended Complaint (the Complaint).[FN2] Defendant Bobby Joe Cox, sued herein as Joseph Cox (Cox), also moves, pursuant to CPLR 3211 (a) (7) and (a) (8), to dismiss the Complaint. Motion sequence numbers 003 and 004 are consolidated for disposition.

In the Complaint, UNF-Nevada alleges that its high-end insurance business operates throughout the United States, and that its customers have obtained life insurance policies in excess of $10 million, with loans to finance the premiums, thereby generating significant income. Plaintiff further alleges that on May 17, 2006, it entered into an "Exclusive Referral Agreement" (the Agreement) with Volkmann. Prior to and after entering the Agreement, plaintiff claims that Volkmann repeatedly represented that, through his efforts in using two of plaintiff's programs, the Life Insurance Program and Life Insurance Premium Financing Program (the Programs), plaintiff would generate tens of millions of dollars in revenue. Plaintiff contends that, pursuant to the Agreement, Volkmann agreed to refer to UNF-Nevada, exclusively, all life insurance cases and clients seeking to purchase life insurance, and to process and close on the referred policies, in exchange for commissions. Plaintiff further contends that Volkmann was to provide services using a specific program referred to in the Agreement.

The Agreement, which states that it is between Volkmann and "UNITED NATIONAL FUNDING, LLC (UNF) a Nevada limited liability company" (Def. Mov. Aff., Exh. 3, at 1), provides, at paragraph one:

1.UNF appoints Volkmann as a Referral Agent, and Volkmann accepts such an appointment. In furtherance of the foregoing, Volkmann shall

i.Refer all the life insurances cases, and/or clients seeking to purchase life insurance products exclusively to UNF.

ii.Volkmann shall not, in its own name, or under a company name, or under another person or company name acting on his behalf, be permitted to refer any of its cases to any life insurance agent other than UNF, or accept payment for fees or commissions whatsoever from other parties after the execution of the Agreement, without breaching the terms of this agreement. [*2]

iii.Volkmann shall not perform any insurance-related business, other than performance for the purpose of this agreement, for the term of (2) years from the date of execution of this agreement[.]

iv.Volkmann shall refer clients seeking to purchase life insurance products to UNF, shall fill out the application to purchase life insurance, shall have any necessary documents executed by the clients and shall provide UNF with any necessary information required for the purchase of life insurance and the financing of premiums, as it may be required from time to time by UNF, and so do whatever else is required in order to close the transactions that Volkmann has referred to UNF

v.Except as specified above, Volkmann shall not be authorized to take any action or exercise any powers on behalf of UNF

(Def. Mov. Aff., Exh. 3, ¶ 1 [Paragraph 1]). The Agreement further provides that UNF-Nevada was to pay Volkmann a referral fee based on commissions received by UNF-Nevada, subject to certain deductions. Plaintiff also agreed to pay Volkmann, prior to the Agreement's execution, fees on cases that the Agreement states are listed on an addendum that has not been submitted (Agreement, at 2).

In addition, paragraph four of the Agreement states: Volkmann agrees, that for a minimum of two (2) years, whether o[r] not this Agreement is in full force and effect, and as long as this Agreement is in full force and effect, Volkmann shall not compete with UNF and shall not circumvent UNF. It is understood and agreed that all information regarding UNF's program shall be recognized as exclusive and valuable Information, and Volkmann will not attempt to contract, deal with, utilize or disclose or in any manner solicit the Information introduced by UNF at any time or in any manner, without the express written consent of UNF. Volkmann hereby agrees, warrants and covenants not to, in any way whatsoever, circumvent or attempt to circumvent UNF in any present or future transaction involving the UNF Program, another program that is substantially similar to the UNF Program, or another Financing of Life Premiums Program

(id., ¶ 4 [Paragraph 4]).

The Agreement also contains a liquidated damages provision, the text of which is: The parties agree that if Volkmann breaches this Agreement, UNF will be caused to sustain irreparable injuries, therefore Volkmann and UNF agree that money damages in the sum of Twenty Five Million ($25,000,000) shall be due by Volkmann to UNF in compensation for Volkmann's breach, and UNF shall have the right to withhold any outstanding payment due Volkmann

(id., ¶ 6 [Liquidated Damages Provision]). [*3]

Plaintiff contends that, pursuant to the Agreement, it made up-front payments totaling $350,000 to either Volkmann, his wife, defendant Joyce Volkmann, as Volkmann's agent, or both, and $78,000 to non-party Finance for Life (FFL). Plaintiff alleges that in August 2006, it notified both Volkmanns that Volkmann was in material breach of the Agreement and demanded return of the $350,000, to no avail.

As to defendant Cox, plaintiff alleges that it entered into a "Confidentiality and Non-Circumvention Agreement" with him, on or about March 29, 2006 (Confidentiality Agreement). Plaintiff contends that the Confidentiality Agreement provides that Cox would not disclose confidential information received from UNF-Nevada, or use that information to deal directly with, among others, UNF-Nevada's sources, contacts, employees or customers. Plaintiff further contends that Cox breached the Confidentiality Agreement, and that Cox and Volkmann have agreed between themselves to compete against UNF-Nevada, using information obtained from the company, and have prepared and distributed presentations for clients in the niche market of high-end life insurance business.

In the first cause of action of the Complaint, against Volkmann, plaintiff alleges that it has been damaged because Volkmann has failed to perform the obligations listed in Paragraph 1 and is competing against UNF in violation of Paragraph 4. Based on these allegations, plaintiff seeks to invoke the Liquidated Damage Provision, and also to obtain damages for what it states were advance payments made to Volkmann and Joyce Volkmann of $428,000.

In the second cause of action of the Complaint, which is also against Volkmann, plaintiff alleges, "upon information and belief," that Volkmann is "slandering UNF-Nevada, diverting business from it, interfering with its business relationships and "performing other conduct constituting tortious interference with UNF's business relationships with third parties and prospective customers" (Complaint, ¶ 43). Plaintiff further alleges that Volkmann's breaches of the Agreement commenced prior to the termination of his relationship with UNF-Nevada, and that Volkmann has breached his duty of loyalty, and stolen corporate opportunities from UNF-Nevada. UNF-Nevada seeks an order enjoining Volkmann from engaging in conduct that violates the Agreement and common-law duties owed to UNF-Nevada, and also claims that it has suffered damages in an amount to be determined.

The third cause of action of the Complaint, against Volkmann, is based on Paragraph 4. Plaintiff alleges that the services Volkmann provided to UNF-Nevada were special or unique and that, upon information and belief, he is competing against UNF-Nevada in violation of Paragraph 4, and using the information referred to in the Agreement, including the Programs. Plaintiff contends that this constitutes a breach of Volkmann's duty of loyalty to UNF-Nevada, common-law duties and his obligation not to improperly use UNF-Nevada's confidential information. Plaintiff seeks to have Volkmann enjoined from engaging in such conduct for two years.

In the fourth cause of action of the Complaint, against Volkmann and Joyce Volkmann, plaintiff alleges that, at Volkmann's request, it paid money to him, Joyce Volkmann and FFL pursuant to the Agreement. Plaintiff alleges that, as Volkmann failed to perform his obligations under the Agreement, he and Joyce Volkmann have been unjustly enriched by these payments.

In the fifth cause of action, against Volkmann, plaintiff seeks indemnification of its attorney's fees and costs pursuant to the Agreement.

In the sixth cause of action, against Volkmann and Joyce Volkmann, plaintiff alleges that [*4]Volkmann "transferred assets to Joyce Volkmann with the intent to hinder, delay or defraud . . . Volkmann's monetary obligations to UNF, and to defraud creditors such as UNF," by, for example, directing UNF-Nevada to make payments to Joyce Volkmann (Complaint, ¶¶ 79-80). Plaintiff states that these asset transfers were without fair consideration, and rendered Volkmann insolvent and unable to pay his obligations to UNF-Nevada, and seeks an order annulling any such conveyance to the extent necessary to satisfy UNF-Nevada's claims.

The seventh cause of action is against Cox. Plaintiff alleges that Cox breached the Confidentiality Agreement by using UNF-Nevada's confidential information to prepare funding programs and solicit customers.

In the eighth cause of action, against Volkmann and Cox, plaintiff alleges that Volkmann knew or should have known of the restrictions imposed by the Confidentiality Agreement on Cox, and that Cox and Volkmann have conspired to utilize confidential information obtained from UNF-Nevada to solicit customers for their pecuniary gain. Plaintiff contends that Cox and Volkmann are using specialized concepts in the secondary financing market for life insurance policies, which they obtained from UNF-Nevada, and have solicited or are soliciting one or more UNF-Nevada employees to work for their business.

In the ninth cause of action, plaintiff requests an order enjoining Cox from violating the Confidentiality Agreement.

The Action against Cox (Motion Sequence 003)

Cox moves to dismiss the Complaint for lack of personal jurisdiction. In order to assert jurisdiction over a non-domiciliary defendant on a contract claim, a plaintiff must establish that the defendant is either doing business in New York, or transacts business out of which the cause of action arose (CPLR 301, 302). Cox argues that the requirements of CPLR 301 and CPLR 302 and due process have not been met, as he is not "doing business" or "transacting business" and lacks sufficient contacts with New York. In support of his application, Cox submits an affidavit in which he states that he has lived in Kansas for 48 years and does not have a place of business in New York. Cox further avers that he only recalls being in New York once in the past 15 years, in 2006, to attend a conference unrelated to this action, and otherwise has no contact with the State. Cox states that he entered into a single contract with plaintiff, which was negotiated, signed and faxed to plaintiff's office in Florida, and has never entered into any contract requiring performance to be made in New York. Cox states that he was introduced to plaintiff through an intermediary who does not live or work in New York. Among other things, Cox also avers that he does not, and has never, owned bank accounts or real property, or had agents or employees in New York, and that he does not advertise, market or solicit business here.

In opposition to the motion, plaintiff submits the affidavit of its member, Philip Neuman (Neuman), who avers that Volkmann told him that he met with Cox several times in New York to discuss UNF-Nevada business.[FN3] Plaintiff also takes issue with Cox's averments about his lack of contact with New York, arguing that Cox misleads by omission and characterizing Cox's affidavit as "artful papers, designed to subtly mislead by having the reader infer more than what he actually says" (Pl. Op. Memo., at 8). For example, plaintiff argues that Cox's averment that he does not advertize, market or solicit business in New York, does not indicate that Cox never advertised, [*5]marketed or solicited business in New York. Plaintiff also quotes Cox's statement that he is "not engaged in doing business with [Volkmann] in any formalized, systematic fashion," arguing that the statement must be read as a concession that Cox has been engaged in doing business with Volkmann in the past (Pl. Op. Memo., at 7). Dovetailing on this assertion, plaintiff, in its memorandum of law, queries whether Volkmann has acted as Cox's agent in connection with doing business in New York. Plaintiff then responds to the query with "all indications are he has, and/or that he has acted as Volkmann's named partner' or agent'" (id.).

In reply, Cox submits another affidavit addressing plaintiff's contention that his moving affidavit was intended to deceive by omission. For example, Cox avers "I do not now advertise or market or solicit business in New York, and I never have advertised or marketed or solicited business in New York, successful or otherwise" (Cox Reply Aff., ¶ 4 [B]). He further avers that he has never met with Volkmann in New York, that he has never met Volkmann, and that he and Volkmann are not now and at no time have been partners, joint venturers or agents of one another, and have not done business together, ever.

It is well settled that plaintiff, as the party seeking to assert jurisdiction over the nondomiciliary defendants, bears the burden of proof on the issue of jurisdiction (O'Brien v Hackensack Univ. Med. Ctr., 305 AD2d 199 [1st Dept 2003]). The gravamen of plaintiff's complaint against Cox is that he breached the Confidentiality Agreement by using UNF-Nevada's confidential information. Neuman does not dispute Cox's averments that the Confidentiality Agreement's terms do not require Cox's performance in New York. The Complaint does not contain any allegations concerning Cox's activities in New York. Further, Neuman's hearsay assertion concerning Volkmann's statement about Cox does not demonstrate permanence and continuity, and thus is an insufficient showing that Cox is "doing business" in New York, or otherwise had "substantial and continuous contact with the forum" (Weinstein-Korn-Miller, NY Civ Prac ¶ 301.15 [2d ed]). Thus, plaintiff has not demonstrated a jurisdictional basis pursuant to CPLR 301.

CPLR 302 (a) (1) confers in personam jurisdiction over a non-domiciliary if the non-domiciliary transacts business within New York State and the claim arises out of that transaction (see Corporate Campaign, Inc. v Local 7837, United Paperworkers Intl. Union, 265 AD2d 274 [1st Dept 1999]). A single instance of purposeful activity directed at New York is sufficient to create jurisdiction, even if the defendant was not physically present in the State, if the activity is substantially related to the cause of action (id. at 274-275). The record does not contain evidence sufficient to demonstrate that Cox transacted business in New York, or that he contracted to supply services here, and that plaintiff's claim arises from that transaction.

Instead, plaintiff argues that the CPLR basis for jurisdiction is beside the point, as it is entitled to discovery pursuant to CPLR 3211 (d). "CPLR 3211 (d) protects a party opposing a motion to dismiss the complaint on jurisdictional grounds by providing that such motion may be defeated by merely showing that facts essential to justify opposition may exist but cannot then be stated'" (Mandel v Busch Entertainment Corp., 215 AD2d 455, 455 [2d Dept 1995]).

In addition to what has already been discussed, plaintiff argues that Cox admits, in his moving affidavit, that he has been involved in a consummated deal with plaintiff, and accuses Cox of being silent as to where he was involved in that deal and of cleverly failing to reveal whether he was involved in any unconsummated deals with plaintiff, in or outside of New York. What plaintiff does not explain is why it would not be able to provide facts about deals in which it was involved, [*6]including whether the deal that Cox and plaintiff consummated has a New York connection, or its relation to the claim. In addition, Cox avers, in reply, that the one transaction in which both he and plaintiff participated, from which he received no payments from plaintiff, involves a Kansas resident.

Plaintiff also points to the nature of the business in which plaintiff, Cox and Volkmann are engaged, asserting that some "members of the high-end clientele with life insurance needs who may be interested in the program used by UNF would be in New York" and in the financing of insurance premiums in "New York, the financial capital" (Pl. Op. Memo., at 8). Summed up, plaintiff contends that there are wealthy New Yorkers with life insurance needs who may be interested in UNF-Nevada's services. While this assertion may be supportable as a general proposition, it does not suggest that facts may exist concerning whether the defendant in this case, Cox, has had contact with New York. If the existence of a market for a product, insurance or otherwise, in New York were the standard for making a sufficient start, then virtually every plaintiff would be deemed to have made one, essentially rendering the standard meaningless. Finally, other than Neuman's averment concerning Volkmann's statement, plaintiff submits no evidence demonstrating that facts may exist that would provide a jurisdictional predicate, but merely offers argument in a memorandum of law. Therefore, the issue of jurisdiction can and should be decided on the submitted papers because plaintiffs have failed to provide "tangible evidence which would constitute a sufficient start' in showing that jurisdiction could exist, thereby demonstrating that its assertion that a jurisdictional predicate exists is not frivolous" (Mandel, 215 AD2d at 455). As plaintiff has not met its burden to demonstrate a statutory predicate for jurisdiction, pursuant to CPLR 301 or 302, or a sufficient start to warrant discovery, Cox's motion is granted, and it is unnecessary to address his due process contentions.

The Action against Volkmann (Motion Sequence 004)

Defendants argue that the Complaint should be dismissed because plaintiff is judicially estopped from asserting this suit on behalf of UNF-Nevada. Defendants base this argument on plaintiff's submission of the affirmation of attorney, Patricia Fisher, Esq., dated October 10, 2006 (Def. Mov. Aff., Exh. 2 [Fisher Affirmation]), in opposition to defendants' prior motion to dismiss and in support of plaintiff's prior cross motion to amend the complaint. Plaintiff submitted the Fisher Affirmation in a prior motion as rebuttal to defendants' contention that the complaint should be dismissed because UNF-Nevada, a foreign limited liability company (LLC), lacked a certificate of authority to do business in the State. Limited Liability Company Law (LLCL) § 808 (a) precludes a foreign limited liability company doing business in New York from maintaining a suit here without first having received a certificate of authority to do business in the State.

In the Fisher Affirmation, Fisher avers that ministerial filing errors resulted in what Fisher describes as "UNF," having "dual-State" filing as a limited liability company (LLC) in Nevada and New York (Fisher Aff., at 3 n 2). Fisher states that UNF was formed as a New York LLC in 2003 (UNF-NY), and as a Nevada LLC in 2005 (UNF-Nevada). She further avers that, in April 2006, when she attempted to register UNF-Nevada, in accordance with LLCL § 808 (a), the Department of State returned the application because the name "United Nations Funding" was already registered in New York. Fisher states that she inadvertently used the UNF-Nevada's filing information and address in the introductory paragraph of the Agreement, instead of its New York filing information, in error. Fisher further states that the Complaint allegation that UNF was formed under the laws of Nevada is true, but that UNF was first formed in 2003 under the laws of the State of New York. [*7]

"Judicial estoppel, or the doctrine of inconsistent positions, precludes a party who assumed a certain position in a prior legal proceeding and who secured a judgment in his or her favor from assuming a contrary position in another action simply because his or her interests have changed" (Ford Motor Credit Co. v Colonial Funding Corp., 215 AD2d 435, 436 [2d Dept 1995]). The doctrine may also preclude a party "from inequitably adopting a position directly contrary to or inconsistent with an earlier assumed position in the same proceeding" (Nestor v Britt, 270 AD2d 192, 193 [1st Dept 2000] [citation and internal quotation marks omitted] [landlord estopped from relying on the 1970 lease to prove the invalidity of 1983 lease's attorneys' fee provisions where landlord relied on the 1983 lease before, during and after the trial of the underlying proceeding]; Maas v Cornell Univ., 253 AD2d 1, 5 [3d Dept], affd 94 NY2d 87 [1999] [where plaintiff succeeded in prior objection to conversion of action to Article 78 proceeding, he was precluded from later assuming contrary position). While the primary objective behind judicial estoppel is to protect judicial integrity by avoiding the risk of inconsistent judicial determinations in two proceedings (see Bates v Long Island R. Co., 997 F2d 1028, 1038 [2d Cir 1993]), its invocation where a party adopts a later contrary position in the same case also may be required "lest a mockery be made of the search for the truth" (Karasik v Bird, 104 AD2d 758, 759 [1st Dept 1984]; Bates, 997 F2d at 1038 ["the doctrine seeks to preserve the sanctity of the oath by demanding absolute truth and consistency in all sworn positions [thereby preventing] the perpetuation of untruths which damage public confidence in the integrity of the judicial system"]). In an illustrative case of the latter rationale for invoking the doctrine, the Court in Karasik (104 AD2d 758, supra), a wrongful death action, denied plaintiff's late application for leave to amend the bill of particulars to include a new claim of failure to diagnose the decedent's alcoholism where plaintiff maintained, through sworn testimony and written submissions, throughout almost a decade's worth of litigation, including trial and appeal, that the decedent was not an alcoholic or even a moderate drinker.

In addition to the Fisher Affirmation, I have reviewed plaintiff's counsel's affidavit and the affidavit of UNF-NY and UNF-Nevada's principal submitted on the prior motion to dismiss. Plaintiff's counsel then wrote: [t]he current circumstances — UNF being both a Nevada LLC and a New York LLC—is in stark contrast to circumstances created where a foreign limited liability company (or corporation) has completely failed to file with the State of New York any request for permission to do business in the State.

* * * [D]espite UNF's status as an active New York limited liability company, if the Court determines that UNF, in order to "maintain" this action . . . must either (i) register in New York as a foreign (Nevada) limited liability company doing business in the State of New York, or (ii) register in Nevada as a foreign (New York) limited liability company doing business in Nevada, then UNF respectfully requests the Court provide such guidance to UNF and permit UNF to promptly file such registration as needed.

Alternatively, and/or in addition, if the Court somehow determines a pleading defect exists (i.e. if the Court deems the allegation at ¶ 1 of the Complaint that UNF is a "Nevada" limited liability [*8]company somehow creates a material defect for the purposes of capacity), it is respectfully submitted the attached [Fisher Affirmation] adequately cures the alleged defect

(Pl. Op. Memo. of Law [dated October 16, 2006], at 4-5; see also Stern Aff., Exh. G, at 2 n 2).

Whether plaintiff's counsel was laboring under the misapprehension that whatever it was calling "UNF" (1) had "dual-State filing" (Fischer Aff., at 3 n 2), and thus could bring its action as either a New York LLC or a Nevada LLC; or (2) that UNF-NY and UNF-Nevada were not entities separate from either each other, or their owner; or (3) that the contracting party in the Agreement was UNF-NY because that entity was organized before UNF-Nevada; or (4) a combination of these things, is unclear. In any event, plaintiff advanced two inconsistent positions simultaneously, as alternatives, on the same motion, with one position predicated on the Fisher Affirmation. At oral argument on the motion, plaintiff and defendants maintained that UNF-Nevada was the plaintiff, with defendants' motion based on their contention that plaintiff did not have the capacity to sue based on LLCL § 808 (a). Acting on the assertions and conduct of counsel for both parties, I stayed the case so that UNF-Nevada would have the opportunity file for a certificate of authority (Stern Aff., Exh. D, Tr. [dated January 24, 2007], at 5-6). After the stay was ordered, UNF-Nevada proceeded to register for authorization to do business in New York, incurring attendant attorneys fees, filing and other associated costs, such as publication fees. The prior motions were not adjudicated on the merits, and plaintiff thereafter served the Complaint, in which it states that the plaintiff is a Nevada LLC, as is stated in the Agreement.

While defendants may perhaps later make use of the Fisher Affirmation for impeachment or other purposes, and no determination regarding the specific assertions made in the affirmation is made here; plaintiff has maintained that UNF-Nevada is the correct party throughout this litigation. Thus, dismissal of the Complaint based on judicial estoppel is not warranted. Dismissal is also not warranted because the "inequity" aspect of the doctrine is not demonstrated under the circumstances here, where defendants have not shown that what occurred in the prior motion was not the product of mere confusion, or a misunderstanding of business entity law.[FN4]

On another note, defendants argue that UNF-Nevada's claim for breach of the covenant not to compete should be dismissed because Paragraph 1 (iii) and Paragraph 4 are overly broad, unreasonable and, consequently, unenforceable. Defendants appear to link Paragraph 1 (iii) and Paragraph 4 together, and argue that the enforcement of these provisions would prohibit Volkmann from working in any capacity in the insurance industry, and cause him undue hardship. Defendants argue that Paragraph 1 (iii) imposes an undue hardship on Volkmann by purporting to exclude him [*9]from the entire insurance industry, forcing him to abandon his lifelong career based on a three-month association with UNF, and therefore offends New York's strong public policy against board limitations on an individual's future employment options. Regarding Paragraph 4, defendants argue that it is unenforceable because it is temporally and geographically unlimited, vague and ambiguous and impermissibly broad as to subject matter. Defendants further argue that plaintiff has not, in the Complaint, identified a legitimate interest that warrants protection.

Plaintiff maintains that defendants attempt to artificially expand and exaggerate the terms of Paragraph 4 by merging with it Paragraph 1 (iii). Plaintiff further maintains that Paragraph 1 (iii) sets a simple two-year term of exclusivity, and necessarily presumes that the Agreement is in full force and effect, with Paragraph 4 the only restrictive covenant intended to survive the termination of the Agreement. Plaintiff argues that Paragraph 4 is narrowly tailored, and designed to protect UNF-Nevada's legitimate interests in preventing disclosure of its trade secrets and confidential customer information, and that Volkmann provided unique and special services to UNF-Nevada. Plaintiff further argues that defendants do not address how Volkmann will suffer hardship from ceasing to make negative comments about plaintiff's principals to others, advising other brokers and entities doing business with UNF-Nevada that the company no longer exists, and diverting business from UNF-Nevada, or interfering with its business relationships.

Plaintiff contends that the parties understood the geographical scope of Paragraph 4 to be the United States, which comports with UNF's business, with its niche customer base of wealthy clientele. In addressing the temporal term, plaintiff's position is that Paragraph 4 is limited to a two-year term that is co-terminous with the term of the Agreement. Plaintiff interprets Paragraph 4 as providing for the subtraction of a day from the remaining term of the provision for each day that Volkmann complied with the Agreement, so that after two years from the Agreement's commencement, provided Volkmann complied with its terms, there would be no further restrictions.[FN5]

Restrictive covenants will be enforced only if the restraint "(1) is no greater than is required for the protection of the legitimate interest of the employer, (2) does not impose undue hardship on the employee, and (3) is not injurious to the public" (BDO Seidman v Hirshberg, 93 NY2d 382, 388-389 [1999]). Furthermore, "[a]n otherwise valid [restrictive] covenant will not be enforced if it is unreasonable in time, space or scope" (American Broadcasting Cos. v Wolf, 52 NY2d 394, 403-404 [1981].

In the first cause of action of the Complaint, plaintiff alleges that Volkmann breached Paragraph 1 (iii) and Paragraph 4 of the Agreement. In the third cause of action of the Complaint, plaintiff seeks to enjoin Volkmann from engaging in conduct in violation of the Agreement and common law duties owed to UNF for a period of two years based on Paragraph 4. The latter cause of action is dismissed because the two-year period for which plaintiff sought injunctive relief has passed.

As to the first cause of action, while defendants argue that Paragraph 1 (iii) is overly broad because it forces Volkmann to abandon his lifelong career, they have not established this fact, or any fact concerning Volkmann's career, as a matter of law. In any event, in their moving papers [*10]defendants do not persuasively address why the parties would be precluded from agreeing that Volkmann would not perform other insurance-related business, while he was providing services to UNF for what, it appears, may have been the anticipated term of the parties' exclusive relationship.

Plaintiff's interpretation of Paragraph 4, as providing for a maximum two-year term, does not comport with the plain language of the provision, which expressly states that Volkmann shall not compete with or circumvent UNF for a minium of two years, without stating a maximum. Plaintiff correctly states that in certain cases courts may modify or "blue pencil" restrictive covenants to permit limited enforcement. In this case, however, Paragraph 4 expressly sets a lower temporal limitation of a minium of, or not less than, two years and does not contain an upper limit from which a lesser circumscribed time period may be carved out. Furthermore, the interpretation of Paragraph 4 that plaintiff proposes would require an impermissible rewriting of the provision to eliminate or ignore the word "minium." Accordingly, Paragraph 4, which also contains no geographical limitation, is overly broad and unenforceable as a non-competition provision against Volkmann, and to the extent that plaintiff seeks to recover for Volkmann's alleged competition in violation of Paragraph 4 of the Agreement, that claim is dismissed.

Defendants also argue for dismissal of the Complaint on the ground that the Liquidated Damages Provision is a penalty and not a reasonable estimation of potential damages from any breach of the Agreement. "A liquidated damages provision is an estimate, made by the parties at the time they enter into their agreement, of the extent of the injury that would be sustained as a result of breach of the agreement" (Crown IT Services, Inc. v Koval-Olsen, 11 AD3d 263, 265-266 [1st Dept 2004] [internal quotations marks omitted], quoting Truck Rent-A-Ctr. v Puritan Farms 2nd, 41 NY2d 420, 424 [1977]). The settled rule is that "[a] contractual provision fixing damages in the event of breach will be sustained if the amount liquidated bears a reasonable proportion to the probable loss and the amount of actual loss is incapable or difficult of precise estimation" (Truck Rent-A-Ctr., 41 NY2d at 425). Furthermore, "[t]he parties are free to provide for such an agreement as long as the provision is neither unconscionable nor contrary to public policy. However, if the amount fixed is plainly or grossly disproportionate to the probable loss, the provision calls for a penalty and will not be enforced" (Crown IT Services, Inc., 11 AD3d at 266 [citation and internal quotation marks omitted]). "Whether a contractual provision represents an enforceable liquidation of damages or an unenforceable penalty is a question of law, giving due consideration to the nature of the contract and the circumstances" (Bates Adv. USA, Inc. v 498 Seventh, LLC, 7 NY3d 115, 120 [2006] [citation and internal quotation marks omitted]).

Defendants argue that the provision should be dismissed because UNF-Nevada's actual loss in the event of a breach is capable of precise determination. The actual loss could be determined, defendants contend, because the identity of the life insurance cases or customers that Volkmann allegedly referred to other entities, the entities to which Volkmann allegedly made such referrals, and the amount and financial parameters of the cases, could be obtained through Volkmann's deposition. Relying on Seidlitz v Auerbach (230 NY 167, 174 [1920]), defendants also argue that the Liquidated Damages Provision makes no attempt to reasonably estimate potential damages that might be occasioned by Volkmann's alleged breach, or to distinguish damages based on the nature of the breach, or based on whether the breach even caused damages. In Seidlitz, the Court invalidated a liquidated damages clause as a penalty. The clause in Seidlitz required the breaching tenant to pay the entire liquidated damages amount, regardless of whether the breach was of a minor [*11]contractual provision that could not result in damages approximated by that amount. It would appear, however, that there is a presumption that liquidated damages are intended to apply only to material breaches (JMD Holding Corp. v Congress Fin. Corp., 4 NY3d 373, 384 [2005]). Still, "[i]n arriving at a stipulated sum as liquidated damages, [t]here must be some attempt to proportion . . . damages to the actual loss'" (LeRoy v Sayers, 217 AD2d 63, 71 [1st Dept 1995], quoting Seidlitz, 230 NY at 174).

On its face, there is nothing in the Liquidated Damages Provision indicating that it was intended as the parties' attempt to appraise and fix a reasonable measure of compensation to plaintiff for the Agreement's breach, and nothing plaintiff argues here demonstrates any nexus between the $25,000,000 liquidated damages sum and any probable actual loss that plaintiff might suffer. The provision requires payment of the full $25,000,000 if Volkmann breached the Agreement the day after it was executed, demonstrating that the provision, on its face, is grossly disproportional to any anticipated loss. Nothing in the agreement, or the circumstances, suggests the parties' attempt to proportion the liquidated damages amount to the actual loss. Considering the type of agreement here, a referral agreement, and against an individual, the amount is simply exorbitant. Plaintiff argues that the motion should be denied because the issue of whether the amount is a reasonable estimate of damages calls into issue pre-contract negotiations between UNF-Nevada and Volkmann, their expectations, and the basis upon which they established the $25,000,000 amount. Plaintiff, a party to these negotiations, was free to so-state this basis, but did not. The chart plaintiff has submitted as a sample of life insurance policies and insurance premium loans recently issued by UNF-Nevada and UNF-Nevada's expected revenues therefrom, merely demonstrates that the company has received considerable business income.

As plaintiff correctly argues, dismissal of its contract claims is not warranted based on the enforceability of the Liquidated Damages Provision, since where such a clause is unenforceable as a matter of law, a plaintiff is entitled to actual damages proven (JMD Holding Corp., 4 NY3d at 380). To the extent that the plaintiff seeks to recover under the under the Liquidated Damages Provision, however, that portion of the first cause of action is dismissed.

The second cause of action is dismissed. To state a claim for tortious interference with a prospective business interest, a plaintiff must allege facts demonstrating that a defendant interfered with plaintiff's business relationship with a third party, that would have resulted in a contract, for the sole purpose of harming the plaintiff, or by using dishonest, unfair, or improper means, thereby causing injury to the business relationship (Guard-Life Corp. v Parker Hardware Mfg. Corp., 50 NY2d 183 [1980]; see Carvel Corp. v Noonan, 3 NY3d 182, 190 [2004]; NBT Bancorp v Fleet/Norstar Fin. Group, 87 NY2d 614 [1996]). If a plaintiff does not allege that the interference was solely to harm the plaintiff, then the alleged wrongful conduct "must amount to a crime or an independent tort[, as c]onduct that is not criminal or tortious is generally lawful'" and lawful conduct is generally "insufficiently culpable' to create liability for interference with prospective contracts or other nonbinding economic relations" (Carvel Corp., 3 NY3d at 190). Wrongful conduct may be based on allegations of defamation (Stapleton Studios, LLC v City of New York, 26 AD3d 236, 237 [1st Dept 2006]). In addition, the alleged conduct must be directed at the party "with which the plaintiff has or seeks to have a relationship" (Carvel Corp., 3 NY3d at 192). To avoid dismissal of the claim, a plaintiff must demonstrate more than mere conclusory allegations of [*12]tortious interference, and the claim should be dismissed where a plaintiff fails "to allege any specific prospective relationship with which defendants interfered" (Business Networks of NY v Complete Network Solutions, 265 AD2d 194, 195 [1st Dept 1999]; see Kevin Spence & Sons v Boar's Head Provisions Co., 5 AD3d 352, 354 [2d Dept 2004] [claim stated]).

Plaintiff alleges that Volkmann defamed its principal to third parties with which it does business, and provides an example of statements allegedly made by Volkmann to a particular, and named, third-party entity, "FFL," that Neuman is a "bad guy," "does not live up to deals," "is not an honorable guy" and "has no funds" (Complaint, ¶ 44). Plaintiff also alleges that Volkmann has advised other brokers and entities doing business with UNF-Nevada that it no longer exists, which plaintiff states is an example of Volkmann's attempt to slander and divert business away from UNF-Nevada, and to interfere with its business relationships. Plaintiff states that Volkmann is attempting to divert business representing over $100,000,000 in possible revenue from third parties with existing business relationships with UNF-Nevada to others, including to an entity named Premium Funding Group, LLC (PFG). Plaintiff further alleges that Volkmann has acted with malice, or used wrongful means, including slander and misrepresentations, has caused harm to plaintiff, and that but for Volkmann's conduct, "UNF would have entered into business and contractual relationships with third parties" (Complaint, ¶ 55).

Plaintiff does not allege that it would have entered into a contract for business with FFL, or any other specific third party, but for Volkmann's conduct. Plaintiff also does not allege that defendants' alleged interference actually resulted in plaintiff's loss of a specific business opportunity, with resultant damages.[FN6] As "plaintiff [does not] identify any specific employment or business relationship that he was prevented from entering into as a result of defendants' interference, or adequately allege that defendants acted with the sole purpose of harming him . . ." (Baker v Guardian Life Ins. Co. of Am., 12 AD3d 285, 286 [1st Dept 2004]), its second cause of action is not viable.

In the fourth cause of action, plaintiff seeks damages of the monies it paid to Volkmann and Joyce Volkmann on the ground of unjust enrichment. To state a claim based on unjust enrichment, an equitable doctrine, "[a] plaintiff must show that (1) defendant was enriched (2) at plaintiff's expense, and (3) that it is against equity and good conscience to permit . . . defendant to retain what is sought to be recovered" (Lake Minnewaska Mtn. Houses v Rekis, 259 AD2d 797, 798 [3d Dept 1999] [citation and internal quotation marks omitted]).

No cause of action for unjust enrichment lies against Volkmann or Joyce Volkmann because the parties do not dispute the Agreement's existence, its validity, or that the scope of the Agreement "clearly covers the dispute between the parties" (Clark-Fitzpatrick, Inc. v Long Is. R.R. Co., 70 [*13]NY2d 382, 389 [1987]; see M & A Oasis v MTM Assoc., 307 AD2d 872, 874 [1st Dept 2003]). Defendants do state that they "reserve the argument" that the Agreement is not valid (Def. Mov. Memo., at 4). Should defendants later actually assert this argument, plaintiff, may not be precluded from seeking to amend the complaint to assert the unjust enrichment claim, upon the appropriate showing. The claim as against Joyce Volkmann is also dismissed, as plaintiff alleges that the money was paid pursuant to the Agreement, and the claim arises from the same purported wrongdoing as the breach of contract claim against Volkmann.

Plaintiff argues that the sixth cause of action of the Complaint should be dismissed because Debtor and Creditor Law (DCL) § 273 requires that a claim be in existence at the time of the alleged fraudulent conveyance and defendant has identified no debt it can claim as a creditor of UNF-Nevada. In other words, that defendant contends that plaintiff does not allege that a claim existed when Volkmann allegedly made the transfer(s) to Joyce Volkmann. Defendants also argue that, for the purposes of DCL § 276, the alleged transfer of assets by Volkmann to Joyce Volkmann prior to plaintiff's commencement of the action does not establish that plaintiff was a future creditor.

Debtor and Creditor Law Article 10 permits a creditor to set aside fraudulent conveyances. In order to state a claim for fraudulent conveyance under DCL § 273, a plaintiff must allege that there is a conveyance without fair consideration and that the transferor is insolvent at the time of the conveyance or will be rendered insolvent by the transfer in question. DCL § 270 defines conveyances as "every payment of money, assignment, release, transfer, lease, mortgage or pledge of tangible or intangible property, and also the creation of any lien or incumbrance." The plaintiff must also be a creditor of the involved transferor, with creditor defined as "a person having a claim, whether mature or unmatured, liquidated or unliquidated, absolute, fixed or contingent" (id.). A creditor whose claim is contingent upon the outcome of litigation becomes a creditor when the cause of action accrues (see Shelly v Doe, 249 AD2d 756 [3d Dept 1998]). "[A] breach of contract cause of action accrues at the time of the breach" (Ely-Cruikshank Co., Inc. v Bank of Montreal, 81 NY2d 399, 402 [1993]).

The complaint states that Volkmann has transferred assets to Joyce Volkmann with the intent to hinder, delay or defraud Volkmann's monetary obligations to UNF-Nevada and to defraud creditors such as UNF-Nevada, and that the transfers were without fair consideration, rendering Volkmann insolvent and unable to pay his monetary obligations to the company. Indeed, the Complaint does not state when any of the alleged breaches of the Agreement occurred, and whether transfers were made thereafter, but particularity is not required to state a breach of contract or a fraudulent conveyance claim based on DCL § 273, and on this pre-answer motion, defendants carried the burden to demonstrate plaintiff's failure to state a claim, but the timing issue has not been sufficiently addressed. Accordingly, at this early juncture, and in light of New York's liberal pleading requirements, plaintiff has stated a claim for fraudulent conveyance under DCL § 273. Defendant's citation to Galgano v Ortiz (287 AD2d 688, 688 [2d Dept 2001]), does not change this result. In Galgano, a divorce action, the Court found that the transfers were not made in anticipation of any debts that the wife might incur as a result of the action, where the asset transfers occurred prior to the marriage, or during the marriage, but years prior to the action's initiation. Here, missing details preclude a determination as a matter of law, as was made in Galgano.

DCL § 276 provides that "[e]very conveyance made and every obligation incurred with actual intent, as distinguished from intent presumed in law, to hinder, delay, or defraud either present or [*14]future creditors, is fraudulent as to both present and future creditors." DCL § 276 requires the creditor to prove actual intent to defraud, and where a creditor does so, "the conveyance will be set aside regardless of the adequacy of the consideration given" (In re Sharp Intl. Corp., 403 F3d 43, 56 [2d Cir 2005] [citations and internal quotation marks omitted]). A party seeking to set aside a fraudulent conveyance under this section must plead an actual intent to defraud with sufficient particularity. Plaintiff's allegations, most of which are made upon information and belief, are insufficient, as plaintiff does not provide information as to the underlying basis for its information or belief. Accordingly, at this juncture, the sixth cause of action survives, but only to the extent that plaintiff seeks to recover pursuant to DCL § 273.

The allegations of the eighth cause of action, as to Volkmann, have previously been stated. While plaintiff's claim is labeled as for conspiracy to breach contract, "one does not have a cause of action against another contracting party for conspiracy to breach the agreement between them" (Bereswill v Yablon, 6 NY2d 301, 306 [1959]). Plaintiff argues that the cause of action stands because the elements of tortious interference have been pled (Pl. Op. Memo. of Law, at 47). To state a cause of action for interference with contractual relations, a plaintiff must plead that a defendant had knowledge of a valid contract between the plaintiff and a third party and intentionally induced the third party's breach, with damages to the plaintiff resulting therefrom (Lama Holding Co. v Smith Barney, 88 NY2d 413, 424 [1996]). As plaintiff has not alleged that Volkmann induced Cox to breach the Confidentiality Agreement, the claim is dismissed. The seventh, eighth and ninth causes of action, against Cox, will not be addressed, as the case has been dismissed against him on jurisdictional grounds.

Accordingly, it is

ORDERED that the motion to dismiss the First Amended Complaint (motion sequence 003) is granted and the First Amended Complaint is hereby severed and dismissed as to Bobby Joe Cox, sued herein as Joseph Cox, and the Clerk is directed to enter judgment in favor of said defendant; and it is further

ORDERED that the motion to dismiss the First Amended Complaint against defendants Mark Volkmann and Joyce Volkmann (motion sequence 004) is granted to the extent that the second, third, fourth and eighth causes of action and plaintiff's claims for liquidated damages and breach of paragraph four of the Exclusive Referral Agreement in the first cause of action of the First Amended Complaint are dismissed as to Mark Volkmann and the fourth cause of action of the First Amended Complaint is dismissed as to Joyce Volkmann; and it is further

ORDERED that defendants Mark Volkmann and Joyce Volkmann are directed to serve an answer to the complaint within 10 days after service of a copy of this order with notice of entry; and it is further

ORDERED that the parties shall appear for a status conference on January 6, 2010, at 9:30 a.m. [*15]

Dated:______________

ENTER:

_________________________

J.S.C. Footnotes

Footnote 1: As discussed below, this litigation involves an issue concerning two limited liability companies one of which is or was a New York limited liability company and the other a Nevada limited liability company. For clarity, the company organized in Nevada will be referred to here as "UNF-Nevada" and the company organized in New York as "UNF-NY."

Footnote 2:For convenience, "defendants" generally refers to Volkmann and Joyce Volkmann only.

Footnote 3:Volkmann submits an affidavit averring that this is not true.

Footnote 4:Defendants cite Harris Corp. v McBride and Assocs. (2002 WL 1677695, 2002 Dist Lexis 13342 [WD NY 2002]), in support, but the facts in that case are not similar to those here. In Harris, the court denied the defendant's application to amend the answer, made in order to avoid summary judgment, to reflect that the wrong party had been sued on debt, where defendant's counsel made an assertion, not based on personal knowledge, that defendant's prior counsel made a "scrivener's error" in admitting the debt. The court then found the admission of the debt owed in defendant's answer to be a formal judicial admission for purposes of summary judgment. Judicial estoppel is not discussed.

Footnote 5:Plaintiff asserts that it is undisputed that in August 2006, the Agreement, and Volkmann's appointment, were terminated.

Footnote 6:UNF-Nevada, in its opposition brief, citing to paragraph 46 of the Complaint, states that "The First Amended Complaint also contains allegations that Volkmann intentionally diverted in excess of $100,000,000 of UNF's business to PFG, an entity with which Volkmann is currently affiliated" (Pl. Memo. of Law, at 36). This is not an accurate statement of what Paragraph 46 of the Complaint actually states, which is: "Upon information and belief, Mark Volkmann is intentionally attempting to divert business representing over $100,000,000 in possible revenues from existing third parties with business relationships with UNF to an entity known as [PFG], among others" (emphasis added).