NBTY, Inc. v Vigliante
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NBTY, Inc. v Vigliante 2015 NY Slip Op 32300(U) November 24, 2015 Supreme Court, Suffolk County Docket Number: 606984-15 Judge: Elizabeth H. Emerson Cases posted with a "30000" identifier, i.e., 2013 NY Slip Op 30001(U), are republished from various state and local government websites. These include the New York State Unified Court System's E-Courts Service, and the Bronx County Clerk's office. This opinion is uncorrected and not selected for official publication. [*FILED: SUFFOLK COUNTY CLERK 11/25/2015 11:20 AM 1] INDEX NO. 606984/2015 NYSCEF DOC. NO. 89 RECEIVED NYSCEF: 11/25/2015 INDEX NO.: 60698-t-15 SHOHT FOUM ORDE R SUPREME COURT - ST ATE OF NEW YOJ COMMERCIAL DIVISION TRIAL TERM PART 44 SUFFOLK CO PRESENT: Hononlble Elizaheth H. Emerson ~~~~~~~~~~~~~~~~x NBTY, INC., MOTION 0AT1£: 7-23- 5; 8-27- 15; I0-16-15 SUBM ITTED: 8-27- 5; 10-22-15 MOTION NO.: 001 - ID 002- Plaintiff, -against- KIMBRRLY O'CONNELL VlGLIANTE, BETH POTERE, JAMES PERRY, and PIPING ROCK H EALTH PRODUCTS,LLC, Defendants. u 003- G; CASE r>ISP CAMPOLO, MIDD McCORMICK, LL Attorneys for Plaint 4175 Veterans Mcm Ronkonkoma, New ETON & ff rial IJighway, Suite 400 ork J 1779 .JASPAN SCllLES Attorneys for Defeo a nts 300 Garden C ity Ph za Garden City, New ork 11530 Upon the following 1::-filed documents read on these motions for welimin 1r in·unct.ion and motion to dismiss ; Notice of Motion and supporting papers 5-17; 30-37; 40-46; 65-74 ; Notice of Cross Motion anc.I supporting 1>ape rs_ _ ; Answering Affidavits and supporting papers 47-63· 75-84 ; Reply ing Affic.lavits a nd s upporting papers~; it is, ORDERED that the motion by the defendants for an ordc dismissing the amended complaint is granted; and it is further ORDERED that the motions by the plaintiff for pre limin y injunctive relief are den ied as academic. The plainti ff, NBTY, Inc. (" BTY"), is a leading global a nufacturer, markeLer. distributor. and retailer of vitamins and nutritional supplements whose p incipal place of business is in Ronkn nkoma, New York. The defendant Piping Rock Hea lth Prod els. LLC ("Piping Rock'"), was founded in May 20 11 by NBTY' s former Chief Executive rticcr, Scott Rudolph. lts principal place of business is also in Ronkonkoma, New York. Since 20 12, Piping Rock has [* 2] Index No.: 606984-15 Page 2 been a direct competitor of NBTY in the vitamin and nutritional-supplem nt indust1y. The individual defendants, Kimberly O'Connell Vigliante ("Vigliante"), Beth otcrc(" Potere"), and James Perry ("Perry"), were high-level NBTY salespersons who left NBT to work for Piping Rock. Vigliante was employed by NBTY from October 4, 2004, t hrough -·ebruary 6, 2015, when she voluntarily resigned from her position as Senior Vice President of V MS Specialty Brands. Poterc was employed by NBTY from August 6, 2001, through October 2 , 2014, when she voluntarily resigned from her position as Vice President of Sales, U.S. N rition. Perry was employed by NBTY from December 16, 1996, through June 19, 2015, wl en he voluntarily resigned from hi s position as Regional Vice President, Broker Manageme t East. They began working for Piping Rock shortly after leaving NBTY. In 20 11 , the individual defendants executed stock-option a :rreemcnts with NBTY's parent company, Alphabet Holding Company, Inc. ("Alphabet I aiding"). The agreements gave Vigliante, Potere, and Perry options to purchase speci:fie numbers of shares of common stock that would vest over time, at specified prices, subject to c rtain terms and conditions. The stock-option agreements contained restrictive covenants rohibiting the individual defendants, inter alia, from engaging in any competing busine s i11 North America, Europe, or China for a period of one year following the end of their empt yment with NBTY and from disclosing any of the confidential and proprietary information of Al habet Holding and its subsidiaries, including NBTY,, in perpetuity. Following the resignations fthc individual defendants and their subsequent employment by Piping Rock, NBTY co menced this action to enforce the aforement ioned restrictive covenants. The amended complai t contains causes of action against each of the individual defendants for breach of the coven snot to compete, causes of action against Piping Rock for tortious interference with contra t and unfair competition, and a cause of action for a permanent injunction against all f the defendants. The defendants move to d ismiss the amended complaint pursuant to CPLR 3211 (a) ( 1) and (7). The stock-option agreements provide that they shall be ad 1inislered, interpreted ~ and enforced under the laws of the State of Delaware. Under Delaware 1 w, the elements necessary to constitute a valid restrictive covenant are the same as those r quired for a contract in general, namely, a mutual assent to the terms of the agreement by all pa1i es and the existence of consideration (Faw, Casson & Co. v Cranston, 375 A2d 463, 466). Ar strictivc covenant entered into after an employee's service begins is enforceable if supporte by new consideration in the form of a corresponding benefit or a beneficial change in employm nt status (Id.). The plaintiff contends that the consideration for the restrictive covenants exec ted by the individual defendant::; was the option to purchase NBTY stock and access to N BTY' confidential and proprietary information. However, the plaintiff does not allege, nor does he record reflect, that the individual defendants did not have access to NBTY's confidential an proprietary information before they executed the stock-option agreements or that, aft r they executed the agreements, they were given access to confidential and proprietary infom ation to which they did not have access before. Moreover, the options expired, by their terms, 9 days after the individual defendants left NBTY's employ, and it is undisputed that the i dividual defendants [* 3] Tndex No.: 606984-15 Page 3 never exercised the options. The record reflects that Vigliante and Potere even made inquiries before leaving NBTY regarding the restrictive covenants and that N13TY dvised them that, if they did not exercise the options within 90 days following their terminatic n of employment, the stock-option agreements, including the restrictive covenants contained U1 rein, wou ld become null and void. This interpretation of the agreements is consistent with N York law. Under the emp loyee-choice doctrine, when an employer c nditions the receipt of benefits upon compliance with a restrictive covenant, the employee is giv n the choice of preserving his or her iights under the contract by refraining from competi ·on or risking forfeiture of such rights by exercising the right to compete (.Lenel Sys. Intl., Inc. v Smith, 106 AD3d 1536, 1539, citing Morris v Schroder Capital Mgt. Intl., 7 NY3d 616, 20-621). Jlere, as in Lenel, the individual defendants agreed to post-termination non-compete provisions in exchange for the receipt of additional incentive compensation, i.e., stock options (I .). Thus, upon their decision to leave N13TY's employ, they had the choi.ce of preserving thei rights under the stockoption agreements by refraining from competition with NBTY or risking forfeiture of such rights by exercising their right to compete (Id .). By choosing to compete with BTY, the individu<:1J defendants gave up their right to the stock options promised in exchange herefor (ld.). They, therefore, made an i11formed choice between forfeiting their stock option or retaining the benefit by avoiding competili ve employment (Id . at 1539-1540). The court finds that NBTY seeks to enforce an agreement that has already expired and for which the individual defendants received no benefit that had any ctual value. The slockoption agreements expired by their terms shortly after the individual defe dants' employment ceased; and, consistent with the advice they received from representative ' of NllTY, the individual defendants made no attempt to exercise the options or obtain ny benefits. The plaintiffs do not allege, nor does the record reflect, that the individual de· endants received any stock, dividends, or cash payments in exchange for the restrictive covena ts foun d in the stockoption agreements. Moreover, the agreements provide that the individua defendants may not disclose the options or the tenns of the agreements to anyone except thci spouses and/or tax or financial advisors without prior approval, thereby precluding them from rcely transferring the opt ions for value. Tine agreements further provide that they may be term nated for no consideration. While Delaware law permits continued employment to s ve as consideration for an at-will employee ' s agreement to a resl.tictive covenant (Research & rading Corp. v Powell, 468 A2d 130 1, 1305), the agreements in this case contain a representatio by the individual defendants that they were not induced to enter into the agreements in ex hange for or as a requirement of continued service with Alphabet Holding or any of its su sidiaries. The agreements further provide that nothing contained therein shall confer u on the individual defendants a right to continued employment or interfere with the right oi Alphabet I lolding and its subsidiaries to discharge them at any time, for any reason, with or wit out cause, except pursuant to an employment or consulting agreement. It is undisputed th no such agreements were executed by the parties. Accordingly, the court finds that the stock option agreements lack consideration. [* 4] Index No.: 606984- 15 Page4 In addition to meeting general contract-law requi rements, ovcnants not to compete must also be reasonable in scope and duration, both geographica ly and temporally; advance a legitimate economic interest of the party enforcing them; ands rvive a balancing of the equities in order to be enforceable under Delaware law (All Pro Mai s, Inc. v Layton, Del Ch Ct, Aug. 10, 2004, Parsons, VC [2004 WL 1878784] at *5, aj]d 880 2d 1047). Covenants not to compete covering limited areas for two or fower years generally ha e been held to be reasonable under Delaware law (Id. at n 23 [and cases cited therein]). N n-competition agreements of greater length and broader geographic scope have been fou d reasonable in Delaware in cases where the restrictive covenants were executed as part f the sale of a business as a going concern (Kan-Di-Ki, LLC v Sauer, Del Ch Ct, July 22, 2015, Parsons, VC [20 15 WL 4503210 I at *20, n 233 [and cases cited therein]). Here, the covenants w re not executed in connection with the sale of a business. They, nevertheless, cover a broad geographic area, i.e., North America, Europe, or China, for a period of one year following the nd of the individual defendants ' employment with NBTY. While the protection of employer goodwill and confidential information are legitimate interests recognized by Delaware aw (Id.), the court finds that a geographic limitation covering North America, Europe, and China s unreasonable and imposes an undue hardship on the individual defendants. They would be precluded, without any compensation, from working in an industry in which they had worked fo much of their careers and~ presumably, from which they had derived their marketable skills. T us, the balance of the equities is in favor of the individual defendants. In view of the foregoing, the court finds that the stock-opt on agreements and the covenants not to compete contai ned therein are unenforceable. The com laint, therefore, fails to state causes of action against the individual defendants for breach of cont act. In the absence of valid and enforceable contracts between NBTY and the individual defen ants, the complaint fail s to state a ca.use of action for tortious interference with contract against Pi ing Rock (Lama Holding Co. v Smith Barney, 88 NY2d 41 3, 424). Accordingly, the fir t through fourth causes of action are dismissed. The fifth cause of action for unfair competition alleges th , upon information and belief, Piping Rock obtained NBTY's confidential information from the · dividual defendants and is using it to the competitive disadvantage of N BTY. The court find that the::;e allegations are not sufficiently particular to give the court and the parties notice of th transactions, occurrences, or series of transactions or occurrences underlying the unfai -competition claim (see, CPLR 3013). The plaintiffs allegations are based upon information and belief and fail to identify what information was purportedly misappropriated. Vague state ents that fail to articulate specific acts of misappropriation do not satisfy the pleading sta <lards (Ferring B. V. v Allergan, Inc., 4 F Supp 3d 612, 630), and conclusory statements canno substitute for minimally sufficient factual allegations (Dataline, Inc. v MCl WorldC m Network Services, Inc., US Dist Ct, SDNY, Feb. 6, 2001, Preska, J. [2001 WL 102336], at 7). The plaintiff merely presumes that, since Vigliante, Potere, and Perry had access to N TY' s confidential and proprietary information, it is likely that they disclosed it to Piping Rock. The court finds such [* 5] Index No.: 606984-15 Page 5 allegations insufficient to state a claim for misappropriation of confidenti l information under New York Jaw (see, Affinity LLC v GfK Mediamark Research & lute ligcnce, LLC, 547 Fed Appx 54, 57 l2"J C ir] [allegations that competitor "must have" breached on-disclosure agreement was merely conclusory and failed to state a claim for misappro riation of confidential information under New York law]). Accordingly, the fifth cause of actio In the absence of an underlying claim, the plaintiff is note titled to injunctive relief (Spiteri v Russo, US Dist Ct, EDNY, Sept. 7, 2013, Brodi e, J. f2013 WL 4806960] at *44 [and cases cited therein]). Accordingly, the sixth cause of action for ape anent injunction is dismi ssed, and the plaintiffs motions for preliminary inj unctive relief are denied as academic. Dated: _....:....;.;ov-=e=m=b::..:e=r-'2=-4=,-=2"-"0=l-=5__ N ;;...; (Li ~~\~,'1- ~\_QnV---,J J.S.C
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