Van Fleet v Micromem Tech., Inc.

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Van Fleet v Micromem Tech., Inc. 2021 NY Slip Op 32008(U) June 16, 2021 Supreme Court, Dutchess County Docket Number: 2018-53252 Judge: Christi J. Acker Cases posted with a "30000" identifier, i.e., 2013 NY Slip Op 30001(U), are republished from various New York State and local government sources, including the New York State Unified Court System's eCourts Service. This opinion is uncorrected and not selected for official publication. [*FILED: 1] DUTCHESS COUNTY CLERK 06/16/2021 02:37 PM NYSCEF DOC. NO. 83 INDEX NO. 2018-53252 RECEIVED NYSCEF: 06/16/2021 To commence 30-day statutory statutory time time period commence the the 30-day period for appeals as of appeals of right right ((CPLR CPLR 5555 13 [a]), you you are advised advised to copy of of this order, of entry. entry, upon all order. with notice notice of serve a copy parties. parties. SUPREME COURT COURT OF THE THE ST STATE SUPREME ATE OF NEW NEW YORK YORK COUNTY DUTCHESS COUNTY OF OF DUTCHESS ---------------------------------------------------------------------------X ---------------------------------------------------------------------------)( STEVEN STEVEN VAN VAN FLEET, FLEET, Plaintiff, Plaintiff, -against-against- DECISION AND AND ORDER DECISION ORDER INDE)( NO. NO. 2018-53252 2018-53252 .INDEX MICROMEM TECHNOLOGIES, INC. and MICROMEM Mf CROMEM TECHNOLOGIES, MICROMEM APPLIED SENSORS TECHNOLOGIES, TECHNOLOGIES, INC., APPLIED SENSORS INC.; Defendant(s). Defendant( s). ---------------------------------------------------------------------------X ---------------------------------------------------------------------------)( ACKER,J. ACKER,J. 2021,I, this Court Court issued order striking striking the pleadings of Plainti~fOn April April 29, 202 issued an order pleadings of Plainti!fCounterclaim Defendant Steven Van ("Van Fleet") and setting setting the the matter Counterclaim Defendant Steven Van Fleet Fleet ("Van Fleet") and matter for an inquest inquest as to damages damages on the the counterclaim counterclaim of of Defendants-Counterclaimants Technologies, Inc. Defendants-Counterclaimants Micromem Micromem Technologies, ("Micromem") and Micromem Micromem Applied Applied Sensor Sensor Technologies, Technologies, Inc. ("MAST"). ("MAST"). The counterclaim counterclaim ("Micromem") alleges breach of fiduciary fiduciary duty, duty, breach of contract contract (money (money damages, damages, injunctive injunctive relief, faithless breach of relief, faithless alleges breach of employee), fraudulent fraudulent inducement inducement and conversion conversion and seeks seeks money money damages, damages, specific specific employee), performance accounting. performance and an accounting. The inquest inquest proceeded proceeded on June June 3, 2021 and June 2021. The Court heard The June 7, 2021. The Court heard testimony testimony from three Van Fleet. Fleet The Micromem Micromem witnesses witnesses were Amadori, the three witnesses witnesses for Micromem Micromem and Van were Dan Dan Amadori, the Chief Financial Officer for Micromem, Diana Fuda, Fuda, accounts accounts payablelreceivable Chief Financial Officer Micromem, Diana payable/receivable and Martha Martha McGroaty, McGroaty, office office manager. manager. MAST owned subsidiary subsidiary of of Micromem formed in 2008. Fleet MAST is a wholly wholly owned Micromem and was formed 2008. Van Van Fleet became the President of MAST also a board of Micromem. Van became President of MAST in 2008.1 1 He was also board member member ofMicromem. Van Fleet's Fleet's 1 I complaint states states he became Van Fleet's Fleet's complaint became president president in 2005. 2005. 1 of 5 [*FILED: 2] DUTCHESS COUNTY CLERK 06/16/2021 02:37 PM NYSCEF DOC. NO. 83 INDEX NO. 2018-53252 RECEIVED NYSCEF: 06/16/2021 employment contract wa s mitted into evid ence. Th employment contract was ad admitted into evidence. Thee ter term of th thee contract was from June 1,2008 m of co nt ra ct wa s from Ju until May 31, 2011. M ne 1, 2008 r. Amadori testified th until May 31, 20 I I. Mr. Amadori testified that agreement was renewed on a month to month at the ag re em en t wa s re ne wed on a m on th to m basis until Van Fleet's on th resignation on August basis until Van Fleet's resignation on August 17 17,, 20 2018. The contract contained a compensation 18 . Th e co nt ra ct contained a co m pe ns package for Va n Flee at io n t. It is t contested at, du package for Van Fleet. It is no not Contested th that, during thee re relevant time period, Van Fleet was to ring th lev an t tim e period, Van Fleet wa be paid $15.000 a m s to onth plus $3,598 a m onth fo be paid $15,000 a month plus $3,598 a month forr he health insurance and a monthly automobile alt h in su ra nc e and a monthly autom allowance in the am obile ou nt 19.35. In dition, M allowance in the amount of of $7 $719.35. In ad addition, Micromem agreed to pay to Van Fleet, on a icromem agreed to pay to Van Fleet, on quarterly basis, a sum a quarterly basis, a sum re representing hiss in income taxes. presenting hi come tax es. Mr. Amadori testified ou t Va eet's re Mr. Amadori testified ab about Vann Fl Fleet's responsibilities andd ob obligations to Micromem as sponsibilities an ligations to M ic ro m em president of MAST. Af te r Van Fl ee t's resig as nation, M president of MAST. After Van Fleet's resignation, Micromem discovered email to a third party icromem discovered an which indicates Van an email to a third party Fleet lding hi m se lf ou which indicates Van Fleet wa wass ho holding himself outt as president and chief operating officer of president an d ch ie f op er at in g of fic another company du er of ring hi ure wi th M icromem. In another company during hiss ten tenure with Micromem. In th thee em email, Van Fleet referred to ail, Va n Fleet referre Micromem 's '"abysm d to al" financial condition r. Am Micromem's "abysmal" financial condition.. M Mr. Amadori also testified that some of Van Fleet's adori also testified th at so m e of Va n Fl ee t's progress reports to M ic ro m em did not ac cu rately re progress reports to Micromem did not accurately relate what occurred at certain business late wh at oc cu rre d at certain bu op portunity m opportunity meetings. eetings. siness Ms. Fuda performs du tie lated to counts re Ms. Fuda performs dutiess re related to ac acCounts receivable andd payable for Micromen. She ceivable an payable fo provided in fo nn at io n r Micromen. She to th e Co ur t as to ho w in provided information to the Court as to how invoices were processed by Micromem. voices we re pr ocessed by M ic ro m em Ms. Fuda testified ab ou t pa ym . Ms. Fu da en ts mad eet fo testified about payments madee to to Va Vann Fl Fleet forr hi hiss sa salary andd ot other benefits. She also lar y an he r benefits. Sh e als testified about ex pe ns e reimbu o testified rsements m ad e to Va eet fo about expense reimbursements made to Vann Fl Fleet forr supplies and legal services. Commencing su pp lie s an d legal services. in Oc to be r of 2015 an Co m m en ci ng d continuing until M ay 2017, Va in October of 20 15 and continuing until May,, 2017, Vann Fleet submitted certain invoices to Ms. Fl eet submitted ce rta in Fuda claiming that he invoices to Ms. paid these expenses. Fuda claiming that he paid these expenses. He di didd no not. example, an inventory search revealed t. For For ex ample, an inventory search reve that Micromem on ly aled received four Cascod iu C-2 pu that Micromem only received four Cascodiumm AR ARC-2 pulse generators while Van Fleet submitted lse ge ne ra to rs wh invoices seeking reim ile Va n Fleet submitt ed bursement for the pu rchase of invoices seeking reimbursement for the purchase of 17 generators. The vendor confirmed that ge ne ra to rs. Th e ve nd or confirmed only four were purcha that sed. In addition, Micr omem re only four were purchased. In addition, Micromem received bills from law firms for outstanding ce iv ed bi lls fro m la charges which Van Fl w fim1s for ou tst an di ng eet cla charges which Van Fleet claimed to ha have imed to ve paid. paid. Ms. McGroaty gave similar testimony. Th Ms. McGroaty gave similar testimony. Thee in invoices created by Van Fleet and other voices cr eated by documen Van Fleet and ot he r tary support for th e wi tnesses' cla ims we re ad documentary support for the witnesses' claims were admitted into evidence. Spread sheets created m itted into evidence. Sp by Ms. Fuda and Ms. read sheets created McGroaty were also mitted in by Ms. Fuda and Ms. McGroaty were also ad admitted into evidence. One spreadsheet totals the to ev idence. On sa e sp re ad sh ee t totals lary and benefits pa the id to Va n Fleet for levant tim salary and benefits paid to Van Fleet for th thee re relevant timee period while the others total the pe rio d while the ot he rs total payments made to Va th e n Flee r invoices he su payments made to Van Fleett fo for invoices submitted forr ite items for which he did not pay. bmitted fo m s fo r wh ic h he did not pay. 2 of 5 [*FILED: 3] DUTCHESS COUNTY CLERK 06/16/2021 02:37 PM NYSCEF DOC. NO. 83 INDEX NO. 2018-53252 RECEIVED NYSCEF: 06/16/2021 Pursuant to the "Faithless "Faithless Servant" Servant" Doctrine, Doctrine, Counterclaimants Counterclaim ants seek seek $591,818.29, $591,818.29, Pursuant representing salary salary and and benefits benefits paid to Van Van Fleet Fleet from the the period period of of October October 2015 2015 to August August 117, 7, representing 2018. 2018. They also seek seek $163,600 $163,600 for invoices invoices paid Van Fleet Fleet for the generators generators he never never They paid to Van purchased and $10,161.06 $10,161.06 for legal legal expenses expenses he claimed claimed to have have paid, paid, but but did not. purchased Van Van Fleet Fleet does does not dispute dispute much much of of the testimony testimony of of the Micromem Micromem witnesses. witnesses. His testimony largely largely detailed detailed his efforts efforts to help Micromem, Micromem, a startup startup company, company, succeed. succeed. He stated stated testimony role was tactical tactical and "to "to do things." things." He was the only person person pursuing pursuing business business on behalf behalf that his role of MAST MAST and he kept kept the President President and Board Board of ofMicromem apprised of of his various various projects. projects. The of Micromem apprised company was floundering floundering financially financially and the lack of of funding funding resulted resulted in the the loss of of several several large large company - . business opportunities. opportunities. Van Van Fleet Fleet charged charged expenses expenses on his credit credit card card to pay for necessary necessary items items business and loaned loaned Micromem Micromem his life insurance insurance money. money2 2 He testified testified that that he was was a loyal loyal employee employee and acted to help help the company. company. he acted Liability Liability has has been been determined determined against against Van Fleet. Fleet. Thus, Thus, he cannot cannot dispute dispute the Counterclaimants' assertions assertions that that he, inter inter alia, alia, submitted submitted false invoices, invoices, breached breached his employment employment Counterclaimants' contract contract and and was was a "faithless "faithless servant." servant." At an inquest inquest to determine determine damages, damages, Van Van Fleet Fleet could could only "cross-examine witnesses, witnesses, give give testimony, testimony, and offer offer proof proof in mitigation mitigation of of damages." damages." Dejesus Dejesus v. v. · ·. "cross-examine H.E. Broadway Broadway. . .Inc_, Inc., 175 AD3d AD3d 1485 (2d Dept. Dept. 2019) 2019) (citations (citations omitted). omitted). ·. HE. The Micromem Micromem witnesses witnesses were were competent, competent, credible credible and knowledgeable. knowledgeable. Their Their testimony testimony The calculation of of damages damages was was clear clear and concise. concise. While While Van Van Fleet Fleet testified testified in a credible credible as to the calculation manner as to his someti'mes sometimes tireless tireless efforts efforts on behalf behalf of of Micromem Micromem and MAST, MAST, his testimony testimony as manner fraudulent invoices invoices was was less so. He claims claims to have have "episodically" "episodically" ordered ordered generators, generators, with with to the fraudulent consent of of Micromem's Micromem's president, president, as the company company could could not not afford afford to order order ten at a time time as the consent required by the vendor. vendor. He would would invoice invoice the generators generators to build "war chest" chest" as the company company build a "war required could not not be counted counted on to accumulate accumulate the necessary necessary funds. could extent that that this this can can be To the extent considered considered an explanation explanation for the feigned feigned purchase purchase of of the generators,'it generators,' it does does not make make sense. sense. These These purchases took took place over the course course of of two years. years. What What company company president president would would agree agree to such such purchases place over scheme when when the testimony testimony by all was was that that he ultimately ultimately made made all the financial financial decisions? decisions? Why a scheme give up control control of of more more than than $150,000 $150,000 in funds funds during during a financially financially difficult difficult time? time? And, And, if if Van give 2'Van Fleet did not provide provide documentary documentary support support for these these expenditures expenditures nor nor did he specify specify any any amount amount owed owed to him Van Fleet during his testimony. testimony. 3 3 of 5 [*FILED: 4] DUTCHESS COUNTY CLERK 06/16/2021 02:37 PM NYSCEF DOC. NO. 83 INDEX NO. 2018-53252 RECEIVED NYSCEF: 06/16/2021 Fleet's actions were offer this Fleet's actions were well intentioned, intentioned, why wait until now now to offer this explanation? explanation? The The Court Court notes offered no such such explanation explanation for the legal invoices. notes he offered invoices. Van Fleet commenced this this lawsuit seeking compensation compensation for unpaid earnings. While Van Fleet commenced lawsuit seeking unpaid earnings. While he now acknowledges that that he should should have "written them them a check" check" for the "war "war chest" now acknowledges have just just "written chest" at his resignation, owed him silent as to not do so because because Micromem Micromem owed him money. money. His His complaint complaint is silent resignation, he did not set-offs for the war war chest. chest. There documentary proof submitted that funds were There was no documentary proof submitted that the funds were any set-offs deposited in an account account and not not depleted depleted during during the relevant deposited relevant period. period. Instead, Instead, it appears appears to the Court that extraordinarily stressful, stressful, both Fleet's last few years years at Micromem Micromem were were extraordinarily Court that Van Fleet's professionally financially. Van regularly paid and he felt he was entitled professionally and financially. Van Fleet Fleet was not being being regularly was entitled to compensation compensation so he paid himself. paid himself. Under "faithless servant servant doctrine," doctrine," Under the "faithless One who owes principal and who is faithless faithless in the performance performance of One who owes ·aa duty of of fidelity fidelity to a principal of his services services is generally generally disentitled compensation, whether commissions or disentitled to recover recover his compensation, whether commissions salary Agency 2d, s 469). Nor Nor does it make make any difference difference that that the the services salary (Restatement, (Restatement, Agency services were suffered no provable were beneficial beneficial to the principal, principal, or that that the principal principal suffered provable damage damage as a result of the breach of fidelity fidelity by the agent agent (see Wechsler Wechsler v. result of breach of v. Bowman, Bowman, 285 N.Y. N.Y. 284, 284, 291291292, 930; Lamdin N.E.2d 322, 322, 325-326, 325-326, remittitur remittitur and ~86 N.Y. 582, 35 35 N.E.2d N.E.2d 930; Lamdin v. v. 292, 34 N.E.2d Broadway Corp., 272 N.Y. 133, 138-139, 138-139,55 N.E.2d Broadway SUI/ace Swface Adv. Corp., N.E.2d 66, 67). Feiger Ltd., 41 N.Y.2d 928, 928-29 (1977). Feiger v. v. Iral Ira/ Jewelry. Jewelry. ltd., N.Y.2d 928, 928-29 (] 977). "This is because because the function of [[aa breach of fiduciary fiduciary duty] action, action, unlike ordinary tort "This function of breach of unlike an ordinary tort or contract case, case, is not merely compensate the plaintiff committed by the defendant contract merely to compensate plaintiff for wrongs wrongs committed defendant buLto them, by removing agents and trustees attempt dealing inducement to attempt dealing for but...to prevent prevent them, removing from agents trustees all inducement their own own benefit others, or to which agency or benefit in matters matters which which they have have undertaken undertaken for others, which their their agency their trust v. Oreamuno, Oreamuno, 24 NY2d [1969]. trust relates." relates." Diamond Diamond v. NY2d 494, 498 [1969]. Here, evidence established established that Fleet first submitted submitted a fraudulent fraudulent invoice Here, the evidence that Van Van Fleet invoice to his ' . employer on October October 24, 24,2015 employer 2015 and he was reimbursed reimbursed on November November 9, 2015. 20_15. Thus, Thus, pursuant pursuant to the faithless faithless servant servant doctrine, doctrine, Counterclaimants Counterc1aimants are to recover compensation paid recover all compensation paid to Van Van Fleet Fleet 1,2015 2018, of$591,818.29. They are from November November 1, 2015 until his resignation resignation in August August 20 I 8, a total total of $591,818.29. They 4 4 of 5 [*FILED: 5] DUTCHESS COUNTY CLERK 06/16/2021 02:37 PM NYSCEF DOC. NO. 83 INDEX NO. 2018-53252 RECEIVED NYSCEF: 06/16/2021 awarded the sum of of $163,600.00 $163,600.00 for the generator generator invoices invoices and and $10,161.06 $10,161.06 for the the legal also awarded expense invoices. invoices. In the the Court's Court's discretion, discretion, interest interest pursuant 5001(a) shall shall begin expense pursuant toCPLR to CPLR 500l(a) begin to accrue as of of May S411. at al pg. 795 (6thth ed.). accrue May 9, 2017. 2017. See Siegel, NY NY Practice. Practice, §411. . ' Counterclaimants Counterclaimants shall shall submit submit a judgment judgment on notice notice to Plaintiff-Counterclaim Plaintiff-Counterclaim Defendant. Defendant. Dated: June 16,2021 Dated: June 16, 2021 Poughkeepsie, York New York Poughkeepsie, New To: Michael Freeman Michael A. Freeman Greenberg Freeman Freeman LLP LLP Greenberg NYSCEF . Via Via NYSCEF Steven Van Steven Van Fleet Fleet 7 Cunningham Drive Cunningham Drive NY 12504 LaGrangeville, LaGrangeville, NY 5 5 of 5

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