Rejwan v First Essentials Corp.

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Rejwan v First Essentials Corp. 2022 NY Slip Op 31977(U) June 23, 2022 Supreme Court, Kings County Docket Number: Index No. 515253/2022 Judge: Leon Ruchelsman 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. INDEX NO. 515253/2022 FILED: KINGS COUNTY CLERK 06/23/2022 10:10 AM NYSCEF DOC. NO. 143 RECEIVED NYSCEF: 06/23/2022 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF KINGS : CIVlL TERM: COMMERCIAL 8 ---- --------- ~--- ---------.-~--~~-------x $_HAUL REJWA!'t, derivatively on. beh~lf of BABY TIME INTERNATIONAL, INC. Plaintiffs, Decisiop arid order !n_dex N.o. 515253/2022 - against - F°IRST E$SENTIALS CORP. , FIR$T. ESSE:N'rIALB LLC·, MENASHE BATTAT, and YAKTR BATTA'I', Defendant;: June 23, 2022 -----~-- ------------ ·------------ --. ----x PRESENT: HON. LEON RUCHELSMAN The plaintiff has moved pursuant to. CPLR §6301 seeking a preliri:tiriary injunction staying the def e·noants·: M'.enashe and. Yakir .Bat tat. ·from taking any actio,n_ whi_ch will harm the pl.t;3.intiff' s interest in the company~- Specif ica:lly, the plaintiff seeks to ·enjoin the defendants fr.om .utilizi,ng Baby Till').€!;' s pr9prietary and confidential info:i;-_mation and trad:e sectE;!ts and from using that information in any way~ Alterfiati~el y, the plaintiff see~s to enjoin ·ttfe deffen.da:nts from damaging Baby. Time's bu$.ines~The defendants _oppose the motion_. prospects. sU:bmi tted py Papers we:i::e the .partie·s: an:d arguments he-ld and af"t:er rev.i·ewi.ng, _a-11 the arguments this qourt, now makes t_he following determination . Thei -plainti:ff -Shaul. Rejwa.n and the de·fenda_nt Nen-ashe .B~tta.1;:.- are each .half owner -Of an entity c;alled. B~l;)y Time Internationa l Inc. According to the cornplaint, Baby Titne· manufactures ~'baby products, including ·inattre.sses.,.. playpens, e.r:Ll::>s, crip ,9heets, cloth diapers, l;}aby blanke:ts, and other baby needs" (see, [* 1] 1 of 11 INDEX NO. 515253/2022 FILED: KINGS COUNTY CLERK 06/23/2022 10:10 AM NYSCEF DOC. NO. 143 RECEIVED NYSCEF: 06/23/2022 Verified Complaint 1 15) . F.tirther·,.. according to the ¢ompl.aint., i:n 20).6 Baby Time eXpan9-ed an.ct beg.a,n selling adult mattresses Bedding co., and in 2020 began through an entity called· Body Fit . an e-co"ri.1hler.ce divi.sion cailed R&S Distributors· !ciell.:i;:ng baby products online. In ea·.rly 2022 the· plaintif·f· :ctiscov.ered that the defendants were s .elling .B,;rby Time·' s. product line under a different entity calle.d First Es.sentials; Investigation s by the plaintiff r·evealed the .defendants approached Baby T":itn.e' s customers a·nct s·o1d them the identical• items Baby Time had sold them previously. This action 1.,1a-s commenced and the compl.aint all.eges causes .of action ::Eor breach of a "fidut:.i,ary duty, arid aiding and abe,tting such breach, misappropria tion, unjust enrichment, misappropria tion of trade $ecrets and the aidi·hcj and abetting .of s.uch rrdsapp.·ropr.i,a t.ion,· :Unfair· :.comi:re:titinn and. the breach of the fa-i thless servant doctrine. As noted, the plaintif"f has. moved seeking an .injunction pr·event"ing .t·he def·endant.s fr.9m selling th,e ~.ame p:i:oducts tbat is .s.old by Baby Time. The motion is o.pposed. Conclusions of Law CPLR §63.01, as it pertains to this case, p.ermits the court to i"ssue· a preiirninary injunction "iri any .-acticYn~ •. where the plaint.iff ha.s demanded and ·would be entitled to a judgement restr·aining defendant from the commission or the. continuance of 2 [* 2] 2 of 11 ······················ ··-·····---------- INDEX NO. 515253/2022 FILED: KINGS COUNTY CLERK 06/23/2022 10:10 AM NYSCEF DOC. NO. 143 RECEIVED NYSCEF: 06/23/2022 an act, which, if committed or continued during the pendency of the action, would produce injury to the plaintiff" (id). seeking a preliminary injunction "must qemonstrate a A party probability of success on the merits, danger of irreparable injury in the absence of the injunction and a balance of the equities in its favor" (Nobu Next Door. LLC v. Fine Arts Hosing; Inc:., 4 NY3d $39, 800 NYS2d 48 [2005], see also; Alexandru v. Pappas1 68 Ad3d 690, 890 NY2d 593 [2d Dept., 2009]). Further, each of the above elements must be proven by the moving patty with "clear and ·conviricing eviderice" {Liotta v. Mattohet 71 AD3d 741, 900 NYS2d 62 [2d Dept., 2010]). Thus, a prelimina:ry injunction is proper where evidence has been presented that an individual is misappropriating trade secrets to harm or disadvantage the protector of the secrets {L. F. O'Connell Associates Inc., v. Mcgetrick, 30 Misc3d 1238 (A),. 961 NYS2d 359 [Supreme court Suffolk County 2012] ) . To establish the defendant in this case has misappropriated trade secrets the plaintiff must present evidence that the defendant is in possession of trade secrets ahd that it utilized such trade secrets in breach o.f a duty of loyalty or as a result of di,5covery by improper means (.§..§.g, Integrated Ca:sh Management .Services Inc., v. Digital Transactions Inc., 9~0 F2d 17.l [2d Cir. 1990]). In .Parchem Trading Ltd., v. Depersia, 2020 WL 764211 [Si D.N. Y. 2020] the cbur.t noted that "'a custdmer list. tha.t 3 [* 3] ........................ - ..... ______________________________ 3 of 11 INDEX NO. 515253/2022 FILED: KINGS COUNTY CLERK 06/23/2022 10:10 AM NYSCEF DOC. NO. 143 RECEIVED NYSCEF: 06/23/2022 contains such information as the identities and preferences of client contacts' may be a 'protectable trade secret" {id) . The court explained that "a trade secret may exist in a combination of characteristics and components, each of which, by itself is. in the puplic domain, but the unified process, design and operation of which, in unique combination, affords a competitive advantage" (id). Therefore, customer lists will qualify as trade secrets where the list is within the exclusive knowledge of the company and cannot be "readily ascertained" by others in the industry without "extraordinary effortsi, {Poller v. BioScrip Inc., 974 F.Supp2d 204 [S.D.N.Y. 201:3]). However, contact information of customers that is "little more than a compilation of publicly available information" are not trade secrets (Art & Cook Inc .• v. Haber, 416 F.Supp3d 191 [E.D.N.Y. 2017]). The plaintiff argues the customer information is proprietary and thus constitutes trade secrets for two reasqns. First, it was highly guarded arid only the plaintiff and defendant had. access to its information. Second, the customer list did not merely contain a list of customers but included far more proprietary and exclusive information. Thus, the customer· information included "specifics of its customer relationships, such .as which products each customer purcp.ases, in what. quantities, and at what prices" information that "is not readily ascertainab.le frcim .any public sourcef' (Memorandum of Law in Support, Page 14) . .4 [* 4] 4 of 11 ·········-·······-·--··----------------------------- INDEX NO. 515253/2022 FILED: KINGS COUNTY CLERK 06/23/2022 10:10 AM NYSCEF DOC. NO. 143 RECEIVED NYSCEF: 06/23/2022 :the affidavit o-f Shaul Rejw.an include!$ information _about. the materials tested to- insµrE::? unJque p.roduct.s: _as w_e.ll as supplie3:r and manufacturin g information (.§&§., Affidavit of Shaul -.Rejwari., 11 8·-11) .. Likew"ise, t.he Verifi·ed Compl-aint discus-~es the unique sourcing and ma,nufacturin g employed by Baby 'rime .( see, Verified Complairit, 'i['I[" 24-33') . However, the plaint,iff does not ·prese:n.t any eviden,ce supporting ,th,e conte:ntio:n- the- defenda_nt unfairly utilized trade secret.s relating to customer preferences regard;Lng qua_nt.1.ty, pr;i..cing _or any other·. .;i.ssq.e.. Of cour·se., the· defen_dant would not be able to sell its- _products without obtaining the good·s frbrn a supplier. In this regarcl., the Verified Complaint itse·l.:f cannot -pos~ibly support the cb:nteriti·ori the d!=;fendant utilized. the same sut,plier as the plaintiff in some. unlawful manner. The Ve.riffed Complaint admits tha_t conc-erning the de,fendant-' s g·oods "·.the name of the manufaoture:r · has been chang,ed on the bills of ladingu (see, Verified Complaint, '.II 78) conceding no ·such ·util--i"zation of the s.ame suppliers .and rttanufa.cturer s occ.urred.. that I:-Iowever, the \Te-rified. Cornpli;iiht insists ''the goods are being shipped from t_he: same foreign po:ct frc,m which Baby ·Time's. -products are· sh_ipped .and the des:criptio:hs cif· the prod.ucts .as listed .are largely the same as the descriptions -of the products irt the bills of lading· se-rrt to Baby Time" Cid}. Thus·,, th..e verified Compla,int concludE::rs thcJ.t "upon ih:Eormati·on. and beiiefr Fir 8t.Essentials is using Baby Time's supplier to 5 [* 5] 5 of 11 INDEX NO. 515253/2022 FILED: KINGS COUNTY CLERK 06/23/2022 10:10 AM NYSCEF DOC. NO. 143 RECEIVED NYSCEF: 06/23/2022 manufacture, inter alia, their portable cribs" (see, Verified Complaint '1[ 79). Thll.s, while furthe.r discovery may support the allegations the defendants improperly utilized the manufacturers and suppliers of Baby Time, if such utilization is even improper; the Verified Complaint, in.the .face of proof tll.at undermines such an allegation, nevertheless, asserts otherwise. That is surely an insufficient basis upon which to grant any injunctive relief. Examining the conclusory allegations of customer specifications, it is true that such information can Constitute trade secrets (Jay's Custom Stringing Inc., v. Yu, 2001 WL 761067 [ S. D. N .Y. 2001 J ) • However, marketing stra teg.ies or thE; "mere knowledge of the intricacies of a business" are hot trade secrets (Accenture LLP v. Trautman, 2021 WL 6619331 [S.D.N.Y. 2021]). ·The ca.se of West Publishing Corporation v. Coiteux.; 2017 WL 4339486 [S.D.N.Y. 2017] is instructive, Tnthat case, Coiteux was an employee of West Publishing with access to information of a branch of We·st called Elite, a business management product. Coiteux was not involved in Elite's product and only dealt with west's products. Twelve years later Coiteux took another job with We st' s competitor Ade rant . West accused Co i teux of divulging trade secrets to Ader anti specifically, ''confidential information regarding Elite customers, pricing, and sales strategies in cormection with those joint sales efforts" (id). The court noted that West asserted that "Coiteux had access to 6 [* 6] ........................ 6 of 11 ··················· ·-·············--- ---------------- ---------------- ---- INDEX NO. 515253/2022 FILED: KINGS COUNTY CLERK 06/23/2022 10:10 AM NYSCEF DOC. NO. 143 RECEIVED NYSCEF: 06/23/2022 'pricing, incentives offered and .actual pric:es offered'; Elite ct1stomers' contact information, 'product needs and purc::ha;:;ing history'; and "inforrnatiort regarding West's sales strategies for Elite products, lists of customers West intended to target for th.e sale o.f Elite products and Elite product development details'" (id). The court declined to grant any injunction prohibiting Coiteux from working at Aderant. First, the court held that the identity of Elite 1 s clients was not a trade secret. Moreover, the court stressed that pricing data, business strategies and the intricacies of the business did not amount to any trade secrets. Further, there can really be no trade secret concerning the mere preferences of customers when the customer ca.n simply be asked about their particular preferences and needs {Kadant Irie .• v. Seeley Machine Inc., 244 F.Supp2d 19 [N.D.N.Y, 2003]). Moreover, any information that could easily be recalled by the defendant in his dealings with the s.ame customers is not a trade secret. As the court observed in Catalogue Service of Westchester Inc., v. Henry, 107 AD2d 783; 484 N'{S2d 615 [2d Dept., 1985].), "remembered irtforrna:tion as to specific needs and business habits of particular customers is not confidential" (id}. Cases that have held customer lists are trade secrets whe.re it would be difficult to acquire that information frqm other soµrces :3ince they cor1tai.ns customer preferences, refers to St1ch information t~at cannot simply be asked of the. customer [* 7] ................. 7 of 11 ······ ·-·---------------------------- INDEX NO. 515253/2022 FILED: KINGS COUNTY CLERK 06/23/2022 10:10 AM NYSCEF DOC. NO. 143 RECEIVED NYSCEF: 06/23/2022 (North Atlantic Instruments Inc., v. Haber, 188 F3d 38 [2d. Cir 1999]), In instances where the customer preferences cl.re part of "a long, difficult process to educate and convert a prospective Customer to the benefits of the process" being offered then such preferences, like the customer lJst itself may afford trade secret protection (see, Webcraft Technologies Inc .• v, Mccaw, 674 F.Supp. 1039 [S.D.N.Y. 1987]). The plaintiff has failed to demonstrate there is a likelihood of success the defendants utilized such information that could constitute trade secrets. Thcit does not mean that upon the proper presentation of evidence the plaintiff will not be able to prevail 11pon these claims trial. at Rather, at this stage the plaintiff has failed to 'present sufficient evidence that ariy trade secrets were utilized sufficient to grant an injunction. However, the defendants have all but admitted that they breached ficiuciary duties owed to the corporation. The defendants argue that they "have every right to compete with Plaintiff a.s Plaintiff doe.snit claim any .sort of non-compete with these Defendants" and that "there is nothing improper about the competition'' (Memorandum of Law, pages 14 and 15) . While that may be true in a g~neral, abstract way, current employees and ' owners .of a: th.e expense ' ' corporation ,may not actively engage in comp.etitiorr at of triat corporatiori. (Ritani. LLC V; Aghiayan:, 970 F. Supp; 232 [S. D.N ~ Y. 2 013]) . Of course, former. employees .of a 8. [* 8] 8 of 11 INDEX NO. 515253/2022 FILED: KINGS COUNTY CLERK 06/23/2022 10:10 AM NYSCEF DOC. NO. 143 RECEIVED NYSCEF: 06/23/2022 corporation may compete with that corporc1tion (Abraham Zion Corp., v. Lebow, 593 F- Supp. 551 [S. D. N .Y. 1984]). The defendants assert "the absence of any agreement between the parties restricting these Defendants front leaving Baby Time (or from constructively being terminated therefrom) and working for another competing business;, (Memorandum in Opposition, page 2). However; at no point do the defendants concede they were constructively terminated from Baby Time. On the contrary, the defendant Menashe I:3attat remains an officer and director of the corporation and Yakir :Sattat remains an employee. Thus, Yakir Battat states that "I am still selling Baby Time inventory whenever I receive an order for those goods which I forward to Rejwan or his ass'ociates to fulfill the o'rderu (see, Affirmation of Yakir Battat, 'l 16). Further, Yakir's excuse that he may engage in competition as an employee or owner of First Essential~ despite his Current employment with Baby Time because his "'competition' is also not really Competition becaus-e First Essentials makes a better quality product than Baby Time" (id) is not a basis at all upon which to engage in potential breaches of a fiduciary duty. Thus to establish a claim for a breach of a fiduciary duty, a plaintiff mu.st establish the .existence of the following three elements: ( 1) a fiduc~ary relationship, (2) miscor1duct by th.e defendant, and (3) damages that were. directly caused by the. 9. [* 9] 9 of 11 ',._,.,_,. __ ,_,. ________ ,,,_ __________________ INDEX NO. 515253/2022 FILED: KINGS COUNTY CLERK 06/23/2022 10:10 AM NYSCEF DOC. NO. 143 RECEIVED NYSCEF: 06/23/2022 defenda,nt's misconduct (Kurtzman v Bergstol, 40 AD3d 588, 835 . . NYS2d 64 4, 64 6 [2d Dept . , 20 07] , see, Birnbautn. v. Birnbaum, 73 NY2d 461, 541 NYS2d 746 [1989]). Moreover, it is well settled that an employee owes a duty of good faith and loyalty to an employer irt the performance of the employee's duties (McKinnon Doxsee Agency Inc., v. Gallina, 187 AD3d 733, 132 NYS2d 14 4 [2d Dept., 2020]). to an employer. Further, an employee maintains a fiduciary duty As the court noted in Nielson Co. (US) LLC v. success Systems Inc., 2013 WL 1197857 [S.D.N.Y. 2013] "as a matter of law, an employee owes a fiduciary eiuty to his employer and is prohibited from acting in any manner inconsistent with his agency or trust and is at all times bound to exercise the utmost faith and loyalty in the performance of his duties" (id). Therefore, as current members and employees of the corporation Menashe and Yakir maintain a fiduciary dµty not to undermine the corporation's fiscal vitality and direct1y compete with it. Thus, even if no trade ·secrets of the Corporation were utilized at all in competing with the corporation the very act .of competition itself createci a potential breach of a fiduciary duty. Therefore, the plaintiff has demonstrated a likelihood of succl;:!SS on the merits regarding the breach. p:f fiduciary duties. Concerning the irreparable harm prong, the plaintiff has demonstrated more than just mere e.conomic loss, rather, the plaintiff may suffer the loss and goodwill 10 [* 10] 10 of 11 ot .its. cl.ient bas.e. FILED: KINGS COUNTY CLERK 06/23/2022 10:10 AM NYSCEF DOC. NO. 143 INDEX NO. 515253/2022 RECEIVED NYSCEF: 06/23/2022 Indeed, Mr. Rejwan states the actions of the defendants were causing Baby Time to go out of l:msiness (see, Affidavit of Shaul Rejwa:n, '3I 28). These losses are irreparable and consequently injunctive .relief is proper (see, Ayco Co,, L.P., v. Frisch, 795 F.Supp2d. 193 [N.D.N.Y. 2011]). equities favors the plaintiff, Further, the balancing of the Consequently, as long as the defendants are con11ected in any way with the Baby Time, tl-iey maintain a fiduciary duty not to compete and thereby undermine Baby Time's success in the industry. Therefore, based on the foregoing, the motion seeking an injunction preventing the defendants from competing with the p'laintiff is hereby granted. So ordered. ENTER: DATED: June 23, 2022 Brooklyn N.Y. Hon. Leon Ruchelsman JSC 11 [* 11] 11 of 11

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