This action involves claims by plaintiff/employer, Shaw Creations, Inc. (Shaw), against three of its former employees, Anthony Margulis (Margulis), Joseph Simeone (Simeone), and Shih Chang Lin (Lin), and Galleria Enterprises, Inc. (Galleria), an entity that Shaw hired to be its sales representative (collectively Defendants). Shaw's complaint asserts causes of action for (1) breach of contract; (2) inducement of breach of fiduciary duty, and (3) fraud against Galleria and Margulis. In addition, Shaw's complaint contains causes of action for (1) breach of duty of loyalty and (2) misappropriation of confidential information and unfair competition against all defendants. Defendants have moved for summary judgment dismissing all claims. Shaw opposes the motion.

Background

Shaw was a rainwear company founded in 1946. It was liquidated in April 2008 after defaulting on its financing. Morris Shaw built the company from the ground up and, from its inception, the company was family owned. Morris Shaw died in 2003, and the company flowed into his estate which had three beneficiaries: Morris Shaw's two sons and his daughter, Eve Shaw. Eve Shaw was married to Ronald Rankin (Rankin), who became President of Shaw upon Morris Shaw's death. Defendants maintain that Rankin's incompetence caused Shaw's demise. Shaw claims that it collapsed as a result of defendants' actions.

Margulis was employed by Shaw as a sales representative from 1993 to July 2005. Margulis Aff. ¶ 18. In June 2005, Margulis approached Rankin about acting as a sales representative for Shaw through an entity that Margulis would form for this purpose. Margulis [*2]Dep. at 116. In July 2005, Margulis formed Galleria and was its principal shareholder at all relevant times. Margulis admits that he formed Galleria to serve as a sales representative for Shaw. Margulis Aff. ¶ 6. Though Margulis terminated his personal employment with Shaw in July 2005, he continued to work for Shaw as a sales representative through Galleria until February 2007. Margulis Aff. ¶¶ 51, 74; Rankin Aff. ¶ 57. Margulis and Rankin agree that the sole purpose behind the arrangement to work through Galleria was to save Shaw insurance premiums and social security taxes. Margulis Aff. ¶ 5. Margulis also admits that through Galleria he continued to service the same accounts that he serviced as an employee. Margulis Aff. ¶ 54. In its answer, Galleria acknowledges that it agreed to sell Shaw's products and receive a commission for sales made. Shaw maintains that the agreement was that Galleria would receive the same commissions that Margulis had received as an employee. Rankin Aff. ¶ 54.

According to Shaw, at the time Shaw engaged Galleria as a sales representative, Margulis and Galleria represented to Shaw that: (1) Galleria did not compete with Shaw; and (2) that Galleria would not compete with Shaw in the future. By contrast, Margulis claims that "as an independent contractor, Galleria was free to pursue whatever opportunities appeared." However, in an email dated April 18, 2006, Margulis acknowledged and thanked Rankin for allowing him "the opportunity to sell umbrellas and bags under [the] Galleria logo."

Shaw's complaint alleges that Galleria breached their agreement by (1) failing to maintain Margulis' accounts, and (2) competing with Shaw in the adult market for rainwear. Defendants dispute that an agreement existed. They also maintain that Galleria did not compete with Shaw because Galleria specialized in adult rainwear, Shaw's business lay in the children's specialty market, and the "adult market for Shaw was almost non-existent." Margulis Dep. at 85. Shaw, in turn, provides evidence that it conducted fifty-percent of its business in the adult market, and that Galleria sold to many of Shaw's accounts. Rankin Aff. ¶ 22; Id. at Exs. A, I.

Shaw also contends that defendants sold to Shaw's accounts by appropriating its customer list. According to Shaw: (1) the list was amassed over decades of sales efforts, including participation in trade shows; (2) the list was password-protected and not disseminated to unauthorized personnel; and (3) the defendants had access to the list only in their capacity as Shaw's employees or agents. Rankin Aff. ¶ 40. Defendants respond that: (1) the customer list contained only account names and their contact information; and (2) the same information was readily accessible through a simple internet search.

Defendants Simeone and Lin also worked for Shaw until December 2006 when they left Shaw to join Galleria. Shaw maintains that Margulis and Galleria induced Simeone and Lin to damage Shaw for the benefit of Galleria. According to Shaw, induced by Margulis and Galleria, Simeone and Lin delayed the placement of orders and failed to maintain proper stock. Rankin Aff. ¶ 43-52; Exs. R-Z. As a result, Shaw claims, it lost customers and was forced to liquidate in April 2008. Rankin Dep. 251. Defendants admit that Simeone and Lin, although involved with Galleria from its inception in July 2005, had minor dealings with Galleria and their work for Galleria did not involve any of Shaw's time, facilities, or proprietary interests.

Discussion

A motion for summary judgment is granted only if no material issues of fact exist. Alvarez v Prospect Hosp., 68 NY2d 320, 325 (1986). The moving party must make a prima facie [*3]showing that there are no material issues of fact to be tried. Id. at 324. Failure to make such a showing requires denial of the summary judgment motion, regardless of the sufficiency of the opposing party's evidence. Ayotte v Gervasio, 81 NY2d 1062, 1063 (1993); see also Bray v Rosas, 29 AD3d 422 (1st Dept 2006). However, once the movant meets the initial burden, the party opposing the motion must establish, through admissible evidence, that there are disputed material issues of fact to be resolved at a trial. CPLR 3212(b); Zuckerman v City of New York, 49 NY2d 557, 562 (1980). The court examines the evidence submitted by the parties in the light most favorable to the party opposing the motion. Martin v Briggs, 235 AD2d 192(1st Dept 1997). The court must deny the motion if it has any doubt as to the existence of a material issue of fact. Rotuba Extruders, Inc. v Ceppos, 46 NY2d 223, 231 (1978).

Shaw's Claim for Breach of Contract Against Galleria and Margulis

Defendants move to dismiss Shaw's claim for breach of contract against Galleria and Margulis on the grounds that: (1) the alleged contract fails for indefiniteness; (2) the contract is not supported by consideration; and (3) Shaw fails to show any damages flowing from the alleged breach. "Before a court will impose a contractual obligation based on an oral contract, the proponent must establish that a contract was made and that its terms are definite." Muhlstock v Cole, 245 AD2d 55, 58 (1st Dept 1997). In determining whether a contract is sufficiently definite to be enforceable the courts apply a flexible standard that varies with "the subject of the agreement, its complexity, the purpose for which the contract was made, the circumstances under which it was made, and the relation of the parties." Cobble Hill Nursing Home, Inc. v Henry and Warren Corp., 74 NY2d 475, 482-483 (1989). "With respect to indefiniteness, the courts should endeavor to hold parties to their bargain and the definiteness doctrine is a doctrine of last resort." Capelli Enterprises, Inc. v F & J Continental Food Corp., 16 AD3d 609, 610 (2d Dept 2005). "Absent an agreement establishing a fixed duration, an employment relationship is presumed to be a hiring at will, terminable at any time by either party." De Petris v Union Settlement Ass'n, Inc., 86 NY2d 406, 410 (1995).

Defendants claim that the alleged contract between Shaw and Galleria fails for indefiniteness because it lacks the terms of duration, rate of compensation, and exclusivity. However, defendants fail to make a prima facie case that these terms were indefinite. Focusing "on the purpose for which the contract was made, the circumstances under which it was made, and the relation of the parties," a material issue of fact exists about whether Shaw and Galleria agreed to work under the same terms of duration, compensation, and exclusivity as those contained in Margulis' employment agreement with Shaw — the sole purpose of the new agreement with Galleria being the lowering of Shaw's taxes and insurance expenses. See Cobble Hill Nursing Home, at 482-83. Defendants do not allege, and there is no evidence to suggest, that Margulis' employment agreement was indefinite as to duration, compensation, or exclusivity. As to duration, the employment relationship between Shaw and Margulis is presumed to have been a hiring at will, terminable at any time by either party, since neither Shaw nor Margulis alleges an agreement of fixed duration. See De Petris, at 410. Therefore, defendants' motion to dismiss Shaw's breach of contract claim for indefiniteness is denied.

Next, defendants argue that the agreement between Shaw and Galleria is not enforceable because it is not supported by consideration. Consideration is "some right, interest, profit or benefit accruing to one party or some forbearance, detriment, loss, or responsibility given, [*4]suffered or undertaken by the other." Hamer v Sidway, 124 NY 538, 545 (1891). Whether the claimed consideration is legally sufficient is a question of law. See Kastil v Karro, 145 AD2d 388 (1st Dept 1988). Sales commissions are a form of consideration. Gutchess v Daniels, 46 NY 605, 609 (1872). While defendants simply assert that Galleria received no benefits from the Shaw agreement, Galleria's answer admits that it received commissions for the sale of Shaw's products. Sales commissions are a form of consideration as a matter of law. Gutchess, at 609. Hence, defendants fail to make a prima facie showing that the agreement between Shaw and Galleria was not supported by consideration, and their motion to dismiss Shaw's claim for breach of contract on that grounds is denied.

Lastly, defendants argue that Shaw's claim for breach of contract against Galleria should be dismissed because Shaw fails to demonstrate any damages flowing from the alleged breach. Shaw alleges that it suffered damages because: (1) Galleria's failed to maintain Margulis' accounts; and (2) Galleria competed with Shaw in the adult market for rainwear. Defendants offer no evidence to contravene the first allegation. As to the second allegation, defendants claim that Galleria did not compete with Shaw because Galleria sold adult rainwear, Shaw's business lay in the children's specialty market, and the "adult market for Shaw was almost non-existent." Margulis Dep. at 85. However, Shaw provides evidence that it conducted fifty-percent of its business in the adult market and that Galleria sold to many of the Shaw's accounts. Rankin Aff. ¶ 22; Id. at Exs. A, I. The court must deny the motion if it has any doubt as to the existence of a material issue of fact. Rotuba Extruders, at 231. Here, the motion to dismiss must be denied because there are material issues of fact as to whether Galleria failed to maintain Shaw's accounts and whether Galleria competed with Shaw in the market for adult rainwear.

Defendants also move for summary judgment dismissing Shaw's claim for breach of contract against Margulis on the grounds that: (1) Margulis did not have a business relationship with Shaw; (2) Shaw would only be able to assert a claim against Margulis, as the principal shareholder of Galleria, under a "piercing of the corporate veil" theory; and (3) there is no factual basis for "piercing of the corporate veil" in this case. The "piercing of the corporate veil" doctrine allows courts to disregard the corporate form whenever necessary to prevent fraud and hold owners liable for the corporation's obligations. Morris v State Dept. of Taxation & Fin., 82 NY2d 135, 140-141 (1993). "Piercing the corporate veil requires a showing that (1) the owners exercised complete domination of the corporation in respect to the transaction attacked, and (2) that such domination was used to commit a fraud against the plaintiff which resulted in plaintiff's injury." Id. at 141. "The party seeking to pierce the corporate veil must establish that the owners, through their domination, abused the privilege of doing business in the corporate form to perpetrate a wrong or injustice against that party." Id. at 142.

Defendants' motion to dismiss Shaw's claim for breach of contract against Margulis is denied. Margulis was the principal shareholder of Galleria at all the relevant times. He formed Galleria to serve as a sales representative for Shaw. Margulis Aff. ¶ 6. This was the same position that Margulis occupied as Shaw's employee. However, as an employee, Margulis was under a duty of loyalty not to compete with Shaw. See Brown Associates Inc v Fileppo, 38 AD2d 518, 519 (1st Dept 1971). Since there is an issue of fact as to whether Galleria competed with Shaw, the same evidence raises a material issue of fact as to whether Margulis abused the privilege of doing business in the name of Galleria to do something that he could not do as an [*5]employee: compete with Shaw.

Shaw's Claim for Breach of Duty of Loyalty

Defendants move to dismiss Shaw's claims against Galleria, Margulis, Simeone, and Lin for breach of duty of loyalty. Defendants claim that: (1) Galleria and Margulis did not owe a duty of loyalty to Shaw because they were independent contractors rather than Shaw's agents; and (2) Simeone and Lin did not breach their duties of loyalty to Shaw because their work for Galleria did not involve any of Shaw's time, facilities, or proprietary interests.

An agent is subject to a duty of loyalty towards his principal, including the duty "not to compete with the principal concerning the subject matter of his agency." Restatement (Second) of Agency § 393. An agency relation results from the manifestation of consent of one person to allow another to act on his or her behalf and subject to his or her control, and consent by the other so to act. Maurillo v Park Slope U-Haul, 194 AD2d 142, 146 (1993). The question whether a particular person is an agent or an independent contractor is generally one of fact. Melbourne v New York Life Ins., 271 AD2d 296, 297 (1st Dept 2000). "However, where the evidence on the issue of control presents no conflict, the matter may properly be determined by the court as a matter of law." Id. "Every employee is an agent for the discharge of the duties within the sphere of his employment." People v Dempsey, 180 AD 765, 772 (2d Dept 1917). An employee "is prohibited from acting in any manner inconsistent with his agency or trust and is at all times bound to exercise the utmost good faith and loyalty in the performance of his duties." Western Electric Co. v Brenner, 41 NY2d 291, 295 (1977). "Implicit in the employer-employee relation is that the employee will not compete with his employer." Brown Associates, at 519 (1st Dept 1971).

Defendants' motion to dismiss Shaw's claim against Galleria and Margulis for breach of duty of loyalty is denied. As discussed in connection with defendants' motion to dismiss Shaw's breach of contract claim, whether the agreement between Shaw and Galleria simply replicated the terms of Margulis' employment agreement with Shaw is a material issue of fact. If the agreements mirrored each other, Shaw exercised over Galleria and Margulis the same level of control that an employer would exercise over his employees. Since within the sphere of employment, every employee is an agent for his employer, Galleria and Margulis would owe Shaw a duty of loyalty. In addition, the April 18, 2006 email in which Margulis acknowledged and thanked Rankin for allowing him to sell umbrellas and bags under the Galleria logos demonstrates Shaw's control and is inconsistent with defendants' claim that as an independent contractor, Galleria was free to compete with Shaw. Since the evidence on the issue of control presents a conflict, Galleria and Margulis are not entitled to judgment as a matter of law that they were not Shaw's agents. See Melbourne, at 297.

The court also denies defendants' motion to dismiss Shaw's claim for breach of duty of loyalty against Simeone and Lin. Defendants maintain that Simeone and Lin had minor dealings with Galleria, and their work for Galleria did not involve any of Shaw's time, facilities, or proprietary interests. Even if true, this assertion does not show that Simeone and Lin did not violate their duty of loyalty as a matter of law. Shaw's complaint alleges that during their employment by Shaw, Lin and Simeone delayed the placement of orders and failed to maintain proper stock to damage Shaw for the benefit of its competitor, Galleria. These allegations, if true, would establish that Simeone and Lin breached their duties of loyalty towards Shaw. See [*6]Western Electric, at 295; Brown Associates, at 519. Therefore defendants' motion to dismiss Shaw's claims against Simeone and Lin for breach of duty of loyalty is denied.

Shaw's Claim for Inducement of Breach of Fiduciary Duty

Shaw has asserted a claim against Margulis and Galleria for inducing its employees, Simeone and Lin, to breach their fiduciary duties to Shaw. Defendants move to dismiss Shaw's claim for inducement of breach of fiduciary duty on the grounds that: (1) Simeone and Lin were involved with Galleria from its inception; and (2) Shaw fails to identify any damages that resulted from the breach. A claim for inducement of a breach of fiduciary duty has three elements: (1) a breach of fiduciary duty, (2) defendant knowingly induced or participated in the breach, and (3) damage resulting from the breach. Kaufman v Cohen, 307 AD2d 113, 125 (1st Dept 2003).

The court is denying defendants' motion to dismiss Shaw's claim for inducement of breach of fiduciary duty against Margulis and Galleria. Defendants claim that Simeone and Lin were involved with Galleria from its inception in July 2005. However, they were also Shaw's employees until they resigned on December 2006. As employees they owed Shaw fiduciary duties. See Western Electric, at 295; Brown Associates, at 519. Hence, even if defendants are correct that Simeone and Lin were involved with Galleria since July 2005, this does not prove that Galleria and Margulis did not induce Simeone and Lin to breach their fiduciary duties between July 2005 and December 2006, when Simeone and Lin resigned.

Next, defendants argue that Shaw's inducement claim should be denied because Shaw fails to identify any damages that resulted from Simeone's and Lin's breaches of their fiduciary duties. The court disagrees. Shaw provides evidence that Lin and Simeone delayed the placement of orders and failed to maintain proper stock to damage Shaw for the benefit of its competitor, Galleria. Rankin Aff. ¶ 43-52; Exs. R-Z. There is also evidence that as a result of these actions Shaw lost customers and was forced to liquidate in April 2008. Rankin Dep. at 251. In sum, defendants have failed to make a prima facie showing that no material issues of fact exist with respect to Shaw's claim against Margulis and Galleria for inducement of breach of fiduciary duties.

Shaw's Claim for Misappropriation of Confidential Information and Unfair CompetitionDefendants move to dismiss Shaw's claims for (1) misappropriation of confidential information and trade secrets, and (2) unfair competition. They claim that: (1) Shaw's customer list did not constitute a "trade secret;" (2) defendants are entitled to use their knowledge of the industry and information publicly available to compile their own customer list; and (3) Galleria did not have a confidential relationship with Shaw that would prohibit the type of competition alleged in the complaint.

"A plaintiff claiming misappropriation of a trade secret must prove: (1) it possessed a trade secret, and (2) defendant is using that trade secret in breach of an agreement, confidence, or duty, or as a result of discovery by improper means." Integrated Cash Management Services Inc v Digital Transactions Inc., 920 F2d 171, 173 (2d Circuit 1990). A claim for unfair competition requires "the bad faith misappropriation of a commercial advantage belonging to another by infringement or dilution of a trademark or trade name or by exploitation of proprietary information or trade secrets." Eagle Electronics Inc. v Pico Products, Inc. 256 AD2d 1202, 1203 (3d Dept 2002). "Unless otherwise agreed, after the termination of the agency, the agent has a [*7]duty to the principal not to use or to disclose to third persons . . . trade secrets, written lists of names, or other similar confidential matters given to him only for the principal's use." Restatement (Second) of Agency § 396; see also People's Coat v Light, 171 AD 671 (2d Dept 1916) (laundry-wagon driver could not use knowledge of former employer's customers to compete on behalf of rival business).

A customer list will be not be treated as a trade secret where the information contained in the list is readily ascertainable from nonconfidential sources. Ronald W. Freeman P.C. v Zhu, 209 AD2d 213 (1st Dept 1994). A contact list based on knowledge of the industry and on information publically available does not qualify as a trade secret. Buhler v Maloney Consulting, 299 AD2d 190, 191 (1st Dept 2002). But where the names and addresses of the customers are not known in the trade or can only be obtained through effort, the customer list will be treated as a trade secret. See Stanley Tulchin Assoc., v Vignola, 186 AD2d 183, 185 (2d Dept 1992). This is especially so where the customers' patronage had been secured by years of effort and advertising effected by the expenditure of substantial time and money. Leo Silfen Inc. v Cream, 29 NY2 387, 393 (1972). The proponent of trade secret status for a customer list must show that it "employed precautionary measure[s] to preserve" the list as a secret. Precision Concepts Inc. v Bonsanti, 172 AD2d 737, 737 (2d Dept 1991).

Defendants fail to make a prima facie case that Shaw's customer list was not a trade secret. Defendants maintain that the account names and contact information contained in Shaw's customer list were ascertainable from non-confidential sources, including a simple internet search. However, even if a particular name and contact information were accessible through an internet search, if one already knew the name of the retailer, it does not follow that the list itself would come up in an internet search for rainwear retailers. Moreover, there is evidence that: (1) the list was amassed over decades of sales efforts, including participation in trade shows; (2) the list was password-protected and not disseminated to unauthorized personnel; and (3) the defendants had access to the list only in their capacity as Shaw's employees, or agents. Rankin ¶ 40. Therefore, a material issue of fact exists about whether the list was "readily accessible" from non-confidential sources.

Next, defendants claim that they are entitled to use their knowledge of the industry and information publicly available to compile their own customer list. That is correct. Buhler, at 191. However, it does not demonstrate that defendants used a list compiled from their knowledge of the industry, rather than the password-protected, Shaw list, to compete with their employer through its alleged business rival, Galleria. Therefore, a material issue of fact exists about the extent to which defendants used Shaw's customer list to benefit Galleria.

Finally, defendants argue that Shaw's claims for misappropriation of trade secrets and unfair competition against Galleria should be dismissed because Galleria did not have a confidential relationship with Shaw. However, a claim for misappropriation of trade secrets does not require a confidential relationship between Shaw and Galleria. See Integrated Cash Management, at 173. The same is true for a claim of unfair competition. See Eagle Electronics, at 1203. Moreover, as discussed in connection with Galleria's alleged breach of duty of loyalty, it is a question of fact whether there was an agency relation between Shaw and Galleria. An agent has a duty to the principal not to use or to disclose to third persons trade secrets, written lists of names, or other similar confidential matters given to him only for the principal's use. Agency § [*8]396; see also People's Coat, at 671-73. In sum, defendants have not shown that Shaw's claims for misappropriation of trade secrets and unfair competition against Galleria should be dismissed as a matter of law.

Shaw's Claim for Fraudulent Inducement

Shaw's complaint asserts a claim for fraud against Galleria and Margulis. However, in the papers submitted in opposition to defendants' motion, Shaw asserts a claim for fraudulent inducement against the same defendants instead. Defendants' motion is directed to fraudulent inducement, not fraud. Hence, the court hereby amends Shaw's fraud claim to assert a claim for fraudulent inducement. "The court may permit pleadings to be amended before or after judgment to conform them to the evidence." CPLR 3025(c). Leave to amend "shall be freely given upon such terms as may be just." CPLR 3025(b). A court may also amend the pleadings on its own motionto conform to the proof. See Murray v City of New York, 43 NY2d 400, 405 (1977); Family Finance Corp v Secchio, 65 Misc 2d 344 (NY City Civ Ct 1970) (trial court amended the answer to conform to the proof).

"To state a cause of action for fraudulent inducement, it is sufficient that the claim alleges a material representation, known to be false, made with the intention of inducing reliance, upon which the victim actually relies, consequentially sustaining a detriment." Merrill Lynch v Wise Metals Group, LLC., 19 AD3d 273, 275 (1st Dept 2005). "In a fraudulent inducement claim, the alleged misrepresentation should be one of then-present fact, which would be extraneous to the contract and involve a duty separate from or in addition to that imposed by the contract, and not merely a misrepresented intent to perform." Hawthorne Group LLC v RRE Ventures, 7 AD3d 320, 323-24 (1st Dept 2004) [emphasis supplied].

Defendants' motion to dismiss Shaw's fraudulent inducement claim is denied. Defendants argue that the alleged misrepresentations do not involve "a-then present fact" but, at most, a misrepresented intent not to compete with Shaw in the future, a promise imposed by the alleged contract. Defendants urge that the future promise not to compete merely duplicates Shaw's breach of contract claim. The court disagrees. Shaw's complaint alleges that Margulis and Galleria made two distinct representations to Shaw at the time of entering the agreement: (1) that Galleria did not compete with Shaw; and (2) that Galleria would not compete with Shaw. Only the second representation involves an intent not to compete in the future. The first representation involves a then-present fact. Whether Shaw relied on the representation that Galleria was not competing with Shaw at the time of entering the agreement, which induced Shaw to contract, is a material question of fact to be resolved at trial. Accordingly, it is

ORDERED that defendants' motion for summary judgment dismissing Shaw's complaint is denied in its entirety; and it is further

ORDERED that the parties are directed to appear for a pre-trial conference on October 28, at 11 a.m., in Part 54, Room 228 of the courthouse located at 60 Centre Street, New York, NY 10007.

Dated: October 8, 2010ENTER:

____________________

J.S.C.