Men Women NY Model Mgt., Inc. v Ford Models, Inc. (2011 NY Slip Op 51595(U))

Men Women NY Model Mgt., Inc. v Ford Models, Inc.

2011 NY Slip Op 51595(U) [32 Misc 3d 1236(A)]

Decided on August 15, 2011

Supreme Court, New York County

Kapnick, 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This opinion is uncorrected and will not be published in the printed Official Reports.

Plaintiff Men Women NY Model Management, Inc. ("Women"), allegedly a leading model management company in the United States which represents some of the top female modeling talent, brings this action against defendants for their alleged past and ongoing wrongful conduct in raiding talent from its successful modeling divisions, "Supreme" and "Women Direct", and in breaching fiduciary and contractual obligations owed to Women.

Background

Defendant Ford Models, Inc. ("Ford") is a direct competitor of Women. Defendant Altpoint Capital Partners LLC ("Altpoint") f/k/a Stone Tower Equity Partners LLC ("Stone Tower") is Ford's private equity investor.

Defendant Paul A. Rowland ("Rowland") is the founder and a shareholder of Women and [*2]was a member of Women's Board of Directors during the period when many of the events complained of occurred. He was formerly employed by Women as President and head of Supreme. Rowland is currently employed by Ford as head of its women's division.

Defendant Mohammed Fajar ("Fajar"), a former Supreme board director, was employed by Women as a modeling agent/booker, and is currently employed by Ford as an agent/booker.

Defendant Maria J. Cognata ("Cognata"), a former Women Direct board director was employed by Women as an agent/booker and is currently employed by Ford as a booker.

According to the Complaint, Ford expressed interest in investing in and/or purchasing some or all of Women's model management business as early as 2007.

On December 14, 2007, for the purpose of evaluating a potential transaction with Women, Ford entered into a confidentiality agreement with Women which granted Ford access to confidential and sensitive business information about the agency, including financial data, compensation paid to key employees, and payments to bookers. Stone Tower also signed a confidentiality agreement on July 21, 2008 granting it similar access.

Ford and Stone Tower subsequently made an offer to acquire Women's business, in or about September 2008, but Women rejected the offer as inadequate.

Plaintiff claims that Ford and Stone Tower thereafter sought to exploit their unrestricted access to Women's confidential information, and attempted to poach' Rowland and Fajar, but that Rowland and Fajar declined and reported the solicitation attempt to others at Women. Plaintiff Women allegedly communicated to Ford that its conduct in approaching Rowland and Fajar was highly inappropriate.

In February 2010, Ford and Stone Tower (now known as Altpoint) again allegedly approached Rowland, this time offering to dramatically increase Rowland's compensation if he were to leave Women and bring key employees (such as Fajar) and their business to Ford. Plaintiff claims that at Ford and Altpoint's behest, Rowland then began to work clandestinely with Fajar and others to plan their departure.

Plaintiff claims that when Women's CEO, Sergio Leccese, left New York to spend two weeks in Europe to attend the Milan and Paris fashion shows between February 25, 2010 and March 5, 2010, Rowland, Fajar and others packed up and removed entire boxes of Supreme documents and other Women property, printed documents and other information from Women's computer system, and deleted numerous files. Fajar was also allegedly observed repeatedly using a paper shredder.

Rowland and Fajar allegedly announced their resignation and decision to join Ford upon Lecceses's return to the office on March 8, 2010. Rowland also told Leccese on that date that Cognata was likewise resigning Women and joining Ford.

Plaintiff claims that despite assurances to the contrary, defendants recruited other key employees of Supreme and Women Direct to join them at Ford, but requested that they delay their departures and stay behind at Women for a short period of time, thereby further encouraging the diversion of Women's modeling relationships and business opportunities to Ford.

The Complaint seeks to recover compensatory and punitive damages: (i) against all the [*3]defendants for unfair competition (first cause of action); (ii) against Rowland, Fajar and Cognata for breach of fiduciary duty and duty of loyalty (second cause of action); (iii) against all the defendants for participation in and/or aiding and abetting breach of fiduciary duty (third cause of action); (iv) against all the defendants for tortious interference with advantageous business relationships (fourth cause of action); (v) against Ford and Altpoint/Stone Tower for breach of Confidentiality Agreement (fifth cause of action); (vi) against Ford and Altpoint/Stone Tower for unjust enrichment (sixth cause of action); (vii) against Rowland for breach of contract, i.e., an agreement' by which Rowland allegedly borrowed in excess of $866,904.08 to pay for personal expenditures and agreed to fully repay Women (seventh cause of action); (viii) against Rowland for promissory estoppel (eighth cause of action); (ix) against Rowland for unjust enrichment (ninth cause of action); and (x) against Fajar for breach of contract, based on Fajar's alleged failure to re-pay in excess of $101,384.10 in outstanding loans (tenth cause of action).

Defendants Ford, Altpoint and Cognata now move, under motion sequence number 003, for an order pursuant to CPLR 3211 (a)(1) and (7), 3013 and 3016(b), dismissing the Complaint against them.

Defendants Rowland and Fajar move, under motion sequence number 004, for an order pursuant to CPLR 3211, dismissing the Complaint against them.

Motion sequence numbers 003 and 004 are consolidated for disposition herein.

Discussion

First Cause of Action - Unfair Competition as to all Defendants

The common-law tort of unfair competition embraces two theories, to wit, palming off, that is the sale of one's goods or services, as though they were the goods or services of the plaintiff, which is not at issue here, and misappropriation, which "usually concerns the taking and use of the plaintiff's property to compete against the plaintiff's own use of the same property." ITC Ltd. v Punchgini, Inc., 9 NY3d 467, 478 (2007) (citation and internal quotation marks omitted). A claim of unfair competition requires more than a showing of "commercial unfairness" (Ruder & Finn v Seaboard Sur. Co. (52 NY2d 663, 671 [1981]); it requires a showing of " bad faith misappropriation' of plaintiff's skill, labor, and expenditures (citations omitted)." Krinos Foods, Inc. v Vintage Food Corp., 30 AD3d 332, 334 (1st Dept 2006).

Plaintiff alleges that the defendants thereby "acted in bad faith in secretly orchestrating their activities in a way that they knew or should have known would inflict significant competitive injury upon Women" (Complaint, ¶¶ 45-46). [*4]

However, "the mere inducement of an at-will employee to join a competitor [is not] actionable, unless dishonest means are employed, or the solicitation is part of a scheme designed solely to produce damage (citations omitted)." Headquarters Buick-Nissan v Michael Oldsmobile, 149 AD2d 302, 304 (1st Dept 1989); see also Metal & Salvage Assn. v Siegel, 121 AD2d 200 (1st Dept 1986).

Plaintiff alleges that defendants - or at least Rowland - used dishonest means by diverting potential new models away from Women and asking certain key Women employees to delay their departures and stay behind at Women for a short period of time so they could provide defendants "with business information concerning Supreme and Women Direct models (such as upcoming jobs and options) in an attempt to divert Supreme and Women Direct modeling relationships and business opportunities to Ford" (Complaint, ¶ 26). Sergio Leccese states in his affidavit that

Plaintiff has also alleged that defendant Ford was attempting to "take" what it could not "buy" by poaching plaintiff's top executives and inducing them to breach their fiduciary duties to Women by encouraging other employees to leave Women; a total of nine employees resigned to join Ford out of approximately 35 employees, who accounted for a substantial amount of Supreme and Women Direct's revenue.

Plaintiff here alleges that, while still employed by plaintiff, the individual defendants dropped a certain highly successful model. The first cause of action further alleges that Rowland and Fajar were observed moving boxes of plaintiff's documents and other property, including printed documents and other information from Women's computer system, out of the office.

The Complaint also alleges that, in the weeks prior to leaving plaintiff's employ, Rowland and Fajar were observed printing certain computer files and deleting others, and that Fajar was observed repeatedly using a paper shredder.

[*5]Defendants Rowland and Fajar argue that to the extent the plaintiff claims there was a violation of the confidentiality agreements entered into between Ford and Altpoint and plaintiff, that has nothing to do with them, since they were not parties to those agreements, and thus could not have misappropriated any information that may have been transmitted pursuant to them.

However, as to Ford, the same "financial information", "historical contract data", and "compensation agreements" that Ford characterized in an affirmation in support of its motion for a protective order as data that "helps it maintain its preeminent position in the model industry", "largely constitutes the good will of the company," and is "secret and [] not generally available to the public" is the information plaintiff alleges Ford misappropriated from Women and is using to harm Women's business.

As for the employees that temporarily remained behind, Mr. Leccese states in his affidavit that nonparty Michael I. Bruno, while on a trip to Paris, arranged meetings with certain models in order to convince them to switch from plaintiff to Ford. Finally, Mr. Leccese states that, shortly after the resignations of the named defendants, Peter Cedeno, another of the purported "moles," refused several "options" on one of plaintiff's models.

In sum, the plaintiff has set forth sufficient allegations to sustain a cause of action for unfair competition as against defendants Rowland, Fajar and Ford.

However, there are no specific allegations of wrongdoing asserted against either Cognata or Altpoint, and this cause of action must be dismissed as against them.

Second Cause of Action - Breach of Fiduciary Duty and Duty of Loyalty as to the Individual Defendants

The second cause of action must be dismissed as against defendants Fajar and Cognata, because, although they owed plaintiff a duty of loyalty while they were still employed by plaintiff, neither the Complaint, nor Mr. Leccese's affidavit, make any factual allegation that either Fajar or Cognata breached that duty.

Rowland, as the founder and a shareholder of Women, a member of plaintiff's Board of Directors during the period when many of the events complained of occurred, and as its President certainly owed plaintiff a fiduciary duty.

The Complaint alleges that, prior to his resignation, Rowland took part in persuading six key employees of plaintiff, other than Fajar and Cognata, to resign and to join him at Ford. While the evidence at trial may show that Rowland did no more than inform those employees that they might have better paying jobs at Ford, at this stage of the action the second cause of action as against Rowland will not be dismissed. An inference that may be drawn from the facts alleged in the Complaint is that, in his contacts with the six employees, Rowland was acting in Ford's interest, at the direct expense of plaintiff. See Foley v D'Agostino, 21 AD2d 60 (1st Dept 1964) (director who works on behalf of competitor of his company breaches his fiduciary duty).

Third Cause of Action - Aiding and Abetting Breach of Fiduciary Duty as to all Defendants

The elements of a claim for aiding and abetting a breach of fiduciary duty are "(1) a breach by a fiduciary of obligations to another, (2) that the defendant knowingly induced or participated in the breach, and (3) that plaintiff suffered damages as a result of the breach." Kaufman v Cohen, 307 AD2d 113, 125 (1st Dep't 2003). [*6]

The third cause of action will be dismissed as to all the defendants, other than Ford, because the Complaint alleges no facts from which it can be inferred that those defendants offered "substantial assistance" to Rowland's alleged recruitment of plaintiff's employees. The Complaint does allege, however, and it can reasonably be inferred that Ford and Rowland acted in concert in recruiting and soliciting plaintiff's employees to join Ford.

Fourth Cause of Action - Tortious Interference with Advantageous Business Relationships as to all Defendants

Plaintiff's fourth cause of action alleges that defendants, as an undifferentiated group, "intentionally, maliciously and improperly interfered with Women's relationships with its senior personnel and models by, among other things, their efforts to induce such employees and models to sever their relationships with Women and to become associated with a competing agency [i.e., Ford]" (Complaint, ¶ 13). A plaintiff alleging tortious interference with noncontractual economic relations must allege that it would have entered into a specified economic relationship, but for the defendant's wrongful conduct. Algomod Tech. Corp. v Price, 65 AD3d 974 (1st Dept 2009); Learning Annex Holdings, LLC v Gittelman, 48 AD3d 211 (1st Dept 2008). Plaintiff alleges no such specified prospective economic relationship. Moreover, while plaintiff has alleged the use of "wrongful means," the Complaint suggests that defendants engaged in the alleged acts out of a desire to benefit themselves, and did not act solely out of malice nor to specifically injure the plaintiff. Accordingly, this cause of action must be dismissed.

Fifth Cause of Action - Breach of Confidentiality Agreement as to Defendants Ford and Altpoint

Plaintiff's fifth cause of action alleges that Ford and Altpoint entered into confidentiality agreements with plaintiff when Ford was looking into the possibility of purchasing plaintiff, and that Ford and Altpoint breached those agreements by using confidential information that they had gathered pursuant to the agreements, "to solicit Rowland and raid Women's business." (Complaint, ¶ 69). The only factual allegation supporting this claim is that Ford used confidential information in formulating the job offers that it made to Rowland and Fajar. The claim founders on plaintiff's acknowledgment that both Rowland and Fajar declined Ford's initial offers in 2008 and, indeed, reported them to Mr. Leccese. Even if Ford and/or Altpoint had used any confidential information obtained to make those initial offers, Women took no affirmative action against Ford or Altpoint at that time to terminate their access to the alleged confidential information. Ford's subsequent offers in 2010 could only have been based on negotiations between Ford and Rowland and Fajar, rather than on the information that Ford may have used in [*7]formulating its first, rejected, offers two years earlier. Accordingly, the fifth cause of action is dismissed.

Sixth Cause of Action - Unjust Enrichment as to Defendants Ford and Altpoint

" To state a cause of action for unjust enrichment, a plaintiff must allege that it conferred a benefit upon the defendant, and that the defendant will obtain such benefit without adequately compensating plaintiff therefor.'" Smith v Chase Manhattan Bank, USA, 293 AD2d 598, 600 (2d Dept 2002) quoting Nakamura v Fujii, 253 AD2d 387, 390 (1st Dept 1998); accord Aymes v Gateway Demolition Inc., 30 AD3d 196 (1st Dept 2006); Korff v Corbett, 18 AD3d 248 (1st Dept 2005). "[T]he receipt of a benefit alone ... is insufficient to establish a cause of action for unjust enrichment." Wiener v Lazard Freres & Co., 241 AD2d 114, 120 (1st Dept 1998) (citation omitted).

The sixth cause of action alleges that Ford and Altpoint have been unjustly enriched in that they have received the benefits of employing the named defendants and those of plaintiff's other employees who joined Ford, and benefitted from their knowledge, without having compensated plaintiff (Complaint, ¶ 73). Those benefits, however, were not conferred by plaintiff. A company that hires employees away from a competitor by offering them higher salaries is not unjustly enriched thereby. As plaintiff acknowledges, Ford succeeded in recruiting the named defendants by offering Rowland a starting salary of over $1 million a year, and offering Fajar and Cognata starting salaries of $400,000 a year. Accordingly, the sixth cause of action is dismissed.

Seventh, Eighth and Ninth Causes of Action for Breach of Contract, Promissory Estoppel and Unjust Enrichment as to Defendant Rowland

The seventh, eighth, and ninth causes of action allege that Rowland charged large sums of money for personal expenses to his company credit card, that he periodically repaid plaintiff for portions of those charges, and that he promised to repay them all but has not done so.

The seventh cause of action, alleging breach of contract, must be dismissed because neither the Complaint, nor the affidavit of Mr. Leccese, describes the terms of any alleged agreement, nor the terms upon which Rowland allegedly agreed to repay the charges at issue. See Sheridan v Trustees of Columbia Univ. in City of NY, 296 AD2d 314 (1st Dept 2002); Matter of Sud v Sud, 211 AD2d 423 (1st Dept 1995).

The eighth cause of action, alleging promissory estoppel, must also be dismissed, because plaintiff does not allege "`a clear and unambiguous promise, reasonable and foreseeable reliance by the party to whom the promise is made, and an injury sustained in reliance on that promise." Braddock v Braddock, 60 AD3d 84, 95 (1st Dept 2009), quoting Williams v Eason, 49 AD3d 866, 868 (2d Dept 2008). The Complaint alleges that, upon his departure, Rowland "offered to pay $400,000 up front, and work out a payment plan with Women on the remainder." (Complaint, ¶ 38). Even assuming that to be an unambiguous promise, which it is not, plaintiff does not suggest in what manner it may have reasonably relied upon this promise.

The Complaint also alleges that "[f]or years, Rowland borrowed money from Women ... and agreed to repay Women for any and all personal expenditures" (Complaint, ¶ 35). The Complaint further recites that, each month, Rowland repaid a portion of the personal charges that he had placed on the credit card, and that at the end of each year his bonus would be applied to [*8]repaying a portion of those expenditures, "with any amount still outstanding remaining payable to Women as reflected on Women's ledger." (Id.) These allegations raise an inference that plaintiff allowed Rowland to continue to charge personal expenses to his corporate card, in reliance upon his repeated partial payments of those charges. However, they raise no inference that Rowland unambiguously promised to repay all the personal charges, especially inasmuch as plaintiff alleges that Rowland's post-resignation debt for those charges amounts to almost $867,000.00, exclusive of interest.

With regard to the ninth cause of action, see the discussion of unjust enrichment, supra at 14. The Complaint clearly alleges that plaintiff conferred a benefit upon Rowland by permitting him to charge personal expenses to his corporate credit card, without requiring him ever to repay those charges in full. Whether Rowland adequately compensated plaintiff for that benefit by the work that he performed for plaintiff is a question of fact which cannot be resolved at this stage of the litigation. Accordingly, this cause of action will not be dismissed.

Tenth Cause of Action - Breach of Contract as to Defendant Fajar

The tenth cause of action alleges that plaintiff lent Fajar certain sums of money on several occasions, which Fajar agreed to repay, but which he has failed to repay in full. Specifically, the Complaint alleges; (a) a loan of $58,000 on January 8, 2008, which Fajar agreed to repay in semi-monthly installments of $1,000 at an interest rate of 3.15% and Fajar's failure to make the payments that were due from March 15, 2010 through May 15, 2010, leaving a balance of $8270.65 (Complaint ¶ 40); (b) a $100,000 loan on October 19, 2009, which Fajar agreed to repay in semi-monthly payments of $3,500 at an interest rate of 0.75%; and (c) an $8,700 loan on November 20, 2009, and a $15,000 loan on February 3, 2010, both of which Fajar agreed to have added to the principal due on the $100,000 loan. The Complaint alleges that Fajar has failed to make the payments on the $100,000 loan, as augmented by the two later loans, that were due on March 15, 2010 through May 15, 2010. Finally, the Complaint alleges that, on November 19, 2009, plaintiff agreed to advance payments for Fajar's immigrant visa application, and that the sum of $650 remains outstanding on that advance (Complaint, ¶ 42).

Fajar's sole argument for dismissing this cause of action is that it is barred by the statute of frauds. Fajar signed an Installment Note, dated October 19, 2009, which memorialized the terms of the $100,000 loan (See Leccese Aff., Exh. M). He argues that such a writing was required by General Obligations Law ("GOL") § 5-701 (a) (1), because it provided for repayment of the loan over a 14-month period, and that, because the terms of the November 20, 2009, and February 3, 2010 loans modified the terms of the $100,000 loan but were not reduced to writing, the statute of frauds bars plaintiff from recovering the balance owed on all three of those loans.

GOL § 5-701 (a) (1) provides that any agreement which "[b]y its terms is not to be performed within one year from the making thereof ..." is void unless it is in writing and signed by the person making the promise. It has long been the law that this provision bars "only those contracts which, by their terms, `have absolutely no possibility in fact and law of full performance within one year.'" Cron v Hargro Fabrics, Inc., 91 NY2d 362, 366 (1998), quoting D & N Boening v Kirsch Beverages, 63 NY2d 449, 554 (1984); see also North Shore Bottling Co. v Schmidt & Sons, 22 NY2d 171 (1968). The October 19, 2009 note that Fajar signed does not, by its terms, bar him from prepaying the entire amount owed within one year. Accordingly, it is outside the statute of frauds. Moon v Moon, 6 AD3d 796 (3d Dept 2004); Cabrini Med. Ctr. v KM Ins. Brokers, 142 AD2d 529 (1st Dept 1988); app. dism. 73 NY2d 785 (1988).

The subsequent oral modifications, however, are unenforceable, although they have no [*9]effect on the validity of the note. See Lincolnshire Mgt. v Les Gantiers Holdings, 303 AD2d 180 (1st Dept 2003); Ber v Johnson, 163 AD2d 817 (4th Dept 1990).

Punitive Damages

Punitive damages are allowable in tort cases such as for breach of fiduciary duty or unfair competition "so long as the very high threshold of moral culpability is satisfied (citations omitted)." Giblin v Murphy, 73 NY2d 769, 772 (1988). While plaintiff has alleged misconduct on the part of the defendants in this Complaint, the allegations of wrongdoing do not rise to the level of such high moral culpability or "such conscious disregard of the rights of another that [they can be] deemed willful and wanton." Swersky v Dreyer & Traub, 219 AD2d 321, 328 (1st Dep't 1996).

Accordingly, plaintiff's demand for punitive damages in its Prayer for Relief is dismissed.

1) the first cause of action is sustained against defendants Ford, Rowland and Fajar;

Defendants Ford, Rowland and Fajar are directed to serve Answers to the remaining causes of action against them within 30 days of notice of the e-filing of this decision.

The parties shall then appear for a preliminary conference, after meeting and conferring as to their discovery requests in IA Part 39, 60 Centre Street, Room 208 on October 19, 2011 at 10:00 a.m.