The opinion of the court was delivered by: WERKER
This action arises out of a dispute between plaintiff Westwood Chemical Company, Inc. ("Westwood") and two of its former employees, defendants Arthur F. Fletcher ("Fletcher") and Richard W. Kulick ("Kulick"). The first cause of action alleged in the amended complaint charges Fletcher and Kulick with conspiring to bring about the termination of an agreement pursuant to which Westwood was retained by Synthetic Products Company ("Synthetic") to act as its exclusive sales representative. The second and third causes of action allege that Fletcher and Kulick breached their fiduciary duties to Westwood by dealing in Westwood accounts for their own benefit, diverting business opportunities from Westwood to themselves and by engaging in outside business activities for their own profit, which resulted in a loss of business income for Westwood. Joined as a codefendant is Lenape Chemicals, Inc. ("Lenape"), a corporation formed by the individual defendants that eventually took over Westwood's account with Synthetic. Fletcher and Kulick, in turn, counterclaim for commissions allegedly owed but not paid to them and for their proper shares in the Westwood Profit-Sharing Trust Fund ("trust fund").
Westwood is a New York corporation having its principal place of business in New York, New York. Fletcher and Kulick are citizens of the State of New Jersey. Lenape is a New Jersey corporation, and its principal place of business is in Bound Brook, New Jersey. Jurisdiction is premised upon 28 U.S.C. § 1332. The matter was tried by the court on June 28, 1983 and June 30, 1983. Following are the court's findings of fact and conclusions of law.
Westwood is engaged in the business of selling and distributing chemical products. On or about August 16, 1972, Westwood entered into a written agreement with Synthetic pursuant to which Westwood was appointed the exclusive sales representative of Synthetic in a specified territory for the sale of various products manufactured by Synthetic. The agreement could be terminated without cause by either party at the end of any contract year after the second contract year by six months written notice. Prior to this time, Westwood had been acting as a sales representative of Synthetic under an oral agreement entered into on or about September 1, 1953.
Fletcher and Kulick were employed by Westwood as salesmen from August 3, 1966 through August 14, 1976 and from October 1, 1972 through August 14, 1976 respectively. At certain times during the course of their employment, the two men received the title of vice president, which title they retained until they left Westwood. Fletcher and Kulick were assigned primarily to the Synthetic account, and, as a result, became aware of the existence and the terms of the agreement between Westwood and Synthetic. They also became aware of a dispute between Westwood and Synthetic regarding a decision made by Synthetic to reduce the amount of the commissions that Synthetic had agreed to pay Westwood and that, at one point in late 1974 or early 1975, Lester J. Koch ("Koch"), Westwood's president, had threatened to take legal action against Synthetic.
As time progressed, both Fletcher and Kulick became unhappy with their employment at Westwood. The main problem was that Fletcher and Kulick wanted an equity interest in the company, an interest they never obtained. Fletcher and Kulick testified that Koch had informed them that it would be possible for them to acquire an ownership interest but that, whenever they subsequently had mentioned the issue to Koch, he just said that it was being worked on. Sometime in 1975, Fletcher and Kulick met with Synthetic representatives and discussed their dissatisfaction with Westwood. After the meeting, Fletcher and Kulick drafted a letter, dated August 7, 1975, to one of the Synthetic representatives and outlined the problems they were having with Koch. In the letter, they mentioned that several options were open to them, one of which was to take over Westwood's exclusive sales representation of Synthetic and to reimburse Synthetic for certain of the costs of terminating its agreement with Westwood. Thereafter, on or about August 15, 1983, Fletcher and Kulick presented Synthetic with a "Program for a New Sales Agency." The program set out in greater detail the proposal that Fletcher and Kulick had made to Synthetic.
On November 26, 1975, Fletcher and Kulick caused Lenape to be incorporated. On or about December 22, 1975, Synthetic sent Fletcher and Kulick a "second draft" of an exclusive sales representative agreement between Synthetic and Fletcher and Kulick doing business as Lenape. According to the terms of that agreement, Lenape was to pay Synthetic 75% of the fee that Synthetic was obligated to pay Westwood upon termination of its agreement with Westwood.
By letter dated January 26, 1976, Synthetic informed Westwood that the agreement between them would be terminated as of August 16, 1976. Fletcher and Kulick notified Koch by letters dated July 26, 1976 that they would be resigning from Westwood effective September 1, 1976. The next day, Koch advised the two men that their employment would be terminated as of August 14, 1976 because of their "faithless and dishonest conduct" and because their "breach of loyalty was the basic cause for the cancellation of [Westwood's] [a]greement with Synthetic." Koch further informed Fletcher and Kulick that, as a result of their "faithless and dishonest conduct," their rights in the company's profit-sharing and pension plans had been forfeited as had been any rights they may have had to certain commissions. Westwood made no contributions to Fletcher's and Kulick's account in the profit-sharing trust fund for the 1976 fiscal year.
Thereafter, Westwood gave a release to Synthetic. The release was executed on September 1, 1976 and apparently was given prior to the institution of any legal proceedings. By virtue of the release, Westwood gave up any claims against Synthetic relating to the following: (1) the fee that Synthetic was required to pay Westwood upon termination of the agreement between the two companies; (2) the conspiracy between Synthetic and Fletcher and Kulick that resulted in the termination of the agreement; and (3) Synthetic's underpayment of commissions to Westwood. Synthetic paid Westwood $700,000 in exchange for the release.
While they were employed by Westwood, Fletcher and Kulick engaged in various outside activities. For example, in March 1974, Fletcher and his wife incorporated Jener Chemical Company, the business of which was to sell and broker plastics, scrap and general commodity chemicals. From March 6, 1974 through December 31, 1974, Fletcher earned a net income of $26,130 from that company. Fletcher also was a shareholder in Thermal Associated, Inc. ("Thermal") and in a company named Arvin Chemical Corporation. Fletcher received no compensation from either concern. At one time, however, Fletcher agreed to take a reduced salary from Westwood for a period of several months because he had been spending so much time in providing assistance to Thermal.Finally, during the years 1974-1976, Fletcher received $1,300 in commissions from Dublon, Inc. ("Dublon") for helping Dublon find a customer to whom Dublon sold plastic compounds. Dublon was a buyer of Synthetic's products from Westwood.
In October 1973, Kulick caused Karoli Plastics, Inc. ("Karoli") to be incorporated, and, from that date through November 30, 1976, received a net income of $33,115 from the company. Karoli resold vinyl scrap and brokered plastics and chemicals. Kulick also was employed as a sales representative by Kimnet Associates, Inc. ("Kimnet") from July 1974 through August 1975. Kimnet was engaged in the business of reselling plastics. During the above-mentioned period, Kulick earned $12,498 in commissions for his services. From February 1976 through March 1976, Kulick performed consulting services to Hooker Chemical and was paid $3,500.
The court first turns to Westwood's claim that Fletcher and Kulick conspired with Synthetic to terminate its agreement with Westwood. A conspiracy to take away another's customers is an actionable wrong if unlawful means are used or if it is done without just cause. Duane Jones Co. v. Burke, 306 N.Y. 172, 190, 117 N.E.2d 237, 246 (1954); 20 N.Y. Jur.2d Conspiracy - Civil Aspects § 12 (1982). Moreover, as long as the employment relationship continues, an employee is prohibited from conspiring to take away his employer's customers or to establish a competing business. Arnold's Ice Cream Co. v. Carlson, 330 F. Supp. 1185, 1188 (E.D.N.Y. 1971); see Catalogue Serv., Inc. v. Wise, 63 App. Div. 2d 895, 895, 405 N.Y.S.2d 723, 724 (1st Dep't 1978) (per curiam). This is so because such a conspiracy would constitute a breach of the duties of the utmost good faith and loyalty that an employee owes to his employer.Duane Jones Co. v. Burke, 306 N.Y. 172, 188, 117 N.E.2d 237, 245 (1954). Applying these principles to the facts of this case, the following appears.
While employed by Westwood, Fletcher and Kulick embarked upon a course of conduct the purpose of which was to divert Synthetic's business from Westwood to themselves for their own gain. They unhesitatingly informed Synthetic of their desire to take over Synthetic's business from Westwood and engaged in substantial negotiations with Synthetic concerning the terms of the transaction. As part of these negotiations, they agreed to share some of the fee that would be incurred by Synthetic upon termination of its agreement with Westwood, which of course facilitated the termination.They also formed Lenape, the corporation that eventually replaced Westwood as Synthetic's sales representative, which corporation received commissions from Synthetic on orders that were placed while Fletcher and Kulick were still employed by Westwood.
This receipt of Synthetic commissions by Lenape indicates that not only did Fletcher and Kulick negotiate the takeover of the Synthetic account while still in Westwood's employ, but that the transaction also was completed during this time. These activities leave no doubt that Fletcher and Kulick violated the rule against conspiring to take away an employer's customer and that they committed egregious breaches of their duties to Westwood.
During the trial, Fletcher and Kulick made much of the commission dispute that Westwood had been having with Synthetic. Even though the relationship between the two companies may have been deteriorating, however, that is no defense or justification for the conduct of Fletcher and Kulick. Both Fletcher and Kulick were aware of the problems between Westwood and Synthetic and therefore were obligated to use their best efforts to retain Synthetic's business for Westwood.See E.W. Bruno Co. v. Friedberg, 21 App. Div. 2d 336, 340, 250 N.Y.S.2d 187, 191 (1st ...