Contract does not readily indicate that the parties intended to extend the restrictive covenant provision by continuing to employ Barton after January 31, 1990.
INI argues further that the fact that the Shareholder Agreement extended the term of the restrictive covenant until one year after INI purchased Barton's stock is evidence that the parties intended to extend the restrictive covenant beyond the stated term of the Employment Contract. The language of the Shareholder's Agreement provides, however, that the Corporation would be deemed to have acquired Barton's stock "in the event that the Employment Agreement . . . is . . . not extended." See the Shareholder's Agreement, annexed to the Exhibits as Exh. "2," at P 3.7. It is unclear from the language of this clause whether the Shareholder's Agreement would, in fact, be triggered in the event that the parties implicitly extended the terms of the Employment Contract. Accordingly, the language of the Shareholder's Agreement does not resolve whether the parties intended to extend the terms of the restrictive covenant when Barton continued to work at INI after the expiration of the original term of the Employment Contract.
Finally, INI argues that Barton and David Kleiman orally agreed to extend the terms of the Employment Contract but that they "just never got around to redrafting the contract." See Deposition of Bernard Barton, taken on August 4, 1993, annexed to the Appendix to Statement of Material Facts Not in Dispute as Exh. "2," at 59. Barton also testified at his deposition, however, that the parties had not, in fact, executed a new contract. Id. at 60. Barton testified further that he believed that the Employment Contract ended on January 31, 1990. Id. In the face of this ambiguous testimony, an issue of fact exists as to whether the parties intended that the restrictive covenant provision be extended beyond the original term of the Employment Contract. See Thur v. IPCO Corp., 569 N.Y.S.2d at 715 (stating that plaintiff's actions are "evidence of at least the existence of triable issues of fact that the parties intended the restrictive covenant to commence only upon plaintiff's final termination of employment").
b. Validity of the Restrictive Covenant
The Satellite Defendants next argue that the restrictive covenant is unenforceable as it is unreasonable in time and geographic scope. "Restrictive covenants relating to employment are disfavored at law, but such covenants will be enforced if reasonably limited in time and scope, to the extent necessary to protect the employer." Contempo Communications, Inc. v. MJM Creative Servs., Inc., 182 A.D.2d 351, 582 N.Y.S.2d 667, 668 (1st Dep't 1992) (citing Columbia Ribbon & Carbon Mfg. Co. v. A-1-A Corp., 42 N.Y.2d 496, 398 N.Y.S.2d 1004, 369 N.E.2d 4 (1977)). Additional factors the court looks to include whether the (1) burden on the employee is reasonable; (2) general public is harmed; and (3) restriction is necessary for the employer's protection. Mallory Factor Inc. v. Schwartz, 146 A.D.2d 465, 536 N.Y.S.2d 752, 753 (1st Dep't 1989).
The Court finds that the present covenant was reasonable as a matter of law. First, the covenant was of relatively short duration, precluding Barton from using any privileged information or engaging in a competing business for twelve months from the date his employment terminated. Second, while the geographic scope encompassing the continental United States was rather broad, such a restriction is reasonable in light of the national scope of INI's business. See Business Intelligence Servs., Inc. v. Hudson, 580 F. Supp. 1068, 1073 (S.D.N.Y. 1984) (upholding a restrictive covenant despite unlimited geographic scope in view of the international nature of plaintiff's business).
Third, the scope of the restrictive covenant was fair, prohibiting Barton from engaging in a "similar or competing business" but not precluding him from engaging in general real estate development or brokerage activities. Fourth, the enforcement of such a clause does not appear to be anti-competitive or otherwise harmful to the general public. See Mallory Factor Inc. v. Schwartz, 536 N.Y.S.2d at 754 (stating that "the enforcement of such a covenant cannot be viewed as anti-competitive or otherwise harmful to the general public"). Finally, in light of the importance of Barton's contacts and his assistance in developing the INI Centers, the Court finds that the restrictive covenant was necessary for INI's protection.
c. Intentional Procurement of the Breach
The Satellite Defendants also argue that Count III should be dismissed because the Complaint fails to allege that the defendants intentionally procured a breach of the Employment Contract.
To prove intent, the plaintiff must show "that 'there would not have been a breach but for the activities of defendants.'" Sharma v. Skaarup Ship Management Corp., 916 F.2d 820, 828 (2d Cir. 1990) (quoting Special Event Entertainment v. Rockefeller Ctr., Inc., 458 F. Supp. 72, 78 (S.D.N.Y. 1978)), cert. denied, 499 U.S. 907 (1991).
The Court finds that a reasonable reading of the pleaded facts states a cause of action for intentional procurement of the breach. The Complaint alleges, for example, that, after INI informed the Satellite Defendants that the Employment Contract precluded Barton from competing with INI, the Satellite Defendants responded that INI's allegations were "without foundation." See Complaint at P 30-31. The Complaint alleges further that the Satellite Defendants completed the Satellite Orlando Center using INI's documents and the services of Barton. Id. at PP 32, 34, 36. Accepting these allegations as true for the purposes of this motion, the Court finds that the Complaint states a cause of action for tortious interference with contractual relations. Accordingly, the Satellite Defendants' motion to dismiss Count III is denied. As disputed issues of fact remain as to this Count, INI's motion for summary judgment also is denied.
2. Unfair Competition and Misappropriation
The Satellite Defendants next contend that the Court should dismiss Count V of the Complaint, which states a claim for unfair competition and misappropriation. According to the Satellite Defendants, this Count must be dismissed because (1) it is preempted by federal copyright law pursuant to 17 U.S.C. § 301(a); (2) the allegedly misappropriated documents contain no trade secrets or confidential information; and (3) INI does not possess any "property right" upon which to base a claim for unfair competition. INI opposes this motion and cross-moves for summary judgment, contending that the Satellite Defendants' use of INI's (1) Draft Lease Agreement; (2) Standard License Agreement; (3) Contract Proposals; (4) New York Blueprints; (5) Rolodex; and (6) Orlando Floor Plan constitutes unfair competition and misappropriation as a matter of law.
"An unfair competition claim involving misappropriation usually concerns the taking and use of the plaintiff's property to compete against the plaintiff's own use of the same property." Roy Export Co. v. Columbia Broadcasting Sys., Inc., 672 F.2d 1095, 1105 (2d Cir.), cert. denied, 459 U.S. 826, 74 L. Ed. 2d 63, 103 S. Ct. 60 (1982); see also Computer Assocs. Int'l, Inc. v. Computer Automation, Inc., 678 F. Supp. 424, 429 (S.D.N.Y. 1987) (stating that the essence of a claim for unfair competition is "the bad faith misappropriation of the labors and expenditures of another, likely to cause confusion or to deceive purchasers as to the origin of goods") (citing Saratoga Vichy Spring Co. v. Lehman, 625 F.2d 1037, 1044 (2d Cir. 1980)). The doctrine is "'broad and flexible,'" encompassing "'any form of commercial immorality.'" Roy Export Co. v. Columbia Broadcasting Sys., Inc., 672 F.2d at 1105 (quoting Metropolitan Opera Ass'n v. Wagner-Nichols Recorder Corp., 199 Misc. 786, 101 N.Y.S.2d 483, 489 (N.Y. Sup. Ct. N.Y. Co. 1950), aff'd, 279 A.D. 632, 107 N.Y.S.2d 795 (1st Dep't 1951)). Thus, even where the information taken would not otherwise qualify as a trade secret, the unauthorized physical taking and exploitation of internal company documents for use in a competitor's business constitutes unfair competition. Ecolab Inc. v. Paolo, 753 F. Supp. at 1111 (citing Advanced Magnification Instruments of Oneonta, N.Y., Ltd. v. Minuteman Optical Corp., 135 A.D.2d 889, 522 N.Y.S.2d 287 (3d Dep't 1987)); see also Continental Dynamics Corp. v. Kanter, 64 A.D.2d 975, 408 N.Y.S.2d 801, 802 (2d Dep't 1978) (even where an employee's physical taking of an employer's customer lists does not rise to the level of trade secrets, it may nevertheless form the basis for a cause of action for unfair competition).
a. The INI Orlando Floor Plan
The Satellite Defendants argue that, to the extent that INI's unfair competition claim is premised on the misappropriation of the INI Orlando Floor Plan, the claim is preempted by federal copyright law.
The Court agrees.
It is well-settled that federal copyright law preempts all state claims "that are equivalent to any of the exclusive rights within the general scope of copyright." 17 U.S.C. § 301(a). Specifically, a claim is preempted if two conditions are satisfied:
(1) the subject matter of the work in which the state law rights are asserted comes within the subject matter of the copyright laws; and (2) the state law rights asserted in the work are equivalent to the exclusive rights protected by the federal copyright laws.
Universal City Studios v. T-Shirt Gallery, Ltd., 634 F. Supp. 1468, 1474-75 (S.D.N.Y. 1986).
This Circuit has applied the preemption doctrine to preclude state unfair competition claims that rely on a misappropriation theory of unfair competition, including claims for commercial immorality. See Financial Info., Inc. v. Moody's Investors Serv., Inc., 808 F.2d 204, 208 (2d Cir. 1986), cert. denied, 484 U.S. 820, 98 L. Ed. 2d 42, 108 S. Ct. 79 (1987); Warner Bros., Inc. v. American Broadcasting Cos., 720 F.2d 231, 247 (2d Cir. 1983). In Demetriades v. Kaufmann, 698 F. Supp. at 526, for example, this Court found that a claim for the wrongful appropriation of the plaintiffs' architectural plans was preempted by federal copyright law. See also Intown Enters., Inc. v. Barnes, 721 F. Supp. 1263, 1267 (N.D. Ga. 1989) (where plaintiff conceded that its claim for misappropriation was preempted).
The Court finds that INI's claim for unfair competition with respect to the INI Orlando Floor Plan is preempted by federal copyright law. The INI Orlando Floor Plan, which is an architectural work, is within the subject matter of the copyright laws. See 17 U.S.C. § 102(a)(8). In addition, the exclusive rights to reproduce and distribute the INI Orlando Floor Plan are within the general scope of copyright protection. Accordingly, the Satellite Defendants' motion for judgment on the pleadings dismissing Count V as it concerns the misappropriation of the INI Orlando Floor Plan is granted.
b. INI's Other Documents
With respect to INI's claim for unfair competition based on the use of its other documents, the Satellite Defendants contend that an issue of fact exists as to whether (1) Barton took these documents when he left employment at INI; (2) the Satellite Defendants used these documents; and (3) the documents contained any confidential or proprietary information not readily available from other sources. While INI claims that "it is undisputed" that the Satellite Defendants received and used numerous stolen INI documents, the Court finds that an issue of fact exists as to whether the Satellite Defendants improperly used INI's documents. In light of this disputed issue of fact, the parties' summary judgment motions are denied.
3. Conspiracy and Punitive Damages
The Satellite Defendants also move for judgment on the pleadings dismissing Count VI of the Complaint, which states a separate cause of action for conspiracy and punitive damages. New York law does not provide a substantive tort of civil conspiracy. Danahy v. Meese, 84 A.D.2d 670, 446 N.Y.S.2d 611, 614 (4th Dep't 1981); Cunningham v. Hagedorn, 72 A.D.2d 702, 422 N.Y.S.2d 70, 73 (1st Dep't 1979); see also John's Insulation, Inc. v. Siska Constr. Co., 774 F. Supp. 156, 161 (S.D.N.Y. 1991) (stating that civil conspiracy is not of itself actionable under New York law). Rather, a plaintiff must plead specific wrongful acts that constitute an independent tort. John's Insulation, Inc. v. Siska Constr. Co., 774 F. Supp. at 161 (citing Valdan Sportswear v. Montgomery Ward & Co., 591 F. Supp. 1188 (S.D.N.Y. 1984)).
Allegations of conspiracy are permitted, however, to show that the substantive tortious acts complained of flowed from a common scheme or plan and to connect each defendant with an actionable injury. Danahy v. Meese, 446 N.Y.S.2d at 614. Thus, allegations of civil conspiracy are proper "for the purpose of establishing joint liability by co-participants in tortious conduct." John's Insulation, Inc. v. Siska Constr. Co., 774 F. Supp. at 162 (citing Grove Press, Inc. v. Angleton, 649 F.2d 121, 123 (2d Cir. 1981)).
In the present case, Count VI of the Complaint states that the Satellite Defendants and Barton
have all, jointly and severally, conspired and agreed to inflict injury on INI by the misappropriation of the Proprietary Information, the misappropriation of INI's trade dress, the infringement of INI's copyright, the construction of the Orlando Facility and the tortious interference with the Employment Contract.