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SHRED-IT USA, INC. v. MOBILE DATA SHRED

October 30, 2002

SHRED-IT USA, INC. AND SHRED-IT CANADA, INC., PLAINTIFFS,
V.
MOBILE DATA SHRED, INC., MICHAEL BOHBOT, NITZA I. CRUZ, AND EXECUTIVE MOBILE SHREDDING, DEFENDANTS.



The opinion of the court was delivered by: VICTOR Marrero, United States District Judge

  DECISION AND ORDER

Plaintiffs Shred-It USA, Inc. and Shred-It Canada, Inc. ("Shred-It"), brought this action under the Court's diversity jurisdiction pursuant to 28 U.S.C. § 1332, asserting, among other things, claims for breach of contract, fraud, unfair competition and misappropriation of trade secrets. Shred-It's claims arise from an asset purchase agreement entered into by Shred-It and defendants Mobile Data Shred, Inc. ("MDS") and its principal, Michel Bohbot ("Bohbot"). The Court held a four-day bench trial in this matter ending on September 12, 2002. The Courts findings of fact and conclusions of law are set forth below.

I. FINDINGS OF FACT

1. Plaintiffs Shred-It USA, Inc. and Shred-It Canada, Inc. (collective> "Shred-It") own and operate mobile document destruction businesses in the United States and Canada.

2. Defendant Mobile Data Shred, Inc. ("MDS") has operated a mobile document destruction business in and around New York, New York, the principal of which was defendant Michel Bohbot.

3. Defendant Nitza Cruz was employed by MDS as a vice president until at least September of 2000, at which time she formed a business known as Executive Mobile Shredding ("EMS"), through which Cruz continued to receive payment from MDS for services she rendered to MDS until at least January 6, 2002. EMS operates a mobile document destruction business in and around New York City, and services a number of shredding customers which, prior to Shred-It's purchase of MDS's assets described below, had been served by MDS.

4. Shred-It purchased the operating assets of MDS effective in January of 2002 through a written contract dated November 20, 2001 (the "Asset Purchase Agreement"). (Pls.' Exs. 1 and 27.) The closing on the purchase was scheduled for January 7, 2002, but the evidence at trial indicated that the transaction was completed in mid-January, 2002.

5. As part of the Asset Purchase Agreement, Bohbot and MDS agreed not to

directly or indirectly, either individually or in partnership or in conjunction with any person or persons . . . (i) Carry on or be engaged in or concerned with or interested in or advise, lend money to, guarantee the debts or obligations of or permit his name or any part thereof to be used or employed by any person or persons engaged in any shredding services similar to the business then being carried on by the Corporation and its affiliates and subsidiaries within North America; (ii) Solicit, interfere with or endeavor to entice away from or solicit contracts, orders or business from, any person or persons having dealings with the Corporation or its affiliates or subsidiaries or any customer of the Corporation or its affiliates or subsidiaries . . .

(Pls.' Ex. 1 at 28 and Pls.' Ex. 27 at 28 (emphasis in originals).)

6. At trial, Bohbot testified that after he entered into the Asset Purchase Agreement with Shred-It, he knew that he was not permitted to help Nitza Cruz operate a shredding business. (Trial Transcript ("Tr.") at 159.)

7. In Sections 3.01(a) and (e) of the Asset Purchase Agreement, defendants Bohbot and MDS represented and warranted to Shred-It that they had good title to all of the assets Shred-It was purchasing and that the assets were all "free and clear of all liens, charges, encumbrances and any other rights of others." (Pls.' Exs. 1 and 27.)

8. Sections 6.05 and 6.06 of the Asset Purchase Agreement provided that it was the entire agreement of the parties and that it could be modified or supplemented only in writing:

Section 6.05 Entire Agreement

This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and cancels and supersedes any prior understandings and agreements between the parties hereto with respect thereto. There are no representations, warranties, terms, conditions, undertakings or collateral agreements, express, implied or statutory, between the parties other than as expressly set forth in this Agreement.
Section 6.06 Amendments and Waiver
No modification of or amendment to this Agreement shall be valid or binding unless set forth in writing and duly executed by both of the parties hereto and no waiver of any breach of any term or provision of this Agreement shall be effective or binding unless made in writing and signed by the party purporting to give the same and, unless otherwise provided, shall be limited to the specific breach waived.

(Pls.' Exs. 1 and 27.)

9. The parties introduced three additional contracts that were related to the sale of MDS's assets to Shred-It: (a) a Promissory Note and associated Pledge of Term Deposit, dated November 2001;*fn1 (b) a Bill of Sale, dated January 7, 2002; and (c) a supplemental Memorandum of Agreement dated January 15, 2002 (the "Supplemental Agreement"). (Pls.' Exs. 1 and 27.)

10. In the Promissory Note, MDS agreed to pay Shred-It $200,000, plus interest at seven percent annually, in 36 equal monthly installments. Failure to make any payment when due made the entire principal balance due and payable, with interest. (Pls.' Exs. 1 and 27.)

11. The Pledge of Term Deposit required MDS to post a certificate of deposit as collateral to secure the Promissory Note. (Pls.' Exs. 1 and 27.) In the Supplemental Agreement, MDS agreed to post that term deposit on or before January 18, 2002. (Pls.' Ex. 1.)

12. The Bill of Sale provided that Shred-It would sell back to MDS certain truck boxes containing shredding equipment. (Pls.' Exs. 1 and 27.) That sale took place simultaneously with the closing on the Asset Purchase Agreement. MDS was to have possession of those trucks for the limited purpose of removing the boxes. (Tr. at 112-14.)

13. The Supplemental Agreement provided that Shred-It immediately would be assigned the titles of four trucks identified in that one-page agreement, but that it would register those titles on dates specified therein from January 31 through March 14, 2002. (Pls.' Ex. 1.)

14. As part of the consideration for all of the promises, purchases, and undertakings between the parties, Shred-It paid a total of $1,600,002 to MDS and Bohbot. (Pls.' Ex. 18.) MDS and Bohbot received the payments in the form of three checks and one wire transfer. One check was dated November 2001 and the other three payments were dated January of 2002. (Pls.' Ex. 18; Tr. at 448-49, 610-13.)

15. MDS provided shredding services to one of its multi-branch customers, Fleet Bank, following the closing on the Asset Purchase Agreement. (Tr. at 600, 641.)

16. MDS continued to seek to acquire shredding trucks and equipment after the Asset Purchase Agreement. Specifically, through a credit offer accepted by Bohbot on January 8, 2002, MDS sought lease financing for a mobile shredding truck and equipment from Bank of New ...


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