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Wrap-N-Pack, Inc. v. Eisenberg

March 29, 2007

WRAP-N-PACK, INC., PLAINTIFF,
v.
ISIDORE EISENBERG, LOUIS EISENBERG, AND PACKAGING METHODS DEFINED, L.L.C., DEFENDANTS.



The opinion of the court was delivered by: Hurley, Senior District Judge

MEMORANDUM & ORDER on Motion to Dismiss and/or Motion for Summary Judgment (doc. #48)

Presently before the Court is the Defendants' "Motion to Dismiss and/or Motion for Summary Judgment." Defendants move for dismissal pursuant to Federal Rules of Civil Procedure 12(b)(1) and (6), and, alternatively, for summary judgment pursuant to Federal Rule of Civil Procedure 56. Plaintiff opposes Defendants' Motion in toto. From the parties' Rule 56.1 Statements and the various affidavits, deposition transcripts and other documentation submitted, it appears that both Plaintiff and Defendants view Defendants' Motion as one for summary judgment. For the reasons stated below, Defendants' Motion to Dismiss is DENIED and its alternative Motion for Summary Judgment is also DENIED.

I. BACKGROUND

The following facts are gleaned from the parties' Rule 56.1 Statements and are undisputed unless otherwise noted. In December 1987, Defendant Louis Eisenberg ("Louis") and Mitchell Cohen, co-owners of a company called Goldcrest Container ("Goldcrest"), sold certain assets of Goldcrest to Plaintiff Wrap-N-Pack, Inc. ("WNP" or "Company"). These assets included Goldcrest's interests in its telephone number, all its customer records, sales records, credit history records, vendor records, payment records, and all other records pertaining to its customers or suppliers. WNP's acquisition of Goldcrest was memorialized in an Acquisition Agreement. After the acquisition, Louis became a salesman for WNP pursuant to an employment agreement, containing, inter alia, a five-year covenant not to compete. Mitchell retired after the sale.

At the time of Goldcrest's sale to WNP, Louis' son, Defendant Isidore Eisenberg ("Isidore"), had been a salesman for Goldcrest for several years. Isidore also became a salesman for WNP pursuant to a 1987 employment agreement (the "Employment Agreement") containing, inter alia, several non-compete provisions. Specifically, Isidore's Employment Agreement provided that "during the term of this Agreement, [Isidore] shall devote full time and attention and best efforts, to the exclusion of all other businesses and ventures, to the promotion and sale of the products of [WNP]." It also contained a five-year non-compete clause (hereinafter, the "Non-Compete Provision" or "Restrictive Covenant") prohibiting Isidore from selling any products or services that were either sold or offered for sale by WNP or were similar thereto, to any person or entity that was a customer of WNP during his employment. There was no stated geographic limitation as to this restriction. In addition, Isidore's Employment Agreement required that Isidore not, at any time, disclose the names, addresses, histories of sales and reorders, credit records, payment records, and the like, of WNP's customers.

In 1992, Louis resigned from WNP and his accounts were transferred to his son, Isidore. (When Louis and Mitchell Cohen sold Goldcrest to WNP, Louis had requested that his accounts be transferred to Isidore when he, Louis, retired from the Company.) It was at this time that the five-year covenant contained in Louis' Employment Agreement with WNP began to run. Accordingly, in 1997, Louis was no longer subject to the covenant not to compete and was free to actively compete with WNP.

In April 2003, Louis formed Defendant Packaging Methods, Defined, L.L.C. ("Pack MD"). At the time Pack MD was formed, Isidore was still employed by WNP. The parties are in substantial disagreement with respect to Isidore's involvement and participation in the formation of Pack MD. Plaintiff argues that, in substance, Isidore formed Pack MD and that he used his father, Louis, as a mere straw man to avoid the non-compete clause of his Employment Agreement. Conversely, Defendants allege that Louis was the sole participant in the formation of Pack MD. Specifically, they argue that Isidore was not involved in any of the transactional aspects of the formation; that Louis was billed by the attorney who set up Pack MD; that Louis was the registered agent for service of process; that Louis' home address was provided as the address for Pack MD; and, that Louis was Pack MD's sole member until late summer 2003. However, Defendants concede that Isidore was involved in a sale to a WNP customer (i.e., Full Dress Formals) on behalf of Pack MD one week before he resigned from WNP.

At approximately the same time that Pack MD was formed, Arlington Press ("AP"), a WNP customer, contacted Louis regarding the supplying of a certain type of boxes--chip-board boxes--it had been buying through WNP. AP had originally been a Goldcrest customer that WNP acquired from Goldcrest. AP had been Louis' account at Goldcrest and continued to be so after WNP's acquisition of Goldcrest. Like Louis' other accounts, the AP account was transferred to Isidore when Louis retired; it was Isidore's largest account while at WNP. There is a dispute whether AP contacted Louis in the summer of 2003 on its own or after the suggestion of Isidore. However, it is undisputed that AP ceased buying its chip-board boxes from WNP and began purchasing them through Pack MD. Yet, AP continued purchasing its corrugated boxes from WNP for sometime thereafter until there was a disagreement between the companies over how that business was transpiring. WNP ultimately decided to cease doing business with AP.

Isidore resigned from WNP on May 29, 2003. The parties disagree whether Isidore promised to abide by the terms of the Non-Compete Provisions in his Employment Agreement at that time. In the summer of 2003, Isidore began working for Hughes Enterprises, Inc. ("Hughes") as an independent contractor. Isidore alleges that he became co-owner of Pack MD in the late summer of 2003 because Hughes wanted to pay Isidore his commissions through a corporate entity. Isidore's accountant allegedly suggested that he use Pack MD for this purpose rather than starting a new company. On behalf of Hughes, Isidore sold only to Hughes' house accounts in New Jersey, not to any WNP customers. However, Isidore began selling packaging products to AP--a WNP customer--on behalf of Pack MD in late summer 2003.

In December 2003, Isidore left Hughes and began working exclusively for Pack MD. In mid-July 2004, WNP wrote Isidore a letter demanding he cease servicing WNP accounts. If he failed to do so, WNP would commence legal actions against him. Isidore did not respond to WNP's July 2003 letter; this suit followed.

The crux of WNP's suit against Isidore is that he has breached his Employment Agreement with WNP by violating its Restrictive Covenant not to compete with WNP, thereby causing damages to WNP. On the basis of this alleged breach, WNP's Amended Complaint raises twelve causes of action. The first eight claims are against Isidore: breach of contract; misappropriation of trade secrets; unfair competition; breach of good faith and loyalty; diversion of corporate opportunity; accounting; tortious interference with prospective economic advantage; and unjust enrichment. The remaining claims are against Louis and Pack MD: aiding and abetting Isidore's breach of fiduciary duty; wrongfully inducing Isidore's breach of fiduciary duty; tortiously interfering with the Employment Agreement between Isidore and WNP; and unjust enrichment. The Defendants' position is that Isidore's Employment Agreement was superseded by an agreement dated December 19, 1991, that does not contain a non-compete provision,*fn1 and, even if that is not the case, the Non-Compete Provision in the Employment Agreement is non-enforceable under New York law as it unreasonable in duration and geographic application. Unsurprisingly, Plaintiff takes the position that the subject restrictive covenant is enforceable as necessary to protect WNP's legitimate business interests in retaining its customer base and the goodwill that it has established with its customers.

II.DISCUSSION

A. Rule 12(b)(1) Standard of Review

"When presented with a Rule 12(b)(1) motion along with other motions to dismiss, the court must decide the Rule 12(b)(1) motion first." Haning v. Yorktown Cent. School Dist., 384 F. Supp. 2d 710, 716 n.7 (S.D.N.Y. 2005) (citing Rhulen Agency, Inc. v. Ala. Ins. Guar. Ass'n, 896 F.2d 674, 678 (2d Cir. 1990)). Here, Defendants' Rule 12(b)(1) motion for dismissal for lack of subject matter jurisdiction is based on the "amount in controversy" threshold requirement of 28 U.S.C. §1332(a) --the so-called "diversity jurisdiction" statute that confers original jurisdiction on district courts "of all civil actions where the matter in controversy exceeds the sum or value of $75,000, exclusive of interest and costs" and that is between diverse parties, see § 1322(a)(1)-(4). Defendants argue:

[that t]o the extent that the claims that remain after the Court's decision on this motion are based solely upon lost profits and/or compensation paid to Isidore Eisenberg from April-May 2003, or upon the profits or sales of Pack MD in that period, such damages are less than $75,000 and therefore, this Court can find "to a legal certainty" that it does not have subject matter jurisdiction over such claims and dismiss this action.

(Defs.' Mem. Supp. Summ. J. at 23. (citing St. Paul Mercury Indem. Co. v. Red Cab Co., 303 U.S. 283, 289-90 (1983); Cap Gemini Ernst & Young, U.S., L.L.C. v. Nackel, 346 F.3d 360, 362 (2d Cir. 2005).) However, the Red Cab court stated, inter alia:

The intent of Congress drastically to restrict federal jurisdiction in controversies between citizens of different states has always been rigorously enforced by the courts. The rule governing dismissal for want of jurisdiction in cases brought in the federal court is that, unless the law gives a different rule, the sum claimed by the plaintiff controls if the claim is apparently made in good faith. It must appear to a legal certainty that the claim is really for less than the jurisdictional amount to justify dismissal. The inability of plaintiff to recover an amount adequate to give the court jurisdiction does not show his bad faith or oust the jurisdiction. Nor does the fact that the complaint discloses the existence of a valid defense to the claim. But if, from the face of the pleadings, it is apparent, to a legal certainty, that the plaintiff cannot recover the amount claimed or if, from the proofs, the court is satisfied to a like certainty that the plaintiff never was entitled to recover that amount, and that ...


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