The opinion of the court was delivered by: Honorable Paul A. Crotty, United States District Judge
Plaintiff Omni Food Sales ("Omni") initiated this tort action against Defendants Edward Boan ("Boan") and Mark Greenberg ("Greenberg") for improperly causing the termination of a brokerage contract between Omni and Cargill Meat Solutions ("Cargill" formerly Excel Corporation). Defendants move to dismiss the Complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). For the reasons discussed below, the motion is denied in part and granted in part.
Omni is a broker for meat products in New York and New Jersey. From 1999 to June 2002, Boan was President of Omni. Cargill is a meat manufacturer and processor. Pursuant to a five-year contact ("Omni/Cargill contract"), Omni (with Boan serving as President) represented Cargill in its fresh pork sales to the New York metropolitan area from March 1999 to June 2002. In May 2002, Boan's employment with Omni ended (the parties dispute whether Boan resigned or was fired). In June 2002, Cargill terminated the Omni/Cargill contract, alleging that Omni had committed a breach. In July 2002, Cargill replaced Omni with Boan, via Boan's new company, Premier Food Sales, to act as its broker. One of Cargill's top meat purchasers is ShopRite (also known as Wakefern), which employed Defendant Greenberg as a buyer.
The Omni/Cargill Arbitration Proceedings
In March 2004, Omni commenced arbitration (as required by the Omni/Cargill contract) against Cargill for Cargill's early termination of the contract. The panel of three AAA members conducted approximately six full days of hearing, which included the testimony of seven witnesses.*fn1
Omni asserted four causes of action against Cargill in the arbitration: (1) breach of contract for a) failing to pay the severance compensation, b) failing to provide the six-months notice of intent to terminate the contract, and c) hiring Boan and appropriating Omni's confidential proprietary business information; (2) misappropriation of trade secrets for a) misappropriating Omni's customer contacts and sales information, and b) Cargill and Boan's use of Omni's proprietary business information and trade secrets to gain an unfair competitive advantage over Omni; (3) unfair competition for Cargill and Boan's use of secret proprietary business information and trade secrets to gain an unfair competitive advantage over Omni; and (4) violation of New York Labor Law § 191 for failure to pay the severance compensation.
Cargill counterclaimed for: (1) breach of contract; (2) breach of implied duty of good faith and fair dealing; and (3) breach of fiduciary duty.
During the arbitration, both parties asserted that the other breached the contract. Cargill argued that in April 2002, Omni improperly engaged in negotiations for a brokerage contract to represent Cargill's rival, John Morrell & Co. ("Morrell"), in meat sales in the New York Metropolitan area.*fn2 This, Cargill asserted, was a breach of the terms of the Cargill/Omni contract to provide exclusive representation, which justified Cargill's termination of the contract. Omni, on the other hand, argued that there was no conflict of interest or breach in the Morrell negotiations.
During the course of the arbitration proceedings, in either December 2004 or January 2005, Omni and Cargill learned that Boan had been making millions of dollars of secret payments to Mark Greenberg, the meat buyer for ShopRite.*fn3 Despite disagreement between Omni and Cargill concerning the relevancy of these secret payments to the arbitration proceedings, the arbitrators nonetheless sought testimony and evidence surrounding the payments.*fn4
Following the discovery of these payments between Boan and Greenberg, Omni fired Boan and ShopRite fired Greenberg.
The Panel found that Cargill had breached the contract; and awarded Omni the full amount possible pursuant to the liquidated damages provision of the contract-approximately $1.9 million plus costs and attorney's fees. The Panel determined that Cargill did not provide adequate notice of intent to terminate as required by the contract, and that it should have given Omni a greater opportunity to explain its dealings with Morrell prior to issuing the letter terminating the contract. With respect to Cargill's decision to terminate the Omni/Cargill contract, the Panel also opined that:
[Cargill's] senior officials may have been inappropriately influenced by the conduct of Mr. Boan and/or [ShopRite's] senior pork buyer [Greenberg], both of whom were terminated as a result of improper financial activities. (Conroy Decl. Ex. B ¶ 6.)
The Panel also found that Cargill violated Section 12 of the contract by employing Boan, but that it was entitled to no further damages for this breach beyond the severance payments. It further found that Cargill wrongfully obtained Omni's proprietary information from Boan. It held New York Labor Law § 191 to be ...