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Birchez Associates, LLC v. Cohen

July 1, 2010

BIRCHEZ ASSOCIATES, LLC, PLAINTIFF,
v.
JEFFREY D. COHEN AND VERTICAL SOFTWARE GROUP, INC., DEFENDANTS.



The opinion of the court was delivered by: David N. Hurd United States District Judge

MEMORANDUM-DECISION and ORDER

I. INTRODUCTION

Plaintiff Birchez Associates, LLC, ("plaintiff" or "Birchez") brought this action pursuant to 28 U.S.C. § 1332 asserting breach of fiduciary duty, false representation, conversion, and breach of contract claims against defendants Jeffrey D. Cohen ("Cohen") and Vertical Software Group, Inc. ("Vertical") (collectively "defendants"). Defendants answered denying the material allegations of the complaint and asserted a cross-claim.

Defendants moved for partial summary judgment. Plaintiff opposed except as to the conversion claim*fn1 and defendants replied. Oral argument was heard on October 9, 2009, in Utica, New York. Decision was reserved.

II. BACKGROUND

The following facts are viewed in the light most favorable to Birchez, the non-movant, as must be done on a summary judgment motion.

Birchez is a real estate developer of affordable and market rate housing in the Hudson Valley region of New York State. It is a privately held, New York limited liability company, and Steven Aaron ("Aaron") is its managing member. Birchez had old phone and computer systems that were in need of modernization.

In approximately April 2006, Cohen and Aaron met through a mutual acquaintance. They discussed improvements that could be made to Birchez's information systems, including purchase at substantial discounts of information technology equipment available from Destiny, Cohen's previous employer*fn2, if Birchez hired Cohen. After a couple of meetings, Cohen agreed to consult for Birchez with regard to updating its business infrastructure, including computer network, IP addressing, point of sale systems, and hardware such as routers and servers.

Cohen presented a "Consulting Agreement" ("agreement") to Aaron which laid out the rate of pay plus travel expenses for Cohen and his son Adam Cohen. This agreement provided that invoices would be presented every two weeks and that all materials created during the engagement would remain Birchez's property. Further, the agreement was to remain in effect for sixty days, at which time the parties would determine their future relationship. The agreement had "The Vertical Software Group Inc." in its heading, and Cohen's signature line read "Jeffrey D Cohen, President," which he signed on May 1, 2006. Also on May 1, 2006, Aaron signed as President of Birchez Associates. Cohen disclosed for the first time the existence of Vertical to Aaron at the time he presented the agreement.

Notably, the agreement did not set forth what work was to be done by Cohen. Rather, Cohen and Aaron determined the work to be performed in verbal discussions. According to Aaron, Cohen was to evaluate technology needs, design a new computer network and data center, install a new telephone system, and act as Birchez's agent regarding purchase of Destiny equipment.

Upon execution of the agreement on May 1, 2006, Cohen commenced work for Birchez. Cohen proceeded to evaluate the status of Birchez's current system and make plans for modernization, as well as build a business plan for a data center. In addition, he corrected problems that Birchez was having with its systems, such as inadequate bandwidth to provide consistent connectivity to plaintiff's various sites.

As part of modernizing Birchez's systems, Cohen arranged for services for Birchez, such as internet access, with the appropriate service providers. He also purchased or arranged the purchase of various equipment for it, such as televisions, routers, and computer equipment. Cohen negotiated and arranged for the purchase of various information technology equipment from Destiny.

With regard to the equipment Birchez purchased from Destiny, one Kevin Stratton ("Stratton")*fn3 brokered the deal. Cohen itemized the equipment to be purchased and negotiated the price with Stratton. Stratton purchased the equipment from Destiny for $105,000.00 then re-sold it to Birchez for $127,720.00. Stratton paid Cohen*fn4 roughly half of the profit he made on the re-sale. Aaron was not aware of this commission agreement between Stratton and Cohen, but learned about it at a later time. Additionally, Aaron later learned that part of Cohen's severance agreement with Destiny was to pay Cohen a commission on sales of surplus equipment in which he was involved.

Regarding the work Cohen did for Birchez, from time to time Cohen invoiced Birchez at the rates set forth in the agreement, and also for reimbursement for equipment Cohen had purchased. The bills for work done pursuant to the agreement had The JAAM Group, Inc. ("JAAM") as a heading, but stated in smaller print at the bottom that all checks should be made payable to Vertical. On at least a few invoices Vertical was crossed out and it was handwritten to make checks payable to JAAM. Beginning with the June 9, 2006, invoice, the direction to make checks payable to JAAM was preprinted, and Vertical did not appear on the invoice at all. The remaining invoices through early August 2006 appeared the same, preprinted to make checks payable to JAAM with no mention of Vertical. According to Cohen, he requested that Birchez ...


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