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Dauphin v. Crownbrook Acc LLC

United States District Court, E.D. New York

May 15, 2014

RICHARD W. DAUPHIN, Plaintiff,
v.
CROWNBROOK ACC LLC, Defendant.

OPINION AND ORDER

ALLYNE R. ROSS, District Judge.

Plaintiff Richard W. Dauphin, a former member and employee of defendant Crownbrook ACC LLC ("Crownbrook"), brought this suit alleging that defendant had defaulted on payments owed to him under a promissory note. Defendant brought counterclaims asserting that, when plaintiff left defendant's employment to work for a competitor, he took documents containing Crownbrook's confidential and proprietary information and used that information to harm Crownbrook's business and help his new employer's business.

In a prior order, this court granted partial summary judgment for plaintiff on his claim for damages resulting from defendant's default on the promissory note. The court deferred entry of judgment pending resolution of defendant's counterclaims. The parties engaged in additional discovery, and plaintiff now moves for summary judgment on defendant's counterclaims. For the reasons set forth below, plaintiff's motion is granted. Defendant's counterclaims are dismissed and the court directs the entry of judgment for plaintiff in the underlying action.

BACKGROUND

I. Procedural History

The following facts are undisputed and are taken from the court's prior order, Dkt. #40. Plaintiff, a resident of Massachusetts, previously owned a membership interest in defendant, a New York limited liability company ("LLC"), and served as its employee. On September 7, 2010, plaintiff agreed to sell his membership interest in the LLC to defendant for a purchase price of $1.25 million. On March 26, 2011, defendant executed a promissory note agreeing to pay $1.25 million to plaintiff in twelve quarterly installments of $104, 166.66, with the first installment due on the closing date of March 26, 2011, and the final installment due on December 26, 2013. In the event that a payment was not made in full on the due date, the promissory note provided that interest on the unpaid principal amount would accrue from the due date until it was paid in full at the prime rate as published in the Wall Street Journal. Also on March 26, 2011, the parties terminated plaintiff's prior employment agreement with defendant and entered into a new employment agreement.

Defendant made the first three payments under the promissory note but did not pay the fourth installment due on December 26, 2011. In February 2012, plaintiff terminated his employment with defendant. Defendant has not made any further payments on the note.

On April 30, 2012, plaintiff filed this diversity suit seeking damages for the unpaid installments on the promissory note, including interest. Compl., Dkt. #1. Defendant asserted several affirmative defenses and counterclaims. Am. Answer & Countercl., Dkt. #13. On April 11, 2013, the court granted partial summary judgment for plaintiff, finding that the record did not support defendant's affirmative defenses. Dkt. #40.

At issue now are defendant's counterclaims. Defendant alleges that on or about February 10, 2012, plaintiff resigned his employment with defendant and took a job with defendant's direct competitor, Dairy Conveyor Corp. ("Dairy Conveyor"). Am. Answer & Countercl. ¶ 34. Defendant alleges that plaintiff took a laptop containing "reams of Crownbrook's confidential and proprietary information, " including financial data, business plans, product information, customer lists, and marketing plans, and has refused to return the information. Id . ¶¶ 34-35. Defendant further alleges that plaintiff disclosed this confidential and proprietary information to his new employer and used the information at his new job "to compete with Crownbrook and steal Crownbrook's customers and business relations." Id . ¶¶ 35-36.

Defendant asserts five counterclaims against plaintiff: (1) breach of contract; (2) misappropriation of trade secrets and confidential business information; (3) breach of fiduciary duty; (4) conversion; and (5) unfair competition. Id . ¶¶ 38-62. As remedies, defendant seeks dismissal of the claims in plaintiff's complaint; an injunction requiring plaintiff to return "all documents, data, materials, processes, and procedures taken from Crownbrook or derived from Crownbrook's materials"; compensatory and punitive damages; and attorney's fees and costs.

II. Evidence Regarding Defendant's Counterclaims

Having reviewed the deposition testimony, affidavits, and other exhibits submitted by the parties, the court will summarize the evidence in the record regarding defendant's counterclaims.

A. Taking of Defendant's Confidential Information

It is undisputed that when plaintiff left his employment at Crownbrook, he kept a laptop computer that had been provided to him by defendant. Plaintiff asserts that he "felt justified" in keeping the laptop because defendant had stopped making the payments owed to him on the promissory note. Aff. of Richard W. Dauphin ("Pl. Aff."), Dkt. #73, Ex. 1, ¶ 9. In his deposition, plaintiff testified that a few weeks after he left Crownbrook, the company asked for the laptop back, but he did not return it because defendant owed him money. Dep. of Richard W. Dauphin ("Pl. Dep."), Dkt. #76, Ex. 1, at 171.

Defendant asserts that plaintiff also retained confidential and proprietary documents belonging to Crownbrook. In support of this allegation, defendant has provided an expert report by Sal Llanera, a certified fraud examiner and consultant in computer forensics. Expert Report of Sal Llanera ("Llanera Report"), Dkt. #78, Ex. 1. Llanera's report identifies two bases for alleging that plaintiff retained Crownbrook's confidential documents after leaving his position there.

First, Llanera conducted a search of plaintiff's Crownbrook e-mail account and identified seven e-mails that were sent from plaintiff's account to his wife's account. Id . ¶ 13. Levi Krinsky, the president of Crownbrook, asserts that these e-mails included attachments with confidential information. Aff. of Levi Krinsky ("Krinsky Aff."), Dkt. #77, ¶ 6. Among these attachments was a "pipline document, " which Krinsky describes as "basically a summary of all of Defendant's business up until that point, and included, among other highly sensitive and proprietary information, Defendant's pricing information, identification of its then current and prospective customers as well as all of its outstanding projects and bids." Id . ¶ 7. Krinsky asserts that "[n]o one in Defendant's employ, other than Plaintiff, emailed those documents from Plaintiff's mailbox at Defendant's domain to Plaintiff's wife's email address." Id . ¶ 6.

Second, Llanera conducted an investigation of the laptop that plaintiff retained after leaving Crownbrook and identified 5, 117 files that were last accessed on February 24, 2012, several weeks after plaintiff left Crownbrook's employment. Llanera Report ¶ 14.[1] Llanera states "with a reasonable degree of certainty" that the files were all copied at the same time from the laptop to an external hard drive. Id . ¶ 20.[2] Krinsky, Crownbrook's president, asserts that these files contained confidential information including drawings, pricing information, customer lists, internal salary information, and draft and final proposals. Krinsky Aff. ¶ 11. Based on his investigation, Llanera states that it is his opinion "that confidential and proprietary information stored in the laptop I analyzed were sent and copied to computers and devices not controlled and/or authorized by the Defendant." Llanera Report ¶ 25.

Plaintiff denies e-mailing Crownbrook documents to his wife's account or copying Crownbrook's files from the laptop. Pl. Aff. ¶ 9. In his deposition, plaintiff testified that he did not know why e-mails were forwarded from his work account to his wife's account and did not remember whether he accessed the documents attached to the e-mails. Pl. Dep. 152-54. In his later affidavit, plaintiff states: "I believe that while I was ill, emails with information attached were sent to me by someone in the office with access to the Laptop, via my wife's email account." Pl. Aff. ¶ 9. Plaintiff testified in his deposition that he downloaded some documents from the laptop to a thumb drive, but only files from his attorney and some "personal stuff." Pl. Dep. 205-07. He denied copying the company's drawings from the laptop to a thumb drive. Id. at 207. He stated that after he left defendant's employment in February 2012, he kept the laptop at his home. Id. at 206. Plaintiff testified that he would get calls from former colleagues "out in the field on jobs they were doing, " and he would turn on the laptop and look at documents in order to answer their questions. Id. at 172-73. Plaintiff testified that no one else had access to the laptop after he left Crownbrook, other than his son-in-law who borrowed the laptop at one point when his own computer stopped working. Id. at 201-03.

B. Use and Disclosure of Defendant's Confidential Information

Defendant further asserts that plaintiff disclosed Crownbrook's confidential information to his new employer at Dairy Conveyor and used the information to harm Crownbrook's business. In support of this allegation, defendant asserts that Crownbrook has lost significant business to Dairy Conveyor since plaintiff's departure.

Krinsky, Crownbrook's president, testified in his deposition that Crownbrook's business had been "affected in a way that has been highly detrimental" since plaintiff left. Dep. of Levi Krinsky ("Krinsky Dep."), Dkt. #73, Ex. 5, at 11. Krinsky stated that, since plaintiff's departure, Crownbrook had been awarded almost no projects in the dairy industry, "which prior was the base of our business." Id. at 15. At his deposition, Krinsky could not identify particular projects for which Crownbrook did not have the opportunity to submit a bid, nor could Krinsky identify a project that plaintiff had initially quoted for Crownbrook and then later got for Dairy Conveyor. Id. at 25-26, 37.

In a later affidavit, Krinsky asserts that Crownbrook has lost "nearly $5 million in sales" since plaintiff left, including "nearly all of the dairy industry business that Defendant had prior to Plaintiff's departure." Krinsky Aff. ¶ 8. Specifically, Krinsky identifies three projects, together accounting for $600, 000 in expected sales: the N8 Conveyor project for Country Pure Foods, the Side Grip Elevator project for Country Pure Foods, and the Half Gallon Corrugated Line project for Garelick Lynn. Id . Krinsky states that plaintiff worked on all three of these projects while he was employed by Crownbrook, that information about these three projects was included in the confidential documents on the laptop, and that Crownbrook "had a ...


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