United States District Court, S.D. New York
UNI-WORLD CAPITAL L.P., UNI-WORLD CAPITAL AIV, L.P, FRAGRANCE HOLDINGS, LLC, and FRAGRANCE ACQUISITIONS, LLC, Plaintiffs,
PREFERRED FRAGRANCE, INC., HARRY POLATSEK, EZRIEL POLATSEK, SARAH POLATSEK, SOLOMON TYRNAUER, BENT PHILIPSON, BENJAMIN LANDA, and JOSEPH RUBINSTEIN, Defendants.
OPINION & ORDER
PAUL A. ENGELMAYER, District Judge.
This lawsuit involves claims arising out of plaintiffs' acquisition of an imitation-fragrance business. Plaintiffs bring, in essence, two sets of claims. First, they claim that they purchased that business based on fraudulent misrepresentations by defendants, in violation of § 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act"), 15 U.S.C. § 78j(b). Second, plaintiffs claim that after they had acquired defendants' business, defendants competed against them in violation of various provisions of New York law.
Discovery is ongoing. Pending before the Court is a motion by one defendant, Abraham Polatsek ("Abraham"),  to dismiss the single claim against him, for unjust enrichment. For the following reasons, Abraham's motion is granted.
The Court assumes familiarity with the facts of this case, including those set out in the Court's four previous written decisions. See Dkt. 58 ("March 6, 2014 Opinion"); Dkt. 156 ("July 10, 2014 Opinion"); Dkt. 166 ("July 21, 2014 Opinion"); Dkt. 181 ("August 8, 2014 Opinion"). The Court here sets forth only those facts most germane to the pending motion.
A. Facts Alleged in the Second Amended Complaint
Preferred Fragrance, Inc. is in the business of selling "designer-inspired fragrance products, " i.e., imitation fragrances, to retail chain stores such as Family Dollar and CVS. SAC ¶ 23. In late 2011, Uni-World Capital, L.P. and Uni-World Capital AIV, L.P. (collectively, "Uni-World")-acting through Fragrance Acquisitions, LLC and Fragrance Holdings, LLC, two entities that Uni-World had created-acquired Preferred Fragrance for $24.5 million. Id. ¶¶ 29, 31-32. The Asset Purchase Agreement ("APA") contained a non-compete covenant and a confidentiality provision. Id. ¶¶ 43-47.
After the acquisition, Ezriel Polatsek ("Ezriel"), who had been the CEO of Preferred Fragrance, entered into an employment agreement to become president and chief operating officer of Fragrance Acquisitions. Id. ¶¶ 3, 48. As part of this agreement, Ezriel signed another non-compete covenant and a confidentiality provision. Id. ¶¶ 54-55. Beginning in April 2013, however, Ezriel breached both covenants by participating in two rival ventures, Ouleaf Inc. and Exceed LLC. Id. ¶¶ 4, 10, 100-50. Specifically, plaintiffs allege that Ouleaf was formed in April 2013 to "misappropriate [Fragrance Acquisitions'] products and sell exact replicas to [their] customers." Id. ¶ 102. Ouleaf was "able to infiltrate [Fragrance Acquisitions'] customer base so swiftly and significantly because of Ezriel Polatsek's knowledge of and ties to the industry." Id. ¶ 136. As a result of competition from Ouleaf, plaintiffs lost business with Dollar General and other customers. Id. ¶¶ 137-39. Exceed, for its part, is a company that sells items ranging from toys to automotive supplies. Id. ¶ 140. In August 2013, Exceed, under Ezriel's leadership, began marketing, producing, and distributing a new fragrance brand-a business opportunity Ezriel could have brought to Fragrance Acquisitions. Id. ¶ 146-50.
Abraham, Ezriel's brother, was an employee of Preferred Fragrance and is now a salesperson for Ouleaf. Id. ¶ 17. He is also employed by Exceed in some capacity. Id. ¶ 105. Abraham was involved in Ouleaf's formation, id. ¶ 103, and has "held himself out as Ouleaf's moving force, " id. ¶ 104. Plaintiffs allege, however, that Abraham is merely a puppet for Ezriel: Although Abraham is the public face of Ouleaf, Ezriel "run[s] Ouleaf's sales and operations from behind the scenes." Id. ¶ 104. And whereas Abraham "has very little sales experience" and "has been unsuccessful, " Ezriel "is a seasoned, successful salesman, " who "has admitted under oath to introducing Ouleaf to at least one customer of [Fragrance Acquisitions] for the purpose of trying to sell Ouleaf's products." Id. ¶ 105. By assisting Ezriel's wrongdoing, including by selling infringing products and using Fragrance Acquisitions' proprietary information, Abraham received profits for himself. Id. ¶¶ 213-16.
B. Procedural History
On October 11, 2013, plaintiffs filed the original Complaint in this action. Dkt. 1. It alleged one claim under federal law, specifically, a violation of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 (the "10b-5 claim"); it also alleged state-law claims for common-law fraud and breach of contract, sought declaratory judgments that the termination of Ezriel's employment had been for cause and that the non-complete clause is valid and enforceable, and sought attorneys' fees. Id.
At the time this action was commenced, Ezriel and Preferred Fragrance had a declaratory judgment action pending in New York State Court. See Preferred Fragrance, Inc., et al. v. Fragrance Acquisitions, LLC, et al., Index No. 505426/2013 (N.Y. Sup.Ct. filed Sept. 13, 2013). Plaintiffs therefore moved to stay or dismiss the state-court action, Dkt. 43, at 7-8; defendants moved to stay or dismiss this case, Dkt. 23-25, 27-29. Defendants argued that the Court should abstain from hearing this case under Colorado River Water Conservation District v. United States, 424 U.S. 800 (1976) and that plaintiffs' sole federal claim, the 10b-5 claim, was deficiently pled. See Dkt. 24, 28. On January 7, 2014, plaintiffs filed the First Amended Complaint, which attempted to cure the asserted defect in the 10b-5 claim. See Dkt. 32 ("FAC") ¶ 130. On January 24, 2014, defendants renewed their motions to stay or dismiss this action in favor of the state-court action. Dkt. 34-39. On March 6, 2014, following briefing and argument, see Dkt. 43-44, 47-48, 56, the Court ruled that it would not abstain from exercising jurisdiction. Dkt. 58.
On March 3, 2014, plaintiffs applied for a temporary restraining order and preliminary injunction to prevent Ezriel from violating the non-compete agreements. See Dkt. 52. On March 14, 2014, after briefing, the Court denied the motion without prejudice. See Dkt. 68, 101. On May 1, 2014, following expedited discovery, plaintiffs renewed their motion. Dkt. 113-15. On July 10, 2014-after briefing, argument, and three days of evidentiary hearings-the Court issued a preliminary injunction, based on detailed fact-finding, enjoining Ezriel from violating his non-compete agreements. Dkt. 156. On July 18, 2014, Ezriel moved under Federal Rule of Civil Procedure 60(b) to be relieved of the preliminary injunction against him. Dkt. 158-60. On August 8, 2014, the Court denied that motion. Dkt. 181, at 21-22.
On June 16, 2014, plaintiffs moved for leave to file a Second Amended Complaint ("SAC") based on additional facts they had learned during discovery. Dkt. 143-45. Plaintiffs alleged, in essence, that Ezriel and proposed additional defendants had devised a scheme to copy Fragrance Acquisitions' business model and to sell similar imitation fragrance products to its customers. See Dkt. 145, Ex. 1 ("Proposed SAC"). Based on these facts, plaintiffs proposed to add 11 causes of action, including fraud, copyright infringement, trade dress infringement, unfair competition, tortious interference with business relationships, breach of contract, breach of fiduciary duty and aiding and abetting the same, unjust enrichment, and civil conspiracy. See ...