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Freedom Home Mortgage Corp. v. Platinum Home Mortg. Corp.

United States District Court, N.D. New York

March 30, 2015

FREEDOM HOME MORTGAGE CORP., Plaintiff,
v.
PLATINUM HOME MORTG. CORP.; WILLIAM GIAMBRONE; LEE GROSS; JANE KING; and MICHAEL YOUNG, Defendants.

ERIC A. SAVAGE, ESQ., SARAH E. MOSS, ESQ., LITTLER MENDELSON P.C., New York, New York, Counsel for Plaintiff.

JONATHAN H. STOLER, ESQ., KEVIN J. SMITH, ESQ., ROBERT S. FRIEDMAN, ESQ., TYLER E. BAKER, ESQ., SHEPPARD, MULLIN, RICHTER & HAMPTON LLP, New York, New York, Counsel for Defendants.

DECISION & ORDER

GLENN T. SUDDABY, District Judge.

Currently before the Court, in this breach-of-contract action filed by Freedom Mortgage Corporation ("Plaintiff") against Platinum Home Mortgage Corporation, William Giambrone, Lee Gross, Jane King and Michael Young ("Defendants"), are Defendants' motion for summary judgment with regard to the seven claims in Plaintiff's Amended Complaint (Dkt. No. 129), and Plaintiffs' motion for summary judgment with regard to the five counterclaims in Defendant King's Amended Answer (Dkt. No. 128). For the reasons set forth below, both motions are granted in part and denied in part.

I. RELEVANT BACKGROUND

A. Plaintiff's Claims

Generally, in its Amended Complaint, Plaintiff alleges that, between May of 2011 and February of 2012, Platinum and three of its officers (Defendant Giambrone, Defendant Gross and Michael Linsner) raided eight of Plaintiff's employees (Defendant King, Defendant Young, Karla Kelly, Kimberly Curtin, Wendy Dickson, Lynn Spany, Teresa Shadick and Sharon Jones-Otto), who were involved in a specialized type of mortgage lending known as "Section 203(k)" mortgages (which are intended for purchasers seeking to buy a home in need of rehabilitation), and diverted business from Plaintiff to Platinum. (Dkt. No. 26 [Plf.'s Am. Compl.].)

Generally, based on these allegations, Plaintiff asserts seven claims against Defendants: (1) a claim breach of contract (i.e., a Confidentiality Agreement) against Defendants King and Young; (2) a claim for aiding and abetting that breach of contract against Defendants Platinum, Giambrone and Gross; (3) a claim of misappropriation of trade secrets against Defendants Platinum, King and Young; (4) a claim of breach of fiduciary duties and duty of loyalty against Defendants King and Young; (5) a claim of conversion against Defendants King and Young; (6) a claim of tortious interference with business advantage against Defendants Platinum, King and Young; and (7) a claim of unjust enrichment against Defendants Platinum, King and Young. ( Id.. )

Familiarity with the particular nature of these claims and the factual allegations supporting them is assumed in this Decision and Order, which is intended primarily for the review of the parties.

B. Defendant King's Counterclaims

Generally, in Defendants' Amended Answer to Plaintiff's Amended Complaint,

Defendant King alleges that Plaintiff breached its obligations under its employment agreement with Plaintiff (entered into on or about August 30, 2006), which incorporated the terms of Plaintiff's prior employment agreement with a corporation acquired by Plaintiff in 2006 (Irwin Mortgage Corporation). (Dkt. No. 66.)

Generally, based on these allegations, Defendant King asserts five counterclaims against Plaintiff: (1) a claim for breach of contract (i.e., the Freedom Employment Agreement with King) due to a failure to pay Defendant King her earned annual commissions amounting to no less than $500, 000; (2) a claim for a violation of Article 6 of the New York Labor Law based on a failure to pay Defendant King wages (in the form of commissions); (3) a claim for an accounting as to Plaintiff's profits and losses during Defendant King's employment with Plaintiff; (4) a claim of unjust enrichment due to Plaintiff's retention of the commissions that are due to Defendant King; and (5) a claim of quantum meruit for the commissions owed to Defendant King due to her services. ( Id. )

Familiarity with the particular nature of these counterclaims and the factual allegations supporting them is assumed in this Decision and Order, which (again) is intended primarily for the review of the parties.

C. Relevant Procedural History

On June 17, 2014, the Court issued an Order approved the parties' stipulation dismissing with prejudice Plaintiff's claims against Linsner, Kelly, Curtin, Dickson, Spany, Shadick and Jones-Otto. (Dkt. No. 127.)

On July 7, 2014, both sides filed their motions for summary judgment. (Dkt. Nos. 128, 129.) On July 28, 2014, briefing was completed on the parties' motions. (Dkt. Nos. 132, 133, 139, 140.) On March 11, 2014, oral argument on both motions was heard. (Oral Argument Tr.)

II. GOVERNING LEGAL STANDARD

Under Fed.R.Civ.P. 56, summary judgment is warranted if "the movant shows that there is no genuine dispute as to any material fact and that the movant is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(a). In determining whether a genuine issue of material fact exists, the Court must resolve all ambiguities and draw all reasonable inferences against the moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986). In addition, "[the moving party] bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of the... [record] which it believes demonstrate[s] the absence of any genuine issue of material fact." Celotex v. Catrett, 477 U.S. 317, 323-24 (1986). However, when the moving party has met this initial responsibility, the nonmoving party must come forward with specific facts showing a genuine issue of material fact for trial. Fed.R.Civ.P. 56(a), (c), (e).

A dispute of fact is "genuine" if "the [record] evidence is such that a reasonable jury could return a verdict for the novmoving party." Anderson, 477 U.S. at 248. As a result, "[c]onclusory allegations, conjecture and speculation... are insufficient to create a genuine issue of fact." Kerzer v. Kingly Mfg., 156 F.3d 396, 400 (2d Cir. 1998) [citation omitted]. As the Supreme Court has famously explained, "[The nonmoving party] must do more than simply show that there is some metaphysical doubt as to the material facts" [citations omitted]. Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 585-86 (1986).

As for the materiality requirement, a dispute of fact is "material" if it "might affect the outcome of the suit under the governing law." Anderson, 477 U.S. at 248. "Factual disputes that are irrelevant or unnecessary will not be counted." Id. [citation omitted].

III. ANALYSIS

A. Plaintiff's Claim for Breach of Contract Against King and Young

Generally, Defendants argue that this claim should be dismissed for four reasons. (Dkt. No. 129, Attach. 21; Oral Argument Tr.) First, argue Defendants, King and Young did not disclose confidential material because (a) Plaintiff has no trade secrets and the list of its customers is public information (e.g., being available on a U.S. Department of Housing and Urban Development database), and (b) in any event, there is no evidence (only speculation) that King and Young disclosed (or even took) that material. ( Id. ) Second, argue Defendants, King and Young did not solicit Plaintiff's customers because (a) this part of the Confidentiality Agreements is unenforceable as ambiguous (due to the term "customers, business or patrons") and unreasonable (due to the lack of time restriction placed on the prohibition), and (b) in any event, under New Jersey law, solicitation requires initiation of contact, and there is no evidence (only speculation) that King and Young initiated contact with any of Plaintiff's customers. ( Id. ) Third, argue Defendants, King and Young similarly did not solicit Plaintiff's employees because (a) again, solicitation requires initiation of contact, and (b) there is no evidence that King or Young initiated such contact. ( Id. ) Fourth, argue Defendants, there is no admissible evidence that, as a result of Defendants' conduct, Plaintiff either lost existing customers or lost any of the business of the customers that it shared with Platinum (the "overlap" customers). ( Id. )[1]

Generally, Plaintiff responds that this claim should not be dismissed for four reasons. (Dkt. No. 132, Attach. 1; Oral Argument Tr.) First, argues Plaintiff, setting aside trade secrets, King and Young disclosed confidential material because (a) the material was not publicly known and Plaintiff made efforts to protect it against disclosure (Acree Decl. at ¶ 4; Plf.'s Additional Facts at ¶¶ 12-13), (b) there is evidence that they took and/or disclosed that material, [2] and (c) in the alternative, King and Young must have disclosed the material (for purposes of the inevitabledisclosure doctrine) because they could not service their former clients without using that material. (Dkt. No. 132, Attach. 1; Oral Argument Tr.) Second, argues Plaintiff, King and Young solicited Plaintiff's customers because (a) the Confidentiality Agreements are enforceable in that the meaning of the term "customers, business or patrons" is clear (and if not, it constitutes a question of fact) and the time restriction is stated as being "for a period of 18 months" (and even if not, it may be "blue penciled"), (b) there is admissible evidence that King and Young initiated contact with Plaintiff's correspondent lenders, [3] and (c) even if King and Young did not initiate contact, they breached the restrictive covenant by accepting Plaintiff's customers as their own, which is all that is needed under New York law. ( Id. ) Third, argues Plaintiff, King and Young solicited Plaintiff's employees by encouraging them to leave Plaintiff for Platinum in breach of their confidentiality agreements.[4] ( Id. ) Fourth, argues Plaintiff, it has adduced admissible evidence that, as a result of Defendants' conduct, Plaintiff lost some of the new business of eight customers that it shared with Platinum (the "overlap" customers) (Plf.'s Additional Facts at ¶¶ 6-9). (Dkt. No. 132, Attach. 1; Oral Argument Tr.)

Generally, Defendants reply that Plaintiff's arguments should be rejected for three reasons. (Dkt. No. 140, Attach. 3; Oral Argument Tr.) First, argue Defendants, no confidential information was disclosed by Defendants, because (a) there is no evidence that they took or disclosed the material, [5] and (b) the "inevitable disclosure doctrine" applies only to motions for a preliminary injunction, not motions for summary judgment. ( Id. ) Second, argue Defendants, King and Young did not solicit Plaintiff's customers, because (a) there is no admissible evidence that Young solicited Plaintiff's customers, (b) Plaintiff admits that King did not initiate contact with Plaintiff's customers (Plf.'s Rule 7.1 Response at ¶¶ 206-212), and relies on New York law, rather than the New Jersey law that governs the Confidentiality Agreement, and (c) Plaintiff fails to cite any evidence that King solicited customers (Plf.'s Rule 7.1 Response at ¶¶ 116-120, 160-161, 165). (Dkt. No. 140, Attach. 3; Oral Argument Tr.) Third, argue Defendants, King and Young did not solicit Plaintiff's employees, because (a) Plaintiff fails to cite admissible evidence to controvert Defendants' evidence that neither King nor Young solicited any of Plaintiff's employees (Plf.'s Rule 7.1 Response ¶¶ 156-159), and (b) indeed, Plaintiff admits "that the Freedom employees who left decided to move to Platinum without duress or coercion" (Plf.'s Rule 7.1 Response ¶ 158). (Dkt. No. 140, Attach. 3; Oral Argument Tr.)

After carefully considering the matter, the Court denies this portion of Defendants' motion for the reasons stated by Plaintiff in its papers and oral argument. To those reasons, the Court adds five points.

First, the Court finds that a "blue penciling" of the time restrictions on the covenants not to solicit is appropriate given (a) the structure of the paragraph in which the covenants appear, and (b) the reasonable duration of the time restriction.

Second, the Court is inclined to agree with Defendants regarding the inapplicability of the inevitable-disclosure doctrine. However, because the Court construes Plaintiff's reliance on that doctrine as an alternative argument for its disclosure claim, the Court's rejection of that doctrine does not change the Court's ruling.

Third, the Court is also inclined to agree with Defendants that there is a lack of evidence that (a) Young breached the covenant not to solicit customers and (b) Plaintiff's pricing information was confidential. However, given the evidence that he otherwise breached the Confidentiality Agreement, the Court will address these allegations at trial, through a motion to preclude and/or jury instruction.

Fourth, regardless of whether King initiated contact with Plaintiff's customers so as to "solicit" them, evidence exists that King "directly or indirectly... attempt[ed] to... divert or take away" Plaintiff's "customers, business or patrons, " which is prohibited by the Confidentiality Agreements. For example, King testified in her deposition that she used Commergence as a way to have a "conversation" with a lender before it applied to Platinum.

Fifth, to a large extent, the Court is inclined to agree with the hearsay issue identified by Defendants regarding Patterson's deposition testimony. However, the Court finds that enough of that testimony appears to be admissible under Fed.R.Evid. 803(1) or (3) to create a genuine dispute of material fact, especially in light of King's email to Gross and Giambrone dated August 30, 2011.

B. Plaintiff's Claim for Aiding and Abetting a Breach of Contract Against Platinum, Giambrone and Gross

Generally, Defendants argue that this claim should be dismissed for two reasons. (Dkt. No. 129, Attach. 21; Oral Argument Tr.) First, argue Defendants, to the extent either New York or Illinois law governs this claim, no such claim exists with regard to nonparties to a contract. ( Id. )[6] Second, argue Defendants, to the extent New Jersey law governs this claim, there is no admissible evidence that Platinum, Giambrone or Gross knowingly and substantially participated in the breach. ( Id. )

Generally, Plaintiff responds that this claim should not be dismissed for two reasons. (Dkt. No. 132, Attach. 1; Oral Argument Tr.) First, argues Plaintiff, New Jersey law governs this claim because Plaintiff suffered damages from Defendants' torts in New Jersey. ( Id. ) Second, argues Plaintiff, there is admissible evidence that ...


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