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Ehrlich v. Global

United States District Court, N.D. New York

June 19, 2017

MARC S. EHRLICH, Trustee for Hoffmans Trade Group LLC, Appellant,
MCLANE GLOBAL, et al., Appellees.


          Lawrence E. Kahn U.S. District Judge.


         Appellant Marc S. Ehrlich, acting as trustee for Hoffmans Trade Group LLC (“HTG”), appeals a decision by U.S. Bankruptcy Judge Robert E. Littlefield, Jr., granting summary judgment for Appellees McLane Global, Jordan Laccetti, and Michael Coakley (“M. Coakley”) and dismissing the Adversary Complaint. Dkt. Nos. 1 (“Notice of Appeal”), 5-8 (“Bankruptcy Judgment”), 6-1 (“Bankruptcy Order”), 4 (“Designation of Record on Appeal”), 8 (“Memorandum”). Appellees filed a Response, Dkt. No. 12 (“Response”), and the Trustee submitted a Reply, Dkt. No. 14 (“Reply”). For the reasons that follow, the Bankruptcy Order is affirmed.


         HTG is a New York limited liability company whose sole member and owner is Gael Coakley (“G. Coakley”), M. Coakley's father and a resident of Latham, New York. Dkt. No. 4-9, at 10-21 (“Trustee's Statement of Material Facts”)[1] ¶¶ 2-3; Dkt. No. 4-6, at 56-66 (“Appellees' Statement of Material Facts”) ¶¶ 3-4. McLane is a Texas corporation headquartered in Houston. Trustee's SMF ¶ 4; Appellees' SMF ¶ 5. Laccetti and M. Coakley previously worked for HTG, Trustee's SMF ¶¶ 28, 32; Appellees' SMF ¶¶ 27, 40, and began working for McLane in May 2013, Trustee's SMF ¶ 46; Dkt. No. 4-12 (“Appellees' Response Statement of Material Facts”) ¶ 46. HTG entered bankruptcy on June 28, 2013, and Ehrlich was appointed Chapter 7 Trustee on August 2, 2013. Trustee's SMF ¶ 1; Appellees' SMF ¶¶ 1-2.

         HTG was primarily engaged in the business of selling non-perishable food products to food banks throughout the United States. Trustee's SMF ¶ 15; Appellees' SMF ¶ 12. The company was a “food broker, ” meaning it purchased canned food from suppliers which it then resold to food banks. Trustee's SMF ¶ 17; Appellees' SMF ¶ 14. HTG maintained customer information in electronic and physical files in its Latham office. Trustee's SMF ¶¶ 20-21; Appellees' SMF ¶¶ 20-21. HTG's customer information included contact information for food bank clients, as well as order history and preferences, pricing information, annual consumption data, and rates paid by customers. Trustee's SMF ¶ 36; Appellees' Response SMF ¶ 36; Bankr. Order at 8-9.[2] In general, food banks' purchasing habits are unpredictable because their need for particular types of food items changes frequently. Appellees' SMF ¶ 26.

         During the period relevant to this action, HTG had up to five full time employees, including two salespeople. Id. ¶ 16. Laccetti and M. Coakley began working for HTG in 2010. Trustee's SMF ¶¶ 28, 32; Appellees' SMF ¶¶ 27, 40. Both Laccetti and M. Coakley were “at will” employees of HTG, and not subject to any employment, non-compete, restrictive covenant, or non-solicitation agreements. Trustee's SMF ¶¶ 29, 34; Appellees' SMF ¶¶ 28, 45. Laccetti and M. Coakley's duties primarily consisted of selling food products to HTG's food bank customers. Trustee's SMF ¶¶ 31, 33; Appellees' SMF ¶¶ 30, 43. In this capacity, they maintained frequent contact with HTG's clients, were aware of food banks' purchasing practices, and had access to HTG's customer information. Trustee's SMF ¶¶ 33, 35-36; Appellees' SMF ¶¶ 34, 43.

         Before 2010, HTG did not sell directly to food banks. Appellees' SMF ¶¶ 31-32. Because HTG did not have strong relationships with food bank customers, Laccetti identified potential food bank clients through public online sources. Id. ¶¶ 32-33. Laccetti obtained contact information for key food bank employees, as well as purchasing information, through public websites. Id. ¶¶ 33-34.

         Like HTG, McLane's Hunger Relief Distribution Network (“HRDN”) division is a food broker, and sells food products to food banks nationwide. Id. ¶ 23. In 2012 and early 2013, McLane's HRDN division had only one or two employees selling to food banks. Id. ¶ 25. McLane was also one of HTG's suppliers. Id. ¶ 50. It sold canned food products to HTG, which then resold them to food bank customers. Id.

         In 2012 and 2013, HTG's accounts receivables with McLane began to grow. Id. ¶ 51. When HTG filed for bankruptcy in June 2013, it owed McLane $234, 718.11 in unpaid invoices. Id. ¶ 52. In early 2013, Todd Frease, McLane's Chief Financial Officer, traveled to HTG's office to discuss the unpaid invoices, and other topics. Id. ¶ 54. During this meeting, Frease and G. Coakley discussed the possibility of McLane acquiring HTG. Trustee's SMF ¶ 38; Appellees' SMF ¶ 53. G. Coakley proposed an acquisition price of $1, 500, 000.00, Trustee's SMF ¶ 39;[3]Appellees' SMF ¶ 58, which McLane rejected, Trustee's SMF ¶ 40; Appellees' SMF ¶ 61, 63. As part of the negotiations, McLane offered to hire Laccetti and M. Coakley as employees and to engage G. Coakley as a consultant. Trustee's SMF ¶ 43; Appellees' SMF ¶ 61.[4] Ultimately, HTG and McLane were unable to reach an agreement, and McLane withdrew its offer when it learned that HTG was significantly in debt. Appellees' SMF ¶ 63. Unbeknownst to McLane at this time, G. Coakley was engaged in a fraudulent scheme of artificially inflating HTG's revenue, which would eventually lead to his arrest and prosecution. Id. ¶ 57.

         On or about April 29, 2013, G. Coakley entered a rehabilitation facility for alcohol abuse. Trustee's SMF ¶ 45; Appellees' SMF ¶ 64. Upon entering rehabilitation, G. Coakley stopped operating HTG, and the company's computers and files were delivered to a family attorney. Appellees' SMF ¶¶ 67, 69. Following G. Coakley's admission to rehabilitation, Laccetti and M. Coakley contacted Frease to notify him that G. Coakley was leaving the business and they were seeking employment. Id. ¶ 71. Frease offered them positions at McLane on the condition that they resign from HTG, which they promptly did. Id. ¶¶ 72-73. On May 6, 2013, Laccetti and M. Coakley began working for McLane in an office adjacent to HTG's office. Id. ¶ 75.[5]

         HTG entered bankruptcy on June 28, 2013. Trustee's SMF ¶ 1; Appellees' SMF ¶ 1. On January 15, 2014, McLane filed a proof of claim, seeking $234, 718.11. Trustee's SMF ¶ 12. On or about July 31, 2015, the Trustee filed an Adversary Complaint against Appellees, “seeking, among other things, monetary damages for causes of action related to the misappropriation of trade secrets.” Id. ¶ 7; Appellees' SMF ¶ 8.

         The Trustee and Appellees contemporaneously moved for summary judgment. Bankr. Order at 3. On December 22, 2016, the Bankruptcy Court denied the Trustee's motion, granted Appellees' motion, and dismissed the Adversary Complaint. Id. at 18. On January 19, 2017, the Trustee filed a timely notice of appeal of Judge Littlefield's ruling. Notice of Appeal.


         On appeal, a district court reviews a bankruptcy court's legal conclusions de novo. County of Clinton v. Warehouse at Van Buren St., Inc., No. 12-CV-1636, 2013 WL 2145656, at *1 (N.D.N.Y. May 15, 2013) (citing R2 Invs., LDC v. Charter Commc'ns, Inc., 691 F.3d 476, 483 (2d Cir. 2012)). Here, “there are no bankruptcy court findings of fact to which deference should be accorded, because ‘[o]n a motion for summary judgment the court cannot try issues of fact; it can only determine whether there are issues of fact to be tried.'” In re T.R. Acquisition Corp., 309 B.R. 830, 835 (S.D.N.Y. 2003) (alteration in original) (quoting Heyman v. Commerce & Indus. Ins. Co., 524 F.2d 1317, 1320 (2d Cir. 1975)). Thus, a district court reviews a bankruptcy court's grant of summary judgment de novo. Verna v. U.S. Bank Nat'l Ass'n, No. 15-CV-1127, 2016 WL 5107115, at *2 (N.D.N.Y. Sept. 20, 2016) (Kahn, J.) (citing Schackner v. Breslin Realty Dev. Corp., No. 11-CV-2734, 2012 WL 32624, at *3 (E.D.N.Y. Jan. 5, 2012)). Following review, a district court “may affirm, modify, or reverse a bankruptcy judge's judgment, order, or decree or remand with instructions for further proceedings.” Id.

         Rule 56 of the Federal Rules of Civil Procedure governs summary judgment motions in adversary bankruptcy proceedings. Fed.R.Bankr.P. 7056. Rule 56 instructs courts to grant summary judgment if “there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). Although “[f]actual disputes that are irrelevant or unnecessary” will not preclude summary judgment, “summary judgment will not lie if . . . the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986); see also Taggart v. Time, Inc., 924 F.2d 43, 46 (2d Cir. 1991) (“Only when no reasonable trier of fact could find in favor of the nonmoving party should summary judgment be granted.”).

         The party seeking summary judgment bears the burden of informing the court of the basis for the motion and of identifying those portions of the record that the moving party claims will demonstrate the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Similarly, a party is entitled to summary judgment when the nonmoving party carries the ultimate burden of proof and has failed “to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial.” Id. at 322.

         In attempting to repel a motion for summary judgment after the moving party has met its initial burden, the nonmoving party “must do more than simply show that there is some metaphysical doubt as to the material facts.” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). Likewise, it is insufficient for a party opposing summary judgment “merely to assert a conclusion without supplying supporting arguments or facts.” Bell South Telecomms., Inc. v. W.R. Grace & Co., 77 F.3d 603, 615 (2d Cir. 1996) (quoting SEC v. Research Automation Corp., 585 F.2d 31, 33 (2d Cir. 1978)). At the same time, a court must resolve all ambiguities and draw all reasonable inferences in favor of the nonmoving party. Reeves v. Sanderson Plumbing Prods., Inc., 530 U.S. 133, 150 (2000); Nora Beverages, Inc. v. Perrier Grp. of Am., Inc., 164 F.3d 736, 742 (2d Cir. 1998). Thus, a court's duty in reviewing a motion for summary judgment is “carefully limited” to identifying genuine disputes of fact, “not to deciding them.” Gallo v. Prudential Residential Servs., Ltd. P'ship, 22 F.3d 1219, 1224 (2d Cir. 1994).


         The Adversary Complaint states eleven causes of action against Appellees: equitable subordination, misappropriation of trade secrets, breach of the duty of loyalty, unfair competition, unjust enrichment, turnover and accounting, conversion, and four counts of fraudulent transfer under federal and New York law. Dkt. 4-1 (“Adversary Complaint”) ¶¶ 52-120. Each of the eleven claims is premised on the allegation that McLane improperly acquired HTG's customer information, [6] which he describes as a trade secret under New York law. Mem. at 6, 17.[7] Therefore, a failure to establish that Appellees improperly obtained HTG's customer information from HTG is fatal to each of the Trustee's claims. Appellees are likewise entitled to summary judgment on the misappropriation count if the Trustee fails to present evidence that would allow a reasonable jury to find that HTG's customer information constituted a trade secret.

         The Bankruptcy Court concluded “as a matter of fact” that HTG's customer information was not a trade secret under New York law and therefore granted Appellees's motion for summary judgment. Bankr. Order at 18. The court held that its factual finding foreclosed the ten additional claims because the Trustee “admitted at oral argument that each of his causes of action are premised upon an alleged misappropriation of trade secrets.” Id. at 4. The Trustee disputes the court's recollection that he made such an admission. Mem. at 15-16.[8] The court also found that the Trustee presented “no evidence that [confidential customer information] was conveyed to McLane.” Bankr. Order at 15.

         The Trustee argues the Bankruptcy Court applied an incorrect summary judgment standard because it did not construe the facts in the light most favorable to the Trustee and failed to draw all reasonable inferences in the Trustee's favor. Mem. at 12. The Trustee further argues that the court improperly held that the failure to demonstrate a trade secret doomed its remaining ten claims. Id. at 16. As the Bankruptcy Court correctly noted, “whether the customer [information] and opportunity buy are trade secrets is a question of fact for the determination of the trier of fact.” Bankr. Order at 10. The court nonetheless held that, “[d]rawing all permissible factual inferences in favor of the Trustee, [it could not] conclude as a matter of fact that the customer [information] and opportunity buy process are trade secrets protectable under New York State Law.” Id. at 18.

         While the Bankruptcy Court appears to have made a factual finding when it concluded “as a matter of fact” that HTG's customer information was not a trade secret under New York law, Bankr. Order at 18, the court correctly granted summary judgment for Appellees. As the Bankruptcy Court explained, the Trustee presented “no evidence” that HTG's customer information was a trade secret, or that it was conveyed to McLane. Id. at 14-16. Contrary to the Trustee's contention, the court did “draw[] all permissible factual inferences in favor of the Trustee.” Id. at 18. But drawing inferences in the Trustee's favor does not mean inventing ...

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