Opinion
21719/02.
Decided October 7, 2004.
DANIEL S. RONAN, ESQ., John W. Griffin, Scarsdale, NY, Attorney for Defendant.
BONDI IOVINO, ESQS., Mineola, NY, Attorneys for Plaintiff.
GALLAGHER, HARNETT LAGALANTE LLP, New York, NY, Attorneys for John M. Glover Agency.
Upon the foregoing papers, it is ORDERED that this motion is decided as follows:
Defendant John W. Griffin ("Griffin") was employed by plaintiff Milbrandt Co., Inc. ("Milbrandt") until he tendered his resignation from that insurance agency by letter dated October 4, 2002. Immediately thereafter, Griffin commenced employment with the John M. Glover Agency ("Glover"). While at Milbrandt, Griffin had allegedly executed an employment agreement dated December 26, 1995 which contains, in part, a non-competition agreement in the event of the employee's termination of employment voluntarily or involuntarily, with or without cause.
Plaintiff's complaint alleges causes of action against Griffin for breach of an employment contract, breach of fiduciary duties as a shareholder and as an employee, tortious interference with contracts, and defamation. Each claim seeks injunctive relief, compensatory damages, and an accounting of commissions and premiums earned on plaintiff's accounts. With the exception of the first cause of action, the claims also seek punitive damages. The sixth cause of action is for an injunction.
Defendant Griffin moves herein for summary judgment dismissing the complaint as asserted against him. The proponent of a summary judgment motion must make a prima facie showing of entitlement to judgment as a matter of law, and the party opposing the motion must demonstrate by admissible evidence the existence of a triable issue of fact ( Alvarez v. Prospect Hosp., 68 NY2d 320; Friends of Animals v. Associated Fur Mfrs., 46 NY2d 1065). Mere conclusions or unsubstantiated allegations or assertions are insufficient to defeat a motion for summary judgment ( Zuckerman v. City of New York, 49 NY2d 557).
By order of this Court dated August 16, 2004, defendant John M. Glover Agency was granted summary judgment dismissing all claims against it (the fourth cause of action and the fifth and sixth causes of action as asserted against Glover).
Plaintiff's first cause of action alleges that Griffin breached his employment agreement by, among other things, soliciting customers of plaintiff. A restrictive covenant in an employment agreement will only be enforced to the extent that it is reasonable in time and area, necessary to protect the employer's legitimate interests, not harmful to the general public, and not unreasonably burdensome to the employee ( BDO Seidman v. Hirshberg, 93 NY2d 382; Reed, Roberts Assocs. v. Strauman, 40 NY2d 303). An employer has "a legitimate interest in preventing former employees from exploiting or appropriating the goodwill of a client or customer, which had been created and maintained at the employer's expense, to the employer's competitive detriment" ( BDO Seidman v. Hirshberg, supra at 392; see also, Milbrandt Co. v. Griffin, 1 AD3d 327; IVI Envt. v. McGovern, 269 AD2d 497). Under such circumstances, a restrictive covenant may prevent the competitive use of client relationships that the employer assisted the employee in developing through the employee's performance of services in the course of employment ( see BDO Seidman v. Hirshberg, supra; Scott, Stackrow Co., C.P.A.'s, P.C. v. Skavina, 9 AD3d 805). A covenant will be unreasonable and therefore unenforceable, however, if it seeks to bar the employee from soliciting clients with whom the employee never acquired a relationship through his or her employment or if the covenant extends to personal clients of the employee who came to the employer solely to avail themselves of the employee's services and only as a result of his or her own independent recruitment efforts, which the employer neither subsidized nor otherwise financially supported as part of a program of client development ( see BDO Seidman v. Hirshberg, supra at 393; Scott, Stackrow Co., C.P.A.'s, P.C. v. Skavina, supra). "Because the goodwill of those clients was not acquired through the expenditure of [the employer's] resources, the firm has no legitimate interest in preventing defendant from competing for their patronage" ( BDO Seidman v. Hirshberg, supra).
In the instant case, defendant contends that plaintiff had no legitimate business interest to protect because each of the customers whom plaintiff lists as having left its agency was "produced" by Griffin rather than produced by Milbrandt and then assigned to him. Defendant states that the customers were either brought by him to Milbrandt when he became employed there or were developed by him from his own efforts and maintained at his own expense. In opposition, plaintiff claims that defendant serviced these customers on behalf of Milbrandt and that Milbrandt provided defendant with substantial support in maintaining these customers. Triable issues of fact exist as to whether plaintiff had a legitimate business interest to protect with respect to the customers who allegedly left its agency to follow Griffin. These issues include whether the customers came to the agency solely to avail themselves of defendant's services and were developed only as a result of defendant's own independent efforts, which were neither subsidized nor otherwise financially supported by the agency, or whether the good will was generated and maintained at the employer's expense. Moreover, it cannot be determined on these papers that, as a matter of law, plaintiff will not be able to prove damages, if any, at trial. Accordingly, summary judgment is denied on the first cause of action.
It should be noted that Griffin does not directly address the other factors relating to the reasonableness of the restrictive covenant, i.e. the time and geographic area, and such issues are not addressed herein.
Plaintiff's second cause of action alleging that defendant breached his fiduciary duty as a shareholder by usurping corporate assets or opportunities must be dismissed. Griffin, a shareholder through his de minimus participation in the Employee Stock Ownership Plan ("ESOP"), was neither an officer nor a director of the corporate employer and had no fiduciary obligations due to any shareholder status ( see e.g. Laro Maintenance Corp. v. Culkin, 267 AD2d 431).
The third cause of action alleges that Griffin breached his fiduciary duty to act in the interests of the employer by soliciting plaintiff's clients and using plaintiff's resources to do so. An employee is at all times bound to exercise the utmost good faith and loyalty in the performance of his or her duties ( W. Elec. Co. v. Brenner, 41 NY2d 291; Laro Maintenance Corp. v. Culkin, supra; Krause v. Gelman, 181 AD2d 424). One who owes a duty of fidelity to a principal and who is faithless in the performance of services is generally not entitled to recover compensation ( Feiger v. Iral Jewelry, Ltd., 41 NY2d 928; Royal Carbo Corp. v. Flameguard, Inc., 229 AD2d 430). Moreover, a principal is entitled to recover from the unfaithful agent any compensation paid by the principal ( see, Maritime Fish Prods. v. World-Wide Fish Prods., 100 AD2d 81). It does not make any difference that the services were beneficial to the principal, or that the principal suffered no provable damage as a result of the breach of fidelity by the agent ( Feiger v. Iral Jewelry, Ltd., supra). Here, Griffin contends that he did not solicit any customers before he left Milbrandt. Nonetheless, plaintiff has attached to its opposition copies of almost identical broker of record letters, signed by customers serviced by Griffin, which reflect a desire on the part of the insured to change agencies to Glover. Several of these letters are dated prior to Griffin's leaving Milbrandt and request the change as of October 1, 2002. (Griffin's letter of resignation is dated October 4, 2002.) There are triable issues of fact, precluding summary judgment, including whether Griffin solicited Milbrandt's clients to change agencies while he was employed there and breached his duty of good faith and loyalty to his former employer.
Tortious interference with contract, plaintiff's fifth cause of action, requires the existence of a valid contract between the plaintiff and a third party, the defendant's knowledge of that contract, the defendant's intentional procurement of the third-party's breach of the contract without justification, actual breach of the contract, and damages resulting therefrom ( Lama Holding Co. v. Smith Barney, 88 NY2d 413; Kronos, Inc. v. AVX Corp., 81 NY2d 90; M.J. K. Co. v. Matthew Bender Co., 220 AD2d 488). This cause of action is not directly addressed by either party and, to the extent that it is, counsel rely on their statements with regard to other claims. Nonetheless, this issue has already been determined by this Court in its prior decision dated August 16, 2004 granting summary judgment to former co-defendant Glover. In that decision, as to Milbrandt's brokerage relationship with Griffin's customers, this Court found that even assuming an implied contract of agency existed between plaintiff and its customers (the insureds), any agency relationship was terminable at will by the insured. Agreements that are terminable at will are classified as prospective contractual relations and thus cannot support a claim for tortious interference with existing contracts ( Guard-Life Corp. v. Parker Hardware Mfg. Corp., 50 NY2d 183; Waste Servs. v. Jamaica Ash Rubbish Removal Co., 262 AD2d 401; Am. Preferred Prescription v. Health Mgt., 252 AD2d 414). That determination is now law of the case, and the fifth cause of action against Griffin for tortious interference with contract is dismissed.
Defendant also seeks dismissal of plaintiff's defamation cause of action, which is based on two separate claims. Plaintiff's slander claim arises out of statements allegedly made by Griffin during a telephone conversation that he had with a Milbrandt employee, Ernie Aloi, who related the conversation to John Cofini, a principal of Milbrandt, who related the conversation in a memo to Robert Antoinette, president of Milbrandt. The complaint alleges that Griffin uttered to Aloi that Milbrandt was in perilous financial condition and that he should terminate his business relationship with Milbrandt. The complaint further alleges that Griffin advised Aloi that he (Griffin) had spoken with several ex-Milbrandt employees and that they had not received their annual ESOP payments because Milbrandt did not have the funds to pay same.
CPLR 3016(a) requires that, in an action for libel or slander, the particular words complained of be set forth in the complaint. Judicial interpretation of this section requires that the defamatory words be set forth verbatim, and this requirement is strictly enforced ( Erlitz v. Segal, Liling Erlitz, 142 AD2d 710; Gardner v. Alexander Rent-A-Car, 28 AD2d 667). Here, plaintiff's statement of the defamatory words merely paraphrases the words allegedly spoken, contrary to CPLR 3016(a), and therefore cannot support a slander claim ( see Rabushka v. Marks, 256 AD2d 562); Erlitz v. Segal, Liling Erlitz, supra; Conley v. Gravitt, 133 AD2d 966).
Furthermore, although defendant admits speaking with Aloi, defendant denies making the statements attributed to him during the telephone conversation. In opposition, plaintiff submits the hearsay affidavit of Mr. Antoinette, who has no personal knowledge of the actual words uttered and whose knowledge is based on a memo to him from Mr. Cofini which essentially paraphrases the alleged conversation. The hearsay evidence offered by plaintiff to defeat defendant's motion is not supported by an individual present during the slander and relates to a listener's after-the-fact characterization of the slander, rather than the slanderous utterance itself. No affidavit has been submitted from Mr. Aloi, to whom the words were allegedly spoken, or even from Mr. Cofini, and plaintiff has provided no excuse for its failure to do so. When challenged on a motion for summary judgment, a plaintiff may not rely solely on hearsay or conclusory allegations that the slanderous statement was made ( see Snyder v. Sony Music Entertainment, 252 AD2d 294; Schwartz v. Society of the New York Hosp., 232 AD2d 212; Barber v. Daly, 185 AD2d 567). As such, plaintiff's evidence is insufficient to defeat this portion of defendant's motion ( see, Rabushka v. Marks, 256 AD2d 562; Snyder v. Sony Music Entertainment, supra). For the above reasons, the defamation cause of action based on the alleged conversation must be dismissed.
The second part of plaintiff's defamation claim is premised on Griffin's correspondences with certain governmental agencies regarding Milbrandt's alleged misuse of its ESOP. A qualified privilege is held to attach "when a person makes a bona fide communication upon a subject in which he has an interest, or a legal, moral, or societal duty to speak, and the communication is made to a person having a corresponding interest or duty" ( Garson v. Hendlin, 141 AD2d 55, 60; Santavicca v. City of Yonkers, 132 AD2d 656). The privilege is not absolute, however, and in order to defeat the privilege, plaintiff has the burden of demonstrating by evidentiary facts that the alleged defamatory statements were made with malice, that is, with knowledge of its falsity or reckless disregard of whether it was false or not, or with spite or ill will ( Liberman v. Gelstein, 80 NY2d 429; Toker v. Pollak, 44 NY2d 211). Here, defendant's alleged defamatory statements were made in letters to the United States Department of Labor, the New York State Insurance Department, and the New York State Banking Department seeking inquiries regarding Milbrandt's ESOP Trust or an opinion regarding interest charges based on defendant's stated concerns with these matters. As such, defendant's communications were protected by a qualified privilege, which has not been overcome by plaintiff's conclusory allegations of malice ( see Liberman v. Gelstein, supra; Trachtman v. Empire Blue Cross and Blue Shield, 251 AD2d 322). Defendant is entitled to dismissal of this defamation claim as well.
Accordingly, summary judgment is granted as to the second, fifth and seventh causes of action, and they are dismissed. Summary judgment is denied as to the first and third causes of action as well as the sixth cause of action seeking a permanent injunction against Griffin based on the same set of facts. These remaining causes of action are severed.
The foregoing constitutes the Decision and Order of this Court.