Design Strategies, Inc. v. Davis

384 F.Supp.2d 649

DESIGN STRATEGIES, INC., Plaintiff, v. Marc E. DAVIS, Info Technologies, Inc., Info Technologies Web Solutions, Inc., and John Goullet, Defendants.

No. 02 CIV. 5329(VM).

United States District Court, S.D. New York.

August 11, 2005.

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Jack S. Dweck, The Dweck Law Firm, LLP, New York, NY, for Plaintiff.

Leonard Alan Benowich, Roosevelt, Benowich & Lewis, L.L.P., White Plains, NY, Patrick V. DiDomenico, Richard Scott Garley, Gibbons, Del Deo, Dolan, Griffinger & Vecchione, New York, NY, for Defendants.

Helen Bergman Moure, Preston, Gates & Ellis, L.L.P., Seattle, WA, Jason M. Butler, Sharon L. Nelles, Sullivan & Cromwell, LLP, New York, NY, for Movant.

DECISION AND ORDER

MARRERO, District Judge.

Plaintiff Design Strategies, Inc. ("Design") brought this action against its former employee, Marc E. Davis ("Davis"); two corporate entities, Info Technologies, Inc., ("Infotech") and Info Technologies Web Solutions ("IT Web"); and John Goullet ("Goullet"), Chief Executive Officer of both Infotech and IT Web (collectively, the "IT Defendants," and together with Davis, "Defendants"). Design alleges that Davis, while still employed at Design, wrongfully diverted a lucrative business opportunity from Design to IT Web and subsequently benefitted from that diversion by accepting an offer of employment with IT Web. Design further alleges that the IT Defendants colluded with Davis to divert the business opportunity away from Design and ultimately to hire Davis. Defendants deny Design's salient allegations. Davis also filed a counterclaim against Design alleging that Design had wrongfully denied him payment of certain commissions to which he was entitled.

In prior rulings on the parties' respective motions for summary judgment, the Court denied Design's motion and granted in part and denied in part Defendants' motions.¹ The Court also dismissed certain of Design's claims in its rulings on Defendants' motions in limine. After determining that Design was not entitled to a jury trial on its surviving causes of action,² the Court conducted a bench trial on May 9 through 18, 2005. Design's surviving claims that proceeded to trial were: breach of fiduciary duties, aiding and abetting a breach of fiduciary duties, wrongfully inducing a breach of fiduciary duties, unjust enrichment, and unfair competition. Davis's counterclaim was also litigated at trial.

For the reasons set forth below, the Court concludes that Design has sustained its burden of proof as to its claim against Davis for breach of fiduciary duties, but that Design's remaining claims should be dismissed. The Court further finds that Davis has not sustained his burden of proof as to his counterclaim.

I. FACTUAL AND PROCEDURAL BACKGROUND

Design is in the business of providing trained personnel to companies needing technical support on specific projects requiring computer technology services. That aspect of the industry is known as "staffing." According to Design's Financial Statements, the company:

is a provider of technically skilled individuals, hired on a temporary basis, who provide solutions to complex problems regarding computer applications predominantly to business....

Typically, the services involve providing computer technology consultants with specific skills and experience to clients on a contract basis for the duration of the particular assignment. The consultants are drawn from an extensive list containing the names of qualified experts which the personnel provider maintains for this purpose. The staff supplied by Design are hired or solicited by Design pursuant to an employment agreement and are then assigned to work at the client's site under the client's supervision and on the particular temporary projects and duties determined by the client. For the four-year period 1997 through 2000, Design's financial statements indicate that over 99.5 percent of the company revenues derived from staffing services.

Marsh Newmark ("Newmark") is the President of Design and has been its sole director and shareholder since the company's founding in 1980. Newmark hired Davis in 1987 to work for Design as a sales representative. Davis was later promoted to Sales Manager. He was an at-will employee without a written agreement and was not subject to any restrictive covenant of confidentiality, non-competition or non-solicitation, as the Court determined in Design I. Davis's work entailed marketing Design's staffing services. He was compensated with a fixed annual salary plus commissions based on the company's monthly profits from the business he generated, which were paid at a rate of 10 percent on the first $10,000 of such profits and 20 percent on profits in excess of that amount.

Davis left Design in February 2000 to accept a position with IT Web. At the time of his departure, Davis was earning an annual salary at Design of approximately $85,000, an amount he began making in 1998 following a raise from $45,000. His commissions in his last four calendar years at Design were: 1997 — $512,333; 1998 — $434,212; 1999 — $285,947; 2000 — $73,119.

Sometime during the summer of 1999 Davis became aware from Frank Murphy ("Murphy"), a senior employee and one of his business contacts at Microsoft, Inc., that Microsoft was involved with a partner, Brill Media ("Brill"), in a venture that would be soliciting companies for a contract worth approximately $10 million. The project, which came to be known as Contentville.com ("Contentville"), entailed establishing a high-profile website using Microsoft software to engage in electronic commerce in books and related products and thus compete with similar businesses operated by Amazon.com and Barnes and Noble.

The services to be provided by the company chosen to work on Contentville involved providing computer technology "project" or "web solutions" work. Unlike staffing, web solutions work in the industry entailed providing the services of trained personnel employed by the company on its premises and using the computers and other technical equipment supplied at the provider's laboratory on specific projects to design and develop websites for clients in accordance with given specifications.

Microsoft awarded the Contentville contract to IT Web in mid-December 1999. IT Web extended an offer of employment to Davis by letter dated December 14, 1999, which Davis accepted in late January 2000. Davis began working for IT Web in early February 2000.

During the trial, Defendants moved for a directed verdict pursuant to Fed.R.Civ.P 52(c). The Court reserved judgment in order to hear Defendants' case in chief. In addition, at the time that Defendants moved for a directed verdict, though Design had concluded the majority of its case in chief, due to difficulties in contacting two witnesses, Design had not yet presented their testimony. Because Design thus had not completed all of its evidence at the time that Defendants moved for judgment as a matter of law, the Court hereby denies Defendants' motion. Accordingly, the Court bases the following discussion on the full record of the trial.

II. FINDINGS OF FACT

In light of the legal standards, articulated below, applicable to Design's claims and Davis's counterclaim, liability rests on the resolution of the following factual issues: (1) whether Davis informed Newmark of the Contentville project and made good faith efforts to obtain the business opportunity for Design; (2) whether and to what extent Davis attempted to procure that contract for IT Web; (3) whether the IT Defendants were aware of or participated in any attempts by Davis to obtain the Contentville contract for IT Web; (4) whether Design was sufficiently competitive with IT Web to render any attempts by Davis to assist IT Web disloyal to Design; (5) whether Davis or the IT Defendants played any role in causing Design not to obtain the Contentville contract; and (6) whether Design expressly consented to Davis's referral of the Contentville business to IT Web. Based on its evaluation of the documentary evidence and live testimony presented at trial, the Court makes the following findings of fact regarding these matters.

A. DAVIS'S EFFORTS TO PROMOTE DESIGN FOR THE CONTENTVILLE CONTRACT

The Court finds that Davis initially sought to procure the Contentville contract for Design. The trial record supports a finding that Davis promoted Design for what eventually became the Contentville contract from the time he learned about it until sometime in November 1999. The Court bases this finding on Davis's uncontroverted testimony and statements by Murphy in his deposition, portions of which were read into the trial record, that corroborate Davis's claims in this regard.

Davis testified, for instance, that he had several meetings with Murphy, starting sometime around early September 1999, at which he promoted Design as a partner for Microsoft's contemplated electronic commerce project. (See May 9 Tr. at 227.) Murphy similarly stated that Davis represented to him that Design had the capacity to perform the web solutions work required for such a project and sought to procure the Contentville contract for Design. (See May 16 Tr. at 130, 139.) Although Newmark testified that Davis mentioned the possibility of a project with Microsoft to him only on one occasion and never informed him of the details of such a project, Design did not present any evidence contradicting Davis's and Murphy's testimony that Davis had attempted to solicit the contract on behalf of Design.

B. DAVIS'S EFFORTS TO PROMOTE IT WEB FOR THE CONTENTVILLE CONTRACT

The Court finds that in or before early November 1999, Davis ceased attempting to solicit the Contentville contract for Design and, instead, commenced trying to promote IT Web for the contract. Davis made several admissions in this regard. First, he testified that, upon determining that Design was not willing to make the investment necessary...