Cont'l Indus. Grp. v. Altunkilic ( 2019 )

18-1239
Cont’l Indus. Grp. v. Altunkilic
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
SUMMARY ORDER
RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A
SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY
FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURT’S LOCAL RULE 32.1.1. WHEN
CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST CITE
EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE NOTATION
“SUMMARY ORDER”). A PARTY CITING A SUMMARY ORDER MUST SERVE A COPY OF IT ON
ANY PARTY NOT REPRESENTED BY COUNSEL.
At a stated term of the United States Court of Appeals for the Second Circuit, held
at the Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of New
York, on the 2nd day of October, two thousand nineteen.
PRESENT: BARRINGTON D. PARKER,
REENA RAGGI,
RAYMOND J. LOHIER, JR.,
Circuit Judges.
_____________________________________
CONTINENTAL INDUSTRIES
GROUP, INC.,
Plaintiff-Appellant,
v. No. 18-1239-cv
MEHMET ALTUNKILIC,
Defendant-Appellee.
_____________________________________
APPEARING FOR APPELLANT: Michael T. Conway, Offitt Kurman, P.A., New
York, New York.
FOR APPELLEE: No appearance.
Appeal from a judgment of the United States District Court for the Southern District
of New York (Analisa Torres, Judge; James L. Cott, Magistrate Judge).
UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED, AND
DECREED that the judgment entered on May 21, 2018, is AFFIRMED in part, VACATED
in part, and REMANDED.
Plaintiff Continental Industries Group, Inc. (“CIG”) appeals from the district court’s
dismissal of its complaint for failure to state a claim, see Fed. R. Civ. P. 12(b)(6), consistent
with the report and recommendation of a magistrate judge (Cott, M.J.). CIG challenges the
magistrate judge’s authority to review the sufficiency of the complaint following the entry
of a default judgment and a referral for an inquest on damages. It further challenges the
district court’s determination that the complaint failed to state a cognizable claim. We
review de novo the dismissal of a complaint for failure to state a claim, construing the
pleadings in the light most favorable to the plaintiff. See Dettelis v. Sharbaugh, 919 F.3d
161, 163 (2d Cir. 2019). “A formulaic recitation” of the claims’ elements “will not suffice”
to state a claim. In re Facebook, Inc. Initial Pub. Offering Derivative Litig., 797 F.3d 148,
159 (2d Cir. 2015). Rather, the complaint must contain sufficient factual matter “plausibly
to give rise to an entitlement to relief.” Dettelis v. Sharbaugh, 919 F.3d at 163. In applying
this standard here, we assume the parties’ familiarity with the facts and record of prior
proceedings, which we reference only as necessary to explain our decision to vacate in part
and remand.
I. Magistrate Judge’s Authority
A district court is empowered to evaluate the sufficiency of allegations before
awarding damages in a default judgment. See Finkel v. Romanowicz, 577 F.3d 79, 84 (2d
Cir. 2009). Pursuant to that authority, it can seek a recommendation on sufficiency from a
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magistrate judge, preliminary to the magistrate judge making a recommendation as to
damages. See 28 U.S.C. § 636(b)(1)(B) (permitting district court to “designate a magistrate
judge” to “submit . . . proposed findings of fact and recommendations for the disposition”
of a motion). In such circumstances, it might be clearer for all parties if the district court
were to notice default, rather than to enter a default judgment as was done here. While both
a notice of default and a default judgment deem the complaint’s factual allegations
admitted, a default judgment generally signals recognition of the defaulting party’s
liability. See City of New York v. Mickalis Pawn Shop, LLC, 645 F.3d 114, 128 (2d Cir.
2011) (explaining that “entry of a default judgment[] converts the defendant’s admission
of liability into a final judgment that terminates the litigation and awards the plaintiff any
relief to which the court decides it is entitled”); Swarna v. Al-Awadi, 622 F.3d 123, 140 (2d
Cir. 2010) (explaining difference between default judgment and notice of default). We need
not pursue this issue, however, because whether or not the magistrate judge was authorized
to make a sufficiency recommendation here, any error was necessarily harmless because
CIG had the opportunity to object to the recommended dismissal before the district court,
which was obliged to review that question of law de novo. See 28 U.S.C. § 636(b)(1)
(explaining that district court “shall make a de novo determination of those portions of the
. . . recommendation[] to which objection is made”); United States v. Romano, 794 F.3d
317, 340 (2d Cir. 2015). Thus, CIG’s argument that it was denied notice and a fair
opportunity to be heard on the sufficiency of its claims fails on the merits.
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II. Sufficiency of Pleadings
a. Misappropriation of Trade Secrets and Proprietary Information
To state a claim for trade secret misappropriation under New York law—which
governs the claims at issue here—the plaintiff must allege “(1) that it possessed a trade
secret, and (2) that the defendant[] used that trade secret in breach of an agreement,
confidential relationship or duty, or as a result of discovery by improper means.” North Atl.
Instruments, Inc. v. Haber, 188 F.3d 38, 43–44 (2d Cir. 1999). To determine whether
information constitutes a trade secret, courts consider
(1) the extent to which the information is known outside of the
business; (2) the extent to which it is known by employees and
others involved in the business; (3) the extent of measures
taken by the business to guard the secrecy of the information;
(4) the value of the information to the business and its
competitors; (5) the amount of effort or money expended by
the business in developing the information; (6) the ease or
difficulty with which the information could be properly
acquired or duplicated by others.
Id. at 44.
Following the magistrate judge’s recommendation, the district court held that CIG
failed adequately to plead that the alleged trade secrets—including a cost analysis sheet,
customer and supplier lists, pricing and payment terms, shipping information, customer
product mixes, employee data, and identities of banks and officers providing trade
financing terms and conditions—were, in fact, secret. On de novo review, we cannot agree.
Much of the information alleged is routinely afforded trade secret protection. See Jasco
Tools, Inc. v. Dana Corp. (In re Dana Corp.), 574 F.3d 129, 152 (2d Cir. 2009) (holding
that “[c]onfidential proprietary data relating to pricing, costs, systems, and methods are
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protected by trade secret law”); North Atl. Instruments, Inc. v. Haber, 188 F.3d at 44
(explaining that customer lists are protectible as trade secrets when the “list [is] developed
by a business through substantial effort and kept in confidence[,] . . . provided the
information it contains is not otherwise readily ascertainable” (internal quotation marks
omitted)). Thus, we conclude that CIG identified the trade secrets at issue with sufficient
specificity that it is certainly plausible that the information identified was, in fact, secret.
See Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). In sum, CIG’s allegations were not so
“threadbare” as to compel dismissal.
We reach a similar conclusion as to CIG’s pleading that Altunkilic was duty bound
to protect CIG’s trade secrets and proprietary information. Although Altunkilic was
employed by Continental Kimya Sanayi Ve Dis Tic. A.S. (“CKS”), not CIG, because CKS
was the exclusive distributor of CIG’s products in Turkey, it was plausible to allege that
Altunkilic, as CKS’s general manager, was entrusted with information regarding CIG’s
customers, suppliers, and proprietary information for the limited purpose of distributing
CIG products through CKS, and that his personal use of the information for his own benefit
was a breach of duty. See North Atl. Instruments v. Haber, 188 F.3d at 47–48. In sum, these
factual allegations about the exclusive distributor relationship “nudge[]” CIG’s claim—
that Altunkilic owed a duty to protect CIG’s trade secrets and proprietary information—
“across the line from conceivable to plausible.” Ashcroft v. Iqbal, 556 U.S. at 680 (internal
quotation marks omitted).
b. Tortious Interference with Contract and Prospective Economic Advantage
Similarly, CIG’s claims for tortious interference with a contract and prospective
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economic advantage are alleged plausibly.
To plead tortious interference with a contract under New York law, CIG had to
allege (1) a valid contract, (2) defendant’s knowledge of the contract, (3) defendant’s
intentional and improper procurement of a breach of the contract, and (4) damages. See
Finley v. Giacobbe, 79 F.3d 1285, 1294 (2d Cir. 1996). On the first element, the district
court faulted CIG for not providing copies of or summarizing any agreement. The omission
does not compel dismissal, however, if the complaint otherwise makes the existence of a
contract plausible. See generally Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007).
CIG alleges that it maintained supplier agreements, and CIG supported that assertion by
specifically identifying CIG suppliers with whom defendant interfered. The defendant
having defaulted, these allegations are deemed admitted and, thus, are sufficient plausibly
to plead the existence of the contracts interfered with.
As to the remaining elements, the complaint plausibly alleges Altunkilic’s
awareness of CIG’s contracts in his capacity as CKS’s general manager for the exclusive
distribution of CIG products in Turkey. Further, the complaint alleges that Altunkilic,
together with CIG employee Ustuntas, procured the breach of these contracts in order to
benefit competing companies in which they held a financial interest, Plasmar and
Marchem. The allegation is plausible, and Altunkilic concedes its truth by his default. In
sum, these allegations are sufficient to state a plausible claim of tortious interference with
contracts.
The same conclusion obtains as to tortious interference with prospective economic
advantage. To state such a claim, CIG must plead (1) its business relations with a third
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party, (2) defendant’s interference with those relations, (3) defendant’s wrongful action or
use of dishonest, unfair, or improper means, and (4) ensuing injury to the relationship. See
Catskill Dev., L.L.C. v. Park Place Entm’t Corp., 547 F.3d 115, 132 (2d Cir. 2008). While
the district court faulted CIG for insufficiently alleging third-party business relations, the
conclusion fails for the same reasons that CIG sufficiently pleaded the existence of third-
party contracts.
c. Aiding and Abetting Breach of Fiduciary Duty
The district court also found insufficient CIG’s pleading that Altunkilic assisted CIG
employee Ustuntas in breaching his duty of loyalty because the complaint does not show
that Altunkilic did so knowingly. See Lerner v. Fleet Bank, N.A., 459 F.3d 273, 294 (2d
Cir. 2006) (explaining that aiding and abetting breach of fiduciary duty requires that
defendant knowingly induced or participated in breach). Although CIG does not
specifically state that Altunkilic was aware of Ustuntas’s fiduciary duty, the complaint
makes an inference of such knowledge plausible. CIG alleges that as general manager of
CKS, Altunkilic worked closely with CIG employee Ustuntas. The complaint further
alleges that together, Altunkilic and Ustuntas used CIG’s confidential and proprietary
information to solicit CIG’s suppliers and customers, and that they also induced CIG
employees to breach their employment agreements. Altunkilic’s relationships with CIG
and Ustuntas, and Altunkilic’s knowledge that Ustuntas was employed by CIG, make
plausible Altunkilic’s awareness that Ustuntas owed CIG a duty of loyalty regarding such
matters.
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d. Usurpation of Corporate Opportunity
The district court dismissed CIG’s claim for usurpation of a corporate opportunity
on grounds that (1) CIG has not shown a fiduciary relationship between it and Altunkilic,
and (2) CIG did not show a tangible expectancy in the corporate opportunity at issue—
purchasing shares in Plasmar and Marchem. We have already discussed the first ground,
and conclude that CIG has plausibly alleged that Altunkilic owed CIG a fiduciary duty.
Indeed, the district court acknowledged that “the complaint pleaded facts that could
potentially suggest a fiduciary relationship.” Continental Indus. Grp., Inc. v. Altunkilic,
No. 14-cv-790, 2018 WL 1508566, at *7 (S.D.N.Y. Mar. 27, 2018).
Like the district court, we conclude that CIG has failed sufficiently to plead the
requisite tangible expectancy in acquiring Plasmar or Marchem. See Abbott Redmont
Thinlite Corp. v. Redmont, 475 F.2d 85, 89 (2d Cir. 1973) (holding existence of “tangible
expectancy” depends on “degree of likelihood” that party would “realiz[e]” opportunity
(internal quotation marks omitted)). CIG has not alleged facts suggesting that it had an
expectancy or interest in acquiring either Plasmar or Marchem. It alleges that “Marchem is
a shell company with no employees and no capital”; thus, it is not clear that CIG would
have any interest in acquiring Marchem. Compl. ¶ 19. CIG alleges that Plasmar was its
customer, but it does not allege that CIG took any steps to invest in Plasmar, or that it had
ever acquired customers in the past. Thus, the claim was correctly dismissed as insufficient.
e. Remaining Claims
CIG’s claims for constructive trust, unjust enrichment, unfair competition, and
conversion were also correctly dismissed. Imposition of a constructive trust is a remedy for
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the diversion of a corporate opportunity. See Poling Transp. Corp. v. A & P Tanker Corp.,
84 A.D.2d 797, 796, 443 N.Y.S.2d 895, 897 (2d Dep’t 1981). As CIG has not sufficiently
alleged Altunkilic’s usurpation of a corporate opportunity, there is no need for a
constructive trust.
CIG’s claims for unjust enrichment, unfair competition, and conversion merely
duplicate CIG’s other claims and, accordingly, should be dismissed. See, e.g., Corsello v.
Verizon N.Y., Inc., 18 N.Y.3d 777, 790, 944 N.Y.S.2d 732, 740 (2012) (explaining that
“unjust enrichment claim is not available where it simply duplicates, or replaces, a
conventional contract or tort claim”).
We have considered CIG’s remaining arguments and conclude that they are without
merit. For the foregoing reasons, the judgment of the district court is AFFIRMED in part
insofar as it dismissed plaintiff’s claims for usurpation of corporate opportunity,
constructive trust, unfair competition, and conversion. The judgment is VACATED in part
insofar as it dismissed plaintiff’s claims for misappropriation of trade secrets and
proprietary information, tortious interference with contract and prospective economic
advantage, and aiding and abetting breach of fiduciary duty. The case is REMANDED with
directions to reinstate these claims and to award plaintiff such damages as are warranted
thereon in light of defendant’s default.
FOR THE COURT:
CATHERINE O’HAGAN WOLFE, Clerk of Court
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