Base One Technologies, Inc. v. Ali ( 2015 )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
BASE ONE TECHNOLOGIES, INC.,
Plaintiff,
v. Civil Action No. 14-1520 (JEB)
MOHAMMED ALI, et al.,
Defendants.
MEMORANDUM OPINION
One reason that companies insert non-compete provisions in their employment contracts
is to prevent their workers from stealing their clients. That, claims Plaintiff Base One
Technologies, is precisely what happened here.
Base One is an information-technology support firm that provides recruiting and staffing
services to its clientele. Several years ago, it hired Defendants Mohammed Ali and Hossein
Beyzavi and designated them to provide IT assistance to International Business Machines
Corporation, one of Base One’s bread-and-butter clients. According to Plaintiff, however,
Defendants did more than assist: they exploited the access they had been granted and – while still
employed with Base One – offered their services to IBM for full-time employment. That
company ultimately hired both Defendants directly, thereby ousting Plaintiff from the picture
and depriving it of potential revenue from continuing to staff those two positions.
Aggrieved by this abrupt turn of events, Base One turned to the courts. Its Complaint
presents a veritable cornucopia of claims, including, inter alia, breach of contract, breach of
fiduciary duty and the duty of loyalty, tortious interference with business relations, and unjust
enrichment. Defendants have now filed a Motion to Dismiss. Although some of Plaintiff’s
1
allegations are facially deficient, others pass the relatively undemanding Rule 12(b)(6) bar. As a
result, the Court will grant Defendants’ Motion in part and deny it in part.
I. Background
According to its Complaint – which at this juncture the Court must credit – Plaintiff Base
One Technologies is a “technology engineering services and support firm,” which recruits and
staffs “a variety of IT disciplines,” including “network infrastructure support, software
development and application services, information security, enterprise databases and
warehousing, backup and recovery strategies, and project management.” Compl., ¶¶ 7-8. Its
client base is principally comprised of companies operating within the telecommunications and
financial spheres. See id., ¶ 9. The firm is incorporated under Delaware law and headquartered
in New York. See id., ¶ 1.
Plaintiff’s business model is fairly straightforward: it is essentially a matchmaker. Base
One first confers with its clients to “determine their IT needs” and “the qualifications of the ideal
candidate to provide those services.” Id., ¶ 9. It then recruits, vets, and hires – as its own
employees – appropriately credentialed individuals who possess the requisite technical ability.
See id., ¶¶ 9-12. As the final step, the newly hired employees are then matched to specific client
projects, earning revenue for Base One for the length of their placements. See id. Plaintiff’s
“continued relationship with its clients, as well as [its] continued relationship with its
employees,” are thus of “critical importance” to its success. Id., ¶ 17.
In December 2009, IBM engaged the firm to provide staffing assistance on a certain
“Project.” See id., ¶ 12. The Project is ongoing and fully funded through June 2015, with a total
value of over $10 million. See id. To date, approximately 32 Base One employees have worked
for IBM in connection with the Project. See id.
2
In February 2012, Plaintiff hired Defendant Mohammed Ali to provide engineering
assistance for the Project in the District of Columbia. See id., ¶ 13. Over a year and a half later,
in December 2013, Defendant Hossein Beyzavi was hired to do the same. See id., ¶ 14. As a
condition of employment with Base One, Defendants signed identical “Confidence and Non-
Compete Agreement[s].” See id., ¶¶ 15, 27; see also id., Exhs. A & B (Ali and Beyzavi
Agreements).
Pursuant to Section 1 of the Agreements, each Defendant “acknowledge[d]” the
“substantial time, effort and money” expended by Plaintiff in identifying potential client business
and qualified employees. See Agreements, § 1(B). The Agreements further spelled out Base
One’s concern that
the Employee will frequently be the principal intermediary and
personal contact between [Base One] and its customers and it is,
therefore, anticipated that because of the Employee’s knowledge of
the business of said persons or entities and the fact that personal
loyalties may develop between the Employee and said persons or
entities, such persons or entities might desire to place their IT
business directly with the Employee rather than the Company at
such time as the Employee is no longer employed by the Company.
Id., § 1(E).
Against that backdrop, Section 3 set forth certain restrictions that operate for the duration
of an employee’s tenure with Base One and for a one-year period thereafter. In relevant part,
each Defendant agreed not to “market any Competitive type services directly or indirectly to any
Base One clients” that had been assigned to him. See id., § 3(A). They also consented to refrain
from
solicit[ing], contact[ing], represent[ing], or offer[ing] to represent
the Company’s Full-Time Employees and/or Independent
Contractors, whether or not such solicitation, contact, or offer was
initiated, prompted or in any other way developed by the
3
Employee or by the other Full-Time Employee or Independent
Contractor . . . .
Id., § 3(B). The parties further stipulated that, in the event of breach, Base One would be entitled
to equitable and injunctive relief in addition to any other available remedies. See id., § 6.
Finally, Section 10 dictated that each Agreement would “be governed by and construed in
accordance with the laws of the State of New York.”
All was quiet amongst the parties until June 2014. Base One claims that, around that
time, it learned that Ali and Beyzavi had “conspired with one another to approach, and
subsequently approached, IBM to market their own services for full-time employment with
IBM.” Compl., ¶ 23. According to the Complaint, Defendants took these steps “while working
for Base One on the Project” – that is, during the course of their employment with Base One.
Id. “As a result of their overtures,” alleges Plaintiff, “Defendants were hired by IBM to . . .
perform[] materially the same services they had been providing to IBM through their
employment with Base One and their assignment to the Project.” Id., ¶ 24. Ali and Beyzavi
began employment with IBM on or around June 10, 2014, thus “depriving Base One of
substantial revenue it would have received for the continued placement of Defendants to IBM
through the Project end date of June 2015.” Id., ¶ 25.
Dismayed at this perceived betrayal, Base One filed suit in this Court on September 5,
2014, asserting sundry contractual, tort, and fiduciary causes of action. Defendants have now
filed virtually identical Motions to Dismiss. For the sake of simplicity, the Court refers to the
two submissions jointly as “Defendants’ Motion” or “MTD.”
II. Legal Standard
Under Federal Rule of Civil Procedure 12(b)(6), the Court must dismiss a claim for relief
when the complaint “fail[s] to state a claim upon which relief can be granted.” In evaluating a
4
motion to dismiss, the Court must “treat the complaint’s factual allegations as true and must
grant plaintiff the benefit of all inferences that can be derived from the facts alleged.” Sparrow
v. United Air Lines, Inc., 216 F.3d 1111, 1113 (D.C. Cir. 2000) (citation and internal quotation
marks omitted); see also Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). A court need not accept as
true, however, “a legal conclusion couched as a factual allegation,” nor an inference unsupported
by the facts set forth in the complaint. Trudeau v. FTC, 456 F.3d 178, 193 (D.C. Cir. 2006)
(quoting Papasan v. Allain, 478 U.S. 265, 286 (1986)). Although “detailed factual allegations”
are not necessary to withstand a Rule 12(b)(6) motion, Bell Atl. Corp. v. Twombly, 550 U.S.
544, 555 (2007), “a complaint must contain sufficient factual matter, [if] accepted as true, to
state a claim to relief that is plausible on its face.” Iqbal, 556 U.S. at 678 (internal quotation
omitted). A plaintiff may survive a Rule 12(b)(6) motion even if “recovery is very remote and
unlikely,” but the facts alleged in the complaint “must be enough to raise a right to relief above
the speculative level.” Twombly, 550 U.S. at 555-56 (quoting Scheuer v. Rhodes, 416 U.S. 232,
236 (1974)).
III. Analysis
Plaintiff’s Complaint advances eight distinct claims, each of which Defendants dispute:
(1) breach of Section 3(A) of the Non-Compete Agreement; (2) breach of Section 3(B) of the
same Agreement; (3) breach of fiduciary duty; (4) unfair competition; (5) tortious interference
with prospective business relations; (6) unjust enrichment; (7) faithless servant; and (8) a count
styled “injunctive relief.” Base One has since conceded the infirmity of the fourth and fifth
causes of action. See Opp. at 13 n.3. The Court will take up each of the remaining counts
seriatim, ultimately concluding that Counts Two and Eight should be dismissed, but that the rest
survive Defendants’ Motion.
5
At the outset, the Court notes that federal jurisdiction in this case is based on diversity of
citizenship, see 28 U.S.C. § 1332, and that, accordingly, state law provides the substantive rules
of law with regard to all claims. See Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78 (1938). Here,
the Non-Compete Agreement executed by Defendants contains a choice-of-law provision stating
that “it shall be governed by and construed in accordance with the laws of the State of New
York.” Agreements, § 10. Although a contractual choice-of-law provision does not bind parties
with respect to non-contractual causes of action, see Minebea Co. v. Papst, 377 F. Supp. 2d 34,
38 (D.D.C. 2005), the parties in this case rely solely on New York law with respect to all of the
counts. The Court, therefore, follows suit. See Piedmont Resolution, LLC v. Johnston, Rivlin &
Foley, 999 F. Supp. 34, 39 (D.D.C. 1998) (“The parties have not raised any choice of law issues
and, in their arguments in support of and in opposition to [the] motion for summary judgment, all
parties have relied solely on District of Columbia law. Accordingly, the Court will resolve the
motion under District of Columbia law.”).
A. Count I: Breach of Section 3(A)
Plaintiff’s first claim is premised on Section 3(A) of the Non-Compete Agreement, which
prohibits a Base One employee from “market[ing] any Competitive type services” to any Base
One clients assigned to him. The restriction, by its terms, extends throughout the duration of
employment with Base One and for a year following termination. The Complaint alleges that
Defendants breached this restrictive covenant by marketing their services to IBM while still
employed by Base One. See Compl., ¶¶ 27-32.
To state a claim for breach of contract under New York law, a plaintiff must allege “(1)
the existence of a valid, enforceable agreement; (2) performance of the contract by one party; (3)
breach of the contract by the other party; and (4) damages.” Bridgeport Music, Inc. v. Universal
6
Music Grp., Inc., 440 F. Supp. 2d 342, 344-45 (S.D.N.Y. 2006). Defendants argue that Base
One’s claim is doubly flawed. They first assert that Plaintiff has not set forth sufficient factual
allegations to establish that they marketed their services to IBM in breach of Section 3(A).
Alternatively, they contend that the restrictive covenant is unreasonable – and, therefore,
unenforceable. Neither argument proves persuasive.
1. Breach
In maintaining that no breach occurred, Defendants assert that Section 3(A)’s prohibition
on the “market[ing]” of services does not prohibit the mere “offering” of services. See MTD at
4-6. According to Ali and Beyzavi, marketing requires “advertis[ing] or engag[ing] in other
activities designed to either promote a competitive business or [one’s] own services,” and Base
One failed to allege that they engaged in such activities. See id. at 4; see also Rep. at 2
(marketing “requires the advertising and running of a competing business”). They likewise
stress that the Complaint fails to establish a link between IBM’s decision to hire Defendants and
their alleged wrongful acts. See MTD at 4.
The distinction Defendants attempt to draw between marketing and offering is untenable.
Indeed, the dictionary defines “market” as “[t]o offer for sale.” American Heritage Dictionary
1075 (5th ed. 2011) (emphasis added); see also Merriam-Webster Online Dictionary (online ed.
2014) (defining market as “to do things that cause people to know about and want to buy
(something); to offer (something) for sale in a market”). And that is precisely what Base One
alleged: that “Defendants approached IBM to offer their services to IBM as employees on a full-
time basis.” Compl., ¶ 30 (emphasis added). Plaintiff further bolstered this count by claiming
that IBM hired Ali and Beyzavi “as a result of their overtures.” Id., ¶ 24. Nothing more is
needed. Regardless of whether Defendants “advertised” their services, Plaintiff has alleged
7
sufficient facts (taken as true) to suggest that they “marketed” their services to IBM in violation
of Section 3(A).
In rejoinder, Ali and Beyzavi stress that neither one held a “marketing position” within
Base One. The Court is somewhat mystified as to why Defendants’ titles at Base One would
have any bearing on whether they marketed competitive services to IBM, regardless of how
narrowly or broadly the term “market” is construed. Any employee – no matter his job
description within Base One – could wrongfully engage in the marketing of competitive services
to customers, thereby breaching the restrictive covenant contained in Section 3(A).
2. Enforceability
Defendants’ second contention – to wit, that Section 3(A) is unenforceable if read to
prohibit the conduct alleged here – fares no better. Specifically, they assert that “Base One is
asking the court to interpret ‘market’ as synonymous with the accepting of a position with IBM,”
and that the non-compete provision, so construed, is unreasonable. See Rep. at 3.
To begin with, Plaintiff is not asking the Court to read Section 3(A) in the expansive
manner touted by Defendants. (Nor could such interpretation be squared with any legitimate
definition of the term “market.”) Instead, the facts presented in the Complaint suggest that Ali
and Beyzavi actively induced IBM to hire them for full-time employment. As previously noted,
Plaintiff alleged that Ali and Beyzavi “approached” IBM to offer their services as full-time
employees, and that IBM hired them “as a result of their overtures.” Compl., ¶¶ 24, 30. Such
conduct cannot be described as mere acceptance of an open job position, and it is this conduct
that Plaintiff justifiably maintains violated Section 3(A).
Setting aside Defendants’ overreaching, the Court turns to the enforceability of Section
3(A) under an appropriate construction. Agreements “that restrict an employee’s ability to
8
compete” are disfavored in New York, B.O. Tech., LLC v. Dray, 970 N.Y.S.2d 668, 673 (N.Y.
Sup. Ct. 2013), but they are not per se unenforceable. See Installed Bldg. Products, LLC v.
Cottrell, No. 13-1112, 2014 WL 3729369, at *6 (W.D.N.Y. July 25, 2014). In determining the
validity of such restrictive covenants, courts are guided by a tripartite “reasonableness” standard.
See BDO Seidman v. Hirshberg, 93 N.Y.2d 382, 388-89 (N.Y. 1999). Under the governing test,
a restraint is reasonable if it “(1) is no greater than is required for the protection of the legitimate
interest of the employer, (2) does not impose undue hardship on the employee, and (3) is not
injurious to the public.” Id. (emphasis in original). This analysis “focuses on the particular facts
and circumstances giving context to the agreement,” see id. at 390, and, unless a provision is
impermissibly vague or plainly overbroad, often necessitates full development of the record. See
Installed Bldg., 2014 WL 3729369, at *6-8. Consequently, a determination of unenforceability
upon a motion to dismiss will often be premature. See id.
As an initial foray, Plaintiff points out that BDO Seidman and its progeny concerned
post-employment restrictive covenants – i.e., covenants that “tend to prevent an employee from
pursuing a similar vocation after termination of employment.” B.O. Tech., 970 N.Y.S.2d at 673.
Because the “vast majority” of Defendants’ allegedly wrongful conduct occurred during their
employment with Base One, Plaintiff emphatically declares the three-pronged reasonableness
test inapposite here. See Opp. at 6; see also Compl., ¶¶ 24, 30 (asserting that Defendants
approached IBM during their employment with Base One). The Court is not so certain. Section
3(A) – as written – restricts the post-employment conduct of its employees in addition to their
actions during employment. New York law is not entirely clear as to whether employers can
circumvent the reasonableness inquiry ordinarily applicable to such clauses by seeking to hold
employees liable only for their pre-termination conduct. That question need not be definitively
9
resolved here, however, as Section 3(A) survives dismissal even if the inquiry outlined above is
assumed to be germane.
Base One has sufficiently alleged that Section 3(A) is properly tailored to address its
legitimate business interest, satisfying the first prong of the BDO Seidman test. As a staffing and
recruiting firm, Plaintiff’s relationships with its clientele comprise its most valuable assets. See
Opp. at 2. It invests considerable time, money, and effort to recruit and staff IT personnel in
accordance with its clients’ needs. See id. A Base One employee who offers his services
directly to his assigned client “undercuts the core of Base One’s business by stealing [its] time
and energy spent, and business advantage built, on its unique skill of recruiting.” Id. Base One
thus has a legitimate interest in protecting against its employees’ “competitive use of client
relationships” that Base One enabled them to acquire through their work with and access to the
firm’s customers. BDO Seidman, 93 N.Y.2d at 392; see also B.O. Tech, 970 N.Y.S.2d at 673
(recognizing “legitimate interest in preventing former employees from exploiting or
appropriating the goodwill of a client or customer that has been created and maintained at the
employer’s expense to the employer’s competitive detriment”); DeWitt Stern Grp., Inc. v.
Eisenberg, No. 13-3060, 2014 WL 1388652, at *5 (S.D.N.Y. Apr. 9, 2014) (noting “employer’s
legitimate interest in client relationships it was instrumental in creating and fostering”).
Section 3(A), moreover, is narrow in both time and scope. It restricts Defendants’
conduct for only one year post-employment, see Natsource LLC v. Paribello, 151 F. Supp. 2d
465, 471 (S.D.N.Y. 2001), and its prohibition on marketing applies only to those customers to
whom they were personally assigned. See BDO Seidman, 93 N.Y.2d at 391-92. Ali and Beyavi
have proffered no reason to reach a contrary conclusion.
10
With regard to the second prong – hardship on the employee – Defendants remain on
shaky ground. Although they accuse Base One (with some exaggeration) of leaving them
“penniless” and “prevent[ing] them from pursuing a similar vocation,” MTD at 4, the narrowness
of Section 3(A) cuts against their position. Ali and Beyzavi are free to offer their IT and
engineering expertise to any company other than IBM, the only client either was assigned to, and
they are free to market their services even to IBM only one year after the termination of their
employment with Base One.
As to the third prong of the reasonableness test, Defendants have not attempted to make
any showing that Section 3(A) is injurious to the public. Nor is the Court convinced that such an
argument, if asserted, could gain any traction. See BDO Seidman, 93 N.Y.2d at 393 (finding no
injury to the public where the restraint would not “seriously impinge” on the availability of
certain services in a region or “cause any significant dislocation in the market”). As the above
discussion makes manifest, the Court cannot hold at this juncture that Section 3(A) is
unenforceable as a matter of law.
B. Count II: Breach of Section 3(B)
In the second count of its Complaint, Plaintiff contends that Beyzavi and Ali breached
Section 3(B) of the Agreement, which restricted them from “solicit[ing], contact[ing],
represent[ing], or offer[ing] to represent the Company’s Full-Time Employees and/or
Independent Contractors.” Specifically, Plaintiff claims that Defendants solicited each other “by
coordinating their departure to work for IBM.” Compl., ¶ 38. Defendants, on the other hand,
maintain that “one[-]on[-]one contact between two similarly situated employees does not rise to
the level of solicitation.” Rep. at 4. According to them, the clause should apply only where a
11
violator “represent[s] a competitive business” and gains “some benefit . . . from the act of
solicitation.” Id. at 5.
This back and forth over the proper interpretation of Section 3(B) calls attention to a
more fundamental problem: its wording is so vague and ambiguous as to render it unenforceable.
The provision prohibits soliciting or contacting Base One employees and independent
contractors. But solicit or contact for what? The Agreement never says. Is an employee
prohibited from contacting another employee about health insurance? From soliciting another
employee to attend a political fundraiser? Although the Court can perhaps guess that Plaintiff
meant to prohibit solicitation or contact for the purpose of employment elsewhere, the provision
does not so specify. Particularly in light of New York’s general hostility toward restrictive
covenants in the context of employment, the Court will not redraft a poorly written, overbroad
restraint in order to render it enforceable. See Pure Power Boot Camp, Inc. v. Warrior Fitness
Boot Camp, LLC, 813 F. Supp. 2d 489, 507 (S.D.N.Y. 2011) (finding “imprecise” and
“ambiguous” non-compete provision “unenforceable as a matter of law”); Samy & Irina, Inc. v.
Berezentseva, 899 N.Y.S.2d 63 (N.Y. Sup. Ct. 2009) (dismissing claim for violation of “unclear
and ambiguous” non-compete provision). Base One’s second contractual cause of action comes
up short.
C. Count III: Breach of Fiduciary Duty
Plaintiff next charges that “[b]y virtue of their employment with Base One,” Ali and
Beyzavi owed the firm a fiduciary duty, which they breached by marketing themselves to IBM
for full-time employment. See Compl., ¶¶ 43-46. Asserting that they were merely “low level IT
employees” with an “arms-length business relationship” with Base One, and that a fiduciary duty
requires more, Defendants move to dismiss this claim. See MTD at 6; Rep. at 5.
12
They are wrong on the law. In New York, “an employee-employer relationship is
fiduciary,” even vis-à-vis low-level employees. Fairfield Fin. Mortgage Grp., Inc. v. Luca, 584
F. Supp. 2d 479, 485 (E.D.N.Y. 2008) (agreeing with plaintiff there “that all employees have a
fiduciary duty to their employers, regardless of their rank and the level of their position”); accord
Amphenol Corp. v. Paul, 993 F. Supp. 2d 100, 113 (D. Conn. 2014) (interpreting New York
law); Gluco Perfect, LLC v. Perfect Gluco Products, Inc., No. 14-1678, 2014 WL 4966102, at
*22 (E.D.N.Y. Oct. 3, 2014); Design Strategies, Inc. v. Davis, 384 F. Supp. 2d 649, 659-60
(S.D.N.Y. 2005). Defendants’ objection thus stumbles right out of the gate.
D. Count VI: Unjust Enrichment
Moving now to Count VI, Plaintiff alleges that Ali and Beyzavi were unjustly enriched at
its expense, and that “equity and good conscience militate against permitting [them] to retain the
attendant benefits.” Compl., ¶ 9. Defendants respond that the existence of the Non-Compete
Agreement precludes Base One’s quasi-contractual claim for unjust enrichment, and that, in any
event, the Complaint failed to proffer a sufficient factual basis for this claim. The Court
disagrees on both points.
Unjust enrichment is “an amorphous cause of action, but one which falls under the
umbrella of quasi-contract, or contract implied-in-law.” Michele Pommier Models, Inc. v. Men
Women N.Y. Model Mgmt., Inc., 14 F. Supp. 2d 331, 338 (S.D.N.Y.1998), aff’d,173 F.3d 845
(2d Cir. 1999). It “contemplates an obligation imposed by equity to prevent injustice, in the
absence of an actual agreement between the parties.” Georgia Malone & Co. v. Rieder, 973
N.E.2d 743, 746 (N.Y. 2012) (internal quotation marks omitted); Maalouf v. Salomon Smith
Barney, Inc., No. 02-4770, 2003 WL 1858153, at *6 (S.D.N.Y. Apr. 10, 2003) (“Unjust
enrichment is premised on the notion that where principles of contract law are inadequate to
13
compensate an unjustly deprived party, a court should resort to principles of equity.”).
Defendants’ contention thus has some foundation: it is widely recognized that a plaintiff may not
recover on a claim for unjust enrichment where there exists a governing contract between the
parties. See Magi XXI, Inc. v. Stato Della Citta Del Vaticano, No. 07-2898, 2014 WL 2212021,
at *8 (E.D.N.Y. May 23, 2014) (“[T]he existence of a contract between parties to a dispute
ordinarily precludes recovery for unjust enrichment for events arising out of the same subject
matter as the contract.”) (internal quotation marks omitted).
That Base One “may only recover on one claim, either contract or quasi-contract,”
however, “certainly does not preclude [it] from pleading unjust enrichment in the alternative.”
Maalouf, 2003 WL 1858153, at *7. “Both Fed. R. Civ. P. 8(e)(2) and the pleading rules of New
York State law permit the pleading of contradictory claims alleging both breach of a contract or,
in the alternative, a quasi contract.” Seiden Associates, Inc. v. ANC Holdings, Inc., 754 F. Supp.
37, 39 (S.D.N.Y. 1991). Particularly where the validity and scope of the underlying contractual
agreement is disputed, as here, Plaintiff is not “required to guess” – at the pleading stage –
“whether it will be successful on its contract . . . claims.” St. John’s Univ., New York v. Bolton,
757 F. Supp. 2d 144, 183 (E.D.N.Y. 2010); see also Net2Globe Int’l, Inc. v. Time Warner
Telecom of New York, 273 F. Supp. 2d 436, 466 (S.D.N.Y. 2003).
Defendants have one more arrow left in their quiver. They argue that even if Base One is
permitted to plead quasi-contract in the alternative, the facts alleged do not “form a basis for an
unjust enrichment claim.” Rep. at 6. In other words, if Section 3(A) is ultimately found invalid
or otherwise inapplicable to Ali’s and Beyzavi’s conduct, they claim there would be “no
equitable basis” for recovery. Id.
14
“To prevail on a claim of unjust enrichment, a [p]laintiff must establish (1) that the
defendant benefitted; (2) at the [p]laintiff’s expense; and (3) that equity and good conscience
require restitution.” Beth Israel Med. Ctr. v. Horizon Blue Cross & Blue Shield of New Jersey,
Inc., 448 F.3d 573, 586 (2d Cir. 2006) (quoting Kaye v. Grossman, 202 F.3d 611, 616 (2d Cir.
2000)). “The ‘essence’ of this claim ‘is that one party has received money or a benefit at the
expense of another.’” Kaye, 202 F.3d at 616 (quoting City of Syracuse v. R.A.C. Holding, Inc.,
685 N.Y.S.2d 381, 381 (N.Y. App. Div. 1999)).
Drawing all reasonable inferences in Base One’s favor, the Court concludes that it has set
forth a cognizable claim. According to the Complaint, Defendants intentionally misappropriated
the relationship and good will between IBM and Base One in a manner that inured to their
personal benefit via their new contract with IBM. See Compl., ¶¶ 22-25, 30-31, 49, 60; see N.
Shipping Funds I, LLC v. Icon Capital Corp., 998 F. Supp. 2d 301, 330 (S.D.N.Y. 2014)
(“Unjust enrichment claims are not limited to tangible monetary enrichment, but also include the
receipt of an intangible benefit at the expense of another.”). This benefit was clearly acquired at
Plaintiff’s expense: it had invested a great deal of time and effort in cultivating its relationship
with IBM and providing it with qualified IT staff to satisfy its needs. See id., ¶¶ 9-12.
Defendants’ actions, moreover, resulted in the loss of substantial revenue for the firm. See id.,
¶¶ 9, 61. Inasmuch as Plaintiff, at this juncture, need only provide a short and plain statement
articulating a plausible claim for unjust enrichment, see Twombly, 127 S. Ct. at 1975; Fed. R.
Civ. P. 8, the Court finds it has met that burden.
E. Count VII: Faithless Servant
Count VII invokes the faithless-servant doctrine. Although seemingly plucked from the
mouldering pages of a Victorian novel, that cause of action appears alive and well in 21st century
15
New York. See Webb v. Robert Lewis Rosen Associates, Ltd., No. 03-4275, 2003 WL
23018792, at *6 (S.D.N.Y. Dec. 23, 2003) (“Defendants’ attempt to demonstrate that the
faithless servant doctrine is no longer recognized or is inapposite is unavailing.”), aff’d, 128 F.
App’x 793 (2d Cir. 2005). Under that state’s law, an employee “is obligated ‘to be loyal to his
employer and is prohibited from acting in any manner inconsistent with his agency or trust and is
at all times bound to exercise the utmost good faith and loyalty in the performance of his
duties.’” Phansalkar v. Anderson Weinroth & Co., LP, 344 F.3d 184, 200 (2d Cir. 2003)
(quoting W. Elec. Co. v. Brenner, 41 N.Y.2d 291, 295 (N.Y. 1977)). A faithless employee
forfeits the right to compensation during the period of disloyalty. See Henry v. Concord
Limousine, Inc., No. 13-0494, 2014 WL 297303, at *4 (E.D.N.Y. Jan. 24, 2014).
Plaintiff contends that Ali and Beyzavi acted “in direct contravention of their duty of
loyalty” by offering their own competitive services to IBM during their employment with Base
One, thereby exploiting the access Plaintiff had given them to its customers. See Compl., ¶ 64.
Defendants, for their part, maintain that Base One cannot successfully make out a faithless-
servant claim – for one reason only. According to them, such claims require an allegation that
the employee used the employer’s “time, facilities, or proprietary secrets in commission of
offensive acts,” and Base One did not so allege. See Rep. at 6; see also MTD at 8. Ali and
Beyzavi rest their theory of the doctrine on a single case, Fada Int’l Corp. v. Cheung, 57 A.D.3d
406 (N.Y. App. Div. 2008).
Fada International does, on its face, provide some support for Defendants’ view. There,
the court affirmed the dismissal of a claim for breach of the duty of loyalty since there was no
allegation that “defendants used plaintiff’s time, facilities or proprietary secrets in setting up their
new business.” Id. at 406. But the faithless-servant doctrine is robustly applied in New York,
16
and many decisions expounding on the doctrine make no mention of this alleged imperative at
all. See, e.g., Carco Grp. v. Maconachy, 383 F. App’x 73, 77 (2d Cir. 2010); Phansalkar, 344
F.3d at 200-04; Sanders v. Madison Square Garden, LP, No. 06-589, 2007 WL 1933933, at *3
(S.D.N.Y. July 2, 2007); Webb, 2003 WL 23018792, at *6; W. Elec. Co. v. Brenner, 41 N.Y.2d
at 295; Feiger v. Iral Jewelry, Ltd., 41 N.Y.2d 928, 928, 394 (1977) (citing Restatement (Second)
of Agency (1958), § 469); see also 52 N.Y. Jur. 2d Employment Relations § 148 (expounding
upon faithless-servant doctrine with no reference to these requirements).
Even decisions that do specifically refer to misuse of time, facilities, or proprietary
secrets cannot, as a general matter, be read to create an inflexible pleading prerequisite. Rather,
courts appear to invoke this triumvirate as illustrative of the sort of breaches of loyalty that might
be deemed faithlessness. In Pure Power Boot Camp, for example, the court emphasized that an
employee “is forbidden from obtaining an improper advantage at the principal’s expense.” 813
F. Supp. 2d at 521. Continuing, the court stated:
Although an employee may, of course, make preparations to
compete with his employer while still working for the employer,
he or she may not do so at the employer’s expense, and may not
use the employer’s resources, time, facilities, or confidential
information; specifically, whether or not the employee has signed
an agreement not-to-compete, the employee, while still employed
by the employer, may not solicit clients of his employer . . . .
Id. at 521-22; see also Derven v. PH Consulting, Inc., 427 F. Supp. 2d 360, 371 (S.D.N.Y. 2006)
(“It is well established that an employee is prohibited from acting in any manner inconsistent
with his or her employment and must exercise good faith and loyalty in performing his or her
duties and may not use his or her principal’s time, facilities or proprietary secrets to build a
competing business.”) (internal quotation marks omitted and emphasis added).
17
This Court will not superimpose a rigid gloss on the faithless-servant doctrine that the
New York courts have not, in the mine run of cases, seen fit to require. Defendants’ sole
objection thus fails, and Plaintiff’s claim survives dismissal.
F. Count VIII: Injunctive Relief
Base One advances a claim for “injunctive relief” as its final cause of action. See
Compl., ¶¶ 66-70. Injunctive relief, however, is not a freestanding cause of action, but rather –
as its moniker makes clear – a form of relief to redress the other claims asserted by Plaintiff. See
Guttenberg v. Emery, No. 13-2046, 2014 WL 1989564, at *6 (D.D.C. May 16, 2014) (“Count II
of plaintiffs’ amended complaint is not a separate cause of action or claim; rather, it is a request
that the Court grant a particular form of relief (an injunction) . . . .”). The Court will thus dismiss
Count VIII as a separate claim. See Fitts v. Fed. Nat. Mortgage Ass’n, 44 F. Supp. 2d 317, 330
(D.D.C. 1999) (“[T]he court strikes Count Five of the complaint as it states a form of relief and
not a cause of action.”), aff’d, 236 F.3d 1 (D.C. Cir. 2001).
This revision, however, is procedural rather than substantive – that is, it does not preclude
Base One from seeking injunctive relief in the event that it ultimately prevails on one or more of
its claims. See Guttenberg, 2014 WL 1989564, at *6 & n.5. Insofar as Defendants attack the
substantive basis for such relief, it is premature at this stage to consider the propriety of any
particular remedy. Should that question become relevant at a later point in the litigation, the
Court will consider the parties’ arguments at that time.
18
IV. Conclusion
For the foregoing reasons, the Court will grant Defendants’ Motion to Dismiss as to
Counts Two, Four, Five, and Eight of Plaintiff’s Complaint, but deny it as to the remaining
counts. An Order consistent with this Opinion shall issue this day.
/s/ James E. Boasberg
JAMES E. BOASBERG
United States District Judge
Date: January 20, 2015
19