Opinion
99 cv 12153 (GBD)
March 12, 2003
MEMORANDUM OPINION ORDER
Plaintiffs commenced this action seeking a permanent injunction against defendant for breach of contract, misappropriation of trade secrets, and tortious interference with business relations. Defendant responded with an answer which included several counterclaims. Plaintiffs thereafter moved to dismiss the portion of defendant's counterclaims that sought an equitable accounting, as well as the second counterclaim which alleged a breach of fiduciary duty. That motion was granted. With leave of the court, plaintiffs filed an amended complaint. Defendant responded with an answer to the amended complaint which included counterclaims for violations of Section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a), constructive trust, misappropriation and conversion of trade secrets, common law unfair competition, and breach of contract. Defendant named Norman Payson, Chief Executive Officer and President of AG Healthplans, Inc. and AG Financial Consultants, Inc. as an additional counterclaim-defendant on all of the counterclaims except for the breach of contract counterclaim. Plaintiffs thereafter moved to dismiss defendant's counterclaims for failure to state a claim upon which relief can be granted pursuant to Federal Rule of Civil Procedure 12(b)(6).
In reviewing a motion to dismiss counterclaims for failure to state a claim, a court must take the allegations in the counterclaims as true.See Hosp. v. Bldg. Co. v. Trustees of Rex Hosp., 425 U.S. 738, 740 (1976); Miree v. DeKalb County, 433 U.S. 25, 27 n. 22 (1977). All reasonable inferences must be drawn in the claimant's favor. See Bolt Electric, Inc. v. City of New York, 53 F.3d 465, 469 (2d Cir. 1995). The counterclaims should be dismissed only where it appears beyond a doubt that the claimant can prove no set of facts in support of his claim entitling him to relief. See Conley v. Gibson, 355 U.S. 41, 45-46 (1957) (footnote omitted); Goldman v. Belden, 754 F.2d 1059, 1065 (2d Cir. 1985). Although a court considering a motion to dismiss for failure to state a claim is limited to the facts as stated in the pleadings, the pleadings include any written instrument attached as an exhibit and any statements or documents incorporated by reference therein. See Paulemon v. Tobin, 30 F.3d 307, 308-309 (2d Cir. 1994). The court may not consider factual allegations in briefs or memoranda. See Fonte v. Bd. of Managers of Continental Towers Condominium, 848 F.2d 24, 25 (2d Cir. 1988). The facts upon which a claimant bases his claim need not be set out in detail, but must give his adversary fair notice of the nature of his claim and the grounds upon which it rests. See Greenberg v. New York State, 919 F. Supp. 637, 640 (E.D.N.Y. 1996), citing Conley, 355 U.S. at 47.
Defendant's first counterclaim alleges that plaintiffs violated Section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a). A violation of this section has occurred if there is a "likelihood of confusion as to the origin of the goods [or services] in issue at the consumer level."Berlitz Schools of Languages of America, Inc. v. Everest House, 619 F.2d 211, 215 (2d Cir. 1980). Defendant alleges that plaintiffs falsely represented an association with defendant to defendant's patient-clients and to medical providers under contract with defendant in order to obtain discounts. See Answer to Amended Complaint ¶¶ 25-30. Defendant's pleading focuses primarily on medical providers. Id. at ¶¶ 26-30. However, medical providers are not consumers in this context, and therefore defendant can prove no set of facts that demonstrate a likelihood of confusion to consumers. Accordingly, plaintiffs' motion to dismiss defendant's first counterclaim with respect to medical providers under contract with defendant is granted with prejudice. Additionally, because defendant's pleading focused on medical providers, defendant has also failed to allege a cognizable claim under the Lanham Act with respect to its patient-clients. Therefore, plaintiffs' motion to dismiss defendant's first counterclaim with respect to defendant's patient-clients is granted without prejudice.
Defendant's second counterclaim for constructive trust is founded upon plaintiffs' alleged unauthorized use of defendant's relationships and the profits they purportedly earned therefrom. Under New York law, the elements which may be used to impose a constructive trust are "(1) a confidential or fiduciary relationship; (2) a promise, express or implied; (3) a transfer in reliance on the promise; and (4) unjust enrichment." Artist Mgmt. Office, Inc. v. Worldvision Enter., Inc., 1997 WL 188937, at *6 (S.D.N.Y. 1997), citing Sharp v. Komalski, 40 N.Y.2d 119 (1976) (emphasis added). However, these elements should not be rigidly construed. See Golden Budha Corp. v. Canadian Land Co. of Am., N.V., 931 F.2d 196, 202 (2d Cir. 1991), citing Simonds v. Simonds 45 N.Y.2d 233 (1978). "The purpose of a constructive trust is said to be the prevention of unjust enrichment. . . . [T]o impose a constructive trust, what is required, generally, is that a party hold property under such circumstances that in equity and good conscience he ought not to retain it." Id. (internal quotations and citations omitted).
The contract between the parties, which is incorporated by reference into the pleadings, specifies that the parties may exchange confidential information during their relationship and that they agree not to use such information for their own benefit. See Client Service Agreement ¶ 8. Defendant alleges that plaintiffs wrongfully used confidential information obtained during the parties' contractual relationship for plaintiffs' own benefit and profited therefrom. See Answer to Amended Complaint ¶¶ 33-36. These allegations are sufficiently plead to state a claim for the imposition of a constructive trust. Therefore, plaintiffs' motion to dismiss defendant's second counterclaim is denied.
Defendant's third counterclaim alleges misappropriation of trade secrets. To support this claim, defendant must prove that "(1) it possessed a trade secret, and (2) [plaintiffs are] using that trade secret in breach of an agreement, confidence, or duty, or as a result of discovery by improper means." Integrated Cash Mgmt. Serv., Inc. v. Digital Transactions, Inc., 920 F.2d 171, 173 (2d Cir. 1990) (internal quotation marks omitted), quoting Rapco Foam, Inc. v. Scientific Applications, Inc., 479 F. Supp. 1027, 1029 (S.D.N.Y. 1979). Under New York law,
a trade secret is defined as any device which is used in one's business, and which gives him an opportunity to obtain an advantage over competitors who do not know or use it. . . . Six factors are to be considered in determining whether a trade secret exists: (1) the extent to which the information is known outside of his business; (2) the extent to which it is known by employees and others involved in his business; (3) the extent of measures taken by him to guard the secrecy of the information; (4) the value of the information to him and to his competitors; (5) the amount of effort or money expended by him in developing the information; (6) the ease or difficulty with which the information could be properly acquired or duplicated by others.Eagle Comtronics, Inc. v. Pico, Inc., 453 N.Y.S.2d 470, 472 (1982),quoting RESTATEMENT OF TORTS § 757 cmt. b (internal quotation marks omitted); see also Integrated Cash Mgmt., 920 F.2d at 173.
The contract between the parties specifies that the parties may exchange "non-public confidential information" or "Trade Secrets" during their relationship. See Client Service Agreement ¶ 8. Defendant alleges that plaintiffs wrongfully used defendant's confidential business relationships with medical providers to obtain discounts from these providers. See Answer to Amended Complaint ¶¶ 7, 38. These allegations are sufficiently plead to state a claim for misappropriation of trade secrets. Plaintiffs' motion to dismiss defendant's third counterclaim is therefore denied.
Defendant's fourth counterclaim alleges unfair competition under the common law of the State of New York. This counterclaim must meet the same standard of likelihood of confusion to consumers as defendant's Lanham Act counterclaim, as well as meet an additional requirement of bad faith. See Girl Scouts of the United States v. Bantam Doubleday Dell Publ'g Group, Inc., 808 F. Supp. 1112, 1131 (S.D.N.Y. 1992), citing Weight Watchers Int'l, Inc. v. Stouffer Corp., 744 F. Supp. 1259, 1283 (S.D.N.Y. 1990) and Educ. Testing Serv. v. Touchstone Applied Science Assoc., Inc., 739 F. Supp. 847, 849 (S.D.N.Y. 1990); see also Saratoga Vichy Spring Co., Inc. v. Lehmen, 625 F.2d 1037, 1044 (2d Cir. 1980). For the same reasons stated earlier with respect to defendant's first counterclaim, plaintiffs' motion to dismiss defendant's fourth counterclaim as to the medical providers under contract with defendant is granted with prejudice, and plaintiffs' motion to dismiss defendant's fourth counterclaim with respect to defendant's patient-clients is granted without prejudice.
Defendant's fifth counterclaim alleges breach of contract. A claim for breach of contract must allege: "(1) the existence of a contract; (2) due performance of the contract by the plaintiff; (3) breach of the contract by the defendant; and (4) damages resulting from the breach. . . . It is not necessary, however, for a [claim] alleging breach of contract to specifically state each element individually." R.H. Damon Co., Inc. v. Softkey Software Products, Inc., 811 F. Supp. 986, 990-91 (S.D.N.Y. 1993), citing Nordic Bank PLC v. Trend Group, Ltd., 619 F. Supp. 542, 561 (S.D.N.Y. 1985). Reading defendant's answer to the amended complaint as a whole, this Court finds that defendant has sufficiently plead these elements so as to give plaintiffs notice of the nature and grounds of this claim. Plaintiffs' motion to dismiss defendant's fourth counterclaim is therefore denied.
Finally, defendant's first, second, third, and fourth counterclaims name Norman Payson as an additional counterclaim-defendant. Defendant may not join Mr. Payson as a counterclaim-defendant on these claims absent allegations of his "independently tortious conduct." Mendez v. City of New York, 687 N.Y.S.2d 346, 347-48 (App.Div. 1999) (citations omitted);see also Mills v. Polar Molecular Corp., 12 F.3d 1170, 1177 (2d Cir. 1993). However, defendant has not made any such allegations. Plaintiffs' motion to dismiss defendant's counterclaims as asserted against Norman Payson is therefore granted without prejudice.