Opinion
No. 600306–2010.
2010-07-22
MARSH USA INC., Plaintiff, v. John HAMBY, Lida Davidians, and Dewitt Stern Group, Inc., Defendants.
Jackson Lewis, LLP, New York, by Clifford R. Atlas, Esq., Nicole Q. Saldana, Esq., for plaintiff. Kasowitz, Benson, Torres & Friedman, LLP, San Francisco, CA, by Brendan G. Dolan, Esq., for defendant.
Jackson Lewis, LLP, New York, by Clifford R. Atlas, Esq., Nicole Q. Saldana, Esq., for plaintiff. Kasowitz, Benson, Torres & Friedman, LLP, San Francisco, CA, by Brendan G. Dolan, Esq., for defendant.
BERNARD J. FRIED, J.
Motion sequence numbers 001 and 002 are consolidated for disposition.
This case concerns the defection of two employees, along with numerous clients and staff, from Marsh USA Inc. (“Marsh”) to its rival, DeWitt Stern Group, Inc. (“DeWitt”). Marsh alleges that two employees, John A. Hamby (“Hamby”) and Lida Davidians (“Davidians”), breached non-compete agreements, misappropriated confidential information, and unfairly competed. Marsh further alleges that DeWitt misappropriated confidential information, tortiously interfered, and unfairly competed. Marsh seeks damages and injunctive relief. Defendants filed this motion to dismiss (1) due to inconvenient forum or (2) for failure to state a cause of action.
Marsh is a risk and insurance services firm. (Compl.¶ 8.) Its Entertainment Practice has a significant presence both in New York City and Los Angeles. (Compl.¶ 9.) DeWitt directly competes with Marsh across many business segments, including the entertainment industry. (Compl.¶ 10.)
According to the Complaint, Hamby and Davidians resided in California and worked in Marsh's Entertainment Practice. (Compl.¶ 3–4.) Davidians commenced employment in 2003 and became Vice President and one of the top members of Marsh's Entertainment Practice. (Compl.¶ 11.) Hamby began work in 2004 as Managing Director in Marsh's Entertainment Practice in Los Angeles and became leader of the Entertainment Practice. (Compl.¶ 12.) Both received compensation for signing numerous non-compete agreements, which disallowed the use of Marsh's confidential information to solicit away clients and employees or to compete against Marsh in the event of separation from employment with Marsh. The agreements contained choice of law provisions and forum selection clauses, specifying that New York law shall govern and that any related action be brought exclusively in the Supreme Court of the State of New York, New York County, or in the United States District Court for the Southern District of New York. (Compl.¶ 48.)
Hamby and Davidians both voluntarily resigned from Marsh on January 25, 2010. (Compl.¶ 15, 20.) On the same day, both were employed by and already working for DeWitt. (Compl.¶ 19, 22.) Plaintiff alleges that on behalf of DeWitt, Hamby and Davidians, directly or through others, solicited clients and employees of Marsh. Between January 25 and February 3, eight clients terminated their relationship with Marsh and appointed DeWitt as their new insurance broker. (Compl.¶ 61–68.) Plaintiff alleges that other clients have similarly defected. (Compl.¶ 69.) According to the Complaint, within a week and a half, eight of twenty employees of Marsh's Los Angeles Entertainment practice abruptly defected to DeWitt. (Compl.¶ 72.) These employees had also signed non-compete agreements. Plaintiff alleges that DeWitt continues to induce Hamby and Davidians to use Marsh's confidential information in breach of the agreements.
First, defendants move to dismiss the Complaint due to inconvenient forum. However, Hamby and Davidians signed numerous agreements with mandatory forum selection clauses that preclude dismissal on forum non conveniens grounds. Hamby signed at least eight agreements containing forum selection clauses and choice of law provisions (Davidians signed similar agreements). Specifically, the Confidentiality and Ownership Rights Agreement (March 23, 2004) and Non–Solicitation Agreement (March 23, 2004) specify: “This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York applicable to agreements made and to be performed therein.”
(Hamby Aff., Ex. 3, 4.) The Retention Bonus Agreement (September 6, 2005) and Retention Bonus Agreement (June 26, 2008) specify:
These agreements did not contain a forum selection clause.
“This Agreement shall be construed in accordance with the laws of the State of New York without giving effect to principles of conflicts of law. Any disputes under this Agreement or any action for enforcement of this Agreement shall be brought in any federal or state court located in the County of New York, New York, and such courts shall have exclusive jurisdiction over any such dispute or action. The parties agree to submit to the jurisdiction of such courts.”
(Hamby Aff., Ex. 5, 8.) The Non–Solicitation Agreement (November 8, 2007), Non–Solicitation Agreement (November 19, 2007), Restrictive Covenants Agreement (June 13, 2008), and Restrictive Covenants Agreement (July 8, 2008) similarly contain mandatory New York forum selection clauses and choice of law provisions, adding in pertinent part:
The parties irrevocably waive any objection they may now or hereafter have to the laying of venue of any such action in the said court(s), and further irrevocably waive any claim they may now or hereafter have that any such action brought in said court(s) has been brought in an inconvenient forum.
(Hamby Aff., Ex. 6, 7, 9, 10.)
The agreements contain mandatory forum selection clauses that preclude dismissal on forum non conveniens grounds. Brooke Group v. JCH Syndicate, 87 N.Y.2d 530, 531–32 (1996). Forum selection clauses are prima facie valid and are enforced because they provide certainty and predictability in resolving disputes. Id. A challenging party must make a strong showing in order to set aside such a clause. Di Ruocco v. Flamingo Beach Hotel & Casino, Inc., 163 A.D.2d 270, 272 (2d Dept.1990). A successful challenge must show that enforcement would be unreasonable and unjust or that the clause is invalid because of fraud or overreaching, such that inconvenience effectively deprives the challenging party of its day in court. British West Indies Guaranty Trust Co. v. Banque Internationale a Luxembourg, 172 A.D.2d 234 (1st Dept.1991). Additionally, “[a] contractual choice-of-forum clause should be held unenforceable if enforcement would contravene a strong public policy of the forum in which suit is brought.” M/S Bremen v. Zapata Off–Shore Co., 407 U.S. 1, 15 (1972) (emphasis added).
Defendants argue that California is the proper forum due to many California connections. Namely, defendants are residents of California, the alleged injuries occurred there, substantially all of the documentary evidence and potential witnesses are there, etc. Defendants mistakenly rely on “traditional forum non conveniens analysis,” (Def.Rep.Memo, 3), as the mandatory forum selection clauses preclude traditional analysis in favor of a stricter standard. Brooke Group, 87 N.Y.2d at 532. In Bremen, 407 U.S. at 16 (emphasis added), speaking to this stricter standard, the Supreme Court held:
[A] forum clause ... may be ... unreasonable' and unenforceable if the chosen forum is seriously inconvenient for the trial of the action. Of course, where it can be said with reasonable assurance that at the time they entered the contract, the parties to ... [an] agreement contemplated the claimed inconvenience, it is difficult to see why any such claim of inconvenience should be heard to render the forum clause unenforceable.
As in Bremen, id. at 17, here “[w]e are not ... dealing with an agreement between two Americans to resolve their essentially local disputes in a remote alien forum.” While defendants allege that the entertainment insurance brokerage business is focused in California, defendants' employers, Marsh and Dewitt, each have a global presence and maintain their principal place of business in New York. Moreover, Hamby and Davidians are sophisticated professionals who were compensated for signing agreements containing the New York forum selection clauses. While the parties' California connection creates some inconvenience, the inconvenience does not effectively deprive the challenging party of its day in court. British West, 172 A.D.2d 234. Thus, the New York forum selection clauses control.
In spite of the controlling forum selection clauses, Defendants argue that the agreements are unenforceable because they violate California public policy. Defendants cannot argue that enforcement of the mandatory forum selection clauses “would contravene a strong public policy of the forum in which suit is brought,” M/S Bremen, 407 U.S. at 15 (emphasis added), because New York has no policy against forum selection clauses or reasonable non-compete agreements.
Nor can defendants argue that California law applies and its application by a New York court is inconvenient, since the mandatory forum selection clauses preclude forum non conveniens analysis. Rather, defendants must show through conflicts of law analysis that, despite the New York choice of law provisions, California law applies to void the non-compete agreements. Without the non-compete agreements and included mandatory forum selection clauses, a forum non conveniens challenge would be proper and no breach of agreement claim would exist.
New York has adopted the prevailing common-law standard of reasonableness in determining the validity of non-compete agreements. BDO Seidman v. Hirshberg, 93 N.Y.2d 382, 389 (1999). “In this context a restrictive covenant will only be subject to specific enforcement 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.” Reed, Roberts Associates, Inc. v. Strauman, 40 N.Y.2d 303, 307 (1976).
New York law governs the choice of law determination. Klaxon Co. v. Stentor Electric Manufacturing Co., 313 U.S. 487 (1941). Although New York recognizes the “choice of law principle that parties to a contract have a right to choose the law to be applied to their contract, this freedom of choice on the part of the parties is not absolute.” S. Leo Harmonay Inc. v. Binks Manufacturing Co ., 597 F.Supp. 1014, 1025 (S.D.NY 1984), aff'd762 F.2d 990 (2d Cir.1985) (internal citations omitted). Generally, “[u]nder New York law ... a contract's designation of the law that is to govern disputes arising from the contract ... is determinative if the state has sufficient contacts with the transaction.” Zerman v. Ball, 735 F.2d 15, 20 (2d Cir.1984) (citations omitted). However, a choice of law provision is set aside when “application of the law of the chosen state would be contrary to a fundamental policy of a state which has a materially greater interest than the chosen state.” Restatement (Second) of Conflict of Laws § 187 (2010). “[T]he issue [must be] of such overriding concern to the public policy of another jurisdiction as to override the intent of the parties and the interest of [New York] in enforcing its own policies.” Marine Midland Bank, N.A. v. United Missouri Bank, N.A., 223 A.D.2d 119, 123–24 (1st Dept.1996).
Here, the Honorable William F. Fahey, of the Superior Court of the State of California, has implied that California public policy would not be offended by the action proceeding in New York. (Atlas Aff., Ex. B.) In California, defendants sought a determination that the agreements were unenforceable under California Business and Professions Code Section 16600. Relying on the forum selection clauses, Marsh moved to quash the California action. Judge Fahey granted Marsh's motion to quash and stayed the California action, allowing the action to proceed in this court in the Supreme Court of the State of New York, New York County. Hamby v. Marsh USA, Superior Court of the State of California, Los Angeles County, No. BC 430457.While defendants insist that enforcement of the non-compete agreements contravenes California public policy, the plaintiff rests on the contrary decision of Judge Fahey. Without deciding whether the agreements offend California policy, I hold that California does not have a materially greater interest, such that even if the agreements contravene California policy, conflicts of law analysis does not set aside the New York choice of law provision.
New York has a substantial interest in the action. Marsh and Dewitt both maintain their principal place of business in New York. New York has an interest in enforcing forum selection clauses and choice of law provisions—especially like those here, where sophisticated professionals have been compensated for signing the agreements—as “access to a convenient forum which dispassionately administers a known, stable, and commercially sophisticated body of law may be considered as much an attraction to conducting business in New York as its unique financial and communications resources.” Marine Midland, 223 A.D.2d at 124 (internal citations omitted).
Defendants do not overcome the “heavy weight” of the choice of law provision, Haag v. Barnes, 9 N.Y.2d 554, 559–60 (1961), and fail to demonstrate California's materially greater interest. While defendants allege that the entertainment business is focused in California (the Complaint alleges that Marsh's entertainment business has a presence in both California and New York), the entertainment practice of each company is interconnected with the larger Marsh and DeWitt entities, which have a global reach. Likewise, the alleged “California” clients are high-profile entertainment clients with a similarly global presence. In conclusion, defendants show numerous California connections, but fail to clearly demonstrate California's materially greater interest .
DeWitt Stern v. Haliburton, Index No. 115384/2009 (Sup.Ct., N.Y. Cty.), a case involving non-compete agreements signed by DeWitt employees, reached a different conclusion. Under the facts, the Court held that enforcement of the agreements would violate California public policy and California had a materially greater interest, and the choice of law provision was set aside.
The New York choice of law provisions control and the non-compete agreements remain enforceable. Of course, New York courts will enforce non-compete agreements only to the extent necessary to protect an employer's trade secrets. See Reed, Roberts, 40 N.Y.2d at 308. Here, since the agreements were drafted to protect the “Confidential Information and Trade Secrets” of Marsh
, they are facially enforceable. Thus, the forum selection clauses remain intact, and I deny the motion for dismissal due to inconvenient forum.
Marsh's Non–Solicitation Agreements provide a long list of what constitutes “Confidential Information and Trade Secrets” (Compl., Ex. 3.); however, the court determines what constitutes trade secrets, and Marsh's characterization of “Confidential Information and Trade Secrets” is likely overbroad.
In the second motion, defendants move to dismiss the Complaint for failure to state a cause of action. While a plaintiff's allegations are presumed true on a motion to dismiss, conclusory allegations “consisting of bare legal conclusions” are insufficient to survive a motion to dismiss. E.g., Caniglia v. Chicago Tribune–N.Y. News Syndicate, 204 A.D.2d 233, 233 (1st Dept.1994). Here, defendants argue that Marsh makes conclusory claims, all premised on misappropriation of trade secrets, without identifying what trade secrets were misappropriated.
Marsh alleges that defendants defected to DeWitt, after which numerous Marsh employees and clients quickly followed; such raises a strong inference of misappropriation of trade secrets and survives the motion to dismiss. It is premature to determine what constitutes trade secrets inasmuch as “whether the plaintiff's [information constitutes] a trade secret or [is] readily ascertainable from public sources [is] an issue of fact.” Suburban Graphics Supply Corp. v. Nagle, 5 AD3d 663, 666 (2d Dept.2004).
Plaintiff provides evidence of non-compete agreements and a defection of numerous employees and clients to a direct competitor, along with the legal claims that naturally arise: breach of contract, misappropriation of trade secrets, tortious interference, and unfair competition. Such provides notice of the event out of which the grievance arises and the material elements making up the causes of action. SeeDavid D. Siegel, New York Practice § 208 (3d ed.1999). Thus, plaintiff meets the basic pleading requirements and the Complaint survives the motion to dismiss for failure to state a cause of action.
Accordingly, it is
ORDERED that both motions to dismiss (motion sequence numbers 001 and 002) are denied.