Opinion
INDEX NO. 161367/2017
10-09-2020
NYSCEF DOC. NO. 78 PRESENT: HON. VERNA L. SAUNDERS Justice MOTION SEQ. NO. 002
DECISION + ORDER ON MOTION
The following e-filed documents, listed by NYSCEF document number (Motion 002) 28, 29, 30, 31, 32, 35, 36, 37, 38, 39, 40, 41, 42, 43, 44, 45, 46, 48, 49, 50, 56 were read on this motion to/for DISMISS.
Plaintiff commenced this action seeking monetary damages for alleged employment discrimination he experienced while employed by defendants. Plaintiff is of Bulgarian national origin. During his employment, plaintiff cared for his minor child and during his divorce sought custody of said child. Plaintiff asserts that due to his national origin, familial status, and status as a caregiver he was subjected to disparate treatment in the form of underpayment and adverse actions culminating in his termination from Donald Smith & Co., Inc. in violation of the New York City Human Rights Law (NYCHRL) and the New York State Human Rights Law (NYSHRL).
Defendants filed an answer denying plaintiff's allegations and alleging that plaintiff's claims are barred by the applicable statute of limitations, the doctrine of after acquired evidence, the doctrine of retroactive termination, and the faithless servant doctrine; that defendants' treatment of plaintiff was non-discriminatory and based on reasonable, legitimate business factors; that plaintiff's claims fail because defendants did not mitigate plaintiff's damages; that plaintiff's claims are barred on the grounds that the terms of the Partnership Agreement between the parties is indefinite; and, that plaintiff failed to state a claim for which relief may be granted. Additionally, defendants assert counterclaims for breach of fiduciary duty and breach of defendants' governing documents based on plaintiff secretly recording conversations in the workplace which defendants maintain exposed "proprietary information" to potential hacking and unauthorized access.
Sensitive trading strategies, research, and confidential client information.
Plaintiff now moves pursuant to CPLR § 3211(a)(7) seeking to dismiss defendants' counterclaims on the ground that defendants have failed to state a claim for which relief may be granted. In support of the motion, plaintiff sets forth various arguments asserting that defendants have failed to plead the elements of a breach of contract claim as the cited governing documents, which include the company policies and the employee manual, do not constitute a contract; that defendants failed to specify a contractual provision upon which its claims are based; and defendants failed to plead damages. Plaintiff further argues that defendants failed to plead the elements of a breach of fiduciary duty claim with particularity as required by CPLR § 3016(b) and that defendants have failed to substantiate a faithless servant claim.
Defendants oppose the motion arguing that its breach of contract and breach of fiduciary duty claims were adequately pled; that defendants specified a contractual provision found within its cybersecurity policy; that there is no requirement for defendants to plead damages at a preliminary stage, and that defendants pleaded damages as to its faithless servant claim.
Defendants seek disgorgement of compensation paid to plaintiff under the faithless servant doctrine.
Defendants also cross-move pursuant to CPLR § 3211 seeking dismissal of plaintiff's fifth and sixth causes of action which assert that defendants' counterclaims constitute retaliation in violation of the NYSHRL and NYCHRL, respectively. In support of the cross-motion, defendants argue that plaintiff's retaliation claims are facially defective as the counterclaims are not related to any legally protected activity and defendants' assertion of a counterclaim does not constitute an adverse employment action against plaintiff as required under the NYSHRL.
Plaintiff has filed three complaints: Original, First Amended Complaint, and Second Amended Complaint. (See NYSCEF Document Nos. 1; 19; and 27.) Following this court's ruling on Motion Seq. 001, which granted defendants' motion to strike portions of the Original complaint, plaintiff filed the First Amended Complaint. (See Decision/Order Hon. J. Ling-Cohan, January 3, 2019.) The Second Amended Complaint which added the fifth and sixth causes of action was filed after defendants interposed an Answer to the First Amended Complaint.
When considering a defendant's motion to dismiss a complaint for failure to state a cause of action pursuant to CPLR § 3211(a)(7), the court must afford the pleading a liberal construction, accept all facts as alleged in the pleading to be true, accord the plaintiff the benefit of every possible inference, and determine only whether the facts as alleged fit within any cognizable legal theory. (Leon v Martinez, 84 NY2d 83, 87-88 [1994]). Normally, a court should not be concerned with the ultimate merits of the case. (Anguita v Koch, 179 AD2d 454, 457 [1st Dept 1992]).
To prevail on a claim for breach of contract, a movant must show (1) the existence of a valid contract, (2) movant's performance of its obligations under the contract, (3) party's breach, and (4) resulting damages (see Morris v 702 E. Fifth St. HDFC, 46 AD3d 478, 479 [1st Dept 2007]; Stonehill Capital Mgt., LLC v Bank of the West, 28 NY3d 439, 448 [2016]).
With respect to a claim for breach of fiduciary duty, the movant must prove (1) the existence of a fiduciary relationship, (2) misconduct by the other party, (3) and damages directly caused by that party's misconduct. See Castellotti v Free, 138 AD3d 198 [1st Dept 2016]. An employee who violates their fiduciary duty of loyalty is deemed a faithless servant and forfeits the right to compensation for services rendered during the period of disloyalty. See Maritime Fish Products, Inc. v World-Wide Fish Products, Inc., 100 AD2d 81 [1st Dept 1984]; Visual Arts Found., Inc. v Egnasko, 91 AD3d 578 [1st Dept 2012].
After careful review of the papers and arguments advanced by the parties, plaintiff's motion is granted, and defendant's cross-motion is also granted.
Defendants allege the following: Plaintiff was hired as an associate analyst in July 2005 and was terminated in July 2017. Between September 2016 and July 2017, while employed by defendants, plaintiff recorded twenty-one meetings featuring discussions among employees of Donald Smith & Co., Inc. and in certain instances, an SEC registered investor. The topics of the recorded conversations included research, client information, and trading strategies.
See Defendants' Exhibit A.
Here, defendants argue that plaintiff's recording of various conversations constitute breach of contract and breach of plaintiff's fiduciary duty, but a review of the record does not support same.
To prevail on a claim for breach of contract, defendants must show plaintiff's breach and resulting damages. While defendants cite generally to its Code of Ethics and Cybersecurity Policy, plaintiff correctly points out that defendants fail to specify a provision of either document that plaintiff purportedly breached or what damages were incurred as a result of plaintiff's conduct. Assuming that either governing document constitutes a contract, a closer inspection of both the Code of Ethics and Cybersecurity Policy reveals no express prohibition against recordings and permits plaintiff's access to client data/information. Although defendants maintain that the recordings in and of themselves expose proprietary information to potential hacking and unauthorized access, without further action on the part of the plaintiff it is unclear how plaintiff's recordings would violate either policy as he maintains, and defendants do not deny, that he had sole access to the purported client data/information which is permitted by both the ethics code and the security policy. Moreover, there are no allegations made by the defendants that plaintiff misused, sold, or profited in any way from the client data/information. Thus, without any actual exposure or misuse of the client data/information it is unclear what damages, if any, were incurred by the defendants. Consequently, defendants' breach of contract claim must be dismissed.
See Defendants' Exhibits F and G.
Similarly, regarding defendants' claim for breach of fiduciary duty, defendants must establish misconduct and damages directly caused by plaintiff's misconduct. Assuming that plaintiff's recordings constitute misconduct, defendants have failed to proffer evidence of any damages directly caused by plaintiff's recordings therefore, defendants claim for breach of fiduciary duty must likewise be dismissed.
Lastly, the faithless servant doctrine is premised on an employee violating its fiduciary duty of loyalty and as a result, forfeiting the right to compensation during the period of disloyalty. Based upon the record before the court, there are no facts to suggest that plaintiff's actions, while perhaps disconcerting, violated his fiduciary duties as there are no facts or allegations to support a finding that any propriety information was exposed or misused thus, defendants' claim under the faithless servant doctrine is dismissed.
As it pertains to defendants' cross-motion to dismiss the plaintiff's fifth and sixth causes of action, that relief is hereby granted. Defendants correctly contend that its counterclaims do not constitute an adverse employment action within the meaning of the NYSHRL as the claims were made as part of the instant litigation, well after plaintiff was terminated from Donald Smith & Co., Inc. Therefore, plaintiff's retaliation claim under the NYSHRL is dismissed. Plaintiff's claim of retaliation under the NYCHRL also fails, as defendants' filing of a counterclaim does not hinder plaintiff from proceeding with the instant litigation. Thus, in the case at bar, the filing of a counterclaim does not constitute an act that is reasonably likely to deter a person from engaging in protected activity within the meaning of the NYCHRL. Accordingly, plaintiff's claim of retaliation under the NYCHRL is also dismissed. Based upon the foregoing, it is
ORDERED that plaintiff's motion to dismiss defendants' counterclaims for breach of contract, breach of fiduciary duty-faithless servant is GRANTED; and it is further
ORDERED that defendants' cross-motion to dismiss plaintiff's fifth and sixth causes of action for retaliation under both the NYSHRL and NYCHRL is GRANTED; and it is further
ORDERED that the movant shall serve a copy of this order with notice of entry upon plaintiff within thirty days of the date hereof and file proof of same with the Clerk of the Court; and it is further
ORDERED that all parties to appear for status conference on January 13, 2021 at 11:00 AM by remote means, the details of which will be communicated to the parties no later than January 6, 2021; and it is further
ORDERED that any relief not expressly addressed herein has nonetheless been considered and is hereby expressly denied.
This constitutes the decision and order of the court. October 9 , 2020
/s/ _________
HON. VERNA L. SAUNDERS, JSC