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Bison Commercial Leasing, LLC v Linkner 2009 NY Slip Op 32614(U) October 28, 2009 Supreme Court, Suffolk County Docket Number: 01394-07 Judge: Elizabeth H. Emerson Republished from New York State Unified Court System's E-Courts Service. Search E-Courts (http://www.nycourts.gov/ecourts) for any additional information on this case. This opinion is uncorrected and not selected for official publication.

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$HOKT FORM ORDER

INDEX NO.: 01394-07

SUPREME COURT - STATE OF NEW YORK

COMMERCIAL DIVISION TRIAL TERM. PART 44 SUFFOLK COUNTY
PRESENT: Wonorable Elizabeth H. Emerson

BISON COMMERCIAL LEASING, LLC,
Plaintiff,

-againstM'ILLIAM IJNKNER, BARRY FINK, HARRY

STEIN and STEIN, P.C. Attorneys for Plaintiff 666 Old Country Road, Suite 700 Garden City, New York 11530 RYAN, BRENNAN & DONIVELLY, LLP Attorneys for Defendants 131 Tulip Avenue Floral Park, New York 11001

FI`CHS and STERLING CAPITAL LEASING,
I,lr,
Defendants.
-.
I _

. _

X

DECISION AFTER TRIAL

The plaintiff, Bison Commercial Leasing, LLC (hereinafter "Bison"), is in the business of Iirokering commercial lease transactions between equipment vendors, lending institutions, and its customers. In 1995, the defendant William Linkner began working for Bison's predecessor in interest, Bison Commercial Leasing Corp., which was owned by Michael Bcrg and Larry Matros. Linker subsequently acquired a 50% interest in Bison Commercial L-casing Corp. The other 50% shareholder was Michael Berg. In 2004, Bison Commercial Leasing Cor p. became Bison Commercial Leasing, LLC. In October 2005, Michael Berg went to work for Churchill Technology Finance,
L id(

. while still retaining a 50% ownership interest in Bison. Before he left Bison, Berg began

negotiating with David Sunshine from the Tyree Organization, Ltd. (hereinafter "`Tyree"), rcgardiiig 'Tyree's acquisition of an interest in Bison. Pursuant to an agreement dated May 3 1, 2000. Tyree acquired a 70% ownership interest in Bison from Berg, although Berg only owned a 5 0 " h interest in Bison on that date. Linker subsequently sold his 50% ownership interest in Bison

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o Hers pursuant to a purchase agreement dated June 9,2006. Also on that date, Linker entered into an employment agreement with Bison for a renewable term of two years at a base salary of S50,OOO plus commissions.' Linker was employed as a Vice President and later as the President

:,f Bison. The employment agreement contained a non-competition clause, which provided in pertinent pad as follows: For a period of one (1) year after the termination of [Linkner's] employment with [Bison] for any reason other than [Bison's] termination of [Linkner] without Cause, [Linkner] will not call on, solicit, or take away for [Linkner] or for any other person or entity for commercial equipment leasing business any person or entity who or which was: (i) a customer of [Bison] during [Linkner's] employment with [Bison]; and (ii) sourced by The Tyree Organization, Ltd. The employment agreement also provided, inter alia, that Bison reimburse Linknel- for his legal, accounting, and other expenses incurred in connection therewith; that Linkncr receive a signing bonus in the amount of $50,000 less such reimbursed expenses; that Bison reimburse Linkner for his travel and business expenses; that Bison pay Linkner's commissions within three days of receiving its commissions; and that Linker receive severance pay i n the amount of $250,000 if his employment were terminated by Bison without cause. Additionallj , the purchase agreement provided that Bison and Berg remove Linker as a personal guarantor from any and all Bison obligations and agreements including, but not liimited to, Bison's line of credit with M&T Bank.

On May 19, 2006, Linker formed the defendant Sterling Capital Leasing, LLC (hereinafter *`Sterling"),a company in which he has a 100% ownership interest. `OnMay 25, 2006, Sterling was assigned a taxpayer identification number by the New York State Department of Taxation and Finance. On November 8,2006, Linkner registered a domain name for Sterling. On November 29,2006, Sterling opened a business checking account at M&T Bank with an initial deposit of $75,000, which came from Linkner's personal account. In December 2006, Sterling entered into a commercial lease for office space, purchased a telephone system and computers, and registered with Experian North America. On December 7, 2006, Linkner deposited into the Sterling business checking account a check in the amount of $4,041.31 from I lrology Associates. Linkner testified that Urology Associates was a customer of the defendant Harry Fuchs, a Bison salesperson. Linker was still employed by Bison on December 7,2006. He testified that he decided to fund the Urology Associates transaction through Sterling without consulting anyone from Bison. Linkner left Bison's employ on December 26,2006, taking with hiin 30 Bison customer files and several Bison employees, including the defendants Barry Fink
`Thc.evidence adduced at trial reveals that, in 2006, Bison actually paid 12inknera salary tlic amount of $52,000.

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.itid Harry Fuchs. On January 9,2007, this court signed an order to show cause wiith a temporary
I estraining order directing the defendants to return to Bison by 5:OO p.m. on January 10,2007, all I-ustomerfiles removed from Bison's offices or computers. Linker subsequently returned the iiles that he had taken.

The plaintiffs commenced this action against Linkner, Sterling, Fir&, and Fuchs ,)n January 8. 2007. The amended complaint contains 10 causes of action soundirtg in fraud, ;onversion, breach of contract, and breach of fiduciary duty, among other things. In the answer, h e defendants Linkner and Sterling asserted five counterclaims sounding in fraud, breach of contract, and tortious interference with prospective business relations. This matter was tried by the court without a jury on March 23,24,25, and 26, 2009, and April 3,2009. Three witnesses testified: Linker and Sunshine were called as witnesses by Bison, and Berg was called as a witness by the defendants. By stipulation of the parties, 209 vxhibits were introduced into evidence by Bison and 16 by the defendants. The parties subsequently submitted post-trial memoranda of law. In reaching its determination, the ;ourt has considered the pleadings, the testimony and credibility of each of the trial witnesses, the trial exhibits, and the post-trial memoranda of law submitted by the plaintiff and the d c fendant s. Preliminarily, the court notes that the plaintiff voluntarily discontiinued its action dyiisl the dzfendant Harry Fuchs, who died on September 8,2008, and that there was no e.idence adduced at trial regarding the plaintiffs claims against the defendants Fink and Sterling. Moreover, in their submissions to the court, the parties have narrowed the issues to the plaintiffs claim for breach of fiduciary duty against Linkner and Linkner's countierclaim for breach of contract against the plaintiff. The law provides that officers and directors of a corporation stand in a fiduciary
relationship to the corporation and owe their undivided and unqualified loyalty t 1 the corporation o

(Howard v Carr, 222 AD2d 843, 845). They are prohibited from profiting personally at the expense of the corporation and from promoting personal interests that are incompatible with the superior interests of the corporation (Adirondack Capital Mgt., Inc. v Ruberti Girvin and Ferlazzo, P.C., 43 AD3d 1211, 1215). Likewise, they may not divert and exploit an opportunity that should be deemed an asset of the corporation (Id. at 1215). Although participation in a business similar to that of the corporation is not precluded by an officer or director, conduct that cripples or injures the corporation is impermissible (Howard v Carr, supra at 845).

Similar to the fiduciary duty of an officer or director, but more stringent, is the I'ar thless servant doctrine, which prohibits an employee from acting in any manner inconsistent with his agency or trust and requires him, at all times, to exercise the utmost faith and loyalty in the performance of his duties (Maritime Fish Prods. v World-Wide Fish Prods., 100 AD2d 81, 88). When ,in employee engages in a business that, by its nature, competes with the employer's

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business, a double breach of duty occurs. Not only is the principal deprived of the services for which he has contracted, but he finds such services turned against himself (Id. at 88). Thus, an

employee is not free to take business for himself or direct it to a competitor for his profit without the express consent and approval of his employer (Id. at 89). It is not enough that the employee merely refrains from harming his employer. He has an affirmative duty to act at all times in his cniployer's best interests (Id. at 89). Whether as an employee or officer, Linkner had an obligation to communicate any business opportunity to Bison (Id. at 89). While the evidence supports a finding that Linkner secretly formed Sterling while still in Bison's employ, such conduct, without more, does not constitute actionable employee disloyalty (see, American Print. Converters v JES Label & Tape, IO3 AD2d 787,788; Maritime Fish Prods. v World-Wide Fish Prods., supra at 88). An agent may sccretly incorporate a competitive business prior to his departure as long as he does not use his principal's time, facilities, or proprietary secrets to build the competing business (Id. at 88, see nl>o,Feiger v Ira1 Jewelry, 41 NY2d 928,929; Bon Temps Agency v Greenfield, 7 I 2 AD2d 427,428). The evidence adduced at trial reveals that, between May 19 and December 7, 3( Linker formed Sterling, obtained a taxpayer identification number, registered a domain j06. name,opened a business checking account, entered into a commercial lease for office space, purchased a telephone system and computers, and registered with Experian North America. The co~irt finds that all of these actions were merely preliminary steps to entering into a competitive business and, as such, were not a breach of fidelity (Id. at 428). Bison has failed to establish that Linkner used its time, facilities, or proprietary secrets in building Sterling prior to December 7, 2()OG Contrary to Bison's contentions, its Customers, vendors, and funding sources were not trade secrets. Trade secret protection will not attach when the alleged confidential information is readily asceItainable from non-confidential sources (J & L Am. Enterprises v DSA Direct, 10 Misc 3d 1076[A] at "4 [and cases cited therein]). Additionally, matters of public: knowledge or general knowledge in an industry cannot be appropriated by one as a trade secret (Delta Filter Corp. v Morin, 108 AD2d 991,992). The evidence adduced at trial reveals that the identities of Bison's customers, vendors, and funding sources were not obtained from confidential sources. Moreover, Bison failed to establish that it took reasonable measures to protect or guard such mfonnation, thereby completely negating any claim that it was a trade secret (J & L Am. Enterprises v DSA Direct, supra at *5). Accordingly, the court finds that Linkrier did not breach his fiduciary duty to Bison prior to December 7,2006. On that date, however, Linkner deposited a check from Urology Associates, a Bison custoiner, into the Sterling business checking account that he had opened on November 29, 2006. Linkner testified that Urology Associates was a customer of Fuchs, who was working as a Bison salesperson at the time. Linkner also testified that he decided to fund the TJrology Associates transaction through Sterling without notifying anyone at Bison of his intention. Linkner further testified that there were other transactions on which he began working in the

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lndex Wo. 1.;94-07 ?age 5

middle of December, while he was still employed at Bison. They included Big Ed's Barbacue, Ocean Bagels, Sono's Country Food Market Corp., Jan Food Corp., and Old Saybrook Doors, m o n g others. Linker testified that he transferred to Sterling any transaction on which he was Norking that he did not think would close while he was still employed by Bison. When he left Bison on December 26,2006, he took with him 40 such transactions. The court finds that Lmkner's activities between December 7 and 26,2006, went beyond mere preliminary steps and that Linker used Bison's time, facilities, customers, and contacts to build a competing business. 4ccordingly. the court finds that Linker breached his fiduciary duty to Bison. In view of Linkner's faithless performance of his duties, Bison is entitled to the return of any compensation paid to Linkner during the period of disloyalty. In addition, Bison is cntitled to damages for the wrongful diversion of its business measured by the opportunities for profit on the accounts diverted from it through Linkner's conduct (see, Maritime Fish Prods. v World-Wide Fish Prods., supra at 91). In short, Bison is entitled to the return of any coinmissions and salary paid to Linkner during the period of his disloyalty (see, Feiger v Ira1 Jewelry, supra at 928; Bon Temps Agency v Greenfield, 184 AD2d 280,28 1; Maritime Fish Prods. v World-Wide Fish Prods., supra at 91; ). The court finds that from December 7 to 26,2006, Linker earned a salary in the anioiint of $4,000 (20 days @ $200 a day) and commissions on the transactions that he took with him from Bison in the amount of $107,929. Bison was paid commissions on those transactions i n the amount of $51,768. Thus, the court finds that Linkner must return to Bison his $4,000 salary plus commissions in the amount of $56,161, or $60,161 with interest from December 26, 2006. The court also finds that Linkner is not entitled to recover from Bison the S250,000 severance pay provided for in his employment contract due to his dislo,yalty. He is, however, emitled to recover his signing bonus. The court finds that the signing blonus was due and owing long before the period of disloyalty. The evidence adduced at trial reveals that Linkner was paid $19,000 for his legal, accounting, and other expenses, leaving it balance due of S? 1,000, which was not paid despite his repeated demands therefor. Accordingly, Linkner is entitled to recover on his counterclaim $31,000 with interest from July 1, 2006.
In sum, the plaintiffs claims against the defendant Harry Fuchs are discontinued,
and the plaiiitiff`s claims against the defendants Barry Fink and Sterling Capital ]Leasing are

dismissed. The plaintiff is awarded damages in the amount of $60,161, with interest from Dccember 25, 2006, against the defendant William Linkner for his breach of fiduciary duty. Linkner is awarded damages on his counterclaim in the amount of $3 1,000 with interest from 1 i i l - j 1 , 2006.
Dated: __C)ctober 28,2009 J.S.C.



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