`
`13-cv-9233
`OPINION AND ORDER
`
`
`UNITED STATES DISTRICT COURT
`SOUTHERN DISTRICT OF NEW YORK
`────────────────────────────────────
`APPLE MORTGAGE CORP.,
`
`
`Plaintiff,
`
`- against -
`RICHARD BARENBLATT ET AL.,
`
`
`Defendants.
`────────────────────────────────────
`JOHN G. KOELTL, District Judge:
`Apple Mortgage (“Apple”), a mortgage broker in New York,
`brought this action against four former employees of Apple,
`namely Richard Barenblatt, David Breitstein, Keith Furer, and
`Kevin Ungar (collectively the “defendants”), after those
`employees resigned from Apple and joined GuardHill Financial
`Corporation (“GuardHill”), another mortgage broker. The gist of
`Apple’s suit is that the defendants copied documents pertaining
`to Apple’s customers and used the information at GuardHill to
`close deals with purported Apple customers.
` Apple asserted various state law claims against the
`defendants, including breach of contract, unfair competition,
`and tortious interference with prospective and existing
`contractual relations. Apple also brought claims against the
`defendants for violation of the Computer Fraud and Abuse Act, 18
`U.S.C. § 1030 et seq. (“CFAA”), alleging that the defendants
`accessed Apple’s computer network without authorization. Compl.
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`¶¶ 126-27, 131-34. Apple sought injunctive relief and at least
`$5 million in compensatory damages and $10 million in punitive
`damages. The defendants brought several counterclaims against
`Apple, arguing that Apple had failed to pay them commissions for
`loans including loans that closed after they left Apple and
`quarterly bonuses to which they were allegedly entitled. The
`defendants also claimed that Apple improperly deducted $276 from
`each of their paychecks and other amounts for various expenses
`such as advertising, although these deductions were not part of
`the compensation formula in the defendants’ employment
`contracts. Defs.’ Answer ¶¶ 3, 104-07, 130, 134, 139, 144, 155-
`56, 159.
`This Court has jurisdiction under 28 U.S.C. § 1331 over
`Apple’s claims under the CFAA. The Court has supplemental
`jurisdiction under 28 U.S.C. § 1367(a) over Apple’s state law
`claims under New York law and the defendants’ state law
`counterclaims.
`Apple now moves for summary judgment dismissing the
`defendants’ counterclaims. The defendants move for summary
`judgment dismissing Apple’s claims and cross move for summary
`judgment on Apple’s liability on their counterclaims. The
`defendants’ motion for summary judgment dismissing Apple’s
`claims is granted, and the defendants’ cross-motion for summary
`judgment as to Apple’s liability on the counterclaims is denied.
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`Apple’s motion for summary judgment dismissing the defendants’
`counterclaims is granted in part and denied in part.
`
`
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`I.
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`
`
`The standard for granting summary judgment is well
`established. “The court shall grant summary judgment if the
`movant shows that there is no genuine dispute as to any material
`fact and the movant is entitled to judgment as a matter of law.”
`Fed. R. Civ. P. 56(a); see also Celotex Corp. v. Catrett, 477
`U.S. 317, 322 (1986). “[T]he trial court’s task at the summary
`judgment motion stage of the litigation is carefully limited to
`discerning whether there are any genuine issues of material fact
`to be tried, not to deciding them. Its duty, in short, is
`confined at this point to issue-finding; it does not extend to
`issue-resolution.” Gallo v. Prudential Residential Servs. Ltd.
`P’ship, 22 F.3d 1219, 1224 (2d Cir. 1994). The moving party
`bears the initial burden of “informing the district court of the
`basis for its motion” and identifying the matter that “it
`believes demonstrate[s] the absence of a genuine issue of
`material fact.” Celotex, 477 U.S. at 323. The substantive law
`governing the case will identify the material facts and “[o]nly
`disputes over facts that might affect the outcome of the suit
`under the governing law will properly preclude the entry of
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`summary judgment.” Anderson v. Liberty Lobby, Inc., 477 U.S.
`242, 248 (1986).
`In determining whether summary judgment is appropriate, the
`Court must resolve all ambiguities and draw all reasonable
`inferences against the moving party. See Matsushita Elec. Indus.
`Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (citing
`United States v. Diebold, Inc., 369 U.S. 654, 655 (1962)); see
`also Gallo, 22 F.3d at 1223. Summary judgment is improper if
`there is any evidence in the record from any source from which a
`reasonable inference could be drawn in favor of the non-moving
`party. See Chambers v. TRM Copy Ctrs. Corp., 43 F.3d 29, 37 (2d
`Cir. 1994).
`
`II.
`
`
`The parties do not dispute the following facts unless
`otherwise noted.
`
`Defendants David Breitstein, Keith Furer, Richard Barenblatt,
`and Kevin Ungar began working as mortgage loan originators at
`Apple between November 1998 and November 2002. Pl.’s 56.1 Stmt.
`¶¶ 1-4; Defs.’ 56.1 Resp. ¶¶ 1-4. The defendants were at will
`employees. Defs.’ 56.1 Stmt. ¶ 5; Pl.’s 56.1 Resp. ¶ 5. Eric
`Appelbaum is the sole owner of Apple and was the President of
`Apple while the defendants were employed by Apple. Defs.’ 56.1
`Stmt. ¶ 3; Pl.’s 56.1 Resp. ¶ 3.
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`During their employment, the defendants received an Employee
`Handbook. Pl.’s 56.1 Stmt. ¶¶ 5-8; Defs.’ 56.1 Resp. ¶¶ 5-8. The
`Handbook stated that it was “not a contract of employment or a
`legal document” and that it was the employee’s “responsibility
`to read and follow the policies.” Rogin Decl., Ex. I, at 7. Each
`defendant signed an employee acknowledgment form. Rogin Decl.,
`Exs. J-M. There is no dispute that the Handbook included a “Non-
`Disclosure” provision that explained that if employees had
`access to confidential information such as financial information
`and marketing strategies, Apple “may ask that [the employee]
`sign a non-disclosure agreement as a condition of [the
`employee’s] employment.” Rogin Decl., Ex. I, at 14 (§ 112). None
`of the defendants were ever required to sign a confidentiality
`or non-disclosure agreement. Defs.’ 56.1 Stmt. ¶ 5; Pl.’s 56.1
`Stmt. ¶ 5. The Handbook also stated that Apple prohibited
`“[s]ending or posting confidential material, trade secrets, or
`proprietary information outside of the organization.” Rogin
`Decl., Ex. I, at 34 (§ 517).1
`Each defendant also signed a Compensation Agreement that set
`forth a compensation formula based on the loans originated by
`the defendants. Pl.’s 56.1 Stmt. ¶¶ 13-16; Defs.’ 56.1 Resp. ¶¶
`13-16. The Compensation Agreements are almost identical—the only
`
`1 The parties dispute the effect of the Handbook but the content of the
`Handbook is undisputed. Pl.’s 56.1 Stmt. ¶ 9; Defs.’ 56.1 Resp. ¶ 9.
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`variation among the agreements is the percentage of the
`commission. For example, Breitstein’s compensation was based on
`50% of the loan amount after $400 was reduced from 1% of the
`loan amount. Rogin Decl., Ex. N. Furer’s compensation by
`contrast, was based on 56% of the loan amount after $250 was
`reduced from 1% of the loan amount. Rogin Decl., Ex. O.
`Barenblatt’s compensation was based on 55% of the loan amount
`after $400 was reduced from 1% of the loan amount. Rogin Decl.,
`Ex. P. Ungar’s compensation was based on 50% of the loan amount
`after $400 was reduced from 1% of the loan amount. Rogin Decl.,
`Ex. Q. The Compensation Agreements also provided that the
`defendants “must comply with all Federal and State laws,” and
`that the defendants “shall not engage in any activities which
`are deemed to be deceitful or misleading.” Rogin Decl., Exs. N-
`Q, §§ 1.3, 1.4.
`Several deductions were taken from the defendants’ paychecks,
`including a 10% deduction for commissions for deals where Apple
`provided the lead and advertising charges were assessed against
`Furer, Breitstein, and Ungar. Defs.’ 56.1 Stmt. ¶¶ 17-19. Apple
`does not deny deducting these charges, but disputes the
`frequency of some of those charges and contends that the
`defendants agreed to those deductions. Pl.’s 56.1 Resp. ¶¶ 17-
`19. The defendants dispute this characterization. Defs.’ 56.1
`Stmt. ¶ 29. A deduction of $276 was reflected in the defendants’
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`compensation for various pay periods and the adjustments were
`labeled as a “FICA” charge. Defs.’ 56.1 Stmt. ¶ 20; Pl.’s 56.1
`Resp. ¶ 20. This deduction had nothing to do with withholdings
`under Federal Insurance Contributions Act (“FICA”). Defs.’ 56.1
`Stmt. ¶ 21; Pl.’s 56.1 Resp. ¶ 21. The deductions were set forth
`on commission worksheets that the defendants submitted before
`Apple paid the commissions. Defs.’ 56.1 Stmt. ¶ 31; Pl.’s 56.1
`Resp. ¶ 31.
`There is no dispute that on August 19, 2013, the defendants
`met with Alan Rosenbaum, the president of GuardHill, to discuss
`the possibility of becoming mortgage loan originators at
`GuardHill. Pl.’s 56.1 Stmt. ¶ 18; Defs.’ 56.1 Resp. ¶ 18. The
`defendants signed employment agreements with GuardHill between
`August 30, 2013 and September 3, 2013. Pl.’s 56.1 Stmt. ¶¶ 19-
`22; Defs.’ 56.1 Resp. ¶¶ 18-22. The defendants resigned from
`Apple and began working at GuardHill on September 3, 2013. Pl.’s
`56.1 Stmt. ¶ 23; Defs.’ 56.1 Resp. ¶ 23.
`According to Apple, the defendants electronically copied
`information and documents during their final days at Apple.
`Pl.’s 56.1 Stmt. ¶ 26. The four defendants concede that they
`forwarded, emailed, or copied the contents of their Outlook
`contact lists. Pl.’s 56.1 Stmt. ¶¶ 30, 40, 50, 58; Defs.’ 56.1
`Resp. ¶¶ 30, 40, 50, 58. The defendants provided their Outlook
`contacts to GuardHill after joining GuardHill. Pl.’s 56.1 Stmt.
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`¶¶ 36, 49, 56, 63; Defs.’ 56.1 Resp. ¶¶ 36, 49, 56, 63.2
`Breitstein, Furer, and Unger also downloaded, emailed, or
`printed documents from Apple’s Encompass Database which
`contained loan documents and customer information. They printed
`out borrower summaries consisting of the first page of loan
`applications. The loan documents, known as Forms 1003 and 1008,
`contained customers’ social security numbers and dates of birth.
`Pl.’s 56.1 Stmt. ¶¶ 34, 43, 59; Defs.’ 56.1 Resp. ¶¶ 34, 43, 59.3
`Breitstein and Barenblatt also uploaded documents from their
`Apple computers to external memory devices. Pl.’s 56.1 Stmt. ¶¶
`28, 51; Defs.’ 56.1 Resp. ¶¶ 28, 51. It is undisputed that
`Breitstein and Barenblatt connected the memory devices to
`computers at GuardHill. Pl.’s 56.1 Stmt. ¶¶ 38, 54; Defs.’ 56.1
`Resp. ¶¶ 38, 54. The defendants deny however that Breitstein and
`Barenblatt used the information on those external memory
`devices. Pl.’s 56.1 Stmt. ¶¶ 38, 54; Defs.’ 56.1 Resp. ¶¶ 38,
`54.
`It is undisputed that Breitstein, Furer, and Barenblatt
`deleted information and folders that were contained on their
`computers at Apple and on their phones. Breitstein deleted all
`the documents he copied onto his memory device from his computer
`
`
`2 The defendants contend that Apple did not have any role in creating their
`Outlook databases. Defs.’ 56.1 Resp. ¶¶ 36, 49, 50, 63.
`3 The defendants contend they did not use the information contained in these
`documents at Guardhill. Defs.’ 56.1 Resp. ¶¶ 43, 59.
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`at Apple. Pl.’s 56.1 Stmt. ¶ 29; Defs.’ 56.1 Resp. ¶ 29.4 On
`September 2, 2013, Furer remotely deleted folders on his phone
`which may have included client contact information. Pl.’s 56.1
`Stmt. ¶ 47; Defs.’ 56.1 Resp. ¶ 47. From August 27, 2013 to
`September 3, 2013, Barenblatt deleted files and folders from his
`computer at Apple. Pl.’s 56.1 Stmt. ¶ 57; Defs.’ 56.1 Resp. ¶
`57.
`It is undisputed that the defendants input their contact
`lists into their computers at GuardHill, and that an email was
`sent to their contacts announcing the defendants’ new
`affiliation with GuardHill. Defs.’ 56.1 Stmt. ¶ 81; Pl.’s 56.1
`Resp. ¶ 81. The parties do not dispute that the defendants did
`not use the information they downloaded or printed from Apple’s
`computers and databases. Specifically the defendants did not use
`any personal customer information such as social security
`numbers, salary information, or credit ratings. Defs.’ 56.1
`Stmt. ¶ 82; Pl.’s 56.1 Resp. ¶ 82. However, the defendants
`concede that Furer input some email addresses and birth dates
`from the loan documents into his computer at GuardHill. Pl.’s
`56.1 Stmt. ¶ 46; Defs.’ 56.1 Resp. ¶ 43.
`
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`4 Breitstein contends that he thought the deletions were consistent with Apple
`policy and that Apple did not require electronic copies of client data to be
`retained. Defs.’ 56.1 Resp. ¶ 29.
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`The parties dispute the extent of Apple’s alleged losses and
`damages arising from the defendants’ actions. See Defs.’ 56.1
`Stmt. ¶ 97; Pl.’s 56.1 Resp. ¶ 97. Apple initially sought
`damages for lost profits based on loans the defendants
`originated at GuardHill, the sign-on bonuses the defendants
`received from GuardHill, attorney’s fees, and fees charged by
`Emanuel Mamakas for examining the server. Defs.’ 56.1 Stmt. ¶
`105; Pl.’s 56.1 Resp. ¶ 105. Apple presently estimates its total
`damages at $139,733.92. Pl.’s 56.1 Resp. ¶ 106. Apple has also
`identified the cost of a technology consultant that it employed
`to recover files and determine what files were taken or deleted
`by the defendants. Pl.’s 56.1 Resp. ¶ 97.
`The defendants’ motion for summary judgment argues, in part,
`that Apple’s claims should be dismissed because Apple ceased to
`exist as a corporate entity and sold its assets to Sterling
`National Bank (“Sterling”). In September 2013, after the
`defendants’ resignation, Appelbaum initiated discussions with
`Sterling Bank regarding the possibility of selling Apple to
`Sterling. Defs.’ 56.1 Stmt. ¶ 83; Pl.’s 56.1 Resp. ¶ 83. After
`this lawsuit commenced, Apple and Sterling signed a purchase
`agreement on February 4, 2014, pursuant to which Appelbaum had
`the right to receive Sterling stock valued at $250,000 and Apple
`would receive $50,000 in cash. Defs.’ 56.1 Stmt. ¶ 86; Pl.’s
`56.1 Resp. ¶ 86. The parties dispute whether Sterling acquired
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`all of Apple’s assets, particularly whether Sterling purchased
`Apple’s right to pursue this lawsuit. Defs.’ 56.1 Stmt. ¶ 89;
`Pl.’s 56.1 Resp. ¶ 89. It is undisputed that Sterling was aware
`of the ongoing litigation between the defendants and Apple at
`the time that Apple and Sterling signed the purchase agreement.
`Defs.’ 56.1 Stmt. ¶ 93; Pl.’s 56.1 Resp. ¶ 93. As of February 4,
`2014, Apple ceased originating new loans and no longer has any
`active business or licenses necessary to conduct business as a
`mortgage broker. Defs.’ 56.1 Stmt. ¶¶ 95-96; Pl.’s 56.1 Resp. ¶¶
`95-96.
`The defendants brought several counterclaims. They seek
`commissions on loans that had already closed before they left
`Apple and loans that closed after they left Apple, in the
`amounts of (1) $9,463.12 (Breitstein); (2) $36,862.60 (Furer);
`(3) $64,366.42 (Barenblatt); and (4) $16,621 (Unger). Pl.’s 56.1
`Stmt. ¶ 66; Defs.’ 56.1 Resp. ¶ 66. The defendants also seek
`“unpaid prior commissions,” arguing that they are owed bonuses:
`(1) $6,364.59(Breistein); (2) $26,963.90, including additional
`payment for mentoring another employee (Furer); (3) $12,000
`(Barenblatt); (4) $10,000 (Ungar). Pl.’s 56.1 Stmt. ¶ 70; Defs.’
`56.1 Resp. ¶¶ 66, 68, 70. The defendants also claim damages from
`improper deductions, but the amounts are disputed. Pl.’s 56.1
`Stmt. ¶ 72; Defs.’ 56.1 Resp. ¶ 72.
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`III.
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`
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`A.
`The defendants move for summary judgment dismissing all of
`Apple’s claims. The gist of Apple’s complaint is that the
`defendants misappropriated Apple’s property by emailing Outlook
`contact lists, deleting certain files containing client contact
`information, and making copies of mortgage loan documents.
`Compl. ¶ 2. Apple alleges that after the defendants left their
`employment at Apple, they continued to access and delete
`information on Apple’s computer network. Id.
`Apple alleged eleven claims: (1) a cause of action for
`breach of the duty of loyalty against all the defendants for
`violating the terms of the Employee Manual by allegedly
`accessing and copying confidential client files, id. ¶¶ 82-86
`(“Count 1”); (2) a cause of action for theft of business
`property against all the defendants for allegedly accessing and
`copying Apple’s confidential files and deleting the information
`from Apple’s network, id. ¶¶ 87-90 (“Count 2”); (3) a cause of
`action for unfair competition against all the defendants for
`allegedly copying Apple’s files with the intent to use the
`information for the benefit of their new employer, id. ¶¶ 91-95
`(“Count 3”); (4) a cause of action for breach of contract
`against all the defendants because the defendants allegedly had
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`an obligation not to misappropriate or disclose Apple’s
`confidential information to third parties, id. ¶¶ 96-100 (“Count
`4”); (5) a cause of action for conspiracy against all the
`defendants for allegedly conspiring amongst themselves and
`entering into a scheme to destroy Apple’s business and goodwill,
`id. ¶¶ 101-06 (“Count 5”); (6) a cause of action for tortious
`interference with existing and prospective contractual relations
`against all the defendants for allegedly using data and
`documents from Apple’s computer network and inducing Apple’s
`clients to discontinue their business with Apple, id. ¶¶ 107-11
`(“Count 6”); (7) a cause of action under the faithless servant
`doctrine against all the defendants for violating the fiduciary
`duty of loyalty the defendants owed to Apple by accessing and
`disclosing confidential client files and unfairly competing with
`Apple, id. ¶¶ 112-17 (“Count 7”); (8) three causes of action
`against all the defendants for violations of the CFAA, 18 U.S.C.
`§§ 1030(a)(2), (4), and (5), for allegedly accessing Apple’s
`computer network without authorization and downloading
`confidential client information with intent to defraud, id. ¶¶
`118-23 (“Count 8”), furthering the intended fraud and obtaining
`value of more than $5,000.00 from Apple’s confidential and
`proprietary information, id. ¶¶ 124-29 (“Count 9”), and
`disclosing the information from Apple’s files to GuardHill, id.
`¶¶ 130-34 (“Count 10”); and (9) a cause of action seeking a
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`constructive trust over any and all funds, commissions, and
`revenue obtained as a result of the information the defendants
`acquired from Apple’s computer network, id. ¶¶ 135-37 (“Count
`11”).
`The defendants now move for summary judgment dismissing all
`of Apple’s claims.
`
`1.
`The defendants move for summary judgment dismissing all of
`Apple’s claims on the ground that Apple does not have standing
`to assert these claims because Apple is defunct and sold all of
`its assets to Sterling. The defendants’ argument that Apple is
`defunct is without merit because Apple still exists as
`corporation. Appelbaum Aff. in Opp. to Defs.’ Mot. ¶ 3. Summary
`judgment against Apple cannot be granted on that basis.
`Apple responds to the defendants’ argument that Apple sold
`its assets to Sterling, by arguing that Sterling and Apple did
`not intend to convey Apple’s legal claims against the Defendants
`as part of the asset sale. Id. ¶ 4. This argument fails in view
`of the plain words of the contract.
`“Under New York law, the initial interpretation of a
`contract ‘is a matter of law for the court to decide.’” K. Bell
`& Assocs., Inc. v. Lloyd’s Underwriters, 97 F.3d 632, 637 (2d
`Cir. 1996) (quoting Readco, Inc. v. Marine Midland Bank, 81 F.3d
`295, 299 (2d Cir. 1996)). “Included in this initial
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`interpretation is the threshold question of whether the terms of
`the contract are ambiguous.” Alexander & Alexander Servs. v.
`These Certain Underwriters at Lloyd's, London, 136 F.3d 82, 86
`(2d Cir. 1998); see also Curry Road Ltd. v. K Mart Corp., 893
`F.2d 509, 511 (2d Cir. 1990). A court should construe a contract
`as a matter of law only if the contract is unambiguous on its
`face. See Metro. Life Ins. Co. v. RJR Nabisco Inc., 906 F.2d
`884, 889 (2d Cir. 1990). A contract is unambiguous if it “has ‘a
`definite and precise meaning, unattended by danger of
`misconception in the purport of the [contract] itself, and
`concerning which there is no reasonable basis for a difference
`of opinion.’” Sayers v. Rochester Tel. Corp. Supplemental Mgmt.
`Plan, 7 F.3d 1091, 1095 (2d Cir. 1993) (quoting Breed v.
`Insurance Co. of N. Am., 385 N.E.2d 1280 (1978)); see also
`Alexander & Alexander, 136 F.3d at 86; United Nat’l Ins. Co. v.
`Waterfront N.Y. Realty Corp., 994 F.2d 105, 109 (2d Cir. 1993);
`Metro. Life Ins. Co., 906 F.2d at 889.
`If a contract is unambiguous, a court is “required to give
`effect to the contract as written and may not consider extrinsic
`evidence to alter or interpret its meaning.” Consarc Corp. v.
`Marine Midland Bank, N.A., 996 F.2d 568, 573 (2d Cir. 1993); see
`also Alexander & Alexander, 136 F.3d at 86; K. Bell & Assocs.,
`97 F.3d at 637. Contractual language “whose meaning is otherwise
`plain is not ambiguous merely because the parties urge different
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`interpretations in the litigation.” Metro. Life Ins. Co., 906
`F.2d at 889; see also United States Tr. Co. of N.Y. v. Jenner,
`168 F.3d 630, 632 (2d Cir. 1999); Wards Co. v. Stamford Ridgeway
`Assocs., 761 F.2d 117, 120 (2d Cir. 1985). Where the contractual
`language is subject to more than one reasonable meaning and
`where extrinsic evidence of the parties' intent exists, the
`question of the proper interpretation should be submitted to the
`trier of fact. See Alexander & Alexander, 136 F.3d at 86;
`Consarc Corp., 996 F.2d at 573; Compania Financiera de
`Desarollo, S.A. v. Chase Manhattan Bank, No. 97-cv-5724 (JGK),
`1998 WL 74299,*3 (S.D.N.Y. Feb. 19, 1998), aff’d, 165 F.3d 13
`(2d Cir. 1998); see also Simpson v. Mut. of Omaha Ins. Co., No.
`97-cv-1339 (JGK), 2000 WL 322780, at *3-4 (S.D.N.Y. Mar. 28,
`2000).
`Apple brought this lawsuit on December 31, 2013. On
`February 4, 2014, Apple and Sterling signed a purchase
`agreement. Defs.’ 56.1 Stmt. ¶ 86; Pl.’s 56.1 Resp. ¶ 86. The
`purchase agreement between Sterling and Apple is clear:
`“[Sterling] will acquire all of the business, assets, and
`rights” of Apple. Schoenstein Decl., Ex. 12, at 2. Sterling thus
`acquired Apple’s right to pursue the claims against the
`defendants and thus, Apple lost its standing to bring its
`claims. See Altman v. Bedford Cent. Sch. Dist., 245 F.3d 49, 69
`(2d Cir. 2001) (“[I]f the plaintiff loses standing at any time
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`during the pendency of the proceedings in the district court or
`in the appellate courts, the matter becomes moot, and the court
`loses jurisdiction.”).
`Apple does not argue that the contract is ambiguous. Apple
`instead argues that Sterling and Apple did not intend for
`Apple’s claims to be included in the asset sale. See Appelbaum
`Aff. in Opp. to Defs.’ Mot., Ex. A (letter from Sterling
`confirming that the present lawsuit was not included in the
`assets purchased by Sterling). To the extent that the purchase
`agreement appears to sell Apple’s rights to Sterling, Apple
`argues that there was a mutual mistake by the parties. Under New
`York law, however, “a mutual mistake must be as to a fact, and
`not as to the legal consequences of the contract into which the
`parties are entering.” Cobalt Multifamily Inv’rs I, LLC v.
`Bridge Capital (USVI), LLC, No. 06-cv-5738 (KMW)(MHD), 2007 WL
`2584926, at *9 (S.D.N.Y. Sept. 7, 2007).
`To the extent the agreement conveyed Apple’s rights in this
`lawsuit to Sterling, Apple requests that this Court reform the
`contract to give effect to the parties’ intent. But the Court
`cannot reform a contract between Apple and Sterling because
`Sterling is not a party to this action and the reformation would
`affect Sterling’s rights under the purchase agreement. See
`Galbraith v. Guida, 554 N.Y.S.2d 592, 593 (App. Div. 1990) (a
`court cannot reform a contract when a necessary party has not
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`been joined in the action). In all the years this case has been
`pending, Apple has not sought to join Sterling in this action
`and has not submitted any evidence that Sterling conveyed its
`right back to Apple.
`
`The plain language of the contract is clear. Apple does not
`have the right to pursue this action against the defendants
`because it sold that right to Sterling. There is no triable
`issue of material fact as to Apple’s lack of standing. Thus,
`Apple’s claims should be dismissed without prejudice for lack of
`jurisdiction.
`
`2.
`
`For purposes of completeness, the Court will also consider
`the other bases the defendants urge as arguments for summary
`judgment dismissing Apple’s claims. The defendants argue that
`Apple’s claims should be dismissed for lack of damages. Apple
`sought damages for the amount of commissions Apple would have
`received on loans that were originated by the defendants at
`GuardHill. Apple reasoned that since the defendants took
`customer lists, including the names and information of past
`Apple clients, Apple would have received a commission from those
`revenue streams if the defendants had not taken the clients’
`information. In its complaint Apple sought compensatory damages
`of $5 million and punitive damages of $10 million. Apple most
`
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`recently drastically revised its damages statement downward to
`seek damages in the amount of $139,733.92,5 the amount of
`commissions it would have received on 13 loans, plus the
`commissions the defendants received on another 6 loans which
`were originated after Apple ceased operations. Pl.’s 56.1 Resp.
`¶ 106.
`Summary judgment dismissing Apple’s claims for lack of
`damages is not appropriate. There are genuine issues of material
`fact as to whether Apple would have originated various loans had
`it not been for the defendants’ allegedly wrongful conduct.
`Therefore, the lack of damages is not an appropriate grounds on
`which to grant the defendants’ motion for summary judgment.
`
`3.
`
`The defendants also move for summary judgment dismissing
`Apple’s claims on the grounds that the claims fail as a matter
`of law. The defendants did not initially move to dismiss Apple’s
`constructive trust claim and only mentioned the constructive
`trust claim in their reply brief. However, at the oral argument
`of the current motions, Apple agreed to the dismissal of the
`constructive trust claim. Therefore, Count 11 must be dismissed
`
`
`5 Apple originally alleged damages with respect to the defendants’ signing
`bonuses, attorney and consultant fees, and other forms of economic loss. But
`Apple’s papers in opposition only address damages from loans Apple could have
`allegedly originated, and the revised damages estimate does not include other
`types of damages. Pl.’s 56.1 Resp. ¶ 106.
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`on this additional ground. Apple also concedes that there is
`insufficient evidence to support its claim for tortious
`interference with existing and prospective contractual
`relations, Count 6, and does not oppose granting the defendants’
`motion for summary judgment dismissing Count 6. Thus, Count 6
`must be dismissed on this additional ground.
`With respect to the remaining claims on which the
`defendants argue that they are entitled to summary judgment
`based on the undisputed evidence, there are genuine issues of
`material fact that would preclude summary judgment on almost all
`of the claims on the grounds urged by the defendants.
`
`a.
`
`The defendants seek to dismiss Apple’s causes of action
`alleging breach of the duty of loyalty and faithless servant
`claims, Counts 1 and 7, arguing that there is no evidence that
`the defendants were competing with Apple while still employed by
`Apple. However, there are genuine issues of material fact that
`preclude dismissal of these claims on that basis.
`Under New York law, an employee owes the employer a duty of
`good faith and loyalty. While an employee may create a competing
`business before leaving the employer, an employee may breach the
`fiduciary duty to the employer if the employee makes “improper
`use of the employer’s time, facilities, or proprietary secrets.”
`
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`Island Sports Physical Therapy v. Burns, 923 N.Y.S.2d 156, 157-
`58 (App. Div. 2011) (internal citations omitted). Solicitation
`of customers is “not actionable unless the customer list could
`be considered a trade secret, or there was wrongful conduct by
`the employee . . . such as physically taking or copying files or
`using confidential information.” Id.; see also Fada Int’l. Corp.
`v. Cheung, 870 N.Y.S.2d 23, 24 (App. Div. 2008).
`Although the defendants argue that there is no evidence
`they competed with Apple while still employed at Apple, they do
`not dispute that they copied files and sent files and contact
`information externally from their Apple computers to personal
`email addresses and associated third parties, and that they did
`so while still employed at Apple. Moreover, the defendants do
`not dispute that there was at least some confidential
`information in the materials they copied from Apple’s Encompass
`database. Defs.’ 56.1 Stmt. ¶¶ 70-74. Breitstein, Furer, and
`Ungar printed out summary sheets from the Encompass database
`which contained information about mortgages for Apple customers.
`Id. ¶ 74. And it is undisputed that the information from the
`Encompass database contained private customer social security
`numbers and dates of birth. Pl.’s 56.1 Resp. ¶ 76. The Court
`therefore could not dismiss these claims on the basis that there
`is no evidence to support them. The evidence is disputed and
`raises genuine issues of material fact.
`
`
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`b.
`
`The defendants move for summary judgment dismissing Count 2
`for theft of business property, arguing that the defendants only
`made copies of documents, that Apple never lost access to these
`documents and files, and that Apple cannot identify any injury
`arising from the purported conversion because the defendants
`returned the documents in the course of discovery in this
`litigation.
`Under New York law, a plaintiff must establish the
`following to succeed on a conversion claim: “(1) the property
`subject to conversion is a specific identifiable thing; (2)
`plaintiff had ownership, possession or control over the property
`before its conversion; and (3) defendant exercised an
`unauthorized dominion over the thing in question, to the
`alteration of its condition or to the exclusion of the
`plaintiff’s rights.” DeAngelis v. Corzine, 17 F. Supp. 3d 270,
`282 (S.D.N.Y. 2014) (internal quotation marks and citation
`omitted). New York recognizes a claim for conversion of
`electronic files. Thyroff v. Nationwide Mut. Ins. Co., 864
`N.E.2d 1272, 1278 (N.Y. 2007).
`The defendants do not argue that Apple failed to show that
`the claim of conversion relates to a specific identifiable thing
`or that Apple had ownership over the property before conversion.
`Rather, the defendants make two arguments that go to t