Commercial Division Blog

Posted: November 16, 2013 / Categories Commercial, Contracts, Motion to Dismiss; Motion for Judgment on the Pleadings

Claim for Breach of NDA Allowed to Proceed While All Tort Claims Relating to the Alleged Breach Are Dismissed on the Pleadings

On November 7, 2013, Justice Schweitzer of the New York County Commercial Division issued a decision in Affinity LLP v. GfK Mediamark Research & Intelligence, LLC, 2013 NY Slip Op. 32873(U), in which he denied a pre-Answer motion to dismiss a claim alleging the breach of a non-disclosure agreement ("NDA") but granted the motion insofar as it sought dismissal of all of plaintiff's tort claims.

The NDA was signed in April 2008 as part of defendant's due diligence in connection with a potential acquisition of plaintiff's business. The transaction died three months later when negotiations broke off. Shortly thereafter, defendant announced the launch of a service that competed with plaintiff's service and launched that service in February 2009. A review of the electronic docket indicates that plaintiff did not sue defendant until April 2013, almost four years later, and did not move for any preliminary injunctive relief. Plaintiff sued defendant for breach of the NDA, misappropriation of trade secrets, unfair competition, fraudulent concealment, and tortious interference with prospective business relations. Defendant moved to dismiss all claims on the pleadings and based on documentary evidence.

Justice Schweitzer declined to dismiss the breach of contract claim, rejecting defendant's argument that the allegations in the complaint established, as a matter of law, that defendant had developed its competing service without using any of plaintiff’s confidential information, given the inferences that he was required to draw in favor of plaintiff in light of the facts alleged that the defendant had announced the launch of its new service only eight days after the transaction between plaintiff and defendant died and launched that service about seven months later. Justice Schweitzer also rejected defendant's argument that he could determine, as a matter of law and based on defendant's documentary evidence, that the defendant's new service was developed using only publicly available information and not plaintiff's confidential information or trade secrets, because "the determination of whether a trade secret exists is often a question of fact." (internal quotation marks omitted).

Justice Schweitzer then dismissed plaintiff's tort claims based on the black letter rule that, absent some special relationship, parties to an arm's-length contract do not owe each other extra-contractual duties and can make claims only for breach of contract.

Given the ubiquity of NDAs in modern-day commercial transaction, Justice Schweitzer's decision provides a valuable road map to practitioners who wind up in litigation when one of their clients allegedly breaches an NDA.