Allegations Sufficient to Support Claim For Breach of Tortious Interference with Contract at Motion to Dismiss Stage, But Not Claims for Tortious Interference with Prospective Business Relations or Unfair Competition

In a Decision and Order on Motion, dated April 17, 2023, in Millennium Consolidated Holdings, LLC v. Bluefin Capital Management, LLC, Index No. 656387/2022, Justice Margaret A. Chan denied defendant’s motion to dismiss the claim for tortious interference with contract or, in the alternative, to stay the action pending a determination from FINRA on a related matter between plaintiffs and the non-party employee, but granted defendant’s motion to dismiss plaintiffs’ claims for tortious interference with prospective business relations and unfair competition. Defendant, a privately-owned multi-strategy trading firm, employed plaintiffs’ former employee who had signed several agreements that subjected him to non-compete and confidentiality obligations. The Court explained while the allegations were sufficient to support a claim for tortious interference with the restrictive covenants in the former employee’s agreements with plaintiffs, the other claims should be dismissed:

To state a claim for tortious interference with business relations, a plaintiff must plead that it had a business relationship with a third party that defendant knew but intentionally interfered, that defendant acted solely out of malice or used improper or illegal means that amounted to a crime or independent tort, and that the defendant's interference caused injury to the relationship (Amaranth LLC v J.P. Morgan Chase & Co., 71 AD3d 40, 47, 888 N.Y.S.2d 489 [1st Dept 2009]). Defendant argues that this claim must be dismissed since plaintiffs do not allege any facts that would support an inference of malice and do not identify any third party toward which defendant directed any malicious conduct. This court agrees.

Plaintiffs merely allege, vaguely, that they had business relationships with their trading counterparties, but fail to identify any of the trading partners and cannot establish the but-for causation required (Learning Annex Holdings, LLC v Gittelman, 48 AD3d 211, 211, 850 N.Y.S.2d 422 [1st Dept 2008] [dismissing the claim since "the plaintiff has failed to identify any specific customers it would have obtained but for defendant's actions"]; Vigoda v DCA Productions Plus Inc., 293 AD2d 265, 267, 741 N.Y.S.2d 20 [1st Dept 2002] [dismissing the claim since the plaintiffs "cannot name the parties to any specific contract they would have obtained"]). Therefore, plaintiffs' claim for tortious interference with prospective business relations is not viable.

Unfair competition

A claim for unfair competition requires that plaintiffs show that "a defendant misappropriated plaintiffs' labor, skills, expenditures or good will, and displayed some element of bad faith in doing so" Schroeder v Pinterest Inc., 133 AD3d 12, 30, 17 N.Y.S.3d 678 [1^st Dept 2015]). Defendant moves to dismiss plaintiffs' unfair competition claim, arguing that plaintiffs do not allege any actual misappropriation of their proprietary information but only conclusively allege that Zhou could theoretically use the knowledge and skills he acquired at plaintiffs in his work with defendant.

The complaint alleges that Zhou, without any prior working experience, had gained knowledge of plaintiffs' trading tools, quantitative models, trading algorithms and methods of trading during his employment with Millennium, which were developed by plaintiffs' software developers, quantitative analysts, traders and executives using significant confidential and proprietary information over ten years with over $40 million invested. The information, as Zhou himself acknowledged in the agreements, gives plaintiffs competitive commercial advantage, and is protected under New York law.

However, as defendant argues, the complaint does not allege that Zhou disclosed any of the information or that defendant obtained or used the information. Thus, even affording plaintiffs the benefit of every possible favorable inference, the court cannot find a plausible inference of defendant's bad-faith misappropriation.

Alternative request for a stay

Defendant alternatively moves for an order under CPLR 2201 to stay the instant action pending the determination of a related FINRA proceeding. The FINRA proceeding was commenced by Zhou against plaintiffs, claiming that plaintiffs breached the Severance Agreement by withholding payment even though he allegedly abided by his restrictive covenants. "[I]t is only where the decision in one action will determine all the questions in the other action, and the judgment on one trial will dispose of the controversy in both actions that a case for a stay is presented" (Hope's Windows v Albro Metal Prod. Corp., 93 AD2d 711, 712, 460 N.Y.S.2d 580 [1st Dept 1983]). While the FINRA proceeding would reach the issue of Zhou's and Millennium's breach of the agreements, the instant action focuses on defendant's tortious interference that requires different proof. Thus, a granting of stay is not warranted as the FINRA action involves different parties for different causes (id. ["[w]hat is required is complete identity of parties, causes of action and judgment sought"]).

The attorneys at Schlam Stone & Dolan frequently litigate claims for tortious interference and unfair competition as well as motions to stay litigation and arbitration. Contact our attorneys at commercialdivisionblog@schlamstone.com if you or a client have questions regarding such issues.