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Fox v. Millman

July 15, 2010

THOMAS F. FOX; TARGET HOLDINGS, INC. D/B/A TARGET INDUSTRIES, PLAINTIFFS-APPELLANTS/ CROSS-RESPONDENTS,
v.
JEAN MILLMAN, DEFENDANT, AND POLYMER PACKAGING INC.; LARRY LANHAM; BILL LANHAM, DEFENDANTS-RESPONDENTS/ CROSS-APPELLANTS.



On appeal from the Superior Court of New Jersey, Law Division, Morris County, L-190-04.

Per curiam.

RECORD IMPOUNDED

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued March 8, 2010

Before Judges Lisa, Baxter and Alvarez.

Plaintiffs Thomas F. Fox and Target Holdings, Inc. (Holdings) doing business as Target Industries (Target), appeal the dismissal of their complaint against defendants Polymer Packaging, Inc., Larry Lanham and Bill Lanham (collectively referred to as defendants). Defendants cross-appeal the denial of their motion for summary judgment as well as the denial of their motion for attorney's fees and costs. Defendant Jean Millman was discharged in bankruptcy and therefore did not directly participate in the proceedings leading to this appeal. For the reasons that follow, we affirm.

I.

On January 20, 2004, plaintiffs filed a complaint against Millman and her employer, who was initially designated as a fictitious company or persons. Once the identity of Millman's new employer was ascertained, plaintiffs on June 10, 2005, amended the complaint to name the present defendants.

The complaint alleged that Millman, a past employee of Target, the precursor to Holdings, had plundered Target's confidential and proprietary information and trade secrets in order to benefit her new employer, defendants. The material included "customer lists, identity of customers, customer product specifications, pricing structure and pricing programs, price lists, files and documents relating to Target customers' accounts, manufacturing processes, operational information and sales program data."

Plaintiffs also claimed that defendants misappropriated proprietary information, were unjustly enriched by their wrongful conduct, engaged in conspiracy, unfair competition, and conversion, and tortiously interfered with their business relations and with their prospective economic advantage. As a result of these allegations, plaintiffs sought the following: compensatory and punitive damages; injunctive relief prohibiting defendants from interfering with its business; the imposition of a constructive trust; an accounting "from defendants . . . for all sales to customers of [Holdings] sold to by defendants" and "all manufacturing jobs [completed] for customers of [Holdings]"; and counsel fees. Defendants' answer asserted thirteen affirmative defenses, including estoppel, waiver, and laches, and cross-claimed against Millman.

The trial judge issued a written opinion and order on January 16, 2007, as a result of the parties' extensive summary judgment motions. The only relief he granted was to dismiss plaintiffs' conversion and conspiracy counts.

When the matter was tried to a jury, at the close of plaintiffs' case, on July 25, 2007, defendants made a motion for involuntary dismissal of the claims against them. The motion was granted as to plaintiffs' unjust enrichment claim, their breach of duty of loyalty claim, and the demand for punitive damages.

The jury rendered its verdict on July 31, 2007, finding that: (1) "defendants act[ed] in good faith in soliciting and selling to Target's former customers"; (2) Target's bankruptcy trustees' written assurance to Millman that she would not be joined in the lawsuit initiated years prior related to Target's bankruptcy proceedings amounted to misrepresentation; (3) defendants did not know and should not have known that Millman breached any confidence by soliciting and selling to Target's customers; and (4) "plaintiffs unreasonably delay[ed] in asserting their claims" and defendants were prejudiced by this delay. Accordingly, on August 13, 2007, the trial court entered judgment dismissing all of plaintiffs' remaining causes of action with prejudice.

On August 20, 2007, plaintiffs moved for judgment notwithstanding the verdict or, in the alternative, for a new trial. Defendants cross-moved for counsel fees and costs. All the requests for relief were denied; however, defendants were granted $4333.57 in costs. Thereafter, on July 25, 2008, the trial court denied plaintiffs' application for counsel fees that were incurred in opposing defendants' post-verdict motion for counsel fees and costs, as well as counsel fees incurred by plaintiffs for the expense of filing that application. This appeal and cross-appeal followed.

II.

Some history is necessary to an understanding of the issues on appeal. Target, a distributor of plastic bags, was founded by Martin Goz in 1975. Fox, initially only an investor in the company, became Target's director of development from 1993 until 1996 or 1997, when he and Goz had a falling out.

Fox had no knowledge of any confidentiality measures taken at Target during those years. Goz testified that Target salespeople, including Millman, had neither confidentiality agreements nor covenants not to compete. At Millman's deposition, which was read to the jury at trial, she testified that she signed neither a confidentiality agreement nor a covenant not to compete. According to Goz, there were no "written notices or guidelines with regard to keeping customer information secret" while he was Target's owner and president. It was the company's practice to allow employees to take their customers with them when they terminated their relationship with Target.

Millman was first hired at Target in March 1988. She was a commissioned salesperson who solicited customers by phone from her home in New Jersey and later in Florida. When deposed, Millman admitted signing the initial page of a document entitled "Target Industries Compensation Plan Summary July 1, 1988 to June 30, 1999 Confidential." She denied signing the last page, however, which would have established her agreement with the document's provisions. In any event, although Fox characterized the document as a confidentiality agreement, it contained neither provisions which created such an obligation nor a covenant not to compete. Rather, it related mainly to payment of commissions, including those due on sales occurring after a salesperson's last day of employment. It also required employees to return all physical property, including "correspondence[] and other papers/materials," to the company after the termination of employment. At trial, Fox admitted that the document did not contain a covenant not to compete, but he nonetheless characterized it as a confidentiality agreement even while being unable to identify any provisions having that effect.

Target filed a Chapter 11 bankruptcy petition on December 30, 1999. Goz subsequently fired Millman as a result of disputes related to Target customers. On September 8, 2000, counsel for Target's then Chapter 11 trustee wrote to Millman as follows:

We understand that you have advised some of Target's customers that Target is no longer in business and that you have attempted to solicit those customers' business for your own account. Your doing so is a violation of the Bankruptcy Code and may also violate your obligation to Target Industries under the terms of your employment as well as under applicable state law. Also, your statements that Target is no longer in business are completely false. The Chapter 11 Trustee is authorized to operate, and presently is operating, the Target Industries business. . . . Accordingly, your misrepresentations and statements are tortious and are interfering with the ongoing operations of Target's business.

We hereby demand that you cease and desist from all further contact with any customers of Target Industries, Inc. or its affiliated company, Lance Plastics, Inc. and any suppliers with whom Target does business. Moreover, we request that you preserve and gather for return to Target, the Chapter 11 Trustee or their authorized designee all office equipment (including all computers, computer accessories, software, fax machines, phones, desks, supplies and other materials), original files and credit cards which you obtained through your work for Target.

Polymer, also a distributor of industrial plastic bags, hired Millman effective September 11, 2000. She told Larry Lanham and Bill Lanham, Polymer's owners, that she had been a Target employee but that she was not subject to a non-compete or confidentiality agreement. She asserted that "she was a free agent" and assured her new employers they had no reason to inquire further of Target. Larry Lanham testified that if Millman had produced any written agreement restricting future sales, they would have forwarded the document to their attorney for review. He denied that Millman had produced a customer list from Target, and said that had such a list been produced by a new hire, he or she would have been fired on the spot.

Millman did, however, provide Polymer with a list, captioned "Customer List - Jean Millman (9/00)," of persons to whom Millman wanted notices sent advising that she now worked for Polymer. As Larry Lanham put it, Polymer "still had to go out and sell them. We still had to convince them that they should buy from us instead of who they're currently buying from. And we went through the normal sales process of soliciting business. She was free to do that." Use of the list also ensured that Millman was not going to solicit customers already being serviced by Polymer salespeople.

While at Polymer, Millman was paid forty percent of gross profits on all orders but no draw. Half of her health benefits were paid by Polymer but no contributions were made to any retirement fund on her behalf. Millman worked out of her Florida home and incurred few travel expenses, because she only visited Polymer's Ohio offices on rare occasions. Polymer paid for the phone, fax, and computer connections in her Florida home. Millman was not required to enter into a non-compete agreement as a condition of employment. She did, however, enter into a confidentiality agreement with Polymer; she would not use Polymer's confidential or proprietary information without its "prior written approval."

Millman generated sales for Polymer as follows: $184,054.02 from September 12 to December 31, 2000; $955,794.44 from January to December 31, 2001; $1,210,555.02 from January 1 to December 31, 2002; $988,485.97 from January 1 to December 31, 2003; $1,251,712.76 from January 1 to December 31, 2004; and $444,980.37 from January 1 to October 24, 2005. In other words, Millman generated approximately $5.2 million in sales for Polymer from September 2000 to October 2005. Millman left Polymer on October 1, 2004 as a result of the company taking five states away from her sales territory because other Polymer salespeople were already calling those accounts and her sales activities were creating conflicts within the company.

Target closed on March 16, 2001, and by March 19, 2001, all employees had been dismissed. Millman wrote to the bankruptcy judge on March 28, 2001, advising that Goz, Target's former Vice President Guy Zimmerman, and Target's salespeople, "have most likely been moving accounts and will be opening a new company called Target Industrial Packaging in Lafayette, NJ." In the letter she referred to transcripts of taped phone conversations she had previously forwarded to the judge that allegedly "reveal[ed] the deception that was probably taking place since September 2000" and "that the orders that slowly faded from Target Industries were probably due to them being farmed out to other suppliers outside the bankruptcy case." Millman copied the letter to Fox as well as to Alex Kress, counsel for Target's then Chapter 11 trustee.

Fox and Robert Wasserman, the Chapter 11 trustee for Target/Lance, on June 14, 2001, commenced a proceeding in the bankruptcy court against Goz Sr., Goz Jr., Target Industrial Packaging, and others, alleging in an eighteen-count complaint that they wrongfully diverted the debtor's assets. They sought injunctive relief, an accounting, disgorgement of Target's and Lance's assets and profits, and treble as well as punitive damages. Neither Millman nor Polymer was named as a defendant in the complaint.

In fact, in a June 18, 2001 letter to Millman, Wasserman wrote:

A lawsuit has been filed before the Bankruptcy Court in Newark against Martin Goz, his new entities and all of the former salespeople of Target who are now associated with Goz. I can represent to you that as promised, you have not been named as a Defendant in said suit. However, as part of our efforts to convince the Bankruptcy Court to issue an injunction prohibiting Goz and his new company from pirating the assets of Target, we have included copies of the transcript of the telephone conversations by and between you and Goz which [sic] you originally forwarded to Judge Gambardella. It is therefore imperative that you provide me copies of the actual tapes of the conversations at issue as originally promised. I really do not want to have to go through the mechanics of issuing a subpoena to have you produce the audio tapes. Your immediate cooperation will be most appreciated. Please advise.

On June 28, 2001, Fox purchased the Target assets including:

(f) all trade names, trade dress, customer artwork, printing plates, logos, customer product specifications, customer lists, price lists and other confidential and proprietary information and trade secrets of either of the Debtors ("Proprietary Assets").

In the June 29, 2001 bill of sale, Wasserman conveyed to Fox "all of Transferor's right, title and interest, AS IS, WHERE IS, without any warranty or representation of any kind . . . . "

It is undisputed that plaintiffs knew that Millman continued to sell in the field. In a May 7, 2001 letter to Kress, Wasserman wrote:

I took it upon myself to call Jean Millman who has agreed to provide me copies of the actual tape[d] conversations with Martin Goz. . . . In fact, I was a little surprised to hear that Millman is not inclined to work with Fox in that she claims that both John Rudy and John Fox contacted her and threatened action if she did not refrain from soliciting customers of Target. Millman tells me that the only customers that she has ever solicited were those that she originally brought to Target.

A former employee of Target testified on July 12, 2002, at depositions related to the bankruptcy case, that he thought Millman worked for a company called Polymer Systems somewhere in Ohio.

III.

The verdict sheet submitted to the jury began with these questions:

Question #1

Did Defendants act in good faith in soliciting and selling to Target's former customers?

YES:___ NO:___ VOTE:___

If you have answered question 1 "yes" then proceed to consider and answer question 2.

If you have answered question 1 "no" then proceed to consider and answer question 11.

Question #2

Did the bankruptcy trustee telling Jean Millman ("Millman") that she would not be joined in the pending lawsuit initiated June 14, ...


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