Barbagallo v. Marcum LLP

• Decision Date: 25 October 2011
• Docket Number: No. 11–CV–1358.,11–CV–1358.
• Citation: 820 F.Supp.2d 429
• Parties: Joseph S. BARBAGALLO, Plaintiff, v. MARCUM LLP, John Does 1–9, Defendants.Marcum LLP, on Counterclaims, and as Third–Party Plaintiff, v. Joseph S. Barbagallo, on Counterclaims,andCitrin Cooperman & Company, LLP, as Third–Party Defendant.
• Court: U.S. District Court — Eastern District of New York

820 F.Supp.2d 429

Joseph S. BARBAGALLO, Plaintiff,

v.MARCUM LLP, John Does 1–9, Defendants.Marcum LLP, on Counterclaims, and as Third–Party Plaintiff,

v.Joseph S. Barbagallo, on Counterclaims,andCitrin Cooperman & Company, LLP, as Third–Party Defendant.

No. 11–CV–1358.

United States District Court, E.D. New York.

Oct. 25, 2011.

Alan S. Fellheimer, Fellheimer & Eichen, LLP, New York, NY, for Plaintiff.

John Houston Pope, Raymond T. Mak, Kevin Richard Brady, Epstein Becker & Green PC, New York, NY, for Defendant.

Frank Christian Welzer, John K. Crossman, Zukerman Gore & Brandeis LLP, New York, NY, for Third-Party Defendant.JACK B. WEINSTEIN, Senior District Judge:

+------------------------------------------------------------+
                ¦I. ¦Introduction                                      ¦437  ¦
                +---+--------------------------------------------------+-----¦
                ¦   ¦                                                  ¦     ¦
                +---+--------------------------------------------------+-----¦
                ¦II.¦Facts and Claims                                  ¦437  ¦
                +------------------------------------------------------------+
                

     A.   Parties                                                       437
                     B.   Jurisdiction and Choice of Law                                438
                     C.   Terms of Employment Contract                                  438
                     D.   Alleged Violations of Employment Contract                     439
                

                III. Legal Standard                                                     440
                IV.  Barbagallo's Motion to Dismiss Marcum's Claims                     440
                

     A.   Reformation of Contract                                       440
                     B.   Gross Negligence                                              441
                     C.   Unjust Enrichment                                             443
                     D.   Marcum's Other Counterclaims Against Barbagallo               443
                

                V.   Citrin's Motion to Dismiss Marcum's Claims                         443
                

     A.   Tortious Interference with Contract                           443
                     B.   Aiding and Abetting Breach of Fiduciary Duty                  445
                     C.   Unfair Competition                                            446
                     D.   Unjust Enrichment                                             447
                     E.   Punitive Damages                                              448
                

                VI.   Equitable and Legal Issues                                        449
                VII.  Enforceability of the Non–Compete Clause                          449
                VIII. Barbagallo's Remaining Claims                                     450
                IX.   Conclusion                                                        451
                

I. Introduction

Joseph Barbagallo, a certified public accountant; his former employer, Marcum LLP (“Marcum”); and his new employer, Citrin Cooperman & Co. (“Citrin”) are engaged in this complex legal dispute about the propriety of the acts of all three in the job switching. They bring motions pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure and for other relief.

Barbagallo sues Marcum for wrongfully withholding payment of retirement and other benefits, claiming violations of both federal and state law. Compl. 1, Doc. Entry 1, Mar. 18, 2011 (“Compl.”). He also seeks a declaratory judgment that he is the owner of a particular telephone number. Compl. ¶¶ 104–05.

Marcum contends that Barbagallo failed to retire with notice as required under his employment agreement and is therefore ineligible for retirement benefits. See Amended Ans., Counterclaims, and Third–Party Compl., Doc. Entry 36, Sept. 22, 2011. It seeks reformation of the employment contract and brings counterclaims against Barbagallo for violating a non-compete clause as well as for breach of a fiduciary duty not to steal its clients and confidential information. Marcum also brings third-party claims against Barbagallo's current employer, Citrin for assisting Barbagallo in his tortious acts. See id.

Barbagallo moves to dismiss Marcum's counterclaims for: (1) reformation of the contract, (2) gross negligence, (3) unjust enrichment, and (4) punitive damages.

Citrin moves to dismiss Marcum's claims for: (1) tortious interference with the contract; (2) aiding and abetting breach of fiduciary duties; (3) unfair competition; and (4) unjust enrichment.

The unjust enrichment and punitive damages claims against Citrin and Barbagallo are dismissed. To the extent that Marcum's gross negligence claim is based on Barbagallo's alleged malpractice, this claim is also dismissed. Barbagallo's unjust enrichment claims are also dismissed. In the absence of a stipulation for jury waiver, remaining claims shall be tried by the court in part and by a jury in part (sitting on some claims in an advisory capacity). See Part IX, infra.

II. Facts and Claims

A. Parties

Marcum is an accounting firm with its principle place of business in Melville, New York. See Compl. ¶ 2. As one of the nation's largest accounting firms, it employs “more than 1,100 professionals, including more than 150 partners, in 23 offices throughout New York, New Jersey, Massachusetts, Connecticut, Pennsylvania, California, Florida, Grand Cayman, China and Hong Kong.” Fact Sheet, Marcum LLP, http:// www. marcumllp. com/ firmprofile/ factsheet (last visited Oct. 24, 2011). Citrin is a New York City-based accounting firm that competes directly with Marcum in the New York City and Philadelphia metropolitan areas. See Amended Ans. ¶ 140. It employs over 160 accountants. See People, Citrin Cooperman, http:// www. citrin cooperman. com/ people/ (last visited Oct. 24, 2011).

Barbagallo, a Pennsylvania resident, is a certified public accountant. See Compl. ¶ 1. In March 2003, he entered into an employment contract with Margolis & Company P.C. (“Margolis”), a Pennsylvania accounting firm. Amended Ans. ¶ 125. One of his roles was to “assist the [c]ompany in securing new clients and in developing the [c]ompany's practice” in Pennsylvania. Ans. Ex. A 1–2.

Marcum purchased the assets of Margolis in September 2009; the merger left Marcum as the surviving entity. Compl. ¶ 34; Amended Ans. ¶ 126. Barbagallo then entered into a non-equity partner agreement with Marcum. Amended Ans. ¶ 127; Compl. Ex. 1 (“Contract”). This Contract superseded the prior agreement with Margolis. Embodied in the Contract is the Marcum Employee Handbook. Contract Sec. 1.2. It is this new Contract that is central to the dispute.

B. Jurisdiction and Choice of Law

The Contract calls for jurisdiction and venue in New York federal and state courts. See Contract Sec. 21.1. The court has subject matter jurisdiction over Barbagallo's claims for retirement benefits under the Employee Retirement Income Security Act (ERISA), Pub.L. No. 93–406, 88 Stat. 829 (codified as amended in scattered sections of 5 U.S.C., 18 U.S.C., 26 U.S.C., 29 U.S.C., and 42 U.S.C.). It exercises supplemental jurisdiction over both Barbagallo's and Marcum's state law claims. 28 U.S.C. § 1367(c)(3).

Even if Barbagallo's retirement benefits are not covered by ERISA, this court had diversity jurisdiction over the matter. See 28 U.S.C. § 1332. Barbagallo resides in Pennsylvania; Marcum's principal place of business is in New York. Each claims over $75,000 in damages. See Tr. of Motion to Dismiss Hr'g, Oct. 25, 2011. The court may exercise supplemental jurisdiction over Marcum's third-party complaint against Citrin, even though Citrin is non-diverse. World Trade Center Properties, L.L.C. v. Hartford Fire Ins. Co., 345 F.3d 154, 163 (2d Cir.2003), abrogated on other grounds by Wachovia Bank v. Schmidt, 546 U.S. 303, 126 S.Ct. 941, 163 L.Ed.2d 797 (2006).

In deciding the state law claims, New York law will be applied. The Contract requires that the agreement be construed and enforced under New York law. Contract Sec. 21.1(a). Although the parties have not addressed what law should be applied to the tort claims raised, they have assumed in their papers that New York law would govern these claims as well. “[S]uch implied consent is ... sufficient to establish the applicable choice of law.” Golden Pacific Bancorp v. F.D.I.C., 273 F.3d 509, 513 n. 4 (2d Cir.2001).

C. Terms of Employment Contract

The contract consists of twenty-three single-spaced pages covering in great detail the terms of employment. Barbagallo's compensation is substantial: $183,625 per year plus bonuses, large expense accounts, and large retirement payments for ten years. See, e.g., Sec. 8. 1, 9. 1, 10.1. It was obviously prepared—with input by the new employee—by the employer, a large firm with both partners and non-equity partner accountants. Almost every conceivable issue is covered by the Contract and Employee's Handbook issued by Marcum.

Among other terms, the Contract bound Barbagallo to: (1) “devote his exclusive time and efforts to Marcum Business”, Contract Sec. 6.1; (2) provide twelve months notice of intent to retire, id. at Sec. 10.3; (3) provide ninety days notice before terminating his employment and continue to perform his responsibilities during this notice period, id. at Sec. 14.1; (4) not divulge any of Marcum's trade secrets or confidential business information during and after his employment with Marcum, id. at Sec. 12.1(a-b); (5) not provide services in the same capacity to any of Marcum's clients, unless as an employee of the client, after termination of employment with Marcum, id. at Sec. 12.1(c); (6) not engage in business under the name of “Margolis” after termination of employment except as subject to “unwind” provisions, id. at Sec. 12.1(d); and (7) compensate Marcum for any clients that leave Marcum and continue their relationship with plaintiff upon termination of his employment at Marcum, id. at Sec. 13.1. The parties agree that the non-compete clause did not violate public policy. Id. Sec. 12.1; see infra Part VII for further discussion.

Barbagallo agreed to be bound by Marcum's Philadelphia Office Employee Handbook. Contract Sec. 1.2(a); Compl. Ex. 4 (“Handbook”). It...