Daiuto v. Evolve Guest Controls, LLC

• Decision Date: 04 March 2020
• Docket Number: 17-CV-1279 (NGG) (JO)
• Parties: LEO DAIUTO, Plaintiff, v. EVOLVE GUEST CONTROLS, LLC, Defendant.
• Court: U.S. District Court — Eastern District of New York

LEO DAIUTO, Plaintiff, v. EVOLVE GUEST CONTROLS, LLC, Defendant.

17-CV-1279 (NGG) (JO)

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF NEW YORK

March 4, 2020

REPORT AND RECOMMENDATION

James Orenstein, Magistrate Judge:

Plaintiff Leo Daiuto ("Daiuto") accuses his former employer, defendant Evolve Guest Controls, LLC ("Evolve"), of two torts arising from Evolve's alleged interference with his later employment with non-party Teknikos, Inc. ("Teknikos"). See Docket Entry ("DE") 15 (Amended Complaint) ("AC"). Evolve initially contested the claims but then stopped participating in the litigation and ultimately defaulted. See DE 47; DE 48; DE 49. Daiuto now seeks a default judgment. See DE 50. Upon referral from the Honorable Nicholas G. Garaufis, United States District Judge, I now make this report, and for the reasons set forth below, respectfully recommend that the court deny the motion for default judgment and instead dismiss the Amended Complaint.

I. Background

The following facts are primarily drawn from the non-conclusory factual allegations in the Amended Complaint, the truth of which Evolve's default established. Evolve's business is to provide room automation, control, and monitoring solutions for hotels and other businesses in the hospitality industry. In August 2013, Evolve entered into an employment agreement (the "Agreement") with Daiuto in connection with its purchase of Daiuto's software design company. One of the Agreement's terms prohibited Daiuto from working for a "competitive business" - defined to mean "the development, marketing, sale and serving of wireless energy management solutions, including lighting control and room automation solutions" - for two years after the termination of his employment. AC ¶¶ 6-12.

Evolve terminated Daiuto's employment on July 27, 2015. Over eight months later, on March 31, 2016, Daiuto began working for non-party Teknikos as an at-will employee.¹ A little over a month later, on May 4, 2016, Evolve's counsel sent Teknikos a letter accusing Daiuto of violating his non-competition agreement with Evolve, claiming that Teknikos was in possession of unlawfully obtained confidential information and trade secrets, and threatening Teknikos with litigation and liability for tortious interference if it continued to employ Daiuto. Evolve's assertions were false: Teknikos did not compete with it, had never bid for the same project as Evolve, and did not have unlawfully-obtained possession of Evolve's confidential information or trade secrets See AC ¶¶ 19-28.

Daiuto's counsel wrote to Evolve to assure the latter that Teknikos was not a competitor and offered to share the particulars of Daiuto's work for Teknikos to alleviate Evolve's concerns. Nevertheless, Evolve continued to insist that Daiuto's work for Teknikos violated the non-competition agreement. On May 11, 2016, Evolve's counsel gave Teknikos an ultimatum that the company would sue Teknikos if it did not terminate Daiuto that day. Teknikos terminated Daiuto the next day, May 12, 2016. See id. ¶¶ 29-31.

Daiuto filed the instant action on March 7, 2017 and filed the currently operative pleading on May 31, 2017. See DE 1; DE 15. In his Amended Complaint, Daiuto invokes this court's diversityjurisdiction to assert two claims: tortious interference with economic advantage and prima facie tort. See AC ¶¶ 32-43.² Evolve appeared and initially contested Daiuto's claims. See DE 16 (Answer). Later, however, after engaging in unsuccessful mediation efforts and exchanging some discovery, Evolve instructed its counsel to withdraw because it was winding down its business and no longer wished to pay for legal representation in this action. See DE 47. That decision ultimately led to Evolve's default, which the Clerk entered on July 3, 2019. See DE 49.

On July 31, 2019, Daiuto filed the instant motion for default judgment. See DE 50 (notice of motion); DE 50-1 (declaration of counsel with exhibits); DE 50-2 (Daiuto Decl.); DE 50-3 (supporting memorandum) ("Memo."). The court referred the motion to me by Order dated August 15, 2019. In another order that same day, I solicited any supplemental submissions the parties might want me to consider. Daiuto submitted supplemental exhibits on September 5, September 6, and September 11, 2019. See DE 53; DE 54; DE 55. By order dated December 16, 2019, I scheduled an inquest hearing for January 10, 2020. No party appeared at that hearing. See DE 58 (minute order).

II. Discussion

A. Default

When a defendant defaults, the court must accept as true all well-pleaded allegations in the complaint, except those pertaining to the amount of damages. Fed. R. Civ. P. 8(b)(6); see Finkel v. Romanowicz, 577 F.3d 79, 83 n.6 (2d Cir. 2009) (citing Greyhound Exhibitgroup, Inc. v. E.L.U.L. Realty Corp., 973 F.2d 155, 158 (2d Cir. 1992)). This same standard applies when a party defaults after abandoning its defense of litigation. See City of New York v. Mickalis Pawn Shop, LLC, 645 F.3d 114,119 (2d Cir. 2011) (finding that the defendants forfeited their defenses when they willfully abandoned their litigation and defaulted). With respect to liability, however, a defendant's default does no more than concede the complaint's factual allegations; it remains the plaintiff's burden to demonstrate that those uncontroverted allegations, without more, establish the defendant's liability on each asserted cause of action. See, e.g., Finkel, 577 F.3d at 84.

As explained below, I conclude that notwithstanding Evolve's default, Daiuto has not established liability on either of his claims. First, the Amended Complaint does not assert a viable claim for tortious interference with economic advantage because that claim arises under the law of Pennsylvania, which does not recognize a claim for an at-will employee such as Daiuto. Second, Daiuto has abandoned his prima facie tort claim. I therefore cannot recommend that the court enter a default judgment.³

B. Tortious Interference

In asserting Daiuto's tort claims, the Amended Complaint does not allege that they arise under the laws of any specific jurisdiction. Daiuto's memorandum of law correctly notes that this court must apply the substantive law of New York, see Memo. at 5 n.2, but then goes on to assume that applying New York's substantive laws necessarily means applying that state's tort rules. It does not: "state choice of law rules are substantive state law." In re Coudert Bros. LLP, 673 F.3d 180, 187 (2d Cir. 2012) (citing Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941)).

Daiuto is a Pennsylvania citizen and Evolve is a citizen of Illinois.⁴ If the common law tort rule of those states and New York are all substantively similar, there is no need to choose amongthem and the court can simply follow Daiuto's lead and apply New York law. See, e.g., Wall v. CSX Transp., Inc., 471 F.3d 410, 422 (2d Cir. 2006) (citing Excess Ins. Co. v. Factory Mut. Ins. Co., 769 N.Y.S.2d 487, 489 (App. Div. 2003), aff'd, 789 N.Y.S.2d 461 (N.Y. 2004)). But if those jurisdictions have conflicting tort rules, then the court must apply an "interest analysis to determine which of [the] competing jurisdictions has the greater interest in having its law applied in the litigation." Padula v. Lilarn Props. Corp., 620 N.Y.S.2d 310, 311 (N.Y. 1994). If the conflict involves rules that regulate conduct, New York courts generally apply the law of the place of the tort; but if the conflict involves loss-allocation rules, New York looks to a number of factors including the parties' domiciles, the conduct at issue, and the purposes of the applicable law. See Antaeus Enters., Inc. v. SD-Barn Real Estate, LLC., 480 F. Supp. 2d 734, 742 (S.D.N.Y. 2007) (citing Padula, 620 N.Y.S.2d at 312); see also Lee v. Bankers Trust Co., 166 F.3d 540, 545 (2d Cir. 1999). As explained below, I conclude that the tortious interference laws of the relevant jurisdiction are in conflict and that Pennsylvania - where the claimed tort occurred - has the greater interest in having its law apply to this case.

The elements of a claim for tortious interference with economic advantage are substantially similar in all three relevant jurisdictions. To assert such a claim in New York (where the tort is sometimes given varying names, see, e.g., Katz v. Travelers, 241 F. Supp. 3d 397, 404 (E.D.N.Y. 2017), Daiuto must allege and prove that he had a business relationship with Teknikos; that Evolve knew of that relationship and intentionally interfered with it; that Evolve acted solely out of malice, or used dishonest, unfair, or improper means; and that the interference caused injury to Daiuto's relationship with Teknikos. See, e.g., Imig, Inc. v. Electrolux Home Care Prod., Ltd., 2007 WL 900310, at *18 (E.D.N.Y. Mar. 22, 2007) (citing State Street Bank & Trust v. Inversiones Errazuriz Limitada, 374 F.3d 158, 171 (2d Cir. 2004) (citations omitted); NBT Bancorp Inc. v. Fleet/Norstar Financial Group, Inc.,641 N.Y.S.2d 581, 585 (N.Y. 1996)). Illinois and Pennsylvania impose similar requirements. See Maalouf v. Salomon Smith Barney, Inc., 2004 WL 2008848, at *7 (S.D.N.Y. Sept. 8, 2004), aff'd, 156 F. App'x 367 (2d Cir. 2005) (comparing law of New York and Illinois); James v. Intercontinental Hotels Grp. Res., Inc., 2010 WL 529444, at *3 (N.D. Ill. Feb. 10, 2010) (citing Anderson v. Vanden Dorpel, 667 N.E.2d 1296, 1299 (Ill. 1996)) (applying Illinois law); Berwick v. New World Network Int'l, Ltd., 2007 WL 949767, at *1, 6 (S.D.N.Y. Mar. 28, 2007) (comparing laws of New York and Pennsylvania); White v. George, 66 Pa. D. & C.4th 129, 141 (Mercer Com. Pl. Ct. Apr. 23, 2004) (citing Pawlowski v. Smorto, 588 A.2d 36, 39 (Pa. Super. Ct. 1991)) (applying Pennsylvania law).

But while the tort has similar elements in all three states, the jurisdictions' laws conflict in a material respect: whether it is a tort to interfere with a plaintiff's at-will employment relationship with a third party. In New York and Illinois, it is; in Pennsylvania, it is...