Hettinger v. Kleinman

• Decision Date: 17 August 2010
• Docket Number: No. 08 Civ. 6466 (HBP),08 Civ. 6466 (HBP)
• Citation: 733 F.Supp.2d 421
• Parties: Peter D. HETTINGER, et al., Plaintiffs, v. Noel KLEINMAN, et al., Defendants.
• Court: U.S. District Court — Southern District of New York

733 F.Supp.2d 421

Peter D. HETTINGER, et al., Plaintiffs,

v.Noel KLEINMAN, et al., Defendants.

No. 08 Civ. 6466 (HBP).

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

Aug. 17, 2010.

Peter Joseph Pizzi, Connell Foley LLP, New York City, NY, for Plaintiffs.

Stanley Richard Goodman, Goodman & Saperstein, Garden City, NY, Paul Francis Carvelli, Alicyn Beth Craig, McCusker, Anselmi, Rosen & Carvelli, P.C., New York, NY, for Defendants.

OPINION AND ORDER

PITMAN, United States Magistrate Judge:

I. Introduction

This action arises out of plaintiffs' sales for and investment in defendants' failed business venture. Plaintiffs seek unpaid commissions pursuant to an alleged agreement among plaintiff PDH Associates, LLC and defendants Noel and Reid Kleinman. Plaintiffs also seek the return of amounts Hettinger invested in Alpha Beauty Distributors, Inc. alleging that defendants are guilty of fraud and breach of contract.

The parties consented to my exercising plenary jurisdiction over this matter pursuant to 28 U.S.C. § 636(c), and the matter was tried before me, without a jury, on January 25 through 27, 2010. Based on the testimony and other evidence offered at trial and the parties' pre- and post-trial submissions, I make the following findings of fact and conclusions of law.

II. Findings of Fact

A. The Parties and Their Relationship

1. Plaintiff, Peter Hettinger, is a resident and citizen of Pennsylvania (Joint Pre-Trial Order at ¶ 1; Supplement to Joint Pretrial Order at ¶ a(1)).

2. Hettinger is the sole member of PDH Associates, LLC ("PDH"), a limited liability company with a principal place of business in Pittsburgh, Pennsylvania (Supplement to Joint Pretrial Order at ¶¶ a(2)-(3)). PDH was formed on June 20, 2008 (Tr.¹ 134:6-8, 242:25-243:17).

3. Defendants Noel and Reid Kleinman reside in and are citizens of New York (Joint Pre-Trial Order at ¶ 1; Supplement to Joint Pretrial Order at ¶¶ a(4)-(5)). Noel Kleinman is Reid Kleinman's father (Tr. 16:25-17:2).

4. Defendant Alpha Beauty Distributors, Inc., ("Alpha Beauty Distributors"), is a New Jersey corporation formed by Reid Kleinman on January 8, 2008 (Supplement to Joint Pretrial Order at ¶ a(11)).

5. Hettinger became acquainted with the Kleinmans in the late 1990s when he was the manager of health and beauty care for the Stop & Shop supermarket chains (Tr. 7:7-8:17, 145:19-23, 380:23-381:4). A buyer for Stop & Shop who had met the Kleinmans at a trade show introduced them to Hettinger (Tr. 9:13-16; 146:19-147:5; 380:23-381:4).

6. The Kleinmans sold "professional hair care products," i.e., hair care products that are generally made for hair salons, to grocery stores and pharmacies (Tr. 8:18-9:5, 379:17-23). At that time the Kleinmans sold products for Belco Distributors (Tr. 9:22-24). All commissions that the Kleinmans earned from Belco were paid to Allstate Beauty Products, a corporation formed by the Kleinmans (Tr. 378:8-24).

7. Soon after Hettinger met the Kleinmans, Stop & Shop began buying from Belco (Tr. 9:13-16; 147:24-148:2).

8. After he left Stop & Shop in 2005, Hettinger used or recommended the Kleinmans to Meijer, Inc. and Giant Eagle, two other supermarket chains where he was employed (Tr. 10:13-17; 12:13-20; 15:11-17; 150:3-12). Hettinger left Giant Eagle in December 2006 (14:21-24).

B. The Independent Contractor Agreement

9. In approximately April 2007, Hettinger and the Kleinmans began to discuss the prospect of Hettinger selling for a company that the Kleinmans were forming (Tr. 16:10-24, 390:1-14).

10. On July 17, 2007, Hettinger, on behalf of PDH and the Kleinmans, on behalf of Alpha Group, Inc., ("Alpha Group"), d/b/a Alpha Beauty signed a document entitled "Independent Contractor Agreement" whereby PDH would act as a sales agent to Alpha Group in exchange for three percent of "net paid invoices, for products sold ... through PDH's efforts ..." (Supplement to Joint Pretrial Order ¶ a(9); PX 1).

11. Alpha Group was incorporated in Florida in January 2006 by Raimondas Talentas (PX 2). According to Noel Kleinman, Alpha Group was a company based in Florida that distributed professional hair care and other products to wholesalers (Tr. 514:25-516:3).

12. There is no evidence in the record that Alpha Beauty is registered as a fictitious name for Alpha Group.

13. In May 2007, Noel Kleinman incorporated Alpha Wholesalers, Inc., ("Alpha Wholesalers"), (Tr. 384:15-22; PX 29). According to Noel Kleinman, Alpha Wholesalers was formed because Manny Daskos, the owner of Alpha Group wanted to create a separate business that sold hair care products to retailers, as opposed to other wholesalers (Tr. 386:19-387:8).

14. Alpha Beauty is registered as a fictitious name for Alpha Wholesalers (PX 29).

15. As of July 2007, the Kleinmans referred to the entity on whose behalf they signed as "the Florida business" and represented to Hettinger that they eachowned 40% of such a business (Tr. 25:14-26:22).

16. Noel Kleinman testified that he and his son began to work with Alpha Group in March or April of 2007, that he became the President of Sales of Alpha Group and that he and his son owned approximately four percent of the company's shares (Tr. 383:10-11, 385:1-386:1-3). He also testified that he was authorized by Alpha Group to enter into the Independent Contractor Agreement on its behalf (Tr. 391:2-4). At his deposition, however, he testified that although he thought that Alpha Group was a part of Alpha Wholesalers and that Alpha Group, d/b/a Alpha Beauty "had to do with" Alpha Wholesalers, he "never had any responsibility for" Alpha Group, had no affiliation with Alpha Group, and to his knowledge "was never authorized to do or engage in any business transactions on behalf of" Alpha Group (Noel Kleinman Dep. 14:24-16:12, 32:16-19). Noel Kleinman acknowledged at trial that he had given this testimony (Tr. 428:13-24, 429:14-23, 432:19-25). Based on his demeanor at trial, this inconsistent testimony and the lack of any other evidence that Noel Kleinman was authorized to enter into the Independent Contractor Agreement, I credit Noel Kleinman's earlier testimony and find that he was not authorized to enter into the Independent Contractor Agreement on behalf of Alpha Group.

17. Reid Kleinman testified at trial that he and his father were associated with Alpha Group (Tr. 514:25-515:3) but upon being shown the certificate of incorporation for Alpha Group, testified that he had no authority to act on behalf on such an entity (Tr. 541:10-21). At his deposition, Reid Kleinman testified that he knew he was not associated with Alpha Group because he did not recognize the name of the incorporator or the address listed on Alpha Group's certificate of incorporation (Reid Kleinman Dep. 23:8-24:13). The Kleinmans argue that Reid Kleinman cannot be expected to recognize the incorporator or address of Alpha Group because he did not become associated with Alpha Group until 2007 and "was not an authority on Alpha Group" (Defendants Noel Kleinman's and Reid Kleinman's Proposed Findings of Fact and Conclusions of Law, ("Kleinmans' Post-Trial Mem."), at Findings of Fact ¶ 27). Nevertheless, given the absence of any evidence that Reid Kleinman had authority to contract on behalf of any entity called Alpha Group, I find that he had no authority to enter into the Independent Contractor Agreement.

18. After the agreement was signed, Hettinger initially made sales for Alpha Wholesalers (Tr. 24:20-25:13, 26:25-27:10, 391:21-392:3). Although, under the agreement, Hettinger was to act as a sales agent for Alpha Group, Hettinger discovered after commencing this action that he did not actually sell products for Alpha Group (Tr. 20:12-16). Indeed, Noel Kleinman testified that Hettinger actually sold for Alpha Wholesalers from the date of the Independent Contractor Agreement until approximately December 2007 (Tr. 391:13-392:1). After Alpha Beauty Distributors was incorporated on January 8, 2008 Hettinger sold products for Alpha Beauty Distributors until June 20, 2008 (Tr. 256:20-257:2, PX 118, 119).

19. When making sales, the Kleinmans and Hettinger represented themselves at all times as acting on behalf of Alpha Beauty (Tr. 99:16-23).

20. On May 14, 2008, at Hettinger's request, Reid Kleinman sent Hettinger a spreadsheet showing that Hettinger had helped procure a total of $1,192,586.53 in sales as of that date (Tr. 91:13-92:25; PX 4,5,37).

21. Hettinger responded that the figure did not reflect all amounts purchasedby the distributor C & S from Alpha Wholesalers, and was $827,687.34 short (Tr. 95:20-96:9, 97:18-98:9; PX 6).

22. Based on those adjusted sales figures, Hettinger contends that his total sales as of May 2008 were $2,020,273.86 and the total amount due to him under the Independent Contractor Agreement was $60,608.21 (Tr. 97:20-98:13; PX 6).

23. Hettinger testified that approximately $827,000 of the sales on which he earned commissions were through Alpha Wholesalers and the remainder were through Alpha Beauty Distributors (Tr. 255:25-257:2). $2,020,273.86 less $827,000 equals $1,193,273.86.

24. Hettinger was paid $10,000 by Alpha Beauty Distributors in commissions (Supplement to the Pretrial order ¶ a(12)-(13)).

C. Alpha Beauty Distributors and the Letter Agreement

25. In November 2007, the Kleinmans told Hettinger that they wanted to buy out what they had referred to as the "Florida Company" and form a new entity in New Jersey and asked for Hettinger's advice regarding the terms of the agreement (Tr. 27:11-28:22). By December 2007 and at the Kleinmans' request, Hettinger was creating financial projections for the new company (Tr. 29:20-32:8; PX 8, 9 and 15).

26. To assist in preparing these projections, the Kleinmans provided Hettinger with information about past sales by Alpha Wholesalers, told him which suppliers they would be able to do business with and when, how much these suppliers sold and what costs the new company could expect to incur (Tr. 30:7-21, 447:2-12). The Kleinmans also told...