Orbit One Communications, Inc. v. Numerex Corp., 08 Civ. 0905(LAK)
| Decision Date | 10 March 2010 |
| Docket Number | No. 08 Civ. 0905(LAK),08 Civ. 11195(LAK).,08 Civ. 6233(LAK),08 Civ. 0905(LAK) |
| Citation | 692 F. Supp.2d 373 |
| Parties | ORBIT ONE COMMUNICATIONS, INC., et ano., Plaintiffs/Counterclaim Defendants, v. NUMEREX CORP., Defendant/Counterclaim Plaintiff. Numerex Corp., Plaintiff/Counterclaim Defendant, v. Scott Rosenzweig, et al., Defendants/Counterclaim Plaintiffs. Gary Naden, et al., Plaintiffs/Counterclaim Defendants, v. Numerex Corp., Defendant/Counterclaim Plaintiff. |
| Court | U.S. District Court — Southern District of New York |
John J.D. McFerrin-Clancy, Khizar Sheikh, Lowenstein Sandler, PC, Attorneys for Orbit One, David Ronsen, & Lava Lake Technologies.
Howard J. Kaplan, Justin M. Sher, Arkin Kaplan Rice, LLP, Attorneys for Gary Naden and Scott Rosenzweig.
Kent A. Yalowitz, Dorothy N. Giobbe, Emily A. Kim, Arnold & Porter, LLP, Attorneys for Numerex Corp.
This case is an acrimonious dispute between David Ronsen, Scott Rosenzweig, and Gary Naden, shareholders and former executives of Orbit One Communications, Inc. ("Orbit"), on the one hand, and Numerex Corporation ("Numerex"), to which they sold their business, on the other. The parties have asserted an array of claims sounding in contract and tort in three consolidated actions. The matter is now before the Court on cross motions for summary judgment.
David Ronsen created Orbit in 2000.1 The company, located in Bozeman, Montana, manufactured satellite-based tracking devices and provided satellite communications services primarily to government agencies and contractors.2
In 2005, Ronsen hired Rosenzweig, a former corporate executive, to serve as Orbit's vice president of development.3 During the following year, he hired Naden, an engineer at Axonn, a Louisiana-based communications company and Orbit's principal supplier of satellite transmitters, to serve as chief technology officer.4 Rosenzweig and Naden became ten and six percent equity owners of Orbit, respectively, while Ronsen retained an eighty-four percent interest in the company.5
In late 2006, Numerex, an Atlanta-based corporation that provides cellular and satellite-based communications services, expressed interest in acquiring Orbit.6 Ronsen and Stratton Nicolaides, Numerex's chief executive officer, thereafter entered into negotiations that culminated in the execution by Orbit and Numerex of an asset purchase agreement (the "APA") on July 31, 2007.7
The APA provided in substance that Numerex would acquire all of Orbit's assets. In exchange, Numerex agreed to pay $5.5 million into an escrow account at closing, with an additional $500,000 due sixty days later.8 The APA contained also an earn out provision under which Numerex agreed to pay Orbit additional compensation if Orbit met certain earnings and other targets.9
On the closing date, Ronsen, Rosenzweig, and Naden entered into employment agreements with Numerex pursuant to which they agreed to run the satellite division that formerly had been Orbit. Ronsen became president, Rosenzweig vice president of business development, and Naden chief technology officer, respectively, of "NMRX's Orbit One division."10
The employment agreements contained non-competition covenants and severance provisions. The former provided that Ronsen, Rosenzweig, and Naden, upon departure from Numerex, would not "directly or indirectly . . . own, manage, operate, control, be employed by, participate in, or be connected in any manner with the ownership, management, operation or control of any business in which Numerex . . . was engaged during the one year" preceding their resignation.11
The duration of the non-competition covenants depended upon the reason for departure from Numerex. In Ronsen's case, "termination by NMRX for cause" would trigger a non-competition period commencing upon departure and extending until the later of (1) the second anniversary of termination and (2) December 31, 2010.12 If, however, Ronsen left Numerex for "good reason," the non-competition period would be six months.13 Departure "other than for good reason" would trigger a non-competition period from termination until the later of (1) the first anniversary of his resignation and (2) December 31, 2010. Ronsen's agreement defines "good reason" as (1) a "material breach by NMRX of any of its obligations" to Ronsen or (2) a "material reduction" of Ronsen's duties.14
In the cases of Rosenzweig and Naden, the non-competition period was two years if termination by Numerex was "for cause," six months if departure was for "good reason," and otherwise one year.15 Rosenzweig's and Naden's agreements defined good reason as a material breach by Numerex of its obligations under those agreements.16
In the months after the deal closed, the employment relationships of Ronsen, Rosenzweig and Naden with Numerex soured and litigation ensued.
In January 2008, just five months after the closing, Orbit and Ronsen sued Numerex in Supreme Court, New York County, for breach of the APA, breach of Ronsen's employment agreement, unjust enrichment, and a declaration that Ronsen had "good reason" to resign from Numerex. The complaint alleges that Numerex impermissibly reduced Ronsen's executive authority and thus prevented him from obtaining his full earn out compensation.17 Numerex removed the case to this Court and counterclaimed for breach of fiduciary duty, breach of contract, indemnification, and setoff.
Ronsen resigned from Numerex in April 2008.18 Naden and Rosenzweig followed in June 2008.19 The parties dispute whether they left for "good reason" pursuant to their employment agreements.
In the wake of the resignations, Numerex sued Rosenzweig and Naden in this Court. The complaint alleges that the defendants breached their employment agreements and their fiduciary duties to Numerex by, among other things, stealing Numerex proprietary information upon their departure from the company.20 Numerex seeks also a declaration that Rosenzweig and Naden were terminated "for cause" pursuant to their employment agreements. The defendants counterclaimed for breach of the APA and their employment agreements and tortious interference with prospective economic advantage.
In July 2008, Naden, Ronsen, and Rosenzweig brought an action against Numerex in the District of Montana. The complaint alleges that their covenants not to complete are overly broad and therefore unenforceable. Numerex counterclaimed for fraudulent inducement, breach of the APA, breach of fiduciary duty, set off, violation of the Computer Fraud and Abuse Act (the "CFAA"),21 misappropriation of confidential information, and conversion. It asserts that Ronsen, Rosenzweig, and Naden failed to disclose all information material to its decision to enter into the APA and breached their contractual representations and warranties. The action was transferred to this Court on Numerex's motion.
In January 2009, Naden, Ronsen, and Rosenzweig moved for a preliminary injunction barring Numerex from enforcing their noncompetition covenants. The Court, however, denied the motion because they failed to demonstrate the requisite threat of irreparable harm.22
Numerex moves for summary judgment dismissing Orbit's and Ronsen's complaint in Action No. 1 and Rosenzweig's and Naden's counterclaims in Action No. 2. It argues, among other things, that it did not breach its contractual obligations to Orbit and Ronsen, that Rosenzweig and Naden lack standing to assert a claim for breach of the APA, and that Rosenzweig and Naden in any case have not adduced evidence sufficient to raise a genuine issue of fact material to the tortious interference claim.
Numerex moves also for summary judgment on its fraudulent inducement, contract, and breach of fiduciary duty counterclaims in Action No. 3. It contends that Orbit committed fraud and breached its representations and warranties in the APA as matter of law by refusing to disclose all information material to Numerex's decision to enter into the APA.
Ronsen, Naden, and Rosenzweig cross move for summary judgment dismissing Numerex's counterclaims in Action No. 3. They maintain that they disclosed to Numerex all material information and, in any event, that Numerex has failed to adduce evidence sufficient to raise genuine issues of fact material to each of its claims. In addition, Rosenzweig and Naden move for partial summary judgment dismissing Numerex's claim in Action No. 2 for a declaration that they were terminated "for cause." They seek also attorneys' fees and costs pursuant to Federal Rule of Civil Procedure 37.
Summary judgment is appropriate if there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law.23 Where the burden of proof at trial would fall on the nonmoving party, it ordinarily is sufficient for the movant to point to a lack of evidence to go to the trier of fact on an essential element of the nonmovant's claim.24 In that event, the nonmoving party must come forward with admissible evidence sufficient to raise a genuine issue of fact for trial in order to avoid summary judgment.25
Orbit and Ronsen claim that Numerex breached the APA by (1) "failing to operate New Orbit . . . in conformity with the APA Business Plan" and (2) "failing to provide marketing, sales, human resources, IT, accounting and other support by the APA to New Orbit."26 Numerex moves for summary judgment dismissing that claim on the ground...
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