Paz Systems, Inc. v. Dakota Group Corp., CV 05-4763(LDW).
| Decision Date | 18 September 2007 |
| Docket Number | No. CV 05-4763(LDW).,CV 05-4763(LDW). |
| Citation | 514 F.Supp.2d 402 |
| Parties | PAZ SYSTEMS, INC., Plaintiff, v. The DAKOTA GROUP CORP., Dakota Systems Manufacturing Corp., Edward Owsinski, and Robert Walsh, Defendants. |
| Court | U.S. District Court — Eastern District of New York |
Ostrolenk, Faber, Gerb & Soffen, UP, by: Max Moskowitz, Douglas Q. Hahn and Joseph M. Manak, Esqs., New York, NY, for Plaintiff.
Carter, Bernstein, Auerbach & Dazzo, P.C., by: George Edward Dazzo, Esq., Patchogue, NY, for Defendants.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
Plaintiff Paz Systems, Inc. ("Paz") brings this action against defendants The Dakota Group Corp. ("Dakota Group"), Dakota Systems Manufacturing Corp. ("Dakota Systems"), Edward Owsinski ("Owsinski"), and Robert Walsh ("Walsh"). The action was tried before this Court, and the following are the Court's findings of fact and conclusions of law.
Paz manufactures, sells and installs retail wall systems, including hardware and millwork for use with those systems. One of Paz's products, for instance, is a "cashwrap" — basically, a check-out counter at a retail store. Paz's customers are retail stores, such as Danice, The Buckle and G & G Shops, as well contractors and private residences.
Specialized knowledge is required to manufacture, sell and install Paz's retail wall systems, including computer designed drawings for die makers identifying the specifications necessary to produce the product. Paz's resale business also requires specialized tools and knowledge in the form of a computer and software to maintain the data required to service customers. The computer software used by Paz is called the "DBA" software. The DBA software is designed specifically for manufacturers and resellers and provides access to and stores data such as customer information, unit pricing, inventories, negotiated prices, vendor information, bid histories and invoices.
Michael Paz is the sole owner and shareholder of Paz, a company he purchased from Felix Paz — his father and company founder — on January 1, 2004 for $250,000.00. Michael Paz is also the president and an employee of Paz Interiors, a company related to Paz.
Owsinski was the director of engineering at Paz. He was employed by Paz for about 18 years and ran day-to-day operations both before and after Michael Paz purchased the company. Owsinski exercised wide discretion and decision-making authority. His duties included meeting with customers, inspecting job sites, gathering information, negotiating contracts and leases, preparing proposals and quotes, generating purchase orders and invoices, and hiring and firing employees. The only area over which he did not have complete control was that checks were written by the accounting department at Paz Interiors.
Paz's computer network consisted of a server and three workstations. The DBA data was stored on the server and accessible from each of the workstations. Additional files, such as AutoCAD engineering drawings, were stored on Owsinski's individual workstation. Paz's computer network was stored in a building, protected by both commercial locks, passwords and an alarm system, including motion detectors.
In March 2004, there was a problem with Owsinski's workstation computer. As a result, Michael Paz bought Owsinski a new workstation computer. Michael Paz asked Owsinski to upload all AutoCAD drawings that were on his workstation computer to the server and remove the computer from the network. Michael Paz initially instructed Owsinski to purge the hard drive on the old workstation computer, but Owsinski told Michael Paz that he had personal files on that computer and asked if he could keep the old workstation computer in the office. That computer did not have the DBA data because that data resided only on the server. Michael Paz agreed to let Owsinski keep the old computer in the office, provided it would not be connected to the network. Owsinski had the old workstation computer repaired in December 2004.
On January 7, 10 and 11, 2005, Owsinski copied data from the Paz servers onto the old computer (with the exception of Auto-CAD drawings which were on the workstation, not the server). Michael Paz never authorized Owsinski to take any files or documents from Paz or to download the DBA data. from the server onto the old workstation computer. At some point, Owsinski removed the old computer from Paz without purging the hard drive and without Michael Paz's knowledge or consent.
Sometime in January 2005, Owsinski proposed that he be made a 50% partner in Paz. Michael Paz rejected the proposal. Instead, Michael Paz offered to back Owsinski in a business doing related work. Owsinski never responded to the offer.
Owsinski tendered a letter of resignation on March 7, 2005. Michael Paz received this letter by e-mail while he was in Florida on vacation. Although the letter says "as we discussed," Michael Paz testified that this was the first notice he had that Owsinski was resigning. Michael Paz further testified that Owsinski told him he was starting a business with the Dakota Group and that Robert Walsh would be a 51% owner.
Before Owsinski left Paz, he met with Michael Paz for debriefing. In particular, they discussed outstanding jobs, most of which were not new projects but ongoing projects involving the tying up of loose ends. Owsinski's last day at Paz was March 16, 2005.
In August 2005, Robert Caraciolo ("Caraciolo"), an employee of Dakota Systems, gave Michael Paz two CD-ROM disks (the "Caraciolo disks") that Caraciolo copied from computer files maintained at Dakota Systems. Caraciolo testified that he witnessed Owsinski using Paz data while Owsinski's was working for Dakota Systems. For example, a flyer to Hilton Garden Hotels, found on the Caraciolo disks, was a direct knock-off of a similar Paz document. Caraciolo also testified that he saw Owsinski modifying a Paz drawing for Dakota Systems.
The Caraciolo disks contained Paz drawings, schematics, and advertisements, including AutoCAD files and photographs of Paz's previous installations. Dakota Systems even used a Paz photograph for an advertisement in the September/October 2005 edition of Retail Construction Magazine, where Paz also had an advertisement.
One of the Caraciolo disks contained a copy of Paz's DBA database, including a purchase and sales order accounting program containing several years of sales, client, inventory and purchasing data. This DBA database represented Paz's entire financial business, including accounts receivable, general customer information, customer lists including inactive/active status, sales orders, inventory items, invoices, bid histories, vendor lists and quotation histories.
Owsinski concedes that the Paz data on the Caraciolo disks was important to Paz to run its business. Indeed, Owsinski concedes that Dakota Systems created a "DBA" database that contained information similar to Paz's DBA database.
The evidence shows that Owsinski was using the misappropriated data to divert sales away from Paz and to Dakota Systems, beginning as early as January 12, 2005 — more than, three months before he resigned from Paz. The evidence shows that Owsinski had Dakota Systems up and running immediately upon his resignation from Paz on March 16, 2005. By contrast, the evidence shows that it took Paz, albeit mainly through Owsinski's efforts, years to develop its DBA data. The evidence strongly suggests that Owsinski utilized the misappropriated Paz data to generate sales for Dakota Systems.
Paz estimates its damages from diverted sales in 2005 as $49,327.09. This calculation represents a percentage of Dakota Systems' total revenue of $118,319.90 from (1) sales diverted to Dakota Systems before Owsinski's resignation, and (2) sales diverted to Dakota Systems after Owsinski's resignation but priced and/or committed before his resignation, all of which occurred in 2005. The percentages applied were 40% for resale items and 50% for wall system metal, representing lost profit and overhead.
Michael Paz testified that Dakota Systems' records showed that, excluding the diverted sales previously discussed, Dakota Systems had $93,339.96 in total revenue from sales to additional Paz customers in 2005. According to Michael Paz, by applying 40% for resale items, Paz suffered damages of $37,335.98 relating to customers whose information defendants misappropriated.
Michael Paz further testified that Dakota Systems' records showed that Dakota Systems had $179,939.10 in total revenue from sales to Paz customers in 2006. According to Michael Paz, by applying 40% for resale items, Paz suffered damages of $71,975.64 relating to customers whose information defendants misappropriated.
While a reference source for customers in the industry, referred to as the "Bloom Letter," contained thousands of names and leads, 86% of Dakota Systems' sales for 2005 and 93% of its sales for 2006 were to customers whose names were taken from the Caraciolo disks, i.e., Paz customers.
Owsinski testified that, from his experience in operating Paz, 10% is a realistic profit margin on jobs such as those involved in this action. According to Owsinski, a typical job involved a 30% markup over cost, leaving approximately 10% profit after factoring in overhead.
The Court finds that the 40% and 50% figures urged by Paz to calculate its damages are too high. However, the Court also finds that the 10% figure urged by Owsinski is too low. Rather, the Court finds that application of a 20% figure is reasonable under the circumstances. By applying the 20% figure, Paz's damages were $23,663.98 (20% of $118,319.90) for diverted sales and $54,655.81 (20% of $273,279.06) for lost sales to Paz customers using the misappropriated...
To continue reading
Request your trial
-
Nirvana, Inc. v. Nestle Waters N. Am. Inc.
...a trade secret, even if the information did not independently rise to the level of a trade secret. See Paz Sys., Inc. v. The Dakota Group Corp., 514 F.Supp.2d 402, 408 (E.D.N.Y.2007) (finding that, by gaining information from the plaintiff via their confidential relationship, the defendants......
-
Pure Power Boot Camp, Inc. v. Warrior Fitness Boot Camp, LLC
...courts frequently examine the method by which defendant acquired it, e.g., such as by stealing or copying.” Paz Sys., Inc. v. Dakota Grp. Corp., 514 F.Supp.2d 402, 408 (E.D.N.Y.2007) (internal quotations and citations omitted). “[E]ven if this information did not independently rise to the l......
-
Barbagallo v. Marcum LLP
...employee, such as physically taking or copying the employer's files or using confidential information.” Paz Systems, Inc. v. Dakota Group Corp., 514 F.Supp.2d 402, 409 (E.D.N.Y.2007); see also Advanced Magnification Instruments of Oneonta, N.Y., Ltd. v. Minuteman Optical Corp., 135 A.D.2d 8......
-
Schanfield v. Sojitz Corp. of America
...confidential information for the employee's or a third party's benefit. Restatement 2d of Agency § 396; Paz Sys., Inc. v. Dakota Group Corp., 514 F.Supp.2d 402, 410 (E.D.N.Y.2007). Though the parties disagree about all the parameters of Schanfield's responsibilities, it is undisputed that a......
-
§ 5.03 Analysis of the Act
...clearly supports a reverse engineering right. [295] 142 Cong. Rec. S12213 (daily ed. Oct. 2, 1996).[296] Paz v. The Dakota Group, 514 F. Supp. 2d 402, 408 (E.D.N.Y. 2007) (quotation omitted).[297] 2013 DOJ Criminal IP Manual, p. 177.[298] Id. (citing 18 U.S.C. § 1832(a)).[299] 18 U.S.C. §§ ......
-
Abandoning Trade Secrets.
...a trade secret provided in comment b to section 757 of the First Restatement of Torts. See, e.g., Paz Sys., Inc. v. Dakota Grp. Corp., 514 F. Supp. 2d 402, 407 (E.D.N.Y. 2007) (observing that "New York generally looks to section 757 of the first Restatement of Torts for its definition of a ......