Digital Media Systems, Inc., Plaintiff, v. LLC (2025)

The following papers numbered 1 to 5 were read on this motion:

PapersNumbered

Notice of Motion, Affirmation and Exhibits 1

Memorandum of Law 2

"Affidavit,"¹ Affirmation and Exhibits in Opposition 3

Memorandum of Law in Opposition 4

Reply Memorandum of Law 5

Defendants bring their motion seeking to dismiss the complaint in this case. The individual defendant is one of plaintiff's former employees, now employed by the corporate defendant (the "LLC"). The parties dispute whether he is an owner or principal of the LLC. Plaintiff, relying on a Yahoo news article, claims that he is; the LLC submits to the Court the Articles of Organization and a document from the IRS showing that non-party Albert Valcarcel is the sole member. (Mr. Valcarcel also submits to the Court an affirmation in which he states that he is the sole owner and member of the LLC.)

There is no dispute that while employed by plaintiff, Mr. Kohut signed a noncompete agreement. There is no dispute that it provides, in relevant part, that it applies for one year after his employment with plaintiff terminated. There is no dispute that this occurred on October 25, 2024. There is also no dispute that the territorial limitation is the entire United States ("The jurisdiction of this agreement shall cover the area of The United States.").

The complaint, which repeatedly refers to Mr. Kohut as an owner and partner of the LLC, focuses on him. It contains six causes of action: (1) it seeks a declaratory judgment that the non-compete and confidentiality agreements "and all of the covenants therein are enforceable"² and that Mr. Kohut is prohibited from: operating the LLC or conducting business as a competitor of plaintiff for a period of one year after he left plaintiff; soliciting plaintiff's customers for a period of one year; or using or disclosing plaintiff's confidential information in accordance with the terms of the agreement; (2) a claim that Mr. Kohut breached the agreement by misappropriating plaintiff's confidential information and used it to solicit and divert plaintiff's customers; (3) a claim for tortious interference, that defendants wrongfully interfered with plaintiff's customer relationships and agreements for the purpose of benefitting Mr. Kohut and the LLC, with full knowledge that their conduct would necessarily interfere with or disrupt plaintiff's contractual relationships; (4) a claim for unfair competition, that Mr. Kohut misappropriated plaintiff's substantial labor, skill, and expenditures in bad faith by violating his contractual obligations and using and disclosing plaintiff's "valuable Confidential Information, property rights and benefits in its business and trade secrets for his own commercial and professional advantage, as well as that of his new company;" (5) a claim for the breach of the duty of loyalty by Mr. Kohut taking plaintiff's confidential information for his own personal benefit and for the benefit of his new company; and (6) a claim for misappropriation of plaintiff's confidential and proprietary information.

As the Second Department has explained, "On a motion to dismiss pursuant to CPLR 3211(a)(7), the complaint is to be afforded a liberal construction, the facts alleged are presumed to be true, the plaintiff is afforded the benefit of every favorable inference, and the court is to determine only whether the facts as alleged fit within any cognizable legal theory." Thompson Bros. Pile Corp. v. Rosenblum, 121 AD3d 672, 673, 993 N.Y.S.2d 353, 354 (2d Dept. 2014). The Court begins by examining the allegedly duplicative claims, for declaratory judgment, tortious interference, unfair competition, breach of the duty of loyalty, and misappropriation. The Court of Appeals has explained that "a simple breach of contract is not to be considered a tort unless a legal duty independent of the contract itself has been violated. This legal duty must spring from circumstances extraneous to, and not constituting elements of, the contract, although it may be connected with and dependent upon the contract." Clark-Fitzpatrick, Inc. v. Long Island R. Co., 70 NY2d 382, 389 (1987) (Emphasis added).

Plaintiff contends that its "claims do not rely solely on Mr. Kohut's contractual obligations set forth in the Agreements, but rather implicate Digital Media Systems' rights as an employer and Mr. Kohut's obligations as an employee that would otherwise exist absent the restrictions created by the Agreements." A review of the complaint shows that this is not actually the case. The misappropriation and unfair competition claims rely on the exact same factual circumstances as the breach of contract claims. Where "these causes of action are entirely based on alleged conduct that is proscribed by contract," "they are duplicative of plaintiff's contract claim." Linkable Networks, Inc. v. Mastercard Inc., 184 AD3d 418, 418, 125 N.Y.S.3d 92, 93 (1st Dept. 2020). The breach of duty claim is also duplicative, "since the claims are premised upon the same facts and seek identical damages." Chowaiki & Co. Fine Art v. Lacher, 115 AD3d 600, 600, 982 N.Y.S.2d 474, 475 (1st Dept. 2014). See also Celle v. Barclays Bank P.L.C., 48 AD3d 301, 302, 851 N.Y.S.2d 500, 501 (1st Dept. 2008) ("the breach of fiduciary duty claim was properly dismissed as the agreement covers the precise subject matter of the alleged fiduciary duty.").

Similarly, the claim for tortious interference is also duplicative. It is premised solely on the obligations that Mr. Kohut owed under the agreement ("Defendants wrongfully interfered with Digital Media Systems' customer relationships and agreements for the purpose of benefitting Mr. Kohut and his new company, Center Stage Cinema, a direct competitor of Digital Media Systems. Defendants engaged in this conduct with full knowledge that their conduct would necessarily interfere with or disrupt the contractual relationships that Digital Media Systems enjoys with its customers."). "The parties' rights and obligations respecting the matter in dispute are governed by their contract and the purported claim for tortious interference with contract does no more than restate plaintiffs' claim for the contract's breach." Allerand, LLC v. 233 E. 18th St. Co., 19 AD3d 275, 277—78, 798 N.Y.S.2d 399, 402 (1st Dept. 2005). See alsoNew York Univ. v. Cont'l Ins. Co., 87 NY2d 308, 316 (1995) ("where a party is merely seeking to enforce its bargain, a tort claim will not lie.").

Finally, the Court also dismisses the claim for a declaratory judgment as duplicative, as this claim seeks a declaration that the terms of the parties' agreement are valid and enforceable. This is exactly the same relief that plaintiff seeks in the breach of contract claim. Upfront Megatainment, Inc. v. Thiam, 215 AD3d 576, 578, 189 N.Y.S.3d 50, 53 (1st Dept. 2023) (declaratory judgment claim dismissed as "duplicative, as plaintiffs have an adequate, alternative remedy in another form of action — namely, the second cause of action for breach of contract."). See alsoVill. of Kiryas Joel v. Cnty. of Orange, 144 AD3d 895, 898, 43 N.Y.S.3d 51, 56—57 (2d Dept. 2016) ("The Supreme Court should have granted that branch of the County's cross motion which was for summary judgment dismissing the first cause of action, which seeks a declaratory judgment, as that cause of action was duplicative of the cause of action alleging breach of contract.").

The only remaining claim is the one for breach of contract. It is well-settled that a "restrictive covenant will only be subject to specific enforcement to the extent that it is reasonable in time and area, necessary to protect the employer's legitimate interests, not harmful to the general public and not unreasonably burdensome to the employee. An employer's interests justifying a restrictive covenant are limited to the protection against misappropriation of the employer's trade secrets or of confidential customer lists, or protection from competition by a former employee whose services are unique or extraordinary." R&G Brenner Income Tax Consultants v. Fonts, 206 AD3d 943, 945, 172 N.Y.S.3d 35, 37 (2d Dept. 2022).

"Since there are powerful considerations of public policy which militate against sanctioning the loss of a person's livelihood, the courts have generally displayed a much stricter attitude with respect to covenants of this type. In the context of employment agreements, the Court of Appeals holds that a covenant not to compete is reasonable only if it: (1) is no greater than is required for the protection of the legitimate interest of the employer, (2) does not impose undue hardship on the employee, and (3) is not injurious to the public." Twitchell Tech. Prods., LLC v. Mechoshade Sys., LLC, 227 AD3d 45, 53, 208 N.Y.S.3d 657, 665—66 (2d Dept. 2024).

Here, defendants assert that because the restrictive covenant has no geographical limitation, it must be voided. That is not automatically the case. Id. at 59, 208 N.Y.S.3d at 670 ("a covenant not to compete is not necessarily unenforceable merely because it lacks a geographic restriction."). On this motion to dismiss, the Court cannot determine whether the provision is unduly burdensome, tailored appropriately or unfair. "At this stage of the litigation, [defendants'] argument that the noncompete covenant is unreasonable does not offer a sufficient basis to dismiss the breach of contract causes of action. Even assuming that the noncompete covenant is overbroad, there is no rule that automatically invalidates overbroad employment agreements not to compete. Even when it is overbroad, a noncompete covenant may be partially enforced if an employer demonstrates, among other things, that it has not overreached and that it has in good faith sought to protect a legitimate business interest, consistent with reasonable standards of fair dealing." Gaon Wellness Acupuncture Physical Therapy & Chiropractic P.L.L.C. v. Jiae, 235 AD3d 491, 492—93, 229 N.Y.S.3d 19, 21 (1st Dept. 2025). See alsoGreenwich Mills Co. v. Barrie House Coffee Co., 91 AD2d 398, 402, 459 N.Y.S.2d 454, 457 (2d Dept. 1983) ("a trial will be necessary to determine the[ ] reasonableness" of the restrictions).

Accordingly, the Court declines to dismiss the breach of contract cause of action at this preliminary stage of the action. That being said, given the relatively small amount at stake; the difficulty in determining damages; and the fact that the year period expires next month, the Court urges the parties to consider resolving this matter expeditiously.

The foregoing constitutes the decision and order of the Court.³

Dated: September 9, 2025

White Plains, New York

HON. LINDA S. JAMIESON

Justice of the Supreme Court

FOOTNOTES

1.   This document is unsigned and is not notarized. It is thus neither an affirmation nor an affidavit. Nonetheless, the Court reviewed it.

2.   Despite asking for a declaration that all of the covenants are enforceable, plaintiff takes the unusual position of arguing that the agreement did not need to be attached to the complaint. The Court disagrees. Plaintiff failed to cite all relevant provisions of the agreement in the complaint, making it an essential document for the Court to review. As plaintiff did upload it as one of the exhibits in its opposition, the Court overlooks this omission.

3.   All other arguments raised, and all materials submitted by the parties in connection therewith, have been considered by this Court, notwithstanding the specific absence of reference thereto.

Linda S. Jamieson, J.