Articles Posted in Litigation

NBTY, Inc. is a manufacturer and seller of vitamins and nutritional products. Piping Rock Health Products, LLC is a competitor run by NBTY’s former CEO. Between the end of 2014 and the middle of 2015, a number of high-level NBTY employees resigned and went to work at Piping Rock. In 2011, while already employed, these individuals signed stock-option/trade secret agreements with Alphabet Holding Company, Inc., NBTY’s parent. Under these agreements, the individuals were (i) able to purchase a number of shares of the common stock of Alphabet, vesting over a period of time, and (ii) learn NBTY’s trade secrets. These agreements also contained restrictive covenants prohibiting the individuals from competing with NBTY for a one-year period following the end of their employment with NBTY and from revealing any of NBTY’s business secrets. After they resigned and went to Piping Rock, NBTY sued to enforce these individuals’ non-compete agreements.

Judge Emerson, sitting in the Commercial Division of Suffolk County, refused to enforce the non-compete provision. The court considered Delaware law (as provided for in the parties’ agreements but noted that it largely tracked New York law), and found that the non-compete restrictions were not supported by valid consideration. This meant that these individuals received no additional benefit for agreeing not to compete and the agreements were therefore not enforceable against them. NBTY argued that the options and access to NBTY’s trade secret were sufficient consideration. The court disagreed and stated that there was no evidence that these individuals did not have access to these secrets before they signed, and the options expired, unexercised, 90 days after they left NBTY. Thus, the court held that because the individuals had a choice between their continued employment with NBTY and exercising their benefits, or foregoing those benefits and competing, which they did, resulted in the individuals receiving no benefit in exchange for the non-compete agreements. The court noted further that while Delaware law allows consideration to be in the form of continued employment, the language of the agreements with NBTY specifically provided that NBTY made no promise of continued employment.

Finally, the court also invalidated the non-compete agreements, finding that they were overbroad in restraining competition in North America, Europe and China.

Goli Realty Corp., commenced an action for the recovery of brokerage commissions. Goli sued Halperin claiming to have brought a buyer that was ready, willing and able to purchase certain real property that Halperin and his entity, SPJ LLC, were looking to sell. Goli prepared marketing packages for Hess Oil, Walgreens, and others, detailing the property’s attributes. Hess and Walgreens responded with interest, and Goli showed the property to Hess. Hess had Goli send Halperin a proposal which provided for the minimum rent required by Halperin. Goli sent its commission agreement to Haleprin with Hess’s proposal. Thereafter, Halperin contacted Hess directly. Shortly thereafter, Halperin informed Goli that he was not interested in a gas station as a tenant and claimed that Goli had promised to provide an agreement with Walgreens. A few days later, Goli presented Halperin with a proposal from Walgreens, also with the minimum rent. Goli claimed that Halperin agreed to proceed with negotiations with both prospective tenants and to consider how to buy an adjacent property. Despite what Goli had been told, it learned that Halperin had signed a lease with Hess. Goli sued for its brokerage commissions.

Reviewing how the Court discussed the facts and party testimony makes clear that it found Haleprin’s testimony to not be credible. At one point, the Court states that outright. Among other things, the Court seemed troubled by Halperin’s inability to explain why SPJ did not agree to a lease with Walgreens, as brokered by Goli, if Halperin would not accept a gas station tenant, especially as it ultimately signed with Hess.

At the end, the Court was able to find that an enforceable brokerage agreement existed despite the absence of a formal writing. There was no question that Goji was asked to find a tenant and did so, securing two acceptable tenants. Thus, Goji was entitled to the value of its services, which were the same as the commission that he demanded in his proposed brokerage agreement (even though the Court noted that those commission may have been a bit higher than market rates). The Court did not allow that amount to be awarded against the individual Halperin defendants, however, because Goji had done the work for SPJ, LLC.

Steve Hong is the sole shareholder of Koryeo International Corp. Hong sued his mother, Kyung Ja Hong for looting Koryeo before she transferred the corporation to him.

Hong worked for the corporation after law school. His parents promised to transfer the corporation to him in exchange for his agreement to work for a minimal salary. After the death of Hong’s father, Mrs. Hong assumed sole ownership and control of corporation. In 2012, Mrs. Hong transferred ownership and control of the corporation to Hong. Upon that transfer, Hong learned that the corporation’s bank account held some $50,000, despite revenue in the millions of dollars. Hong and the Corporation sued his mother, claiming that she looted the corporation prior to its transfer, leaving him with a virtually worthless entity. Mrs. Hong sought dismissal of the claims.

Initially, the court found that because Mrs. Hong was the sole shareholder when she allegedly looted the corporation, the corporation could not be a plaintiff against her. The Court would not find anything wrongful in the corporation’s actions, or claims of a wrong, when those actions were sanctioned by its sole shareholder. The Court then held that the vague promise to Hong, made 20 years before the transfer, was too indefinite to create a true contract. Moreover, found the court, Hong received exactly what he was promised–the corporation–and even if looted, that was all he was promised.

One of the repercussions of the mortgage meltdown was the subsequent scrutiny of the bond rating agencies, including S&P. Claims were made that the rating agencies ignored bond risks and overstated the quality of certain bonds so that the agencies would earn more fees from the increased volume of bonds they reviewed and rated. Because those companies issuing bonds would not patronize the agencies that did not endorse the bonds issued, the agencies did not properly police the quality and reliability of the bonds. In the ensuing collapse, numerous federal and state agencies pointed fingers at the rating agencies and launched investigations into the agencies’ business practices. This setting provides the basis for this action.

Under State statute, in certain circumstances, a shareholder of a corporation is allowed to review the corporation’s books and records. Forcing compliance requires a lawsuit, but it is more streamlined than a typical lawsuit and the issues before the court are narrow. The documents to be provided under statute are limited, but a judge has the authority under common law, meaning laws developed over time by the courts, to provide more information than what the statutes allow.

In the S&P case, the shareholders, an individual and a retirement fund, sought access to S&P’s books and records. The shareholders claimed that they were entitled to review a host of S&P’s internal business records to determine how S&P conducted its business and whether management acted improperly (one wonders if the damage to S&P’s stock price had something to do with these demands). S&P disagreed that the shareholders were permitted access to the extensive list of documents demanded, and agreed to provide only the limited information allowed under the statutes.