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Contract Associates, Inc. v. Atalay

United States District Court, E.D. Virginia, Alexandria Division

April 10, 2015

SENEM ATALAY, et al., Defendants.


LIAM O'GRADY, District Judge.

This matter comes before the Court on cross motions for summary judgment by Plaintiff Contract Associates, Inc. (Dkt. No. 67) and Defendants Senem Atalay, Michael Spade, and their corporate entities Atalay & Spade Group, LLC and Contract Associates, Inc. of Maryland. Dkt. No. 71. The matter has been fully briefed by the parties. For the reasons set forth below, Plaintiff's motion for summary judgment will be denied and Defendants' motion for summary judgment will be granted.

I. Background

This controversy arises out of a corporation's claim that two of its former employees breached their fiduciary duties to it and misappropriated trade secrets when they left to form their own competing company. Plaintiff Contract Associates, Inc. ("CAI") is a Virginia corporation engaged as a manufacturer's representative in the office furniture industry. Prior to the events underlying this action, CAI had a number of exclusive regional sales relationships with various manufacturers. Badie Farag is the President and founder of CAI. Defendants include two individuals and two corporate entities: Senem Atalay and Michael Spade, former employees of CAI; Atalay & Spade LLC, the corporation they formed when they left CAI; and Contract Associates, Inc. of Maryland, formed by Spade during his tenure with CAI.

CAI hired Spade and Atalay as full-time sales representatives in 1997 and 2006, respectively. There were no written employment agreements. CAI claims that, in 2011, Farag selected Atalay as his successor and promoted her to partner. Despite making statements in emails to various manufacturer clients ("the Manufacturers") that she was "very excited about the promotion" and "very happy to be a Contract Associates partner, " Atalay disputes ever having been a partner of CAI. Pl.'s Opp'n Mot. Summ. J., Ex. 4. Around this same time, CAI increased her share of commissions and purported to issue her shares representing a 25% ownership stake in CAI. In 2013, Atalay was listed as an officer-specifically, as vice president-of CAI in filings with the Virginia State Corporation Commission.

In lieu of salaries, CAI paid Defendants by commission. Farag, Atalay, and Spade pooled the commissions earned from the Manufacturers, regardless of who participated in the actual sale, and then distributed them according to percentages determined by Farag. Spade was responsible for calculating the commission worksheet. He also had check-signing authority on CAI bank accounts as well as authority to negotiate fee agreements with CAI's manufacturer clients.

In 2011, Spade discussed the possibility of starting his own company with the President of Cabot Wrenn, one of CAI's major clients, but nothing materialized. Years later, in May 2014, after learning that Farag's son would be joining CAI and that their commissions would correspondingly be reduced, Defendants decided to form their own company that would engage in the same business and in the same territory as CAI. On June 4, 2014, Spade ordered business cards for the new venture. On the morning of June 5, 2014, Defendants called potential client Muraflex, which was not nor had ever been a client of CAI, to announce the formation of their new company. Later that afternoon, Defendants tendered their resignations to Farag in person. Within hours of the termination meeting, they called three of CAI's major clients to announce their resignations from CAI and the formation of their new company, Atalay & Spade Group, LLC.

On June 6, 2014, Spade and Atalay contacted the remainder of CAI's clients. Within days of their resignations, three of CAI's major clients-Jofco, JSI, and Nucraft-terminated their agreements with CAI. Each subsequently entered into a manufacturer representative agreement with Defendants. Due to the timing of Defendants' resignations, CAI missed an important trade show called NeoCon, at which CAI's clients were to exhibit their products. Spade and Atalay had been scheduled to attend the conference as representatives of CAI, but eventually attended on behalf of their new company. As a result of the foregoing events, CAI claims it has lost nearly its entire revenue stream.

On June 27, 2014, CAI filed this lawsuit in the Circuit Court of the City of Alexandria, Virginia. On July 14, 2014, Defendants removed the action to this Court. On July 22, 2014, Defendants moved to dismiss the Complaint in its entirety. After hearing oral argument, the Court denied the motion. All parties have now moved for summary judgment.

II. Legal Standard

Because this matter comes before the Court on cross-motions for summary judgment, the Court must "review each motion separately on its own merits" and ensure that it "resolve[s] all factual disputes and any competing, rational inferences in the light most favorable to the party opposing that motion." Rossignol v. Voorhaar, 316 F.3d 516, 523 (4th Cir. 2003) (citations and internal quotation marks omitted). "One of the principle purposes of the summary judgment rule is to isolate and dispose of factually unsupported claims or defenses." Celotex Corp. v. Catrett, 477 U.S. 317, 323-24 (1986). Under Rule 56(c) of the Federal Rules of Civil Procedure, summary judgment is proper "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). As the Supreme Court has explained, "this standard provides that the mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986) (emphasis in original). A dispute over an issue of material fact is "genuine" if "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Id. at 248. Finally, in making a summary judgment determination, the Court must bear in mind that "[a] complete failure of proof concerning an essential element of the non-moving party's case necessarily renders all other facts immaterial." Celotex, 477 U.S. at 323.

III. Analysis

Plaintiff has moved for summary judgment on four of its five claims: breach of fiduciary duties (Count I), tortious interference with existing contracts (Count III), tortious interference with prospective contracts (Count IV), and a violation of the Business Conspiracy Act (Count V). Dkt. No. 67. Defendants have moved for summary judgment on all counts of the Complaint including Count II, which alleges a violation of the Virginia Uniform Trade Secrets Act. The Court's resolution of the motions turns on the following issues: (1) whether their ...

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