Michael Harriff – Liable
Tortious Interference with Prospective Business Relations
Unfair Competition
Breach of the Duty of Loyalty
Introduction
This site will provide an overview of what can happen to a business when employees become former employees and they decide to take your clients to start their own “business”. We will offer some real steps that you can take to protect yourself when standards of integrity, decency, and moral obligation are not enough to protect you from dishonest people.
On November 17, 2009 Michael Harriff of Syracuse, New York was found liable (Click Here for Document) for Tortious Interference with Prospective Business Relations, Unfair Competition, Breach of the Duty of Loyalty after diverting a large number of his employer’s clients to his own “business”. His “business” TechKnow was primarily comprised of clients he had served as an employee of the company. Despite any moral obligation to his employer, he brazenly copied client service histories, contact information, and subsequently resigned and almost immediately solicited these clients and offered his services at a significant discount. When the company learned what Michael Harriff had done, it offered him an opportunity to cease and desist his actions with no penalty. He arrogantly claimed we had no means of stopping from continuing his “business” and essentially said, Sue Me. The company subsequently filed suit in Kings County Court Brooklyn asking for a permanent injunction (granted) as well as financial reimbursement for damages caused by his actions. After a long and protracted court case of almost 4 years, the courts found Michael Harriff liable for damages of nearly $65,000. Rather than attempting to pay his debt, he declared bankruptcy almost immediately after the judgement (click here for document) was announced – leaving his former employer, his multiple personal debts and even his defense attorneys unpaid and without recourse.
Background
Michael Harriff began working for the company January 2001. During his employment he requested and was granted two occasions of leave of absence to pursue other interests – tending to a personal matter and to go work on an organic farm. After leaves of absence of several months, Michael Harriff requested to be reinstated to his former position. In both cases, he was gladly welcomed back into the company without loss of seniority, salary increases, or any other advances he had earned during the totality of his employment. Further, during the term of his employment, Michael Harriff received a highly competitive salary (given his professional/educational background), health care insurance, travel reimbursements, yearly bonuses, and other benefits. Michael Harriff resigned from the company on June 7, 2005 but agreed to remain with the company until July 15, 2005. During depositions, it was discovered that Michael Harriff had started diverting clients to his “business” as early as May 2005. His solicitation letter ( Click Here for Document) is dated August 1, 2005 – just two weeks after his resignation. From the timing of his resignation to when he began his “business” it is clear Michael Harriff had no other professional plans other than actively soliciting and engaging the clients of his now former employer. In subsequent documents gathered during discovery, Michael Harriff attempted to justify his actions by claiming “I was called a “dickhead” by the office manager in front of two companies and a client, which was essentially the last straw after a couple of years of abuse, deception, and mistreatment.” – (Click Here for Document) Additionally during depositions (click here for document), Michael Harriff referred to continuous mistreatment and other grievances – after nearly 5 years of employment. Rather than filing a grievance, finding other employment, or any number of alternatives, Michael Harriff’s solution to his self-perceived mistreatment amounted to violating the law by diverting his former employer’s business to his own “company”.Michael Harriff solicited these clients through a letter (Click Here for Document) , phone calls, and telling clients he was servicing prior to his resignation that he was open for business. These clients were acquired by his employer through over $75,000 dollars in investments in advertising, public relations, and customer engagement strategies over the previous 4 years during which Michael Harriff worked for the company. During the course of the legal case, it was discovered that Michael Harriff’s only investment in his “business” was the stationary, envelopes and stamps which were used to solicit his employer’s clients. Michael Harriff could not show he had sent letters to anyone outside of the client list he had copied. Zero. Michael Harriff produced no other evidence of advertising, direct marketing, internet marketing or other sales efforts – his business was built solely on his diversion of his employer’s clients to his “business”.
Learning More and The Damage
When the company learned of Michael Harriff’s actions, the company did everything possible to avoid costly litigation. The company asked for him to simply stop competing with the company with the company’s own clients. Michael Harriff refused any reasonable offer and maintained that he had every right (Click Here for Document) to continue what he was doing. The company’s attorneys found his refusal of those offers surprising, but then during discovery, it was learned that he was not working alone. He was working in conjunction with another former employee – Karl Nelson – who had been terminated in February 2005 for violating the terms of his employment agreement with the company – by starting a competing company (ClinicIT) while working for the employer. Ironically, upon termination, Nelson filed for NYS Unemployment and was denied based on his being terminated for cause (Click Here for Document). Unbeknownst to the company, three key current and former employees were working together in their own endeavors. Karl Nelson and Michael Harriff were working together on a project for a now former client of the company. In this series of documents, Michael Harriff and Karl Nelson discuss this project, the developments of how the company was learning of their actions, and how a current company client had reported their solicitation. Most alarming, however, was Nelson’s discussion of violence if the case were pursued (Click Here for Document) Further, this is what Nelson had to say about an honest client who they couldn’t convert to their “business” – “apparently she has a moral streak a mile long, she said she couldn’t lie fucking bitch.” Shortly thereafter, a third employee – Todd Cavallo – resigned and joined Nelson in his endeavor. However, Karl Nelson, Todd Cavallo, and Michael Harriff continued to work together (Click Here for Document) as they grew their “businesses“. Up to this point, a significant majority of their clients were now former clients of their former employer. Given the significant and ongoing impact on the company’s revenue, there was no choice but to file a suit against Michael Harriff in Brooklyn Civil Court in November 2005. A case was filed against Karl Nelson and Todd Cavallo of ClinicIT as well, but was not fully pursued due to limited financial resources. Given the evidence that was uncovered during the Harriff litigation, it was advised to continue what was a very strong case against Karl Nelson and Todd Cavallo of ClinicIT. But the financial burden was not worth continuing.
The Litigation
Litigation is an expensive, time consuming and overall a very frustrating experience. If you ever find yourself in a similar situation you will learn what that means. From firsthand experience, the number one goal of the defense in case like this is delay, delay, delay and delay some more. Despite the facts that were proven and the evidence that was produced, Michael Harriff’s attorney’s filed motion after motion. It became very clear their strategy was hoping the company would run out of money or willpower. Litigation began in November 2005 and the trial commenced in November 2009.During the trial, Michael Harriff’s memory became less reliable than someone you would expect is involved in the technology field. One of the most frequent responses to the company’s attorneys were either “I can’t remember” or “I don’t know” (which, by they way, was also the case during his deposition (Click Here for Document). After a 5 day trial, On November 7, 2009 the judge rendered his decision – a judgment of over $60,000 against Michael Harriff.While the outcome of the judge finding Michael Harriff liable was very satisfying, the amount of the judgment was substantially lower than the actual damages. During depositions and testimony Michael Harriff continually expressed his inability to remember. Further, in his deposition (Click Here for Document), he acknowledges that most of “his” clients paid him in cash, he did not file taxes, and he did not keep accurate records. This was four years of income that was almost completely unaccounted for. The judge made his determination on the judgment based solely on what could be proven he earned from the company’s former clients. There were no bank records, no taxes filed, and no accounting of how Michael Harriff supported himself in New York City for 4 years – which included the purchase of cars, high-end musical instruments/equipment, extravagant vacations, and other things that would not have been possible without significant income.
The Bankruptcy
On December 4, 2009, Michael Harriff filed for personal bankruptcy – less than one month after he was found liable for Tortious Interference with Prospective Business Relations, Unfair Competition, Breach of the Duty of Loyalty. Michael Harriff made no effort to propose a payment plan or take any responsibility for his actions. There was never an apology or any attempt to make reparations of any sort.
The Lesson
As a small business owner, you must protect yourself against disgruntled and dishonest employees. As we learned, it was very simple for Michael Harriff, Karl Nelson, and Todd Cavallo to internally/collectively justify their dishonesty. The company did not expect this from them as we had misjudged their character and integrity. Each was an integral part of the company. What would have been so hard about walking away and starting a company without stealing the efforts of others? It was and is possible as our company was founded without compromising personal integrity, stealing anything from anyone else, and was truly started from the ground-up. Any past, current and future success of Michael Harriff and Karl Nelson and Todd Cavallo of ClinicIT is tainted by the fact that their journey to being “business owners” began with them taking shortcuts at the expense of others. What’s most unfortunate, is that they could have done it completely on their own had they put in the work without compromising right/wrong, integrity, character, and just taking shortcuts.
So how do you protect yourself?
Our biggest mistake was entrusting the untrustworthy. We always acted from a perspective that our people could be trusted and that everyone acted with integrity. Don’t ever assume integrity. Trust but verify. One of the claims of each of these people was that our employment agreement was vague and unenforceable (Click Here for Document). It was like that on purpose. We never sought to stifle anyone’s hopes and dreams. We strongly encourage our team to go out and start a business as long as they don’t do anything dishonest in the process. In fact, since this time we have had no less than 5 former staffers go off and start their own companies without stealing from us. Our current employment agreement is over 5 pages. It encompasses just about every situation you can think of – what is confidential, what is competition, what is allowed vs what is not. It includes penalties for breach and what is expected. While it has resulted in zero issues, it is a sad state of affairs that it is necessary in light of the actions of Michael Harriff, Karl Nelson and Todd Cavallo.Addressing the issue of “It Takes Two to Tango” cannot be overstated. It would have been impossible for these guys to steal clients unless the clients were willing to be stolen. There were a lot of factors that went into these clients decisions to abandon the company, but frankly, it was an easy decision: they were familiar and like the technician, the cost was equal or lower, and perhaps they thought the company was not doing so well without Michael Harriff, Todd Cavallo and Karl Nelson. Given those factors, we can see why that it wouldn’t be a hard decision. Since this instance, we added an extensive non-diversion clause in our client agreements – that covers violations and non-negotiable penalties that amount to 20% of the employees total salary, benefits, and other expenses for the previous 18 months. This has resulted in zero instances of diversion.