IP Law Daily, TRADE SECRETS—S.D.N.Y.: E-commerce importer prevails on fiduciary breach claims against former buyers; trademark claim dismissed, (Apr 14, 2026)

By Ravindra Kumar Singh, B.L.

Court finds undisclosed kickbacks and secret competing business violated duty of loyalty but rejects protection for the descriptive SCOOTKID mark.

The federal district court in Manhattan, New York, has granted partial summary judgment in favor of an e-commerce importer against its former employees on claims of breach of fiduciary duty, diversion of corporate opportunities, and related misconduct, while dismissing its trademark infringement claim. The court held that the defendants breached their duty of loyalty by receiving undisclosed kickbacks and secretly operating a competing business, but concluded that the asserted “Scootkid” mark was descriptive and lacked secondary meaning. It ordered disgorgement of millions in kickbacks and forfeiture of commissions, leaving damages to be determined at trial (Sound Around, Inc. v. Friedman, No. 1:24-cv-01986-DLC-KHP (S.D.N.Y. Apr. 10, 2026)).

Background. The plaintiff, Sound Around, Inc., operated as a family-owned importer sourcing goods from foreign manufacturers and selling them under private-label brands on platforms such as Amazon. The defendants, Moises Friedman and Shulim Eliezer Ilowitz, served as product buyers, acting as intermediaries with manufacturers and negotiating pricing and supply arrangements. They worked closely with suppliers, identified profitable products, and facilitated transactions on behalf of Sound Around. The defendants also operated through several affiliated entities, including ML Imports, Inc., which later became the vehicle for their competing business.

Sound Around asserted trade secrets comprising confidential supplier pricing, product-level profit data, and internal reports identifying top-performing products. The court found these categories sufficiently specific to support claims under the Defend Trade Secrets Act and New York law. The company also relied on its “Scootkid” trademark, registered on April 9, 2024. However, the court held that the mark merely described a scooter designed for children and lacked secondary meaning. As a result, it was not entitled to trademark protection.

The dispute arose when Sound Around discovered that Friedman and Ilowitz had been receiving undisclosed payments from manufacturers while simultaneously operating a competing venture. The company filed suit asserting twenty-two claims, including fiduciary breaches, trade secret misappropriation, trademark infringement, and related torts.

After discovery, all parties moved for summary judgment. Sound Around sought partial summary judgment, arguing that the undisputed record established that its former buyers had engaged in disloyal conduct by accepting kickbacks and diverting business opportunities.

Fiduciary breach through kickbacks. The court held that Friedman and Ilowitz acted as agents of Sound Around and owed fiduciary duties of loyalty. Citing Johnson v. Nextel Commc’ns, Inc., 660 F.3d 131 (2d Cir. 2011), and Phansalkar v. Andersen Weinroth & Co., L.P., 344 F.3d 184 (2d Cir. 2003), it emphasized that agents may not receive undisclosed compensation from counterparties.

The defendants admitted receiving substantial payments, approximately $2.7 million for Friedman and $1.2 million for Ilowitz, from manufacturers. The court rejected their characterization of these payments as “commissions,” holding that undisclosed financial benefits obtained in transactions conducted on behalf of a principal constituted a clear breach of fiduciary duty.

Competing business. The court also found that the defendants breached their duties by operating a competing business while still working for Sound Around. Relying on Maritime Fish Products, Inc. v. World-Wide Fish Products, Inc., 100 A.D.2d 81 (1st Dep’t 1984), it reiterated that an agent may not compete with the principal in the same line of business.

Friedman and Ilowitz created a parallel enterprise through ML Imports, selling similar products sourced from the same manufacturers and using overlapping business contacts. They also leveraged relationships developed during their work for Sound Around. The court concluded that no reasonable jury could find this conduct consistent with their fiduciary obligations.

Disgorgement and forfeiture. As a remedy, the court ordered disgorgement of all kickbacks received and required forfeiture of commissions tied to tainted transactions. It further held that all commissions earned after the formation of the competing business must be forfeited.

Citing Design Strategy, Inc. v. Davis, 469 F.3d 284 (2d Cir. 2006), the court explained that where disloyalty permeates the relationship, forfeiture extends beyond isolated transactions. The precise amount of recoverable damages will be determined at trial.

Corporate opportunity. The court granted summary judgment on the claim for diversion of corporate opportunities. Applying Alexander & Alexander of New York, Inc. v. Fritzen, 542 N.Y.S.2d 530 (1st Dep’t 1989), it held that the defendants diverted opportunities that fell within Sound Around’s line of business.

Their competing venture sold nearly identical products from the same manufacturers and even secured better pricing. The court found that Sound Around had a “tangible expectancy” in these opportunities and could recover lost profits, to be quantified at trial.

Aiding and abetting liability. The court also held certain corporate entities associated with Moises Friedman and Shulim Eliezer Ilowitz liable for aiding and abetting the fiduciary breaches. It found that they used kickbacks to operate the competing business, provided substantial assistance, and had knowledge of the misconduct.

Trademark claim. On the trademark claim, the court ruled in favor of the defendants. Applying Christian Louboutin S.A. v. Yves Saint Laurent America Holdings, Inc., 696 F.3d 206 (2d Cir. 2012), it held that “Scootkid” was descriptive because it directly conveyed the nature of the product. Without evidence of secondary meaning, the mark was not protectable. The court therefore granted summary judgment dismissing the infringement claim.

Trade secrets and related claims. The court denied summary judgment on trade secret and confidential information claims, finding triable issues of fact. It held that Sound Around had identified protectable information with sufficient specificity and presented evidence of reasonable efforts to maintain secrecy. It also allowed claims for fraud, tortious interference, conversion (in part), and equitable accounting to proceed, noting that factual disputes regarding concealment, misuse of funds, and interference with supplier relationships required resolution at trial.

The Case is No. 1:24-cv-01986-DLC-KHP.

Judge: Cote, D.

Attorneys: Annelise Del Rivero (Holland & Knight LLP) for Sound Around, Inc. Nicholas Joseph Fortuna (Allyn & Fortuna LLP) for Moises Friedman.

Companies: Sound Around, Inc.

Cases: TradeSecrets NewYorkNews