Opinion
600732/2007.
Decided on January 22, 2008.
Plaintiff was represented by Gallet Dreyer Berkey, LLP, New York, David T. Azrin, Esq.
Defendant was represented by Howrey LLP, New York, James G. McCarney, Esq.
This is an action to recover $149,192.23 in unpaid wages, and a declaratory judgment that plaintiff owns and is entitled to exercise certain stock options.
Defendant now moves to dismiss the complaint on the grounds of a defense founded upon documentary evidence and failure to state a cause of action, CPLR 3211 (a) (1) and (7).
FACTUAL ALLEGATIONS
On December 7, 1999, plaintiff Kevin Connolly entered into an employment agreement (the Employment Agreement) with LiQ, Inc., a computer software company which later became known as IsoSpace, Inc. (LiQ, Inc. and/or IsoSpace, Inc., hereinafter, IsoSpace). The Employment Agreement provided that Connolly would be paid an annual salary of $125,000.00, and would have the right to participate in IsoSpace's stock option plan. The agreement further provided that Connolly's employment would be for an initial term of one year, and would automatically be renewed for successive one-year periods unless either party gave the other party written notice of non-renewal more than 30 days prior to the end of any such period or term.
At some point, IsoSpace allegedly ceased paying Connolly his salary and, by letter dated January 2, 2003, he resigned from his position with the company. Connolly alleges that IsoSpace owes him $149,192.23 in unpaid salary under the Employment Agreement, and that IsoSpace has expressed its intention to refuse to honor any attempt by him to exercise options which it granted to him to acquire 255,000 shares of IsoSpace common stock. As originally filed, the complaint contained three causes of action for: (1) breach of contract, seeking compensatory damages of $149,192.23 in unpaid wages and the value of the Stock options allegedly owned by Connolly; (2) violations of sections 190 (1) (d) and 193 of article 6 of the Labor Law (Article 6), seeking compensatory damages of $149,192.23 and, under section 198 (1-a) of Article 6, for liquidated damages and attorney's fees; and (3) judgment declaring that Connolly owns and may exercise options to acquire 255,000 shares of Stock. With his papers in opposition to the instant motion, Connolly served an amended complaint (the Complaint), as of right, which withdraws the claim under Labor Law § 190 (1) (d), but is otherwise substantially the same as the original complaint.
DISCUSSION
As a preliminary matter, IsoSpace argues that the court should disregard the papers submitted by Connolly in opposition to the instant motion, because those papers were not timely served. In view of the minimal duration of the claimed delay, and the absence of any indication of prejudice, IsoSpace has not established that the extreme sanction of disregarding Connolly's opposition papers is warranted.
The motion to dismiss is granted, in part, to the extent that the Complaint's second cause of action is dismissed. The second cause of action, as amended, alleges that IsoSpace's withholding of Connolly's salary constituted an illegal deduction from the wages of an employee, in violation of Labor Law § 193, and that Connolly is entitled to recover $149,192.23 in compensatory damages for unpaid wages. The claim further asserts that, pursuant to Labor Law § 198 (1-a), Connolly is entitled to recover liquidated damages and attorney's fees.
However, the documentary evidence establishes that Connolly was employed by IsoSpace in an executive, administrative and managerial capacity. IsoSpace has submitted a copy of the original complaint, which alleges — as does the amended Complaint — that, pursuant to the Employment Agreement, Connolly "was to assume responsibility for business development at IsoSpace," and that he "fully and faithfully performed his duties under" that agreement (Complaint, ¶¶ 5, 6). As the individual responsible for business development at IsoSpace, Connolly would clearly have been required to exercise a degree of "independent judgment" in performing the duties of his employment that would have qualified him as an executive under Article 6 ( see e.g. Conticommodity Servs. v Haltmier, 67 AD2d 480, 482 [2nd Dept 1979]; Carlson v Katonah Capital, L.L.C., 2006 WL 273548, *4 [Sup Ct, NY County, Jan. 27, 2006]; Cantor Fitzgerald Assoc., L.P. v Mines, 2003 WL 23109714, *2 [Sup Ct, NY County, Oct. 12, 2003]). IsoSpace has also submitted a copy of the Employment Agreement, which states that Connolly was employed "as a Business Development [ sic] of the Company," to "perform . . . the duties of said office and . . . such other duties of a managerial or administrative nature as shall be specified and designated from time to time by the Board of Directors of the Company" (Employment Agreement, § 2).
IsoSpace has also submitted, a copy of a purported "request for verification of employment" (Employment Verification) — which appears to have been completed by IsoSpace on or about July 3, 2003, at the request of a lender which was considering an application by Connolly for a mortgage loan — and which states that the position held by him was that of "EVP," or executive vice-president, of "Marketing Business Dev[elopmen]t." However, the Employment Verification form does not itself conclusively establish the accuracy of the representation ostensibly made by IsoSpace therein that Connolly's position at IsoSpace was that of executive vice-president of marketing and business development ( see Arnav Indus., Inc. Ret. Trust v Brown, Raysman, Millstein, Felder Steiner, 96 NY2d 300, 303 [2001]).
Connolly apparently concedes that his employment with IsoSpace was in an executive, administrative and managerial capacity. He nowhere disputes the contention that his position with IsoSpace was that of executive vice-president, or that his employment duties were, as set forth in the Employment Agreement, administrative and managerial in nature. Connolly's opposition papers and the amended Complaint indicate that he is withdrawing his claim for nonpayment of wages under Labor Law § 191 (1) (d), which was asserted in the original complaint. This is evidently in acknowledgment of the fact that, because he was employed in an executive capacity, he may not maintain a claim under that section. Connolly, nevertheless, asserts that he may "pursue his claim under Labor Law § 193 irrespective of his alleged executive status" (Pl. Mem. of Law, at 4).
The fact that Connolly was employed in an executive, managerial and administrative capacity also forecloses his claims under sections 193 and 198 (1-a) of Article 6 for unpaid wages, liquidated damages and attorney's fees ( see e.g. Gottlieb v Lamb Co., 82 NY2d 457; Zito v Fischbein, Badillo, Wagner Harding, 35 AD3d 306, 307 [1st Dept 2006] [stating that the plaintiff in that case, "as a highly compensated professional, ha[d] no cognizable claim under Labor Law § 198"]; Davidson v Regan Fund Mgt., Ltd., 13 AD3d 117, 118 [1st Dept 2004] [stating that the "[p]laintiff's cause of action under Labor Law § 198 (1-a) was properly dismissed on a finding that he was employed in an executive capacity"]; Sorrentino v Bohbot Entertainment Media, 265 AD2d 245, 246 [1st Dept 1999] [stating that the plaintiff's "cause of action for attorneys' fees and liquidated damages under Labor Law § 198 (1-a) was properly dismissed, since the statute does not apply to common-law contractual remuneration claims by an executive"]; Taylor v Blaylock Partners, 240 AD2d 289, 292 [1st Dept 1997]; Cohen v Fox-Knapp, Inc., 226 AD2d 207, 207-208 [1st Dept 1996]; Conticommodity Servs. v Haltmier, 67 AD2d at 482; Nornberg v Thai Magic Co., 2006 WL 216685, *4 [Sup Ct, NY County, Jan. 27, 2006]; Carlson v Katonah Capital, L.L.C., 2006 WL 273548, at *4). Accordingly, the Complaint's second cause of action is dismissed.
New York State courts, however, have not been unanimous in concluding that executives may not assert wage claims under Article 6 of the Labor Law generally, or section 193 more particularly ( see Pachter v Bernard Hodes Group, 505 F3d 129, 132-133, 135 [2d Cir 2007] [collecting cases evidencing disagreement among New York State and federal courts concerning whether section 193 and Article 6 of the Labor Law cover executives, and certifying to the New York State Court of Appeals the question of "[w]hether an executive' is considered an employee' for purposes of New York Labor Law Article 6, section 193, and thereby subject to the protections of that provision?"]; see also Pachter v Bernard Hodes Group, 9 NY2d 971 [2007] [accepting the certification of that question]).
IsoSpace argues that the first and third causes of action should be dismissed on various grounds, but has not established that any of the asserted grounds has merit. First, it argues that both those causes of action should be dismissed "for failure to provide a definite statement" (Def. Mem. of Law, at 10), because Connolly has not alleged the claims with sufficient detail to enable IsoSpace to adequately defend against them. However, the first and third causes of action are pleaded with sufficient particularity to satisfy the CPLR 3013 requirement that they give IsoSpace "notice of the transactions, occurrences, or series of transactions or occurrences, intended to be proved and the material elements of each cause of action."
Indeed, although IsoSpace argues that Connolly's wage and Stock option claims are not pleaded with sufficient detail, Connolly has annexed as exhibits to the Complaint copies of two letters, each dated October 24, 2002 and addressed by an officer of IsoSpace to Connolly, ostensibly corroborating the particulars of Connolly's wage and Stock option claims. One of the letters states that: it is being sent "to confirm that IsoSpace owes [Connolly] back salary of $125,025.58 as detailed on the following two pages"; the amount, which "represents monies committed to [Connolly] in salary, but not paid, due to the financial constraints of IsoSpace," is "inclusive up to [the date of the letter] and represents the time [Connolly has] already spent working at IsoSpace"; and "IsoSpace has every intention of paying [Connolly] the entire amount owed" (Complaint, Ex. 2). The Complaint alleges that following the date of that letter, and no further salary payments having been made, Connolly was owed a total of $149,192.23 in unpaid salary by January 2, 2003, the date of his resignation. The additional $24,166.65 in unpaid salary which Connolly claims to be owed for the period from October 24, 2002 through January 2, 2003 is approximately equivalent to the pro rata portion, for that period of time, of an annual salary of $125,000.00.
The second letter states that: it is being sent "to confirm [Connolly's] stock ownership and options vesting schedule in IsoSpace"; options to acquire 197,500 shares of Stock are vested as of the date of the letter; options to acquire 57,500 additional shares of Stock will vest on December 31, 2002; and, "[u]pon full vesting," Connolly will own options to acquire 255,000 shares of Stock (Complaint, Ex. 3). The two letters ostensibly authored by officers of IsoSpace would themselves appear to set forth sufficient details to enable IsoSpace to defend against Connolly's wage and Stock option claims, if, indeed, there is a defense to such claims. However, assuming that IsoSpace requires a more definite statement of those claims, its proper course of action would be to bring a motion for a more definite statement, pursuant to CPLR 3024 (a), rather than a motion to dismiss.
IsoSpace argues that the first and third causes of action should be dismissed "to the extent that they seek wages for the remainder of the [term of the Employment Agreement] or any unexercised stock options" because, under section 5 and subsection 3.4 (c) of the Employment Agreement, Connolly "forfeited any wage claim for the remainder of the term of the agreement, and any unexercised stock options, when he resigned" (Def. Mem. of Law, at 11).
However, IsoSpace has failed to establish that dismissal of any portion of the first or third causes of action is warranted on the foregoing ground. As an initial matter, the meaning of the argument that the wage claim should be dismissed "to the extent that [it] seek[s] wages for the remainder of the [term of the Employment Agreement]" is unclear, since all of the $149,192.23 in wages which Connolly claims to be owed were allegedly earned prior to his resignation. Nor, in any event, has IsoSpace established that either subsection 3.4 (c) or section 5 of the Employment Agreement is applicable to the termination of Connolly's employment, let alone that either provision warrants forfeiture of the wages or Stock option rights which he claims in this action.
Section 5 of the Employment Agreement, which is entitled "Termination for Cause," provides in relevant part, that: If the Employee . . . (iii) breaches in any material respect the terms and provisions of this Agreement and fails to cure such breach within ten (10) days following written notice from the Company specifying such breach, the Company may terminate the Employee's employment hereunder . . . on written notice given to the Employee at any time not less than thirty (30) days following the occurrence of any of the events described in clause (iii) above. The Employee shall have no right to receive any compensation . . . hereunder on and after the effective date of the notice provided in the preceding sentence other than Annual Salary . . . earned and accrued under this Agreement . . . prior to the effective date of such notice. IsoSpace has not established that section 5 applies to the termination of Connolly's employment, inter alia, because: (1) it was allegedly Connolly rather than IsoSpace who initiated the termination of his employment, so that it is not clear that the termination constituted a "termination for cause" by IsoSpace under section 5; (2) it is not clear that IsoSpace's nonpayment of Connolly's salary did not itself constitute a material breach of the Employment Agreement which excused his further performance under the agreement; and (3) there is no indication that IsoSpace ever sent to Connolly either of the written notices which appear to be prerequisites for a termination for cause under section 5, i.e., a written notice of breach affording Connolly the opportunity to cure within 10 days and a written notice of termination of employment.
Even assuming, arguendo, that IsoSpace had served the two aforementioned written notices, the second notice could only have been given, and a termination for cause could only have become effective — according to the language of section 5 — 30 or more days after Connolly's alleged material breach of the Employment Agreement by his resignation on January 2, 2003. And even assuming, further, that IsoSpace had given Connolly the requisite written notice of his termination for cause on the earliest possible date — i.e., February 2, 2003 — and made the termination effective as of that date, section 5 would provide merely that Connolly had "no right to receive any compensation . . . on and after the effective date of the notice [February 2, 2003] . . . other than Annual Salary . . . earned and accrued under this Agreement . . . prior to the effective date of such notice " (emphasis added). Thus, even assuming that section 5 were applicable to the termination of Connolly's employment, IsoSpace has not established that it could preclude Connolly's claim for wages which he allegedly earned prior to his resignation on January 2, 2003.
As a basis for dismissal of Connolly's Stock options claim, IsoSpace quotes subsection 3.4 (c) of the Employment Agreement, which provides that, "[n]otwithstanding anything to the contrary in the Stock Option Plan or this Agreement, the Option, to the extent unexercised, shall be subject to forfeiture in the event of a termination of the Employee's employment covered by Section 5." However, since IsoSpace has not established that the termination of Connolly's employment was a termination "covered by Section 5," IsoSpace has also failed to establish that subsection 3.4 (c) would be applicable to work a forfeiture by Connolly of any Stock options to which he was otherwise legitimately entitled.
In its reply papers, IsoSpace argues that the first and third causes of action should be dismissed, insofar as they allege that Connolly owns and is entitled to exercise Stock options, because his Stock options were governed by a Stock option plan which provides that an employee's Stock options will expire if they are not exercised within three months after the termination of the employee's employment, and because Connolly does not allege that he exercised any of his Stock options during that time period. With its reply papers, IsoSpace has submitted a copy of a document entitled "Instrument of Grant of Non-Qualified Stock Option," dated as of December 31, 2001 (the Alleged Option Grant), which provides, in relevant part, that "this Option shall terminate . . . three months from the date [of] the termination on [the optionee's] employment" ( see Nathan Affid., Ex. C, ¶ 2 [b]).
However, this court may not consider IsoSpace's argument predicated upon the Alleged Option Grant because the argument and the document were not submitted with the moving papers, but only, improperly, for the first time, with the reply papers ( see e.g. Wal-Mart Stores v United States Fid. and Guar. Co., 11 AD3d 300, 301 [1st Dept 2004]). By serving them so late, Connoly had no opportunity to contest them. In any event, the Alleged Option Grant could not be deemed to conclusively establish any defense to Connolly's Stock option claim because: (1) IsoSpace has not established that any Stock options which Connolly may have been granted are, in fact, subject to the terms and conditions set forth in the Alleged Option Grant; and (2) the Alleged Option Grant on its face lacks the indicia of competent evidence, inter alia, in that it is not signed by either Connolly or IsoSpace on the blanks provided for execution by those parties at the end of the document, and contains another blank space which would presumably have been filled in on a document that was intended to establish enforceable rights and binding obligations.
IsoSpace argues that part of the claim for unpaid wages which is asserted in the first cause of action should be dismissed as time-barred because the claim is subject to a six-year statute of limitations, and because certain of the wages which Connolly seeks were payable before March 8, 2001, which is more than six years before this action was commenced on March 8, 2007. This issue should not be decided on a pre-answer motion, but rather should await further proceedings to enable the court to determine what part of the wages and claims, if any, are timed barred ( and see General Obligations Law § 17-101; Lew Morris Demolition Co. v Board of Educ. of City of New York, 40 NY2d 516, 521; Fleet Natl. Bank v Laquidara, Inc., 290 AD2d 930, 931 [3rd Dept 2002]).
CONCLUSION AND ORDER
For the foregoing reasons, it is hereby
ORDERED that the motion to dismiss is granted, but only to the extent that the amended complaint's second cause of action is dismissed; and it is further
ORDERED that defendant is directed to serve a verified answer to the amended complaint within 10 days after service of a copy of this order with notice of entry, upon its attorney.