Opinion
01-CV-6610 CJS (B).
August 19, 2002
Andrew J. Ryan, Esq., Woods, Oviatt, Gilman LLP, Rochester, New York, FOR THE PLAINTIFFS.
Fred G. Aten, Jr., Esq. and Matthew D. Brown, Esq., Harter, Secrest Emery LLP, Rochester, New York, FOR THE DEFENDANTS.
DECISION AND ORDER
Introduction
Plaintiffs commenced this employment discrimination action by filing a complaint with the Court alleging that defendants violated New York and federal civil rights statutes. Now before the Court is defendants' motion (docket #2) filed March 15, 2002, seeking dismissal of the complaint pursuant to Federal Rule of Civil Procedure 12(b)(1) and 12(b)(6) on the grounds that the complaint is barred by a valid release and, with respect to individual defendant, John Gilmore, that the Court lacks subject matter jurisdiction. For the reasons stated below, the motion is converted to one for summary judgment and is granted and the case is dismissed.
Motion to Dismiss
As a procedural matter, on a motion to dismiss under Rule 12, the Court is limited to reviewing the pleadings, documents attached thereto and incorporated into the pleadings, and matters of which the Court may take judicial notice. 2 MOORE'S FEDERAL PRACTICE, § 12.34[2] (Matthew Bender 3d ed.). However, the parties here have both submitted affidavits and letters not a part of the pleadings, presumably with the intent that the Court rely on them to decide defendant's motion to dismiss. When the parties do this in conjunction with a motion under Rule 12(b)(6), failure to state a claim upon which relief can be granted, the Court must either choose to exclude the additional materials, or convert the motion into one for summary judgment and consider the extraneous papers. See FED. R. CIV. P. 12(c); 2 MOORE'S FEDERAL PRACTICE, § 2.34[3][a] (Matthew Bender 3d ed.). Since both parties have filed extraneous materials for the Court's consideration on the motion, and the Court informed both parties at oral argument that it would consider them, the Court has elected to construe the dismissal motion filed by National Engineering Search, LLC ("NES") as a motion for summary judgment. FED. R. CIV. P. 12(b).
Case law in this circuit would also allow consideration of a prospectus and other documents filed with the Securities Exchange Commission when addressing a motion to dismiss in a securities case. Cortec Industries, Inc. v. Sum Holding L.P., 949 F.2d 42, 47-48 (2d Cir. 1991).
Summary Judgment Standard
The standard for granting summary judgment is well established. Summary judgment may not be granted unless "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). A party seeking summary judgment bears the burden of establishing that no genuine issue of material fact exists. See Adickes v. S.H. Kress Co., 398 U.S. 144, 157 (1970). "[T]he movant must make a prima facie showing that the standard for obtaining summary judgment has been satisfied." 11 MOORE'S FEDERAL PRACTICE, § 56.11[1][a] (Matthew Bender 3d ed.). That is, the burden is on the moving party to demonstrate that the evidence creates no genuine issue of material fact. See Amaker v. Foley, 274 F.3d 677 (2d Cir. 2001); Chipollini v. Spencer Gifts, Inc., 814 F.2d 893 (3d Cir. 1987) (en banc). Where the non-moving party will bear the burden of proof at trial, the party moving for summary judgment may meet its burden by showing the evidentiary materials of record, if reduced to admissible evidence, would be insufficient to carry the non-movant's burden of proof at trial. Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986).
Once that burden has been met, the burden then shifts to the non-moving party to demonstrate that, as to a material fact, a genuine issue exists. FED. R. CIV. P. 56(e); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986). A fact is "material" only if the fact has some affect on the outcome of the suit. Catanzaro v. Weiden, 140 F.3d 91, 93 (2d Cir. 1998). A dispute regarding a material fact is genuine "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson, 477 U.S. at 248. In determining whether a genuine issue exists as to a material fact, the court must view underlying facts contained in affidavits, attached exhibits, and depositions in the light most favorable to the non-moving party. U.S. v. Diebold, Inc., 369 U.S. 654, 655 (1962). Moreover, the court must draw all reasonable inferences and resolve all ambiguities in favor of the non-moving party. Leon v. Murphy, 988 F.2d 303, 308 (2d Cir. 1993); Anderson, 477 U.S. at 248-49; Doe v. Dep't of Pub. Safety ex rel. Lee, 271 F.3d 38, 47 (2d Cir. 2001); International Raw Materials, Ltd. v. Stauffer Chemical Co., 898 F.2d 946 (3d Cir. 1990). However, a summary judgment motion will not be defeated on the basis of conjecture or surmise or merely upon a "metaphysical doubt" concerning the facts. Bryant v. Maffucci, 923 F.2d 979, 982 (2d Cir. 1991) (citing Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986)); Knight v. United States Fire Ins. Co., 804 F.2d 9 (2d Cir. 1986). Rather, evidentiary proof in admissible form is required. FED. R. CIV. P. 56(e). Furthermore, the party opposing summary judgment "may not create an issue of fact by submitting an affidavit in opposition to a summary judgment motion that, by omission or addition, contradicts the affiant's previous deposition testimony." Hayes v. New York City, Department of Corrections, 84 F.3d 614, 619 (2d Cir. 1996).
Background
NES is a national technical search firm, which places software, electrical, optical and mechanical engineers nationwide with clients ranging from Fortune 500 companies to emerging technology start-ups. NES hired James Grant to work as a recruiter in October, 1997, and he signed a contract of employment, which included a non-compete agreement, with NES. NES then hired Elizabeth Grant as a recruiter in December, 1998, and she signed a similar contract. The Grants are married. The Grants' employment contracts prohibited their competition with NES and, on January 19, 2001, NES terminated each one's employment, alleging that they had violated the non-compete provision of their agreements. Following negotiations, the Grants each signed a confidential settlement agreement with general release ("Agreement") on February 26, 2001. By its terms, the Agreement became effective seven (7) days after it had been signed.
The Court will address this point in greater detail, below.
NES alleges that the Agreement is a substituted contract, whereas plaintiffs allege that the Agreement is an accord. Among other things, the Grants and NES each agreed to release any claims they had against the other based upon statutory or common law, and NES agreed to pay to the Grants commissions due and owing and released the Grants from their non-compete clause. The Agreement, however, specifically stated that it did not "constitute a waiver of any rights NES has with regard to confidential and proprietary materials." Agreement at 3. NES made payment in full to Elizabeth Grant pursuant to the Agreement. NES paid James Grant a total of $52,460.40 pursuant to the Agreement and withheld payment of $11,849.70 due to him.
NES also alleges that notwithstanding the Agreement's status, it contains a valid release of the Grants' Title VII and other civil rights laws claims. The Court need not address this contention, since it finds that the Agreement is a substituted contract.
In some cases, the term "novation" is utilized instead of "substituted contract." However, the Restatement of Contracts makes a distinction between the terms, in that "novation" requires the addition of a new party to the contract. See RESTATEMENT (SECOND) OF CONTRACTS § 280 (1981).
One of NES's methods of obtaining the names of potential placement candidates was through the use of a website offering a salary comparison calculator to entice qualified individuals to give NES detailed information concerning their personal identifiers and other potential recruiting details. NES advised potential candidates, who entered information into their database, that the information would be kept confidential. As a test of its confidentiality policies, NES occasionally placed fictitious candidates' names and personal information into the database. One such fictitious candidate was Paul Atkinson, with an e-mail address of atkinsonpaul@hotmail.com. NES alleges that on or about May 14, 2001, after the Agreement became effective, James Grant attempted to recruit Paul Atkinson. NES alleges that by contacting Paul Atkinson, James Grant violated the terms of the Agreement and, therefore, was not entitled to the remaining payments.
On or about August 20, 2001, James and Elizabeth Grant each filed separate complaints with the Equal Employment Opportunity Commission ("EEOC") charging NES and John Gilmore with discrimination. More specifically, Elizabeth Grant alleged, inter alia, that she was being sexually harassed by John Gilmore and that the other partners, who were aware of the harassment, did nothing to stop it. James Grant alleged that two days after he complained about the sexual harassment concerning his wife, he and his wife were both terminated. Elizabeth Grant also alleged violations of the Equal Pay Act. EEOC closed its case on September 26, 2001, stating that the charging party had signed a valid waiver, and issued a Right to Sue letter. Plaintiffs filed their complaint in this Court on December 21, 2001.
Discussion
A. Accord or Substituted Contract
Under New York law, an accord is an agreement by one party to offer and the other party to agree to accept, in settlement of an existing or matured unpaid claim, an amount of money or some performance other than that to which the second party believes it is entitled. May Dep't Stores Co. v. International Leasing Corp., Inc., 1 F.3d 138, 140 (2d Cir. 1993). To put it another way, it is "an agreement that an existing claim will be discharged in the future by the rendition of a substituted performance." 6 Corbin, Contracts § 1269 at 75 (1962). The mere promise of future performance does not, in itself, act as satisfaction; only when the promised future performance is rendered is the accord satisfied. Id. Failing performance, the party may proceed on the original claim. Id.
New York General Obligations Law defines an executory accord as follows:
an agreement embodying a promise express or implied to accept at some future time a stipulated performance in satisfaction or discharge in whole or in part of any present claim, cause of action, contract, obligation, or lease, or any mortgage or other security interest in personal or real property, and a promise express or implied to render such performance in satisfaction or in discharge of such claim, cause of action, contract, obligation, lease, mortgage or security interest.
N.Y. GEN. OBLIG. LAW § 15-501(1). When proposing enactment of this section, the Law Revision Commission stated its purpose as follows:
The reason for defining executory accord in this subdivision [1] is to exclude from the operation of subdivisions two and three the case where the parties agree to extinguish the existing obligation immediately on the making of the new promise. Under the common law of New York, if an obligee or claimant agrees to accept at some future time a stipulated performance in satisfaction or discharge of any obligation or claim, and the obligor or person against whom the claim is asserted agrees to render the stipulated performance, neither is bound until performance is fully made and accepted. Either party can enforce his rights under the original obligation or claim, notwithstanding the fact there has been no breach of the new agreement. The purpose of this subdivision [2] is to make executory agreements of accord binding on both parties, subject to the provision of subdivision 3.
Subdivision three entitles either of the parties to assert his rights under the original claim if the performance promised in the accord is not kept.
1937 Leg.Doc. 65K; 1937 Report, Recommendations and Studies, pp. 201 to 248.
Authorities unanimously agree that the distinction between an executory accord and what is termed by the case law as a substitute agreement, hinges upon the intention of the parties. National American Corporation v. Federal Republic of Nigeria, 448 F. Supp. 622, 643 (S.D.N.Y. 1978); United Nations Korean Reconstruction Agency v. Glass Production Methods, 291 F.2d 168, 172 (2d Cir. 1961). Intention may be conclusively shown by the documents themselves, in which case the issue is one of law to be decided by the court. Failing that, the parties' intentions must be discerned from the negotiations, in which case the issue is one of fact for trial. National American Corporation, 448 F. Supp. at 643.
When interpreting a New York contract, the Court of Appeals held:
The Agreement specifically states that it is to be construed in accordance with New York law. New York follows the common law rule that, "[i]n interpreting a contract, the intent of the parties governs," and therefore "[a] contract should be construed so as to give full meaning and effect to all of its provisions." American Express Bank Ltd. v. Uniroyal, Inc., 164 A.D.2d 275, 277, 562 N.Y.S.2d 613, 614 (1st Dep't 1990), appeal denied, 77 N.Y.2d 807, 569 N.Y.S.2d 611, 572 N.E.2d 52 (1991); see also Tigue v. Commercial Life Ins. Co., 631 N.Y.S.2d 974, 975 (4th Dep't 1995) ("[T]he court must ascertain the intent of the parties from the plain meaning of the language employed."). In interpreting a contract, "[w]ords and phrases are given their plain meaning. Rather than rewrite an unambiguous agreement, a court should enforce the plain meaning of that agreement." American Express, 164 A.D.2d at 277, 562 N.Y.S.2d at 614 (citations omitted); see also Heller v. Pope, 250 N.Y. 132, 135, 164 N.E. 881 (1928). Furthermore, where "the intent of the parties can be determined from the face of the agreement, interpretation is a matter of law," and a claim turning on that interpretation may thus be determined by summary judgment or by dismissal. American Express, 164 A.D.2d at 277, 562 N.Y.S.2d at 614; see also Tigue, 631 N.Y.S.2d at 974.
PaineWebber Inc. v. Bybyk, 81 F.3d 1193, 1199 (2d Cir. 1996).
B. Analysis
Here, by entering into the Agreement, NES: agreed to pay commissions due and owing to the Grants; agreed to pay James Grant for a company trip bonus; agreed to make payments to the Grants' profit-sharing plan for 2000; released the Grants from any and all claims NES might have had arising from the Grants' acts and omissions up to the date of the agreement; and, finally, agreed to release the Grants from their obligation to not compete with NES, but did not waive any rights it had with respect to confidential and proprietary materials. In return, the Grants agreed to release and discharge NES from any claims relating to their employment, including any civil rights law claims and New York Human Rights law claims. The agreement became effective on the seventh day after signing, which took place on February 26, 2001. The last paragraph of the agreement is:
This is the entire agreement between James M. Grant and Elizabeth W. Grant and NES and fully supersedes any and all prior agreements or understandings between the parties.
Reading the Agreement in its entirety, the Court determines that the parties' intent was to release one another from their previous employment and non-compete contract. The mutual releases, effective seven days after signing, and consideration for those releases (payment by NES for commissions owed and release from the non-compete clause, and release by the Grants of any state or federal civil rights claims) makes the Agreement a substituted contract between NES and the Grants. NES offered more than was owing to the Grants in return for the civil rights claims release-it released the Grants from their non-compete agreement. The Grants are benefitting today from that release in that they run a competing placement service which, but for NES's release, they could not do. Though there is now a dispute as to whether James Grant has used proprietary or confidential information from NES, that dispute must be resolved under the Agreement.
The parties referred to a civil suit filed by NES against the Grants and their company now pending in New York State Supreme Court, Yates County. In that suit, NES alleged that the defendants breached a provision of the employment contract. At oral argument, the Court noted what appeared to it to be an inconsistency between the allegation in Yates County that the employment contract, or at least part of it, continues to be operative, and the contrary allegation before the Court that the Agreement has completely replaced the former employment contracts between the Grants and NES. However, the plaintiffs evidently attach no significance to this apparent inconsistency since it was not raised in their papers.
Conclusion
In view of the foregoing, NES's motion to dismiss (docket #2), which the Court has treated as a summary judgment motion, is granted, and the case is dismissed.
So Ordered.