Opinion
05 Civ. 6612 (WHP).
July 26, 2006
MEMORANDUM AND ORDER
Plaintiff Donald H. Stillman, Jr. ("Plaintiff" or "Stillman") brings this action against Carl Townsend ("Townsend"), In Service America, Inc. ("ISA") and Wildfire Partners, Inc. ("Wildfire") (collectively, the "Defendants") alleging breach of a purported employment agreement between Stillman and Wildfire. Plaintiff also asserts claims for breach of the covenant of good faith and fair dealing, promissory estoppel, quantum meruit and fraud. Defendants move to dismiss the Complaint. For the reasons set forth below, Defendants' motion is granted in part and denied in part.
BACKGROUND
Townsend is President and Chief Executive Officer of ISA, a company that provides call center services for Christian ministries. (Compl. ¶¶ 8, 10.) Prior to 2004, Stillman worked as a consultant. (Compl. ¶¶ 7, 12.) In November 2003, Stillman and Townsend agreed to collaborate on the promotion of the film "Passion of the Christ." (Compl. ¶¶ 11.)
In March 2004, Stillman and Townsend discussed broadening their business relationship, and Townsend proposed that they start a company to provide marketing, consulting and call center services for "mainstream" market clients using ISA's databases. (Compl. ¶¶ 13, 17.) ISA's advisory board approved the formation of Wildfire to provide these services. (Compl. ¶ 19.) The parties orally agreed that Stillman would become President of Wildfire pursuant to a three-year employment contract, but left open the majority of the terms that were material to Stillman's employment. (Comp. ¶ 20.) ISA agreed to provide $1 million in initial financing for Wildfire. (Compl. ¶¶ 23-24.)
Stillman wound down his activities as a consultant and began working on behalf of Wildfire. (Compl. ¶¶ 26-27.) Defendants agreed to compensate him for these efforts. (Compl. ¶ 29.) Through Stillman, Defendants conducted business with a variety of his former clients. (Compl. ¶¶ 25, 31-32.)
At some point after Stillman began working for Wildfire, Defendants provided him with a proposed written employment agreement. (Compl. ¶ 38.) This prompted further negotiations between the parties, which resulted in an oral agreement on all principal terms of Stillman's employment (the "Agreement"). These terms included a base annual compensation of $125,000 for a three year term, revenue sharing for certain consulting and licensing opportunities, 25% equity ownership of Wildfire and employee benefits. (Comp. ¶¶ 38, 47.) Because the terms of the Agreement differed from those set forth in Defendants' written proposal, Defendants promised to provide a revised writing for the parties to sign. (Compl. ¶¶ 28, 39.) Two months later, however, Defendants notified Stillman that they had decided to terminate him. (Compl. ¶ 41.)
To date, Defendants have paid Stillman $12,500 in consulting fees and $10,701 to reimburse his travel expenses. (Compl. ¶ 45.) Stillman claims that in addition to these payments, he is owed: (1) his annual salary; (2) an ownership interest in Wildfire; and (3) employee benefits.
DISCUSSION
I. Motion to Dismiss Standard
On a motion to dismiss pursuant to Rule 12(b)(6), a court typically must accept the material facts alleged in the complaint as true and construe all reasonable inferences in a plaintiff's favor. Grandon v. Merrill Lynch Co., 147 F.3d 184, 188 (2d Cir. 1998). A court should not dismiss a complaint for failure to state a claim unless "it appears beyond doubt that the plaintiff can prove no set of facts in support of [its] claim which would entitle [it] to relief." Conley v. Gibson, 355 U.S. 41, 45-46 (1957); accord Gant v. Wallingford Bd. of Educ., 69 F.3d 669, 673 (2d Cir. 1995). Dismissal is proper when the plaintiff fails to plead the basic elements of a cause of action. See Wright v. Giuliani, No. 99 Civ. 10091 (WHP), 2000 WL 777940, at *4 (S.D.N.Y. 2000). The issue on a motion to dismiss "is not whether a plaintiff will ultimately prevail, but whether the claimant is entitled to offer evidence to support claims." Villager Pond, Inc. v. Town of Darien, 56 F.3d 375, 378 (2d Cir. 1995) (citation omitted).
II. Breach of Contract
Stillman had an oral employment agreement with Wildfire. Under New York's Statute of Frauds, an oral agreement is void if, by its terms, "it is not to be performed within one year from [its] making." N.Y. Gen. Oblig. Law § 5-701(a)(1). Because the Agreement had a three year term, Defendants contend that the agreement is unenforceable under the statute of frauds. Plaintiff responds that: (1) an action may not be dismissed pursuant to Fed.R.Civ.P. 12(b)(6) on statute of frauds grounds; (2) the Agreement was a binding "agreement to agree"; and (3) his employment was terminable prior to the three-year mark, meaning performance was possible within one year.
It is undisputed that New York law governs Plaintiff's claims. "Where the parties have agreed to the application of the forum law, their consent concludes the choice of law inquiry."Texaco A/S v. Commercial Ins. Co., 160 F.3d 124, 128 (2d Cir. 1998) (quoting Am. Fuel Corp. v. Utah Energy Dev. Co., 122 F.3d 130, 134 (2d Cir. 1997)).
A. Rule 12(b)(6) and the Statute of Frauds
Plaintiff argues that consideration of the statute of frauds is inappropriate on a motion to dismiss. Yet courts routinely dismiss breach of contract claims on statute of frauds grounds.See, e.g., Zaitsev v. Salomon Bros., Inc., 60 F.3d 1001, 1003-04 (2d Cir. 1995); Zeising v. Kelly, 152 F. Supp. 2d 335, 343 (S.D.N.Y. 2001); Mobile Data Shred, Inc. v. United Bank of Switzerland, No. 99 Civ. 10315 (SAS), 2000 WL 351516, at *5 (S.D.N.Y. Apr. 5, 2000); Rosbach v. Indus. Trading Co., 81 F. Supp. 2d 522, 524 (S.D.N.Y. 2000); Doehla v. Wathne Ltd., Inc., No. 98 Civ. 6087 (CSH), 1999 WL 566311, at *4 (S.D.N.Y. Aug. 3, 1999); Keough v. Texaco Inc., No. 97 Civ. 5981 (LMM), 1999 WL 61836, at *9 (S.D.N.Y. Feb. 10, 1999).
Plaintiff cites Palmer v. A. L. Seamon, Inc., No. 94 Civ. 2968 (JFK), 1995 WL 2131 (S.D.N.Y. Jan. 3, 1995), in which the court declined to address the defendant's statute of frauds defense on a motion to dismiss. In that case, it appears to have been unclear from the pleadings whether the alleged agreement was written or oral and, consequently, it was impossible to determine whether the statute of frauds applied. Stillman, by contrast, does not dispute that the Agreement was oral. Since "the complaint itself [and] the parties' papers [leave] little question that the plaintiff [is] claiming the existence of a binding, oral contract," this Court is free to apply the statute of frauds at this procedural stage. Granite Partners, L.P. v. Bear, Stearns Co., 58 F. Supp. 2d 228, 250 (S.D.N.Y. 1999).
B. Agreement to Agree
Plaintiff contends that because the parties agreed to reduce the Agreement to a writing at a later date, the Agreement constitutes an oral "agreement to agree" that is sufficient to bind the parties.
Plaintiff assumes, without discussion, that an oral agreement to sign a written document may be valid even when the statute of frauds requires a writing. However, "[t]he law is well settled that an oral agreement to execute an agreement that is within the statute of frauds is itself within the statute, and unenforceable." Backus Plywood Corp. v. Commercial Decal, Inc., 317 F.2d 339, 343 (2d Cir. 1963); see also Najjar v. Nat'l Kinney Corp., 96 A.D.2d 836, 456 N.Y.S.2d 590, 591 (2d Dep't 1983) (holding that the statute of frauds "may not be evaded by claiming that even though the agreement for the transfer of the property itself is unenforceable, the agreement to enter this business arrangement is valid"); E. Allan Farnsworth, Farnsworth on Contracts, § 6.2 (2d ed. 2001) ("The statute of frauds may also apply to a promise to sign a writing. If an agreement is within the statute, a promise to sign a writing evidencing the agreement is also within the statute."). Therefore, even if the Agreement constitutes an oral "agreement to agree," it remains subject to the statute of frauds.
C. Terminable Employment
The Agreement contemplated a three year term of employment. (Compl. ¶¶ 20, 47.) Plaintiff argues in his brief that "[a]lthough the term of [his] employment was for three years, the parties' agreement was terminable by either party prior to the expiration of that period." (Plaintiff's Memorandum in Opposition to Defendants' Motion to Dismiss, dated Dec. 16, 2005 ("Pl. Opp. Mem.") at 8.) Because such an agreement can be terminated at any time, it is capable of being performed within one year, thereby removing it from the statute of frauds. See I.S. Sahni, Inc. v. Scirocco Fin. Group., Inc., No. 04 Civ. 9251 (RMB), 2005 WL 2414762, at *6 (S.D.N.Y. Sept. 28, 2005); Cron v. Hargro Fabrics, Inc., 91 N.Y.2d 362, 366 (1998); Weiner v. McGraw-Hill, Inc., 57 N.Y.2d 458, 463 (1982).
Although this argument appears in Plaintiff's brief, the Complaint does not allege that the Agreement was terminable prior to the expiration of the three year period. "Factual allegations contained in legal briefs or memoranda are . . . treated as matters outside the pleading for purposes of Rule 12(b)." Fonte v. Bd. of Managers of Cont'l Towers Condo., 848 F.2d 24, 25 (2d Cir. 1988). It is "axiomatic that the Complaint cannot be amended by the briefs in opposition to a motion to dismiss," and this Court rejects allegations made for the first time in Plaintiff's brief.O'Brien v. Nat'l Property Analysts Partners, 719 F. Supp. 222, 229 (S.D.N.Y. 1989); see also In re Livent, Inc. Noteholders Sec. Litig., 151 F. Supp. 2d 371, 432 (S.D.N.Y. 2001) ("The complaint cannot, of course, be amended by the briefs in opposition to a motion to dismiss.")
Therefore, the Agreement was for three years of employment, and a "[three]-year term, obviously, could not be performed within one year." Chase v. United Hosp., 60 A.D.2d 558, 559, 400 N.Y.S.2d 343, 344 (1st Dep't 1977). The Agreement is unenforceable under the Statute of Frauds. N.Y. Gen. Oblig. Law § 5-701(a)(1); see also Doynow v. Nynex Pub. Co., 202 A.D.2d 388, 608 N.Y.S.2d 683, 684 (2d Dep't 1994) ("[T]he plaintiff alleged that there was an oral contract of five years' duration, and thus his claim is barred by the Statute of Frauds.");Cunnison v. Richardson Greenshields Sec., Inc., 107 A.D.2d 50, 52, 485 N.Y.S.2d 272, 275 (1st Dep't 1985) ("[T]o be enforceable, a promise or agreement of employment for five years — which by its terms cannot be performed within one year — must be memorialized in a writing . . .").
D. Breach of Good Faith and Fair Dealing
To invoke the covenant of good faith and fair dealing, Plaintiff must first allege an enforceable employment agreement.Fasolino Foods Co. v. Banca Nazionale Del Lavoro, 961 F.2d 1052, 1056 (2d Cir. 1992); see also Banco Espirito Santo de Investimento, S.A. v. Citibank, N.A., No. 03 Civ. 1537 (MBM), 2003 WL 23018888, at *5 (S.D.N.Y. Dec. 22, 2003) ("[T]here can be no breach of the duty of good faith and fair dealing when there is no valid and binding contract from which such a duty would arise" (internal quotation omitted).); United Magazine Co. v. Murdoch Magazines Distrib., Inc., 146 F. Supp. 2d 385, 405 (S.D.N.Y. 2001) (holding that a cause of action for breaching covenant of good faith and fair dealing "is dependent upon the existence of an enforceable contract"). Because no enforceable contract has been alleged, Plaintiff's good faith and fair dealing claim is also dismissed.
II. Promissory Estoppel
Plaintiff must establish the following three elements to recover under the promissory estoppel doctrine: (1) a clear and unambiguous promise; (2) reasonable and foreseeable reliance by the party to whom the promise is made; and (3) harm to the party asserting estoppel by reason of reliance. Braun v. CMGI, Inc., No. 99 Civ. 12328 (WHP), 2001 WL 921170, at *10 (S.D.N.Y. Aug. 14, 2001); Steinborn v. Daiwa Sec. Am., Inc., No. 92 Civ. 0782 (JES), 1995 WL 761286, at *20 (S.D.N.Y. Dec. 26, 1995). "The doctrine of promissory estoppel as a bar to assertion of a Statute of Frauds defense has been strictly construed to apply only in those rare cases where `the circumstances [are] such as to render it unconscionable to deny the oral promise upon which the promisee has relied.'" Rosenthal v. Kingsley, 674 F. Supp. 1113, 1125 (S.D.N.Y. 1987) (quoting Swerdloff v. Mobil Oil Corp., 74 A.D.2d 258, 263, 427 N.Y.S.2d 266, 269 (2d Dep't 1980)). As the Second Circuit has explained:
The strongly held public policy reflected in New York's Statute of Frauds would be severely undermined if a party could be estopped from asserting it every time a court found that some unfairness would otherwise result. For this reason, the doctrine of promissory estoppel is properly reserved for that limited class of cases where the circumstances are such as to render it unconscionable to deny the promise . . . Philo Smith Co. v. USLife Corp., 554 F.2d 34, 36 (2d Cir. 1977) (internal quotation omitted).
Because the Complaint alleges no "unconscionable" conduct, Plaintiff's promissory estoppel claim fails. It is well-settled that "change of job or residence, by itself, is insufficient to trigger invocation of the promissory estoppel doctrine." Rivera v. City of New York, 392 F. Supp. 2d 644, 657 (S.D.N.Y. 2005) (quoting Cunnison, 107 A.D.2d at 53, 485 N.Y.S.2d at 275); see also Graff v. Enodis Corp., No. 02 Civ. 5922 (JSR), 2003 WL 1702026, at *2 (S.D.N.Y. Mar. 28, 2003); Cucchi v. New York City Off-Track Betting Corp., 818 F. Supp. 647, 658 (S.D.N.Y. 1993). In the absence of "egregious circumstances," Mobile Data Shred, 2000 WL 351516, at *4, "the choice to forgo current employment because of rosy promises" of future employment is insufficient to claim promissory estoppel. Ginsburg v. Fairfield-Noble Corp., 81 A.D.2d 318, 321, 440 N.Y.S.2d 222, 225 (1st Dep't 1981).
No "egregious circumstances" are present here. Contrary to Stillman's assertions, Defendants did not act "unconscionably" by terminating him after he introduced Defendants to his business contacts. In Ginsburg, the plaintiff alleged that "immediately upon beginning his employment he introduced the defendant to a large group of contractors . . . and that he was discharged shortly thereafter, having served the defendant's purpose." 81 A.D.2d at 320, 440 N.Y.S.2d at 224. The First Department affirmed dismissal of the case, holding that "[t]here are no . . . unconscionable circumstances here present as to warrant application of the doctrine of equitable estoppel . . ."Ginsburg, 81 A.D.2d at 321, 440 N.Y.S.2d at 225. Nor is there anything egregious about being terminated after performing work for the new employer. Sands v. Ge-Ray Fabrics, Inc., 203 A.D.2d 96, 97, 612 N.Y.S.2d 837, 838 (1st Dep't 1994) ("[T]he mere fact that plaintiffs voluntarily expended time and money obtaining customers for defendant" does not "entitle them to recovery on a theory of estoppel . . .");Swerdloff, 74 A.D.2d at 264, 427 N.Y.S.2d at 270 ("Nor do we see the `endless hours' of Mr. Swerdloff's work as making it unconscionable for defendants to assert the Statute of Frauds.")
New employees commonly work hard and use their preexisting business contacts at their new jobs. If terminating employees under such ordinary circumstances were sufficiently "unconscionable" to support a promissory estoppel claim, then promissory estoppel would not be "reserved for [a] limited class of cases" as the Second Circuit has required. Philo Smith Co., 554 F.2d at 36. Particularly for sophisticated businesspersons like the Plaintiff, Ginsburg, 81 A.D.2d at 321, 440 N.Y.S.2d at 225, promissory estoppel is unavailable absent more egregious allegations.
III. Quantum Meruit
To state a quantum meruit claim, a plaintiff must allege: (1) that he rendered services to the defendant; (2) that he expected reasonable compensation for those services; (3) that the defendant accepted those services; and (4) the reasonable value of the services rendered. Huntington Dental Med. Co. v. Minn. Mining and Mfg., Co., No. 95 Civ. 10959 (JFK), 1998 WL 60954, *7 (S.D.N.Y. Feb. 13, 1998). "If a plaintiff fails to prove a valid contract, the court may nonetheless allow recovery in quantum meruit to assure a just and equitable result where the defendant received a benefit from the plaintiff's services under circumstances which, in justice, preclude him from denying an obligation to pay for them." Rule v. Brine, 85 F.3d 1002, 1011 (2d Cir. 1996) (internal citations and quotations omitted). "Where the Complaint asserts claims on theories of both contract and quantum meruit and there is a genuine dispute as to the existence of a contract, the plaintiff need not make a pretrial election between these theories." Brine, 85 F.3d at 1011; cf. Grossberg v. Double H. Licensing Corp., 86 A.D.2d 565, 446 N.Y.S.2d 296 (1st Dep't 1982).
Defendants argue that a quantum meruit award requires mutual assent to all material terms of a contract, and that quantum meruit is unavailable when an oral agreement is unenforceable under the statute of frauds. The thrust of these arguments is that Plaintiff must allege a valid, binding contract in order to receive quantum meruit. Defendants' notion flatly contradicts the well-settled principle that "quantum meruit requires the absence of a valid contract." Aniero Concrete Co. v. New York City Constr. Auth., Nos. 94 Civ. 9111 (CSH), 95 Civ. 3506 (CSH), 2000 WL 863208, at *9 (S.D.N.Y. June 27, 2000) (emphasis added);see also Hutner v. Greene, 734 F.2d 896, 900 (2d Cir. 1984) ("Hutner's quantum meruit claim is not defeated by the absence of an enforceable contract; indeed, it proceeds on the assumption that Hutner lacks an enforceable contract."); Violette v. Armonk Assocs., L.P., 872 F. Supp. 1279, 1282 (S.D.N.Y. 1995) ("A quasi contract only applies in the absence of an express agreement . . ."). Clearly, Stillman need not allege a binding contract in order to receive quasi-contractual relief such as quantum meruit. The motion to dismiss Plaintiff's quantum meruit claim is denied.
IV. Fraud
Defendants contend that Plaintiff's fraud claim duplicates the breach of contract claim and is therefore not actionable. It is well settled under New York law that a party cannot maintain overlapping fraud and breach of contract claims. New York Univ. v. Cont'l Ins. Co., 87 N.Y.2d 308, 318 (1995); River Glen Assocs., Ltd. v. Merrill Lynch Credit Corp., 295 A.D.2d 274, 275, 743 N.Y.S.2d 870, 871 (1st Dep't 2002); Caniglia v. Chi. Tribune-New York News Syndicate, Inc., 204 A.D.2d 233, 234, 612 N.Y.S.2d 146, 147 (1st Dep't 1994). Rather, to state a fraud claim co-existent with an alleged breach of contract, Plaintiff must: "(i) demonstrate a legal duty separate from the duty to perform under the contract; (ii) demonstrate a fraudulent misrepresentation collateral or extraneous to the contract; or (iii) seek special damages that are caused by the misrepresentation and unrecoverable as contract damages."Bridgestone/Firestone, Inc. v. Recovery Credit Servs., Inc., 98 F.3d 13, 20 (2d Cir. 1996) (citations omitted); accord Great Earth Int'l Franchising Corp. v. Milks Dev., 311 F. Supp. 2d 419, 425 (S.D.N.Y. 2004); Saleemi v. Pencom Sys., No. 99 Civ. 667 (DLC), 2000 WL 640647, at *4 (S.D.N.Y. May 17, 2000). Plaintiff must make this showing regardless of whether the alleged contract is unenforceable under the statute of frauds.See Mobile Data Shred, 2000 WL 351516, at *5-6 (dismissing fraud claim when contract was invalid under the statute of frauds); Alter v. Bogoricin, No. 97 Civ. 0662 (MBM), 1997 WL 691332, at *9 (S.D.N.Y. Nov. 6, 1997) (rejecting argument that "because the profit-sharing provision of the Employment Agreement is not enforceable, defendants' promises regarding profit sharing constitute a `collateral oral agreement' that fraudulently induced him to enter into the Employment Agreement").
Plaintiff identifies no separate legal duty or request for special damages to support his fraud claim. Instead, Plaintiff contends that the Complaint alleges misrepresentations extraneous to the contract. Plaintiff relies on the following allegation in the Complaint: "In reliance on the parties' agreement, and with Defendants' full knowledge and encouragement, Stillman began to wind down his activities as an independent consultant, and began to funnel future business opportunities through ISA and Wildfire." (Compl. ¶ 26.) Yet Plaintiff fails to identify any misrepresentation, other than Defendants' promise to perform under the contract. A "contract action cannot be converted to one for fraud merely by alleging that the contracting party did not intend to meet its contractual obligations." Rocanova v. Equitable Life Assurance Soc'y of the United States, 612 N.Y.S.2d 339, 343 (1994); see also Colodney v. Continuum Health Partners, Inc., No. 03 Civ. 7276 (DLC), 2004 WL 829158, at *9 (S.D.N.Y. Apr. 15, 2004). Unlike a misrepresentation inducing a party to enter a contract, a mere promise to perform under the contract is not actionable in fraud.See Manning v. Util. Mut. Ins. Co., Inc., 254 F.3d 387, 401 (2d Cir. 2001); Deutsche Asset Mgmt., Inc. v. Callaghan, No. 01 Civ. 4426, 2004 WL 758303, at *10 (S.D.N.Y. Apr. 7, 2004);Rolls-Royce Motor Cars, Inc. v. Schudroff, 929 F. Supp. 117, 123 (S.D.N.Y. 1996). Because the alleged misrepresentation is not extraneous to the contract, Plaintiff's fraud claim is dismissed.
V. Individual Liability
Defendants move to dismiss the claims against Townsend based on the absence of any allegation giving rise to personal liability. This Court agrees with Defendants that the Complaint does not adequately state a claim against Townsend. Because Plaintiff does not claim that Townsend was privy to the employment agreement, liability can arise only by piercing the corporate veil.Sonnenblick-Goldman Co. v. ITT Corp., 912 F. Supp. 85, 88 (S.D.N.Y. 1996). For a corporate officer to be held liable, "a plaintiff is required to allege specific facts or circumstances to show the actual domination needed to pierce the corporate veil." Ingeniera y Representaciones Internacionales, S.A. v. Stone Webster Int'l Projects Corp., No. 96 Civ. 7335 (PKL), 1997 WL 529015, at *5 n. 8 (S.D.N.Y. Aug. 25, 1997) (internal quotations omitted). "The law is well settled that when a complainant seeks to pierce the corporate veil, [he] must prove that the individual defendant `exercised complete domination of the corporation in respect to the transaction attacked' and also that `such domination was used to commit a fraud or wrong against the plaintiff which resulted in plaintiff's injury.'" Triemer v. Bobsan Corp., 70 F. Supp. 2d 375, 377 (S.D.N.Y. 1999) (quoting Morris v. New York State Dep't of Taxation and Fin., 82 N.Y.2d 135 (1993)). The Complaint fails to allege that Townsend dominated ISA or Wildfire, or that Plaintiff was injured as a result of such domination. Therefore, "Plaintiff's pleadings are insufficient to meet [his] burden to support a claim of piercing the corporate veil."Sonnenblick-Goldman, 912 F. Supp. at 89.
CONCLUSION
For the foregoing reasons, Defendants' motion to dismiss Plaintiff's breach of contract, breach of good faith and fair dealing, promissory estoppel and fraud claims is granted. Defendants' motion to dismiss Plaintiff's quantum meruit claim is denied. Plaintiff is granted leave to replead by August 25, 2006.SO ORDERED.