Opinion
02 Civ. 9120 (SAS)
December 11, 2003
Nina H. Kazazian, Esq., Denver, Colorado, for Plaintiff
Christina L. Feege, Esq., Littler Mendelson, P.C., New York, New York, for Defendants
OPINION AND ORDER
Plaintiff has sued Equinox Fitness Clubs n/k/a Equinox Holdings, Inc. and Equinox Wellness Center Inc. (collectively "Equinox"), Harvey J. Spevak, Chief Executive Officer of Equinox, and the Equinox Health and Welfare Plan (the "Plan") pursuant to the Americans with Disabilities Act of 1990 ("ADA"), 42 U.S.C. § 12101 et seq., the New York Executive Law §§ 290 et seq., and the New York City Human Rights Law, N.Y.C. Admin. Code §§ 8-101 et seq. Plaintiff also claims that defendants violated the Family Medical Leave Act ("FMLA"), 29 U.S.C. § 2601 et seq., the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1001 et seq., and state and federal common law. Defendants have moved to dismiss the Complaint pursuant to Rule 56 of the Federal Rules of Civil Procedure. For the following reasons, defendants' motion is granted and this action is dismissed. I. FACTS
The facts are primarily taken from the admitted portions of defendants' amended Rule 56.1 Statement of Undisputed Facts ("Def. R. 56.1"). Where defendants have not addressed a particular fact in their Rule 56.1 Statement and where plaintiff has denied the facts contained therein, reference is made to the underlying source documents, e.g., deposition transcripts, affidavits.
Knoll, a college graduate with previous business experience, began working for Equinox as a marketing manager on April 24, 2000. See Def. R. 56.1 ¶¶ 1-3. In October of 2000, Knoll was diagnosed with breast cancer. See id. ¶ 9. Knoll underwent surgery shortly thereafter and then began receiving chemotherapy treatments in December of 2000, which continued through May 2001. See Deposition of Monica Knoll ("Knoll Dep.") at 116-17. Knoll originally scheduled reconstructive surgery for September 11, 2001, but due to the tragic events of that day, her surgery was rescheduled and took place on November 6, 2001. See id. at 42; see also Def. R. 56.1 ¶ 50.
Knoll was terminated on October 1, 2001. See Def. R. 56.1 ¶ 25. At Knoll's termination meeting were Kathy Reilly, her manager, and Ellen Lory, Equinox's Human Resources Manager. See Knoll Dep. at 38. At that meeting, there were no discussions concerning the possibility of extending plaintiff's health insurance coverage or of her executing a general release. See Def. R. 56.1 ¶¶ 28-29. Within approximately ten days after her discharge, Knoll discussed extending her health benefits with Reilly and specifically sent Reilly an e-mail asking for information concerning her rights under the Consolidated Omnibus Budget Reconciliation Act ("COBRA"), to which she did not receive a response. See Knoll Dep. at 146-47.
Some time after her discharge, defendants forwarded to Knoll a Separation Agreement and General Release ("Release") which released Equinox from "any and all causes of action, claims or demands relating to her employment with [Equinox] or the termination thereof. . . ." Release ¶ 1 (acknowledgment section). In exchange, Equinox agreed, among other things, "to pay the first six (6) months of COBRA starting as of Nov. 1, 2001. . . ." Id. ¶ 2 (consideration section). The Release further states: "By signing below, the Employee indicates that she has carefully read and understood the terms of this Agreement, enter[s] into this Agreement knowingly, voluntarily and of [her] own free will, understands its terms and significance and intend[s] to abide by its provisions without exception." Id.
The full text of the provision follows:
Employee releases and forever discharges the Company from any and all causes of action, claims or demands relating to her employment with the Company or the termination thereof, including but not limited to those in tort for wrongful or retaliatory discharge in violation of public policy or defamation; in contract, whether express or implied; under any Company policy, procedure or benefit plan; or any federal, state or local law, including but not limited to Title VII or the Civil Rights Act, the Americans with Disabilities Act, the Age Discrimination in Employment Act, the Employee Retirement Income Security Act and the New York Law Against Discrimination.
Release ¶ 1 (acknowledgment section).
Knoll executed the Release on November 1, 2001. See id. Knoll testified that she received a draft version of the Release from Lory by e-mail, but she could not recall the date. See Knoll Dep. at 149. Knoll further testified that she had her stepfather, an attorney, "take a look at it." See id. at 150. Her stepfather did not express any concerns over the Release. See id. at 150-51. Knoll did not immediately execute the draft Release as there were some items that she and Lory "had to go back and forth on that weren't written clearly enough." Id. at 151. Knoll admitted that Lory subsequently e-mailed her another draft version of the Release. See id. at 152. When asked how long she waited before signing the final Release after first receiving the draft version, Knoll stated:
I know there was an e-mail to Kathy — I had sent to Kathy dated October and I think I sent her in mid October saying that, at that time, I still hadn't received anything on the COBRA. So it had to have been after the 12th [of October 2001], and I just, you know, I just know that there was some back and forth on the corrections, but we got closer and closer to the date of November 1. . . .Id. at 152-53.
Plaintiff first noticed a problem with her health insurance in February of 2002, when she went to pick up a prescription and was told by the pharmacist that her insurance had lapsed. See Def. R. 56.1 ¶ 51; Knoll Dep. at 164. She subsequently received a letter from Equinox's health insurance carrier, The Guardian Life Insurance Company of America ("The Guardian") informing her that her coverage is cancelled as of October 31, 2001. See 2/13/02 Letter from Health Net, Ex. 3 to the Declaration of Monica Knoll Pursuant to 28 U.S.C. § 1746 ("Knoll Decl.").
On February 18, 2002, Knoll e-mailed Bill Welsh, the person responsible for employee benefits at the time, and informed him that her insurance had been cancelled. See Def. R. 56. ¶ 52. In her e-mail message, Knoll indicated that she was supposed to have continuing coverage under COBRA, which should have gone into effect on November 1, 2001. See Affidavit of William J. Welsh ("Welsh Aff."), Equinox's Controller ¶ 3. Welsh knew that plaintiff had been terminated several months earlier but was unaware of any agreement extending her health benefits. See id. When he saw Knoll's name listed as an active employee for insurance purposes, he instructed Lorna Montano, Equinox's Benefits Administrator, to remove her from the insurance plan. See Def. R. 56.1 ¶¶ 57-58. As a result of this cancellation, Knoll incurred $100 in out-of-pocket costs. See Knoll Dep. at 186.
Welsh subsequently investigated the problem and learned that Knoll was entitled to health benefits under the Release. See Def. R. 56.1 ¶ 61. Plaintiff was mailed a COBRA election form to continue coverage, which she completed and signed on March 1, 2002. See id. ¶¶ 62-63; see also Election of Continued Coverage form, Ex. C to the Welsh Aff. Montano sent this completed form to The Guardian, along with a letter requesting that Knoll's coverage be reinstated. See Def. R. 56.1 ¶ 64; see also 3/1/02 Letter from Montano, Ex. B to the Welsh Aff. (stating that Knoll "was never informed nor did she become active with COBRA"). On March 15, 2002, The Guardian sent Montano a notice informing her that Knoll was covered as of November 1, 2001. See Facsimile Transmission from The Guardian dated March 15, 2002, Ex. D to the Welsh Aff. Knoll acknowledged that her insurance had been retroactively reinstated. See Knoll Dep. at 186.
Although the copy submitted to the Court is indecipherable, the form contains six single-spaced paragraphs which presumably explain an employee's COBRA rights.
II. LEGAL STANDARD
Summary judgment is permissible "if 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 judgment as a matter of law." Fed.R.Civ.P. 56(c). "An issue of fact is genuine 'if the evidence is such that a jury could return a verdict for the nonmoving party.'" Gayle v. Gonyea, 313 F.3d 677, 682 (2d Cir. 2002) (quoting Anderson v. Liberty Lobby, 477 U.S. 242, 248 (1986)). A fact is material when "it 'might affect the outcome of the suit under the governing law.'"Id. (quoting Anderson, 477 U.S. at 248).
The party seeking summary judgment has the burden of demonstrating that no genuine issue of material fact exists. See Marvel Characters, Inc. v. Simon, 310 F.3d 280, 286 (2d Cir. 2002) (citing Adickes v. S.H. Kress Co., 398 U.S. 144, 157 (1970)). In turn, to defeat a motion for summary judgment, the non-moving party must raise a genuine issue of material fact. To do so, he "'must do more than simply show that there is some metaphysical doubt as to the material facts,'" Caldarola v. Calabrese, 298 F.3d 156, 160 (2d Cir. 2002) (quoting Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986)), and he "'may not rely on conclusory allegations or unsubstantiated speculation.'" Fujitsu Ltd. v. Federal Express Corp., 247 F.3d 423, 428 (2d Cir. 2001) (quoting Scotto v. Almenas, 143 F.3d 105, 114 (2d Cir. 1998)). See also Gayle, 313 F.3d at 682. Rather, the non-moving party must produce admissible evidence that supports his pleadings. See First Nat'l Bank of Arizona v. Cities Serv. Co., 391 U.S. 253, 289-90 (1968). In this regard, "[t]he 'mere existence of a scintilla of evidence' supporting the non-movant's case is also insufficient to defeat summary judgment." Niagara Mohawk Power Corp. v. Jones Chem., Inc., 315 F.3d 171, 175 (2d Cir. 2003) (quoting Anderson, 477 U.S. at 252).
In determining whether a genuine issue of material facts exists, the court must construe the evidence in the light most favorable to the non-moving party and draw all inferences in that party's favor. See id. at 171. Accordingly, the court's task is not to "weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial." Anderson, 477 U.S. at 249. Summary judgment is therefore inappropriate "if there is any evidence in the record that could reasonably support a jury's verdict for the non-moving party." Marvel, 310 F.3d at 286 (citing Pinto v. Allstate Ins. Co., 221 F.3d 394, 398 (2d Cir. 2000)).
III. DISCUSSION
A. Validity of the Release
"Employees may waive employment discrimination claims as long as such a waiver is made knowingly and voluntarily." Benson v. NYNEX, Inc., No. 97 Civ. 2168, 2001 WL 579786, at *2 (S.D.N.Y. May 29, 2001), aff'd, 2002 WL 722683 (2d Cir. Apr. 24, 2002). In evaluating such waivers, the Second Circuit has adopted a "totality of the circumstances" standard which recommends that the following factors be considered:
(1) the plaintiff's education and business experience; (2) the amount of time the plaintiff had possession of or access to the agreement prior to signing it; (3) the role of plaintiff in deciding the terms of the agreement; (4) the clarity of the agreement; (5) whether plaintiff was represented by or consulted with an attorney; (6) whether the consideration given in exchange for the waiver exceeds employee benefits to which plaintiff was already entitled to under contract or law; (7) whether the employer encouraged plaintiff to consult an attorney; and (8) whether the employee had a fair opportunity to do so.Bormann v. AT T Communications, Inc., 875 F.2d 399, 403 (2d Cir. 1989). "This list of factors is not exhaustive, nor must all factors be satisfied to enforce the waiver." Benson, 2001 WL 579786, at *2.
1. Adequacy of Consideration/Clarity
Plaintiff argues that the Release is unclear as to the consideration given in exchange for the waiver. For example, paragraph one states that "Employee shall not be considered an employee of the company after September 28, 2001" while the third paragraph states that Knoll "shall be reimbursed for all reasonable business expenses" even though she was entitled to such reimbursement without signing the Release. Release ¶¶ 1, 3 (consideration section). With regard to the payment of six months of COBRA premiums, plaintiff contends that she was already entitled to receive one month of COBRA coverage under the terms of her employment agreement. See Terms and Conditions of Employment Letter ¶ 4, Ex. 1 to the Knoll Decl. Spevak disputes this, stating that the one-month COBRA provision was never meant "to address the payment of insurance premiums upon the termination of Ms. Knoll's employment." Affidavit of Harvey S. Spevak ¶ 1. Accepting plaintiff's understanding of this provision for purposes of this motion, the only consideration she received in exchange for the waiver was an additional five months of health insurance.
Although the Release is not a model of clarity, the first and third paragraphs are merely surplusage. It is indisputable that Equinox agreed to pay six months of COBRA premiums. Deducting the one-month of COBRA plaintiff claims she was already entitled still leaves five months of paid medical coverage. Plaintiff was not otherwise entitled to five months of COBRA premiums upon her termination. Although in retrospect it may not have been the best deal plaintiff could have made, the Release does not fail for either lack of clarity or consideration. See Chaput v. Unisys Corp., 964 F.2d 1299, 1301 (2d Cir. 1992) ("A release is not effective unless the party giving the release receives something of value to which the party was not otherwise entitled.") (emphasis added).
2. Timing
Plaintiff argues that there is no evidence that shows she received and reviewed the Release before she signed it on November 1, 2001, and that such a short period of time for review should invalidate her waiver. This argument must also be rejected as it is belied by the evidence. Plaintiff testified that she received a draft version of the Release sometime after her termination. She also testified that she had to go "back and forth" with her suggested changes and that she received another draft version thereafter. Finally, Knoll's stepfather reviewed the Release before she signed it. All of this indicates that plaintiff had sufficient time to contemplate the terms of the Release, make changes to it, and knowingly and voluntarily agree to its revised terms.
3. Assistance of Counsel
Plaintiff claims that she did not consult an attorney before signing the Release despite her admission that she asked her stepfather, an attorney, to "take a look at it." Knoll Dep. at 150. Plaintiff contends that she discussed the Release with her stepfather in his capacity as her parent, not as her attorney. See id. ("It was more of a stepfather, daughter conversation than a legal [conversation]."). However plaintiff characterizes this discussion, the fact remains that her stepfather is an attorney who necessarily brings his experience as an attorney to any matter he reviews. Furthermore, while the Release does not explicitly advise plaintiff to seek the advice of counsel, it does contain the following language: "The confidentiality requirement, however, shall not prohibit Employee from disclosure to her immediate family (spouse, siblings, parents), her attorney or tax agencies as required, who must also abide by this confidentiality agreement." Release ¶ 7. The Release thereby recognizes that plaintiff may consult an attorney and implicitly encourages her to do so. Because plaintiff is an educated business person, the absence of an express provision in this regard does not weigh against a finding that plaintiff signed the Release knowingly and voluntarily.
B. Enforceability of the Release
1. Material Breach
Plaintiff seeks to rescind the Release on the ground that Equinox twice breached its terms by not paying the agreed-upon premiums. The first alleged breach, which occurred in February of 2002, was quickly remedied by Welsh after Knoll alerted him to the problem. The second alleged breach occurred in March of 2002. Knoll received a second notice from Health Net, dated March 15, 2002, which indicated that her coverage had been cancelled as of October 31, 2001. See Ex. 4 to the Knoll Decl. There is no evidence that Knoll contacted anyone at Equinox after receiving this second notice.
Plaintiff attempt to rely on the following request for admissions which she contends should be deemed admitted pursuant to Rule 36(a) of the Federal Rules of Civil Procedure:
1. Defendants cancelled Knoll's COBRA continuation coverage effective October 31, 2001. 2. Defendants cancelled Knoll's COBRA continuation coverage on or before March 18, 2002. 3. Knoll's COBRA coverage has been cancelled more than once since January 1, 2002 as a result of Defendants' acts or omissions.See Plaintiff's Second Set of Combined Discovery Requests, Ex. M to the Affidavit of Nina H. Kazazian, plaintiff's attorney. According to plaintiff, defendants' responses were due April 30, 2003 but were not served until May 6, 2003. See 9/4/03 Letter from Nina Kazazian at 1.
Defendants oppose such admission on the ground that they agreed not to submit a motion they prepared regarding the untimeliness issue to Magistrate Judge Douglas F. Eaton in exchange for plaintiff's promise to forego reliance on such admissions in her opposition to defendants' motion for summary judgment. See 9/3/03 Letter from Christina L. Feege. Plaintiff is arguably in breach of this promise by including these admissions in her papers although plaintiff disputes this. See 9/5/03 Letters from Christina L. Feege and Nina H. Kazazian.
It is well settled that a failure to respond to a request for admissions permits a district court to enter summary judgment if the facts deemed admitted are dispositive, as they are here. See Moosman v. Joseph P. Blitz, Inc., 358 F.2d 686, 688 (2d Cir. 1966). However, a district court is not required to do so and may, under compelling circumstances, allow untimely responses to avoid the deemed admissions. See id. I find the parties' dispute concerning plaintiff's alleged agreement to refrain from relying on the admissions sufficiently serious. Accordingly, the facts contained in plaintiff's request for admissions will not be deemed admitted for purposes of this motion.
Knoll argues that Equinox had her insurance cancelled a second time when it attempted to take a credit for premiums paid on her behalf in March of 2002. A voucher dated March 18, 2002, for the check Equinox issued to The Guardian in payment of its March 1, 2002 bill, reflects an offset of $1,455.76 with the comment "Re: Monica Knoll." See Ex. E to the Welsh Aff. Although Welsh stated that he was not sure why that credit was taken, Jennifer Zeiber, Administrative Analyst with The Guardian, provides a credible explanation. According to Zeiber, The Guardian received a termination notice effective November 1, 2001, which was processed on February 8, 2002. See June 6, 2003 E-Mail from Zeiber, Ex. F to the Welsh Aff. As a result, the original March 1, 2002 bill removed Knoll from all coverages and reflected a credit in the member billing adjustment section. See id. The Guardian then received Knoll's COBRA continued election form on March 7, 2002, requesting that she be enrolled retroactively to November 1, 2001. See id. On March 14, 2002, the original March bill was revised to reflect Knoll's coverage and correct the premium charged. See id.; see also Affidavit of Jennifer Zeiber ("Zeiber Aff.") ¶ 2. According to Zeiber, The Guardian has "no record of Monica Knoll's insurance being cancelled on or about March 15, 2002, nor [does it] have any record that a request for cancellation was made by Equinox at or about that time." Zeiber Aff. ¶ 4.
It is well-settled that where performance of a contract is underway, only non-performance that rises to the level of a "material breach" will justify rescission. See Krumme v. WestPoint Stevens Inc., 238 F.3d 133, 143 (2d Cir. 2000) ("Under New York law, rescission is an extraordinary remedy, appropriate only where the breach is found to be material and willful, or, if not willful, so substantial and fundamental as to strongly tend to defeat the object of the parties in making the contract.") (internal quotation marks and citation omitted). A material breach occurs where the non-breaching party has been deprived of the reasonably expected benefit of the bargain in a way that cannot be compensated. See Frank Felix Assocs., Ltd. v. Austin Drugs, Inc., 111 F.3d 284, 289 (2d Cir. 1997) ("A party's obligation to perform under a contract is only excused where the other party's breach of the contract is so substantial that it defeats the object of the parties in making the contract.").
The first breach occurred in February of 2002 when plaintiff learned of her lack of health insurance when she attempted to fill a prescription. However, after she notified Welsh of her dilemma, the problem was quickly cured and plaintiff received the full benefit of her bargain as her coverage was retroactively reinstated to November 1, 2001. As a result of the first breach, plaintiff incurred approximately $100 in out-of-pocket costs.
The second breach occurred when Equinox allegedly cancelled plaintiff's insurance in March of 2002. Even if Equinox attempted to do so, there is no evidence of any lapse in plaintiff's health insurance coverage. If there were a true lapse in coverage, plaintiff would presumably be responsible for the costs of the reconstructive surgery she underwent in November 2001. Nowhere in her opposition papers does plaintiff indicate that anyone is seeking indemnification from her for the costs of this surgery. The only logical conclusion is that plaintiff remained covered despite any internal record-keeping problems between Equinox and The Guardian. Accordingly, the alleged breaches, if they can in fact be considered breaches, do not rise to the level justifying rescission of the Release. Nor do they show any intent on the part of Equinox to repudiate the Release.
Plaintiff insists that the language of the Release — requiring Equinox to pay six months of COBRA premium, not simply provide six months of COBRA coverage to her — must be strictly construed against the defendants as drafters of the Release. However, that rule does not apply here as Knoll can be considered a co-drafter given her revisions to the earlier drafts of the Release. In any event, such a distinction would exalt form over substance.
2. Fraudulent Inducement
Plaintiff claims that defendants purposefully failed to disclose the required COBRA information to her and, as a result, she executed the Release based on the false impression that she had to do so to obtain health insurance. Although plaintiff admits that she knew she could avail herself of COBRA without signing the Release, she now argues that she was under the false impression that she only had thirty days in which to do so.
At her deposition, which took place on March 13, 2003, plaintiff testified as follows:
A. So if I didn't have health coverage by November 1 and I had no insurance with cancer, I thought that meant that I would not be eligible for insurance based on my precondition.
Q. Did you — were you aware that you could avail yourself of COBRA without signing this, aside from the monetary issues? A. Yes.
Knoll Dep. at 156. In an Errata Sheet dated July 11, 2003, Knoll adds at the end of the last answer "Because I did not have any COBRA information as I had requested several times, I understood ONLY that I had until 10/31 to sign up for COBRA. I didn't even know how much the monthly payments were. So when 11/1 rolled around, I believed I had no choice but to sign the document in order to have insurance.
This Court is mindful that a plaintiff cannot defeat a motion for summary judgment by recanting earlier testimony by way of errata sheets submitted long after her deposition was taken. See Margo v. Weiss, 213 F.3d 55, 60-61 (2d Cir. 2000).
As with any other contractual release, "circumstances evincing fraudulent inducement, misrepresentation, mutual mistake, or duress would justify setting aside the release." De Pace v. Matsushita Elec. Corp. of America, 257 F. Supp.2d 543, 556 (E.D.N.Y. 2003) (citing, as an example, Allen v. WestPoint-Pepperell, Inc., 945 F.2d 40, 45 (2d Cir. 1991) (denying release legal effect when based on misrepresentation of a material fact). The elements of a fraudulent inducement claim include: (1) misrepresentation of a material fact; (2) falsity of that representation; (3) scienter; (4) reliance; and (5) damages. See Bandelli v. Allstate Ins. Co., No. 99 Civ. 9566, 1999 WL 787768, at *1 (S.D.N.Y. Oct. 4, 1999). With regard to omissions of material fact,
a plaintiff may pursue a claim for fraud if the defendant failed to disclose information, when it had a duty to disclose, which would also constitute the breach of another legal duty separate and apart from the duty to perform under the contract. As to that, it is well settled that, under New York law, omissions of material fact may rise to a level constituting fraud and serve as a basis for an action for money damages, or for rescission of a release. Before such omissions can be labeled fraudulent, however, there must be a showing that a duty of disclosure existed.Frontier-Kemper Constructors, Inc. v. American Rock Salt Co., 224 F. Supp.2d 520, 529-30 (W.D.N.Y. 2002) (emphasis added) (citing Aaron Ferer Sons Ltd. v. Chase Manhattan Bank, Nat'l Assn, 731 F.2d 112, 123 (2d Cir. 1984) (internal quotation marks and citations omitted)).
Defendants' duty to disclose COBRA information stems not from the Release itself but from section 606 of ERISA. See 29 U.S.C. § 1166. That section requires an employer to notify its plan administrator of a qualifying event, such as a termination, within thirty days of that qualifying event. See id. § 1166(a)(2). The administrator is then required to notify the qualified beneficiary (the employee) of her COBRA rights within fourteen days thereafter. See id. § 1166(c). Here, Equinox had until October 31, 2001, in which to notify its plan administrator of Knoll's termination. The plan administrator then had fourteen days, until November 14, 2001, in which to notify Knoll of her rights under COBRA. Therefore, as of November 1, 2001, Equinox had no legal duty to notify Knoll of her COBRA rights. Although it may have done so earlier, Equinox was not legally obligated to notify Knoll of her COBRA rights until November 14, 2001. Therefore, because no duty of disclosure existed as of November 1, 2001, Equinox's alleged failure to notify Knoll of her COBRA rights cannot support a claim for fraudulent inducement.
Alternatively, plaintiff's fraudulent inducement claim also fails because she has failed to show scienter on the part of Equinox. There is no evidence that Equinox knew of or induced plaintiff's mistaken belief as to the COBRA time limits. Accordingly, plaintiff's unilateral mistake neither supports a finding of scienter nor otherwise justifies rescission of the Release. See Koam Produce, Inc. v. DiMare Homestead, Inc., 329 F.3d 123, 127 n. 3 (2d Cir. 2003) (citing Kraft Foods, Inc. v. All These Brand Names, Inc., 213 F. Supp.2d 326, 330 (S.D.N.Y. 2002) ("Under New York law, in order for a court to allow rescission of a contract on the basis of a unilateral mistake, a party must establish that (i)[s]he entered into a contract under a mistake of material fact, and that (ii) the other contracting party either knew or should have known that such mistake was being made." (citation and internal quotation marks omitted)).
3. Economic Duress
Plaintiff argues that the Release is unenforceable because Knoll signed it under economic duress. A contract executed under duress is voidable. See Nelson v. Stanley Blacker, Inc., 713 F. Supp. 107, 110 (S.D.N.Y. 1989). Economic duress exists where a party is induced to execute a contract: "(1) by means of a wrongful threat precluding the exercise of free will; (2) under the press of financial circumstances; (3) where circumstances permitted no other alternative." Id. However, a sophisticated party seeking to void a contract because of economic duress must "do more than merely claim that the other party knew about and used his or her poor financial condition to obtain an advantage in contract negotiations." Davis Assocs., Inc. v. Health Mgmt. Servs., Inc., 168 F. Supp.2d 109, 114 (S.D.N.Y. 2001) (internal quotation marks and citation omitted). As stated by the Second Circuit:
The doctrine of economic duress arises from the theory that "'the courts will not enforce an agreement in which one party has unjustly taken advantage of the economic necessities of another and thereby threatened to do an unlawful injury.'" Scientific Holding Co. v. Plessey Inc., 510 F.2d 15, 22 (2d Cir. 1974) (emphasis omitted) (quoting Nixon v. Leitman, 224 N.Y.S.2d 448, 452 (Sup.Ct. N.Y. Co. 1962)). Under New York law, "[a] contract or release, the execution of which is induced by duress, is voidable." DiRose v. PK Mgmt. Corp., 691 F.2d 628, 633 (2d Cir. 1982); see also Scientific Holding Co., 510 F.2d at 23. However, "the person claiming duress must act promptly to repudiate the contract or release or he will be deemed to have waived his right to do so." DiRose, 691 F.2d at 633-34; see also Scientific Holding Co., 510 F.2d at 23; International Halliwell Mines, Ltd. v. Continental Copper and Steel Indus., Inc., 544 F.2d 105, 108 (2d Cir. 1976). If the releasing party does not promptly repudiate the contract or release, he will be deemed to have ratified it. A party may ratify a contract or release entered into under duress by "intentionally accepting benefits under the contract," by "remaining silent or acquiescing in the contract for a period of time after he has the opportunity to avoid it," or by "acting upon it, performing under it, or affirmatively acknowledging it." In re Boston Shipyard Corp., 886 F.2d 451, 455 (1st Cir. 1989) (internal quotation marks and citation omitted).VKK Corp. v. National Football League, 244 F.3d 114, 122 (2d Cir. 2001) (footnote and parallel citations omitted).
Although Equinox may have been aware of Knoll's financial circumstances at the time of her termination, there is no evidence that it used this information as leverage during the Release negotiations. Nor is there any evidence that Equinox has threatened Knoll with an unlawful injury. Without a wrongful threat by Equinox, Knoll's economic duress argument fails as a matter of law and must be dismissed.
4. Repudiation/Ratification
Plaintiff claims that she promptly repudiated the Release when she filed a Charge of Discrimination with the EEOC on March 19, 2002. Plaintiff also claims that Equinox repudiated the Release when it took a credit for the premiums paid on Knoll's behalf in March of 2002. Neither of these actions show an intent to repudiate the Release by either party. Knoll's filing of a Charge of Discrimination has nothing to do with her decision to continue to accept the benefits conferred by the Release. As discussed above, the credit taken by Equinox was the result of delayed or missed communications with its insurance carrier, not an attempt to repudiate the Release.
Knoll did not repudiate the Release after the source of her emotional duress — the need for health insurance coverage to pay for her reconstructive surgery — was removed. See Kovian v. Fulton Co. Nat. Bank and Trust Co., 857 F. Supp. 1032, 1039 (N.D.N.Y. 1994) ("[O]nce the duress is removed, the party claiming duress must choose either to promptly repudiate the contract or to acquiesce to its terms pursuant to the doctrine of ratification"). Nor did Knoll repudiate the agreement after learning of Equinox's alleged breach in February 2002. Knoll ratified, rather than repudiated, the Release when she completed and signed an Extension of Coverage form on March 1, 2002, four months after executing the Release, and accepted Equinox's retroactive reinstatement of coverage. See VKK Corp., 244 F.3d at: 125 (stating that a party challenging a release on grounds of economic duress is "required to challenge its validity promptly after [its] execution, or not at all"); De Palma v. Really IQ Corp., No. 01 Civ. 446, 2002 WL 461647, at *4 (S.D.N.Y. Mar. 25, 2002) (stating that the simple act of "retaining consideration after learning that a release is voidable operates to ratify the release") (internal quotation marks and citation omitted).
By accepting these benefits, Knoll ratified what may have arguably been a voidable contract and effectively made a new promise and affirmed her own legal duty to release Equinox from any and all causes of action. Rescission is not appropriate where the party seeking rescission has ratified the contract. See Banque Arabe v. Maryland Nat. Bank, 850 F. Supp. 1199, 1212 (S.D.N.Y. 1994) ("By ratifying a contract, the party waives the right to rescind."). Accordingly, neither of the acts alleged by Knoll to justify rescission — her filing of a Charge with the EEOC and the credit purportedly taken by Equinox — serve to repudiate the previously ratified Release.
C. Defendants Counterclaim
Defendants claim that plaintiff breached the Release by filing a Charge of Discrimination with the EEOC and bringing the instant action. Defendants have counterclaimed for damages including but not limited to the cost of defending the instant action, including attorneys' fees.
The so-called "American rule" generally prohibits a party from recovering attorney's fees and costs incurred in litigation absent a specific statutory or contractual provision. Plaintiff points out that the Release contains no provisions for attorney's fees in the event of a breach. See Bellefonte Re Ins. Co. v. Argonaut Ins. Co., 586 F. Supp. 1286, 1288 (S.D.N.Y. 1994) ("[A]bsent contractual language to the contrary, a party who brings an action which is ultimately held to be in breach of a covenant not to sue, but which was based on a reasonable and good faith argument either that the covenant did not bar the suit or that the covenant was obtained by unfair means, is not liable for his opponent's litigation expenses."). According to the Second Circuit, recovery of such costs is largely a question of intent. See Artvale, Inc. v. Rugby Fabrics Corp., 363 F.2d 1002, 1008 (2d Cir. 1966) (finding litigation expenses to be unrecoverable notwithstanding the breach of a covenant not to sue because such recovery was not contemplated by the parties). Intent may be established by the inclusion of language indicating that a breach will entail liability for damages, including attorneys' fees. See id. ("Certainly it is not beyond the powers of a lawyer to draw a covenant not to sue in such terms as to make clear that any breach will entail liability for damages, including the most certain of all — defendant's litigation expense. Yet to distill all this out of the usual formal covenant would be going too far; its primary function is to serve as a shield rather than as a sword . . . In the absence of contrary evidence, sufficient effect is given the usual covenant not to sue if, in addition to its service as a defense, it is read as imposing liability only for suits brought in obvious breach or otherwise in bad faith.).
Here, defendants did not expressly state their intention to impose damages if the Release were breached. Moreover, plaintiff had a reasonable, good faith basis in arguing that the Release was invalid and/or unenforceable. For these reasons, defendants' claim for litigation costs is dismissed.
IV. CONCLUSION
For the foregoing reasons, defendants' motion for summary judgment is granted and this case is dismissed. The Clerk of the Court is directed to close this case.
SO ORDERED.