Opinion
00 Civ. 5847 (HB)
February 23, 2001
OPINION ORDER
Plaintiff Richard Metzler ("Metzler") brings this action for breach of contract, violation of New York Labor law, wrongful discharge, breach of the covenant of good faith and fair dealing, fraudulent and negligent misrepresentation, promissory estoppel, quantum meruit, and unjust enrichment. Defendant Harris Corporation ("Harris") has moved to compel arbitration on plaintiffs claims for breach of contract and violation of New York Labor law and to dismiss the remaining claims or to stay discovery if plaintiffs claims are arbitrable. For the following reasons, defendant's motion to compel arbitration is granted and the scope of discovery will be decided by the arbitrators, its motion to dismiss is granted as to plaintiffs claims for wrongfull discharge and fraudulent and negligent misrepresentation.
BACKGROUND
Richard Metzler accepted a position as Major Accounts Manager for the Harris Corporation in 1993. In this position, a substantial portion of his income was derived from commissions on sales. The amount of and schedule for plaintiffs commissions was governed by yearly employment agreements that covered a fiscal year from July through June. These commission agreements were not employment contracts, and Metzler was no more than an at-will employee.
This dispute arises from plaintiffs claim for commissions for a contract he procured in December 1998 with the New York City Board of Education ("BOE"). The contract provided that the BOE would purchase telephone equipment from Harris Corporation over the five year period from January 1, 1999 to December 31, 2004, with an option to renew. Two successive agreements governed plaintiffs right to receive commissions on this contract. The first, in effect at the time that the BOE contract was signed, was the FY99 Sales Incentive Plan, effective from July 1, 1998 through June 30, 1999. The second, the FY00 Sales Incentive Plan, was effective from July 1, 1999 through June 30, 2000. The FY00 agreement differed from the FY99 agreement in one relevant respect — the FY00 agreement included an arbitration clause. The clause reads in pertinent part that if any dispute,
In plaintiffs complaint, he alleges that Harris failed to pay him all of the commissions that accrued during the term of the FY00 agreement. However, since the filing of the complaint, defendant paid Metzler these commissions that claim has been abandoned.
arises out of or relates to this Plan or the breach and termination or validity thereof, or the compensation provided to the employee in accordance with Plan provisions, the parties agree to settle the dispute by binding arbitration in accordance with the Employment Dispute Resolution Rules of the American Arbitration Association . . . which shall be the sole and exclusive jurisdiction for the settlement of such disputes.
It is undisputed that Metzler received a copy of the FY00 agreement and that he signed a separate agreement on August 19, 1999, that read, "I have received a copy of the FY00 Harris Corporation Worldwide Sales Incentive Compensation Plan and I understand and agree to the provisions of that document which is hereby incorporated by reference in its entirety." Hughes Aff. Ex. 1.
In June, 2000, Harris Corporation sold the unit in which plaintiff worked to another corporation and, shortly after that, plaintiff was terminated. Thereafter, plaintiff sought commissions that would have accrued to him if he were still employed with Harris. Pursuant to the terms of the FY00 agreement, plaintiff filed an internal grievance. The review board found that by the terms of that agreement he was not entitled to commissions that accrued beyond the date of his termination. He appealed that decision to the internal appeals board, but the initial decision was affirmed. The plaintiff then brought this action.
DISCUSSION
A. Defendant's Motion to Dismiss
Defendant has moved to dismiss seven of plaintiffs claims. For the following reasons, defendant's motion is granted with respect to plaintiffs claim for wrongful termination and fraudulent and negligent misrepresentation. As to the balance of plaintiffs claims, arbitration is appropriate.
1. Wrongful Termination
Plaintiff claims that defendant wrongfully terminated him in order to avoid paying him commissions under the BOE contract. It is well established that New York law does not recognize a claim for wrongful termination. See Murphy v. American Home Products Corp., 461 N.Y.S.2d 232, 233 (1983). However, plaintiff relies upon Wakefield v. Northern Telecom, Inc. 769 F.2d 109 (2d Cir. 1985), to argue that New York law does recognize a claim for wrongful termination where an employer terminates an employee to avoid the payment of commissions. Wakefield does not support plaintiffs argument. Rather, the court in Wakefield allowed the plaintiff to maintain his claim that his employer had terminated him to avoid paying him commissions on the theory of the implied covenant of good faith and fair dealing inherent in the employment agreement. The court did not find that plaintiffs allegation stated a claim for wrongful termination. Furthermore, unlike Wakefield, there is no employment contract in this case. As plaintiff has offered no other support for his argument, this claim must be dismissed.
2. Implied Covenant of Good Faith and Fair Dealing
Plaintiff also relies on Wakefield to support his claim for breach of the implied covenant of good faith and fair dealing. While the New York Court of Appeals held that "this state neither recognizes a tort of wrongful discharge nor requires good faith in an at-will employment relationship." DePetris v. Union Settlement Ass'n, Inc., 633 N.Y.S.2d 274, 276 (1995), the Second Circuit's decision in Wakefield clouds that holding so that, at this stage of the litigation, the motion to dismiss must be denied.
3. Fraudulent and Negligent Misrepresentation
Metzler claims that the defendant engaged in fraudulent or negligent misrepresentation by inducing him to leave a secure job and accept employment at Harris Corporation based on the representation that he would receive commissions for any business he generated. Employees can recover for fraudulent statements that induce them to accept positions by showing "(1) the defendant made a material false representation; (2) the defendant intended to defraud the plaintiff thereby; (3) the plaintiff reasonably relied upon the representation, and (4) the plaintiff suffered damage as a result of such reliance." See Bridgestone/Firestone, Inc. v. Recovery Credit Servs., 98 F.3d 13, 19-20 (2d Cir. 1996) (citations omitted).
However, New York law does not recognize claims that are essentially contract claims masquerading as claims of fraud. See Metropolitan Transportation Authority v. Triumph Advertising Productions, Inc., 497 N.Y.S.2d 673, (N.Y.App.Div. 1986) ("The courts of this State have consistently held . . . that a cause of action for fraud does not arise when the only alleged fraud relates to a breach of contract."). Therefore, unless plaintiffs fraud claims are "collateral or extraneous to the terms of the parties' agreement a cause of action sounding in fraud does not lie." McKernin v. Fanny Famer Candy Shops, Inc., 574 N.Y.S.2d 58, 59 (N.Y.App.Div. 199 1) (dismissing plaintiffs claim that defendant "fraudulently induced him with business advice by promising to hire him as chief executive officer and to sell him a substantial ownership interest").
Here, I find that plaintiffs fraud claim is merely a disguised contract claim as the gravamen of the fraud claim is that defendant promised to pay him commissions and failed to do so. Therefore, this claim must be dismissed. See Saleemi v. Pencom Sys. Inc., No. 99 Civ. 667, 2000 WL 640647 (S.D.N Y May 17, 2000) ("A defendant's intentionally false statements regarding his intent to perform a contractual obligation cannot in themselves constitute fraud . . . [n]or can a defendant's failure to perform promises which would be encompassed by the covenant of good faith and fair dealing in every contract constitute fraud.") ( citing Bridgestone/Firestone, 98 F.3d at 19 and New York University v. Continental Ins. Co., 639 N.Y.S.2d 283, 289 (N.Y. 1995).
Although I need not reach the issue of whether plaintiffs fraud claim would survive defendant's challenge that is not actionable because it is a promissory statement, I note that under Stewart v. Jackson Nash, 976 F.2d 86 (2d Cir. 1992), this claim would survive such a challenge. Jackson Nash, however, does not effect the analysis or the conclusion under Bridgestone/Firestone since in Jackson Nash the court was not presented with a claim where there was a contract claim in addition to the fraud claim.
As to plaintiffs claim for negligent misrepresentation, I find that it must be dismissed as well. "[U]nder New York law, a plaintiff may recover for negligent misrepresentation only where the defendant owes her a fiduciary duty." Stewart v. Jackson Nash, 976 F.2d 86, 90 (2d Cir. 1992). Here, plaintiff has not alleged, nor do I find there to be, a fiduciary relationship between him and the defendant. Therefore, this claim must be dismissed.
4. Promissory Estoppel, Quantum Meruit, and Unjust Enrichment
Metzler alleges that defendant is liable under the equitable doctrines of promissory estoppel, quantum meruit, and unjust enrichment for its failure to pay him post-termination commissions. Defendant responds that these equitable doctrines are inapplicable when there is a written agreement that governs the relationship of the parties. While it is true that plaintiff cannot prevail on his equitable claims if he prevails on his contract claims, plaintiff is entitled to plead in the alternative. Therefore, defendant's motion to dismiss these claims must be denied.
B. Defendant's Motion to Compel Arbitration
Plaintiff claims that defendant breached its contract with him and violated New York labor law when it failed to agree to pay him post-termination commissions on the remainder of the BOE contract, and defendant has moved to compel arbitration of these claims pursuant to the arbitration clause in the FY00 Sales Incentive Agreement. As most of plaintiffs claims survive defendant's motion to dismiss, I must consider whether they are arbitrable under the FY00 agreement.
It is undisputed that the FY00 agreement contains an arbitration clause, however, plaintiff argues that his claims fall outside the scope of the arbitration provision for two reasons: first, because they are based upon an oral agreement, not the FY00 agreement and, second, because they involve commissions to accrue after the expiration of the FY00 agreement. Alternatively, plaintiff argues that the arbitration clause in the FY00 contract is unenforceable as defendant did not provide adequate consideration or notice. I will discuss each argument in turn.
1. Plaintiffs Claims are Outside the Scope of the Arbitration Clause
In considering a motion to compel arbitration, a court must first determine whether the parties agreed to arbitrate, and second, whether the scope of the agreement encompasses the claims asserted. See Mehler v. The Terminix Int'l Co., 205 F.3d 44, 47 (2d Cir. 2000). In making this determination, a court will abide by the strong policy favoring arbitration and will "construe arbitration clauses as broadly as possible, resolving any doubts concerning the scope of arbitrable issues . . . in favor of arbitration." Oldroyd v. Elmira Savings Bank, 134 F.3d 72, 76 (2d Cir. 1998). This presumption becomes even stronger, when, as here, the court finds that the agreement contains a "broad" arbitration clause. In that case, "the court must compel arbitration `unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute.'" Mehler, 205 F.3d at 49 (citations omitted).
There is no question that the parties agreed to arbitrate and that the arbitration clause in the FY00 agreement is broad. Therefore plaintiff bears a heavy burden to show nonarbitrable. See Collins Aikman Products Co., 58 F.3d 16, (2d Cir. 1995) ("The clause in this case, submitting to arbitration `[a]ny claim or controversy arising out of or relating to th[e] agreement,' is the paradigm of a broad clause.").
Plaintiff first argues that his claims for breach of contract and violation of New York Labor law are derived from an oral agreement with Harris. This argument fails on two fronts. First, an oral agreement to pay commissions over the life of the BOE contract is void under the statute of frauds as New York courts "have overwhelmingly found `perpetual commission' contracts . . . to be contracts not performable within one year and thus subject to the Statute of Frauds." See Murphy v. Gabelli, No. 93 Civ 1539, 1994 WL 560982, at *4 (S.D.N.Y. 1994). Any oral agreement is also inoperable as the FY00 agreement, like the FY99 agreement, explicitly supercedes any prior agreements for commissions between the employee and Harris.
Plaintiff argues that he could have been terminated within the year, and been paid out for his commissions due at termination. However, plaintiff cannot overcome the hurdle, that, by the very nature of the commissions, they do not accrue, and cannot even be determined, until the BOE makes purchases pursuant to the contract. Plaintiff cannot allege both that he is entitled to post-termination commissions and that the statute of frauds does not apply. He simply cannot have it both ways.
I now turn to plaintiffs argument that his claims are outside the scope of the arbitration provision because the FY00 agreement expired before the instant dispute arose. This claim too doesn't ring true.
In determining whether a particular claim falls within the scope of an arbitration agreement, a court must "focus on the factual allegations in the complaint rather than the legal causes of action asserted." Genesco, Inc. v. T. Kakiuchi Co., 815 F.2d 840, 846 (2d Cir. 1987). "If these factual allegations `touch matters' covered by the parties' contract, then those claims must be arbitrated, whatever the legal labels attached to them." Id. Furthermore, a court may compel arbitration of a dispute that arose after the expiration of the arbitration provision. Fleck v. E.F. Huton, 891 F.2d 1047, 1052-53 (2d Cir. 1989) (holding that alleged defamatory statements made after termination were subject to an arbitration provision in the employment contract). In Litton Fin. Printing v. NLRB, 501 U.S. 190 (1991), the Supreme Court held that post-expiration grievances that spring from the collective bargaining agreement may be arbitrable: (1) when the dispute "involves facts and occurrences that arise before expiration;" (2) when post-expiration action "infringes a right that accrued or vested under the agreement;" or (3) when "under normal principles of contract interpretation, the disputed contractual right survives expiration of the remainder of the agreement." Id. at 206; see also CPR, Inc. v. Spray, 187 F.3d 245, 254 (2d Cir. 1999).
Here, the gravamen of all of plaintiffs claims is that defendant failed to provide him post-termination commissions as it had promised. This clearly touches upon the terms of the FY00 agreement, and, in fact, the agreement appears to address the precise issue. Applying the standard in Litton, plaintiffs claims satisfy the first two categories permitting arbitration of post-termination disputes. First, plaintiffs claims do involve facts and occurrences that arose before expiration of the FY00 agreement as they rely upon plaintiffs procurement of the BOE contract and defendant's agreement to pay him commissions. Second, the post-expiration action, defendant's refusal to pay plaintiff future commissions, does infringe upon plaintiffs right to collect commissions that accrued under the FY00 agreement.
As I find all of plaintiffs claims stem from the same set of facts, together with the strong presumption in favor of arbitration, plaintiffs remaining claims must be arbitrated.
2. The Arbitration Agreement in the FY00 Agreement is Unenforceable
Alternatively, plaintiff argues that the arbitration provision in the FY00 agreement is unenforceable for lack of consideration and for a lack of notice. Both of these arguments fail. Plaintiff is unable to point to New York case law that supports his argument for a lack of consideration, and, quite to the contrary, it is now the law in New York that a court will compel arbitration even where an at-will employee was given no additional consideration for the insertion of an arbitration clause in his contract. See Ahing v. Lehman Bros., Inc., No. 94 Civ. 9027, 2000 WL 460443, at *6-7 (S.D.N.Y. April 18, 2000).
As to the notice argument, New York presumes that a party who signs an agreement has read the contents of that agreement. See Arakawa v. Japan Network Group, 56 F. Supp.2d 349, 352 (S.D.N.Y. 1999). Here, it is undisputed that plaintiff signed an agreement that stated that he "understood and [had] agree[d] to" the provisions of the FY00 agreement. Thus, as a matter of law, I must assume that plaintiff had notice of the terms of the FY00 agreement.
Plaintiff also relies upon Snow v. BE K Construction Co., No 00CV90-B (D. Me. Jan. 3, 2001), however this case is inapposite. In Snow, the court, applying Maine contracts law, held that the arbitration provision in a employment manual did not compel the plaintiff to arbitrate her sexual harassment claims. The court found that the arbitration agreement did not apply because the plaintiff had never consented to the terms of the employment manual; it had merely been sent to her. The court noted that the plaintiff never indicated her assent by signing anything that expressed her assent to the manual. In contrast, here plaintiff signed an agreement acknowledging his receipt and understanding of the plan.
CONCLUSION
For the above reasons, defendant's motion to dismiss is granted with respect to plaintiffs claim for wrongful termination and fraudulent and negligent misrepresentation. Defendant's motion to compel arbitration as to plaintiffs first and second claim is granted and the balance of the plaintiffs claims being part and parcel of the alleged cause of action for breach of contract are arbitrable as well and the scope of discovery will be for the arbitrators. The clerk of court is instructed to close the case, if necessary, the parties may apply to reopen in order to confirm the award.