Opinion
No. 13–0858.
09-23-2015
PLATTSBURGH HOUSING AUTHORITY, Plaintiff, v. Lori CANTWELL, Defendant.
Barclay Damon, LLP, Albany (Colm P. Ryan of counsel), for plaintiff. Hinman Straub, PC, Albany (James T. Potter of counsel), for defendant.
Barclay Damon, LLP, Albany (Colm P. Ryan of counsel), for plaintiff.
Hinman Straub, PC, Albany (James T. Potter of counsel), for defendant.
ROBERT J. MULLER, J.
Plaintiff, an independent public corporation providing safe and affordable housing to residents in the City of Plattsburgh, Clinton County, is governed by a Board of Commissioners with seven members, five of whom are appointed by the Mayor. Its day-to-day operations are managed by an Executive Director who is selected by the Board. Beginning in 1997, plaintiff retained defendant Lori Cantwell—a private attorney—to represent it on an as-needed basis "in all legal matters arising out of or in connection with [its] operations...." This arrangement continued until 2003, at which time the parties executed a "Contract of Employment" whereby plaintiff hired defendant as General Counsel with an annual salary of $27,960.00. Defendant remained in private practice while serving as General Counsel, eventually moving her law firm to plaintiff's building in early 2011.
In July 2011, S. Patricia Lucia, plaintiff's Executive Director, announced that she would be retiring effective December 31, 2011. The Board then sought to hire a new Executive Director, advertising the position in local newspapers with a statement that the salary would be "commensurate with experience (range $75,000–$85,000)." Defendant applied for the position and, "because of her experience with [plaintiff] and her familiarity with the organization and its operations," was appointed as the new Executive Director on September 20, 2011. According to plaintiff, the Board also "considered the cost savings that would be achieved by having an attorney serve as Executive Director," as it would no longer require General Counsel. Clayton Morris, the Chairperson of the Board, was authorized to negotiate and execute a contract with defendant relative to the position.
From this point onward, the recitation of facts is based largely on plaintiff's version of events. The Court recognizes that defendant has a far different version and discusses her account in the context of the pending motion.
Defendant met with Morris to discuss the terms of her employment as Executive Director shortly after her appointment. According to Morris, at the meeting "[defendant] expressed an interest in being compensated at a higher amount, [but ultimately] agreed to the $85,000 [salary]" authorized by the Board. Morris further states that defendant wanted a 5–year term of employment because "she would have to exit the private practice and wanted some employment certainty." She was also "concerned that [the M]ayor ... would appoint Commissioners who would seek to replace her as Executive Director." Morris, however, was unwilling to agree to a 5–year term and the parties settled on a 3–year term. Finally, according to Morris, defendant "told [him] that she had been [with plaintiff] for [14] years and that she wanted those years credited for retirement calculations." Morris agreed, as defendant's "relationship with [plaintiff] pre-dated [his] time on the ... Board, and [he] trusted her and had no reason to doubt her...."
Following this meeting, defendant drafted a "Plattsburgh Housing Authority Executive Director Employment Agreement" (hereinafter the Employment Agreement) and gave it to Morris for his review. Morris then raised certain concerns including, inter alia, that the termination provision in the Employment Agreement did not give plaintiff "the option to renew or not renew [the] contract" at the conclusion of every term. According to Morris, "[defendant] advised [him] that she included a provision that either party could terminate the [Employment Agreement] upon [60]-days notice," which alleviated his concern. The Employment Agreement was then executed on October 1, 2011, with both Morris and Lucia signing on plaintiff's behalf.
Defendant began working as Executive Director on that same date, shadowing Lucia until her retirement on December 31, 201l. During this transition period, defendant continued to serve as General Counsel with the Board's knowledge and consent. With that said, the Board apparently believed that defendant would no longer hold the position of General Counsel once she became the sole Executive Director on January 1, 2012. She continued to do so, however, and from October 1, 2011 to September 2012 she was paid a salary of $84,831.00 per year as Executive Director and $42,342.00 per year as General Counsel, for a total annual salary of $127,173.00.
At some point prior to September 2012, defendant reviewed plaintiff's Basic Salary Schedule and advised Jean Etesse, plaintiff's in-house accountant, that her rate of pay should be higher as a result of her 14 years of service with the organization. In this regard, the Employment Agreement provided that, as "compensation for services rendered by Employee as Executive Director ..., the Authority agrees to pay the Employee a starting salary of $85,000.00 to be placed on the on the [sic] Plattsburgh Housing Authority Basic Salary Schedule,...." Several paragraphs later, the Employment Agreement then states that, "[f]or purposes of benefits calculations the Employee shall be considered to have 14 years of service with the Employer as of 12/30/11...." According to plaintiff, defendant interpreted this provision as applying to her compensation and advised Etesse that her starting salary should have been more than $85,000.00. Morris then authorized this increase in salary—allegedly feeling "bound by the terms of the [Employment] Agreement"—and defendant's salary as Executive Director was increased to $108,807.00 per year and her salary as General Counsel was increased to $50,332.00 per year, for a total annual salary of $159,139.00. Defendant further directed Etesse to make the salary increase retroactive to her October 1, 2011 start date and, as a result, was paid a lump sum of $32,454.01.
In May 2013, three of plaintiff's employees—one of whom was Etesse—approached Board member Paul A. Grasso Jr. with certain concerns relative to defendant's performance and conduct as Executive Director. Specifically, the employees "expressed that there was a general lack of morale and lack of faith in [defendant's] leadership and integrity." They "identified that she was often absent from the office and unavailable to work on time sensitive matters and expressed concern about missing important deadlines." The employees believed that defendant misused plaintiff's funds by directing that "the physical contents of the Cantwell law firm [be] moved from [plaintiff's] building to [another] office ... in Plattsburgh by [plaintiff's] employees." The employees also advised that defendant was using plaintiff's funds to pay for her malpractice insurance, continuing legal education courses and bar association dues. Finally, the employees apprised Grasso of defendant's pay increase.
Grasso convened a special meeting of the Board on May 3, 2013, inviting the three employees to attend as well as outside legal counsel. Defendant was not apprised of the meeting nor was she in attendance. The employees were interviewed and various documents were reviewed, including the Employment Agreement. Plaintiff allegedly discovered certain provisions in the Employment Agreement for the first time, including a provision whereby defendant was to serve as both Executive Director and General Counsel. Specifically, the Employment Agreement stated that "the Employee also has a contract with the Employer to provide services as General Counsel and such agreement shall remain in full force and effect and all the terms therein shall coexist with this [A]greement...." Plaintiff next discovered a provision whereby "[t]he Authority agree[d] to pay for any professional dues, professional malpractice insurance, subscriptions, courses and training for the Employee for her continued professional participation, growth and advancement." Plaintiff also learned that defendant was given credit for 14 years of service when she only had 8, having become an employee upon execution of the General Counsel Contract of Employment in 2003. Finally, plaintiff discovered that the termination provision of the Employment Agreement provided defendant with the option "to terminate [the] Agreement by giving sixty (60) days written notice to the Authority of her desire to terminate," but did not give plaintiff that reciprocal right. Rather, the Employment Agreement provided for five "self renewing" 3–year terms and indicated that defendant could only be removed for just cause after plaintiff first provided her with a 90–day period to cure the deficiencies in her performance and then "proceed[ed] with an arbitration through either NYS PERB or the AAA." At this meeting, the Board resolved to offer defendant the opportunity to resign or, alternatively, to be terminated if she did not resign within 21 days of May 3, 2013. Defendant then failed to resign and, on May 29, 2013, she was terminated from her positions as Executive Director and General Counsel.
Plaintiff subsequently commenced this action on June 6, 2013, asserting six causes of action: (1) breach of fiduciary duty; (2) rescission of the Employment Agreement; (3) fraud and deceit; (4) breach of contract relative to the Employment Agreement; (5) unjust enrichment; and (6) conversion of funds under the Employment Agreement. Issue was then joined, with defendant asserting six counterclaims: (1) breach of contract relative to the Employment Agreement; (2) conversion of funds under the Employment Agreement; (3) breach of contract relative to the General Counsel Contract of Employment; (4) conversion of funds under the General Counsel Contract of Employment; (5) negligence; and (6) violation of the New York State Human Rights Law. By Decision and Order dated February 7, 2014, the Court granted plaintiff's motion to dismiss the second, fourth and fifth counterclaims and defendant then voluntarily withdrew the sixth. Presently before the Court is plaintiff's motion for summary judgment on its first, second and third causes of action. Plaintiff also moves for summary judgment dismissing defendant's remaining counterclaims.
"On a motion for summary judgment, the movant must establish its prima facie entitlement to judgment as a matter of law by presenting competent evidence that demonstrates the absence of any material issue of fact" (Lacasse v. Sorbello, 121 AD3d 1241, 1241 [2014] [citations omitted]; see Alvarez v. Prospect Hosp., 68 N.Y.2d 320, 324 [1986] ). "Only when the movant satisfies its obligation does the burden shift to the nonmovant to present evidence demonstrating the existence of a triable issue of fact" (Lacasse v. Sorbello, 121 AD3d at 1241–1242 [citations omitted]; see Zuckerman v. City of New York, 49 N.Y.2d 557, 560 [1980] ). "In considering applications of this nature, [c]ourts must focus on issue finding rather than issue determination, and deny the drastic remedy of summary judgment if there is any doubt as to whether a material factual issue exists or if such an issue is even arguable' " (Lacasse v. Sorbello, 121 AD3d at 1242, quoting Black v. Kohl's Dept. Stores, Inc., 80 AD3d 958, 959 [2011] ; see Vega v. Restani Constr. Corp., 18 NY3d 499, 505 [2012] ; Tenkate v. Tops Mkts., LLC, 38 AD3d 987, 989 [2007] ).
With respect to the first cause of action alleging a breach of fiduciary duty, "the attorney-client relationship imposes on the attorney [t]he duty to deal fairly, honestly and with undivided loyalty ... including maintaining confidentiality, avoiding conflicts of interest, operating competently, safeguarding client property and honoring the clients' interests over the lawyer's' " (Country Club Partners, LLC v. Goldman, 79 AD3d 1389, 1391 [2010], quoting Ulico Cas. Co. v. Wilson, Elser, Moskowitz, Edelman & Dicker, 56 AD3d 1, 9 [2008] [internal quotation marks and citations omitted]; see Krouner v. Koplovitz, 175 A.D.2d 531, 532 [1991] ). "To recover on its claim, plaintiff is required to prove both the breach of a duty owed to it and damages sustained as a result' " (Country Club Partners, LLC v. Goldman, 79 AD3d at 1391, quoting Ulico Cas. Co. v. Wilson, Elser, Moskowitz, Edelman & Dicker, 56 AD3d at 10 [citation omitted] ). "That is, a client must establish actual and ascertainable damages that would not have occurred but for the attorney's conduct" (Country Club Partners, LLC v. Goldman, 79 AD3d at 1391 [citations and internal quotation marks omitted] ).
Here, the Court finds that plaintiff has established its prima facie entitlement to judgment as a matter of law relative to its first cause of action. Defendant was undisputably employed as General Counsel to plaintiff at all relevant times and, in her capacity as General Counsel, had a duty to deal with plaintiff fairly, honestly and with undivided loyalty. Morris states under oath that defendant drafted the Employment Agreement and presented it to him for review without recommending that plaintiff retain independent counsel to review it prior to signature. Morris further states under oath that defendant later interpreted the Employment Agreement as providing for an increase in her salary, again without recommending that the issue be reviewed by independent counsel. There was a blatant conflict of interest in both instances that defendant either failed to recognize or simply ignored. Plaintiff has further demonstrated actual and ascertainable damages.
In opposition, defendant contends that she was not acting as General Counsel to plaintiff when she drafted the Employment Agreement. Rather, she was negotiating the terms of her employment as Executive Director and acting solely on her own behalf. According to defendant, plaintiff was well aware of this fact. Interestingly, Lucia has submitted an affidavit in support of this contention, stating as follows:
"At no time did Mr. Morris ever state to me that he believed that when Lori was negotiating her contract that she was acting on behalf of the Plattsburgh Housing Authority or providing housing authority legal advice as its counsel in negotiating and preparing the contract. I signed the contract at the instruction of Mr. Morris and I understood and believed it was clear that Lori was acting for herself on one side of the negotiating table and Mr. Morris was representing the housing authority on the other side of the negotiating table."
Lucia further states that Morris was aware that defendant would be acting as both the Executive Director and General Counsel following January 1, 2012, and in fact directed her to contact "the executive director of another housing agency, [who] was also an attorney ... to discuss the role of Executive Director/attorney." She did so and then reported back to Morris, informing him that "it was [her] understanding that HUD did not approve of a housing authority having an employee hold two full-time positions."
Defendant next contends that her increase in salary did not require contract interpretation but, rather, resulted from application of plaintiff's normal policies and procedures. In this regard, Lucia states as follows:
"An issue has been raised about Lori Cantwell's salary as Executive Director. As long as I had been with the Plattsburgh Housing Authority, it was always the policy and practice of the organization that management personnel would receive longevity pay according to the longevity schedule maintained by the organization....
"It was also the policy and practice of the Plattsburgh Housing Authority that when a person moved from one management position to another, their longevity time would follow to the new position.... This practice was followed for all employees moving from one management position to another.
"Lori Cantwell was in the management pay category in her position as Attorney to the Plattsburgh Housing Authority. Thus, when she was named as the Executive Director of the Authority, she was credited the longevity she had earned in her capacity of Attorney as was established practice."
Thus, according to Lucia, defendant was appropriately given credit for 14 years of service—dating back to 1997 when she was retained as counsel—and her salary was appropriately increased based upon plaintiff's longevity schedule.
Under the circumstances, the Court finds that defendant has raised an issue of fact as to whether she breached her fiduciary duty to plaintiff. If in fact defendant was not acting in her capacity as General Counsel when she drafted the Employment Agreement and plaintiff was aware of this, then she may not have violated her fiduciary duty to plaintiff (see Kallman v. Krupnick, 67 AD3d 1093, 1095 [2009], lv denied 14 NY3d 703 [2010] ; Beltrone v. General Schuyler & Co., 252 A.D.2d 640, 641 [1998] ; see Greene v. Greene, 56 N.Y.2d at 92–93, 451 N.Y.S.2d 46, 436 N.E.2d 496 ). To the extent that Morris reached out to the Executive Director of another housing agency who was also an attorney, there appears to be some question in this regard. Similarly, if defendant's increase in salary resulted not from an interpretation of her Employment Agreement but rather from application of plaintiff's normal policies and procedures, then again—she may not have violated her fiduciary duty. Given the standard applicable to motions for summary judgment—issue finding and not issue determination—the Court declines to grant plaintiff summary judgment as a matter of law relative to its first cause of action.
Having denied plaintiff's motion for summary judgment on the first cause of action, the Court makes no determination as to whether the faithless servant doctrine is applicable.
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Turning now to the second cause of action seeking rescission of the Employment Agreement, "[a]n attorney is not prohibited from entering into a contract with a client" ' (Kallman v. Krupnick, 67 AD3d at 1095, quoting Greene v. Greene, 56 N.Y.2d 86, 92 [1982] ). However, if "an attorney enters into a business relationship with a client while also acting as the client's attorney with respect to the relationship, the attorney must fully and fairly inform the client of the consequences of any action taken in furtherance of the relationship and certainly may not exploit the client's trust for his or her own benefit" ' (Kallman v. Krupnick, 67 AD3d at 1095, quoting Beltrone v. General Schuyler & Co., 252 A.D.2d at 641 ; see Greene v. Greene, 56 N.Y.2d at 92–93 ). To that end, where the client "state[s] under oath that [he or] she did not understand the terms or the effect of the [contract, then this is] sufficient to entitle the [client] to rescission of the [contract] unless the [attorney] can convincingly show that [the client] was fully and fairly informed of the consequences of the [contract] and the special advantages it gave to [the attorney]" (Greene v. Greene, 56 N.Y.2d at 92–93 ).
Here, the Court finds that plaintiff has established its prima facie entitlement to summary judgment as a matter of law relative to its second cause of action. Morris, Grasso and Shirley O'Connell—another member of the Board—all state under oath that they did not understand the terms or the effect of the Employment Agreement. With that said, however, the Court further finds that defendant has raised a question of fact as to whether plaintiff was fully and fairly informed of the contents of the Employment Agreement. Specifically, while Morris claims to have no knowledge of the terms contained within the Employment Agreement, defendant notes that he must have had some knowledge, as he admittedly read the Agreement in its entirety and requested certain revisions, such as a decrease in the amount of vacation time. Defendant further contends—and the record appears to support—that the Board was aware that she would be employed as both Executive Director and General Counsel until it retained outside counsel, which it never did—at least not until the issues arose relative to defendant's job performance. Under these circumstances, the Court declines to grant plaintiff summary judgment as a matter of law relative to its second cause of action.
With respect to the third cause of action, "in a claim for fraudulent misrepresentation, a plaintiff must allege a misrepresentation or a material omission of fact which was false and known to be false by defendant, made for the purpose of inducing the other party to rely upon it, justifiable reliance of the other party on the misrepresentation or material omission, and injury" ' (Mandarin Trading Ltd. v. Wildenstein, 16 NY3d 173, 178 [2011], quoting Lama Holding Co. v. Smith Barney, 88 N.Y.2d 413, 421 [1996] ). "An attorney's failure to disclose actual conflicts ... may [also] give rise to an action for fraud" (Oikonomos, Inc. v. Bahrenberg, 38 Misc.3d 1207[A], 2013 N.Y. Slip Op 50017[U], *16 [Sup Ct, Suffolk County 2013]; see Schoen v. Martin, 187 A.D.2d 253, 254 [1992] ).
Here, the Court finds that plaintiff has established its prima facie entitlement to judgment as a matter of law relative to its third cause of action. Morris states under oath that defendant misrepresented to him that plaintiff had the ability to terminate the Employment Agreement on 60 days notice—which it did not—and he then relied upon this misrepresentation in signing the Agreement and recommending that Lucia do the same. Morris further states under oath that defendant misrepresented to him that she was entitled to an increase in salary under the terms of the Employment Agreement and he then relied upon this misrepresentation in authorizing the increase. Finally, Morris, Grasso and O'Connell all state under oath that they relied upon defendant in her professional capacity to draft an Employment Agreement that was fair and equitable to both parties, and at no time did she disclose any type of conflict of interest or otherwise direct them to seek the advice of independent counsel. Plaintiff has also established an injury, namely monetary damages.
In opposition, defendant contends—as set forth above—that she was not acting as General Counsel to plaintiff when she drafted the Employment Agreement and plaintiff was aware of this fact. Defendant further contends that "if the facts represented are not matters peculiarly within the party's knowledge, and the other party has the means available to him [or her] of knowing, by the exercise of ordinary intelligence, the truth ... of the representation, he [or she] must make use of those means, or he [or she] will not be heard to complain that he [or she] was induced to enter into the transaction by misrepresentations" ' (Clearmont Prop., LLC v. Eisner, 58 AD3d at 1056, quoting Schumaker v. Mather, 133 N.Y. 590, 596 [1892] ; see Tanzman v. La Pietra, 8 AD3d 706, 707 [2004] ; Cohen v. Colistra, 233 A.D.2d 542, 543 [1996] ). According to defendant, Morris read the Employment Agreement before signing it and all of the terms at issue were plainly stated therein. As such, plaintiff cannot now be heard to complain that it was induced to sign the Employment Agreement as a result of her misrepresentations. Under the circumstances, the Court finds that defendant has succeeded in raising a triable issue of fact and, as such, denies plaintiff's motion for summary judgment on the third cause of action.
Turning now to the defendant's remaining counterclaims, the Court likewise denies plaintiff's motion for summary judgment seeking to dismiss the first counterclaim for breach of the Employment Agreement. At this juncture, the Employment Agreement has not been rescinded or otherwise declared invalid and plaintiff admittedly failed to comply with the termination clause contained therein. Indeed, plaintiff neither issued a 90–day notice of deficiencies nor held an arbitration hearing prior to terminating defendant's employment.
Insofar as the third counterclaim for breach of the General Counsel Contract of Employment is concerned, the Court again finds that plaintiff has failed to establish its entitlement to dismissal as a matter of law. Plaintiff relies upon the general rule that "a client has an absolute right, at any time, with or without cause, to terminate the attorney-client relationship by discharging [its] attorney" ' (Dagny Mgt. Corp. v. Oppenheim & Meltzer, 199 A.D.2d 711, 712 [1993], quoting Campagnola v. Mulholland, Minion & Roe, 76 N.Y.2d 38, 43 [1990] ). There are two exceptions to this rule, however, one of which is where—as here—"an attorney is employed under a general retainer for a fixed period to perform legal services in relation to matters that may arise during the period of the contract' " (Atkins & O'Brien v. ISS Intl. Serv. Sys., 252 A.D.2d 446, 448 [1998], quoting Martin v. Camp 219 N.Y. 170, 176 [1916] ; see Ehrlich v. Rebco Ins. Exch., 198 A.D.2d 58 [1993] ). Plaintiff's motion for summary judgment is therefore denied relative to defendant's third counterclaim.
To the extent not addressed herein, plaintiff's remaining contentions have been considered and found to be without merit.
Simply stated, the record before the Court presents a classic case of he said/she said that cannot be resolved on summary judgment. A trial must be held and credibility determinations made. Plaintiff's motion is thus denied in its entirety.
Counsel for the parties are hereby directed to appear for a conference on October 16, 2015 at 10:00 A.M. at the Clinton County Courthouse for the purpose of selecting a trial date.
Therefore, having considered the Affirmation of Colm P. Ryan, Esq. with exhibits attached thereto, dated January 20, 2015, submitted in support of the motion; Affidavit of Clayton Morris with exhibits attached thereto, sworn to January 15, 2015, submitted in support of the motion; Affidavit of Paul A. Grasso Jr., sworn to January 14, 2015, submitted in support of the motion; Affidavit of Jean Etesse with exhibits attached thereto, sworn to January 15, 2015, submitted in support of the motion; Affidavit of Shirley O'Connell, sworn to January 14, 2015, submitted in support of the motion; Memorandum of Law of Colm P. Ryan, Esq., dated January 20, 2015, submitted in support of the motion; Affidavit of James T. Potter, Esq. with exhibits attached thereto, sworn to March 31, 2015, submitted in opposition to the motion; Affidavit of S. Patricia Lucia, sworn to February 12, 2015, submitted in opposition to the motion; Memorandum of Law of James T. Potter, Esq., dated March 31, 2015, submitted in opposition to the motion; Reply Affirmation of Colm P. Ryan, Esq. with exhibit attached thereto, dated April 28, 2015; and Reply Memorandum of Law of Colm P. Ryan, Esq., dated April 28, 2015, it is hereby
ORDERED that plaintiff's motion for summary judgment is denied in its entirety; and it is further
ORDERED that counsel for the parties shall appear for a conference on October 16, 2015 at 10:00 A.M. at the Clinton County Courthouse for the purpose of selecting a trial date.
The original of this Decision and Order is returned to counsel for defendant for filing and service with notice of entry. The Notice of Motion dated January 20, 2015 has been filed by the Court together with the above-referenced submissions.
ROBERT J. MULLER, J.S.C.
ENTER: