Opinion
No. 04 Civ. 2781 (TPG).
March 31, 2005
OPINION
In this action plaintiff sues to recover severance pay, allegedly due him following his termination by defendant S1.
Plaintiff seeks severance pay based on an alleged oral agreement, payment for vacation time and from a 401(k) plan, and asserts a fraud claim regarding the severance pay.
Defendant S1 has moved to dismiss the Complaint pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. Plaintiff opposes the motion and requests that this action (previously removed to the federal court) be remanded to state court because the federal court now lacks subject matter jurisdiction.
Defendant's motion is denied in part and granted in part. Plaintiff's request for remand is denied.
The Application For Remand
This suit was commenced on March 2, 2004 in the New York Supreme Court and removed by defendant to this Court on diversity of citizenship grounds on April 12, 2004. Plaintiff initially demanded judgment against the defendant in the amount of $123,066.
Plaintiff's second cause of action, which sought damages in the amount of $62,316 against S1 based on S1's alleged failure to pay plaintiff accrued vacation and vested benefits in a 401(k) plan following plaintiff's termination of employment, was dismissed by stipulation dated May 18, 2004.
Therefore, plaintiff's remaining claims are the first cause of action alleging breach of a contract regarding severance pay, and the third cause of action alleging fraud as to the severance pay. The amount claimed is $60,750.
Plaintiff asserts that the case should be remanded to state court since the amount in controversy in this case is now only $60,750, less than the $75,000 required for the amount in controversy.
However, the amount in controversy is measured as of the date on which the plaintiff files his complaint, and once diversity jurisdiction attaches in a case removed to the federal court, subsequent reductions in the amount in controversy will not divest the district court of subject matter jurisdiction.Wisconsin Dep't of Corr. v. Schacht, 524 U.S. 381, 390 (1998);Scherer v. Equitable Life Assur. Soc., 347 F.3d 394, 397 (2d Cir. 2003).
The application to remand is denied.
The Complaint
The following is a summary of the allegations in the complaint. On or about April 2000, S1 acquired all of the stock of the company Davidge Data Systems, who then became a wholly-owned subsidiary of S1. At the time of this acquisition, Rubenstein was the President and Chief Operating Officer of Davidge. Rubenstein reported to Nick Davidge, the Chief Executive Officer, Founder, and Chairman of Davidge. After the acquisition, Rubenstein continued on as President and COO of Davidge, which became and continued to be S1's highly-profitable wholly-owned subsidiary.
Rubenstein was advised by S1 in October or November of 2003 that an accounting error discovered by S1 had revealed that Davidge had overstated its projected revenues by about $1 million for the quarter. The error was not material in terms of S1's results of operations.
The error was investigated by S1 and Nick Davidge's employment was terminated for cause, by reason of such accounting error.
Rubenstein gave full cooperation to the investigation and continued as Davidge's President and COO through January 4, 2004, during which time his duties were diminished and he was replaced as President by Stephen Lynner.
The Complaint asserts that Lynner advised Rubenstein on or about January 4, 2004 that his employment was going to be terminated, purportedly for cause as well, as of February 15, 2004 and that he would thereafter receive three months severance pay.
The Complaint states that in reliance upon this agreement, Rubenstein continued to perform services for S1 until January 29, 2004 when he was informed that his employment was in fact terminated, but that he could continue to attend the S1 premises until the end of February 2004.
In the first cause of action named in the Complaint, Rubenstein seeks $60,750 for breach of the alleged agreement regarding the three months severance pay.
In its third cause of action, Rubenstein claims that S1's representations that Rubenstein would receive three month's severance if he worked until February 15, 2004 were false, known by S1 to be false when made, and made with intent that Rubenstein rely upon it and continue to work when S1 in fact never intended to provide this severance pay. Plaintiff claims he relied on the alleged representation to his detriment and damage in the sum of $60,750.
Discussion
The Contract Claim
Defendant has moved to dismiss the contract cause of action, claiming that the alleged agreement made to plaintiff in January 2004 was a purely gratuitous promise unsupported by consideration.
Plaintiff argues that there are two types of consideration involved. First, plaintiff argues that 12 years of service to the company was consideration. However, past consideration is insufficient to support a subsequent oral contract. Van Brunt v. Rauschenberg, 799 F.Supp. 1467, 1471 (S.D.N.Y. 1992). Specifically, past performance is not consideration sufficient to support a breach of contract claim for severance pay. Smith v. New York State Elec. Gas Corp., 155 A.D.2d 850, 850, 548 N.Y.S.2d 117, 118 (3rd Dep't 1989).
Second, plaintiff contends that despite being advised of the intended termination of his employment, the action he took to stay on to render any services that might be required of him was adequate consideration. Plaintiff cites Pilarczyk v. Morrison Knudson Corp., 965 F. Supp. 311 (N.D.N.Y. 1997), in arguing that under New York law, parties to contract are free to bargain as to the consideration exchanged, even if that consideration is unequal or of dubious value. Plaintiff also cites Caisse Nationale Credit Agricole — CNCA, New York Branch v. Valcorp., Inc., 28 F.3d 259, 265 (2d Cir. 1994), which states that "it is well established that the slightest consideration is sufficient to support the most onerous obligation and that the courts are not to inquire into the adequacy of consideration."
The complaint may be construed as claiming that there was consideration in the form of plaintiff remaining at S1 after the notice of termination of his employment. Such action could be the type of consideration cited by plaintiff in the cases of Caisse Nationale and Pilarczyk.
There is sufficient pleading by plaintiff of a contract for severance pay.
The Fraud Claim
Courts may dismiss a fraud claim under Fed.R.Civ.P. 12(b)(6) where fraud allegations are not distinct from contract claims.Spanierman Gallery, PSP v. Love, No. 03 Civ 3188 VM, 2003 WL 22480055, at *4 (S.D.N.Y. 2003); Kubin v. Miller, 801 F. Supp. 1101, 1116-17 (S.D.N.Y. 1992);Cornhusker Farms, Inc. v. Hunts Point Co-op. Market, Inc., 2 A.D.3d 201, 206, 769 N.Y.S.2d 228, 232 (1st Dep't 2003).
The failure to fulfill a promise to perform is not grounds for a fraud action unless there existed an intent not to perform at the time the promise was made. MCI WorldCom Communications, Inc. v. North American Communications Control, Inc., 2003 WL 212 79 446, citing Cohen v. Koenig, 25 F.3d 1168, 1171 (2d Cir. 1994). Under Fed.R.Civ.P. 9(b) plaintiffs are required to plead such claims of fraud with great specificity:
In all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity. Malice, intent, knowledge, and other condition of mind of a person may be averred generally.
Fed.R.Civ.P. 9(b); See Champion Titanium Horseshoe, Inc. v. Wyman-Gordon Invest. Castings, Inc., 925 F. Supp. 188, 190 (S.D.N.Y. 1996) (dismissing fraud claim for failing to state a claim with the specificity required by Fed.R.Civ.P. 9(b) where the plaintiff alleged only that the defendant's failure to perform the contract demonstrated its intent to not perform at the time the contract was made). In the Second Circuit, a complaint must explain why the alleged statements were fraudulent in order to satisfy Rule 9(b). Harsco Corp. v. Segui, 91 F.3d 337, 347 (2d Cir. 1996); Doehla v. Wathne Ltd., Inc., No. 98 Civ. 6087 CSH, 1999 WL 566311, at *17 (S.D.N.Y. Aug. 3, 1999). This Court has held that "bald assertions that the breaching party never intended to honor a contract do not constitute fraud." Kubin v. Miller, 801 F. Supp. 1101, 1116-17 (S.D.N.Y. 1992).
Finally, the courts also routinely reject allegations of "fraud by hindsight." See e.g. Fant v. Perelman, No. 97-Civ-8435, 97-Civ-8463, 1999 WL 199078, at *8-10 (S.D.N.Y. Apr. 9, 1999).
Defendant has moved to dismiss the fraud claim, arguing that (1) it is duplicative of the contract claim, (2) lacks the specificity required by Rule 9(b) because plaintiff fails to include any allegations of fact that would indicate that S1 did not intend to honor its alleged promise, and (3) the allegations of fraudulent intent are based solely on hindsight.
Rubenstein argues that the evidence of S1's intention not to honor the commitment at the time it was made may be inferred from its "failure to do so after plaintiff acted in reliance upon it."
This is not sufficient pleading as to what actually constituted fraud.
Conclusion
For the foregoing reasons, defendant's motion to dismiss is denied as to the contract claim and granted as to the fraud claim. Plaintiff's application for remand is denied.
SO ORDERED.