Opinion
10 Civ. 3980 (NRB)
05-16-2011
RONALD L. SMITH, Plaintiff, v. RAILWORKS CORPORATION, RAILWORKS TRANSIT, INC., L.K. COMSTOCK & COMPANY, INC. Defendants.
Attorneys for Plaintiff: Alan Lescht, Esq. Susan L. Kruger, Esq. Rani V. Rolston, Esq. Alan Lescht and Associates PC 1050 17th St., NW-Suite 220 Washington, DC 20036 Attorneys for Defendants: James H. Martin, Esq. Garbia MacGregor and Plocki LLP 4151 Chain Bridge Rd. Fairfax, Va. 22030 Jesse T. Conan, Esq. Becker, Glynn, Melamed & Muffly, LLP 299 Park Avenue New York, NY 10171
MEMORANDUM AND ORDER
Plaintiff Ronald L. Smith ("plaintiff" or "Smith") brings this action against defendants Railworks Corporation ("RWC"), Railworks Transit, Inc. ("RWT"), and L.K. Comstock & Company, Inc. ("LKC") (collectively, "defendants"), alleging breach of contract and violation of the Maryland Wage Payment and Collection Law resulting from defendants' alleged failure to pay plaintiff a bonus in 2007. Presently before the Court is defendants' motion to dismiss the complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). For the reasons set forth below, the motion to dismiss is denied.
Defendants RWT and LKC are subsidiaries of defendant RWC. Compl. ¶ 5.
BACKGROUND
Except where noted, the following facts are drawn from plaintiff's complaint and the exhibits attached thereto. For purposes of reviewing this motion to dismiss, all nonconclusory allegations are accepted as true. See S. Cherry St., LLC v. Hennessee Grp. LLC, 573 F.3d 98, 100 (2d Cir. 2009).
Plaintiff was employed by defendants from approximately June 1993 through December 31, 2007. Compl. ¶ 7. On January 1, 2006, plaintiff entered into an employment agreement with RWT, under which plaintiff was employed as the executive vice-president of LKC and president of its National Transit Division. Id. at ¶ 8; id., Ex. A at 1. Under the 2006 employment agreement, plaintiff received a base annual salary of $215,000 and was further eligible to participate in a performance-based bonus program. Id., Ex. A at 2. Section 3.1(b) of the 2006 employment agreement provides, in relevant part, that:
Defendants contend that plaintiff "has not alleged any act of RWT related to its breach of contract and wage claims, and therefore RWT should be dismissed from the case as an improper defendant for failure to state a claim." Mem. of Law in Supp. of Defs.' Mot. to Dismiss or Change Venue ("Defs.' Mem.") at 10, n.5. However, as the Maryland District Court noted, the 2006 employment agreement (under which Smith was employed as executive vice-president of LKC and president of its National Transit Division) is set forth as an agreement between RWT and Smith. Thus, like the Maryland District Court, we will "presume[] that some employment relationship existed between RWT and Smith." Dkt. No. 17 at 2, n.1.
Employee will participate in such annual incentive programs as may be adopted from time to time by Employer [RWT] for members of the management team of Employer. Such participation and the amount of any incentive for which Employee may become eligible shall be governed by the rules and requirements of the incentive program as adopted from time to time. Id.
On April 4, 2007, Jeffrey M. Levy, President and CEO of RWC, sent plaintiff a letter (the "2007 Employment Agreement") summarizing the terms and conditions of his employment. Compl., Ex. B. On April 19, 2007, plaintiff signed the 2007 Employment Agreement, which states that it superseded and terminated all prior employment and compensation agreements. Id. With regard to plaintiff's eligibility for a bonus, the 2007 Employment Agreement provides:
You are eligible to participate in a performance based incentive compensation plan that provides an incentive compensation pool based on the financial performance of both RailWorks Corporation and the National Transit Division of L.K. Comstock & Co., Inc. The details of this plan including annual performance and incentive thresholds will be provided to you after finalization of the 2007 Business Plan. Id.The Attachment to the 2007 Employment Agreement sets forth certain benefits that plaintiff was entitled to receive in the event his employment was terminated. With regard to plaintiff's eligibility to receive a bonus in the event of his termination without cause, the Attachment states:
In the event you are terminated without cause or for Company convenience, you . . . will receive salary continuation for a period of nine (9) months and you will be deemed to have earned any prorated performance bonus with respect to the calendar year in which the termination occurs. Such bonuses will be paid at the time management bonuses are customarily paid.On or about June 29, 2007, RWC established a formal Incentive Compensation Plan (the "Incentive Compensation Plan"). Compl. ¶ 14. The Incentive Compensation Plan states:
The Incentive Compensation Plan for RailWorks Operations provides performance-based compensation for eligible employees of RailWorks Corporation and its
subsidiaries. The Plan provides an incentive pool calculated for each participating operation as a share of its operating income determined by the average net assets utilized by the respective operation during the calendar year. The pool is distributed among management and staff of the respective operation based on recommendations of the responsible manager subject to approval by executive management of RailWorks Corporation."Decl. of Jeffrey M. Levy, Ex. A ("Incentive Compensation Plan"), at 1. The Incentive Compensation Plan further notes that bonus recommendations, which are made by the manager of each participating operation, "are subject to the review and approval of the business unit and executive management." Id. at 2. In addition, the Plan states that it "follows the format established in 2006." Id. at 1. In 2006, plaintiff received a performance bonus of $215,000. Compl. ¶ 12.
Although plaintiff was employed by LKC, RWC set forth the Incentive Compensation Plan.
Although plaintiff refers to the Incentive Compensation Plan in his complaint (see Compl. ¶ 14), he does not include it as an exhibit. While a "district court is normally required to look only to the allegations on the face of the complaint" when considering a motion under Rule 12(b)(6), "[d]ocuments that are attached to the complaint or are incorporated by reference are deemed part of the pleading and may be considered." Roth v. Jennings, 489 F.3d 499, 509 (2d Cir. 2006))(emphasis added). Thus, in deciding the present motion to dismiss, we consider the Incentive Compensation Plan, which defendants attach as an exhibit to their motion. We do not, however, consider the other affidavits and attached exhibits that both parties have included in their briefs. While many of these affidavits addressed the issue of venue, and thus could be considered when deciding defendants' motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(3) (see, e.g., Cartier v. Micha, Inc., 06 Civ. 4699, 2007 WL 1187188, at *2 (S.D.N.Y. Apr. 20, 2007)), that motion was decided by the district court in Maryland and is not presently before this Court.
On November 16, 2007, plaintiff received a letter from Levy informing him that his employment would be terminated on December 31, 2007. Compl., Ex. C. With regard to the payment of a bonus, the November 16, 2007 letter states: "You will have deemed to have earned any prorated performance bonus with respect to the calendar year 2007. Such bonus will be paid at the time bonuses are customarily paid." Id. The letter further states that until December 31, 2007, Smith would "continue to perform the duties and responsibilities of [his] position as directed." Id.
In April 2008, plaintiff contacted defendants regarding payment of his performance bonus and was informed that he would not be receiving one for 2007. Compl. ¶ 20. Plaintiff alleges that all other employees participating in the Incentive Compensation Plan received performance bonuses for 2007. Id. at ¶ 19.
II. Procedural Background
After plaintiff filed a complaint in the Circuit Court for Calvert County, Maryland, defendants removed the case to the federal district court in Maryland. On February 27, 2009, defendants filed a motion to dismiss and/or change venue. Dkt. No. 7. On May 18, 2009, the district court in Maryland granted the motion to change venue and transferred the case to this district. Dkt. No. 17. The court did not address defendants' motion to dismiss the case for failure to state a claim. Id.
The court also did not decide defendants' motion to dismiss for lack of personal jurisdiction. Defendants concede that personal jurisdiction is proper in this court. See Defs.' Mem. at 16 ("There is no question that venue is proper in New York and the courts in New York have personal jurisdiction over each of the RailWorks defendants.").
After the case was transferred to this Court on May 14, 2010, the parties agreed that because defendants' motion to dismiss for failure to state a claim had already been fully briefed before the district court in Maryland, no additional briefing on the issue was necessary.
DISCUSSION
I. Legal Standard for a Motion to Dismiss
When deciding a motion to dismiss for failure to state a claim pursuant to Federal Rule 12(b)(6), the Court must accept as true all well-pleaded facts alleged in the complaint and draw all reasonable inferences in plaintiffs' favor. Kassner v. 2nd Ave. Delicatessen, Inc., 496 F.3d 229, 237 (2d Cir. 2007). A complaint must include "enough facts to state a claim for relief that is plausible on its face." Bell Atlantic Corp. v. Twombly, 550 U.S. 554, 570 (2007). Where a plaintiff has not "nudged [his] claims across the line from conceivable to plausible, [his] complaint must be dismissed." Id. This pleading standard applies in "all civil actions." Aschroft v. Iqbal, 129 S. Ct. 1937, 1953 (2009).
II. Analysis
We note that neither party has fully briefed the issue of choice of law. While plaintiff's 2006 employment contract included a clause providing that the agreement would be governed by New York law (Compl., Ex. A), the 2007 Employment Agreement -- which provided that it was "intended as a complete and exclusive statement of the terms of [Smith's] employment," and that it "supersedes and terminates all prior employment and compensation agreements . . ." (Compl., Ex. B) -- did not. With regard to the breach of contract claim, defendants cite to cases applying both New York and Maryland law (see Defs.' Mem. at 18 ("Allegations that defendant failed to pay a discretionary bonus under an employment agreement do not give rise to a breach of contract claim under either New York or Maryland law")); plaintiff cites to a single Fourth Circuit case for the proposition that ambiguities in a contract should be construed against the drafter. Mem. in Opp'n to Mot. to Dismiss ("Pl.'s Mem.") at 8. As noted below, defendants do contend that "Maryland wage laws are likely not applicable as a conflicts analysis . . . would likely lead to the application of New York or Georgia law." (Defs.' Mem. at 17)), but do not brief the issue further. Because neither party has briefed the choice of law issue or raised an argument that the determination of whether a bonus is discretionary differs in the various jurisdictions, we do not address the choice of law issue at this time.
Defendants' motion relies on their contention that payment of a bonus in 2007 was "strictly discretionary." Defs.' Mem at 17. In reaching this conclusion, defendants set forth a two-part argument. First, defendants contend that the 2007 Employment Agreement "simply states that Smith is eligible to participate in a performance based incentive compensation plan and refers to the [Incentive Compensation] Plan to provide details." Id. Second, defendants contend that the Incentive Compensation Plan provides RWC with absolute discretion to pay Smith a bonus because it states that the distribution of bonus money "is subject to approval by executive management." Id. (quoting the Incentive Compensation Plan). We disagree with defendants' interpretation of both documents and, especially when the documents are viewed together, cannot conclude that payment of a bonus in 2007 was strictly discretionary.
We begin by considering the Incentive Compensation Plan.
We note that in his opposition brief, plaintiff does not respond to defendants' argument concerning the language of the Incentive Compensation Plan. Nevertheless, we address defendants' arguments because, for the reasons set forth below, we disagree that the Plan unambiguously provides defendants' with absolute discretion in deciding whether to pay a bonus.
1. The Incentive Compensation Plan
It is well established that an employee cannot recover for an employer's failure to pay a bonus under a plan that provides the employer with absolute discretion in deciding whether to pay the bonus. See, e.g., Namad v. Salomon Inc., 74 N.Y.2d 751, 752-53, 545 N.Y.S.2d 79 (1989)(affirming dismissal of a claim for a bonus where "the bonus clause unambiguously vests discretion regarding the amount of bonus compensation to be awarded in defendants' management"); Bessemer Trust Co., N.A. v. Branin, 618 F.3d 76, 92 (2d Cir. 2010)(applying New York law and affirming dismissal of a claim for an increased bonus where the bonus provision "reserve[d] to the Salary Committee the decision to award or not to award a bonus, and in what amount");O'Shea v. Bidcom, Inc., 2002 WL 1610942, at *3 (S.D.N.Y. July 22, 2002) (applying New York law and noting that "it is axiomatic that a promise to pay incentive compensation is unenforceable if the written terms of the compensation plan make clear that the employer has absolute discretion in deciding whether to pay the incentive"); Windesheim v. Verizon Network Integration Corp., 212 F.Supp.2d 456, 463 (D.Md. 2002)(applying Maryland law and holding that employee had no enforceable right to a bonus where incentive plan provided employer with "unlimited discretion . . . to reduce, modify, recover or withhold incentive pay"). However, an employer's absolute discretion to withhold or modify a bonus must be set forth unambiguously. See Fishoff v. Coty Inc., 634 F.3d 647, 653-54 (2d Cir. 2011) (under New York law, "[d]iscretion to modify or cancel an incentive . . . will not be implied if there exists no explicit contractual provision assigning the employer absolute discretion to pay such compensation.")(quoting Lam v. Am. Express Co., 265 F.Supp.2d 225, 237 (S.D.N.Y. 2003)); O'Shea, 2002 WL 1610942, at *3 ("When finding that a specific employment contract vested an employer with the absolute discretion whether to award incentives, courts have relied on clauses that 'unambiguously' vest such power.").
Defendants cite to three cases in support of their argument that the payment of a bonus to Smith was completely discretionary. All three cases involved contracts that unambiguously provided the employer with absolute discretion to pay a bonus. In Namad, 74 N.Y.2d 751, 545 N.Y.S.2d 79 (1989), the bonus provision at issue stated that "[t]he amounts of . . . compensation and entitlements, if any, including regular bonuses, special bonuses, and stock awards, shall be at the discretion of the management. . . ." Id., 74 N.Y.2d at 752-53 (emphasis added). In Welland v. Citigroup, Inc., 00 Civ. 738 (NRB), 2003 WL 22973574, (S.D.N.Y. Dec. 17, 2003), the contract provided that bonuses "aren't automatically awarded year to year and are determined at management's sole and exclusive discretion." Id. at *12 (emphasis added). And in Windesheim, 212 F.Supp.2d 456 (D.Md. 2002), the contract provided the employer with "unlimited discretion . . . to reduce, modify, recover or withhold incentive pay pursuant to changes in business conditions, individual performance or any other reason management deems appropriate in their sole discretion." Id. at 460 (emphasis added). The bonus provisions in all three cases include what one court has called the "magic words" unambiguously setting forth an employer's absolute discretion in deciding whether to pay a bonus. Culver v. Merrill Lynch & Co., Inc., 94 Civ. 8124, 1995 WL 422203 (S.D.N.Y. July 17, 1995).
See also Stavis v. GFK Holding, Inc., ___F.Supp.2d___, 2011 WL 335664, at *8 (S.D.N.Y. Jan. 28, 2011) (granting employer summary judgment on breach of contract claim where contract provided that "[b]onuses are discretionary"); Allen v. J.P. Morgan Chase & Co., 06 Civ. 8712, 2009 WL 857555, at *15 (S.D.N.Y. Mar. 31, 2009) (granting employer summary judgment on breach of contract claim were contract provided that "awards are discretionary"); Ferrari v. KeyBank Nat'l Ass'n, 2009 WL 35330, at *7 (W.D.N.Y. Jan. 5. 2009) (granting employer summary judgment on breach of contract claim were contract provided that employer "shall have sole and absolute discretionary authority and power to . . . determine all questions relating to the eligibility for and the amount of any benefit to be paid under the Plan").
In our view, the Incentive Compensation Plan includes no such "magic words." Rather, the plan provides that the distribution of bonus money, as recommended by Smith, is "subject to approval by executive management." Defs.' Mem. at 17 (quoting Incentive Compensation Plan). This provision is similar to that considered by the district court in Culver, where the relevant bonus provision provided that "[d]istribution of pools will be determined by the Division Director and Group Manager, with input from Trading Desk Managers." Culver, 1995 WL 422203, at *3. The court held that this provision lacked the "magic words" that would "make[] it absolutely clear that [the employer] was to have complete discretion in determining whether to award any compensation to [plaintiff] for services rendered." Id. In light of the ambiguity of the bonus provision, the court denied defendants' motion to dismiss the employee's breach of contract claim. See also O'Shea, 2002 WL 1610942, at *4 (incentive plan providing that "final interpretation of the Plan as it may apply to any one individual person, matter or circumstance will be made by the VP of Sales" lacked "the 'magic words' to relegate the payment of compensation incentives to the discretion of . . . management").
While there appears to be significantly less Maryland case law on the issue of discretionary bonuses, we note the analysis of the Bankruptcy Court for the District of Maryland in In re Nat'l Energy & Gas Transmission, Inc., 351 B.R. 323 (Bankr. D. Md. 2006). In that case, the court found that in spite of references in a compensation plan to the employer's "discretion" with regard to awarding bonuses, "it [was] far from clear that the parties intended for [employer] to have the ability to deny Supplemental Bonuses on a whim," and thus denied employer summary judgment. Id. at 335.
We agree with the Court's analysis in Culver, and follow the same approach here. Furthermore, we note that (1) the Incentive Compensation Plan states that the plan "follows the format established in 2006" and Smith earned a bonus of $215,000 in 2006; and (2) for management participants (such as Smith), the Plan states that the recommended bonus should reflect "achievement against performance objectives established at the beginning of the year." Incentive Compensation Plan at 1-2. Under these circumstances, where the Incentive Compensation Plan provides that Smith's bonus should be based on the achievement of previously established standards, and Smith's unit met the financial requirements necessary to produce a performance bonus pool for 2007 (Compl. ¶ 14), we do not view the Incentive Compensation Plan as unambiguously conferring absolute discretion to defendants to decide whether to pay Smith a bonus.
2. The 2007 Employment Agreement
In addition to their argument concerning the text of the Incentive Compensation Plan, defendants contend that the 2007 Employment Agreement "simply states that Smith is eligible to participate in a performance based incentive compensation plan." Defs.' Mem. at 17. This argument fails to adequately address the provision of the agreement that explicitly deals with Smith's entitlement to a bonus in the event of his termination without cause. As noted above, the Attachment to the 2007 Employment Agreement states that Smith "will be deemed to have earned any prorated bonus" in the event of his termination without cause, and that "[s]uch bonuses will be paid at the time management bonuses are customarily paid." Compl., Ex. B (emphasis added)). Defendants' interpretation of this provision appears to be that it merely provides that Smith would remain eligible for a prorated bonus after his termination without cause. But that is not what the provision says. If defendants, who drafted the 2007 Employment Agreement, intended to state that Smith would simply remain eligible for a prorated bonus, they could have done so. Instead, the provision could be read to mean, for example, that once the amount of the bonus pool had been determined, Smith would be "deemed to have earned" a portion of the allotted pool. This is particularly so given that the 2007 Employment Agreement provides that the incentive compensation pool is "based on the financial performance" of both RWC and LKC's National Transit Division (of which Smith was the president), and, as discussed above, the Incentive Compensation Plan states that for management participants, such as Smith, recommended bonuses should reflect "achievement against performance objectives established at the beginning of the year." Incentive Compensation Plan at 2. Thus, if such performance objectives were met, Smith could be "deemed to have earned" a bonus.
In their reply brief, defendants contend that the phrase "'you will have deemed to have earned any'" -- as used in Smith's termination letter - "as opposed to 'you have earned a' indicates that decisions regarding performance bonuses had not been made." Defs.' Reply Mem. in Response to Pl.'s Opp'n to Defs.' Mot. to Dismiss or Change Venue at 6. For the reasons set forth above, we disagree with defendants' interpretation as it applies to the question of whether payment of a bonus was completely discretionary. Furthermore, as noted above, the termination letter includes the same language from the 2007 Employment Agreement, stating that "[s]uch bonus will be paid at the time bonuses are customarily paid."
In Thomson v. Saatchi Holdings (USA), Inc., 958 F.Supp. 808 (W.D.N.Y. 1997), a district court in this Circuit considered a similar provision concerning the payment of a bonus in the event of an employee's termination. The plaintiff's employment agreement in that case stated that the plaintiff "shall receive such Salary increases and bonuses, if any, as may, from time to time, be approved by the management of [defendant]." Thomson, 958 F.Supp. at 825 (W.D.N.Y. 1997). The agreement further stated, however, that if plaintiff were terminated, he would not receive any bonuses "except as had been earned but not paid at termination." Id. After reviewing the evidence — including the parties' course of dealing with respect to the payment of bonuses — the court concluded that the "employment contract [was] ambiguous with respect to what constitute[d] an 'earned' bonus which plaintiff would be entitled to receive in the event of his termination," and thus denied defendants' summary judgment. Id. at 826.
In our view, the "deemed to have earned" language in Smith's 2007 Employment Agreement is less ambiguous with regard to the discretionary nature of a bonus payment than the "had been earned" provision in Thomson. Under the 2007 Employment Agreement, Smith's termination without cause was the event that triggered his having been "deemed to have earned" any prorated bonus; in contrast, under the contract in Thomson, the employee's termination was linked to his entitlement to a bonus only to the extent that he was entitled to be paid for any bonus he had already earned prior to his termination. Furthermore, the contract in Thomson included a provision providing that bonuses "if any . . . may . . . be approved by the management of [defendant]." Id. at 825. Neither Smith's 2007 Employment Agreement or, as discussed above, the Incentive Compensation Plan include any such comparable provision stating that the payment of any bonus at all (as opposed to the amount of a bonus) is completely discretionary.
In sum, upon a review of both the 2007 Employment Agreement and the Incentive Compensation Plan, we cannot conclude that payment of a bonus to Smith for his employment in 2007 was completely discretionary.
3. Maryland Wage Payment and Collection Law Claim
Defendants argue that plaintiff's Maryland Wage Payment and Collection Law claim must be dismissed because failure to pay a discretionary bonus does not constitute a violation of Maryland wage law. Defs.' Mem. at 18. Having denied defendants' motion to dismiss plaintiff's breach of contract claim on the grounds that payment of the bonus was not necessarily discretionary, we deny defendants' motion to dismiss the Maryland wage law claim on the same grounds.
We recognize that there is a question as to whether, under a choice of law analysis, Maryland law applies. Nevertheless, because defendants have only addressed the choice of law issue in a footnote (stating that "Maryland wage laws are likely not applicable" (Defs.' Mem. at 17)) and plaintiff has not addressed it at all, we decline to do so at the stage of the case. We are mindful, however, of the Maryland district court's observations concerning this case's minimal connections to the state of Maryland.
Because a choice of law analysis is fact intensive, courts often decline to make a choice of law determination at the motion to dismiss stage. See, e.g., Graboff v. The Collera Firm, No. 10-1710, 2010 WL 4456923, at *8 (E.D.Pa. Nov. 8, 2010); Meserole v. Sony Corp. of Am., Inc., 08 Civ. 8987, 2009 WL 1403933, at *5 n.6 (S.D.N.Y. May 19, 2009).
CONCLUSION
For the reasons set forth above, defendants' motion to dismiss is denied. Dated: New York, New York
May 16, 2011
/s/_________
NAOMI REICE BUCHWALD
UNITED STATES DISTRICT JUDGE Copies of the foregoing Memorandum and Order have been mailed on this date to the following: Attorneys for Plaintiff:
Alan Lescht, Esq.
Susan L. Kruger, Esq.
Rani V. Rolston, Esq.
Alan Lescht and Associates PC
1050 17th St., NW-Suite 220
Washington, DC 20036 Attorneys for Defendants:
James H. Martin, Esq.
Garbia MacGregor and Plocki LLP
4151 Chain Bridge Rd.
Fairfax, Va. 22030 Jesse T. Conan, Esq.
Becker, Glynn, Melamed & Muffly, LLP
299 Park Avenue
New York, NY 10171