JOHN M.HAMMER v. HAIR SYSTEMS, INC.

(NOTE: The status of this decision is .)
 

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NOS. A-2791-07T12791-07T1

A-1893-08T1

JOHN M.HAMMER,

Plaintiff-Respondent/

Cross-Appellant,

v.

HAIR SYSTEMS, INC., a corporation

of the State of New Jersey, THE

ESTATE OF WILLIAM E. COVEY,

MARJORIE M. COVEY, and WILLIAM E.

COVEY, JR.,

Defendants-Appellants/

Cross-Respondents.

__________________________________

JOHN M. HAMMER,

Plaintiff-Appellant,

v.

HAIR SYSTEMS, INC., a corporation

of the State of New Jersey, THE

ESTATE OF WILLIAM E. COVEY,

MARJORIE M. COVEY, WILLIAM E.

COVEY, JR., MICHAEL MORRIS, and

COVEY & ASSOCIATES, P.C.,

Defendants-Respondents.

__________________________________

 

Argued May 4, 2009 Decided

Before Judges Lisa, Sapp-Peterson, and Alvarez.

On appeal from Superior Court of New Jersey, Law Division, Monmouth County, Docket Nos. L-1464-03 and L-2454-08.

William D. Wallach argued the cause for appellants/cross-respondents Hair Systems, Inc., Estate of William E. Covey, Marjorie M. Covey, and William E. Covey, Jr. (McCarter & English, L.L.P., attorneys; Mr. Wallach, of counsel; Julie A. Kot, on the briefs).

Lewis H. Robertson argued the cause for respondent/cross-appellant John M. Hammer (Lewis H. Robertson and Buchanan Ingersoll & Rooney, attorneys; Christopher J. Dalton, of counsel; Mr. Robertson, on the briefs).

Lewis H. Robertson argued the cause for appellant John M. Hammer (Lewis H. Robertson and Buchanan Ingersoll & Rooney, attorneys; Mr. Robertson, of counsel and on the briefs).

William D. Wallach argued the cause for respondents Hair Systems, Inc., Estate of William E. Covey, Marjorie M. Covey, and William E. Covey, Jr. (McCarter & English, L.L.P., attorneys; Mr. Wallach, on the brief).

Joseph K. Cooney argued the cause for respondents Michael Morris and Covey & Associates, P.C. (Widman, Cooney & Wilson, attorneys; Mr. Cooney, on the brief).

PER CURIAM

These appeals, which we now consolidate for disposition in this opinion, involve two complaints filed by plaintiff John M. Hammer against his former employer, Hair Systems, Inc. (HSI); the three principals of that company, William E. Covey, who died during the pendency of the litigation, Marjorie M. Covey, and William E. Covey, Jr.; HSI's corporate counsel, Michael Morris, Esq.; and the law firm of Covey & Associates, P.C. Plaintiff sought, among other things, recovery of deferred compensation payments totaling approximately $166,913.86, including interest as of December 21, 2007. By way of summary judgment, plaintiff was awarded the entire amount of the deferred compensation sought in the first complaint, payable only by HSI. Also by way of summary judgment, defendants obtained the dismissal of plaintiff's second complaint and the count in plaintiff's first complaint alleging a violation of the New Jersey Fair Credit Reporting Act (FCRA), N.J.S.A. 56:11-28 to -43. Thereafter, plaintiff, as well as HSI, appealed. We affirm.

Plaintiff's first complaint, dated March 25, 2003, against HSI and its principals, alleged breach of an employment agreement, breach of the covenant of good faith and fair dealing, interference with contractual relationships, breach of an incentive stock option agreement, violation of the oppressed minority shareholder statute, N.J.S.A. 14A:12-7, and violation of the FCRA. Plaintiff thereafter amended his complaint to allege a violation of the New Jersey Wage Payment Law (Wage Law), N.J.S.A. 34:11-4.1 to -33.6. Plaintiff also sought enforcement of the deferred compensation provision of his employment contract.

Plaintiff's second complaint, filed on May 27, 2008, named as defendants Michael Morris, Esq., Covey & Associates, P.C., HSI, and HSI's three principals. In the 2008 complaint, plaintiff alleged that defendants engaged in a civil conspiracy to unlawfully terminate his employment, invaded his privacy by conducting investigations as his employment came to a close, and violated the FCRA.

The Coveys are the owners of the majority of the issued and outstanding shares of HSI's common stock. William E. Covey (Covey) had been the Chairman of the Board of Directors prior to his death. Marjorie M. Covey is his widow and the Executive Vice President/Treasurer. Their son, William E. Covey, Jr., is President and Chief Operating Officer.

Plaintiff, who has worked in the hair care industry since 1967, was employed as a consultant by HSI through October 2001. Thereafter, Covey, who had been diagnosed with a terminal illness, retained plaintiff to serve as HSI's Chief Executive Officer (CEO) for five years. On October 18, 2001, Covey and plaintiff reduced their agreement to a writing drafted by plaintiff on HSI letterhead and signed by Covey as Chairman of the Board. The agreement, signed by plaintiff on October 20, 2001, stated that plaintiff's five-year term as CEO would commence on October 29, 2001, at a salary of $425,000 per year. The agreement further stated: "For the initial year of your employment, you agree to defer $125,000 of salary for five years while HSI strengthens its cash position. This deferral will earn accrued interest per annum at (6.5%)." The agreement called for plaintiff to be paid a signing bonus of 200 shares of HSI's issued and outstanding shares of common stock. On November 28, 2001, by resolution, the Board of Directors approved and adopted the terms contained in the agreement.

On October 29, 2001, plaintiff signed a confidentiality agreement that included the following language: "[N]othing contained in this Non-Competition Agreement or any other Company . . . document shall be interpreted or construed as conferring employment for a specific term or as a contract." On that same date, plaintiff signed an "Employee Acknowledgement Sheet." In bold-faced capitalized letters, it stated that nothing contained in any HSI document meant that the company was providing the individual with "employment for a specific period of time or that there is an express or implied contract of employment or agreement of any type between [the employee] and Hair Systems, Inc." It further stated, "I understand and acknowledge that I may quit my job or Hair Systems, Inc., may end my employment at any time with or without cause or notice."

On November 1, 2001, plaintiff confirmed in writing that he had received and reviewed an incentive stock option agreement. The last page stated:

Nothing herein shall modify your status as an at-will employee of the Company. . . . [N]othing herein guarantees you employment for any specified period of time. This means that either you or the Company may terminate your employment at any time for any reason, or no reason. . . . [T]he Company may terminate your employment prior to the date on which your option becomes vested.

In the spring of 2002, at the direction of its counsel, HSI retained a separate law firm to investigate whether plaintiff had violated the company's anti-harassment polices. As a result, Frank M. Ciuffani, Esq., an attorney in that firm, conducted a series of employee interviews in June and September 2002. Plaintiff was placed on administrative leave pending the outcome of the investigation. Ciuffani's report, based on the employee interviews, concluded that plaintiff "engaged in inappropriate behavior at work in violation of HSI's anti-harassment policy." The report substantiated nine instances involving inappropriate touching and seven instances involving inappropriate comments by plaintiff. Plaintiff was terminated effective October 18, 2002.

In plaintiff's dismissed May 27, 2008 complaint, he alleged that the decision made by HSI was motivated not by improper conduct on his part, but rather, because his actions as CEO, or his "management methods," "greatly discomfited a number of the Corporation's managers and other employees." Plaintiff further alleged that the investigation was mere window-dressing, as his termination was a foregone conclusion when the investigation was initiated. Plaintiff claims that Morris, who was then working at Covey & Associates, the firm that had served as HSI's legal counsel on prior labor and employment issues, urged the hiring of Ciuffani.

Morris also hired Danbee Investigations on July 23, 2002, to conduct surveillance of plaintiff. The only reported investigation was engaged in when a Danbee investigator followed plaintiff and Suzanne Knight, an HSI employee, while they had dinner at a restaurant. There were no indicia of a romantic relationship, and following the meal, plaintiff dropped Knight off at her residence.

In the May 27, 2008 complaint, plaintiff asserted that Morris obtained his social security number from HSI's records and provided it to Danbee. He also claimed that around this time, defendants began to monitor his work and personal e-mail accounts and voice mail.

When reviewing a trial court's grant of summary judgment, we apply the same legal standard as the trial court under Rule 4:46-2(c). Turner v. Wong, 363 N.J. Super. 186, 198-99 (App. Div. 2003). "A motion for summary judgment should be granted only when the moving party establishes the absence of any genuine issue as to a material fact." Id. at 199. The trial court must determine whether "the competent evidential materials presented, when viewed in the light most favorable to the non-moving party, are sufficient to permit a rational factfinder to resolve the alleged disputed issue in favor of the non-moving party." Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995).

"If there is no genuine issue of material fact, we decide whether the trial court's ruling on the law was correct." Turner, supra, 363 N.J. Super. at 199. We need not defer to the trial court's "interpretation of the law and the legal consequences that flow from established facts." Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995).

Deferred Compensation

Defendants contend that numerous material factual disputes existed as to the nature and extent of plaintiff's employment and compensation. A rational trier of fact, they assert, could readily conclude that plaintiff's conduct justified not only his termination, but also the repudiation of his executive compensation package. In addition to contending that the deferred compensation never vested because the term of employment did not extend over the full five years, they argue that plaintiff's misconduct nullified any obligation to pay the deferred compensation as the implied covenant of good faith and fair dealing defeats plaintiff's claim to it.

The covenant is implied in every New Jersey agreement. Fields v. Thompson Printing Co., 363 F.3d 259, 270 (3d Cir. 2004). Application of the covenant cannot, however, alter the terms of a written agreement. Id. at 271. The implied covenant of good faith and fair dealing will fill in gaps, but where terms of an agreement are specific, it will not override the contract's express language. Id. at 271-72.

Defendants attempt to distinguish Fields because that employee's contract included an explicit provision preventing the employer from terminating the agreement and extending the employee's benefits in the event of termination. See id. at 272. Despite that factual distinction, the principle enunciated in that case controls here. Where termination may be justified because of a breach of the covenant of good faith and fair dealing, the express terms of a contract may nonetheless require some provisions, such as the extension of benefits, to continue in effect. Ibid.

As in Fields, the issue is not whether plaintiff's termination was justified. See ibid. Either way, the express language defining compensation in his employment agreement was clear. Plaintiff worked for nearly a year and earned his salary, including the portion that was deferred. If we were to assume, for the sake of argument, that plaintiff sexually harassed employees, the express deferred compensation language is not voided by his breach of the covenant of good faith and fair dealing. Just as plaintiff cannot be compelled to disgorge salary already paid to him, he cannot be denied payment of salary already earned.

Defendants rely upon McGarry v. Saint Anthony of Padua Roman Catholic Church, 307 N.J. Super. 525, 534 (App. Div. 1998), in support of their position that because plaintiff engaged in conduct that violates company policies, he lost his entitlement to the deferred compensation. McGarry stands only for the proposition that when an employee violates the duty of good conduct, an employer has cause to terminate his contract. Ibid. The McGarry plaintiff sought wages that he would have received had he been given the thirty-day termination notice provided for in his contract. Id. at 532. The plaintiff was terminated without prior notice upon the employer's discovery that the plaintiff had been criminally charged with receiving shipments of illegal anabolic steroids at the very church where he worked as the music director. Id. at 529-30. Having been discharged for cause, the employee gave up the rights to which he would have been entitled in the future had his conduct been lawful. Id. at 536.

Even if the principles set forth in McGarry can be extended to include, as defendants urge, the proposition that criminal conduct is a basis for rejecting claims for additional benefits, this argument assumes that plaintiff's deferred compensation was a future benefit to which he would only have been entitled had he continued to work with HSI over the five-year term. We do not agree. Plaintiff earned a pro-rated portion of the deferred compensation. It was not a future benefit, but a benefit already vested at the time of termination.

Defendants also dispute that the protection of the Wage Law extends to plaintiff, a CEO, as it states that officers of a corporation are deemed to be employers. N.J.S.A. 34:11-4.1(a). The Wage Law defines "employee" as "any person suffered or permitted to work by an employer." N.J.S.A. 34:11-4.1(b). It applies to "wages," which have been defined as "direct monetary compensation for services rendered by an employee." Mulford v. Computer Leasing, Inc., 334 N.J. Super. 385, 393 (Law Div. 1999).

In this case, plaintiff's employment as HSI's CEO began when he and Covey signed an agreement setting forth terms. Although he became an officer of the company, he also remained an employee as defined by the Wage Law. Plaintiff falls into a specific category of employees that includes: "bona fide executive, supervisory and other special classifications of employees." N.J.S.A. 34:11-4.2. In any event, early termination cannot adversely affect an employee's right to wages already earned. Mulford, supra, 334 N.J. Super. at 392. Accordingly, the trial court properly granted plaintiff partial summary judgment.

In his cross-appeal, plaintiff argues that the trial court should have awarded him judgment as to the individual named defendants, not just the corporation. It is his position that pursuant to the Wage Law, they are individually liable.

So long as officers of a corporation believe that they are acting in its best interest, they do not incur personal liability for causing the corporation to breach a contract. Fields, supra, 363 F.3d at 274. To determine whether an officer has acted in the corporation's best interest, we ask whether he or she acted within the scope of his or her authority and with the intent to benefit the corporation. Ibid. When the test is met, the officer is not liable to a third party for contractual interference even if he or she acted with "mixed motives" to benefit him or herself. Ibid. Plaintiff has failed to prove that HSI's officers were not acting with the intent to benefit HSI. Additionally, plaintiff does not claim that HSI would be unable to satisfy the judgment against it. The trial court, therefore, did not err in denying plaintiff's motion for summary judgment as to the individual defendants.

Dismissal of the May 27, 2008 Complaint

A motion to dismiss a complaint for failure to state a cause of action pursuant to Rule 4:6-2(e) must be denied if, giving the plaintiff the benefit of all favorable inferences, a cause of action is "suggested" by the facts. Printing Mart-Morristown v. Sharp Electronics Corp., 116 N.J. 739, 746 (1989). The focus is not whether the plaintiff can prove the allegations contained in the complaint. Ibid. The complaint must be searched "in depth and with liberality" to determine whether the basis for the cause of action may be found even in "an obscure statement of claim." Ibid. If necessary, opportunity should be given to amend. Ibid. A reviewing court's inquiry is "limited to examining the legal sufficiency of the facts alleged on the face of the complaint." Ibid.

Plaintiff first alleges that defendants engaged in a civil conspiracy:

[A] combination of two or more persons acting in concert to commit an unlawful act, or to commit a lawful act by unlawful means, the principal element of which is an agreement between the parties to inflict a wrong against or injury upon another, and an overt act that results in damage.

[Morgan v. Union County Bd. of Chosen Freeholders, 268 N.J. Super. 337, 364 (App. Div. 1993), certif. denied, 135 N.J. 468 (1994) (internal quotations omitted).]

The basis of a civil conspiracy is "not the unlawful agreement, 'but the underlying wrong which, absent the conspiracy, would give a right of action.'" Id. at 364-65 (quoting Bd. of Educ. v. Hoek, 38 N.J. 213, 238 (1962)). Hence, as the trial judge correctly concluded, in order to constitute a conspiracy, the underlying conduct has to be illegitimate. In this case, no such conduct occurred.

The law firm hired a detective agency that did not find any wrongdoing by plaintiff and so reported to defendants. Plaintiff characterizes the Danbee investigation as part of an "omnibus effort" to find some wrongful conduct on his part such that he could be terminated. We do not consider the investigation itself, however, to be a wrong.

The conduct engaged in by Danbee was neither an invasion of privacy nor an intrusion into plaintiff's seclusion. Having dinner in a restaurant is a public activity, not a private one. That plaintiff was followed into the restaurant, and an investigative "report" was prepared about a meal he shared with a friend, is not itself a wrongful act. The observation or even photographing of another while he or she is out in public does not result in the imposition of liability. Figured v. Paralegal Technical Servs., Inc., 231 N.J. Super. 251, 256 (App. Div. 1989), appeal dismissed, 121 N.J. 666 (1990). Danbee Investigations had as much right to be present at the restaurant where plaintiff was dining as anyone else. Therefore, no wrong was committed.

Plaintiff also objects that Danbee was given his social security number in violation of the Identity Theft Prevention Act (ITPA), N.J.S.A. 56:11-44 to -52. This act was not in effect at the time of the investigation. Furthermore, plaintiff does not indicate any harm resulting from Danbee Investigations allegedly having been given his social security number. This conduct was not a wrongful act constituting the basis of an actionable civil conspiracy either.

As to defendants accessing his e-mail or voice mail, plaintiff signed multiple documents concerning the company's e-mail and internet policy to the effect that these tools were to be used solely for business purposes. The forms included a document in which plaintiff acknowledged that he had no expectation of privacy in connection with his use of company e-mail, internet, or voice mail. Thus defendants' review of plaintiff's e-mail or voice mail was not a wrongful act either. Without an underlying wrongful act, there cannot be a civil conspiracy. The trial judge properly dismissed that cause of action.

We next turn to whether the FCRA establishes an independent cause of action upon which plaintiff can be granted relief. N.J.S.A. 56:11-30 defines a "consumer report" as a written, oral or other communication by a "consumer reporting agency" bearing on an individual's "character, general reputation, personal characteristics or mode of living," which is used or expected to be used in establishing the consumer's eligibility for employment. A "consumer reporting agency" includes any person or entity that, for a fee, regularly engages in the practice of "assembling or evaluating consumer credit information . . . for the purpose of furnishing consumer reports to third parties." N.J.S.A. 56:11-30.

It is plaintiff's position that Danbee was a consumer reporting agency regularly providing information to third parties relating to employment. First, it is noteworthy that plaintiff did not file any complaints against Danbee Investigations. Second, plaintiff does not proffer any proof that Danbee indeed regularly engages in the preparation of consumer reports. The report created by Danbee in this case merely summarized plaintiff's activities on the specific night on which surveillance was conducted. Accordingly, this argument lacks merit.

Plaintiff also seeks punitive damages for the alleged violation of the FCRA. We do not agree that such relief is available. Punitive damages are warranted where a defendant's conduct was "wantonly reckless or malicious." Nappe v. Anschelewitz, Barr, Ansell & Bonello, 97 N.J. 37, 49 (1984). No intentional wrongdoing of that magnitude is alleged here. See ibid. A private investigator was retained to engage in an investigation, which resulted in no information useful to defendants. Having failed to establish that he suffered any harm from the purported breach of the FCRA, plaintiff would not be entitled to punitive damages. Accordingly, dismissal of the May 27, 2008 complaint was warranted as it did not state any cause of action upon which relief could be granted.

Affirmed.

 

Plaintiff attached to his reply brief a 2003 letter from the Director of the Division of Consumer Affairs on the issue of whether Danbee could be fairly characterized as a consumer reporting agency, and whether its investigative report was a consumer report. Defendants objected to consideration of the letter on appeal, as it was not submitted to the trial judge, and filed a motion to strike, which was granted on May 4, 2009, after oral argument.

(continued)

(continued)

18

A-2791-07T1

June 18, 2009