Naccarato v Commercial Capital Corp.

[*1] Naccarato v Commercial Capital Corp. 2008 NY Slip Op 50613(U) [19 Misc 3d 1109(A)] Decided on March 13, 2008 Supreme Court, New York County Tolub, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on March 13, 2008
Supreme Court, New York County

Maria Naccarato, Plaintiff,

against

Commercial Capital Corporation, and Newtek Small Business Finance, Inc., Defendants.



106031/03

Walter Tolub, J.

Plaintiff and defendant move and cross-move for summary judgement in this action, which arises out of plaintiff's claim that she was fraudulently induced to leave her job with her previous employer for a position with defendant Commercial Capital Corporation ("Commercial Capital").

Party and Non-Party Background

Defendant Commercial Capital is a non-bank lender specializing in offering loans to small businesses under license from the federal Small Business Administration (SBA). In 2001, Commercial Capital was seeking to hire a Chief Financial Officer (CFO). Plaintiff, who was then the Controller at nonparty General Electric Capital Market Services (a financial services company) ("GE Capital Market"), was recruited by nonparty recruiting firm Russell Reynolds ("the recruiter") to apply for this position .

Plaintiff claims that when she was interviewed by Commercial Capital, she was told that Conning Capital Partners ("Conning Capital"), a non-party to this action, had recently invested six million dollars ($6,000,000) with Commercial Capital. This representation, according to plaintiff, was critical to her decision to ultimately leave her position at GE Capital Markets.

In mid-February of 2001, plaintiff and Commercial Capital entered into an employment agreement ("the employment agreement" or "the agreement"), under which she became Commercial Capital's new Senior Vice President and Chief Financial Officer as of March 15, 2001. Among other things, the terms of the agreement provided that in the event that plaintiff was terminated without cause, she would receive a lump sum payment equal to six months of her base salary. Additionally, the agreement provided that plaintiff would be eligible to receive stock options in Commercial Capital at the close of the "current financing transaction" (see, Order to Show Cause, Exhibit A, Complaint ¶ 10; Exhibit B).

In June of 2001, plaintiff learned the purported six million dollar investment by Conning Capital had not taken place, and would not take place in the future. Plaintiff claims that the cancellation of the investment was "traumatic" for Commercial Capital, which let go over half of its staff, and began looking for other investors and/or purchasers (Naccarato Affidavit, ¶ 9). In fact, following the failed Conning Capital investment, non-party Comcap, the parent company of [*2]Commercial Capital, began financing negotiations with Newtek Capital, Inc. ("Newtek Capital"). The negotiations culminated at the end of December 2002 in a merger between Commercial Capital, Comcap, and Newtek, which later became known as Newtek Business Services, Inc., ("Newtek").[FN1] Roughly one month prior to the completion of the merger, defendants terminated plaintiff from her position with Commercial Capital.

Plaintiff commenced this action in July of 2003, asserting one cause of action sounding in breach of contract (the first cause of action), and one cause of action alleging fraudulent inducement (second cause of action). Under the breach of contract claim, plaintiff claims that she was denied $90,000 in severance pay and $473,000 in stock options she claims was owed under the terms of the employment agreement. Plaintiff additionally claims that she is entitled to over $240,000 in damages for fraudulent inducement. Defendants, in opposition, claim that plaintiff is not entitled to severance pay because she was terminated "for cause", and further argue that plaintiff's conduct damaged the company in excess of $850,000 (see, Order to Show Cause, ¶ 9; Amended Answer and Counterclaims,[FN2] Order to Show Cause Exhibit D). By this motion, defendants move for summary judgment and dismissal of plaintiff's complaint. Plaintiff cross-moves for summary judgment on her claim for severance pay under the employment agreement, and for dismissal of the counterclaims asserted against her.

Discussion

As with any motion for summary judgment, the role of this court is limited to finding factual issues which would warrant trial (see, Sillman v. Twentieth Century Fox Film Corp., 3 NY2d 395 [1957]; Winegrad v. New York University Medical Center, 64 NY2d 851, 853 [1985]. See also, Barr, Altman, Lipshie and Gerstman, New York Civil Practice Before Trial, §37:91-92 [James Publishing 2007]). Success on either motion therefore rises or falls on whether the opposing party presents evidentiary proof, in admissible form, that is sufficient to establish the existence of material fact requiring trial. (Zuckerman v City of New York, 49 NY2d 557 [1980]).

The vast majority of the allegations advanced by the parties in this action ultimately turns on the interpretation of the language of the employment agreement, and more specifically, the provisions which govern the issues of stock options, severance pay, and the definition of "cause".

With respect to the issuance of stock options, the employment agreement reads as follows:

[*3]You will receive an option for 20,400 shares representing 2% of the fully diluted shares of Commercial Capital Corporation, including unissued options, at the close of the current financing transaction. The option would have a strike price of $.01 per share, and would vest immediately. If you subsequently resign or if you are terminated without cause, the option will expire 90 days from your date of termination.

(Order to Show Cause, Exhibit B).

With respect to the issue of severance pay, the employment agreement reads as follows:

If your employment is terminated by the Company without cause (as defined below) you will be eligible for a lump sum payment equal to 6 months of your base salary, provided you sign a general release agreement prepared by the Company. This will be in lieu of any other severance, which may be available through any other plan or program of the Company.

(Id.). Lastly, with respect to "Cause" the employment agreement states:

For purposes of this letter, "Cause" shall mean: (1) the commission of an act of fraud or dishonesty in the course of your employment; (2) conviction of (or a plea of no contest with respect to) a crime constituting a felony; (3) conviction of (or a plea of no contest with respect to) a crime involving any act of fraud, dishonesty or moral turpitude which the Company determines is actually or potentially injurious to the company or its affiliates; (4) failure to perform the duties assigned to you which the Company views as being material to the business of the Company under circumstances in which you knew that such failure would be detrimental to the company, unless you remedy such failure no later than 30 days following delivery to you of a written notice from the Company describing such failure; or (5) your material breach of any written policy applicable to employees of the company.

(Id.).

The fundamental precept of contract interpretation is that agreements are construed in accord with the parties' intent at the time they entered into the agreement (Evans v Famous Music Corp., 1 NY3d 452, 458 [2004]). Ideally, the "best evidence of what parties to a written agreement intend is what they say in their writing" (Slamow v Del Col, 79 NY2d 1016, 1018 [1992]), and, generally, evidence outside of the four corners of the written instrument to contradict or vary the terms is inadmissible to add to or vary the writing (W.W.W. Assoc. v Giancontieri, 77 NY2d 157, 162 [1990]). The rule however, does not apply when extrinsic evidence is needed "to clarify an ambiguity caused by the absence of particulars from the writing, provided that the parol evidence to be introduced does not contradict the written agreement" (Stage Club Corp. v West Realty Co., 212 AD2d 458, 459 [1st Dept 1995]).

If construing a contract requires resort to extrinsic evidence, in general, such evidence must be weighed by the fact finder and cannot be weighed by the court on a motion for summary judgment (see Ruttenberg v Davidge Data Sys. Corp., 215 AD2d 191, 192 [1st Dept 1995]). However, when a court is convinced that the interpretation of a contract, as offered by the moving party, "is the only one which can fairly and reasonably be attributed to the document", summary judgment may be warranted based on the construction of that contract (see, Wing Ming Properties [U.S.A.] Ltd. v Mott Operating Corp., 148 Misc 2d 680, 684 [Sup Ct, NY County 1990], affd 172 AD2d 301 [1st Dept 1991], affd 79 NY2d 1021 [1992]; see also Bensons Plaza v [*4]Great Atl. and Pac. Tea Co., 44 NY2d 791, 792 [1978]; Mallad Constr. Corp. v County Fed. Sav. & Loan Assn. 32 NY2d 285, 293 [1973]; Evans 1 NY3d at 454, 460 ).

The Stock Options

In support of their claim that plaintiff is not entitled to stock options under the employment agreement, Commerce Capital urges that contrary to plaintiff's claims, plaintiff was only entitled to receive stock options if, and only if, Conning Capital's investment closed. By contrast, plaintiff claims that she was to entitled to receive the stock options pursuant to any investment in which Commercial Capital might become involved, and even if there were no investments at all.

As a preliminary matter, the court notes that with respect to the issue of entitlement to stock options, plaintiff's moving affidavit does not allege that the defendants contemplated any other financing party at the time that the employment agreement was made. In fact, most of plaintiff's allegations about the "current financing transaction" appear only in her memorandum of law, which is signed by her attorney. Those allegations therefore do not constitute firsthand knowledge of the facts, lack probative value and do not constitute evidentiary proof in admissible form, as required to defeat a motion for summary judgment (Simpson v Term Indus., Inc., 126 AD2d 484, 485 [1st Dept 1987]; Wehringer v Helmsley-Spear, Inc., 91 AD2d 585, 585 [1st Dept 1982], affd 59 NY2d 688 [1983]). Moreover, plaintiff cannot create questions of fact to avoid summary judgment by contradicting her own deposition testimony through conclusory and non-probative statements made in opposition to the motion (Joe v Orbit Indus., 269 AD2d 121, 122 [1st Dept 2000]; Kistoo v City of New York, 195 AD2d 403, 404 [1st Dept 1993]; see also Branham v Loews Orpheum Cinemas, Inc., 31 AD3d 319, 322-323 [1st Dept 2006], affd 8 NY3d 931 [2007]).

However, even if plaintiff's statements were admissible, her claim of entitlement to stock options under the employment agreement still fails. A plain reading of the relevant portion of the employment agreement clearly expresses that plaintiff "will receive" stock options at the "close of the current financial transaction" (Order to Show Cause, Exhibit B). That "current financial transaction", as referenced by both plaintiff's complaint (id.) [FN3] and deposition testimony (id., Exhibit F at 161-162), is the failed Conning Capital transaction . Ultimately, when read with defendant's moving affidavit of Charles Freeman (Order to Show Cause, Exhibit B, Affidavit of Charles Freeman,[FN4] ¶ ¶ 3 -5), the extrinsic evidence offered by Commercial Capital offers the only interpretation which can fairly and reasonably be attributed to the document: plaintiff could [*5]only receive stock options based on the closing of the financial transaction with Conning Capital.

Plaintiff's argument that the parties had orally modified her employment agreement after the Conning Capital investment fell through does not change this outcome. To prove an oral modification of a written agreement requires plaintiff to show all the elements of contract formation, including mutual assent (Beacon Terminal Corp. v Chemprene, Inc., 75 AD2d 350, 354 [2d Dept 1980]). A subsequent oral modification of a written agreement, to be enforceable, must be executed rather than executory and must be supported by consideration (Mattlage Sales v Howard Johnson's Wholesale Div.,39 AD2d 958, 958 [2d Dept 1972]; see also Tierney v Capricorn Investors, L.P., 189 AD2d 629, 631 [1st Dept 1993]). If the contract is still executory, it is enforceable only if the parties' conduct is "unequivocally referable to the oral modification," that is, not compatible with the written agreement (Rose v Spa Realty Assoc., 42 NY2d 338, 343 [1977]; see also Taylor v Blaylock & Partners, L.P., 240 AD2d 289, 290 [1st Dept 1997]).

Plaintiff's allegations simply do not show an oral modification or a new oral agreement. The record here does not manifest the required mutual assent to a change in terms or new terms, consideration, or conduct referable to the alleged oral modification. Therefore, plaintiff has no claim for stock options under the parties' written agreement or otherwise, and summary judgment in favor of defendants and dismissal of this claim is warranted.

Severance Pay

Whether or not plaintiff's is entitled to severance pay turns on whether Commercial Capital terminated plaintiff's job "for cause" as defined by the employment agreement (supra). Generally, where parties agree on a termination procedure, the clause must be enforced as written (A.S. Rampell, Inc. v Hyster Co., 3 NY2d 369, 382 [1957]; J. Petrocelli Constr., Inc. v Realm Elec. Contr., Inc., 15 AD3d 444, 446 [2d Dept 2005]). In the instant action, the employment agreement sets forth five categories under which plaintiff could be terminated from the company "for cause". Four of these categories require no notice from the company prior to termination. The fifth category, however, not only provides for notice, but also provides plaintiff with an opportunity to cure.

The distinction is important to this action. Plaintiff was not given any notice prior to her termination from defendants' employ. If Commercial Capital fired plaintiff under the section of the employment agreement which required notice and opportunity to cure, it was bound to give such notice to plaintiff. The failure to give such notice would automatically entitle plaintiff to summary judgment on liability on the portion of her cause of action alleging breach of the employment contract, even if the termination was for cause (see Kalus v Prime Care Physicians, P.C., 20 AD3d 452, 454 [2d Dept 2005]; Hanson v Capital Dist. Sports, 218 AD2d 909, 911 [3d Dept 1995]; Absolute Direction, Inc. v Anderson, 201 AD2d 256, 256 [1st Dept 1994]). The question therefore becomes whether Commercial Capital fired plaintiff under this provision, and if they did, was notice unnecessary because, as claimed by defendant, plaintiff's actions and inactions prior to her termination from the company had made it clear that she would not have performed, thereby rendering any attempts at notice futile (see, J. Petrocelli Constr., Inc., 15 AD3d at 446; Special Situations Fund III, L.P. v Versus Tech., 227 AD2d 321, 321 [1st Dept 1996]). As there exists at least two questions of fact for this court to consider on the issue of whether plaintiff is entitled to severance pay, the portion of both defendants' motion and [*6]plaintiff's cross-motion for summary judgment as they pertain to plaintiff's claims of entitlement to severance pay, must be, and are, denied.

Plaintiff's Fraud Allegations

The remaining issue, is whether dismissal of plaintiff's second cause of action, sounding in fraudulent inducement, is warranted. Plaintiff's fraudulent inducement claim is predicated upon the allegation that Commercial Capital represented to plaintiff, while she was considering taking the CFO position, that Conning Capital's investment in the company had been completed (Complaint ¶ 8; Naccarato Affidavit, ¶ 7) . Plaintiff further claims that a written job description which had been e-mailed to plaintiff, prepared by the job recruiter and "signed off on by Commercial Capital and Conning Capital" misrepresented the status of the financial transaction (Notice of Cross Motion, Exhibit. B). Plaintiff claims that the representation that the transaction had been completed, to her, signified that Commercial Capital was a strong financial entity, and without that representation, she would not have accepted Commercial Capital's job offer. Commercial Capital denies making any misrepresentations with respect to the financial transaction involving Conning Capital.

The parol evidence rule does not bar evidence showing that a contract was fraudulently induced (Sabo v Delman, 3 NY2d 155, 161 [1957]), provided that the evidence meets certain standards. The misrepresentation alleged to have induced the plaintiff into entering the agreement must be collateral to the agreement (WIT Holding Corp. v Klein, 282 AD2d 527, 528 [2d Dept 2001]) and it must not be inconsistent with the agreement (Coutts Bank [Switzerland] Ltd. v Anatian, 261 AD2d 307, 307 [1st Dept 1999]; Societe Nationale D'Exploitation Industrielle des Tabacs et Allumettes v Salomon Bros. Intl., 249 AD2d 232, 233 [1st Dept 1998]; Thomason's Nathan's Assoc. v Hajek, 169 AD2d 568, 568 [1st Dept 1991]). Fraud may be based upon written, as well as oral representations (see J.A.O. Acquisition Corp. v Stavitsky, 192 Misc 2d 7, 8-10 [Sup Ct, NY County 2001], affd 293 AD2d 323 [1st Dept 2002]). If the contract contains a clause specifically disclaiming reliance upon outside representations, parol evidence is not admissible to prove fraud (O & M Gourmet Foods v Marino's 184 Foods, 225 AD2d 340, 340 [1st Dept 1996]; Mahn Real Estate Corp. v Shapolsky, 178 AD2d 383, 385 [1st Dept 1991]).

In the instant action, plaintiff claims that when she was being considered for the CFO position with the company, Commercial Capital represented that the Conning Capital investment had already taken place. The employment agreement, however, includes language which suggests that the investment, was one that was to be completed in the future. Any misrepresentations are therefore not collateral to the agreement inasmuch as they address the same subject, but are inconsistent with the agreement. To be sure, plaintiff entered into a contract containing provisions that materially differed from the representations previously or contemporaneously made to her. This alone invalidates her claim of reasonable reliance on the misrepresentations (see Prestige Foods, Inc. v Whale Sec. Co., 243 AD2d 281, 282 [1st Dept 1997]). Assuming the truth of plaintiff's representations, she has no claim for fraud, as such, the second cause of action must be, and is dismissed.

The court has considered the balance of plaintiff's cross-motion which seeks dismissal of the counterclaims asserted by defendants against plaintiff. Inasmuch as all of the counterclaims hinge on issues of fact concerning plaintiff's alleged job performance and/or non-performance, [*7]the balance of plaintiff's cross-motion is denied. As such, it is

ORDERED that defendant's motion for summary judgment and dismissal of plaintiff's complaint is granted only as to the portion of the first cause of action claiming entitlement to stock options under the employment agreement, which is hereby dismissed, and the second cause of action for fraudulent inducement, which is also dismissed; and it is further

ORDERED that the balance of defendant's motion for summary judgment is denied; and it is further

ORDERED that plaintiff's cross-motion for summary judgment is denied in entirety.

Counsel for the parties are directed to appear for a Pre-Trial Conference in IA Part 15, Room 335, 60 Centre Street New York, New York, at 11:00 a.m. on May 2, 2008 at which time this matter will be set down for trial.

This constitutes the decision and order of the court.

Dated:___________________

ENTER:

_________________________

J.S.C. Footnotes

Footnote 1: It appears that at some point after the merger, although this court is uncertain as to when, Newtek became known as Newtek Small Business Finance ("Newtek SBF"). For simplicity, this defendant shall be simply be referred to as "Newtek" in this decision.

Footnote 2: Defendants have asserted four counterclaims against plaintiff seeking (1) a declaratory judgment finding that plaintiff was terminated by Commercial Capital "for cause"; (2) monetary damages and punitive damages (second and third counterclaims); and (3) in the event that Commercial Capital is deemed liable to plaintiff for damages, a declaratory judgment finding that plaintiff's conduct injured Commercial Capital, and an order allowing Commercial Capital to offset any of its liability by deducting the damages attributed to plaintiff's conduct (Order to Show Cause Exhibit D).

Footnote 3: The complaint, as admitted, constitutes a formal judicial admission (see, Bogoni v Friedlander,197 AD2d 281, 291-292 [1st Dept 1994]; see also, Aronitz v PricewaterhouseCoopers LLP, 27 AD3d 393, 394 [1st Dept 2006]).

Footnote 4: Mr. Freeman's affidavit states, among other things, that Conning Capital first began investing in Commercial Capital in 1999. In 2000, after a lackluster financial year in which Conning Capital invested $12.5 million dollars in Commercial Capital, Conning Capital suggested the hiring of a Chief Financial Officer and a Chief Credit Officer, and additionally agreed to invest an additional $6 million dollars in Commercial Capital (Affidavit of Charles Freeman, ¶¶ 3-5).