Selinger v GF Health Prods., Inc.

[*1] Selinger v GF Health Prods., Inc. 2009 NY Slip Op 50726(U) [23 Misc 3d 1113(A)] Decided on March 5, 2009 Supreme Court, New York County Bransten, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 5, 2009
Supreme Court, New York County

Irwin Selinger, Plaintiff,

against

GF Health Products, Inc. and Moses Marx, Defendants.



105828/08

Eileen Bransten, J.

Pursuant to CPLR 3211 (a) (1), (5), and (7), defendant Moses Marx ("Marx") moves to dismiss all claims asserted against him personally in this action and for sanctions pursuant to 22 NYCRR 130-1.1.

BACKGROUND

GF Health Products, Inc. ("GF Health") manufactures and distributes medical products. This action arises out of a written employment agreement dated May 1, 2003 ("Employment Agreement") by which defendant GF Health agreed to employ plaintiff Irwin Selinger ("Selinger"), as the company's president and chief executive officer for a period of three years, from May 1, 2003 to April 30, 2006, at an annual salary of $300,000 plus other benefits.

The complaint alleges that, at the time of execution of the Employment Agreement, defendant Marxthe majority shareholder, secretary and chairman of the board of GF Health and other board members were aware that Selinger had been indicted on October 30, 2002 on charges of securities fraud in the Eastern District of New York. He was tried by a jury in May 2004, and found guilty on June 4, 2004. Despite knowledge of his conviction, GF Health continued to employ Selinger as its chief executive officer. In fact, Marx testified as to his good character and wrote a letter on Selinger's behalf requesting leniency in sentencing. By order entered April 20, 2005, Selinger was sentenced to 18 months incarceration. Selinger contends that, during the pendency of the appeal of his conviction and sentence, the parties continued to operate under the Employment Agreement and did so even after the three-year term of the Employment Agreement ended on April 30, 2006 and even after his appeal was denied in August 2006.

On November 29, 2006, Selinger reported to federal prison in the State of Georgia to begin serving his sentence. According to Selinger, he suggested, and GF Health and Marx [*2]agreed, that for the duration of his incarceration, GF Health would defer payment of his salary, but that he would receive all of his salary upon release from prison and would then continue to be employed as the company's chief executive officer. During Selinger's imprisonmentbetween November 29, 2006 and November 20, 2007GF Health continued to pay his condominium-maintenance fees, car lease, health insurance, electric, telephone, facsimile, internet provider and cable bills. Selinger maintains that while he was in prison, GF Health executives, employees and board members treated him as an employee of the company, and routinely requested his advice on company business matters by letter, telephone and in person.

During Selinger's incarceration, Marx allegedly communicated with him regularly and "repeatedly guaranteed that [Selinger] was employed and would continue to be employed by GF Health after he was released" (Complaint at ¶ 25). Selinger alleges that, in reliance on these guarantees, he did not seek post-imprisonment employment.

On June 21, 2007, however, Marx sent Selinger a letter stating, allegedly for the first time, that he could not "allow [Selinger] to return to Graham Field as president or as an officer of any kind," and setting forth that "we both know that you have a lot more to contribute to the success of GFHP. Graham Field will employ you in a satellite office" (Complaint at ¶ 27). Marx allegedly visited Selinger in prison on July 4, 2007 and reiterated and reinforced that Selinger would continue to work for GF Health upon his release from prison and would be located in a satellite office. Another GF Health officer said the same thing in August 2007, and both Marx and the other officer told Selinger that he would continue to receive his salary and other compensation until the completion of his sentence on March 18, 2008, the date his home confinement ended.

Despite these alleged promises, GF Health refused to pay Selinger's deferred salary for the sixteen-month period of November 29, 2006 through March 18, 2008. Selinger claims that he is owed $400,000, in addition to the full value of the stock he received as part of his compensation under the Employment Agreement, which he values at not less than $250,000.

Selinger commenced this action on April 24, 2008 to recover money allegedly owed and punitive damages. His verified complaint asserts various causes of action against GF Health, including: breach of the Employment Agreement (first), breach of an oral second employment agreement from May 1, 2006 to March 18, 2008 (tenth), violation of Labor Law § 193 (third and twelfth), conversion of his GF Health stock (fourth), unjust enrichment (seventh), promissory estoppel (eighth and thirteenth) and fraud in the inducement (ninth). The Labor Law violations and claims for conversion, unjust enrichment, promissory estoppel and fraud are asserted against Marx, individually as well. Marx is also sued separately for breach of contract on an alter ego theory (second and eleventh), breach of a personal guaranty (fifth), and tortious interference with contractual relationship (sixth).

In support of his motion to dismiss the complaint, Marx contends that under well-established New York law, a corporate officer or board member cannot be held individually [*3]liable for the contracts, torts and statutory violations of a corporation. He moves to dismiss the fifth cause of action, which alleges that he personally guaranteed GF Health's continued payment of Selinger's salary and other benefits, as barred by the Statute of Frauds. Marx argues that all of the tort claims must be dismissed as duplicative of the contract claims, and that the causes of action for promissory estoppel and unjust enrichment fail to state a cause of action.

In support of his motion to dismiss, Marx contends that GF Health is a Delaware business corporation doing business in Atlanta, Georgia; that it is in good standing and fully capable of satisfying any judgment, and that it observes all corporate formalities and has a full board of directors who hold regular meetings. Marx submits a copy of the Employment Agreement, signed by him in his capacity as secretary of GF Health, and a copy of the minutes of an October 23, 2003 board-of-directors meeting during which the Employment Agreement was approved consistent with the company's bylaws.

Marx avers that the Employment Agreement expired on April 30, 2006, that it was never extended in writing, and that GF Health thereafter employed Selinger as an at-will employee until November 29, 2006 when he starting serving his prison sentence. He submits a signed acknowledgment of Selinger's receipt of the company's Employee Handbook, which provides that all employment at GF Health is "at-will," only the chief executive officer has the power to enter into an employment agreement, and such agreement is only valid if it is in writing and approved by the board or directors. He contends that, at a duly authorized meeting of the board of directors held on May 21, 2007, the board resolved that it would not be in the best interests of the company for Selinger to return as president or an officer, which is affirmative documentary proof that the board of directors voted not to extend or modify the terms of the Employment Agreement. He contends that Selinger misconstrues his June 21, 2007 letter by only quoting from one portion, and that the letter made clear that Selinger could not, for business reasons, return to GF Health as president or as an officer of any kind. Finally, Marx relies on a redacted e-mail dated November 15, 2006, by which he claims that Selinger admitted that November 22, 2006 would be his last day of work.[FN1]

ANALYSIS

The second and eleventh causes of action, which purport to hold Marx personally liable for GF Health's breach of either the written Employment Agreement or the alleged oral second employment agreement must be dismissed. An owner or shareholder of a corporation cannot be held personally liable for the contractual breaches of the corporation. "[T]he avoidance of personal liability for obligations incurred by a business enterprise is one of the fundamental purposes of doing business in the corporate form" (Billy v Consolidated Mach. Tool Corp., 51 NY2d 152, 163 [1980], rearg denied 52 NY2d 829 [1980]; see also Morris v New York State Dept. of Taxation and Fin., 82 NY2d 135, 140 [1993]). [*4]

The complaint, moreover, fails to allege a sufficient basis for piercing GF Health's corporate veil, as it does not allege that Marx, through his domination of GF Health, misused the corporate form for his personal ends so as to commit a fraud or wrongdoing or avoid any of its obligations (TNS Holdings, Inc. v MKI Sec. Corp., 92 NY2d 335, 340 [1998]). A "determinative factor" of whether an alter ego theory should apply to disregard the corporate form is whether the individual used the corporation as a "dummy" to carry on business "for purely personal rather than corporate ends" (Port Chester Elec. Const. Co. v Atlas, 40 NY2d 652, 657 [1976]). Mere domination by Marx, which is all that is alleged (see Complaint at ¶¶ 39, 60, 78), without any failure to observe corporate formalities, inequity, fraud or malfeasance, is insufficient to pierce the corporate veil (TNS Holdings, 92 NY2d at 339; Andejo Corp. v South St. Seaport Ltd. Partnership, 40 AD3d 407 [1st Dept 2007]; Albstein v Elany Contracting Corp., 30 AD3d 210 [1st Dept 2006], lv denied 7 NY3d 712 [2006]).

There is also no basis for asserting claims against a corporate officer or director for the corporation's alleged violations of Article 6 of the Labor Law (Patrowich v Chemical Bank, 63 NY2d 541, 543 [1984]; Stognovic v Dinolfo, 61 NY2d 812, 813 [1984]; Andux v Woodbury Auto Park, Inc., 30 AD3d 362 [2d Dept 2006]; Renzler v D.F. White, Inc., 267 AD2d 443, 444 [2d Dept 1999]). Thus, the third and twelfth causes of action are dismissed as against Marx.

The fifth cause of action is based on an alleged personal guaranty by Marx that Selinger's employment would continue during and after plaintiff's incarceration and that all sums of monies due and owing to plaintiff would be paid. Even assuming that this allegation could be construed as a promise by Marx that he would personally pay such sums of money if GF Health failed to do so, this claim is barred by the Statute of Frauds, which requires a writing for an oral agreement "to answer for the debt, default or miscarriage of another person" (GOL § 5-701 [a] [1]). To the extent that Selinger relies either on his own e-mail dated November 15, 2006 or Marx's June 21, 2007 letter, neither document satisfies the Statute of Frauds (De Rosis v Kaufman, 219 AD2d 376, 379 [1st Dept 1996] [writing must designate the parties, identify and describe subject matter and state all essential or material terms of agreement]).

With respect to the fourth cause of action for conversion of GF Health's stock, Marx contends that Selinger's GF Health stock was never converted and that he is still the record owner of the stock, submitting a letter dated June 16, 2008 from American Stock Transfer & Trust Company, stating that Selinger is the record owner of 160,000 shares of the company by Certificate No. 1025 issued on July 28, 2004, and copy of GF Health's answer to the complaint by which the company admits that plaintiff is a shareholder holding 160,000 shares of voting stock. Selinger responds that this is not what he was told by Marx in a letter dated July 12, 2007, but that he is willing to withdraw the claim provided GF Health certifies and delivers the shares to him. This claim is, therefore, dismissed against both defendants without prejudice to being reinstated in the event the shares are not turned over to Selinger forthwith. [*5]

Selinger also has no claim against Marx for unjust enrichment. To set forth a claim for unjust enrichment, a plaintiff must allege that he performed services for the defendant (Kagan v K-Tel Entertainment, Inc., 172 AD2d 375, 376 [1st Dept 1991]). Here, Selinger worked for GF Health, not Marx. As noted above, plaintiff fails to alleges sufficient allegations to disregard GF Health's corporate form.

Selinger's eighth and thirteenth claims, alleging promissory estoppel, are also dismissed. The complaint alleges that "GF Health and Marx made clear and unambiguous promises to employ Selinger through March 18, 2008" (Complaint at ¶¶ 66, 88). In opposition to this motion, Selinger argues that the basis of his promissory estoppel claim is Marx's June 21, 2007 letter stating that GF Health would employ Selinger in a satellite office (Pls. Mem. in Opp at 19).

There is a fundamental problem with Selinger's argument. Marx's June 21, 2007 letter talks about the plaintiff's "return" to GF Health and only promises some type of post-incarceration employment, and is not a clear and unambiguous promise for continued employment of the plaintiff through March 18, 2008 or, more particularly, a promise that he would be paid a salary during the time he was incarcerated, which is what he seeks to recover in this lawsuit (New York City Health and Hospitals Corp. v St. Barnabas Hosp., 10 AD3d 489, 491 [1st Dept 2004] [promise must be clear and unambiguous]). In addition, while plaintiff claims that he was injured by his reliance on Marx's June 21, 2007 letter in not seeking post-incarceration employment, this lawsuit is not about any failure to provide post-incarceration employment and, even if it was, plaintiff fails to allege what, if any, job prospects might have been available to him in June of 2007 while he was in prison.

Selinger's fraud-in-the-inducement claim is also barred as matter of law. When a plaintiff suing for breach of contract also alleges that a fraud was committed because the defendant harbored an undisclosed intention from the outset to never comply with an alleged agreement, the fraud claim is subject to dismissal as merely duplicative of the breach of contract causes of action (Clark Const. Corp. v BLF Realty Holding Co., 28 AD3d 367, 368-69 [1st Dept], lv denied 7 NY3d 717 [2006]; Coppola v Applied Electric Corp., 288 AD2d 41, 42 [1st Dept 2001]; Modell's NY Inc. v Noodle Kidoodle, Inc., 242 AD2d 248, 249-50 [1st Dept 1997]; Chase v United Hosp., 60 AD2d 558, 559 [1st Dept 1977]).

The sixth cause of action alleges that Marx used his control, power, and dominion over GF Health and its board of directors to cause the company to breach Selinger's "contract of employment" (Complaint at ¶ 60). The Employment Agreement expired by its terms on April 30, 2006. GF Health's board of directors never extended or entered into a further written agreement to employ Selinger. Therefore, after April 30, 2006, Selinger's employment was "at-will" (Goldman v White Plains Ctr. For Nursing Care, LLC, 43 AD3d 251, 253 [1st Dept 2007], affd 11 NY3d 173 [2008]) and could only support a claim for tortious interference with prospective business relations (Perry v Collegis, Inc., 55 AD3d 459, 460 [1st Dept 2008]; Snyder v Sony Music Entertainment, Inc., 252 AD2d 294, 299 [1st Dept 1999] ). To the extent that his claim can be construed as seeking recovery for tortious [*6]interference with prospective business relations, it must be dismissed because Selinger fails to allege that Marx acted for the sole purpose of harming him or that Marx used "wrongful means," such as "physical violence, fraud, misrepresentation, civil suits, criminal prosecutions and some degree of economic pressure" (Snyder v Sony Music Entertainment, Inc., 252 AD2d at 30).

Marx's motion for costs and/or sanctions is denied. On the issue of plaintiff's stock ownership, the conversion claim was justified based on the content of Marx's July 12, 2007 letter in which he states: "I think that it was our understanding that if you were incarcerated, [your stock] would revert to the company, and this is what I intend to do at ths [sic] time" (Selinger Aff., Exh. E). Counsel for all parties should have cleared up any misunderstanding about this issue if they, as claimed, engaged in any good faith negotiations to settle this dispute prior to litigation.Accordingly, it is

ORDERED that the motion (seq. no. 001) to dismiss the complaint as against

defendant Moses Marx is granted, and the complaint is dismissed in its entirety as to this defendant; and it is further

ORDERED that the fourth cause of action is dismissed without prejudice; and it is further

ORDERED that defendant Moses Marx's motion for sanctions and/or costs pursuant to 22 NYCRR 130.1-1 is denied.

This constitutes the Decision and Order of the Court.

Dated: March __, 2009

New York, NY

ENTER:

Hon. Eileen Bransten Footnotes

Footnote 1:The email actually states: "[a]ssuming that Nov. 22 will be my last day of work for approx. one year, the following should take place" (Marx Aff., Exh. H).