American Capital Access Serv. Corp. v Muessel

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[*1] American Capital Access Serv. Corp. v Muessel 2005 NY Slip Op 52287(U) [11 Misc 3d 1066(A)] Decided on October 18, 2005 Supreme Court, New York County Lowe, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 October 18, 2005
Supreme Court, New York County

American Capital Access Service Corporation, AMERICAN CAPITAL ACCESS HOLDINGS, LIMITED and ACA FINANCIAL GUARANTY CORPORATION, Plaintiffs,

against

Maryam Muessel, Defendant.



602706/04

Richard B. Lowe, J.

Plaintiffs American Capital Access Service Corporation, American Capital Access Holdings, Limited, and ACA Financial Guaranty Corporation (collectively ACA) bring this declaratory judgment action, pursuant to CPLR 3017 (b), against defendant Maryam Muessel (Muessel), a former officer and employee, to determine whether, as a result of terminating Muessel without cause on April 29, 2004, Muessel is entitled to severance and other benefits pursuant to an employment agreement executed on or about February 11, 2004, with an effective date of May 1, 2004 (2004 Agreement), or under a previous employment agreement executed on May 1, 2001, and effective as of May 1, 2001 through April 30, 2004 (2001 Agreement).

In its complaint, ACA asserts a single cause of action for a declaration that the 2004 Agreement never came into effect, it had no obligation to employ Muessel on May 1, 2004, and Muessel cannot make any claims for severance under the 2004 Agreement. ACA alleges that it paid all the severance due to Muessel pursuant the 2001 Agreement. In her answer, Muessel alleges that, since its execution, the 2004 Agreement has been a valid and binding obligation of ACA, enforceable against ACA in accordance with its terms. Muessel asserts counterclaims for: (1) breach and repudiation of the 2004 Agreement, seeking severance under the 2004 Agreement of approximately $4,200,000.00 (as offset by any payments made under the 2001 Agreement); (2) reasonable costs and expenses, including attorney's fees; and (3) a declaration, pursuant to CPLR 3017 (b), that her termination did not accelerate the maturity date of a promissory note, dated June 29, 2002, payable to ACA in the amount of $1,000,000.00 (the Note).

In motion sequence number 003, Muessel moves, pursuant to CPLR 3212, for summary judgment: (1) dismissing the complaint; and (2) either granting her counterclaims in their entirety, or granting her first and third counterclaims, and the liability portion of her second counterclaim, and, pursuant to CPLR 3212 (e), severing and ordering an expedited hearing for the damages portion of her second counterclaim. In motion sequence number 004, ACA moves, pursuant to CPLR 3212 (b), for summary judgment, dismissing Muessel's first counterclaim. The above motions are consolidated for disposition.

BACKGROUND

[*2]ACA consists of three corporations organized under Delaware, Bermuda, and

Maryland law, and has a principal place of business in New York, New York. ACA provides insurance on municipal bonds, and participates as an asset manager and investor in the market for collateralized debt obligations (CDOs). Muessel, a New York resident, formerly served as ACA's Chief Operating Officer (COO) and head of ACA's structured finance business.

The 2001 Agreement

On May 1, 2001, ACA and Muessel executed the 2001 Agreement. See Neal S. Barlia Affirmation in Support (Barlia Affirmation), Ex. E. The 2001 Agreement, effective from May 1, 2001 through April 30, 2004, provided Muessel with an annual base salary of $400,000.00.

Section 9 (d) of the 2001 Agreement provides that, in the event that ACA terminates Muessel "without cause," or engages in "constructive termination," Muessel is entitled to: (i) payment of her base salary through the date of her termination; (ii) a lump-sum "Pro-Rata Annual Incentive Award for the year in which [Muessel] was terminated"; (iii) a lump-sum severance payment equal to the greater of either the sum of her annual base salary and her target annual incentive award, or the excess of the amount of her base salary and minimum annual incentive award payable over her pro-rata annual incentive award for the year in which she is terminated; (iv) immediate vesting of her ACA stock options; (v) continued participation in medical, dental, hospitalization and life insurance coverages and welfare benefit plans for one year from her termination date, or the date Muessel receives equivalent coverage from another employer; and (vi) a lump-sum payment of all accrued but unused vacation days.

Section 15 of the 2001 Agreement provides that any claim arising out of the agreement shall be resolved by arbitration, and that ACA "shall promptly pay all reasonable costs and expenses, including without limitation attorneys' fees," incurred by Muessel in resolving any such claim, except those claims determined to have been brought in bad faith.

Muessel alleges that, through her leadership and hard work, she transformed ACA from a struggling financial guaranty insurance provider to a company with a highly profitable business line in the area of CDOs. In 2003, several investment banks began courting ACA for an Initial Public Offering (IPO). At the same time, ratings agencies started pressuring ACA to raise additional capital to protect its "A" rating, and provide a margin of safety to its policy holders. The ratings agencies gave ACA until the first or second quarter of 2004 to raise additional capital, otherwise, it warned that ACA's "A" rating may be at risk. ACA planned on raising the additional capital through an IPO.

Muessel claims that the IPO underwriters required ACA to secure employment agreements with key personnel, including herself, before allowing ACA to file a Form S-1 in preparation for the IPO. The rating agencies pressured ACA to file a Form S-1 by February 13, 2004. Muessel alleges that the parties negotiated for several months in an effort to secure her employment for three more years, and that she was not represented by counsel during these negotiations.

The 2004 Agreement

On or about February 11, 2004, the parties executed and entered into the 2004 Agreement. See Barlia Affirmation, Ex. D. The preamble of the 2004 Agreement expressly contains an "Effective Date" of May 1, 2004. Section 2 provides that: The Company agrees to employ the Executive under this Agreement, and the [*3]Executive accepts such employment, for the Term of Employment. The Term of Employment shall commence on the Effective Date and shall end on the third anniversary thereof. . . . Notwithstanding the foregoing, the Term of Employment may be earlier terminated, but only in strict accordance with the provisions of Section 8.

Section 4 provides that, "[c]ommencing as of the Effective Date," Muessel shall receive an annual base salary of $600,000.00.

Section 8 (d) of the 2004 Agreement provides that, in the event of ACA's termination of Muessel "without cause," or her "constructive termination," Muessel is entitled to: (i) payment of her base salary through the date of her termination; (ii) a lump-sum "Pro-Rata Annual Incentive Award for the year in which [Muessel] was terminated"; (iii) a lump-sum severance payment equal to the greater of either 120% of one year of Muessel's annual base salary as of the termination date, or Muessel's base salary and annual incentive award for the remaining term of the 2004 Agreement; (iv) immediate vesting of ACA stock options; (v) payment of COBRA premiums, life insurance coverage and welfare benefit plans for one year from her termination date, or the date Muessel receives equivalent coverage from another employer; and (vi) a lump-sum payment for all accrued but unused vacation days.

In section 12 (a) of the 2004 Agreement, ACA represents and warrants that "upon the execution and delivery" of the 2004 Agreement, it shall be a "valid and binding obligation" of ACA, "enforceable against [ACA] in accordance with its terms."

Section 14 of the 2004 Agreement provides that, except for covenant not to compete and confidentiality claims, any claim arising out of the 2004 Agreement shall be resolved by arbitration, and ACA "shall promptly pay all reasonable costs and expenses," including attorneys' fees incurred by Muessel in resolving such claims, except those claims determined to have been brought in bad faith.

Section 17 of the 2004 Agreement states that, at the same time the IPO closes, "even if such closing occurs prior to the Effective Date," ACA shall grant Muessel options to purchase 0.4% of the fully diluted common shares of ACA outstanding. No such closing took place.

Section 18 (a) of the 2004 Agreement provides that: This Agreement contains the entire understanding and agreement between the Parties concerning the subject matter hereof and, as of the Effective Date, supercedes all prior agreements . . ., whether written or oral, between the Parties with respect thereto, including, but not limited to, the Employment Agreement, dated May 1, 2001 between [Muessel] and [ACA] and all predecessor agreements.

Barlia Affirmation, Ex. D.

The Note

As mentioned above, Muessel executed a Note on June 29, 2001, promising to pay ACA the principal amount of $1,000,000.00 for the purchase of 17,577.5 shares of common stock. See Barlia Affirmation, Ex. F. Section 1 (c) of the Note states, in pertinent part, that: On each Annual Payment Date [February 28 of each year beginning with 2004] Muessel shall pay to Payee an amount equal to the lesser of (i) the outstanding [*4]principal balance of this Note and all unpaid accrued interest thereon and (ii) the Bonus Payment Amount. The "Bonus Payment Amount" shall, in respect of each Annual Payment Date, be equal to twenty-five percent (25%) of the annual incentive award paid to Muessel on or before such Annual Payment Date for the year ended prior to such date.

The Note fails to define the term "annual incentive award."

Muessel's Termination

Before completing its planned IPO, ACA decided to replace its Chief Executive Officer, Michael Satz (Satz). The leading candidate for Satz's position indicated that he did not want a COO. ACA noted that the 2001 and 2004 Agreements permitted Muessel to declare a "constructive termination," if ACA terminated Satz without her consent, or removed her COO title. After negotiations between the parties proved to be fruitless, ACA terminated Muessel without cause on April 29, 2004. Neither the 2001 Agreement, nor the 2004 Agreement, expressly require ACA to provide written notice to Muessel before terminating without cause.

On June 8, 2004, ACA sent payments to Muessel, pursuant to section 9 (d) of the 2001 Agreement, for unused vacation days in the gross amount of $14,814.81, a lump-sum pro-rata annual incentive award in the gross amount of $298,350.00, and a lump-sum severance in the gross amount of $700,000.00. See James S. Zucker Affirmation in Support of Reply (Zucker Reply Affirmation), Ex. 2, Ex. A, Ex. 7. The gross amounts minus applicable taxes, and withholdings, resulted in three checks of $8,115.80, $180,650.92, and $422,048.37, for the total sum of $610,815.09, which Muessel accepted under protest.

Present Action

As stated above, ACA seeks a declaration that, due to Muessel's termination on April 29, 2004, the 2004 Agreement never went into effect. Muessel asserts counterclaims for: (1) breach and repudiation of the 2004 Agreement; (2) reasonable costs and expenses, such as attorney's fees; and (3) a declaration that her termination did not accelerate the maturity date of the Note, rendering the outstanding amount due and payable on February 28, 2005.

In motion sequence number 001, ACA moved to stay Muessel's demand for arbitration with the American Arbitration Association, entitled Muessel v American Capital Access Serv. Corp., AAA No. 13116Y0176704. On October 12, 2004, the parties stipulated to have this court decide certain issues rather than proceed to arbitration. On November 1, 2004, the court permitted the motion to stay to be withdrawn.

In motion sequence number 002, ACA moved for an order, permitting Stanley J. Brown (Brown) to appear pro hac vice to assist as counsel for ACA. Muessel made no objection, but reserved the right to disqualify Brown if it later became apparent that Brown was personally involved in the contract negotiations. In an order dated February 14, 2005, the court admitted Brown for the purpose of appearance and participation in this action.

Present Motions

In motion sequence number 003, Muessel moves for summary judgment, dismissing the complaint, and granting her counterclaims. In her motion papers, Muessel alleges that ACA has changed its position from seeking the full accelerated amount of the Note, to demanding a "bonus payment amount" of 25% of any annual incentive award that Muessel received in 2004 pursuant to paragraph 1 (c) of the Note. On February 25, 2005, ACA sent a written demand for [*5]the amount of $74,587.50, which is 25% of the pre-tax $298,350.00 pro-rata annual incentive award that Muessel received in June 2004. On March 8, 2005, Muessel paid the requested amount under protest. See Zucker Reply Affirmation, Ex. 11. Muessel now seeks leave to amend her third counterclaim for a declaration that: (1) she owes no further annual payments under paragraph 1 (c) of the Note; and (2) ACA was not entitled to her $74,587.50 payment, and must refund such payment. See Maryam Muessel Reply Affidavit, ¶¶ 24, 25 & Ex. 4. Muessel contends that her June 2004 pro-rata annual incentive award does not qualify as an "annual incentive award" pursuant to paragraph 1 (c) of the Note. In motion sequence number 004, ACA moves for summary judgment to dismiss Muessel's first counterclaim.

During the parties' oral argument on April 7, 2005, Muessel's counsel sought leave to supplement the pro hac vice application for the record, which was permitted. The record now includes an affirmation with accompanying exhibits submitted by Victoria A. Kummer, counsel for Muessel, on or about April 13, 2005.

DISCUSSION

Breach and Repudiation of the 2004 Agreement

Muessel's motion for summary judgment, dismissing ACA's first cause of action for declaratory relief, is granted. Muessel's motion for summary judgment on her first counterclaim for breach and repudiation of the 2004 Agreement is also granted. ACA's motion for summary judgment to dismiss Muessel's first counterclaim is denied.

A party moving for summary judgment must make a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to demonstrate the absence of any triable issue of fact. See JMD Holding Corp. v Congress Fin. Corp., 4 NY3d 373, 384 (2005).

The interpretation of a clear and unambiguous agreement is a matter of law, appropriate for disposition by this court on summary judgment. See Wilhelmina Artist Mgmt., LLC v Knowles, 8 Misc 3d 1012 (A), *5 (Sup Ct, NY County 2005). Such a written agreement "must be enforced according to the plain meaning of its terms." Masters v 14-22 Leonard St. Assoc. LLC, 11 AD3d 380, 381 (1st Dept 2004). Any ambiguities that may be deemed to exist are to be construed against the drafter. See Yudell v Ann Israel & Assoc., Inc., 248 AD2d 189 (1st Dept 1998); Dublirer v Lascher, 96 AD2d 474, 475 (1st Dept 1983).

The court finds that, upon its execution on February 11, 2004, the 2004 Agreement existed as an executory contract under which performance was still due on both sides. See Erdreich v Zimmermann, 190 App Div 443, 451 (1st Dept 1920). As stated in section 2 of the 2004 Agreement, ACA promised to employ Muessel on May 1, 2004, and Muessel accepted such employment. As stated in section 12, the 2004 Agreement was a valid and binding obligation upon its execution, and enforceable against ACA in accordance with its terms.

Section 2 of the 2004 Agreement allowed ACA to terminate Muessel without cause during the period of February 11, 2004 to May 1, 2004, but only in accordance with the termination provisions of section 8. This was the benefit bargained for by Muessel. When ACA terminated Muessel without cause on April 29, 2004 and stated that the 2004 Agreement failed to exist, ACA repudiated the 2004 Agreement, and gave Muessel a claim for damages for total breach. See Ergonomic Sys. Philippines Inc. v CCS International Ltd., 7 AD3d 412, 414 (1st Dept 2004); Sutton v Santora, 87 AD2d 796 (1st Dept 1982).

Although the parties are unable to cite any authority regarding employment contracts [*6]directly on point, the court refers to the analogous cases of Howard v Daly (61 NY 362 [1875]) and Watson v Russell (149 NY 388 [1896]), and finds that, as of the arrival of May 1, 2004, ACA owed Muessel all the severance and other benefits provided for under section 8 (d) of the 2004 Agreement. Although the above-referred to Court of Appeals cases were decided in a different time, and involved a much less complicated set of facts, the basic principles of contract remain the same. In Howard v Daly, the Court determined that the defendant repudiated an employment contract with plaintiff actress before the term of employment commenced, by preventing the plaintiff from performing, and refusing to recognize the existence of the contract. The Court held, as a matter of law, that "the plaintiff should recover the whole amount of her stipulated compensation as the damages attributable to the defendant's breach of contract." Howard v Daly, 61 NY at 371. In Watson v Russell, the Court held that the defendant manager of a theatrical company terminated his employment contract with the plaintiff actress before the season even started, by refusing to let the plaintiff rehearse, and by hiring a replacement. The Court of Appeals awarded the plaintiff damages under a cancellation provision of the agreement. See Watson v Russell, 149 NY at 392.

As of the execution of the 2004 Agreement, the terms of Muessel's employment with ACA were governed by the 2004 Agreement, not the 2001 Agreement. ACA asserts that Section 18 (a) of the 2004 Agreement contradicts this interpretation. However, section 18 (a) only provides that the 2004 Agreement supercedes the 2001 Agreement as of the effective date. Section 18 (a) does not prohibit enforcement of the termination provisions of the 2004 Agreement in the event that Muessel's employment was terminated prior to the effective date. If the parties intended such an interpretation, ACA should have expressly provided so. ACA also argues that Muessel's continued employment was a condition precedent to the existence of the 2004 Agreement. However, it is well settled that the operation of a condition precedent "must clearly appear from the contract itself." Lui v Park Ridge at Terryville Assn., Inc., 196 AD2d 579, 582 (2d Dept 1993) (citation omitted). Nowhere in the express language of the 2004 Agreement do the parties indicate Muessel's continued employment as a condition precedent.

A prevailing plaintiff on a breach of contract action is entitled to interest as of right. See Delulio v 320-57 Corporation, 99 AD2d 253, 254 (1st Dept 1984). Pursuant to CPLR 5001 (a), "interest and the rate and date from which it shall be computed shall be in the court's discretion." ACA owes Muessel the sum of $3,133,705.01 ($4,146,869.81 pursuant to section 8 (d) of the 2004 Agreement minus $1,013,164.80 already paid on June 8, 2004 pursuant to section 9 (d) of the 2001 Agreement), plus statutory interest of 9% from June 9, 2004.

Attorney's Fees

Muessel's motion for summary judgment (motion sequence number 003) on her second counterclaim for reasonable attorney's fees is granted as to liability. Both section 15 of the 2001 Agreement, and section 14 of the 2004 Agreement, clearly provide that ACA shall pay all "reasonable costs and expenses" including attorneys' fees, incurred by Muessel in resolving any claims arising out of or relation to the agreements. ACA fails to show that Muessel's claims were made in bad faith. The issue of whether the amount of Muessel's alleged attorney's fees is reasonable shall be determined at trial.

The Note [*7]

The court grants Muessel's request to amend her third counterclaim for declaratory relief, in light of the fact that ACA no longer seeks the full accelerated amount of the Note. However, the court denies Muessel's summary judgment motion as to her third counterclaim. ACA, not Muessel, is entitled to judgment as a matter of law. Muessel fails to present any evidence that the $298,350.00 pro-rata annual incentive award, which she received in June 2004, was not her 2004 annual incentive award. The express language of the Note fails to suggest that a "pro-rata annual incentive award" cannot be considered "an annual incentive award" in order to calculate a bonus payment amount, nor is there any language in the Note allowing executives terminated in the prior year to stop making payments under the Note.

Accordingly, it is

ORDERED that defendant's motion for summary judgment (motion sequence number 003), pursuant to CPLR 3212, dismissing plaintiff's first cause of action for declaratory relief is granted to the extent that it is ADJUDGED and DECLARED that the parties' execution and delivery of the

2004 Agreement in February 2004 created a valid and binding obligation on the part of plaintiffs American Capital Access Service Corporation, American Capital Access Holdings, Limited, and ACA Financial Guaranty Corporation to employ defendant Maryam Muessel on May 1, 2004; and it is further

ORDERED that defendant's motion for summary judgment, pursuant to CPLR 3212, pertaining to her first counterclaim for breach and repudiation of contract is granted; and it is further

ORDERED that the Clerk of the Court is directed to enter judgment in favor of defendant and against plaintiffs in the amount of $3,133,705.01, together with interest as prayed for allowable by law at the statutory rate of 9% per annum from the date of June 9, 2004, until the date of entry of judgment as calculated by the Clerk, and thereafter at the statutory rate, together with costs and disbursements to be taxed by the Clerk upon submission of an appropriate bill of costs; and it is further

ORDERED that defendant's motion for summary judgment pertaining to her second counterclaim for reasonable attorney's fees is granted as to liability only, and the damages portion of defendant's second counterclaim seeking the recovery of attorney's fees is severed and an assessment thereof is directed; and it is further

ORDERED that a copy of this order with notice of entry be served upon the Clerk of the Trial Support Office (Room 158), who is directed, upon the filing of a note of issue and a statement of readiness and the payment of proper fees, if any, to place this action on the appropriate trial calendar for the assessment herein above directed; and it is further

ORDERED that defendant's motion for summary judgment as to her third counterclaim for declaratory relief is denied, and summary judgment is instead granted in favor of plaintiffs, pursuant to CPLR 3212 (b), to the extent that it is

ADJUDGED and DECLARED that plaintiffs American Capital Access Service Corporation, American Capital Access Holdings, Limited, and ACA Financial Guaranty Corporation are entitled to defendant Maryam Muessel's June 8, 2004 payment in the amount of $74,587.50; and it is further

ORDERED that plaintiffs' motion for summary judgment (motion sequence number 004) [*8]to dismiss defendant's first counterclaim is denied.

Dated: New York, New York

October 18, 2005ENTER:

____________________________ J.S.C.