Winkler v Alex

[*1] Winkler v Alex 2008 NY Slip Op 52511(U) [21 Misc 3d 1146(A)] Decided on December 8, 2008 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 December 8, 2008
Supreme Court, New York County

James L. Winkler, Plaintiff,

against

John L. Alex and MERRILL LYNCH, PIERCE, FENNER & SMITH, INC., Defendants.



601815/08



The attorneys on the matter were Peter W. Beadle, Esq., of Biedermann, Reif, Hoenig, & Ruff, P.C. (for the plaintiff) and Jeffrey Calabrese, Esq., of Harter Secrest & Emory, LLP (for the defendant).

Eileen Bransten, J.

Plaintiff James L. Winkler moves pursuant to Partnership Law §§ 43, 44, and 74 for an accounting. Defendant John L. Alex opposes the motion, and cross-moves for an order dismissing the Complaint.

BACKGROUND

In 2006, Alex, then an employee of UBS Financial Services, Inc. ("UBS"), convinced Winkler, then an attorney and law enforcement officer for the United States Department of Probation, that if the two combined Winkler's organizational and legal skills with Alex's sales ability, the two could build a profitable wealth management business together (Winkler Aff, Ex 1, ¶ 5 [hereinafter "Compl"]).

Alex introduced Winkler to managers at UBS and recommended Winkler for hire into the bank's Financial Advisor Program (id. at ¶ 7). Several months later, UBS extended Winkler an offer (id. at ¶ 8) and Winkler accepted (Winkler Aff ¶ 1).

Apart from his UBS employment, Winkler entered into a Financial Services Business Agreement (the "Agreement") with Alex (Compl ¶ 9). The Agreement created a financial-services business, which operated as a team at UBS (id. at ¶¶ 12-13). Ostensibly, the business' goal was to provide wealth management services (id. at ¶ 15). Among other things, the Agreement set forth terms including: management and control responsibilities over five years (see id. at ¶ 16); the manner in which profits earned would be shared (id. at ¶ 17); and certain amounts to be paid to Winkler as a percentage of Gross Production (as defined under [*2]the Agreement) (id. at ¶ 18).

In January 2008, Winkler learned that Alex was considering moving the business to another financial-services company (id. at ¶ 32). Alex spoke openly about needing to leave the firm to make more money (id.). Beginning in March 2008, Alex excluded Winkler from certain aspects of the business (id. at ¶ 33).

On multiple occasions, Winkler sought assurances from Alex that he would abide by the Agreement and that they would continue the business (id. at ¶ 34). On each occasion, Alex assured Winkler of his intended compliance (id.).

Meanwhile, unbeknownst to Winkler, Alex engaged in negotiations to transfer the business, including its clients and employees except for Winkler, to Merrill Lynch (id. at ¶ 35). Upon learning of the negotiations, Winkler again sought assurances in connection with the Agreement and the business (id. at ¶ 36). This time, Alex indicated that it might not be possible for Winkler to follow him to Merrill Lynch (id. at ¶ 37).

In response to Winkler's repeated questioning, however, Alex later told him that he would not be left behind (id. at ¶ 37). Alex informed Winkler that he was trying to schedule a meeting for the two of them with a Merrill Lynch representative (id. at ¶ 40). Alex also advised Winkler that he was consulting with an attorney to ensure the business could legally be moved from UBS to Merrill Lynch (id. at ¶ 41).

When the meeting with a Merrill-Lynch representative never materialized,[FN1] Winkler repeated his concerns and again sought assurances (id. at ¶ 42). Alex responded that the status with Merrill Lynch remained preliminary, that he would follow-up on the meeting, and that he would explore whether UBS would offer incentives for the business to stay (id.).

Unknown to Winkler though, Alex concluded a deal with Merrill Lynch contemplating a transfer of the business without Winkler (id. at ¶ 43). On May 29, 2008, Alex left with the business, clients, and employees but without Winkler (id. at ¶ 47).

After Alex left UBS, some of the business' clients transferred certain assets to Merrill Lynch, which resulted in a refund of pre-paid management fees by UBS to the clients (id.). UBS charged the refunded fees against Winkler's UBS account (id.).

Winkler commenced this action asserting eight causes of action for (i) an accounting; (ii) breach of fiduciary duty; (iii) breach of contract; (iv) & (v) fraud; (vi) quantum meruit; (vii) punitive damages; and (viii) an injunction against Merrill Lynch and Alex. Winkler now moves for an order directing Alex to provide an immediate accounting of all monies and other value received by him and Alex cross-moves for dismissal of the Complaint.[FN2]

ANALYSIS

Alex's Motion to Dismiss

In the context of a CPLR 3211 motion to dismiss, the court takes the facts alleged in the complaint as true and accords the benefit of every possible favorable inference to the non-movant (see AG Capital Funding Partners, L.P. v State St. Bank & Trust Co., 5 NY3d 582, 591 [2005]). Further, any deficiencies in the complaint may be amplified by supplemental pleadings and other evidence (id., citing Rovello v Orofino Realty Co., 40 NY2d 633, 635-36 [1976]). "[T]he sole criterion is whether the pleading states a cause of action, and if from its four corners factual allegations are discerned which taken together manifest any cause of action cognizable at law, a motion for dismissal will fail" (Guggenheimer v Ginzburg, 43 NY2d 268, 275 [1997]).

Accounting

Winkler alleges that "the Agreement and the practice of the parties formed a partnership" (Compl ¶ 53). He further alleges that the "Agreement imposed a fiduciary duty upon each partner as to the other" (id. at ¶ 71).

Alex moves to dismiss Winkler's claim for an accounting, arguing that the parties never formed a partnership, and thus, there is no basis for an accounting (Simons v Ross, 309 AD2d 667, 667 [1st Dept 2003] [in the absence of partnership or other fiduciary relationship, plaintiff not entitled to accounting]).

In deciding whether a partnership exists, "the factors to be considered are the intent of the parties (express or implied), whether there was joint control and management of the business, whether there was a sharing of the profits as well as a sharing of the losses, and whether there was a combination of property, skill or knowledge" (see Ramirez v Goldberg, 82 AD2d 850, 852 [2d Dept 1981]; accord Blaustein v Lazar Borck & Mensch, 161 AD2d 507 [1st Dept 1990] [in relation to partnerships]; M.I.F. Secs. Co. v R. C. Stamm & Co., 94 AD2d 211 [1st Dept 1983] [same]). No one factor is determinative; it is necessary to examine the parties' relationship as a whole (Martin v Peyton, 246 NY 213, 218 [1927]). Moreover, "calling an organization a partnership does not make it one" (Brodsky v Stadlen, 138 AD2d 662, 663 [2d Dept 1988]).

Alex argues that language in the Agreement demonstrates an intention to create a partnership only at some point in the future; that the Agreement vested management and creative control in Alex alone; that Winkler, an attorney, drafted the Agreement but did not call the Agreement a "partnership agreement" or refer to the relationship as a partnership; that language demonstrates an intention to avoid contracting, binding, committing or pledging on behalf of the other; and that Winkler's compensation was to be subsidized by Alex.

The Agreement itself, however, is ambiguous. It contemplates some form of profit [*3]sharing, but not loss sharing. It states that the "parties agreed that the goal of this agreement is to establish a full and fair business team a 50/50 relationship" and provides that "control and profit sharing" would progress in the manner the parties set forth (Compl, Ex A, at 1). It also states, however, that "neither party can contract, bind, commit or pledge the services, assets and/or interests of the other" (id.). Generally in the Agreement, the parties' arrangement is referred to as "the business," but in one instance the Agreement states "[i]n subsequent years[,] the partnership interest and noted payouts shall control as noted in the paragraph caption Management Control and Distribution of Profits" (id. at 3 [emphasis added]). The Agreement further provided that "[i]nitially[,] John L. Alex will have a position of management preference based upon his years of experience" (id. at 2); that "John L. Alex shall maintain creative control over the business in that he is the founder of same" (id.); and that "[w]hile both parties have an equal right to manage the business[,] James L. Winkler will assume most organizational and daily scheduling duties" (id. at 3).

At this early pleading stage, accepting all the facts pleaded in the Complaint as true, the cause of action cannot be dismissed. Winkler pleads the existence of a partnership, in which case, he could be entitled to an accounting. Alex's submissions do not definitively defeat the allegations.

Breach of fiduciary duty

Because Alex failed to establish the absence of a partnership, his motion to dismiss the breach-of-fiduciary-duty claim must be denied.

Breach of contract

Winkler alleges that Alex breached the parties' contract by failing to distribute compensation he received from Merrill Lynch in accordance with the Agreement, abandoning the enterprise after less than two years, failing to adhere to the good-faith provision in the Agreement, taking clients, employees and business of the enterprise to Merrill Lynch, and failing to pay Winkler amounts owed under the Agreement (Compl ¶ 92). Specifically, Winkler maintains that he is entitled to 20% of the compensation paid or pledged to Alex as well as to 50% of any bonus dollars paid or pledged in relation to Net New Assets under management produced by Winkler in the years 2007 and 2008 (id. at ¶ 89).In response, Alex asserts that Winkler fails to show entitlement to any amounts Alex received after terminating the parties' relationship and, moreover, that Winkler has already received the amounts due under the Agreement.

To plead a breach of contract claim, a plaintiff must allege the existence of a valid contract, performance by plaintiff, and the basis of defendant's alleged breach (see Morris v 702 East Fifth Street HDFC, 46 AD3d 478, 479 [1st Dept 2007]).

Relying on the terms under the Agreement, which dictate the distribution of profits and bonus structure, Winkler claims entitlement to payments in connection with money paid by Merrill Lynch to Alex and with bonus dollars for Net New Assets (see Compl ¶¶ 86-90, 93). Because the allegations state which agreement defendant allegedly breached and the basis for the alleged breach, Winkler sufficiently alleges facts to withstand a motion to [*4]dismiss.

Fraud

For his fourth cause of action, Winkler alleges that Alex fraudulently induced Winkler to work at UBS (id. at ¶¶ 95-99) and fraudulently misrepresented that he intended to continue the enterprise and to take Winkler along to Merrill Lynch (id. at ¶¶ 101-105). He also sets forth that Alex represented that the enterprise "would last a minimum of five years and have a goal of establishing a 50/50 partnership by year six" (id. at ¶ 95) and that Alex "lured [Winkler] to join UBS with promises that [Winkler] would earn high salaries and have a much more prosperous career" (id.).

With respect to the fifth cause of action, Winkler alleges that while "Alex was engaging in secret negotiations with Merrill Lynch, Alex told [Winkler] not to worry, and that Alex intended to maintain his business relationship with [Winkler] and take [Winkler] to Merrill Lynch" (id. at ¶ 101). However, "Alex had no intention of either continuing the partnership or continuing a financial services business with [Winkler] at Merrill Lynch" (id. at ¶ 102). Further, Winkler alleges that Alex "knowingly and intentionally mislead [sic] [Winkler] as to his intentions in order to prevent, or at least delay, [Winkler] from taking any action which would have interfered with the deal Alex was negotiating with Merrill Lynch" (id. at ¶ 103). As a result of Winkler's reliance on the alleged misrepresentation, Winkler was harmed by the lost share of compensation from Merrill Lynch and by being forced to repay fees for clients who transferred from UBS to Merrill Lynch (see id. at ¶ 105).

Alex argues that the claims must be dismissed because Winkler fails to plead fraud with sufficient particularity pursuant to CPLR 3016 (b) and that the fraud causes of action are duplicative of the one asserted for breach of contract.

A fraud claim requires an allegation of a misrepresentation of material existing fact, scienter, justifiable reliance by plaintiff, and damages (Lama Holding Co. v Smith Barney Inc., 88 NY2d 413, 421 [1996]).

Winkler's fourth cause of action, based on alleged representations about a 50/50 relationship, a higher salary, and a more prosperous career, is non-actionable. Winkler's allegations amount to no more than repetition of his assertion that Alex never intended to fulfill promises in connection with the Agreement. Because a "fraud claim is not sufficiently stated where it alleges in essence that a defendant did not intend to perform a contract with a plaintiff when he made it," the fourth cause of action must be dismissed (Meehan v Meehan, 227 AD2d 268, 270 [1st Dept 1996] [internal citations omitted]; see also Hawthorne Group, LLC v RRE Ventures, 7 AD3d 320, 323 [1st Dept 2004] [the alleged misrepresentation should not be a misrepresented intent to perform]).

The fifth cause of action, which is predicated on allegations of false statements in connection with the Merrill-Lynch deal, however, sufficiently states a claim. It is separate from claims sounding in breach of the Agreement and meets all of the elements of fraud. Thus, Alex's motion to dismiss the fifth cause of action is denied (see Graubard Mollen, 86 NY2d at 122).

Quantum meruit

Winkler alleges that his efforts directly resulted in increased revenues of the enterprise (Compl ¶ 111); that Alex acknowledged the value of the work performed by Winkler (id. at ¶ 112); that Alex benefitted from Winkler's services by marketing the increased revenues to transfer the enterprise to Merrill Lynch and to negotiate substantial compensation from Merrill Lynch (id. at ¶ 112); that Winkler reasonably expected to be compensated for his efforts to increase revenues (id. at ¶ 115); and the reasonable value of his services (id. at ¶ 116).

Alex contends that Winkler could not have had a reasonable expectation of the compensation sought in the Complaint because he was compensated for the services he performed in accordance with the Agreement.

To state a claim for quantum meruit, a plaintiff must allege (1) the performance of services in good faith, (2) the acceptance of the services by the person to whom they are rendered, (3) an expectation of compensation therefor, and (4) the reasonable value of the services (Soumayah v Minnelli, 41 AD3d 390, 391 [1st Dept 2007]).

Because it is undisputed that a valid agreement governs Winkler's compensation and potential profit sharing in direct connection with Winkler's revenue generating efforts, Alex's motion to dismiss Winkler's cause of action for quantum meruit is granted (see Clark-Fitzpatrick, Inc. v Long Is. R.R. Co., 70 NY2d 382, 388 [1987] ["existence of a valid and enforceable written contract governing a particular subject matter ordinarily precludes recovery in quasi contract for events arising out of the same subject matter"]).

Punitive damages

Winkler alleges that Alex's misconduct was directed at Winkler and speculates that Alex's conduct would also affect "the Financial Services industry, employees, and consumers" (Compl ¶ 119).

To be entitled to punitive damages, a plaintiff must plead an intentional or deliberate wrongdoing, aggravating or outrageous circumstances, a fraudulent or evil motive, or a conscious act that willfully and wantonly disregards the rights of another (Swersky v Dreyer & Traub, 219 AD2d 321, 328 [1996]). "Punitive damages require a demonstration that the wrong complained of rose to a level of such wanton dishonesty as to imply a criminal indifference to civil obligations'" (164 Mulberry St. Corp. v Columbia Univ., 4 AD3d 49, 60 [1st Dept 2004], quoting Walker v Sheldon, 10 NY2d 401, 405 [1961]; accord Rocanova v Equitable Life Assur. Socy., 83 NY2d 603, 614 [1994]).

At bottom, the misconduct Winkler complains of is that Alex failed to take Winkler along to Merrill Lynch. Further, there is no suggestion that Alex sought to maliciously hurt the general public. Because Winkler seeks recovery for a private wrong, Winkler is not entitled to recover punitive damages (see New York Univ. v Continental Ins. Co., 87 NY2d 308, 321 [1995]). Therefore, Alex's motion to dismiss Winkler's cause of action for punitive damages is granted.

[*5]Other defenses

Aside from the specific arguments associated with each claim, Alex also argues that Winkler's Complaint should be dismissed under the doctrine of release.[FN3] He asserts that a release executed on June 11, 2008 between Alex and UBS (the "Release") bars any claim by Winkler because he is an employee of UBS. The Release provides that:

"UBS Financial Services, for and in consideration of good and valuable consideration received from Mr. Alex, does hereby remise, release, acquit, satisfy, forever discharge and by these presents for its officers, directors, shareholders, employees, . . . and assigns forever, release . . . Mr. Alex . . . of and from any and all manner of action and actions . . ."

(Release and Settlement Agreement 6/11/08 at 2 [emphasis added]).

The court in Herman v Malamed, explained that "a release may contain specific recitals as to the claims being released, and yet conclude with an omnibus clause to the effect that the releasor releases and discharges all claims and demands whatsoever which he or his heirs, executors, administrators, or assigns have or may have against the releasee" (110 AD2d 575, 576-77 [1st Dept 1985] [internal quotation marks omitted]; see Maxwell Partners, L.L.C. v Building Studio, LLP, 32 AD3d 321, 324 [1st Dept 2006]). If "from the language of the instrument, it appears that the release is to be limited to certain claims, demands or obligations, then the release will be operative as to those matters only" (Herman, 110 AD2d at 577).

Here, Alex overlooks the recital on the first page of the Release which states: "UBS Financial Services and Mr. Alex desire to reach a full, fair, and final resolution of all claims which have been or could have been brought in relation to Promissory Note Nos. 1, 2, and 3 and therefore, agree as follows . . ." (Release and Settlement Agreement 6/11/08 at 1 [promissory note numbers redacted]). The release contains limiting language which leaves unaffected the claims asserted by Winkler and, therefore, his claims are not barred by the doctrine of release.

Winkler's Motion for an Accounting

Winkler has not demonstrated entitlement to an accounting at this early stage. Significantly, he has not established that a partnership exists, which is a threshold requirement for obtaining an accounting. Moreover, issue has not been joined in this matter [*6]and, therefore, judgment for an accounting would be exceedingly premature (see Kantor v Bernstein, 225 AD2d 500, 502 [1st Dept 1996]).

Accordingly, it is

ORDERED that plaintiff's motion seeking an accounting is DENIED without prejudice to a renewal upon a showing that a partnership exists; and it is further

ORDERED that defendant's motion seeking to dismiss the Complaint is GRANTED insofar as the fourth, sixth, and seventh causes of action are dismissed; and it is further

ORDERED that defendant is directed to serve an answer to the complaint within 10 days after service of a copy of this order with notice of entry.

This constitutes the Decision and Order of the Court.

Dated: New York, New York

December __, 2008

E N T E R

Hon. Eileen Bransten Footnotes

Footnote 1:It was only after Alex left UBS that Winkler met with a representative from Merrill Lynch (Winkler Aff ¶¶ 51-52).

Footnote 2:Winkler also sought an injunction but withdrew that portion of the motion (Tr 7/28/08 3:14-20). Merrill Lynch's cross-motion seeking to quash certain subpoenas was also withdrawn (id.) and by Stipulation of Discontinuance dated July 22, 2008, Winkler discontinued his action against Merrill Lynch.

Footnote 3:In opposing Winkler's now-withdrawn application for an injunction, former defendant Merrill Lynch asserted as an argument that Winkler's sole claim against Merrill Lynch was the subject of an arbitration clause. Alex adopted the argument in connection with a purported arbitration clause, also to oppose Winkler's application for an injunction. To the extent that the action has been discontinued against Merrill Lynch and the portion of Winkler's motion seeking an injunction has been withdrawn, the argument related to arbitration is deemed to have been withdrawn as well.