Whelan v Toughman, Inc.

[*1] Whelan v Toughman, Inc. 2010 NY Slip Op 51203(U) [28 Misc 3d 1207(A)] Decided on July 12, 2010 Rye City Court, Westchester County Latwin, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 July 12, 2010
Rye City Court, Westchester County

Charles Whelan, Plaintiff,

against

Toughman, Inc., Defendant.



SC09-392



Plaintiff by Donald Sandford, Esq.

Defendant by Scott Forcino, Esq.

Joseph L. Latwin, J.

"Swim 2.4 miles! Bike 112 miles! Run 26.2 miles! Brag for the rest of your life!"[FN1] A triathlon is a multi-sport endurance event consisting of swimming, cycling, and running in immediate succession over various distances. Neither regular business relations nor litigation is customarily a component of a triathlon. Thus, this case. This is a small claims action brought against a triathlon organizer for services rendered by the plaintiff to the defendant. The defendant counterclaims claiming plaintiff misappropriated advertising space and apparel, a failure to perform and unfair competition. The parties once shared a love of triathlon and worked together to promote the local event. Now they get their rush, not from adrenaline or endorphins[FN2], but from casting charges and aspersions [*2]against each other.

The arrangement between the parties is notable by the absence of any written agreement or any writing at all specifying what plaintiff was to do or how much he would be paid. The plaintiff and the principal officer of the defendant had known each other for about ten years through participation in triathlons and running. The defendant operated the Westchester triathlon in 2008 and 2009. At some point, plaintiff began providing design services and web site programming services for defendant. Defendant paid plaintiff on a series of invoices for the 2008 and 2009 events, but stopped payment on the last issued check in the amount of $2,000.00. The plaintiff claimed he had an agreement with the defendant to perform the work but never testified that there was any agreement as to the amount he would be paid. Instead, plaintiff said he set his price based upon a standard set by an industry association.

Recovery under the theory of quantum meruit is not appropriate where an express contract governed the subject matter involved. Parker Realty Group, Inc. v. Petigny, 14 NY3d 864, 2010 WL 1790975 [2010]. Plaintiff has failed to prove an express agreement here.

To state a cause of action to recover in 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 allegedly rendered. Miranco Contracting, Inc. v. Perel, 57 AD3d 956, 871 NYS2d 310 [2nd Dept, 2008]. Here, plaintiff performed services although the defendant claims the services were not performed properly and were not performed in good faith. While plaintiff claims an expectation of payment, the defendant claims the services were part of a continuing pattern of volunteered services. The reasonable value is disputed. There is no doubt that defendant accepted plaintiff's services and that the plaintiff expected to be paid therefor.

Performance and acceptance of services are held to give rise to a legal inference of a promise to pay the reasonable value of such services. This inference, however, does not arise where, because of the relationship of the parties it is natural that such service should be rendered without expectation of pay. Moors v. [*3]Hall, 143 AD2d 336, 338, 532 NYS2d 412, 414 [2nd Dept, 1988]. The question of whether a party had a reasonable expectation of compensation for services rendered is a matter for the trier of fact to determine based on the evidence before it. In re Alu, 302 AD2d 520, 755 NYS2d 289 [2nd Dept, 2003].

The defendant claims that the services were not performed in good faith since (1) plaintiff was virtually the only person to be paid for working on the events as most of the workers at the triathlon were volunteers working for the not for profit event that raised funds for charities; (2) the plaintiff used his relationship to misappropriate goods and intellectual property from the defendant for his own use or the benefit of his brother's cycle shop; and (3) plaintiff's work was shoddy and involved use of publicly available materials.

Allegations are insufficient "to state a cause of action in quantum meruit where none of the services allegedly performed are so distinct from the duties of employment and of such nature that it would be unreasonable for the employer to assume that they were rendered without expectation of further pay" (Freedman v. Pearlman, 271 AD2d 301, 304 [1st Dept 2000]; LaJaunie v. DaGrossa, 159 AD2d 349, 349 [1st Dept 1990] [such a claim requires "that the allegedly uncompensated duties performed were distinct in character from those duties for which plaintiff was compensated"] ). Root v. Swig Equities, LLC, 27 Misc 3d 1222(A), 2010 WL 1945730 (Table) [Sup Ct New York County, 2010]. Here, there was a mixture of admittedly volunteer services performed by plaintiff and services for which plaintiff seeks payment. Defendant relies on the assumption that the plaintiff's services were rendered without the expectation of further pay. This assumption is further bolstered by the not-for-profit nature of the defendant's events and the mixture of services offered by plaintiff. However, the defendant's issuance of the final $2,000.00 check to pay plaintiff the amount he billed strongly suggests that there was not only an expectation of payment on the plaintiff's part, but acquiescence on the defendant's part. The parties could have easily protected themselves by reducing their understanding to writing, thus leaving no doubt as to what was to be done and how much was to be paid for the work, if anything.

The plaintiff rests his value of his services on a published industry-suggested standard. Defendant claims that the industry standard rate is excessive and violates the Sherman Act, 15 USC §1, and the Donnelly Act, [*4]General Business Law §340. Sherman Act and Donnelly Act prohibitions extend to instances of price fixing that occur in connection with a trade association published rate schedule, even when association members are not compelled to set prices accordingly. United States v. Nationwide Trailer Rental Sys., Inc., 156 F Supp 800, 805 [D. Kans.], aff'd per curiam, 355 US 10 [1957]. Publication alone is a per se violation of the antitrust laws, when the intent is to confer a particular benefit to members and thereby "have a definite effect on prices." Plymouth Dealers' Association v. United States, 279 F2d 128, 133-134 [9th Cir. 1960].

In interpreting the Donnelly Act, New York courts generally follow federal case law analyzing the Sherman Act. People v. Rattenni, 81 NY2d 166, 171, 597 NYS2d 280 [1993]; X.L.O. Concrete Corp. v. Rivergate Corp., 83 NY2d 513, 611 NYS2d 786 [1994](there is no difference in the language of the Sherman and Donnelly Acts, or the public policies sought to be protected therein, which suggest that Federal precedents should not govern); & Anheuser-Busch, Inc. v. Abrams, 71 NY2d 327, 335, 525 NYS2d 816 [1988](State antitrust law "should generally be construed in light of Federal precedent and given a different interpretation only where State policy, differences in the statutory language or the legislative history justify such a result). Indeed, the Donnelly Act has been called the "little Sherman Act".[FN3] Id. at 333, 525 NYS2d at 818. See also State of New York v. Mobil Oil Corp., 38 NY2d 460, 463, 381 NYS2d 426 [1976].

Authority is not conclusive on whether setting a price according to a suggested range of fees subverts competition and thus, falls within the ambit of the Sherman and Donnelly Acts. See U.S. v. Socony-Vacuum Oil Co., 310 US 150, 60 S Ct 811 (1940) (expanding the meaning of price fixing to include establishment of a range of prices); But see U.S. v. Trenton Potteries, Co., 273 US 392, 47 S Ct 377 (1927) (reaching only the question of reasonableness but not addressing the particular machinery by which an unlawful restraint is made) and Nationwide Trailer Rental Sys., Inc., 156 F Supp 800at 805 (holding defendant organization liable for having a fixed rate, as opposed to a range of prices). See also, Goldfarb v. Virginia State Bar, 421 US 773 (1975). [*5]

Defendant faces other hurdles in advancing federal and state antitrust violations as a defense in the present action. As a defense to an action based on contract, the plea of illegality based on violation of the Sherman Act has not met with much favor in the Supreme Court. This has been the case notably where the plea has been made by a purchaser in an action to recover from him the agreed price of goods sold. Kelly v. Kosuga, 358 US 516, 79 S Ct 429 [1959]. See also, Viacom International Inc. v. Tandem Productions, Inc., 526 F2d 593 [2d Cir. 1975]. Federal courts permit antitrust defenses to contract actions only when the enforcement of the contract itself would violate the antitrust laws. The defense has been narrowly construed and confined to circumstances where there is a violation of the antitrust laws inhering in the sale. See e.g., Tampa Elec. Co. v. Nashville Coal Co., 365 US 320, 81 S Ct 623 [1961].

New York courts that have considered interposition of antitrust defenses in contract actions have followed the rule and rationale of Kelly. Winters Bros. Recycling Corp. v. H.B. Millwork, Inc., 72 AD3d 942, 900 NYS2d 99 [2nd Dept, 2010]. See also, Dachowitz v. Bergman, 113 Misc 2d 236, 239, 448 NYS2d 381 [Sup Ct, New York County 1982]; Fleet-Wing Corp. v. Pease Oil Co., 29 Misc 2d 437, 441, 212 NYS2d 871 [Sup Ct, Erie County], mod. on other grounds 14 AD2d 728, 218 NYS2d 533[ 4th Dept 1961]; Mobil Oil Corp. v. Rubenfeld, 48 AD2d 428, 370 NYS2d 943 [2nd Dept 1975]; New York Stock Exch. v. Goodbody & Co., 42 AD2d 556, 345 NYS2d 58 [1st Dept 1973] ("where the antitrust violation is collateral to the main issue in the complaint, it cannot remain as a viable defense"); and Columbia Broadcasting Sys. v. Roskin Distribs., 31 AD2d 22, 25, 294 NYS2d 804[1st Dept 1968], aff'd in part, dismissed in part 28 NY2d 559, 319 NYS2d 449 [1971](Sherman and Clayton Acts "may not be pleaded in defense of an action for goods sold and delivered or services rendered").

This court rejects this defendant's invocation of federal and state antitrust laws in defense of this contract claim on the facts proved at trial. A source of controversy that seems to underlie this case is the ownership of the intellectual property created by plaintiff. While not a part of the direct claims of the parties, it was implied that the defendant had refused to pay the plaintiff unless he conveyed all intellectual property rights to the defendant. The defendant implies that plaintiff's retention of these rights operated as an offset or defense. [*6]Defendant obtains no support for its intellectual property claims over material created by Mr. Whelan, and finds no refuge in the "work for hire" doctrine. 17 USC § 101. The Copyright Act of 1976 provides that copyright ownership "vests initially in the author or authors of the work." 17 USC § 201(a). As a general rule, the author is the party who actually creates the work, that is, the person who translates an idea into a fixed, tangible expression entitled to copyright protection. 17 USC § 102. The Act carves out an important exception, however, for "works made for hire."[FN4] If the work is for hire, "the employer or other person for whom the work was prepared is considered the author" and owns the copyright, unless there is a written agreement to the contrary. 17 USC § 201(b).

Since the work was performed by plaintiff as an independent contractor, rather than employee, of defendant, it was not work for hire under 17 USC § 101. Community for Creative Non-Violence v. Reid, 490 US 730, 109 S Ct 2166 [1989]. Mr. Whelan exercised significant control over the details of the work details apparently subsumed by defendant's attempt to produce a comparable product after severing its professional relationship with plaintiff. The work performed was tangential to the defendant's business and proceeded without any assurance to the employer of future assignments. Carter v. Helmsley-Spear, Inc., 71 F3d 77 [2nd Cir. 1995]. In the absence of an agency relationship, the defendant must point to an agreement (express or implied) existing prior to the material's creation, that secures its right to assert ownership. Playboy Enterprises, [*7]Inc. v. Dumas, 53 F3d 549, 559 [2d Cir., 1995].This it has not done.

On the balance of the defendant's counterclaim, the defendant has proved by a preponderance of the evidence that the website did not fully function properly, that the plaintiff misappropriated apparel, and that misappropriated the defendant's web site by "giving" advertising space to favored third parties without approval of the defendant and without payment to the defendant.

Providing the parties with substantial justice according to the rules and principles of substantive law (UCCA 1804, 1807; see Cosme v Bauer, 2010 NY Slip Op 50638(U) [App Term, 9th Jud Dist April 8, 2010]; Ross v Friedman, 269 AD2d 584 [2000]; & Williams v Roper, 269 AD2d 125 [2000]), the Court finds that plaintiff is entitled to a judgment of $2,000.00 on its claim and defendant is entitled to a judgment of $2,000.00 on its counterclaim.

IT IS ORDERED that plaintiff have judgment against defendant in the sum of $2,000.00, together with its costs, and it is further

ORDERED that defendant have judgment against plaintiff in the sum of $2,000.00, together with its costs.

July 12, 2010_________________________

JOSEPH L. LATWIN, J.C.C.

Footnotes

Footnote 1: Attributed to Commander John Collins, USN (1978), father of the Ironman® triathlon.

Footnote 2: Endorphins are endogenous opioid polypeptide compounds. A widely publicized effect of endorphin production is the so-called "runner's high", which is said to occur when strenuous exercise takes a person over a threshold that activates endorphin production. Endorphins are released during long, continuous workouts, when the level of intensity is between moderate and high, and breathing is difficult. "The Reality of the "Runner's High", UPMC Sports Medicine. University of Pittsburgh Schools of the Health Sciences.

Footnote 3: According to former New York State Assistant Attorney General Francis J. Serbaroli, who was assigned to the Antitrust Bureau of the Department of Law, the Bureau charged with enforcement of the Donnelly Act, the Sherman Act is the big Donnelly Act.

Footnote 4: Under 17 USC 101, A "work made for hire" is

(1) a work prepared by an employee within the scope of his or her employment; or

(2) a work specially ordered or commissioned for use as a contribution to a collective work, as a part of a motion picture or other audiovisual work, as a translation, as a supplementary work, as a compilation, as an instructional text, as a test, as answer material for a test, or as an atlas, if the parties expressly agree in a written instrument signed by them that the work shall be considered a work made for hire. For the purpose of the foregoing sentence, a "supplementary work" is a work prepared for publication as a secondary adjunct to a work by another author for the purpose of introducing, concluding, illustrating, explaining, revising, commenting upon, or assisting in the use of the other work, such as forewords, afterwords, pictorial illustrations, maps, charts, tables, editorial notes, musical arrangements, answer material for tests, bibliographies, appendixes, and indexes, and an "instructional text" is a literary, pictorial, or graphic work prepared for publication and with the purpose of use in systematic instructional activities.