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SHAITELMAN v. PHOENIX MUT. LIFE INS. CO.

December 3, 1980

Mark T. SHAITELMAN and Richard R. Reigi, Plaintiffs,
v.
PHOENIX MUTUAL LIFE INSURANCE COMPANY, Defendant



The opinion of the court was delivered by: PIERCE

OPINION AND ORDER

This action for, inter alia, breach of contract, fraudulent misrepresentation, and wrongful discharge is brought by two group insurance salesmen against their former employer, the Phoenix Mutual Life Insurance Company, pursuant to 28 U.S.C. ยง 1332. The defendant has moved to dismiss Counts 3, 4, and 5 of the complaint for failure to state a claim upon which relief can be granted (Fed.R.Civ.P. 12(b)(6)).

 Count Three Misrepresentation

 Plaintiffs allege that the defendant Life Insurance Company fraudulently induced them to continue in its employ by knowingly and falsely representing to them, both orally and in writing, that their earnings were unlimited and that they had the unlimited financial potential of commissioned salesmen although they were employees at will. (Complaint PP. 57, 60, 65, 68). The plaintiffs also allege that the defendant falsely and fraudulently represented to them that they would receive monies earned and accumulated in the form of surplus credits thereby inducing plaintiffs to believe that they had a financial incentive to continue in the employ of the defendant. (Complaint PP 59, 60, 65, 68). Defendant moves to dismiss this cause of action as a mere restatement of the breach of contract claims alleged in Counts 1 and 2.

 The New York Courts have long held that an action for fraudulent misrepresentation, independently pleaded, can constitute a cause of action which may be pleaded in addition to, or as an alternative to, an action for breach of contract. North Shore Bottling Co., Inc. v. Schmidt & Sons, Inc., 22 N.Y.2d 171, 179, 292 N.Y.S.2d 86, 239 N.E.2d 189 (1968); Channel Master Corp. v. Aluminium Limited Sales, Inc., 4 N.Y.2d 403, 408, 176 N.Y.S.2d 259, 151 N.E.2d 833 (1958); Hanlon v. MacFadden Publications, Inc., 302 N.Y. 502, 510, 99 N.E.2d 546 (1951); Mills Studio, Inc. v. Chenango Valley Realty Corp., 15 A.D.2d 138, 140-41, 221 N.Y.S.2d 684 (3d Dep't 1961). In Shapiro v. Dictaphone Corp., 66 A.D.2d 882, 884, 411 N.Y.S.2d 669 (2d Dep't 1978) the court distinguished between these two causes of action:

 
"In our opinion, the thrust of plaintiff's first cause of action is that Dictaphone entered into the agreement with the undisclosed intention to induce the other party to perform in reliance upon the agreement ... thus, the first cause of action alleging fraud is in tort, not in contract. It depends not upon an agreement between the parties, but rather upon deliberate misrepresentation of facts, relied on by the plaintiff to his detriment. One who fraudulently misrepresents himself as intending to perform an agreement is subject to liability in tort whether the agreement is enforceable or not."

 The alleged assurances of the defendant Phoenix that the plaintiffs' earned surplus credits constituted "money in the bank," "building a bank account," and "a gold mine" (complaint PP 59 & 67) are likewise actionable. As the court concluded in Sabo v. Delman, 3 N.Y.2d 155, 160, 164 N.Y.S.2d 714, 143 N.E.2d 906 (1957) "the statements and representations here relied upon and alleged are likewise actionable, for here, too, there was "specific affirmation' of an arrangement under which something was to be done when the party making the affirmation knew perfectly well that no such thing would be done."

 The string of cases relied upon by the defendant for the proposition that New York Courts will disallow an alternative pleading of fraud in an action for breach of contract are inapposite. In a number of those cases the plaintiff brought an action for fraud rather than for breach of contract or alleged a fraudulent breach of contract in order to circumvent the shorter statute of limitations which attaches in an action for breach of contract. Brick v. Cohn-Hall-Marx Co., 276 N.Y. 259, 11 N.E.2d 902 (1937); Triangle Underwriters, Inc. v. Honeywell, Inc., 457 F. Supp. 765, 770 (E.D.N.Y.1978). Still others of the cases relied upon by defendant pertain to situations where no independent claim of fraud was set forth in the pleadings. Rather, the plaintiffs in those actions pleaded fraudulent breach of contract or breach of contract with fraudulent intent. Miller v. Columbia Records, 70 A.D.2d 517, 415 N.Y.S.2d 869 (1st Dep't 1979); Chase v. United Hospital, 60 A.D.2d 558, 400 N.Y.S.2d 343 (1st Dep't 1977); Regnell v. Page, 54 A.D.2d 540, 387 N.Y.S.2d 253 (1st Dep't 1971), aff'd, 35 N.Y.2d 669, 360 N.Y.S.2d 886, 319 N.E.2d 201 (1974).

 In Luxonomy Cars, Inc. v. Citibank, 65 A.D.2d 549, 408 N.Y.S.2d 951 (2d Dep't 1978), a case relied upon heavily by Phoenix, the plaintiff made no independent allegation of fraud, but rather charged that the defendant had become liable in tort for behaving "recklessly" and "in bad faith." The court determined that a tort action may accompany a breach of contract suit where the contract creates a relationship out of which springs a duty independent of the contractual obligation and that independent duty is also violated. Id. at 550, 408 N.Y.S.2d 951. Here, the defendant allegedly breached a duty independent of the contract by making affirmative misrepresentations to induce plaintiffs' continuing performance and reliance. Upon these circumstances, a claim for fraudulent misrepresentation pleaded with a claim for breach of contract will survive a motion to dismiss.

 Accordingly, the defendant's motion to dismiss Count 3 of the complaint is denied.

 Count 4 Wrongful Discharge

 In Count 4 plaintiffs allege that Phoenix wrongfully, fraudulently and illegally terminated their employment because of their refusal to relinquish, without compensation, their right to be paid as promised for credits earned and accumulated during their period of employment with the defendant. (Complaint PP 73, 76). Additionally, plaintiffs allege that they have sustained damages including, but not limited to, the loss of future override renewal commissions on Phoenix policies sold by plaintiffs prior to their termination. For the reasons stated below, defendant's motion to dismiss Count 4 is granted.

 In New York, "(it) is well settled that unless there is a definite period of service specified in a contract, the hiring is at will and the employer has the right to discharge and the employee to leave at any time, without advance notice, and neither has any cause of action against the other .... Stated in other terms, an employee who does not work under an agreement for a definite term of employment may be discharged at any time, with or without cause ...." Grozek v. Ragu Foods, Inc., 63 A.D.2d 858, 406 N.Y.S.2d 213 (4th Dep't 1978). Accord, Parker v. Borock, 5 N.Y.2d 156, 159, 182 N.Y.S.2d 577, 156 N.E.2d 297 (1959); Chase v. United Hospital, 60 A.D.2d 558, 559, 400 N.Y.S.2d 343 (1st Dep't 1977); Walford v. British Caledonian Airways, 52 A.D.2d 922, 383 N.Y.S.2d 401 (2d Dep't 1976); Cartwright v. Golub Corp., 51 A.D.2d 407, 409, 381 N.Y.S.2d 901 (3d Dep't 1976); Powell v. Board of Higher Education of the City of New York, 38 A.D.2d 541, 327 N.Y.S.2d 292 (1st Dep't 1971), aff'd, 30 N.Y.2d 889, 335 N.Y.S.2d 438, 286 N.E.2d 921 (1972); Laiken v. American Bank & Trust Co., 34 A.D.2d 514, 308 N.Y.S.2d 111 (1st Dep't 1970).

 That New York courts continue to adhere to the principle that employment contracts for an indefinite period of time are terminable at will is demonstrated by two recent cases wherein claims of wrongful discharge were resolved in favor of defendant employers. Edwards v. Citibank, 74 A.D.2d 553, 425 N.Y.S.2d 327 (1st Dep't 1980), affirming 100 Misc.2d 59, 418 N.Y.S.2d 269 (Sup.Ct.N.Y.Co.1979); Marinzulich v. National Bank of North America, 73 A.D.2d 886, 423 N.Y.S.2d 1014 ...


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