that McClenahan was acting "on behalf of Imperial" when he terminated Mass as Imperial's attorney. Moreover, plaintiff has made no allegations which might show that McClenahan was pursuing an interest separate from that of Imperial when he dismissed Mass as the corporation's president, CEO and lawyer. See Girard, 530 F.2d at 71-72. Thus plaintiff's § 1985(3) claim against Imperial and McClenahan does not satisfy the statute's "conspiracy" requirement, and summary judgment in favor of these defendants on this claim is granted.
III. The Breach of Contract Claim
Plaintiff has named both Imperial and McClenahan as defendants on his claim for breach of the employment contract. Both defendants seek summary judgment on the ground that the agreement is void and unenforceable. McClenahan also argues that, even if the agreement is enforceable, he cannot be held liable for Imperial's breach of the agreement.
A. The Enforceability of the Contract
The defendants contend that the employment contract into which Mass and Imperial entered is unenforceable because plaintiff did not observe the requirements of the Nevada Supreme Court's Rule of Professional Conduct 158(1) when negotiating the contract.
The court agrees that Nevada law controls on this issue. The validity of a contract must be determined according to the law of the state having the greatest interest in its formation. See Stephens v. American Home Assur. Co., 811 F. Supp. 937, 946 (S.D.N.Y. 1993). Here, the contract between Mass and Imperial was negotiated in large part in Nevada and was made there; and, as discussed below, Nevada has a significant interest in protecting Imperial, a corporation organized under its laws and doing business within the state, from the possible "overreaching" of Mass, Imperial's attorney. New York's interests in the formation of the contract are comparatively minor.
However, the court rejects defendants' contention that a contract that violates the terms of SCR 158(1) is per se unenforceable.
No Nevada court has held that a violation of the rule automatically voids the resulting contract. Indeed, when applying SCR 158(a) to an attorney for disciplinary purposes, Nevada's highest court emphasized the need for compliance with the "spirit and purpose" of the rule rather than with the rule's exact requirements. In re Singer, 109 Nev. 1117, 865 P.2d 315, 317 (Nev. 1993). There is no reason to believe that Nevada's courts would take a different approach when determining whether to enforce a contract between a lawyer and his client.
Although defendants' reliance on the precise terms of SCR 158(a) is unwarranted, it is clear that the contract at issue would be unenforceable if it were found that Mass had exercised undue influence over Imperial when the contract was executed. Nevada's courts have held that, when an attorney deals with his client for the former's benefit, a presumption arises that the transaction between them is improper. See In re Singer, 109 Nev. 1117, 865 P.2d 315, 317 (Nev. 1993); Davidson v. Streeter, 68 Nev. 427, 234 P.2d 793, 799 (Nev. 1951). To overcome that presumption, "an attorney must demonstrate by...clear and satisfactory evidence that the transaction was fundamentally fair and free of professional overreaching." Williams v. Waldman, 108 Nev. 466, 836 P.2d 614, 618 (Nev. 1992). As explained by the Williams court, public policy requires the lawyer to show that he (1) made sure that his client was fully informed as to the nature and effect of the proposed transaction, and (2) saw to it that his client either received independent advice in the matter, or else received from the attorney the same advice that the attorney would have given had the transaction between his client and a stranger. 836 P.2d at 618-19.
There is, at the very least, a genuine question of fact as to whether Mass has met these requirements. Mass negotiated for his contract over a period of several weeks with McClenahan, an experienced entrepreneur who routinely decided who to hire as Imperial executives, how much to pay them, when to fire them, and whether to make them sign noncompetition agreements. Celli Aff. Ex. D, at 168-70; id. Ex. E, at 161-63; id. Ex. F at 20-22, 30-32, 34-35; id. Ex. J, at 16; id. Ex. K, at 83-84; id. Ex. L, at 68-72. Under these circumstances, it is difficult to believe that McClenahan did not understand the "nature and effect" of Mass' employment agreement. Certainly McClenahan did not lack sources of "independent advice": Mass testified at his deposition that, a month before the agreement was signed, McClenahan told him that he planned to "have the agreement reviewed by his professionals, by his lawyers, by other people." Levi Aff. Ex. C, at 139.
Since the parties' submissions would allow a reasonable factfinder to conclude that the employment contract was not the product of "overreaching" on Mass' part, defendants' motion for summary judgment on that ground is denied.
B. McClenahan's Liability on the Contract Claim
However, the court can find no reason to hold McClenahan liable for any breach of the employment contract by Imperial. Mass contends that McClenahan should be held liable for Imperial's breach on a veil-piercing theory; but "it is well settled that New York courts are reluctant to disregard the corporate entity." Wm. Wrigley Jr. Co. v. Waters, 890 F.2d 594, 600 (2d Cir. 1989).
In general, to justify piercing the corporate veil, a plaintiff must show that "(1) the owner exercised complete domination of the corporation in respect to the transaction attacked; and that (2) such domination was used to commit a fraud or wrong against the plaintiff which resulted in plaintiff's injury." Morris v. Dep't of Taxation & Finance, 82 N.Y.2d 135, 603 N.Y.S.2d 807, 810-11, 623 N.E.2d 1157 (Ct. App. 1993); cf. Itel Containers Int'l Corp. v. Atlanttrafik Exp. Serv. Ltd., 909 F.2d 698, 703 (2d Cir. 1990) (New York law allows veil to be pierced either when there is fraud, or when corporation has been used as alter ego). However, "because a decision whether to pierce the corporate veil in a given instance will necessarily depend on the attendant facts and equities, the New York cases may not be reduced to definitive rules governing the varying circumstances when the [veil-piercing] power may be exercised." Morris, 603 N.Y.S.2d at 810.
Plaintiff has not satisfied the two-prong test set forth in Morris. First, it is not clear that, with respect to the employment contract, McClenahan "dominated" Imperial so "completely" that it was reduced to a mere instrumentality of his. See Lowendahl v. Baltimore & Ohio R. Co., 247 A.D. 144, 287 N.Y.S. 62, 75 (App. Div.), aff'd, 272 N.Y. 360, 6 N.E.2d 56 (Ct. App. 1936). It is true that McClenahan himself negotiated the terms of the contract. But Imperial, not McClenahan, would have benefited from the services Mass was to render under the agreement; and Imperial, not McClenahan, was to pay Mass' salary. Mass claims that McClenahan agreed to guarantee Imperial's obligations under the contract; but there is no evidence that Imperial either would not or could not itself have paid Mass.
However, even assuming that plaintiff did "completely dominate" Imperial with respect to the making and breach of Mass' employment contract, Mass has not satisfied the second prong of the Morris test: he has produced no evidence which might show that McClenahan "misused the corporate form for his personal ends so as to commit a wrong or injustice on [Mass]." 603 N.Y.S.2d at 811. There is no indication that McClenahan sought to further his personal interests, rather than those of Imperial, when he negotiated and later terminated the employment contract. Nor has Mass shown that, by choosing to use the corporate form instead of doing business in his personal capacity, McClenahan somehow tricked or took advantage of Mass. See Guptill Holding Co. v. State, 33 A.D.2d 362, 307 N.Y.S.2d 970, 973 (App. Div. 1970), aff'd, 31 N.Y.2d 897, 340 N.Y.S.2d 638, 292 N.E.2d 782 (Ct. App. 1972); 18 Am. Jur. 2d Corporations § 51. Thus, under the circumstances of the present case, piercing the corporate veil would be unjustified.
Plaintiff argues that even if the present case does not lend itself to piercing the corporate veil, McClenahan is nonetheless liable for any breach of the employment agreement by Imperial. Mass claims that McClenahan orally agreed to guarantee Imperial's obligations under the contract, and adds that he later provided McClenahan with a written guarantee for McClenahan's signature. However, under New York law, a promise to answer for the obligation of another must be in writing and signed by the party to be charged in order to be enforceable. G.O.L. § 5-701(a)(2). Thus McClenahan's oral guarantee is unenforceable; and since McClenahan never signed the written guarantee submitted to him by Mass, it is unenforceable as well.
Accordingly, McClenahan's motion for summary judgment dismissing plaintiff's breach of contract claim against him is granted.
Dated: New York, New York
May 2, 1995
JOHN S. MARTIN, JR., U.S.D.J.