Plaintiff Marshall Manley brought an action against defendant
AmBase Corporation ("AmBase") for breach of contract. AmBase
filed a counterclaim alleging fraud and seeking reformation of
the contract and damages. Manley's breach of contract claim was
tried to a jury from May 9 through May 17, 2000.*fn1 On May 17
the jury returned a verdict in favor of Manley in the amount of
$1.8 million. Tr. at 826-27.*fn2 AmBase now moves for judgment
as a matter of law pursuant to Rule 50(b), Fed.R.Civ.P., and for
a new trial pursuant to Rule 59(a), Fed.R.Civ.P. For the
following reasons, both of AmBase's motions are granted and a new
trial is ordered.
I. Manley's Employment at AmBase and Finley Kumble
Manley served as President of the Home Group, Inc. (the "Home
Group"), which later became AmBase, from March 8, 1985 through
March 15, 1990. He also served as a Director of the Home Group
and AmBase from March 8, 1985 through January 31, 1991. P.T.O.
para. 2.*fn3 From December 18, 1987 through March 15, 1990,
Manley served as Chief Executive Officer of the Home Group, then
In 1981, prior to commencing his employment with the Home
Group, Manley incorporated a professional corporation under the
laws of California called Marshall Manley P.C., which served as a
partner at the law firm of Finley, Kumble, Wagner, Heine,
Underberg, Manley, Myerson & Casey ("Finley Kumble"). Tr. at 107,
180, 184; Def. Ex. B.*fn4 Manley was the sole shareholder of
Marshall Manley P.C. Tr. at 44.
George Scharffenberger, the Chairman and Chief Executive
Officer of the Home Group, in discussions leading to Manley's
employment as President, requested that
Manley remain at Finley Kumble after Manley commenced his
employment with the Home Group. Id. at 89-93. Manley never told
anyone at the Home Group, or later, AmBase, about
Scharffenberger's request. Id. at 254-58. AmBase had a custom
and practice that requests that its officers and directors serve
at unaffiliated entities be made to the personnel committee which
would, if appropriate, authorize the appointment. Id. at 473;
J. Ex. 2, 7, 8, 9, 11, 12, 17, 18, 21, 215, and 216;*fn5 Def.
Ex. F, at 10-11, 26-27. Manley never requested that AmBase's
personnel committee pass a resolution authorizing him to continue
serving at Finley Kumble. Tr. at 256.
Marshall Manley P.C. continued to serve as a Finley Kumble
partner until 1987, when it withdrew as a partner and agreed to
continue at the firm in an "of counsel" role. Id. at 107; J.
Ex. 11, at 3. Scharffenberger and the AmBase Board of Directors
knew that Marshall Manley P.C. was a partner at Finley Kumble
while Manley was employed by AmBase. Tr. at 82; J. Ex. 4, at 2;
J. Ex. 6, at 1; J. Ex. 11, at 4; J. Ex. 42; J. Ex. 45. They also
knew that Marshall Manley P.C. was receiving compensation from
Finley Kumble at the same time Manley was receiving compensation
from AmBase. Tr. at 469.
II. The Finley Kumble Bankruptcy
In February 1988, Finley Kumble became the subject of an
involuntary petition under the federal bankruptcy laws. P.T.O.
para. 4. The trustee of the Finley Kumble bankruptcy estate,
Francis Musselman (the "Trustee"), and certain creditors of the
estate, commenced actions against Manley and Marshall Manley P.C.
(the "Finley Kumble Bankruptcy Actions"). Tr. at 108; J. Ex. 87,
88; P.T.O. para. 5.
Manley told Scharffenberger about the Finley Kumble Bankruptcy
Actions, at which point AmBase retained the law firm of Cravath,
Swaine & Moore ("Cravath") to defend Manley in these actions. Tr.
at 109-10; P.T.O. para. 6. AmBase also retained a bankruptcy law
firm, Zalkin, Rodin & Goodman ("Zalkin"), and an accounting firm,
Grant Thornton, to assist Manley in his defense of the Finley
Kumble Bankruptcy Actions. P.T.O. para. 7. The fees of Cravath,
Zalkin, and Grant Thornton were paid by AmBase. Tr. at 111;
P.T.O. para. 8.
III. The 1991 Trustee Settlement Agreement
Manley, Marshall Manley P.C., and the Trustee entered into a
settlement agreement, dated September 24, 1991 (the "1991 Trustee
Settlement Agreement"), which resolved the Finley Kumble
Bankruptcy Actions in exchange for certain undertakings and
future payments to be made by Manley. P.T.O. para. 9. Manley was
required to pay $1.452 million four years after the date of the
agreement, and $1.68 million five years after the date of the
agreement. Manley was also required to pay a percentage of his
income in the sixth year after the date of the agreement and
continue to do so until 2001. Tr. at 126-27. The present value of
the settlement in 1991 was estimated to be $4.5 million.
Paul Dodyk of Cravath negotiated the 1991 Trustee Settlement
Agreement on Manley's behalf. Id. at 125, 306-07. Manley told
Scharffenberger that he had entered into the 1991 Trustee
Settlement Agreement soon after it was executed. Id. at 232-35.
The agreement was also disclosed to the Bankruptcy Court by the
Trustee, and was the subject of press articles. P.T.O. para. 10.
IV. The 1991 AmBase Action and 1993 AmBase Settlement Agreement
On October 22, 1991, Manley filed an action against AmBase (the
"1991 AmBase Action"). J. Ex. 85; P.T.O. para. 13. In the Third
Claim for Relief, Manley sought a declaration that he was
entitled to indemnification
for various shareholder derivative actions and other litigations.
Paragraph 24 of the complaint listed eighteen litigations for
which Manley was seeking indemnification. J. Ex. 85, at 8-9,
para. 24. Neither paragraph 24 nor any other portion of the
complaint in the 1991 AmBase Action identifies the Finley Kumble
Bankruptcy Actions or Manley's obligation to make payments to the
Trustee. Manley never amended the complaint to identify the
Finley Kumble Bankruptcy Actions, or his obligation to make
payments to the Trustee. Tr. at 562.
Manley and AmBase resolved the 1991 AmBase Action pursuant to a
written agreement dated May 27, 1993 (the "1993 AmBase Settlement
Agreement"). P.T.O. para. 14. Paragraph 5 of the agreement
stated, in relevant part:
5. (a) If Manley has been or is made a party or is
threatened to be made a party to any action, suit or
proceeding . . . by reason of the fact that he was a
director or officer of AmBase or any current or
former subsidiary of AmBase, or by reason of the fact
that he was serving at the request of AmBase as a
director, officer, member, employee or agent of
another corporation or of a partnership, joint
venture, trust or other enterprise . . . he shall be
indemnified and held harmless by AmBase to the
fullest extent authorized by Delaware law, as the
same exists or may hereafter be amended, against all
expense, liability and loss . . . reasonably incurred
or suffered by Manley in connection therewith,
including, without limitation, payment of expenses
incurred in defending a Proceeding prior to the final
disposition of such Proceeding.
(b) If a claim under ¶ 5(a) is not paid in full by
AmBase within 30 days after a written claim has been
received by the Company, Manley may at any time
thereafter bring suit against AmBase to recover the
unpaid amount of the claim and, if successful in
whole or in part, Manley shall be entitled to be paid
also the expense of prosecuting such claim. It shall
be a defense to any such action that Manley has not
met the standards of conduct which make it
permissible under Delaware law for the Company to
indemnify him for the amount claimed; provided
however, that the allegations, facts and
circumstances which form the basis of any claims that
AmBase asserted against Manley in the Action shall
not be considered as a basis for refusing any
indemnification which Manley is otherwise entitled to
hereunder or at law.
J. Ex. 68, at 6, para. 5.
V. The 1993 Trustee Settlement Agreement
On December 30, 1993, Manley and Marshall Manley P.C. entered
into a settlement agreement (the "1993 Trustee Settlement
Agreement") with Albert Togut, the Finley Kumble Liquidation
Trustee (the "Liquidation Trustee"), pursuant to which Manley and
Marshall Manley P.C. agreed to pay $2.43 million in full
satisfaction of all sums due under the 1991 Trustee Settlement
Agreement. J. Ex. 75. After payment of the settlement, the Finley
Kumble Bankruptcy Actions against Manley and Marshall Manley P.C.
were dismissed with prejudice by Orders of the Bankruptcy Court
dated October 12, 1994. J. Ex. 84. Manley entered into the 1993
Trustee Settlement Agreement without the knowledge or
participation of AmBase. During the negotiations leading to the
1993 Trustee Settlement Agreement, Manley and Marshall Manley
P.C. were represented by Peter Calamari, who was not retained by
By letter dated July 22, 1996, Manley made a demand upon AmBase
for indemnification for the $2.43 million paid to the Liquidation
Trustee. J. Ex. 126. AmBase first learned of this claim when it
received Manley's demand letter. Tr. at 942. By letter dated
October 3, 1996, AmBase rejected the claim. J. Ex. 127.
AmBase moves for judgment as a matter of law and, in the
alternative, for a new trial, on several grounds: first, that
Manley failed to give AmBase notice of, and an opportunity to
defend, the Finley Kumble Bankruptcy Actions and settlement;
second, that Manley did not act in good faith and acted in a
manner opposed to the best interests of AmBase; third, that
AmBase never actually hired Manley, and therefore, it could not
have made a request that he serve at Finley Kumble; fourth, that
Manley never served at Finley Kumble at the request of AmBase
because the partner at Finley Kumble was, in fact, Marshall
Manley P.C.*fn6 The Court finds that AmBase is entitled to have
the jury verdict set aside because Manley failed to prove that he
served as a partner at Finley Kumble at the request of AmBase.
The Court also finds that judgment as a matter of law should not
be entered in favor of AmBase, but instead, a new trial is
I. The Jury's Verdict Should be Set Aside
In ruling on a renewed motion pursuant to Rule 50(b),
Fed.R.Civ.P., for judgment as a matter of law after trial a
district court must consider the evidence in the light most
favorable to the non-movant, giving that party the benefit of all
reasonable, favorable inferences the jury might have drawn from
the evidence. Jones v. Spentonbush-Red Star Co., 155 F.3d 587,
591 (2d Cir. 1998). The court should not consider the credibility
of the witnesses or otherwise assess the weight of conflicting
evidence, since that is the jury's role. Id. Furthermore, when
considering the jury's verdict, the court must recognize that
"juries are presumed to follow the law as instructed to them by
the court." Branch v. Ogilvy & Mather, Inc., 772 F. Supp. 1359,
1362 (S.D.N.Y. 1991). Thus, the court may set aside a jury
verdict only if
no evidence exists to support the jury's verdict and
the verdict it reached could have been based on
nothing more than surmise and conjecture or where
there is such overwhelming evidence in favor of the
movant that reasonable and fairminded jurors could
not arrive at a verdict against the movant.
Jones, 155 F.3d at 591.
A. Reasonableness of the Settlement and Notice to the
AmBase first argues that Manley failed to establish at trial
that he gave AmBase a reasonable opportunity to defend him in the
Finley Kumble Bankruptcy Actions or to approve the 1991 Trustee
Settlement Agreement. Therefore, AmBase argues, Manley was
required to prove his actual liability in the Finley Kumble
Bankruptcy Actions, which he failed to do. Manley counters that
he was only required to prove his potential liability because he
afforded AmBase sufficient notice and an opportunity to defend