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MANLEY v. AMBASE CORP.

December 1, 2000

MARSHALL MANLEY, PLAINTIFF,
V.
AMBASE CORPORATION, DEFENDANT.



The opinion of the court was delivered by: Ward, District Judge.

    OPINION

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.

BACKGROUND

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 AmBase. Id.

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

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 AmBase.

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.

DISCUSSION

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 warranted.

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 ...

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