United States District Court, Southern District of New York
May 12, 2003
GERARD M. ARNONE, PLAINTIFF, AGAINST DEUTSCHE BANK, AG, DEUTSCHE BANK AG, NEW YORK BRANCH, AND BANKERS TRUST COMPANY, DEFENDANTS.
The opinion of the court was delivered by: Miriam Goldman Cedarbaum, United States District Judge
This is a diversity action to remedy an alleged breach of contract by the defendants Deutsche Bank, AG, Deutsche Bank AG, New York Branch, and Bankers Trust Company.*fn1 Defendants have moved for summary judgment.
Plaintiff Gerard M. Arnone ("Arnone") is suing defendants Deutsche Bank AG, Deutsche Bank AG, New York Branch, and Bankers Trust Company (the "Bank") for a breach of contract related to his termination from employment at the Bank. The complaint states that defendants have refused to pay Arnone a bonus for securing certain Taft-Hartley business for the Bank, "despite the promises and assurances" of his supervisors that Arnone had earned the bonus and that it would be paid to him in the amount of $825,000.
Arnone was employed by the Bank in 1987 as a Vice President in the Global Institutional Sales division. His assignment was to market custody and investment management services to institutional trust funds, specifically to union pension funds. This type of banking activity is traditionally known as "Taft-Hartley" business. In or about 1997, Arnone was promoted by the Bank to the title of Managing Director. During the period relevant to the claim in this case, i.e., between 1998 and 2000, Arnone reported to Douglas W. Doucette ("Doucette"), Managing Director and Head of the Client Management Group. Doucette, in turn, reported to Timothy F. Keaney ("Keaney"), Managing Director and Head of the Retirement Services Group.
Plaintiff alleges that the Bank instituted a new standard in 1998 under which it rewarded its managers/salespeople with bonuses based upon the profitability of the banking product or service sold, sometimes referred to as the "gold/silver/bronze" standard.
Arnone led a formal presentation to the Central States Teamsters ("CST") in September 1998 on behalf of the Bank to bid for a potentially lucrative investment management appointment. In October 1998, CST decided to award the Bank some $3 billion in Taft-Hartley trust management business. Then, in December 1998, CST notified the Bank that it had decided to award the Bank an additional 35% of the assets of CST's pension fund to manage as named fiduciary, raising the total amount of CST assets under management by the Bank to approximately $9 billion. By early January 1999, CST had transferred approximately $1 billion to the Bank to manage, and was in the process of transferring the remainder of the $9 billion award.
In early December 1998, Arnone confirmed with Keaney his expectation of a bonus of at least $800,000 based on the "gold standard" and the CST business brought into the Bank. Arnone further confirmed with Doucette in early January 1999 his expectation of a bonus at the "gold standard" of payment based on the CST business.
However, the Bank was involved in an "escheatment issue" that ultimately caused the Bank to withdraw from the CST fiduciary business. In January 1999, after the Bank received the initial one billion dollars from CST, Arnone learned for the first time that a separate division of the Bank was under investigation by both the United States Department of Justice and the New York State Attorney General for failing to escheat to New York State authorities approximately $19.1 million in unclaimed, abandoned funds. Plaintiff had no involvement in the escheatment issue.
As a result of the escheatment problem, and the failure of the Bank to disclose the problem to CST during the bidding process, the Bank was forced to resign from the management of the CST account in or about February 1999. Thereafter, on or about March 11, 1999, the Bank publicly announced that it would plead guilty to a felony and pay fines to the federal and state governments totaling approximately $63.5 million. It is undisputed that the Bank resigned as fiduciary before it earned any revenue on the CST account. It is also undisputed that bonuses at the Bank were calculated based upon actual revenue received, whether under the old discretionary bonus system or under the precious metal standard.
However, Arnone maintains that the Bank made a separate and distinct promise to pay him a bonus as if the CST business had been retained. Arnone and his supervisors Doucette and Keaney had several conversations regarding his bonus after the Bank resigned from the CST account in February 1999.
According to Arnone, in October 1999 he spoke with Keaney about the amount of bonus he would receive for having brought in the CST pension business. In the lobby of the Bankers Trust building at 130 Liberty Street, Keaney put his arm around Arnone and said, "you know, Jerry, we're going to pay you as if the Central States Teamsters business came in."
It is undisputed that plaintiff did not receive a bonus for 1999, and the Bank terminated his employment in February 2000.
Defendants move for summary judgment dismissing this action. They argue that they are entitled to summary judgment on the breach of contract claim because there was no binding agreement to pay Arnone a certain bonus or any bonus at all.
Standard for Summary Judgment
A motion for summary judgment shall be granted if the court "determines that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56. See also Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). A genuine issue of material fact exists when the evidence is such that a reasonable finder of fact could return a verdict for the nonmoving party. Anderson v. Liberty Lobby, 477 U.S. 242, 250 (1986); Richardson v. Coughlin, 763 F. Supp. 1228, 1234 (S.D.N.Y. 1991). In deciding whether a genuine issue exists, the court must "examine the evidence in the light most favorable to the party opposing the motion, and resolve ambiguities and draw reasonable inferences against the moving party." In re Chateaugay Corp., 10 F.3d 944, 957 (2d Cir. 1993). But "Rule 56(c) mandates the entry of summary judgment . . . against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which the party will bear the burden of proof at trial." Celotex, 477 U.S. at 322.
To recover on a breach of contract claim under New York law, a plaintiff must establish the following four elements: (1) the existence of an enforceable contract; (2) performance of the contract by one party; (3) breach by the other party; and (4) damages. Rexnord Holdings, Inc. v. Bidermann, 21 F.3d 522, 525 (2d Cir. 1994) (citing Bank Itec NV v. J. Henry Schroder Bank & Trust Co., 612 F. Supp. 134, 137-38 (S.D.N.Y. 1985)). At trial, plaintiff will have to present evidence of every element of his breach of contract claim. To survive a motion for summary judgment, plaintiff must raise a genuine issue of disputed fact with respect to the enforceability of an agreement based upon past consideration.
The facts considered for purposes of defendants' summary judgment motion are the undisputed facts and plaintiff's version of the disputed facts.
The general rule in New York is that past consideration is not consideration, because the promise was not induced by the consideration. Pershall v. Elliot, 249 N.Y. 183, 188, 163 N.E. 554, 556 (1928).
In this case, the winning of the CST business in October 1998 had already taken place before the Bank had to resign from the management of CST's pension fund assets in February 1999. Therefore, plaintiff's work in winning the CST bid could not have been bargained for in exchange for the subsequent promise by the Bank to pay plaintiff a bonus as if the CST business had been retained. It is irrelevant that the CST business was subsequently lost through no fault on plaintiff's part. The Bank received no revenue from the CST deal, and therefore would not have paid any revenue-based bonuses. Arnone claims that the Bank made a separate and distinct promise to pay him a bonus despite the fact that the CST deal did not generate revenue for the Bank.
However, since Keaney's October 1999 promise to pay plaintiff "as if the Central States Teamsters business came in" and Doucette's November 1999 promise to calculate plaintiff's bonus as if the CST bonus had been retained at the "gold" level of payout under the precious metal standard were made after the Bank's resignation from the CST business in February 1999, the promises could not have induced plaintiff's already-rendered service. There was no consideration for Keaney or Doucette's oral promise to pay plaintiff a bonus irrespective of the fact that the Bank had received no revenue from the failed CST deal. Thus, their oral promises to pay plaintiff are unenforceable.
Under New York law, there is an exception to the general rule that past consideration is not valid to support a contract, if there is a writing signed by the party to be bound. N.Y. Gen. Oblig. Law § 5-1105 (McKinney, 1989). New York's General Obligations Law § 5-1105 states:
A promise in writing and signed by the promisor or by
his agent shall not be denied effect as a valid
contractual obligation on the ground that
consideration for the promise is past or executed, if
the consideration is expressed in the writing and is
proved to have been given or performed and would be
valid consideration but for the time when it was given
or performed. N.Y. Gen. Oblig. Law § 5-1105
This exception, however, is not applicable to the present case because none of the writings qualify. In order for a plaintiff to recover for a breach of contract under this statutory provision, there must be a written unequivocal promise to pay a sum certain, which recites the past consideration and which is signed by the promisor. Umscheid v. Simnacher, 106 A.D.2d 380, 381, 482 N.Y.S.2d 295, 297 (2d Dep't 1984).
Plaintiff proffers as a sufficient writing a February 9, 2000 email from Douglas Doucette to Diane Merenda of Human Resources, with copies to Allen Murray and John Gibbons III. The email details a "proposed bonus submission" for plaintiff. For the Central States Teamsters account, "the initial sale was valued at $2,800,000 effective 1/1/00." Doucette further wrote that "[b]ased on the asset consulting payout rate of 5% as outlined in the proposed (but not approved) sales compensation plan, this business would be worth approximately $140,000 in incentive compensation."
Then, referring to the fact the Bank had resigned from the CST account, Doucette's email states:
in recognition of the fact Bankers Trust opted to
resign from the account within 3 weeks of
transitioning the assets for reasons completely
outside of [Arnone's] control, I recommend we
compensate him for the initial win and half the value
of the incremental assets. This would translate into
$140,000 plus half the potential compensation value of
the incremental revenue (equivalent to approximately
$150,000) or a total amount of $300,000.
Plaintiff argues that since Doucette wrote this February 9, 2000 email after the Bank resigned from the CST account, it is written evidence that there was an agreement, that the parties understood the essential terms, and that there was a meeting of the minds.
However, this writing is not sufficient to support a promise based on past consideration under § 5-1105. The email does not sufficiently state the consideration Arnone provided, nor prove that the consideration was given or performed by Arnone in exchange for the Bank's promise to pay him a bonus. Nor did the email show, as plaintiff suggests, that he forbore the opportunity to go elsewhere for employment as consideration for a bonus payment. Doucette "recommend[ed]" that the Bank compensate Arnone for the initial win. But the email is not addressed to Arnone, and is merely an internal memo referring to a method of calculating a bonus.
The other writings involved in this case also do not satisfy the statutory requirement of New York's General Obligations Law § 5-1105 because they are not signed by the party to be bound, the Bank, or its agents. Plaintiff had sent written notes to Doucette and Keaney regarding his bonus expectations, including his email of January 10, 2000, but these writings were not signed by the promisor (the Bank, Keaney, or Doucette). Thus, these other writings do not qualify under § 5-1105.
Moreover, Arnone offers no evidence that he changed his position in reliance on the promise he seeks to enforce. Arnone argues that by remaining at the Bank and working to retain the CST and other Taft-Hartley accounts after the disclosure of the escheatment investigation, sufficient consideration existed to enforce an oral contract upon a theory of a separate and independent bonus agreement, or as a modification of an earlier implied agreement to pay him a bonus, or promissory estoppel. While Arnone was an at-will employee and had a right to leave his employment at the Bank, these alternative theories fail because there is no evidence in the record that Arnone was going to leave the Bank after the escheatment scandal, had made plans to pursue employment elsewhere, or that he otherwise changed his position in reliance on any promise by the Bank.
Plaintiff has failed to show the existence of a genuine issue of material fact that would preclude summary judgment. Based on Arnone's own version of the facts, he did not have an enforceable contract with the Bank to pay him a bonus as if the CST business had actually generated revenue.
For the foregoing reasons, defendants' motion for summary judgment is granted.