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United States District Court, Southern District of New York

July 3, 2003


The opinion of the court was delivered by: Charles Haight, United States District Judge


Plaintiff Paul Knoll brings suit against Merrill Corporation ("Merrill") and Merrill Communications LLC (collectively "Merrill") and certain of Merrill's officers to recover damages arising out of the allegedly unlawful termination of his employment. Knoll alleges that he suffered from depression and anxiety, and that when he made this condition known to the defendants, he was terminated. This case is currently before the Court on a motion by the defendants for partial summary judgment dismissing plaintiff's first four claims, and a cross-motion by the plaintiff to strike defendants' third affirmative defense.


The complaint adequately alleges subject matter jurisdiction based on diversity of citizenship under 28 U.S.C. § 1332.*fn1

Plaintiff asserts eight claims for relief, the first four being the targets of defendants' motion for partial summary judgment. Those claims allege that by discriminating against him based upon his disability and his membership in a protected class, defendants contravened (1) N.Y.C. Admin. Code § 8-107 and (2) N.Y. Exec. Law § 290 et seq.; and individually and in consort contravened (3) N.Y. Exec. Law § 296(6) and (4) N.Y. Exec. Law § 290 et seq. Complaint 28-65. The defendants answer with twelve affirmative defenses, only the third of which is relevant for the purposes of this motion. This third affirmative defense is comprised of a release agreement (the "Release") executed on March 23, 2001, Answer ¶ 97, in which plaintiff agreed to "give up and unconditionally release Merrill from" any rights plaintiff had arising out of his employment and termination of employment,

including, but not limited to, claims for violation of the Age Discrimination in Employment Act ("ADEA"); violation of The Americans with Disabilities Act; violation of Title VII; violation of any other federal, state or local laws, including civil rights laws, based on any protected class status; breach of contract; fraud or misrepresentation; defamation; intentional or negligent infliction of emotional distress; breach of the covenant of good faith and fair dealing; promissory estoppel; negligence or any other breach of duty; wrongful termination of employment; retaliation; harassment; my conduct as a "whistleblower"; violation of the Family and Medical Leave Act; violation of the Worker Adjustment and Retraining Notification Act; attorneys' fees; breach of public policy; failure to pay wages or benefits; or any other claims for unlawful employment practices whether legal or equitable.
Release at 1.*fn2 Defendants contend that the Release was entered into knowingly and voluntarily, and constitutes a valid of waiver of the enumerated claims. Defendants' Memorandum of Law in Support of the Motion for Partial Summary Judgment at 14 ("Defendant's Support Memorandum").

Plaintiff advances four arguments in response to the preclusive use of the Release. First, plaintiff relies upon a Minnesota statute that requires a releasee to give a releasor written notice of the releasor's right to rescind the release within 15 days of its execution. Merrill did not give that notice to Knoll, and Knoll contends that this failure renders the Release unenforceable. Second, plaintiff contends that defendants breached a "No Defamation" provision, which states that the "parties agree that neither shall speak of the other party in a derogatory or defamatory way," Release at 2, and that this breach renders the Release unenforceable and void. Third, plaintiff states that because he did not have the requisite capacity to enter into the Release and that his lack of capacity was known to the defendants at the time of contracting, the Release is unenforceable. Fourth, plaintiff argues he did not knowingly and voluntarily enter the Release, also rendering it unenforceable. Plaintiff's Memorandum of Law in Opposition to the Motion at 1-2 ("Plaintiff's Opposition Memorandum"). Based on these four arguments, plaintiff not only defends the first four claims he makes in his Complaint, but moves to strike the affirmative defense involving the Release.

Before turning to a discussion of the legal arguments made by counsel, it is useful to give a brief account of the facts, particularly those that pertain to plaintiff's termination and his signing of the Release.


Merrill is a national and international document and communications services company, providing a range of services to the financial, legal and corporate sectors. Paul Knoll was hired by Merrill Corporation in December 1998 to serve as the General Manager of Document Management Services for the New York/New Jersey region at an annual salary of $150,000. Defendants' Statement of Undisputed Facts ¶ 3; Complaint ¶ 14. At all times during his employment with Merrill, Lisa Dady was plaintiff's supervisor.*fn3 Complaint ¶¶ 7 & 13. Knoll's client base was located primarily in New York County, and so during the course of his employment he used Merrill's New York City office, located at 225 Varick Street. Id. ¶ 15. The complaint alleges at ¶ 15 that "[w]hile at Merrill, right up to the termination of [Knoll's] employment, [he had] built and developed the North East Region unit to be Merrill's most profitable business unit in the entire country," and that under his supervision his unit "out-performed any other unit in the company." Id. ¶ 14.

Knoll alleges that in or about October 2000 he started experiencing psychological and mental problems arising out of stress and anxiety. He began taking the herb kava to reduce his stress and informed Dady that he was doing so, after which she "[o]n numerous occasions [] both while alone, and while on conference calls with peers and superiors at Merrill, [] would state to plaintiff to `take another Kava.'" Complaint ¶¶ 16-17. In March 2001, Knoll sought treatment from a mental health professional, at which time he was diagnosed with depression and anxiety. He notified Koch and Dady within one week of his diagnosis, and Dady responded by offering to arrange mental health services for him by a Merrill-paid psychologist. Id. ¶ 18.

Notwithstanding that seeming indication of support, on or about March 12, 2001 Dady notified Knoll that he was being terminated from Merrill. "At that time Mr. Knoll inquired as to what had happened to the offer to procure mental health treatment for him, to which Defendant Dady responded that it was no longer an option." Complaint ¶ 19. The plaintiff alleges he was provided with no substantive or work related reason for his termination, and that prior to the March 2001 meeting when he informed the defendants of his mental condition, he was in good standing with the company. He concludes that the sole reason he was terminated from his position was his disability. Complaint ¶¶ 19-20.

Aware of his disability, or at a minimum aware that he was seeking treatment for some problems, Answer ¶ 18, sometime during March 2001 defendants had the plaintiff execute a termination of employment release agreement they prepared. Complaint ¶ 21. The circumstances surrounding the Release and the extent of the parties' negotiations about the terms of plaintiff's termination are the subject of some dispute. What is clear is that between the beginning of March 2001 and the signing of the Release on March 23, 2001, some discussions between Knoll and Merrill took place; Knoll was not at that time represented by counsel. Complaint ¶ 22; Declaration of Brian Gardner (Nov. 5, 2002) ("Gardner Declaration"), Ex. 3. The initial severance offer made by defendants consisted of three months' salary, amounting to $37,500; a subsequent offer was made for three months salary plus unpaid vacation time of $22,613. Plaintiff's Opposition Memorandum at 3. These initial offers also included forgiveness for a loan Knoll received on February 2, 2000 to purchase Merrill stock in the gross amount of $26,000 (net amount of $15,068).

In response to this set of offers, plaintiff sent Dady an email on March 13, 2001 requesting he be paid three additional months of salary (another $37,500). His email stated in relevant part:

Given the fact that my Dr. care for my current medical/mental condition may be for an extended term I think that a 6 month severance package is appropriate and would be appreciated. It may be some time before I am able to focus on a new career or job search efforts.
Gardner Declaration, Ex. 3. He also requested that his email account and office phone number remain active to ensure the continuity of his communications during his employment search. Id. In an email dated March 16, 2001, Dady responded and said she was prepared to provide Knoll a lump sum for his vacation, and cover six months of COBRA, valued at $5,000 for the six months. Id.

The final release contained the following payment provision:

In consideration of the obligations imposed upon me by this Release, Merrill will pay me a lump sum payment of $54,950.00, less applicable authorized withholdings ($4,950 of this amount represents the grossed up cost of six months of COBRA [family medical/dental] expenses). . . . In addition, Merrill agrees to release me from any obligation to repay all or any part of the loan I received on February 2, 2000, in the gross amount of $26,000 (net amount of $15,046.68) that I used to purchase stock in Merrill. I acknowledge the receipt of all compensation earned while an employee, including bonuses and accrued vacation pay owed to me.
Release at 1. The last sentence of the provision quoted supra, the email from Dady, and an affidavit of Dady that states the plaintiff was paid for his vacation time by a separate check from Merrill, Affidavit of Lisa Dady ¶ 8 (December 9, 2002) ("Dady Reply Affidavit"), make clear that Knoll did receive compensation for his unused vacation time. Consideration for the Release thus increased from the initial offer by a total of $17,450: $12,500 representing additional severance compensation, and $4,950 for COBRA coverage.

After the execution of the Release, plaintiff alleges that in or about October 2001 and at other times during this period, defendants made slanderous statements concerning him to members of his business community. He states that "a specifically identified former employee of Merrill and a current employee of Merrill, along with others yet to be identified, were told by Defendant Roning with the knowledge and consent of all of the Defendants that the reason Mr. Knoll was terminated was due to `very illegal activities' on his part." Complaint ¶ 23. Not only does plaintiff allege these statements are untrue, he argues that their impact was significant, since he was trying to reestablish himself in a small business community. Id. ¶¶ 24-25.

These circumstances give rise to plaintiff's action against the defendants, corporate and individual, and to the present cross-motions.


A. Standard of Review

Defendants move for partial summary judgment on the first four of plaintiff s claims. Plaintiff cross-moves to dismiss defendants' third affirmative defense. That cross-motion is the functional equivalent of a motion for partial summary judgment and I will subject it to the same criteria.

Summary judgment shall be granted "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). See also Celotex Corp. v. Catrett, 477 U.S. 317,322 (1986). The party moving for summary judgment bears the burden of demonstrating the absence of a genuine issue of material fact; this burden is satisfied if the moving party can point to the absence of evidence necessary to support an essential element of the non-moving party's claim. Goenaga v. March of Dimes Birth Defects Foundation, 51 F.3d 14, 18 (2d Cir. 1995). If there is "any evidence in the record from any source from which a reasonable inference could be drawn in favor of the non-moving party," then summary judgment should not be granted. Chambers v. TRM Copy Centers Corp., 43 F.3d 29, 37 (2d. Cir. 1994). The substantive law will identify which facts are material. Anderson v. Liberty Lobby, 477 U.S. 242, 248 (1986) ("Only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment.").

A party resisting summary judgment "may not rest upon the mere allegations or denials of the adverse party's pleading, but the adverse party's response, by affidavits or as otherwise provided in this rule, must set forth specific facts showing that there is a genuine issue for trial." Fed.R.Civ.P. 56(e). As Judge Motley aptly stated in Eppendorf-Netheler-Hinz v. Enterton Co., 89 F. Supp.2d 483, 485 (S.D.N.Y. 2000):

[J]udges . . . [are not] required to submit a question to a jury merely because some evidence has been introduced by the party having the burden of proof, unless the evidence be of such a character that it would warrant the jury in finding a verdict in favor of that party. . . .[I]n every case, before the evidence is left to the jury, there is a preliminary question for the judge, not whether there is literally no evidence, but whether there is any upon which a jury could properly proceed to find a verdict for the party producing it, upon whom the onus of proof is imposed.
(citing and quoting Anderson, 477 U.S. at 251). See also Western World Ins. Co. v. Stack Oil, Inc., 922 F.2d 118, 121 (2d Cir. 1990) ("The non-movant cannot escape summary judgment merely by vaguely asserting the existence of some unspecified disputed material facts, or defeat the motion through mere speculation or conjecture.") (citations and internal quotation marks omitted). Thus, the party resisting summary judgment must "come forward with specific facts to show there is a factual question that must be resolved at trial." Donahue v. Artisan, 00-8326, 2002 WL 523407, at *1 (S.D.N.Y April 8, 2002).

The cross-motions in the case at bar turn upon the validity and effect of the Release. If, applying these criteria, the Court decides in plaintiff's favor on any one of his four arguments to invalidate the Release, or decides that there is a triable issue of fact regarding any one of those arguments, then the defendants' motion for partial summary judgment will be denied. Conversely, if the Court decides in favor of the defendants on all grounds and holds the Release enforceable, the defendants' motion will succeed and the plaintiff's cross-motion will fail.

B. The Applicability of Minnesota Law

The Release contains a choice of law provision stating: "The parties agree that any disputes arising under this Release shall be governed by Minnesota law."

In a recent diversity case applying a choice of law provision in a contractual dispute, the Second Circuit said that "[b]ecause this case was brought in a district court within the State of New York, we turn to New York substantive law." RJE Corp. v. Northville Industries Corp., 329 F.3d 310, 314 (2d Cir. 2003). The contract involved in RJE provided that New York law would govern, and the court of appeals went on to say that "[i]t is the general policy of New York courts to enforce choice of law provisions, and we therefore apply New York contract law to determine" the parties' rights and obligations under the contract at issue.

It is not entirely clear, at least to this reader, whether the Second Circuit applied New York law in RJE because that diversity case was brought in a district court within New York, or because the court of appeals was enforcing a choice of law provision that New York law would govern. The case at bar is complicated conceptually by the Release's provision that it is governed not by the law of New York, as in RJE, but by the law of Minnesota; and the New York substantive law which this Court is required to follow in diversity cases includes New York choice of law principles when a choice of law question is presented. Fieget v. Pitney Bowes Credit Corp., 251 F.3d 386, 393 (2d Cir. 2001) ("A federal trial court sitting in diversity must apply the law of the forum state to determine the choice-of-law."). The question arises whether I must conduct a choice of law analysis under the New York cases to determine whether Minnesota or New York law governs the contract. Having raised the question, I conclude that no such analysis is necessary, for two reasons.

First, there is no material difference between the substantive laws of Minnesota and New York with respect to the validity and effect of a release given voluntarily and knowingly by a competent person. In Minnesota, "release law is well established. Courts encourage settlements of disputes and releases, therefore, are generally presumed valid." Spitzmueller v. Burlington Northern Railroad Co., 740 F. Supp. 671, 675-76 (Minn. 1992) (construing Minnesota law). New York law is to the same effect. Golden Pacific Bancorp v. F.D.I.C., 273 F.3d 509, 514 (2d Cir. 2001) (holding that a release is a species of contract to be governed by contract principles); see Metz v. Metz, 572 N.Y.S.2d 813, 815 (N.Y. App.Div., 3d Dep't 1991) ("Releases are contracts whose interpretation is governed by principles of contract law. Where language of the release is clear, effect must be given to the intent of the parties as indicated by the language employed.").

Second, the briefs of the parties focus their citations and contentions upon Minnesota statutory and case law, with no argument that the substantive law of any other jurisdiction has anything to do with the case. I see no reason to disturb that mutually arrived at conclusion. Accordingly this opinion will look to and endeavor to apply the law of Minnesota.

C. The Effect of Minnesota Law

Knoll argues that the Release is invalidated by a section found in the Human Rights Law of Minnesota, which comprises Chapter 363 of the Minnesota statutory scheme. Specifically, Knoll relies upon Minn. Stat. § 363.031(2), which provides in pertinent part:

A waiver or release of rights or remedies secured by this chapter which purports to apply to claims arising out of acts or practices prior to, or concurrent with, the execution of the waiver or release may be rescinded within 15 calendar days of its execution, . . . A waiving or releasing party shall be informed in writing of the right to rescind the waiver or release. To be effective, the rescission must be in writing and delivered to the waived or released party either by hand or mail within the 15-day period.
(emphasis added). Merrill does not contend that it gave Knoll a written notice of his right to rescind the Release within 15 days of its execution.

Because the first four claims under New York state and municipal statutory law could be characterized as human rights claims,*fn4 the bases for relief the plaintiff seeks in these claims are predicated on the kinds of rights secured by the Minnesota Human Rights chapter referenced above. However, the question remains as to whether the plaintiff can avail himself of Minnesota's statutory protection of these rights.

Facially it seems logical that the plaintiff be able to do so. Defendants sought to control the construction of the contract by inserting a choice of law clause dictating the application of Minnesota law. See Allstate Insurance Company v. Hague, 449 U.S. 302, 318 n. 24 (1981) (stating that defendant could have inserted a choice of law clause had it not wanted the insurance policy to be subject to the laws of another state). Furthermore, the Release purportedly waived all claims arising from a "violation of any other federal, state or local laws, including civil rights laws, based on any protected class status," Release at 1, including the Minnesota human rights claims. The burden thus seems on the defendants to comply with the laws of the forum they chose.*fn5

However, plaintiff seeks relief as an employee who is a member of a protected class. For purposes of the Human Rights Chapter of the Minnesota Statute, an employee is defined as "an individual who is employed by an employer and who resides or works in this state." Minn. Stat. § 363.01(16) (emphasis added). Plaintiff neither resided, nor worked, in the state of Minnesota, and so falls outside of the statute's protective purview. Even assuming, as plaintiff urges, that McClaine v. Independent School District No. 16. 503 N.W.2d 810 (1993) and Oubre v. Entergy Operations, Inc., 522 U.S. 422 (1998) stand for the proposition that contracts in violation of statutory requirements are invalid upon execution and not upon suit,*fn6 this does not change the fact that plaintiff does not fall within the jurisdictional scope of the Minnesota statutory requirements. While Minnesota law governs the construction of the contract, Minn. Stat. § 363.031 does not create a rule of contract interpretation to be applied to the Release; rather it creates a substantive right, of which plaintiff does not have the ability to avail himself. In short, while the choice of law provision in the Release enables plaintiff to invoke the Minnesota Human Rights statute, he must take that statute cum onere; and the plain language of § 363.01(16) shows that the statute's protections do not extend to an individual who, like plaintiff, did not work and did not reside in Minnesota at the pertinent times.

Plaintiff asks in the alternative that should the Court decide the Minnesota statutory requirement of a 15-day rescission period does not void the Release when suit is brought under a New York statute, that the Court grant leave to amend the complaint to include violations of Minnesota statutes. Plaintiff's Reply Memorandum of Law in Opposition to the Motion at 4-5 ("Plaintiff's Reply Memorandum"). In support of its request, plaintiff states that "Merrill drafted the termination and release agreement, upon information and belief in Minnesota, and the decision to terminate the plaintiff was made, upon information and belief, largely in Minnesota. . . . Minnesota certainly has a strong interest in assuring that its corporations comply with its human rights acts." Id. 4-5. While all this may be true, because plaintiff is not an "employee" within the meaning of the Minnesota Human Rights Chapter, leave to amend has to be denied because it would result in dismissal of the claims altogether.

D. Defamation and Material Breach

Plaintiff next contends that because defendants made slanderous statements about him within the small business community of which both plaintiff and defendants were a part, they breached the No Defamation provision of the Release, thereby rendering the Release unenforceable and void.

"The rule appears to be well established that only a material breach of a contract or a substantial failure in its performance justifies a party thereto in rescinding." Gaertner v. Rees, 259 Minn. 299, 303 (1961) (citations omitted). Gaertner further states that "[i]t is not every breach of contract which justifies rescission. The right to rescind must be exercised promptly upon discovery of the facts from which it arises for the reason that under the law it may be waived by continuing to treat the contract as a subsisting obligation." Id. (citations omitted).

The question that arises in the case at bar is whether defendants' defamation of plaintiff, assuming it occurred, constituted a material breach of the Release, thereby allowing plaintiff to rescind it. The Restatement (Second) of Contracts offers guidance in ascertaining the materiality of a breach:

In determining whether a failure to render or to offer performance is material, the following circumstances are significant:
(a) the extent to which the injured part will be deprived of the benefit which he reasonably expected;
(b) the extent to which the injured party can be adequately compensated for the part of that benefit of which he will be deprived;
(c) the extent to which the party failing to perform or to offer to perform will suffer forfeiture;
(d) the likelihood that the party failing to perform or to offer to perform will cure his failure, taking account of all the circumstances including any reasonable assurances;
(e) the extent to which the behavior of the party failing to perform or to offer to perform comports with standards of good faith and fair dealing.
Restatement (Second) of Contracts § 241 (1981). Of these five factors, only the first three are relevant to the instant case.

Knoll clearly had a right to expect that the defendants would abide by their No Defamation obligation. As plaintiff argues, he released his claims "[i]n consideration of the obligations imposed upon Merrill by this Release," Release at 1. The Release imposed three obligations upon Merrill: the payment of money to Knoll, forgiveness of the loan to him, and the agreement not to speak of Knoll "in a derogatory or defamatory way." Release at 2. If in fact Merrill through its officers or agents and its relevant agents maligned Knoll in the way he alleges, then he is deprived of one of the benefits that the Release gave him the right to expect.

However, the extent to which an injured party can be adequately compensated for that portion of the benefit of which he was deprived is the second factor to be considered. That Knoll can bring this action and base his seventh and eighth claims on breach of the No Defamation provision is an indication that he can be adequately compensated without rescission of the entire Release — particularly because Merrill already performed a substantial part of the Release in the payment of compensation and the forgiveness of the loan.

Furthermore, Minnesota law makes clear that

the general rule is that a party who wishes to rescind an agreement must place the opposite party in status quo. An attempted restoration of the status quo is an essential part of rescission of a contract. As part of the rule requiring the placing of the other party in status quo, it is held that a party cannot rescind and at the same time retain a benefit under the contract.
Cut Price Super Markets v. Kingpin Foods, Inc., 256 Minn. 339, 353 (1959) (internal quotation marks omitted). Because plaintiff has received significant monetary benefits in accordance with the Release, which presumably would be impracticable for him to return, the defendants cannot be returned to the status quo.

Thus, because there are other remedies open to the plaintiff to cure the breach of the No Defamation provision, and because the plaintiff has already derived a substantial benefit from the Release, the second factor in the Restatement calculus weighs against qualifying this breach as material.

The third factor weighs against Knoll for the same reason: the fact that Merrill has already performed a substantial portion of its obligations under the Release militates against a forfeiture of the benefits the Release bestowed upon Merrill.

Plaintiff argues that because there is no need to contract to prevent defamation, if the sole purpose of its inclusion is to prevent defamation "then the defamation portion could be stricken from the Agreement with absolutely no change in the rights, duties and obligations of the parties." Plaintiff's Response Memorandum at 14. This argument fails to convince. A breach need not be material to support an action upon it. In the case at bar, if defendants defamed Knoll, he can sue them for breach of the contract contained in the Release, as well as for the common law tort of defamation. Thus the defendants' contractual promise not to defame Knoll provides him with an additional remedy. While Merrill's failure fulfill this obligation does not trigger a rescission of the contract, it can trigger a suit for breach of contract, thereby impacting upon the "rights, duties and obligations of the parties."

Plaintiff argues that the No Defamation provision goes to the essence of the Release and consequently defendants' breach is material. However, the provision does not say "Merrill agrees not to speak of Knoll in a derogatory or defamatory way"; rather, it says: "The parties agree that neither shall speak of the other party in a derogatory or defamatory way." The provision imposes a mutual obligation upon the parties that is discrete and self-contained. While the No Defamation provision is one of the obligations the Release places upon Merrill, the mutuality of the obligation militates against regarding it as essential to Knoll's releasing his claims against Merrill. The No Defamation provision is a standard one, presented to all terminated employees, and Knoll did not ask for its inclusion, Daly Affidavit ¶¶ 3-5; those circumstances further argue against the notion of the provision's materiality within the context of Knoll's release of his claims.

While the materiality of a breach is ordinarily a question of fact to be determined at trial, courts may find that a breach is not sufficiently material as a matter of law to give the wronged party the right to terminate the contract. See e.g., Arp Films, Inc. v. Marvel Entertainment Group, Inc., 952 F.2d 643, 648 (2d Cir. 1991). This is such a case. If in fact the defendants made slanderous statements sufficient to meet the defamation requirements, they would have breached an ongoing obligation they had under the contract. However, such a breach does not go to the essence of the agreement sufficiently to justify rescission.

For the foregoing reasons, I conclude that defendants' breach of the No Defamation provision of the Release, assumed for the purpose of this analysis, does not allow plaintiff to rescind the release.

E. Mental Capacity

Plaintiff argues that he was not competent to enter the Release, and did so as a product of his impulsive and irrational behavior resulting from his mental illness and the medications he took, Paxil and Xanax. He further argues that because defendants knew about his mental condition at the time of contracting, the Release should be voided. Plaintiff's Response Memorandum 15-20.

The Restatement (Second) of Contracts provides this general rule on incapacity:
(1) A person incurs only voidable contractual duties by entering into a transaction if by reason of mental illness or defect
(a) he is unable to understand in a reasonable manner the nature and consequences of the transaction, or
(b) he is unable to act in a reasonable manner in relation to the transaction and the other party has reason to know of his condition.
(2) Where the contract is made on fair terms and the other party is without knowledge of the mental illness or defect, the power of avoidance under Subsection (1) terminates to the extent that the contract has been so performed in whole or in part of the circumstances have so changed that avoidance would be unjust. In such a case a court may grant relief as justice requires.
Restatement (Second) of Contracts § 15 (1981). The Restatement rule gives rise to three questions: (1) whether Knoll was able to understand the nature and consequences of the transaction; (2) whether he was unable to act in a reasonable manner toward the transaction and Merrill had reason to know of his condition; and finally (3) whether Merrill's rendering of payment or any change in circumstances makes avoidance of the Release unjust.

The first two questions require the Court to evaluate Knoll's capacity for rational understanding and action with respect to the Release. I must look to the evidence or lack of evidence in the present record on these issues.

In his affidavit, Knoll states that he began experiencing persistent psychological and mental problems in October 2000, and informed defendants Koch and Dady of his condition. Affidavit of Paul Knoll ¶ 5 (November 5, 2002) ("Knoll Affidavit"). By March 2001, Knoll's mental malaise continued to grow, and he was clinically diagnosed with depression and anxiety by Dr. Wierzbicki, who prescribed Paxil and Xanax to treat him. Knoll Affidavit ¶ 6; and Gardner Declaration, Ex. 2. He informed Dady of his diagnosis, and while at first she responded with an offer to arrange for mental health services, within a few days Knoll was terminated. Knoll Affidavit ¶¶ 7-8. Knoll further states,

I knew I was suffering from certain mental/psychological issues, and I had just been diagnosed with depression and anxiety. My employer who I trusted and confided in, and even initially offered me assistance, had now fired me almost immediately upon learning of this diagnosis. I had not been sleeping or eating properly and had just begun taking prescription medications for my problems. I truly did not feel capable of having negotiations with Merrill, and especially not protracted or anything approaching contentious negotiations, particularly not with Dady. Merrill was well aware of my mental and psychological difficulties at the time of the Agreement and that I was not represented by counsel.
Knoll Affidavit ¶ 13. Knoll's affidavit indicates that he felt off-balanced and confused, both as a result of his illness and the speed with which the termination and ensuing negotiations took place.

Dr. Robert M. Smith, an adult psychiatrist, when asked to review Knoll's medical records and comment on his condition and medication, states that "Paxil and Xanax can cause `spaciness' and clouded thinking in a percentage of patients, which could affect a person's ability to appreciate the details of a technical agreement." Declaration of Dr. Robert M. Smith ¶ 4 (October 31,2002) ("Smith Declaration"). He further states that major and minor depression include symptoms such as:

decreased ability to concentrate, hopelessness, excessive guilt, and a diminished sense of future possibilities. This makes a person more likely to miss details in a discussion and distorts his capacity to think about the future. This impairs the person's judgment and could definitely cause someone to make a formal agreement which is not in their best interest, and which they may well not have agreed to had they not been depressed.
Smith Declaration ¶ 5.*fn7 Thus not only does Knoll assert his mental incapacity, Dr. Smith verifies that someone with Knoll's condition and taking his medication could lack such capacity.

These mental impediments notwithstanding, it does seem that Knoll was able to negotiate for some increased severance, the continued use of varying communication devices, and additional COBRA coverage. This works against Knoll, since under Minnesota law there is a presumption of competence. Fisher v. Schefers, 656 N.W.2d 592, 595 (2003) (citing Jasperson v. Jacobson, 224 Minn. 76, 82 (1947). Fisher goes on to state that "[m]ere mental weakness does not incapacitate a person from contracting. It is sufficient if he has enough mental capacity to understand, to a reasonable extent, the nature and effect of what he is doing." Id. at 595-96. Clearly Knoll possessed some degree of cognitive awareness, but the question of whether he had the capacity fully to understand what he was agreeing to remains.

"A modem understanding of mental illness [] suggests that incapacity to contract or exercise contractual rights may exist, because of volitional and affective impediments or disruptions in personality, despite the intellectual or cognitive ability to understand." Ortelere v. Teachers' Retirement Board of the City of New York, 25 N.Y.2d 196, 199 (1969). Furthermore, asking questions, even those evincing a somewhat sophisticated understanding of the factual circumstances, insufficient to indicate capacity. Id. That Knoll's medications also could have clouded his judgment indicate that he might have lacked the capacity to contract. See In re Marriage of Blattner, 411 N.W.2d 24, 27 (Minn. 1987) (stating that the type and quantity of the contracting party's medication could indicate an inability to understand the contract he was signing).

Thus the evidence is mixed with respect to whether plaintiff could have acted rationally throughout the contracting process. Knoll's affidavit suggests that he was unable to make rational choices, and the declaration of Dr. Smith indicates that someone diagnosed with depression, as Knoll was, and on the medications Paxil and Xanax might not be able to fully understand the implication of his actions. However, there is evidence in the record that some amount of responsible negotiating took place. It follows that there is a triable issue of fact with respect to plaintiff's mental capacity at the pertinent times which cannot be resolved on a motion for summary judgment.

With regard to the latter half of the second question posed by the Restatement, whether or not the defendant had reason to know of plaintiff's condition, there is also a triable issue of fact. While Knoll states he informed Dady and Koch of his diagnosis and prescription, Dady alleges that Knoll told her the week before his termination only that "he was getting help for his problems" which she understood to involve temper problems they discussed during his employment. Dady Reply Affidavit ¶ 18. This dispute involves not a vague assertion, but a specific factual issue inappropriate for summary disposition. In view of that factual issue, I need not reach the third Reinstatement factor, which assumes the defendant was unaware of the plaintiff's condition.

Because Knoll's incapacity, a triable issue, could void the Release, defendants' motion for partial summary judgment on the first four claims fails. That is equally true of plaintiff's cross-motion to strike the Release as a defense on the ground of his mental incapacity. Both motions present the same triable issue of fact.

F. Knowing and Voluntary

Plaintiff alleges that he did not enter the Release in a knowing and voluntary manner, and therefore is not bound by its terms. In addition to his mental status discussed supra, plaintiff argues he was under extreme and undue duress, that he accepted monetary consideration for the Release less than what he was owed in employee compensation, he was unrepresented, and there was almost no negotiation. Plaintiff's Response Memorandum at 20.

There are several factors involved in assessing whether a release was entered into knowingly or voluntarily: (1) the presence of legal counsel of the plaintiff's choice, (2) the language of the release and whether the plaintiff was allowed to change the language, (3) evidence of inequitable conduct by the defendant in obtaining the release, (4) presence of fraud or misrepresentation in obtaining the release, (5) existence of economic coercion in obtaining the release, (6) evidence that the release is against public policy, (7) the adequacy of the consideration, and (8) the competence of the releasor. Spitzmueller v. Burlington Northern Railroad Co., 740 F. Supp. 671, 676 (Minn. 1990); and Karnes v. Quality Pork Processors, 532 N.W.2d 560, 562 (Minn. 1995). The Court will consider these factors.*fn8

1. Presence of Counsel of the Plaintiff's Choice

Knoll did not avail himself of counsel. Neither the fact that he could have done so but did not, nor the fact that the Release itself contained language that the plaintiff had been advised and given the opportunity to consult with counsel, indicates that he entered the Release knowingly. That he did not have counsel suggests that some of the legal implications might have gone unnoticed by him, and tends to detract from the knowing and voluntary nature of his contracting.

2. Language of the Release and its Changeability

The language of the Release is clearly drafted in favor of Merrill. Of the fifteen paragraphs that impose duties upon or articulate obligations for the parties, thirteen impose or qualify the duties of Knoll. Only the Payment provision and the No Defamation provision, which as discussed before imposed a mutual obligation, set forth the responsibilities of Merrill. See n. 1, supra. Furthermore, Merrill gave Knoll a standard contract, which was in use for several years in such termination situations. Dady Reply Affidavit ¶ 3. Its boiler plate nature suggests a take-it-or-leave-it posture that could dissuade a person in Knoll's situation from aggressively negotiating its provisions. Indeed, only the Payment provision changed through the intervention of the plaintiff — the remainder of the Release was preserved. In making these observations, the Court does not imply that the Release's terms are inequitable, only that it was drafted by Merrill to protect itself and that plaintiff's ability to significantly change its terms was probably limited.

3. Existence of Inequitable Conduct, Fraud, Misrepresentation, or Coercion, and Public Policy
The third, fourth, fifth, and sixth factors all involve the circumstances under which the Release was signed. The third asks the Court to determine whether there was inequitable conduct on the part of the defendants. If in fact Merrill knew that Knoll was suffering from depression, and forged ahead with the execution of the Release without insisting on plaintiff's representation by counsel, it could indicate the existence of inequitable conduct. Certainly it might not seem fair to ask a person diagnosed with clinical depression who was just terminated from his position to think fully through the consequences of waiving all future claims.

While the Complaint contains no allegation of fraud or misrepresentation, as posited by the fourth factor, there is an allegation of duress, which implicates the fifth factor. "Minnesota courts recognize duress as a defense to a contract only when there is coercion by physical force or an unlawful threat, which destroys free will and compels compliance with the demands of the party exerting the coercion." Kassan Realty Co. v. Metzen Realty, Inc., 1999 WL 1102299, *3 (Minn. App. 1999) (citing St. Louis Park Inv. Co. v. R.L. Johnson Inv. Co., 411 N.W.2d 288, 291 (Minn. App. 1987)). Knoll does not argue duress to defeat the Release, only to negate the knowing and voluntary nature of his assent, and so the Minnesota court's definition of duress is useful only insofar as it provides guidance in assessing the legitimacy of Knoll's argument.

Plaintiff argues that the totality of the circumstances amounted to duress. He states that the termination combined with his disability, medications, lack of sleep, and awareness of his need for continued treatment and the fear of losing his health care benefits places him under an undue amount of duress to enter the agreement. Plaintiff's Response Memorandum at 23. Moreover, Knoll states, "there are very few greater duress situations than holding someone's health care hostage when they feel in dire need of it," id., and indeed, plaintiff did seem concerned in his email to Dady that he receive sufficient health care benefits. Gardner Declaration, Ex. 3. While this does not amount to the unlawful threat requirement for duress under Minnesota law, the allegations do undermine Knoll's free will and could have compelled compliance with the Release. As such the circumstances under which Knoll signed the Release could have compromised the knowing and voluntary nature of his assent. Again, the issue is too fact-intensive to be decided on a summary judgment motion. It is a triable issue.

The sixth factor, referring to public policy, is subsumed within the fifth, since if a release is exacted under duress it presumably offends the public policy of Minnesota. For the reasons stated in Part III.C., supra, Knoll cannot support a public policy argument by invoking the provisions of § 363.031 of the Minnesota human rights statute.

4. Adequacy of Consideration

The seventh factor asks this Court to consider whether or not the consideration was adequate. Plaintiff insists that the final compensation package was less than he was actually owed in compensation, because of unpaid bonuses and vacation time. However, the emails, the Dady Affidavit, and the final line of the Payment provision in the Release itself indicate that the unpaid vacation was already paid. Gardner Declaration, Ex. 3; Dady Reply Affidavit ¶ 8; and Release at 1. With regard to his bonus, plaintiff alleges that he was entitled to receive no less than 25% of his annual salary, and up to 50% depending on a number of factors. He further alleges that at the time of his termination, he was owed two years of bonuses. Plaintiff's Response Memorandum at 19. However, the offer letter extended to Knoll states that he "[would] be eligible for a performance bonus up to 50% of [his] salary based on team and individual performance," not that he was guaranteed a bonus. Dady Reply Affidavit, Ex. F. Regarding his performance, Dady also states that "[n]o other General Managers received performance bonuses for years 1999 and 2000 because Merrill's team performance did not meet 1999 or 2000 performance objectives. Moreover, Mr. Knoll was terminated for poor performance and was not entitled to a bonus for 2000 based on his individual performance for year 2000." Dady Reply Affidavit ¶ 15.

The February 2000 Annual Review of Knoll does little to verify the quality or lack thereof in his performance. While the benchmarks measuring his performance and ability to do his actual job all met or exceeded expectations, those measuring his behavior and ability to communicate with other employees came under expectations. Declaration of Brian Gardner (December 27, 2002) ("Gardner Reply Declaration"), Ex. 1 ("Annual Review"). When asked to summarize Knoll's progress in the comments section, Dady stated the following

Paul came to N.Y. a year ago and cleaned up an unhealthy work environment, improved margins significantly and planted NYC firmly as a city capable of providing high quality services. Paul's revenue and contribution achievement were impressive. Paul's challenge this year will be to effectively sell to the legal market, improve his relationships with his employees by spending one on time [sic] with them and growing the repro business.
Paul is a valued member of my senior team. I am confident he will continue to work on the behavioral issues outlined above.
Annual Review at 3. This mixed record furnishes insufficient information for the Court to conclude anything about whether Knoll deserved, and was denied, a bonus for 1999 or 2000, or whether the consideration he received for releasing his claims against Merrill was inadequate as a matter of law. This factor must be developed and considered at trial.

4. The Competence of the Releasor

This factor has been considered in comprehensively in Part III.E., supra. On the broader issue of whether Knoll's assent to the Release was voluntary and knowing, this case bears some similarities to Lancaster v. Buerkle Buick Honda, Co., 809 F.2d 539, 541 (8th Cir. 1987) (ADEA case), where the Eighth Circuit said:

Lancaster was first presented with the termination agreement on December 30, 1983, but did not sign it until January 4, 1984. In the interim he chose not to consult an attorney. Lancaster admits he read the agreement and considered its terms before signing. The agreement contains no ultimatums or deadlines for its acceptance. Lancaster admittedly had input into the terms of the agreement and in fact negotiated significant favorable additions to it. Lancaster was a well-paid management employee who has experience in business and who has signed numerous contracts in his lifetime.
The court went on to note that given this factual background, even with the benefit of all reasonable inferences in the light most favorable to Lancaster, there was no genuine issue of material fact to prevent summary judgment in the defendant's favor. However, the Lancaster court was also careful to observe that "Lancaster made no showing Buerkle Buick was guilty of exploitation or overreaching in these circumstances." 809 F.2d at 541. See also Pilon v. University of Minnesota, 710 F.2d 466 (8th Cir. 1983) (Title VII case) (if "fraud or duress were claimed, [the plaintiff] would of course be entitled to show by evidence that she had not voluntarily signed the release, however clear and unambiguous its language.").

In the case at bar, even though Knoll was a sophisticated business man who had an opportunity to look over the contract and negotiate some of its terms, the fact-intensive issues of overreaching, duress, and Knoll's competence at the pertinent time remain. Those issues are not appropriate for summary disposition in favor of any party.

Because the plaintiff s fourth argument in favor of voiding the Release presents triable issues of fact, the defendants' motion for partial summary judgment based on the Release is denied. The plaintiff's cross-motion to strike defendants' third affirmative defense is denied for the same reason.


Defendants moved to dismiss claims I through IV, arguing that the Release waived the plaintiff's right to bring suit on all such claims. The plaintiff countered with four arguments voiding the Release. Knoll's first argument — that the absence of the statutorily required 15-day rescission period when waiving human rights claims voids the Release — fails to persuade because Knoll does not fall within the purview of the statute. Knoll's second argument — that Merrill's alleged breach of the No Defamation provision nullifies any ongoing obligations imposed upon Knoll — fails to persuade as a matter of law because even if the breach occurred, it would not justify rescission of the contract. Thus Knoll's first two arguments fail to defeat the motion for summary judgment.

However, Knoll's second two arguments — that Knoll lacked the capacity to sign the Release, and that in any event his assent was not knowing and voluntary — present triable issues of fact that do defeat the summary judgment motion. Because there are triable issues of fact, the defendants' motion for partial summary judgment and the plaintiff's cross-motion to strike the third affirmative defense are both denied.

It is now necessary to provide for the completion of pre-trial discovery. To that end, counsel for the parties are directed to confer and to file a report pursuant to Rule 26(f), Fed.R.Civ. P., on or before August 1, 2003. The Court will then schedule a status conference.


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