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RICE v. SCUDDER KEMPER INVESTMENTS

United States District Court, Southern District of New York


August 14, 2003

LARRY RICE, PLAINTIFF, -AGAINST-, SCUDDER KEMPER INVESTMENTS, INC., ILLINOVA GENERATING CO., CONTINENTAL ENERGY SERVICES, INC., EYOB EASWARAN AND MICHAEL O'NEILL, DEFENDANTS

The opinion of the court was delivered by: Robert Carter, Senior District Judge [ Page 1]

OPINION

Plaintiff, Larry Rice, brings this amended complaint against defendants, Scudder Kemper Investments, Inc. ("Scudder"), Illinova Generating Company ("Illinova"), Continental Energy Services, Inc. ("Continental"), Eyob Easwaran and Michael O'Neill alleging unlawful discrimination in violation of New York Executive Law, Article 15, § 296(1) ("New York Human Rights Law" or "NYHRL"), willful and malicious breach of contract, and willful and malicious breach of New York Labor Law, article 6, §§ 191, 193, 195 and 198. Defendants now move to strike the new allegations from the amended complaint pursuant to Rule 12(f), F.R.Civ.P., as well as renew their previous motion to dismiss for failure to state a claim pursuant to Rule 12(b)(6), F.R.Civ.P. Jurisdiction is proper pursuant to 28 U.S.C. § 1332 as the parties are diverse and alleged damages exceed $75,000.*fn1

Background

The relevant facts construed in the light most favorable to plaintiff are as follows. Plaintiff is a [ Page 2]

white male citizen of Missouri. In 1995, he was working in Mexico City, Mexico, when defendants began negotiating with plaintiff to become General Manager and Chief Executive Officer of Jamaica Energy Partners ("JEP"), in Kingston, Jamaica. (See Pl.'s Am. Compl. ¶¶ 22, 24.) JEP is a Jamaican partnership owned by the corporate defendants and Dr. Bird Co. Ltd., a St. Lucia corporation. (Id. at ¶ 16.)

Plaintiff, then in his late forties, was advised during negotiations that defendants "needed someone with gray hair to get this thing setup and only needed him/her for three years as they could then find someone cheaper and younger to carry on." (Id. at ¶ 25.) Thus, plaintiff alleges he was offered a three-year contract with an automatic termination at its conclusion. Plaintiff executed this contract with the express reservation, however, that the automatic termination date be removed from the terms. Defendants agreed to plaintiff's demand, removing the automatic termination date and communicating to plaintiff that the "intent from our side is clearly a long term relationship." (Id. at ¶ 28.) On February 26, 1996, JEP's board approved the executed contract dated January 31, 1996 ("Agreement"), and plaintiff subsequently commenced work on or about March 1, 1996. (Id. at ¶¶ 31, 35.) [ Page 3]

After almost three years of employment with JEP, plaintiff was fired on January 12, 1999. (Id. at ¶ 37.) The alleged reason for plaintiff's termination was plaintiff's refusal to refrain from making public comments about JEP's sole customer, Jamaica Public Service Co. Ltd. ("JPSCo"). (Id. at ¶¶ 40,41.) Following his termination, plaintiff was replaced by Carlton Stephen, a black Jamaican at least 10 years younger than plaintiff. (Id. at ¶ 61.)

In accord with the provisions in plaintiff's Agreement with JEP (see LaRocca Aff. Ex. A), plaintiff filed a claim and demand for arbitration, protesting his termination and demanding nearly 15 million dollars in damages. (See LaRocca Aff. Ex. 6.) The arbitration took place in New York, NY, on October 24 and 26, 2001, and on January 7 and 8, 2002, during which plaintiff was represented by counsel. (See id.) In a long and detailed decision dated July 9, 2002, the arbitrator rejected plaintiff's claims of fraudulent inducement, defamation, intentional infliction of emotional distress, right to a discretionary bonus, right to retirement plan contributions, and right to reimbursement for plaintiff's vehicle. (See id.) The arbitrator did find that JEP breached the Agreement with plaintiff by violating the six-month written notice of termination provision when they made plaintiff's [ Page 4]

termination effective immediately. (See id.) The arbitrator found that this breach entitled plaintiff to several benefits that were withheld from him during the agreement's six-month notice period, namely reimbursement for medical, business, and relocation expenses along with unused vacation days. (See id.) The arbitrator awarded plaintiff $40,094.00 with interest, as compensation for these lost benefits. (See id.)

Following the conclusion of the arbitration, plaintiff filed his original complaint with this court alleging violations of the Age Discrimination in Employment Act ("ADEA"), 29 U.S.C. § 621, et seq., discrimination on the basis of race and national origin in violation of Title VII of the Civil Rights Act, 42 U.S.C. § 2000-e, et. seq., unlawful discrimination in violation of the NYHRL, and willful and malicious breach of the agreement between plaintiff and defendants. The court has dealt with this action previously in two opinions, Rice v. Scudder Kemper, No. 01 Civ. 7078, 2003 WL 174243 (S.D.N.Y. Jan. 27, 2003) (Carter, J.), and, Rice v. Scudder Kemper, No. 01 Civ. 7078, 2003 WL 17424 (S.D.N.Y. April 8, 2003) (Carter, J.), with which familiarity is assumed. [ Page 5]

Discussion

I. Motion to Strike

Motions to strike pursuant to Rule 12(f), F.R.Civ.P., may be made by a party to strike any immaterial matter from a party's pleadings. See Rule 12(f), F.R.Civ.P. Defendants are correct to point out that plaintiff's addition of new factual and legal allegations to his complaint went far beyond the leave to amend the court granted plaintiff. See Rice, 2003 WL 1846934, at *3. In granting plaintiff leave to amend, the court noted that the dismissal of his federal claims would require dismissal of his state claims as well because without valid federal claims or diversity jurisdiction, the court could no longer assert supplemental jurisdiction over plaintiff's state claims. See id. Mindful that the parties appeared diverse, the court instructed plaintiff how and under what statute plaintiff should amend his complaint in order to properly plead diversity jurisdiction and keep his claims in federal court. See id.

Plaintiff successfully complied with the court's instructions regarding diversity jurisdiction but also took the opportunity to add claims under New York's Labor Laws, as well as make several new factual allegations, including that the employment contract plaintiff is disputing is in [ Page 6]

fact a February contract and not the January one cited in his original complaint (see Pl.'s Am. Compl. ¶ 35), and other allegations supporting this contention. (See Pl.'s Am. Compl. ¶ 55, 56, and 57). Defendants are correct that the court retains the power to strike those amendments that fall outside of the court's granted leave, see Index Fund Inc., v. Hagioplan, 107 F.R.D. 95, 98 (S.D.N.Y. 1985) (Tenney, J.) and Kuntz v. New York State Board of Elections, 924 F. Supp. 364, 366 (N.D.N.Y. 1996) (McAvoy, J.), but the court prefers to evaluate plaintiff's claims on their merits as it is clear to the court that plaintiff's pro se status can be faulted for the procedural and formal defects of his pleadings.

II. Motion to Dismiss

A motion to dismiss pursuant to Rule 12(b)(6), F.R.Civ.P., requires the court to construe all factual allegations made in the complaint as true and to draw all reasonable inferences in favor of plaintiff in determining whether the complaint alleges any set of facts which would entitle plaintiff to relief. See Caiola v. Citibank, N.A., 295 F.3d 312, 321 (2d Cir. 2002). In short, the court's function is not to evaluate the strength of the pleadings [ Page 7]

but rather to determine their legal sufficiency. Goldman v. Belden, 754 F.3d 1059, 1067 (2d Cir. 1985).

a. New York Labor Laws

In order to state a wage claim under article 6 of New York Labor Laws §§ 191, 193, and 195, plaintiff must fall within the statutory definition of an employee as provided by Labor Law § 190. See Bhanti v. Brookhaven Memorial Hosp. Inc., 687 N.Y.S.2d 667, 669 (2nd Dep't 1999). Defendants argue that plaintiff's status as an executive excludes him from the class of employees covered by article 6. This is a disputed point of statutory construction, and in determining the meaning of "employee" as defined by § 190, courts have chosen two different approaches to this problem. Some courts have chosen to interpret "employee" broadly, thus including executives. See, e.g., Falk v. FFF Indus. Inc., 731 F. Supp. 134, 142 (S.D.N.Y. 1990) (Leisure, J.) (finding that the definition of "employee" in § 190(2) is a broad term covering executives); Cohen v. Stephen Wise Free Synagogue, No. 95 Civ. 1659, 1996 WL 159096, at *4 (S.D.N.Y. April 4, 1996) (Leisure, J.) (citing definition of employee as "any person employed for hire by an employer in any employment" in N.Y. Labor Law § 190(2) as justification for reading the statute broadly to [ Page 8]

include executives); Daley v. The Related Cos., Inc., 581 N.Y.S.2d 758, 760 (1st Dep't 1992) (finding that executives are included in article 6 and thus protected by § 198(1-a)); and Lumet v. SMH, Inc., No. 91 Civ. 3369, 1992 WL 380004, at *13 (S.D.N.Y. Dec. 4, 1992) (Bernikow, M.J.) (citing Daley and Falk for the proposition that § 198 remedies are available to executives).

Other courts, however, including the New York Court of Appeals in Gottlieb v. Laub & Co., 605 N.Y.S.2d 213 (1993), have chosen to interpret article 6 as applying only to non-supervisory personnel, thus excluding executives from the protections of New York's Labor Laws. See, e.g., Gottlieb v. Laub & Co., 605 N.Y.S.2d 213, 206 (1993) (reading § 190 to exclude executives and managers from all classes of employees except for manual workers); Cohen v. Fox-Knapp, Inc., 640 N.Y.S.2d 554, 554-55 (1st Dep't 1996) (distinguishing Gottlieb by finding that plaintiff, although previously an executive, was a salesman or consultant at the time of his termination and thus covered by article 6); Taylor v. Blaylock & Partners, 240 A.D.2d 289, 292 (1st Dep't 1997) (citing Gottlieb and Cohen for the proposition that executives are specifically excluded from article 6); DeLeonardis v. Credit Agricole Indosuez, No. 00 Civ. 0138, 2000 WL 1718543, at *11 (S.D.N.Y. Nov. 15, 2000) [ Page 9]

(Baer, J.) (citing Gottlieb); and, Alter v. Bogoricin, No. 97 Civ. 0662, 1997 WL 691332, at *13 (S.D.N.Y. Nov. 6, 1997) (Mukasey, J.) (citing Gottlieb).

After reviewing the conflicting authority, the court finds Gottlieb's interpretation of § 190 most convincing for the following reason. While § 190(2) defines an employee to be "any person employed for hire by an employer in any employment," subdivision (7) of § 190 modifies subdivision (2) by including all employees not included in the previous subdivisions "except any person employed in a bona fide executive, administrative or professional capacity []." N.Y. Labor Law § 190(7) (emphasis added). "Employee" is defined generally in subdivision (2) not to create a broad class of employees but rather to establish that article 6 is limited to employer-employee relationships, thus excluding independent contractors, workers not intended to be covered by article 6. See Bhanti, 687 N.Y.S.2d at 669.

This understanding of § 190 and plaintiff's status as an executive lead the court to conclude that plaintiff cannot state a claim for lost wages under article 6. Plaintiff alleges alternatively that he became a consultant during the six-month notice period following his termination. Since the wages were withheld during this [ Page 10]

time period, plaintiff alleges that he should no longer be considered an executive for the article 6 claims but rather, a consultant. This argument is unavailing as there is nothing in the record to indicate such a status and more importantly, the wages allegedly withheld from plaintiff were due to him not as a consultant but rather pursuant to the terms of separation in the Agreement establishing him as the CEO of JEP. (See LaRocca Aff. Ex. 1.)

Plaintiff's status as an executive also deprives him of the ability to recover attorney's fees and costs under § 198.*fn2 In Gottlieb, the court specifically stated that § 198 provides relief for failures to "pay the wage required by this article." Gottlieb, 82 N.Y.2d at 463 (emphasis in the original). The Gottlieb court then concluded that this language "clearly evinces a legislative intent to limit the remedies to violations of article 6." Id. This interpretation makes clear that since plaintiff cannot state a claim under article 6, he is also precluded from seeking the remedies provided by § 198. Plaintiff's claims under the Labor Law of New York are accordingly dismissed.

b. New York Human Rights Law [ Page 11]

Plaintiff claims that due to the New York choice-of-law provision in the Agreement with JEP, the parties agreed to be bound by New York law and as a consequence, plaintiff should be considered a resident of New York for his NYHRL claims. This argument fails for two reasons. First, the language of the choice-of-law provision is not so broad as to cover all disputes between the parties. The Agreement reads in pertinent part that, "[t]he validity, interpretation, construction, and performance of this Agreement shall be governed by the law of the state of New York." (See LaRocca Aff. Ex. A.) It is settled New York law that language such as this creates New York common law contractual claims but not statutory ones. See Krock v. Lipsay, 97 F.3d 640, 645 (2d Cir. 1996); Burnett v. Physicians Online, Inc., No. 94 Civ. 2731, 1997 WL 470136, at *12 (S.D.N.Y. Aug. 15, 1997) (Griesa, J.) (finding that a choice of law provision which stated, "[t]his agreement shall be governed and construed in accordance with the law of the State of New York," did not preclude plaintiff from filing an action for gender discrimination under California law); and, Plymack v. Copley Pharm., Inc., No. 93 Civ. 2655, 1995 WL 606272, at *5 (S.D.N.Y. Oct. 12, 1995) (Wood, J.) (Under New York law, "[a] contractual choice of law provision . . . does not bind the parties with respect to non-contractual [ Page 12]

causes of action."). For the parties to be bound by New York law with regard to non-contractual causes of action, the choice-of-law provision would have had to include much broader language, indicating that any controversy "arising out of or relating to" the agreement would be governed by the laws of New York, see Turtur v. Rothschild Registry Int'l, Inc., 26 F.3d 304, 309-10 (2d Cir. 1994), or providing an exclusive forum selection clause purporting to cover all disputes arising out of the agreement. See Internet Law Library v. Southridge, 223 F. Supp.2d 474, 489 (S.D.N.Y. 2002) (Carter, J.).

Even if plaintiff's choice-of-law analysis were correct, it would not vitiate the NYHRL's jurisdictional prerequisites. As a nonresident, plaintiff must show that he was discriminated against in New York in order to state a claim under the NYHRL. See Beckett v. Prudential Life Ins. Co., 893 F. Supp. 234, 238 (S.D.N.Y. 1995) (Scheindlin, J.). It is well established that the NYHRL applies extraterritorially only to New York residents; nonresidents are not covered, even if those nonresidents are discriminated against by a resident of New York outside of New York. See Iwankow v. Mobil Corp., 150 A.D.2d 272, 274 (1st Dep't 1989). Neither plaintiff's original nor his amended complaint alleges that plaintiff was discriminated [ Page 13]

against in New York and consequently plaintiff's NYHRL claims must be dismissed against all defendants.

c. Breach of Contract

Defendants allege that plaintiff's breach of contract claim was considered and ruled upon in the arbitration and is thus barred from being relitigated in this action by collateral estoppel. In a diversity case such as this, the court must apply the law of the state in which it sits, New York, to determine whether collateral estoppel applies to the disputed claim. See BBS Norwalk One, Inc. v. Raccolta, Inc., 117 F.3d 674, 677 (2d Cir. 1997).

Under New York law, collateral estoppel will bar a claim if (1) there is "an identity of issue which has necessarily been decided in the prior action and is decisive of the present action," and (2) there was "a full and fair opportunity" to litigate the pertinent issues in the prior proceeding. Norris v. Grosvenor Marketing Ltd., 632 F. Supp. 1193, 1196 (S.D.N.Y. 1986) (Tenney, J.) (quoting Schwartz v. Public Adm'r of the County of the Bronx, 298 N.Y.S.2d 955, 960 (1969)). Collateral estoppel can be applied to issues without regard to whether the prior proceeding was an arbitration or before a court of law. See Pennecom v. Merrill Lynch & Co., Inc., No. 02 [ Page 14]

Civ. 5355, 2003 WL 21512216, at *5 (S.D.N.Y. July 1, 2003) (Chin, J.).

There could not be a more apt example of identity of issue between claims as reflected by the similarities between plaintiff's complaint and his request for arbitration. The relevant provisions describing defendant's alleged breach of the Agreement are almost exactly identical, (compare Pl.'s Am. Compl. 11 43, 44 with LaRocca Aff. Ex. 4, ¶¶ 4, 5), and the arbitrator dealt systematically with each claim. (See LaRocca Aff. Ex. 6.) In her ruling, the arbitrator found that JEP breached the Agreement and awarded plaintiff damages accordingly. Plaintiff cannot now sue other parties on the same claim to attain what plaintiff believes his damages to actually be. See Pennecom, 2003 WL 21512216, at *6.

Plaintiff's claim that his amended complaint concerns a contract different from the one disputed in the arbitration is unavailing as the arbitrator ruled directly on this point. (See Pl.'s Am. Compl. ¶ 3.) The arbitrator found that all of the alleged subsequent modifications made to the executed contract were barred by a merger clause and that the only legally actionable contract between the parties was the January 31, 1996 Agreement. (See LaRocca Aff. Ex. 6.) [ Page 15]

In considering whether plaintiff had a "full and fair opportunity" to be heard, the court notes that during the arbitration, plaintiff was represented by counsel, had the opportunity to present and cross-examine witnesses, file briefs, present evidence, and make arguments regarding his claims. In addition, the court finds that the arbitrator's decision was well reasoned, within the jurisdiction of the arbitrator pursuant to the arbitration provision in the Agreement, and devoid of fraud or misconduct.

In accord with the above, the court finds a precise identity of issue between plaintiff's amended complaint and his arbitration demand, a conclusive determination by the arbitrator of plaintiff's breach of contract claims, and that plaintiff had a full and fair opportunity to be heard during the arbitration. Plaintiff's breach of contract claim is dismissed. [ Page 16]

Conclusion

For the reasons stated above, defendants' motion to strike pursuant to Rule 12(f), F.R.Civ.P., is denied. Defendants' motion to dismiss plaintiff's amended complaint pursuant to Rule 12(b)(6), F.R.Civ.P., is granted. The clerk of the court is directed to close the case.

IT IS SO ORDERED


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