United States District Court, S.D. New York
January 7, 2004.
RAKESH K. KAUL, Plaintiff, against HANOVER DIRECT, INC., Defendant
The opinion of the court was delivered by: DENNY CHIN, District Judge
In this case, plaintiff Rakesh K. Kaul, the former President and
Chief Executive Officer of defendant Hanover Direct, Inc. ("Hanover"),
sues the company he once headed to recover compensation that he claims
should have been paid to him under various employment agreements and
benefit plans. Before the Court are three motions: (1) Hanover's motion
for summary judgment dismissing all of Kaul's claims and in its favor on
a counterclaim for monies purportedly owed by Kaul, (2) Kaul's motion for
partial summary judgment striking certain of Hanover's affirmative
defenses and counterclaims, and (3) Hanover's motion
for reconsideration of this Court's order denying Hanover leave to
amend its answer and counterclaims.
For the reasons that follow, the three motions are granted in part and
denied in part.
STATEMENT OF THE CASE
A. The Facts
The principal facts are not in dispute, and I have noted the
disagreements where they exist.
1. Kaul's Employment With Hanover
Hanover is a direct marketing company that sells merchandise to
consumers through catalogues and the internet. Kaul served as its
President and Chief Executive Officer from March 7, 1996 through December
On or about March 7, 1996, Hanover and Kaul entered into an employment
agreement to govern the terms and conditions of Kaul's employment (the
"1996 Agreement"). (McGrath Decl., Ex. 6). As expressly stated in the
1996 Agreement, Kaul was hired as "an employee `at will,'" and his
employment could be terminated "for cause" or "other than for `cause.'"
(1996 Agreement §§ 1, Ka), 1(b)).
In early April 2000, the 1996 Agreement was superseded by an employment
agreement executed by Hanover and Kaul dated as of March 6, 2000 (the
"Agreement"). The Agreement provided for a 36-month period of employment
at a base salary of $597,300 per annum, subject to annual review but not
to be decreased below
that amount. (Agreement §§ 1, 3) (attached to McGrath Decl. as Ex.
7). It also provided for certain benefits and incentives. (Id. §§ 4,
5, 6). The Agreement provided that the employment period could be
extended for 12 months in certain circumstances. (Id. § 1). The
Agreement also provided that Kaul's employment could be terminated with
or without cause. (Id. § 7).
In December 2000, the Board of Directors of Hanover (the "Board")
decided to terminate Kaul's employment. (Quasha Dep. at 99-101, 103)
(McGrath Decl., Ex. 16). Hanover contends (and Kaul denies) that the
Board made this decision because the company had "net cumulative losses
of approximately $225 million under his stewardship." (Def. SJ Mem. at
1).*fn1 On December 5, 2000, Alan G. Quasha, the Chairman of the Board,
informed Kaul of the Board's decision. (Quasha Dep. at 114-17). Kaul
resigned, with the understanding that the Board would treat his
resignation as a termination without cause for purposes of the
Agreement. (Id. at 115-16; McGrath Decl., Ex. 20; Harriss Dep. at
211-12, 279-80 (McGrath Decl., Ex. 36)).
2. Kaul's Claims
Kaul asserts essentially five claims (or sets of claims), based on the
following: (a) § 7(b) of the Agreement,
which provides for certain benefits in the event of termination;
(b) § 12 of the Agreement, which provides for attorneys' fees; (c) a
long-term incentive plan, which provided for bonuses to be paid to Kaul
to enable him to purchase Hanover stock; (d) a change of control plan
that provided Kaul with certain compensation if his employment were
terminated following a change of control of Hanover; and (e) vacation
pay. I review the facts relating to each of these claims.
a. § 7(b) of the Agreement
Section 7 of the Agreement covered termination. It provided, in part:
In the event of a termination of [Kaul]'s employment
during the Employment Period except in connection with
or following a Change of Control as such term is
defined in the Hanover Direct, Inc. Key Executive
Thirty-Six Month Compensation Continuation Plan, . .
. he shall be entitled to compensation and benefits on
and after the date of such termination only as
provided in this Section 7, the 2000 Short-Term Plan
and the 2000 Long-Term Plan and under the terms of any
prior agreement still in effect on the date of
termination as set forth in Section 10, or pursuant to
the terms of any benefit plan maintained by [Hanover]
and in which [Kaul] is a participant or a beneficiary
at the time of his termination.
(Agreement § 7). The Agreement then set forth the parties' agreement
with respect to the termination of Kaul's employment by Hanover for cause
(§ 7(a)), by Hanover without cause or by Kaul for good reason (§
7(b)), or as the result of Kaul's death or disability (§ 7(c)).
Pursuant to § 7(b), if Hanover terminated Kaul's
employment without cause, he was entitled to, inter alia, the
continuation of his salary and benefits for 24 months as well as certain
bonuses. These payments and benefits, however, were subject to §
7(g), which provided:
In order to be eligible for the payments and benefits
as set forth in Section 7(b), (i) [Kaul] must execute
and deliver to [Hanover] a general release in favor of
[Hanover], excepting statutory contribution and
indemnity rights to which [Kaul] is entitled, and (ii)
[Kaul] must be and remain in material compliance with
his obligations under the Non-Competition and
(Id. § 7(g)).
As discussed below, the parties never agreed on the terms of a "general
release." Hanover did pay, however, $341,803 in severance benefits to
Kaul following his dismissal even though he did not provide a release.
(See Def. Countercl. ¶ 38).
The Agreement also provided:
This Agreement and attachments hereto constitute the
entire Agreement between the parties pertaining to the
subject matter contained herein and supersede all
prior and contemporaneous agreements, representations
and understandings of the parties with respect to the
subject matter hereof, including without limitation,
the [1996 Agreement]. . . . Notwithstanding the
foregoing, this Agreement shall have no effect on and
shall not supercede the following agreements:
Registration Rights Agreement, dated as of August 23,
1996, between [Hanover] and [Kaul]; Tandem Loan in the
principal amount of $1,047,562, payable to [Hanover];
Tax Note due August 23, 2001 in the principal amount
of $211,729, payable to [Hanover]; [and other
(Agreement § 10).
The Agreement also provided that it was to be "construed and enforced"
in accordance with New Jersey law. (Id. § 13).
b. § 12 of the Agreement
The Agreement provided for Hanover to pay Kaul's attorneys' fees in
[Hanover] shall pay [Kaul]'s reasonable legal fees in
full in the event that he must seek legal counsel to
enforce any of his rights under this Agreement,
provided that before he retains legal counsel he must
notify [Hanover] of any alleged failure to abide by
the terms of this Agreement and, to the extent the
matter is subject to cure, provide [Hanover] with a
reasonable opportunity to cure.
(Id. § 12).
By letter dated December 19, 2000, Kaul wrote to Hanover confirming
that he had retained counsel to represent him "in connection with the
termination of [his] employment," and setting forth his understanding
that Hanover had agreed to reimburse him for his legal expenses.
(Bayoneto Decl., Ex. 3). Thereafter, Hanover paid Kaul's attorneys
$36,964.93 in fees and expenses, for the periods ending December 31,
2000, and January 31, 2001, in connection with the termination of his
employment. (Id., Ex. 5).
c. The Long-Term Incentive Plan
The 1996 Agreement provided for Kaul to participate in a "Long-Term
Incentive Plan" (the "LTIP"). (1996 Agreement § 5). The LTIP was set
forth in a document attached to the 1996
Agreement. The LTIP was intended "to promote an alignment" of Kaul's
interests with Hanover's interests. (LTIP § 1). The LTIP gave Kaul
the right to purchase a substantial number of shares of Hanover common
stock on favorable terms. The concept was that with a significant equity
interest in the company, Kaul would have a personal stake in Hanover's
success and the performance of its stock.
The LTIP provided for a "Tandem Stock" bonus. Pursuant to § 5(a),
Kaul was given the right to purchase shares of common stock at fair
market value, with Hanover paying Kaul bonuses to cover the purchase
price. Kaul was to pay 20% of the purchase price in cash, with the
remaining 80% to be financed through a non-recourse promissory note (the
"Note") to be paid in four annual installments, each in the amount of 20%
of the purchase price plus accrued interest. Hanover agreed to pay
bonuses to Kaul to cover both the initial 20% cash payment and the
subsequent four installments, including accrued interest. (See Am. Compl.
¶¶ 24-27; Lipner Dep. at 39 (McGrath Decl., Ex. 27)). As set forth in
Twenty percent of the purchase price for such shares
shall be paid in cash, and 80% shall be financed with
a nonrecourse Note. . . . [Hanover] shall pay [to
Kaul] on or before the date of such purchase a sign-on
bonus equal to the portion of the purchase price
required to be paid in cash, and shall pay [Kaul], on
or before each due date . . . of any payment of
principal and/or interest on the Note, a bonus equal
to the amount of such principal and/or interest then
(LTIP § 5(a)).
On August 23, 1996, Kaul exercised his right under the LTIP to purchase
1,510,000 shares at a total price of $1,745,937.50. He was required to
make a cash payment of 20%, or $349,187.50. As provided in the LTIP,
Hanover made a book entry recording a bonus payment to Kaul in that
amount, which Hanover applied to satisfy Kaul's obligation to pay in cash
20% of the purchase price of the stock. This book entry resulted in
personal tax liability to Kaul, as the "bonus" constituted income to
Kaul. Kaul paid this tax liability himself. (See Am. Compl. ¶ 28;
Lipner Dep. at 9-19).
On August 22, 1997, Kaul was obligated to make the first of the four
20% payments under the Note, in the amount of $349,187.50. With accrued
interest, he owed a total of $445,786.73. The same procedure was
followed: Hanover made a book entry reflecting a bonus payment to Kaul in
that amount, which was then applied to pay the principal and interest due
under the Note. (See Am. Compl. ¶ 30; Lipner Dep. at 13; Kingsford
Decl., ¶ 1).
In late 1997 or early 1998, however, to avoid the tax liability that he
would incur as a result of the payment of the "bonuses" to be used to
satisfy the Note obligations, the Note was amended to provide for a
single balloon payment at maturity of principal and interest, and the
maturity date was extended to August 23, 2001. (Kaul Dep. at 172-75
(McGrath Decl., Ex. 38); Lipner Dep. at 17-20; Am. Compl., Ex. C;
Kingsford Decl. ¶ 2).
The August 22, 1997 "bonus" created personal income tax liability for
Kaul in the amount of $211,729, which Hanover paid to the Internal
Revenue Service (the "IRS") on Kaul's behalf. Hanover loaned this amount
to Kaul by adding $211,729 to the principal of the amended Note. (Kaul
Dep. at 171-73 (McGrath Decl., Ex. 38); Kingsford Decl. ¶ 2).
As discussed below, Kaul's employment with Kaul was terminated on
December 5, 2000. The Note provided that:
[Kaul] shall prepay the entire unpaid principal amount
of this Note together with interest accrued on such
principal amount to the date of prepayment without
premium . . . on the thirtieth day following
termination of [Kaul]'s employment with [Hanover] for
any reason other than [death or long-term
(McGrath Decl., Ex. 6 at HDI 03085; see Bayoneto Decl., Ex. 10).
On December 31, 2000, Hanover recorded a book entry payment to Kaul in
an. amount equal to the principal and interest then due on the amended
Note, $1,277,561.42. Hanover then applied that amount on Kaul's behalf to
satisfy the amended Note, except for the additional amount that had been
loaned to Kaul to pay the IRS, $211,729.08, plus interest. (Kingsford
Decl. ¶ 3). In other words, even though Kaul was no longer employed
by Hanover, Hanover nevertheless "paid" him a bonus in an amount
sufficient to cover the outstanding principal and interest: due on the
amended Note, with, the exception of the $211,729.08 plus interest.
On January 10, 2001, however, Kaul contacted Hanover arid requested
that it reverse the payroll entry. (Id. ¶ 5 & Ex.
1 ("I . . . would appreciate a confirmation of a reversal of the payroll
entry. . . .")). As Hanover's tax advisors explained, a "payment" of the
Tandem Bonus to Kaul would generate substantial personal income tax
liability, while no such tax liability would result if Kaul surrendered
his shares in full satisfaction of the amended Note in lieu of receiving
the bonus. (Id. ¶ 7). Moreover, because the value of the shares had
dropped considerably, with the latter option Kaul would receive a tax
benefit in the form of a long term capital loss. (Id.).
Hanover gave Kaul the option of "receiving" the Tandem Bonus and
retaining the shares or surrendering the shares in satisfaction of the
amended Note (except for the $211,729.08 plus interest) in lieu of the
bonus. Kaul elected to surrender the shares. (Id. ¶ 8, 9; Shull
Decl. ¶¶ 2, 3; Pl. Opp. Mem. at 11-14 (acknowledging that Kaul
tendered his shares)).
d. The Change of Control Plan
Effective December 26, 1999, Hanover established a "Key Executive
Thirty-Six Month Compensation Continuation Plan." (the "Plan"). (McGrath
Decl., Ex. 9). Kaul was the sole participant in the Plan. (Id. §
2.9). By its terms, the Plan was intended "to attract and retain key
management personnel by reducing uncertainty and providing greater
personal security in the event of a Change of Control." (Id. § 1.1).
The events constituting a Change of Control were defined in § 2.2 of
the Plan. (Id. § 2.2). The Plan provided that "prior to a Change of
Control the participation in the Plan of any Participant shall cease on
. . .
the date on which a Participant is terminated by [Hanover]." (Id. Art.
3). The Plan further provided that "[a] Participant shall be entitled to
severance pay and benefits under the Plan only if there occurs a Change
of Control and thereafter [Hanover] terminates his/her employment." (Id.
Article 10 of the Plan gave the Board the ability to amend or terminate
The Board . . . reserves the right at any time to
amend or terminate the Plan, except that if the Plan
is terminated in anticipation of or upon or after a
Change of Control has occurred, the Board . . . may
not terminate the participation in the Plan of any
Participant who is in the Plan when a Change of
Control is anticipated or as of the date of the Change
of Control. . . .
(Id. Art. 10).
On April 25, 2001, as reflected in the minutes of meeting, the Board
terminated the Plan. (Shull Decl. ¶ 1 & Ex. 1). The minutes show
that the Board determined that "no `Change of Control' . . . is
anticipated." (Id., Ex. 1 at 8).
No "Change of Control" has occurred within the meaning of the Plan.
(See Kaul Dep. at 308-10) (McGrath Decl., Ex. 39).
e. Vacation Pay
In the amended complaint, Kaul asserts a claim for compensation for 13
weeks of accrued and unused vacation, in the amount of $149,325. (Am.
Compl. ¶¶ 16-18). In his opposition papers to Hanover's motion, he
reduces the claim, seeking compensation for only five weeks of accrued
and unused vacation.
I discuss the additional facts relating to the vacation pay claim
B. Prior Proceedings
1. The Filing of Suit
On June 28, 2001, Kaul commenced this action against Hanover in the
Supreme Court of the State of New York, New York County. The complaint
alleged a breach of contract based, inter alia, on §§ 7(b) and 12 of
the Agreement. It contended that Hanover had failed to make "certain
termination payments" to Kaul as required by § 7(b) and to pay Kaul's
reasonable attorneys' fees as required by § 12. (See Compl. ¶¶
34, 40; see Id. ¶¶ 5-15). It also asserted claims for accrued and
unused vacation pay, for compensation under the Plan, and for bonuses
under the LTIP. (Id. ¶¶ 43-61).
On July 25, 2001, Hanover removed the case to this Court on the basis
of federal question jurisdiction, as Kaul was asserting claims under an
employee benefit plan within the meaning of the Employment Retirement
Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001 et seq.
2. The Exchange of Proposed Releases
By letter dated July 30, 2001, counsel for Hanover wrote to counsel for
Kaul, transmitting a proposed "Confidential General Release and Covenant
Not To Sue." (McGrath Decl., Ex. 24). The letter stated:
By this letter, Hanover reiterates once again
and for the final time its
unconditional offer to provide Mr. Kaul with severance
pay and benefits in full satisfaction of Hanover's
obligations to him under the  Agreement in return
for his execution of a general release of claims in
the form attached to this letter.
If Mr. Kaul fails to execute and deliver the
attached release of claims to Hanover within
twenty-one days of receipt of same, this offer shall
be withdrawn. This offer is made without prejudice to
Hanover's right, which it specifically reserves, to
raise any defenses and bring any and all counterclaims
it might have against Mr. Kaul should he reject this
offer and proceed with his litigation,
(McGrath Decl., Ex. 24). The letter set forth Hanover's offer to
pay Kaul nearly $3 million in severance pay and benefits, including
$2,186,755.80 in base salary and short-term bonus (after deducting for
severance already paid); $554,892 as an additional pro-rated short-term
bonus; the cost of health, dental, and life insurance; and $11,486.53 in
vacation pay. (Id.).
Kaul's counsel responded to the July 30, 2001 letter by letter dated
September 6, 2001. The letter referenced this lawsuit and enclosed a
document entitled "Confidential General Release," which Kaul had executed
(the "Kaul Release"). (McGrath Decl., Ex. 23). As noted in the letter,
the Kaul Release purported to exclude "claims that are not required to be
included in the Release under Section 7 of the Employment Agreement."
(Id.). Specifically, the Kaul Release excluded, inter alia, his claims
for attorneys' fees and for "damages relating to
[Hanover]'s failure to provide benefits" under § 7(b) of the
Agreement. (Id.). It also excluded claims for benefits and payments
purportedly due under the Plan and other specified agreements and plans.
3. The Amended Complaint and Hanover's Answer and Counterclaims
In September 2001, Kaul filed an amended complaint asserting eight
causes of action: (1) breach of § 7(b) of the Agreement, (2) breach
of § 12 of the Agreement, (3) breach of an agreement (or policy) to
make a lump sum payment of accrued, unused vacation upon termination of
employment, (4) breach of the Plan in violation of ERISA, (5) breach of
Hanover's fiduciary duties under ERISA in connection with his rights
under the Plan, (6) for equitable relief with respect to the Plan under
ERISA, (7) breach of an obligation to pay Kaul a bonus in connection with
the LTIP, and (8) for bonuses under the LTIP on the basis of fraud or
mistake if the Agreement were found to have superseded his entitlement to
Hanover filed an answer to the amended complaint and counterclaims.
Hanover alleged that Kaul had violated his obligations to Hanover under a
non-competition and confidentiality agreement as well as under the
Agreement. It asserts eight counterclaims for breach of contract, breach
of fiduciary duty, unjust enrichment, and unfair competition, as well as
a ninth claim entitled "inevitable disclosure."
4. The Plan Administrator's Decision
In October 2001, Charles Messina, the Administrator of the Plan (the
"Administrator"), decided to treat the amended complaint as a claim by
Kaul under ERISA for benefits under the Plan. (Messina Decl. ¶ 2).
On October 17, 2001, the Administrator wrote to Kaul and invited him to
submit "all documentation or other evidence" he might have "in support
of such possible claim." (Id. ¶ 2 & Ex. 2).
Kaul responded through counsel, by letter dated
November 19, 2001 to Hanover's counsel. (Id. ¶ 3 & Ex. 3). Kaul
did not submit any evidence or documents, stating that he was under "no
obligation" to respond and making reference to certain documents he
contended were already in Hanover's "control." (Id.).
On December 13, 2001, the Administrator issued a written decision
denying Kaul's "claim" and setting forth the reasons for the denial.
(Id. ¶ 4 & Ex. 4).
By letter from his counsel dated March 18, 2002, Kaul requested
reconsideration of the Administrator's decision. (Lambert Decl. ¶ 2
& Ex. 2). The Board designated a three-person Appeals Committee to
consider Kaul's request for reconsideration. (Id. ¶ 1). After
convening three times to consider Kaul's appeal, the Appeals Committee
issued a written decision rejecting Kaul's claim. (Id. ¶ 3-7 &
5. The Instant Motions
After Kaul filed his amended complaint in this case and Hanover filed
an answer and counterclaims, the parties engaged in a long and
contentious course of discovery.
On April 11, 2002, Hanover wrote a letter to the Court requesting a
pre-motion conference to discuss the filing of a motion for leave to file
an amended answer and counterclaims. Hanover sought to amend its pleading
to add assertions that Kaul had engaged in misconduct including
the misappropriation of corporate resources and opportunities
during his tenure as president. By memorandum endorsement dated April
23, 2002, the Court treated the letter as a motion for leave to amend
and denied the request.
These motions followed.
Hanover's motion for summary judgment seeks dismissal of each of Kaul's
claims. The motion also seeks summary judgment in its favor on its claim
that Kaul would be unjustly enriched if he is permitted to retain
$211,729 that Hanover loaned to him.
Kaul's motion for partial summary judgment seeks dismissal of five of
Hanover's affirmative defenses and all nine of Hanover's counterclaims.
Hanover's motion for leave to amend seeks to (i) add an "after-acquired
evidence" defense to Kaul's claims, (ii) amend its counterclaims to
clarify that its breach of fiduciary duty claims include a claim that
Kaul was improperly reimbursed for
certain professional fees, and (iii) to add a counterclaim based on
Kaul's failure to reimburse Hanover the $211,729.
I discuss (A) Kaul's claims; (B) Hanover's affirmative defenses and
counterclaims; and (C) Hanover's motion for leave to amend.
A. Kaul's Claims
I discuss Kaul's five claims (or sets of claims). 1. Plaintiff's
Claims Under § 7(b)
Kaul's claims for severance benefits under § 7(b) of the Agreement
are barred by his failure to meet at least one of the two conditions
precedent set forth in § 7(g). The Agreement provided that "to be
eligible for the payments and benefits as set forth in Section 7(b),"
Kaul "must execute and deliver to [Hanover] a general release in favor of
[Hanover], excepting statutory contribution and indemnity rights to which
[Kaul] is entitled." (Agreement § 7(g)). Hence, unless Kaul executed
and delivered to Hanover a general release, he was not entitled to
payments and benefits under § 7(b).
Kaul does not deny that the execution and delivery of a general release
was a condition precedent to his entitlement to severance benefits under
§ 7(b). See Duff v. Trenton Beverage Co., 73 A.2d 578, 583 (N.J.
1950) ("Generally, no liability can arise on a promise subject to a
condition precedent until the condition is met."); Levinson v.
Weintraub, 521 A.2d 909, 910
(N.J. Super. Ct. App. Div. 1987) ("where the terms of a contract are
clear and unambiguous there is no room for interpretation or construction
and [the court] must enforce those terms as written"); Castle v. Cohen,
840 F.2d 173, 177 (3d Cir. 1988)("a condition is defined as an act or
event which `must occur before a duty of performance under an existing
contract becomes absolute'"). Rather, he makes two alternative
arguments: (a) he complied with the condition precedent because he
tendered an "appropriate release," or (b) compliance was not required
because Hanover breached the Agreement. (See Pl. SJ Mem. at 2-7; Pl.
Opp. Mem. at 1-6). Both arguments are rejected.
a. The Kaul Release
As the parties agree, the first argument raises: only issues of law. No
factual disputes are presented. Hence, the matter is ripe for summary
It is undisputed that Kaul did not tender a release until September 6,
2001, when his counsel delivered the Kaul Release. Of course, this was
after Kaul had filed suit. Even putting aside the issue of the timeliness
of this proffer, the condition precedent was not met as a matter of law
because the Kaul Release was not a "general release" as required by
§ 7(g) of the Agreement.
A "general release" is a release that "covers all claims and demands
due at the time of its execution." Bilotti v. Accurate Forming Corp.,
188 A.2d 24, 35 (N.J. 1963); accord State v. DeAngel is, 747 A.2d 289,
293 (N.J. Super. Ct. App. Div. 2000)
("A general release ordinarily covers all claims and demands at the time
of the execution unless, by its terms, the parties restrict it to
particular claims and demands."). Here, § 7(g) required a "general
release" with only one exception: "statutory contribution and indemnity
rights to which [Kaul] is entitled." Of course, the fact that § 7(g)
specifically excluded one category of rights demonstrates that no other
exclusions were contemplated. See, e.g., M.G.M. Constr. Corp. v. N.J.
Educ. Facilities Auth., 532 A.2d 764, 768 (N.J. Super. Ct. Law Div. 1987)
(applying maxim inclusio unius est exclusio alterius).
The Kaul Release was far from a "general release," as it carved out
many exceptions in addition to the permitted exception of "statutory
contribution and indemnity rights." Indeed, by its terms, the Kaul
Release did not release Kaul's claims for (i) attorneys' fees under
§ 12 of the Agreement; (ii) damages for Hanover's "failure" to
provide § 7(b) benefits; (iii) amounts due under the Plan; and (iv)
compensation and/or benefits purportedly due under other specified
agreements and plans. (McGrath Decl., Ex. 23). Hence, Kaul wanted the
right to pursue these claims and more than $2.7 million in severance and
benefits. (See Id.). Instead of releasing "all claims arid demands," Kaul
was seeking to preserve the right to pursue virtually all conceivable
claims and demands.
Kaul argues that the Kaul Release complies with § 7(g) because it
merely carves out his claims for compensation "in accordance with the
main part" of § 7. (Pl. SJ Mem. at 3). As
an initial matter, even assuming that Kaul was entitled to carve
out claims arising under the "main part" of § 7, the Kaul Release
purported to carve out more.*fn2 More importantly, the language of §
7(g) belies Kaul's argument, as it does not permit an exclusion for
rights under the "main part" of § 7. The omission is understandable,
for obviously it was intended to avoid a situation where Hanover would
pay Kaul $3 million in severance benefits only to find itself later
embroiled in litigation with Kaul over other purported claims. The
requirement of a general release was included to avoid this result.
To the extent Kaul had other meritorious claims a claim for one
additional week of vacation pay, for example these items were
either covered by the one permitted exclusion or surely they could have
been negotiated. If not, that was the bargain Kaul had struck to
obtain the approximately $3 million in benefits under § 7(b), he had
to give up his other claims (other than statutory contribution and
indemnity rights). It was his choice.
Of course, by executing and delivering a generail release, Kaul was not
giving up his claims for benefits under § 7(b). Those benefits were
part of the bargain, the consideration for the general release, and
Hanover's contractual obligation to pay § 7(b) benefits obviously
would have survived the delivery of a general release.
b. Hanover's Purported Breach
Kaul also argues that compliance with the condition precedent of a
general release is excused because Hanover breached the Agreement. This
argument is also rejected. First, it is undisputed that Hanover did
provide Kaul with some severance payments ($341,803) and benefits
coverage for a number of months. Second, Kaul's assertions of a breach by
Hanover are purely conclusory. (See Pi. SJ Mem. at 6-7; Pl. Opp. Mem. at
6). As discussed above, Hanover's obligation to pay Kaul benefits under
§ 7(b) was not triggered until Kaul executed and delivered a general
release. Third, even assuming Hanover did breach the Agreement, Kaul has
not demonstrated why he is entitled to
enforce his contractual rights under § 7(b) without complying
with a clear contractual condition precedent.
As a consequence of his failure to execute and deliver a "general
release" as required by § 7(g), Kaul's claims for payments and
benefits under § 7(b) are barred as a matter of law. These claims
2. Kaul's Claims Under § 12
Hanover's motion for summary judgment dismissing Kaul's claims for
attorneys' fees pursuant to § 12 of the Agreement is granted in part
and denied in part.
Pursuant to § 12, Hanover was required to pay Kaul's "reasonable
legal fees in full in the event that he must seek legal counsel to
enforce any of his rights under this Agreement." I agree with Kaul that
Hanover's obligation to pay his fees was not contingent on the existence
of litigation or on his prevailing in litigation.
On the other hand, § 12 only requires the payment of "reasonable"
legal fees. Fees incurred in the pursuit of meritless claims are not
reasonable, nor are fees that are disproportionately high in relation to
the value of arguably meritorious claims.
I hold, as a matter of law, that § 12 does not obligate Hanover to
reimburse Kaul for his legal fees incurred in prosecuting this lawsuit.
As discussed in this opinion, his claims are largely meritless, and the
value of the one or two arguably meritorious claims certainly does not
example, the taking of 25 depositions, as Kaul took in this case,
according to Hanover's counsel. (Def. SJ Mem. at 1).
I hold further that Kaul was entitled to be reimbursed for reasonable
legal fees incurred in seeking advice and representation in connection
with the termination of his employment. This would include legal services
to review the various agreements, to investigate the facts and
circumstances, to advise Kaul on his rights under the Agreement, to
review or draft a proposed general release, and to negotiate Kaul's final
severance payments and other benefits. In fact, Hanover acknowledged this
obligation and paid Kaul's attorneys some $37,000 in this respect.
Genuine issues of fact exist, however, as to the amount of a reasonable
fee in light of all the circumstances. Accordingly, summary judgment is
denied to this extent. 3 Kaul's Claims for a Tandem Bonus
The parties agree on many of the facts relating to the LTIP and the
payment of Tandem Bonuses. They agree that in the end Kaul surrendered
his shares, the "payroll entry" was reversed, Kaul did not receive a
Tandem Bonus, and the amended Note was deemed satisfied. Although there
are some factual disagreements including whether the $211,729
debt was carved out the issues turn on the unambiguous language
of the LTIP.
Kaul claims that he is entitled to a Tandem Bonus even though he
surrendered the shares and the Note was satisfied. He contends that under
the LTIP he was entitled to a Tandem Bonus
irrespective of any obligation to pay for the purchase of shares.
The claim is rejected, for it is belied by both the plain language of the
LTIP and its stated purpose.
The LTIP provided that Hanover "shall pay [Kaul], on or before each due
date . . . of any payment of principal and/or interest on the Note, a
bonus equal to the amount of such principal and/or interest then due."
(LTIP § 5(a)) (emphasis added). Once Kaul surrendered his shares, the
amended Note was deemed satisfied and no principal or interest was "then
due." Hence, Hanover had no further obligation to pay Kaul a Tandem
Bonus. Moreover, Kaul has pointed to no language in the LTIP that
supports his assertion that he was entitled to a cash bonus even though
he surrendered his shares.
Moreover, the purpose of the LTIP was to "align" Kaul's interests with
Hanover's interests by giving him a substantial equity stake in the
company. The concept was to give him stock as an incentive; he was to
purchase the stock at market value and Hanover would give him bonuses to
be used to pay for the stock. The LTIP did not contemplate giving him any
cash bonuses independent of the ownership of stock. Once Kaul decided to
surrender the stock, there no longer was an "alignment" of interests in
this respect, and Kaul had no contractual entitlement to a bonus that was
always intended to be used only to pay for the purchase of stock.
Kaul argues that the LTIP does not contain a "condition precedent"
that the Tandem Bonus is payable only if he is
obligated to make a payment under the Note, the Note is a nonrecourse
secured only by the shares, and that Hanover is in essence seeking a
"double recovery." (Pl. Opp. Mem. at 13-14 & n.6). These arguments
are not persuasive.
First, the issue is not one of a condition precedent. Rather, the
essence of the agreement was the connection between stock ownership and
the payment of the bonus. The bonus was intended to finance the purchase
of the stock; when the stock was surrendered and the Note was satisfied,
no amount was "then due," and thus Kaul was no longer entitled to a
Second, the fact that the Note was a non-recourse promissory note is
irrelevant for these purposes. Hanover was not looking to Kaul's other
assets for payment of the Note. The Note specifically contemplated that
it would be repaid through the application of bonuses that were
specifically earmarked for this purpose. The non-recourse nature of the
Note has no bearing on whether any amounts were "then due" on the Note.
Finally, Hanover has not obtained a double recovery or any kind of
windfall by any means. It was under no obligation to offer Kaul the
option of surrendering the shares, but it did so as an accommodation to
Kaul. Moreover, Kaul was not required to surrender the shares; he had the
option to retain the shares, but he chose not to do so.
4. Kaul's Claims Under the Plan
Kaul asserts several ERISA claims based on his assertions that his
participation in the Plan and the Plan itself
were improperly terminated. (Am. Compl., Counts IV, V, VI). Hanover moves
for summary judgment on the basis that, inter alia. Kaul's participation
in the Plan was properly terminated when his employment was terminated
and that the Board properly terminated the Plan as well. I agree.
Although the parties disagree as to the applicable standard of review,
I assume, for purposes of this motion, that the standard of review is de
By its terms, the Plan was intended "to attract and retain key
management personnel by reducing uncertainty and providing greater
personal security in the event of a Change of Control." Kaul was the only
participant in the Plan, and the Plan obviously was intended to provide
him with certain security additional severance pay and benefits
in the event of a change of control of Hanover. Hence, Kaul was:
entitled to severance pay and benefits under the
Plan only if there occurs a Change of Control and
thereafter [Hanover] terminates his employment
Without Cause or [he] voluntarily terminates his
employment for Good Reason during the two (2) year
period following the Change of Control.
(Plan, Art. 4).
The term "Change of Control" is defined in the Plan, and as Kaul
conceded at his deposition in this case, there has been no "Change of
Control" as contemplated by the Plan:
Q. Do you contend that a change in control occurred at
any time prior to, a change in control within the
meaning of this agreement [the Plan], at any time
prior to December 5, 2000?
A. That's not my contention in the complaint.
Q. Is it your contention that a change in control
within the meaning of this agreement has ever
A. No, that is not my contention.
Q. . . . Do you know of any facts to suggest that such
a thing has ever occurred?
A. No, it has not occurred.
(Kaup Dep. at 308-09) (McGrath Ex. 39).
Under the plain language of the Plan, then, Kaul is not entitled to any
severance pay or benefits under the Plan because there has been no
"Change of Control."
Moreover, the Plan also provided that "prior to a Change of Control the
participation in the Plan of any Participant shall cease on . . . the
date on which a Participant is terminated by [Hanover]." (Plan, Art. 3).
Here, as Kaul's employment was terminated by Hanover on December 5, 2000,
and there had been no "Change of Control," his participation in the Plan
"cease[d]" by its terms.
Finally, Article 10 of the Plan expressly reserved to the Board the
"right at any time to amend or terminate the Plan." The only limitation
was that if the Plan was terminated "in anticipation of or upon or after
a Change of Control," the rights of "any Participant who is in the Plan"
could not be affected. The Board terminated the Plan on April 25, 2001,
months after Kaul the sole "Participant" had been
dismissed. There had been no "Change of Control" by then.
Kaul argues that he has presented evidence that shows that the Board
terminated the Plan "in anticipation of . . . a Change of Control." The
evidence he relies on, however, is nothing more than evidence that
Hanover explored options and alternatives and considered expressions of
possible interest from other entities. (See, e.g., Bulle II Dep. at
43-45; Lawrence Dep. at 101-10; Bayoneto Decl., Ex. 30 ("we have begun to
move forward with a revised Business Plan, and we are also continuing to
explore potential strategic options for the company"); Id., Ex. 31
(discussing potential sale of Hanover's assets); Id., Ex. 32 (memorandum
discussing potential sale of one of Hanover's units). No evidence has
been cited of anything beyond mere exploration; no evidence has been
presented of an actual decision to effectuate a Change of Control. A
reasonable factfinder could not conclude from the evidence in the record
that the Board terminated the Plan "in anticipation of . . . a Change of
Control." Rather, a reasonable factfinder could only conclude that the
Board terminated the Plan because the only participant in the Plan had
Accordingly, Kaul has no viable claim for benefits under the Plan, and
the Administrator and Appeals Committee correctly denied his claims for
benefits under the Plan. Kaul's ERISA claims are dismissed.
5. Vacation Pay
Kaul's final claim is for vacation pay. In his amended complaint, he
sought 13 weeks vacation pay; in his opposition papers, he has reduced
the claim to five weeks vacation pay: one week for 1999, because he was
unable to take one week because of the press of Hanover business; and
four weeks for 2000, as his employment was terminated in December 2000
and he had not yet taken any vacation that year. (Pl. Opp. Mem. at
As to the one week for 1999, summary judgment is granted in favor of
Kaul. Although there is some issue as to whether he obtained written
permission of the compensation committee to carry over the one week,
Charles Messina and Thomas C. Shull, two high-ranking officers of
Hanover, both testified at deposition that Hanover agreed that Kaul could
carry over one week from 1999 because he could not take a full planned
vacation because of work commitments. (Messina IV Dep. at 14-16; Shull
Dep. at 362). On this record, a reasonable factfinder could only find
that Hanover had agreed that Kaul could carry over the one week of unused
vacation in 1999.
As to the four weeks in 2000, summary judgment is granted in favor of
Kaul for three out of the four weeks. Again, Messina testified that
Hanover's policy was to pay employees who were "separated" their accrued
and unused vacation for the year in which they were separated. (Messina
III Dep. at 209, 212). Messina testified that Kaul was entitled to three
weeks vacation in 2000. (Id. at 182, 190). Kaul testified that he was
to four weeks vacation in 2000. (Kaul Dep. at 125) (McGrath Decl.,
Ex. 38). Hence, there is no dispute that Kaul was entitled to vacation
pay for at least three weeks for 2000. An issue of fact exists as to his
entitlement to the fourth week.
As to vacation pay, then, summary judgment is granted in favor of Kaul
for one week of vacation pay for 1999 arid three weeks of vacation pay
for 2000; summary judgment is granted in favor of Hanover dismissing
Kaul's claims for vacation pay in excess of five weeks; and summary
judgment is denied as to one week of vacation pay, i.e., the disputed
fourth week for 2000.
B. Hanover's Affirmative Defenses and Counterclaims
Hanover has asserted a number of affirmative defenses and
counterclaims. Kaul moves for partial summary judgment striking certain
of these affirmative defenses and dismissing certain of these
As for the affirmative defenses, Kaul's motion is granted, for in light
of my rulings above, the affirmative defenses are largely moot. Only two
claims remain: the claim for attorneys' fees and the claim for one week's
vacation. To the extent any affirmative defenses are implicated with
respect to these claims, we will address them at trial.
With respect to Hanover's counterclaims, Kaul has moved for summary
judgment with respect to the following counterclaims: (i) Counts IV
(breach of the Agreement) and VII (unjust enrichment) to the extent they
allege that Kaul did not tender an appropriate release; (ii) Counts III
(breach of the Agreement), V
(breach of fiduciary duty), and VIII (unfair competition) to the
extent they allege breach of a non-compete provision in the Agreement;
(iii) Counts I and II (breach of non-competition and confidentiality
agreement), V (breach of fiduciary duty), and VIII (unfair competition)
to the extent they allege breach of a confidentiality agreement; (iv)
Count IX (inevitable disclosure); and (v) Count V (breach of fiduciary
duty) and Count VI (unjust enrichment). As for these counterclaims,
Kaul's motion is granted in part and denied in part.
Finally, in its motion for summary judgment, Hanover requested summary
judgment in its favor on its claim that Kaul owes it $211,729 on account
of the monies Hanover advanced to the IRS on Kaul's behalf. I address
this claim first. I then discuss the counterclaims that are the subject
of Kaul's motion for partial summary judgment.
1. Hanover's Claim for $211,729
Hanover seeks to recover the $211,729 it had paid to the IRS on Kaul's
behalf. Although its counterclaims do not specifically address the
$211,729 loan, Hanover argues that the claim is covered by Count VI,
which alleges that Kaul was "unjustly enriched" at Hanover's expense by
accepting "salary, bonus and other compensation and employee benefits"
while "act[ing] in a manner which was contrary to the best interests of
This branch of Hanover's motion for summary judgment is denied, for
Hanover has not demonstrated that it is entitled to
judgment as a matter of law in this respect. First, even assuming
the $211,729 loan is properly covered in Count VI, Hanover has not
demonstrated as a matter of law that Kaul engaged in conduct "contrary to
the best interests" of Hanover." Second, although there appears to be no
dispute that Hanover paid $211,729 to the IRS on Kaul's behalf, the loan
was incorporated into the non-recourse Note and the Note was deemed
satisfied. By the Note's terms, Hanover could only look to the Hanover
shares in question for recourse.
Hanover states in conclusory fashion that the $211,729 was carved out
of the arrangement, but it has not submitted any definitive documentation
in this respect. (See Hanover SJ Mem. at 48-49). The only document
submitted by Hanover is the handwritten note that Kaul faxed to Bulle.
(Kingsford Decl., Ex. 1). Kaul wrote: "the [N]ote included a sum of
$211,729 for which there is no forgiveness." (Id.). Although that entry
supports Hanover's position that the $211,729 was excluded, in the
context of the entire document the statement is less than clear. If
indeed the parties had intended that Kaul continued to owe the $211,729
after the Note was satisfied and that Hanover could look to assets other
than the shares to obtain repayment, one would expect that Hanover would
have confirmed that understanding in writing. No such writing has been
presented to the Court (as far as I can tell from the many volumes of
exhibits that have been submitted). It is not clear on the record before
the Court whether Hanover can look to any of Kaul's assets to recover
his failure to repay the $211,729 other than the shares of Hanover
common stock which already have been surrendered.
2. Hanover's Release Claims
Kaul's motion for summary judgment dismissing Counts IV (breach of the
Agreement) and VII (unjust enrichment) of Hanover's counterclaims to the
extent they allege that Kaul did not tender an appropriate release is
denied and summary judgment is granted in favor of Hanover, for the
reasons set forth above. As noted, I conclude as a matter of law that
Kaul did not tender an appropriate release.
3. The Non-Compete Provision
Kaul's motion for summary judgment dismissing Counts III (breach of the
Agreement), V (breach of fiduciary duty), and VIII (unfair competition)
of Hanover's counterclaims to the extent they allege breach of a
non-compete provision in the Agreement is granted. Although issues of
fact exist as to whether Kaul breached his obligations under the
non-compete provision, Hanover has presented no evidence of damages. Kaul
moved for summary judgment in part on this basis, and Hanover has not
disputed Kaul's assertion that it has suffered no damages. (Hanover Opp.
Mem. at 17-33 & nn.16, 20). Instead, Hanover responds only by
asserting that (i) damages are not necessary to sustain its defenses,
(ii) once a breach is established at least nominal damages are in order,
and (iii) it is seeking injunctive relief.
As noted above, the viability of the defenses is moot. Damages are a
necessary element of a breach of contract action. Cumberland Co.
Improvement Auth. v. GSP Recycling Co., Inc., 818 A.2d 431, 442 (N.J.
Super. Ct. App. Div. 2003) (party asserting breach of contract claim has
"burden of proof to establish all elements of its cause of action,
including damages"); see also Harsco Corp. v. Segui, 91 F.3d 337, 348 (2d
Cir. 1996) (applying New York law and holding that damages was an element
of cause of action for breach of contract). Under the circumstances of
this case where Kaul was fired and Hanover has asserted these
claims only in response to Kaul's suit I would not issue
injunctive relief, even assuming Hanover could prove all of its
allegations in this respect.
4. Confidentiality Provision Claims
Kaul's motion for summary judgment dismissing Counts I and II (breach
of non-competition and confidentiality agreement), V (breach of fiduciary
duty), and VIII (unfair competition) of Hanover's counterclaims to the
extent they allege breach of a confidentiality agreement is granted. My
analysis with respect to the non-compete claims applies here as well.
Even assuming a breach as alleged, the validity of the affirmative
defenses is largely moot, no reasonable factfinder could find damages,
and I would exercise my discretion not to grant injunctive relief.
5. The Inevitable Disclosure Claim
Kaul's motion for summary judgment dismissing Count IX of Hanover's
counterclaims, the inevitable disclosure claim, is
granted, for the reasons I have granted summary judgment dismissing
the claims based on the non-compete provision and confidentiality
6. Counts V and VI
Kaul moves for summary judgment dismissing Counts V (breach of
fiduciary duty) and Count VI (unjust enrichment) of Hanover's
counterclaims. These counterclaims are based on three sets of
allegations: (a) Kaul hired unqualified executives to work at Hanover;
(b) Kaul improperly drew a car allowance; and (c) real property leased to
Hanover in Edgewater, New Jersey was improperly re-let to "Edgewater
Pediatrics," Kaul's wife's medical practice. Kaul's motion is granted and
these counterclaims are dismissed.
Hanover has withdrawn its claim that Kaul breached his fiduciary duties
by hiring unqualified executives. (Hanover Opp. Mem. at 33-34 n.36).
Hence, this prong of the motion is granted.
The counterclaims based on the payment of car allowances are dismissed.
Hanover paid Kaul a car allowance for almost five years. These payments
were made openly and with full knowledge of Hanover's management:
Hanover's Chief Financial Officer approved the payments in writing
(Bayoneto Decl., Ex. M (memo dated 4/26/96 directing payment of monthly
car allowance)); Hanover's management, Board members, general counsel,
outside counsel, and outside auditors were all aware of the payments,
which were described every year in Hanover's annual proxy statements (see
1996 Proxy at HDI 03811; 1997 Proxy at 10 n.2;
1998 Proxy at HDI 04869-70 n.4; 1999 Proxy at 7-8 n.8; 2000 Proxy
at 4-5 n.8; 2001 Proxy at 4-5 n.9); and the Chairman of Hanover's
Compensation Committee twice discussed Kaul's car allowances with
Hanover's general counsel. (Hewitt Dep. at 216-25). Hence, Hanover
knowingly made these payments to Kaul every month for almost five years.
Hanover now argues that Kaul must repay the car allowances because he
was not entitled to them and they were never authorized by the Board or
the Compensation Committee, and it argues that Kaul breached his
fiduciary duties to Hanover by accepting the car allowances in these
circumstances. These arguments are rejected. Kaul asked for a car
allowance from Hanover because he had received a car allowance at his
prior place of employment; Hanover agreed to give it to him and paid it
for almost five years; the payments were not hidden from anyone and, to
the contrary, Hanover's senior management and inside and outside advisors
knew of and approved the payments. Under these undisputed circumstances,
it was not a breach of Kaul's fiduciary duties for him to accept the
payments, and he would not be unjustly enriched if he were permitted him
to retain them now.
Finally, the counterclaims are also dismissed to the extent they are
based on the leasing of the property to Kaul's wife. Again, senior
management of Hanover was aware of and approved this transaction. The
minutes of a meeting of Hanover's Transactions Committee on November 4,
1999, show the following:
The Chairman then called for discussion regarding
a possible return to the landlord
of certain space not currently being used by the
Company with the knowledge that the space may then be
relet by Mr. Kaul's wife as office space. After
discussion, the Committee concluded that there was no
conflict whatsoever between the Company, which no
longer needed the space, and Mr. Kaul, whose wife
would be dealing directly with the landlord after the
space was returned. . . .
(Bayoneto Decl., Ex. P) (emphasis added).
Senior management of Hanover, with the assistance of outside counsel,
negotiated the return of the property to the landlord. (Messina I Dep. at
95-96; Bulle Dep. at 82, 84, 87). In fact, from 1998 to April 2000, much
of the 20,000 square foot space was not being used. Hanover had been
trying to sublease some of the unoccupied space for a lengthy period of
time, without success. Hanover was using some of the space as warehouse
space, for which it was paying $18 a square foot, when generally warehouse
space was renting at the time for $6 a square foot. (Tannenhols Dep. at
50-57, 62-63, 65-66, 82-83). After Hanover was released from the lease
and relieved of its obligation to pay for unused space, Kaul's wife
rented approximately 1,900 square feet of the space at $18 per square
foot. (Bayoneto Decl., Ex. T at Addendum ¶ 1 at RK 000048). By the
end of 2000, Hanover had abandoned the Edgewater facility entirely, and
had set up a "restructuring reserve of $1.4 million for lease exit cost
as well as [a] write-off [of] $400,000 worth of expenses." (Adiletta
Dep. at 113-14; see Bayoneto Decl., Ex. U ¶ 5 at 2).
Hanover simply has not presented any evidence from which a jury could
conclude that Kaul had committed fraud on the Board in this respect. The
space had been largely unused for some time, and thus Hanover had been
paying rent needlessly. The circumstances were disclosed to the
Transactions Committee, and Hanover undoubtedly was in a better position
than Kaul's wife to know the conditions of the real estate market in
Edgewater. Although Hanover apparently later determined to re-rent the
space, no reasonable jury could find that somehow Kaul had defrauded and
deceived Hanover into giving up a valuable corporate opportunity to his
Hanover's argument that Kaul improperly spent his own time and
improperly diverted the time of other Hanover employees for the benefit
of his wife is specious. On the record before the Court, a reasonable
jury could only conclude that Hanover is grasping at straws in an effort
to strike back at Kaul for initiating this lawsuit.
C. Hanover's Motion for Leave to Amend
Hanover's motion for leave to amend its affirmative defenses and
counterclaims is denied in part and granted in part. The motion is
granted to the extent Hanover is permitted to add a claim based on Kaul's
purported failure to repay the $211,729 that Hanover paid to the IRS on
Kaul's behalf. The motion is otherwise denied.
The parties have had discovery with respect to the claim for $211,729,
and that claim is fairly part of the case.
Moreover, it is arguably covered by Hanover's counterclaim for unjust
enrichment. Kaul would suffer no prejudice by an amendment formally
adding the claim.
As for Hanover's proposed counterclaims that Kaul breached his
fiduciary duties by accepting improper car payments and diverting the
Edgewater leased property to his wife, I have already addressed these
claims above. The motion for leave to amend is denied as to these claims
for the reasons stated above.
I have not yet addressed Hanover's proposed claims for: (i) $42,584 in
purportedly unauthorized reimbursement for fees charged by an employment
consultant (invoices totalling $52,584 less the approved amount of
$10,000); (ii) $38,676 in similar fees reimbursed to Kaul in late 2000;
and (iii) $36,000 for an unauthorized excess long term disability policy,
paid for by Hanover. The motion for leave to amend is also denied as to
these three proposed additional claims. They are more of the same. The
payments were authorized by senior Hanover management and made long ago.
No reasonable jury could find that Kaul defrauded Hanover or breached its
fiduciary duties when it submitted these claims for reimbursement.
Instead, it is clear that Hanover is now simply seeking to change its
mind; although it paid these benefits to Kaul long ago, it is seeking to
reverse the payments because Kaul dared to bring suit. Even assuming
Kaul's claims are meritless and most are Hanover will
not be permitted now to seek to strip Kaul of compensation he was paid
over the years of his employment merely because he has used.
For the reasons set forth above, the motions are denied in part and
granted in part. Only three claims remain in the case: (i) Kaul's claim
for attorneys' fees pursuant to § 12 of the Agreement; (ii) Kaul's
claim for an additional week of vacation pay; and (iii) Hanover's
counterclaim for the $211,729 plus interest. As the claim for attorneys'
fees does not involve the issue of entitlement but only the issue of the
amount of reasonable fees, that claim will be tried to the Court without
a jury. See McGuire v. Russell Miller, Inc., 1 F.3d 1306, 1313 (2d Cir.
1993) ("[W]hen a contract provides for an award of attorneys' fees, the
jury is to decide at trial whether a party may recover such fees; if the
jury decides that a party may recover attorneys' fees, then the judge is
to determine a reasonable amount of fees."). The remaining two claims
will be tried to a jury.
Counsel for the parties shall appear for a pretirial conference on
January 23, 2004, at 11:30 a.m., in Courtroom 11A of the United States
Courthouse at 500 Pearl Street.