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Donald G. Drapkin v. Mafco Consolidated Group

September 23, 2011

DONALD G. DRAPKIN,
PLAINTIFF,
v.
MAFCO CONSOLIDATED GROUP, INC.,
DEFENDANT.
MACANDREWS & FORBES LLC, PLAINTIFF,
v.
DONALD G. DRAPKIN,
DEFENDANT.



The opinion of the court was delivered by: Paul G. Gardephe, U.S.D.J.:

MEMORANDUM OPINION & ORDER

These are breach of contract actions. Donald Drapkin alleges that Mafco Consolidated Group, Inc. breached a separation agreement by failing to pay him $2.5 million, while MacAndrews & Forbes LLC -- successor to MacAndrews & Forbes, Inc., and parent of Mafco Consolidated Group, Inc. (together, the "Company") -- claims that Drapkin violated the separation agreement by breaching provisions concerning return of Company files and documents, reimbursement of medical expenses, non-disparagement, and attempts to induce or influence employees to leave the Company.

Drapkin has moved for summary judgment in both actions, which are mirror images of each other. In 09 Civ. 1285, his motion seeks an order granting him summary judgment on his breach of contract claim and dismissing a counterclaim asserted against him for breach of contract. (09 Civ. 1285, Dkt. No. 58 (Notice of Motion)). In 09 Civ. 4513, Drapkin seeks summary judgment on the Company's breach of contract claim against him and on the breach of contract counterclaim he filed in that action. (09 Civ. 4513, Dkt. No. 62 (Notice of Motion)). For the reasons stated below, Drapkin's motions for summary judgment will be granted in part and denied in part.

BACKGROUND

Drapkin joined the Company in 1987 as vice chairman and served in that capacity until 2007. (Drapkin R. 56.1 Stmt. ¶¶ 10, 31)*fn1 He worked closely with Ronald O. Perelman, the Company's chief executive officer and Board chairman. (Id. ¶¶ 6, 15) Drapkin's relationship with Perelman became strained over time, and in 2007 Drapkin left the Company to become vice chairman of Lazard International. (Id. ¶¶ 17, 31) Drapkin asked his assistant of twenty years, Nancy Link, to join him at Lazard. (Id. ¶¶ 16, 32)

A.Separation Agreement and Stock Purchase Agreement

Before Drapkin's departure, he and the Company agreed to a separation package that required the Company to pay Drapkin a total of approximately $27.5 million over five years. (Company R. 56.1 Stmt. ¶ 171; Keane Decl., Ex. 24 (Separation Agreement) Section 3(a); Keane Decl., Ex. 34 (Stock Purchase Agreement) ¶ 3) The terms of the separation package are set forth in a Separation Agreement and Stock Purchase Agreement, both dated April 25, 2007. (Drapkin R. 56.1 Stmt. ¶¶ 21-22, 24, 31) The Separation Agreement provides that MacAndrews & Forbes LLC will pay Drapkin approximately $15.5 million in seven installments:

The Company will pay to you an aggregate amount of $15,500,000 less such deductions or amounts to be withheld as required by applicable law and regulations, payable as follows: $2,250,000 on July 1, 2009; $2,250,000 on January 1, 2010, $2,250,000 on July 1, 2010; $2,250,000 on January 1, 2011; $2,250,000 on July 1, 2011; $2,250,000 on January 1, 2012; and $2,000.000 on July 1, 2012. (Keane Decl., Ex. 24 (Separation Agreement) Section 3(a))

The Stock Purchase Agreement provides that Mafco Consolidated Group, Inc. will buy back 200,000 shares of M&F Worldwide Corp. from Drapkin, paying him $5 million upon delivery of these shares and an additional $7 million in three installments: $2.25 million on January 1, 2008; $2.25 million on July 1, 2008; and $2.5 million on January 1, 2009. (Keane Decl., Ex. 34 (Stock Purchase Agreement) Section 3(a)-(b))

Drapkin also has a right to reimbursement of medical expenses under the Separation Agreement:

Until you reach the age of 65, the Company will reimburse you for any medical expenses (defined as those expenses covered by the executive medical reimbursement program then in effect for the Company, from time to time) incurred by you and your immediate family which are not otherwise reimbursed through medical plans, if any, covering you or your immediate family. (Keane Decl., Ex. 24 (Separation Agreement) Section 3(b))

Drapkin has a number of obligations under the Separation Agreement, including

(1) to return, under certain circumstances, Company-related documents and files, whether in hard copy or electronically storeds; (2) not to disparage the Company or its management; and (3) not to induce or attempt to induce any Company employee -- other than Link -- to leave the Company.

With respect to return of Company files, the Separation Agreement provides in pertinent part:

You . . . agree to deliver promptly to the Company at any time the Company may so request all memoranda, notes, records, reports, manuals, drawings, blueprints and other documents (and all copies thereof), including data stored in computer memories or on other media used for electronic storage and retrieval, relating to the Company's business or the business of its affiliates and all property associated therewith, which you may possess or have under your control. (Id. at Section 6(a))

[Y]ou may continue to possess the equipment identified in Section I of Annex C, which equipment shall become your property on December 31, 2007, provided that you promptly provide to the Company copies of all electronic files in your (or your personal assistant's) personal possession relating to the Company or its affiliates and not otherwise available to the Company, after which you delete (and do not attempt to recover) all copies of such files in your possession. (Id. at Section 6(h)*fn2

With respect to non-disparagement, the Separation Agreement states: You agree not to take any action or to make any statement that does, or is reasonably likely to, enter the public domain and disparages the business or management of the Company or any of the Company's affiliates, or any of its Related Persons, with respect to any period during which you were either employed by the Company or receive benefits under this Agreement. The Company agrees that it shall not instruct or authorize any directors, officers, agents, or employees of the Company or any of the Company's affiliates or any of its Related Persons to take any action or make any statement, written or oral, that disparages or criticizes you. Nothing in this Section 5 shall prevent you or the Company, the Company's affiliates or any of its Related Persons from truthfully responding in connection with governmental inquiries or as required by subpoena, court order or legal process. Upon receipt by either party of written notice of any breach of this Section 5, the party receiving such notice shall have a period of 10 days to respond to and cure any such breach. (Id. at Section 5)

With respect to inducing employees to leave the Company, the Separation Agreement states:

For a period of two years from the date hereof, you shall not, directly or indirectly, (i) induce or attempt to influence any employee of the Company or its affiliates (other than Nancy Link [Drapkin's assistant]) to terminate his or her employment with the Company. . . . (Id. at Section 6(c))

The Separation Agreement further provides that "any material breach" of those terms would enable the Company to rescind the agreements, reclaim the benefits provided to Drapkin thereunder, and stop performing. (Id. at Section 9) As to waiver, the Separation Agreement states:

The failure of either party at any time or times to require performance of any provision hereof will in no manner affect the right at a later time to enforce the same. No waiver by either party of the breach of any term or covenant contained in this agreement, whether by conduct or otherwise, in any one or more instances, will be deemed to be, or construed as, a further or continuing waiver of any such breach, or a waiver of the breach of any other term or covenant contained in this agreement. (Id. at Section 11)

B.Drapkin's Departure From The Company

In late April 2007, Steven Fasman, an in-house lawyer at the Company (August 2, 2010 Fasman Decl., ¶ 1), met with Drapkin, explained that he "was following up on the agreement and [] wanted to know if [Drapkin] had anything he wanted to turn over." (Company Resp. to Drapkin R. 56.1 Stmt. ¶ 77) Drapkin told Fasman that he did not.*fn3 (Drapkin R. 56.1 Stmt. ¶ 78) The parties agree that Fasman never made any other request to Drapkin for the return of documents, and that "Fasman never made any written request to Drapkin for any documents or recorded in writing any oral request." (Drapkin R. 56.1 Stmt. ¶ 80)

On April 30, 2007, Drapkin told Link, his assistant, that they would be moving to Lazard and instructed her to "get rid of any documents we do not need." (Company R. 56.1 Stmt. ¶¶ 226, 227) Drapkin testified that he did not have "anything crisp and clear in [his] mind when [he] said it," but that he "certainly wanted [Link] to save [his] personal emails" and "get rid of things that related to MacAndrews & Forbes that [he] didn't need or want or care about." (Company R. 56.1 Stmt. ¶ 229) Link testified that she went through documents on her laptop computer and deleted "[a]nything that wasn't personal" and also deleted "a few" word processing files, but "was doing it very quickly because [she] was leaving quickly." (Company R. 56.1 Stmt. ¶¶ 230, 231) Although the parties disagree as to the number of Company-related documents that were not deleted from Link's laptop computer, they agree that -- after this litigation was commenced -- 849 e-mails and 79 other Company-related documents were found on Link's laptop. (Drapkin R. 56.1 Counter-Stmt. ¶ 244)

Drapkin joined Lazard on May 1, 2007. (Drapkin R. 56.1 Stmt. ¶ 31) While Lazard offers health insurance to its employees, Drapkin did not enroll in the Lazard health insurance plan between May 1, 2007 and December 31, 2008. (Drapkin R. 56.1 Stmt. ¶¶ 53, 54) The parties disagree as to whether Drapkin, under the Separation Agreement, was required to obtain health insurance from Lazard. Drapkin asserts that he "was not obligated to acquire health insurance coverage from Lazard," and that "[w]ithin days of [his] departure from [the Company, Company] personnel wrongly removed [him] and his family from health insurance coverage . . . effective as of May 1, 2007." (Drapkin R. 56.1 Stmt. ¶¶ 49, 52) The Company disagrees, stating that "Drapkin began employment following his M&F employment with an employer that had available a primary care plan, and he was therefore no longer entitled to coverage under the Company's Basic Plan." (Company Resp. to Drapkin R. 56.1 Stmt. ¶ 49)

The Company further alleges that Drapkin breached the Separation Agreement by "seeking and receiving reimbursement for medical expenses [from the Company]" since his departure. (Keane Decl., Ex. 3 (Company Cmplt.) at ¶ 15)

On May 14, 2007, Drapkin had dinner with Dr. Eric Rose, a friend who worked at the Company. (Drapkin R. 56.1 Stmt. ¶¶ 148, 150) Drapkin had helped recruit Rose -- formerly at Columbia-Presbyterian Hospital -- to the Company to assist in expanding the Company's life sciences mergers and acquisitions business. (Company R. 56.1 Stmt. ¶¶ 177, 180, 184) At dinner, Drapkin allegedly made remarks "denigrating [Ronald Perelman] as a person." (Drapkin R. 56.1. Stmt. ¶ 151; Cogan Decl., Ex. 62 (Rose Dep.) at 96-97)Drapkin also told Rose that "he thought that Ronald [Perelman] and MacAndrews were not interested in life sciences. . . . [a]nd that as a career opportunity for [Rose] this was going to be disastrous." (Drapkin R. 56.1 Stmt. ¶ 153; Cogan Decl., Ex. 62 (Rose Dep.) at 97-98) While Drapkin's remarks about the Company's lack of interest in the life sciences "frightened" Rose, and caused him to raise his "personal antennae . . . with regard to that issue" (Drapkin R. 56.1 Stmt. ¶ 155; Cogan Decl., Ex. 62 (Rose Dep.) at 101), he remained at the Company and indeed reported Drapkin's remarks to Company executives soon after the dinner. (Drapkin R. 56.1 Stmt. ¶¶ 158, 161)

The Company made two $2.25 million payments to Drapkin on January 1 and July 1, 2008. (Drapkin R. 56.1 Stmt. ¶ 35) The Company did not, however, make the $2.5 million payment scheduled for January 1, 2009, claiming that Drapkin had breached the Separation Agreement. (Drapkin R. 56.1 Stmt. ¶¶ 35-37) Drapkin then filed suit, contending that the Company had breached the Separation Agreement by failing to make the January 1, 2009 payment. (Cogan Decl., Ex. 46 (Drapkin Cmplt.)) The Company then sued Drapkin, claiming that he had breached the Separation Agreement by failing to return Company documents and files and improperly seeking reimbursement for medical expenses. (Keane Decl., Ex. 3 (Company Cmplt.))

DISCUSSION

Summary judgment is appropriate where "there is no genuine dispute as to any material fact" and a party "is entitled to judgment as a matter of law." FED. R. CIV. P. 56(a). "A dispute about a 'genuine issue' exists for summary judgment purposes where the evidence is such that a reasonable jury could decide in the non-movant's favor." Beyer v. Cnty. of Nassau, 524 F.3d 160, 163 (2d Cir. 2008). "'[W]here the nonmoving party will bear the burden of proof at trial, Rule 56 permits the moving party to point to an absence of evidence to support an essential element of the nonmoving party's claim.'" Longview Equity Fund, L.P. v. iWorld Projects & Sys., Inc., No. 05 Civ. 6745(RJS), 2008 WL 833230, at *2 (S.D.N.Y. Mar. 26, 2008) (quoting Bay v. Times Mirror Magazines, Inc., 936 F.2d 112, 116 (2d Cir. 1991)).

A court deciding a summary judgment motion must "'resolve all ambiguities, and credit all factual inferences that could rationally be drawn, in favor of the party opposing summary judgment.'" Spinelli v. City of New York, 579 F.3d 160, 166 (2d Cir. 2009) (quoting Brown v. Henderson, 257 F.3d 246, 251 (2d Cir. 2001)). However, a "'party may not rely on mere speculation or conjecture as to the true nature of the facts to overcome a motion for summary judgment. . . .[M]ere conclusory allegations or denials . . . cannot by themselves create a genuine issue of material fact where none would otherwise exist.'" Hicks v. Baines, 593 F.3d 159, 166 (2d Cir. 2010) (alterations in original) (quoting Fletcher v. Atex, Inc., 68 F.3d 1451, 1456 (2d Cir. 1995)).

In a breach of contract action, "[i]n order for [a party] to prevail on its summary judgment motion, it must be clear at the outset that there are no genuine issues of material fact that either [the party] did not breach an agreement, or if it did, that its breach does not rise to the appropriate level of materiality to justify termination of the agreement." Bear, Stearns Funding, Inc. v. Interface Group-Nevada, Inc., 361 F. Supp. 2d 283, 291 (S.D.N.Y. 2005) (citing Correspondent Servs. Corp. v. J.V.W. Invs. Ltd., 173 F. Supp. 2d 171, 178 (S.D.N.Y. 2001)). "Under New York law, 'an action for breach of contract requires proof of (1) a contract; (2) performance of the contract by one party; (3) breach by the other party; and (4) damages.'" Id. at 290 (quoting First Invs. Corp. v. Liberty Mut. Ins. Co., 152 F.3d 162, 168 (2d Cir. 1998)). "A fundamental principle of contract law provides that the material breach of a contract by one party discharges the contractual obligations of the non-breaching party." Id. at 291 (citing In re Lavigne, 114 F.3d 379, 387 (2d Cir. 1997); Medinol Ltd. v. Boston Scientific Corp., 346 F. Supp. 2d 575, 618 (S.D.N.Y. 2004); Restatement (Second) of Contracts § 237 (1981)).

Where a breach of contract is alleged, "there may be circumstances in which the question of materiality is a question of law for the judge." Id. at 295 (citing Frank Felix Assocs., Ltd. v. Austin Drugs, Inc., 111 F.3d 284, 284 (2d Cir. 1997); Jafari v. Wally Findlay Galleries, 741 F. Supp. 64 (S.D.N.Y. 1990); McDonald's Corp. v. Robert A. Makin, Inc., 653 F. Supp. 401 (W.D.N.Y. 1986)). "However, in most cases, the question of materiality of breach is a mixed question of fact and law -- usually more of the former and less of the latter -- and thus is not properly disposed of by summary judgment." Bear, Stearns Funding, Inc, 361 F. Supp. 2d at 295-96; see also Teachers Ins. and Annuity Ass'n of Am. v. Coaxial Commc'ns of Cent. Ohio, Inc., 807 F. Supp. 1155, 1160 (S.D.N.Y. 1992) ("It is for the jury to determine materiality with respect to any alleged breach."); F. Garofalo Elec. Co., Inc. v. New York University, 300 A.D.2d 186, 189 (1st Dept. 2002) ("The question of whether there has been substantial performance -- or a breach -- is to be determined, whenever there is any doubt, by the trier of fact.").

'"[A] written contract is to be interpreted so as to give effect to the intention of the parties as expressed in the unequivocal language they have employed."' Rockland Exposition, Inc. v. Alliance of Auto. Serv. Providers of N.J., 08-CV-7069 (KMK), 08-CV-11107 (KMK), 2009 WL 1154094, at *5 (S.D.N.Y. Mar. 19, 2009) (quoting Terwilliger v. Terwilliger, 206 F.3d 240, 245 (2d Cir. 2000)). "Typically, the best evidence of intent is the contract itself; if an agreement is 'complete, clear and unambiguous on its face[, it] must be enforced according to the plain meaning of its terms.'" Eternity Global Master Fund Ltd. v. Morgan Guar. Trust Co. of N.Y., 375 F.3d 168, 177 (2d Cir. 2004) (quoting Greenfield v. Philles Records, Inc., 98 N.Y.2d 562, 569 (2002)). Accordingly, where a "'contract is clear and unambiguous on its face, the intent of the parties must be gleaned from within the four corners of the instrument, and not from extrinsic evidence.'" RJE Corp. v. Northville Indus. Corp., 329 F.3d 310, 314 (2d Cir. 2003) (quoting De Luca v. De Luca, 300 A.D.2d 342, 342 (2d Dept. 2002)).

"If the contract is ambiguous, extrinsic evidence may be considered 'to ascertain the correct and intended meaning of a term' or terms." Eternity Global Master Fund Ltd., 375 F.3d at 177-78 (quoting Greenfield, 98 N.Y.2d at 569). As the Second Circuit has said: "[A]mbiguity exists where a contract term could suggest more than one meaning when viewed objectively by a reasonably intelligent person who has examined the context of the entire integrated agreement and who is cognizant of the customs, practices, usages and terminology as generally understood in the particular trade or business." World Trade Ctr. Props., L.L.C. v. Hartford Fire Ins. Co., 345 F.3d 154, 184 (2d Cir. 2003) (internal quotation marks omitted). "Whether or not a writing is ambiguous is a question of law to be resolved by the courts." W.W.W. Assocs., Inc. v. Giancontieri, 77 N.Y.2d 157, 162 (1990).

Eternity Global Master Fund Ltd., 375 F.3d at 178.

"Where there are alternative, reasonable constructions of a contract, i.e., the contract is ambiguous, the issue 'should be submitted to the trier of fact.'" K. Bell & Assocs., 97 F.3d 632, 637 (quoting Consarc Corp. v. Marine Midland Bank, N.A., 996 F.2d 568, 573 (2d Cir. 1993)); see also Haber v. St. Paul Guardian Ins. Co., 137 F.3d 691, 695 (2d Cir. 1998) ("Language in a . . . contract will be deemed ambiguous if reasonable minds could differ as to its meaning."); State v. Home Indem. Co., 66 N.Y.2d 669, 671 (1985) (per curiam) ("If . . . the language in the . . . contract is ambiguous and susceptible of two reasonable interpretations, the parties may submit extrinsic evidence as an aid in construction, and the resolution of the ambiguity is for the trier of fact."). However, "[l]anguage whose meaning is otherwise plain does not become ambiguous merely because the parties urge different interpretations in the litigation." Hunt Ltd. v. Lifschultz Fast Freight, Inc., 889 F.2d 1274, 1277 (2d Cir. 1989). "Thus, the court should not find the contract ambiguous where the interpretation urged by one party would 'strain [] the contract language beyond its reasonable and ordinary meaning.'" Law Debenture Trust Co. of New York v. Maverick Tube Corp., 595 F.3d 458, 467 (quoting Bethlehem Steel Co. v. Turner Constr. Co., 2 N.Y.2d 456, 459 (1957)).

I.DRAPKIN IS ENTITLED TO SUMMARY JUDGMENT ON THE COMPANY'S CLAIM THAT HE BREACHED THE SEPARATION AGREEMENT BY SEEKING REIMBURSEMENT OF HIS MEDICAL EXPENSES

The Company's Complaint alleges that Drapkin breached the Separation Agreement by "seeking and receiving reimbursement for medical expenses [from the Company]" when health insurance was available to him at Lazard. (Keane Decl., Ex. 3 (Company Cmplt.) at ¶¶ 15-19; see also Company Opp. Br. 37) According to the Company, "[a]t the very least, the language of Section 3(b) [of the Separation Agreement] is ambiguous as to whether Drapkin had an obligation to obtain coverage from Lazard," and that it was the parties' intent and "clear understanding that Drapkin would obtain basic healthcare coverage from his new employer." (Company Opp. Br. 37)

Drapkin moves for summary judgment on this claim, arguing that "[t]he Separation Agreement unambiguously provides that Drapkin is entitled to reimbursement for medical expenses so long as he has not sought or obtained reimbursement under another plan." (Drapkin Br. 11) Drapkin further contends that "[n]othing in the plain language requires Drapkin to seek reimbursement through any other ...


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