United States District Court, E.D. New York
For the Plaintiff: Saul D. Zabell, Esq., Of Counsel, Zabell & Associates, P.C., Bohemia, NY.
For the Defendant: Leslie M DiBenedetto, Esq., Scott A. Goodman, Esq., Jeffery A. Meyer, Esq., Of Counsel, Kaufman, Dolowich, Voluck & Gonzo, LLP, Woodbury, NY.
MEMORANDUM OF DECISION & ORDER
ARTHUR D. SPATT, United States District Judge.
On August 31, 2010, Reporter's Ink Corp. (" Reporter's Ink" ) entered into an agreement with the Plaintiff Dorothy D'Amato (" D'Amato" ) to acquire her shares of the Defendant Five Star Reporting, Inc. (" Five Star" ) in exchange for structured payments of $500,000. As part of the agreement, the Plaintiff was hired by Five Star as a manager of sales and customer retention.
On July 10, 2012, the Plaintiff commenced this action against the Defendants Five Star and Michael Rafkind, the President of Five Star, (collectively, the " Defendants" ) seeking declaratory relief and monetary damages for overtime compensation and commissions allegedly owed to her by the Defendants. She asserted common law causes of actions for breach of contract and in the alternative, quantum meruit and unjust enrichment. In addition, she asserted that the Defendants violated various provisions of the Fair Labor Standards Act (" FLSA" ), 29 U.S.C. § 201 et seq. and New York Labor Law (" NYLL" ), N.Y. Lab. Law § 190 et seq.
On September 21, 2012, the Defendants filed counterclaims against the Plaintiff. In particular, the Defendants sought $210,000 in monetary damages and asserted that the Plaintiff (i) breached the Share Purchase Agreement by failing to disclose to Reporter's Ink the pre-acquisition liabilities, tax liens, and obligations of Five Star; and (ii) in the alternative, was unjustly enriched by her failure to disclose Five Star's pre-acquisition liabilities.
On December 21, 2012, the Plaintiff amended her complaint to add claims for retaliation under the FLSA and the NYLL.
Presently before the Court are (i) the Plaintiff's motion for summary judgment pursuant to Federal Rule of Civil Procedure (" Fed. R. Civ. P." ) 56 on its claims against the Defendants and to dismiss the Defendants' counterclaims; and (ii) the Defendants' cross-motion pursuant to Fed.R.Civ.P. 56 for summary judgment on their counterclaims and to dismiss the Plaintiff's claims.
For the following reasons, the parties' motions are granted in part and denied in part.
Unless stated otherwise, the following facts are drawn from the parties' Rule 56.1 statements. Triable issues of fact are noted.
A. The Parties
The Defendant Five Star is a New York corporation that manages and owns court reporting operations in Suffolk County, New York. (Am. Compl. at ¶ 13; the Defs.' Counterstatement of Facts at ¶ 3.) Five Star has gross revenues in excess of $500,000 per year.
The Defendant Michael Rafkind (" Rafkind" ) is a domiciliary of New Jersey (Am. Compl. at ¶ 4; the Def.'s Answer at ¶ 4.) Prior to the acquisition of Five Star by Reporter's Ink on August 31, 2010, Rafkind was a principal of Reporter's Ink. (Rafkind Decl. at ¶ 18.) Following the acquisition, Rafkind became the President of Five Star. (Id. at ¶ 1.)
The Plaintiff is a resident of Suffolk County. From August 31, 2010 to March 12, 2012, she was employed by Five Star as a " manager of sales and customer retention." (D'Amato Decl. at ¶ ¶ 4, 33.)
B. Pre-Acquisition Debts and Obligations of Five Star
Prior to Reporter's Ink acquiring Five Star on August 31, 2010, Five Star had defaulted on certain obligations and incurred tax assessments. In particular, on October 3, 2007, Five Star entered into an equipment lease with De Lage Landen Financial Services, Inc. (" De Lage" ) to lease equipment for a period of sixty-three months for $1,915.06 per month. (Meyer Decl., Ex. F.) Five Star made a total of $6,300 of the $76,602.40 in payments owed to De Lage before defaulting on the lease agreement. (Id.)
In addition, Five Star had a lien for unpaid taxes that was later assessed by the Internal Revenue Service (" IRS" ) on September 1, 2010 to be $28,268.66. (Meyer Decl., Ex. G; Rafkind Decl. at ¶ 24.)
Lastly, prior to August 31, 2010, Five Star had outstanding invoices for services rendered by the following vendors: " State Insurance Fund, Safe Guard, Pitney Bowes, Broadview Networks, Village Office Supply, Votto & Cassata, Steinberg & Boyle, Lisseth Cutti, U.S. Legal Support and Wells Fargo." (Rafkind Decl. at ¶ 24; Meyer Decl., Ex. E.) The Defendants do not provide the invoices from these vendors, nor do they make clear how much money Five Star owed to each of the vendors.
C. Negotiations Prior to the Share Purchase Agreement
Prior to entering the Share Purchase Agreement, the Plaintiff, together with Lisa Lugo (" Lugo" ) and Adrienne Militello (" Militello" ) (collectively, the " Sellers" ), were the sole shareholders of Five Star. As stated above, Rafkind was then a principal of Reporter's Ink and was involved in negotiating the Share Purchase Agreement with the Sellers. (Rafkind Decl. at ¶ 19.) The parties do not make clear when negotiations commenced.
During negotiations, Lugo, Militello, and the Plaintiff provided documents to Reporter's Ink regarding Five Star's business. (Zabel Decl., Ex. I.) The parties do not make clear the precise date when the Plaintiff provided these documents to Reporter's Ink. However, an undated report entitled, " Due Diligence" lists the documents that were provided to Reporter's Ink as part of the due diligence process. (Id. at 1.) In particular, page 13 of the report, entitled " Financial Information," notes in response to a request for " tax returns" " for the last five years," " [t]ax returns [were] supplied." (Id. at 13.) In addition, page 16 of the document, entitled " Taxation," asks " each member of the Group" to specify the " latest date up to which tax returns and computations have been settled." In response, the document states, " 3rd quarter 2010 for all taxes." (Id. at 16.) For purposes of the present motion, the parties did not provide the Court with the tax returns or other documents that were allegedly provided to the Defendants prior to the closing.
The Plaintiff asserts that based on reviewing Five Star's tax returns, the Defendants were aware of Five Star's tax liabilities and other obligations. (The Pl.'s Statement of Facts at ¶ 27.) However, the Defendants assert that these documents, including the tax returns, did not indicate Five Star's outstanding debts. (Rafkind Decl. at ¶ 16.)
In addition, the Plaintiff, represents that Rafkind " assured" her prior to the signing the Share Purchase Agreement that " he would take responsibility for any and all remaining liabilities attributable to Five Star and to [her], as a former shareholder." (D'Amato Decl. at ¶ 50.) Rafkind disputes making such a statement. (Rafkind Decl. at ¶ 24.)
D. The Share Purchase Agreement
On August 31, 2010, Reporter's Ink entered into an agreement with the Sellers to purchase one hundred fifty shares of common stock of Five Star, which shares represented one hundred percent of the total outstanding shares of stock of the corporation. (Meyer Decl., Ex. B, at 1.) As a result, Reporter's Ink became the sole shareholder of Five Star. (See id.). As described below, it appears that Reporter's Ink became the parent company of Five Star, and Five Star continued to do business as a court reporting company under its own name. However, the parties do not make clear the precise relationship of Reporter's Ink to Five Star following the acquisition. In addition, Reporter's Ink is not a party to this action.
In consideration for the shares, Reporters Ink agreed to pay each Seller $500,000 for a total of $1,500,000. (Id. at 1-2.) In that regard, Reporter's Ink agreed to pay each Seller $200,000 at closing and the remaining $300,000 in structured payments beginning on September 1, 2011. (Id. at 2.)
As " additional consideration," the Sellers agreed to " retain responsibility and liability for any lawsuits, claims or other obligations or liabilities of [the] [S]ellers or Five Star, incurred prior to the date of closing, of any kind and nature other than those specifically assumed under this Agreement." (Id. at 3.)
In addition, Reporter's Ink. agreed that the Sellers " will be guaranteed court reporting work for a minimum of $20,000 per seller per calendar year for three (3) years starting January 1, 2011." (Id.)
In a section entitled, " Representations by Sellers," the Sellers represented that: (i) " [the] Sellers have disclosed all assets and liabilities of Five Star to [the] buyer" ; (ii) " Five Star's payment of the taxes owed by it is current and not in arrears" ; (iii) " [the] Sellers are aware of no actions against [the] [S]ellers(s) and no facts which could or may give rise to an action against [the] [S]ellers(s)" ; (iv) " [the] [S]ellers are aware of no actions against the corporation and no facts which could or may give rise to an action against the corporation or Five Star other than the New York State Department of Labor investigation involving Rebecca Wood" ; and (v) " [the] [S]ellers are not aware of any liens against corporate property[.]" (Id. at 4.)
In a section entitled, " Warranties by Sellers," the Sellers warranted that " Five Star will be free of any debt at the date of the sale (including shareholders loans, and/or other shareholder financing), as related to Five Star, not personally by each shareholder." Id. at 5. The Sellers further warranted that " [a]ny existing UCC filings will be removed and federal, state and local taxes will be filed and paid to date other than the disclosed IRS Payroll Tax Lien."
Finally, in a section entitled, " Indemnity for taxes--Sale of stock," the Agreement states that the Sellers " will indemnify [Reporter's Ink] for . . . any and all liabilities, including, without limitation, interest, additions to tax, fines, assessments and penalties, and reasonable attorney's fees incurred . . . with respect to" " (a) [t]axes for any taxable year ending prior to the closing date" and " (b) [t]axes of Five Star for the portion of the taxable year ending on the closing date for the taxable year of Five Star that includes the closing date." (Id. at 8.)
E. The Plaintiff's Employment Agreement
Following its acquisition, Five Star kept its name and continued to do business, and Rafkind became its President. (Rafkind Decl. at ¶ 1.) As described above, it appears that Reporter's Ink was the parent of Five Star, though the parties do not make the relationship explicit in their papers.
On August 31, 2010, the same day that the Share Purchase Agreement was executed, the Plaintiff, in a separate Employment Agreement, agreed to " relinquish her right to $300,000" of her compensation under the Share Purchase Agreement in consideration for being hired by Five Star as " manager of sales and customer retention" for a period of 60 months commencing on August 31, 2010. (Meyer Decl., Ex. A, at 1.)
With respect to her position, the Employment Agreement states, " Employee shall devote her entire working time and best efforts to selling [Five Star]'s services and managing the sales and customer retention practices of [Five Star] and shall conduct herself so as to reflect credit upon [Five Star]." (Id.) In addition, the Agreement states, " Employee will have no power to hire or fire employees except with approval of her supervisor," and that " Employee . . . will observe [Five Star's] work hours, being Mon--Fri 9am to 6pm or as otherwise requested by [Five Star]." (Id.)
The Employment Agreement further states that the Plaintiff's salary " shall consist of a base annual salary of $40,000 plus commissions and bonuses as indicated in paragraph IV and V below." (Id.) Paragraph IV of the Agreement, entitled " Commissions and Charges," provides that the Plaintiff " will earn a 10% sales commission on the new sales generated in each calendar year for the years 2011, 2012, 2013, 2014, 2015." The Agreement defines " new sales" as " sales directly generated by Employee within any one calendar year." (Id.)
F. The Nature of the Plaintiff's Employment
The parties dispute the nature of the Plaintiff's position as a " manager of sales and customer retention." The Plaintiff asserts that her " job duties were entirely sales based" and that she " did not supervise any other employees." (D'Amato Decl. at ¶ 4.) However, Rafkind represents that the she had significant authority: " Her duties included: office/non-manual work that went to the core of [the] Defendant's business, client and revenue generation. [The] Plaintiff had discretion to provide bid proposals and quotes to potential clients." (Rafkind Decl. at ¶ 3.)
The parties also dispute whether the Plaintiff worked in excess of forty hours per week. In particular, the Plaintiff claims that she was required pursuant to the terms of the Employment Agreement to work from 9 am to 6 pm five days a week. (D'Amato at ¶ 8.) Thus, she claims to have regularly worked forty-five hours per week. (Id.) She further represents that she was not afforded a lunch break; " often" " began work before 9 am and continued working past 6 pm" ; and worked on " Saturdays and Sundays." (D'Amato at ¶ ¶ 8-11.) As a result, the Plaintiff claims that she often worked in excess of forty hours per week but was not properly compensated for those additional hours. (Id. at ¶ 12.)
However, Rafkind asserts that the Plaintiff was not required to work specific hours under the Employment Agreement. (Rafkind Decl. at ¶ 4.) He further states that the Plaintiff often worked from her home and was " very rarely" present at the Defendant's offices. (Id.) Lastly, Rafkind asserts that the Plaintiff often took lunch breaks that exceeded one hour. (Id. at ¶ 5.) Therefore, Rafkind claims that the Plaintiff did not work in excess of forty hours per week. (Rafkind Decl. at ¶ 4.)
G. The Plaintiff's Commissions
In 2011 and 2012, the Plaintiff received four checks from Five Star representing commissions for sales that she had consummated during that period: (i) a $1,022.11 check, dated January 1, 2011; (ii) a $904.10 check, dated Mach 27, 2012; (iii) a $614.40 check, dated August 5, 2012; and (iv) a $2,702.43 check, dated February 1, 2012. (Meyer Decl., Ex. D.)
However, the Plaintiff did not receive a check for her work in procuring a contract with Suffolk County for stenographic services between March 1, 2011 and February 28, 2012. (D'Amato Decl. at ¶ 19.) Prior to 2011, Suffolk County had been Five Star's client. (Rafkind Decl. at ¶ 39.) On October 22, 2010, Suffolk County sent Five Star an invitation to provide a bid for court reporting services related to depositions and hearings. (Zabell Decl., Ex. K.) The Plaintiff signed and accepted Suffolk County's invitation on behalf of Five Star. (Id.) On November 18, 2010, Five Star submitted its bid to Suffolk County. (Id.) The forms indicate that Five Star's contacts for the project were the Plaintiff and Rafkind. (Id.) On the same day, Suffolk County accepted Five Star's bid for stenographic services. (Id.)
The parties dispute the Plaintiff's role in this transaction. In her declaration, the Plaintiff states that she " developed and submitted Five Star Reporting's bid proposal [to Suffolk County]" and " attended the bid proposal where Five Star Reporting was ultimately the successful bidder for the Suffolk County [c]ontract." (D'Amato Decl. at ¶ 20.) As such, the Plaintiff claims that she is entitled to a sales commission in the amount of $35,000 pursuant to her Employment Agreement. (Id. at ¶ 18; Zabel Decl., Ex. J at ¶ 7.)
On the other hand, in his declaration, Rafkind states that he was responsible for Five Star's contract with Suffolk County and that the Plaintiff's only role in the transaction was to " hand deliver the proposal to Suffolk County's procurement offices." (Rafkind at ¶ 7.) In addition, the Defendants assert that Suffolk County was an existing client, and therefore, did not fall within the scope of the Employment Agreement. (Id. at ¶ 8.)
The Plaintiff also did not receive a commission check for her work in procuring a contract with Sahn Ward Coschignano & Baker PLLC (" Sahn Ward" ). The parties agree that Sahn Ward was an existing client but do not make clear the circumstances of the transaction or provide a copy of the agreement. In her declaration, the Plaintiff states that although Sahn Ward was an existing client, " the scope of the original agreement with Sahn Ward was materially expanded to the point that it constituted a new agreement." (D'Amato at ¶ 21.) As such, the Plaintiff claims that she is entitled to in excess of $4,000 in commissions. (Zabel Decl., Ex. J at ¶ 7.) However, the Plaintiff does not make clear, nor is there any documentary evidence indicating what changes if any, were made to the existing agreement with Sahn Ward.
H. The Plaintiff's Compensation For Court Reporting Work
The parties also dispute whether in 2011, the Defendants provided the Plaintiff with at least $20,000 of court reporting work as is required under the Share Purchase Agreement. In that regard, the Plaintiff's 2011 1099 tax form states that the Plaintiff earned $23,574.99 and an additional $3,326.00 in " nonemployee compensation," which the Defendants claim represents additional income earned by the Plaintiff from court reporting. (Meyer Decl., Ex. C.) Further, a document prepared by the Defendant entitled, " Assignment Analysis," states that from August 1, 2010 through October 24, 2012, the Plaintiff was assigned a total of 134 cases as a court reporter and that she cancelled only one of those jobs. (Meyer Decl., Ex. K.) In addition, from September 2011 through December 2011, the Plaintiff exchanged a number of emails with Dana Geyer (" Geyer" ), the scheduler for Reporter's Ink, in which Geyer offered the Plaintiff court reporting jobs. (Meyer Decl., Ex. J.)
However, the Plaintiff asserts the $23,574.99 listed on her 2011 1099 tax form may also include sales commissions, and therefore, does not necessarily represent additional income that she received from court reporting. (D'Amato Decl. at ¶ 32.) She also asserts that she had to give one third of her earnings from court reporting jobs to a " typist," and therefore, even if she was paid more than $20,000 in 2011 for court reporting work, she did not take home $20,000. (Id. at ¶ 17.) Finally, she states that some of the court reporting work that she engaged in was not for the benefit of Five Star, but rather, for the benefit of Reporter's Ink, Five Star's parent company. (Id.)
I. Communications Related to Five Star's Debts
On September 13, 2010, Melissa Foley (" Foley" ), an employee of Reporter's Ink, sent an email to Rafkind, among others, with the subject, " Five Star Outstanding Bills," and purported to attach invoices for Votto & Cassata, Steinberg & Boyle, Lisseth Cutti, U.S. Legal Support, and Wells Fargo. (Meyer Decl., Ex. E.) In the email, Foley states, " Attached are outstanding invoices that have been collected from Five Star. As you can see from the invoices, they are all dated prior to the acquisition. Please advise how to handle." (Id.) Later that day, Foley sent four additional invoices for State Insurance Fund, Safe Guard, Pitney Bowes, and Broadview Networks. (Id.) As stated above, the parties did not provide the Court with the invoices referred to in these emails.
As discussed previously, prior to the its acquisition, Five Star stopped making payments pursuant to a lease agreement with De Lage for court reporting equipment. As a result, on April 25, 2011, De Lage filed a complaint against Five Star and the Plaintiff in the court of common pleas in Chester County, Pennsylvania. (Meyer Decl., Ex. F.) De Lage sought $99,811.10 in monetary damages in connection with Five Star's failure to provide De Lage with monthly payments under the lease agreement. (u.) On December 29, 2011, the action was discontinued without prejudice pursuant to an agreement to settle the matter for $57,000. (Id.)
Further, in a November 3, 2011 email to Rafkind and Christian Visdomini (" Visdomini" ), the Plaintiff wrote: " [M]aybe now I can be reimbursed for the over payment to the IRS at closing. When the figure that was supposedly paid at the closing was $10,000 more than the balance due the IRS, we were advised that we will be reimbursed. It has been over a year and . . . although there is a situation going on with the monies being paid to Lisa [Lugo] and Adrienne [Militello], I am not involved in that and would like to get my reimbursement paid to me now." (Meyer Decl., Ex. G.) The parties do not state what role Visdomini had in the negotiations of the Share Purchase ...