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holding that claim for breach of the implied covenant of good faith and fair dealing was a contractual claim and fell within scope of choice-of-law provision indicating agreement would be governed and construed according to Delaware law
Summary of this case from Comprehensive Habilitation Serv. v. Commerce FundingOpinion
99 Civ. 4727 (JFK)
March 5, 2001
For Plaintiff: RICHARD STELNIK, ESQ. 225 Broadway, Suite 2005 New York, New York.
For Defendant: ORRICK, HERRTNGTON SUTCLIFFE LLP 666 Fifth Avenue New York, New York. Of Counsel: Michael B. Carlinsky Robert S. Whitman
OPINION AND ORDER
Nikolay Butvin ("Butvin") originally brought this action against Defendant DoubleClick, Inc. ("DoubleClick") on June 29, 1999, seeking $3.3 million in damages arising from claims for common law fraud, negligent misrepresentation, unjust enrichment, breach of contract and violations of federal securities law. On June 26, 2000, this Court granted the Defendant's motion to dismiss the Amended Complaint in its entirety, simultaneously granting Plaintiff's request to amend the Amended Complaint (though barring re-pleading of claims for breach of contract, negligent misrepresentation or unjust enrichment because such claims would be futile). See June 26, 2000 Op. at 35 ("June Order"). Plaintiff then filed a Motion for Reconsideration, which was denied on August 29, 2000. See August 29, 2000 Op. at 4, 5 ("August Order"). On August 7, 2000, while the Motion for Reconsideration was pending, Plaintiff filed a Second Amended Complaint alleging common law fraud. Defendant now moves to Dismiss that Second Amended Complaint, and Plaintiff cross-moves for leave to file a Third Amended Complaint, adding a cause of action for breach of the covenant of good faith and fair dealing. For reasons discussed below, the Defendant's Motion is granted in its entirety and the Plaintiff's Motion is denied.
BACKGROUND
The Court assumes familiarity with its earlier opinions in this case, and provides below only a rudimentary recitation of the facts.
Plaintiff, a computer software engineer, is a citizen of Russia residing in Toronto, Canada. Defendant, an internet advertising company, is a Delaware corporation with its principal place of business in New York. This Court has jurisdiction over this claim pursuant to 28 U.S.C. § 1332, since the amount in controversy exceeds $75,000 and the suit is between a citizen of a State and a citizen of a foreign state.
In a letter dated May 16, 1996, (the "Employment Letter"), DoubleClick offered Butvin a job as a computer software engineer, promising him a salary of $46,000 and stock options for 13, 000 shares of DoubleClick stock. Butvin accepted the offer, commencing work at DoubleClick on May 27, 1996. According to Butvin, he would not have accepted employment at DoubleClick without a promise that, if he did so, he would have an "indefeasible equity ownership interest in DoubleClick," 2d Am. Compl. ¶ 14, a promise he allegedly received from DoubleClick official Dwight Merriman during a meeting in May, 1996.
Unfortunately for Butvin, and notwithstanding any assurances he had allegedly received, company documents reveal that Butvin was not, in fact, granted an indefeasible equity ownership interest when he started his employment with the Defendant. All DoubleClick stock options were granted subject to the DoubleClick Inc. 1996 Stock Option Plan ("Option Plan"), which, among other things, outlined various restrictions on the exercise and transferability of DoubleClick stock options. The company's Board of Directors (through its designated representative, the "Committee/Administrator") retained broad discretion over the administration and interpretation of the Option Plan, as well as the authority to set the option vesting schedule. Furthermore, in a provision that has proven central to the instant dispute, § 1.8 of the Option Plan provided that "[i]n the event of exercise of any Option after the termination of employment (including by reason of death or disability), the Participant may exercise the Option only with regard to the shares that could have been obtained under Options exercisable on the date of termination of employment." 2d Am. Compl., Ex. 3 § 1.8 (emphasis added). Pursuant to this provision, Butvin did not hold an indefeasible interest in any stock option until it vested in accordance with the timetable established by DoubleClick.
The Option Plan was approved by DoubleClick stockholders on March 1, 1996. See 2d Am. Compl. ¶ 25.
Butvin claims that because of fraudulent actions by DoubleClick officials he did not know of the provisions of the Option Plan, and therefore did not know that DoubleClick "intended to secretly reserve to itself the opportunity, at its whim, to deprive him of his Doubleclick stock options merely by terminating his employment with Doubleclick without cause." 2d Am. Compl. ¶ 25. While Butvin's Employment Letter referred to the Option Plan, see 2d Am. Compl., Ex 1, Butvin asserts that he did not receive a copy of the Option Plan before he joined DoubleClick and so he mistakenly believed that his interest in the entire 13, 000 shares promised him was secure. Butvin claims that he did not actually receive any documents regarding his stock options until May, 1997, when the first twenty-five percent of his stock options vested and he was given the DoubleClick Inc. 1996 Stock Option Agreement ("Option Agreement") and the Option Amendment Agreement ("Amendment Agreement"). The Option Agreement provided in part that, in the event DoubleClick terminated Butvin's employment without "good cause," he could exercise "the Option . . . at any time within three (3) months after the termination of . . . employment." 2d Am. Compl., Ex. 2 ¶ 4a. Butvin read this provision (in conjunction with other provisions of the Option Agreement) to mean that his option for the entire 13, 000 shares of DoubleClick stock would survive his termination by DoubleClick without good cause.
Butvin alleges that he did not receive a copy of the Option Plan until April, 1999. See 2d Am. Compl. ¶ 27.
Any employee exercising a stock option was required, under the Option Plan, to enter into a written agreement with DoubleClick, acknowledging terms and conditions of the Plan and "such additional terms and conditions, not inconsistent with the Plan, as the Committee/Administrator may . . . prescribe." 2d Am. Compl., Lx. 3 § 1.13.
Butvin' s interpretation of ¶ 4a of the Option Agreement clearly conflicts with § 1.8 of the Option Plan, which limits post-termination exercise of options to that percentage which had already vested as of the date of termination. See 2d Am. Compl., Ex. 3 § 1.8. Butvin claims that DoubleClick officials deliberately prevented him from learning of the Plan's restrictions by withholding the Option plan from him. He further claims that when he asked a DoubleClick official for a copy of the Option Plan he was told that it did not exist. See 2d Am. Compl. ¶ 25. Nevertheless, ¶ 1 of the Option Agreement, which Butvin was given and which he later signed, expressly states that:
"[t]he Option is granted pursuant to the [Option] Plan and is subject to the terms and conditions thereof, which are incorporated herein by this reference. To the extent any provision in this Agreement is inconsistent with the Plan, the provisions of the Plan shall govern. The Optionee hereby acknowledges receipt of, or access to, a copy of the Plan."See 2d Am. Compl., Ex. 2 ¶ 1 (emphasis added).
According to Butvin, he signed the Option Agreement and the Amendment Agreement in June, 1997, and, pursuant to the vesting schedule which provided that twenty-five percent of the options granted would be exercisable each year commencing with May 31, 1996, he exercised his option for 3250 shares of DoubleClick stock on July 18, 1997. Seven months later, on February 17, 1998, a day before trade in DoubleClick stock commenced on the Nasdaq stock exchange, DoubleClick fired Butvin effective March 17, 1998. In June of 1998, Butvin attempted to exercise his remaining, previously invested, stock options; DoubleClick rejected his attempt to exercise these options, stating that since they were not vested when his employment ended they were not exercisable. See 2d Am. Compl. ¶¶ 31, 33.
The Court notes that the Amendment Agreement is indeed dated June 4, 1997, but the Option Agreement is dated May 31, 1996. See 2d Am. Compl., Ex. 2.
Although Butvin claims that he did not receive a copy of the vesting schedule, he acknowledges that he did receive an email on May 27, 1997, which described the vesting schedule. See Stelnick Aff. in Support of Pl.'s Cross-Motion, Ex. A ¶¶ 41-42.
The Second Amended Complaint
Plaintiff's Second Amended Complain asserts a claim for common law fraud in the inducement, claiming that DoubleClick officials fraudulently induced him to work for DoubleClick with promises of an indefeasible interest in options for 13, 000 shares of company stock, while secretly retaining the power to deprive him of his stock options by terminating his employment at whim. Butvin asserts that documents he received, including the Employment Letter and Option Agreement, indicated that his interest in the stock options was indefeasible; he further claims that when he entered into the Option Agreement with Defendant, DoubleClick officials fraudulently withheld and concealed the Option Plan in order to prevent Butvin from learning the truth. DoubleClick's fraudulent conduct allegedly induced Butvin to commence employment with DoubleClick, to work long, intensive and irregular hours and to forego other lucrative employment opportunities, see 2d Am. Compl. ¶¶ 25-26, and Butvin seeks compensatory damages in excess of 3.3 million dollars as well as punitive and exemplary damages and attorney's fees.
The Proposed Third Amended Complaint
Plaintiff's Proposed Third Amended Complaint raises an additional claim for Breach of the Covenant of Good Faith and Fair Dealing. Butvin asserts that DoubleClick violated the covenant by deliberately informing him that the Option Plan did not exist, thereby withholding information which under the Plan itself DoubleClick was required to disclose. In light of this dishonesty, Butvin claims that DoubleClick's refusal to permit Butvin to exercise his previously invested options within three months of his termination constitutes another violation of the covenant of good faith and fair dealing. See Stelnick Aff. in Support of Pl.'s Cross-Motion, Ex. A ¶¶ 48, 54. Butvin seeks damages arising from this claim in excess of 3.3 million dollars, as well as punitive and exemplary damages and attorney's fees.
DOUBLECLICK'S MOTION TO DISMISS
Defendant now moves to dismiss the Second Amended Complaint in its entirety for failure to state a claim upon which relief may be granted. DoubleClick asserts, among other things, that the Plaintiff's common law fraud claim is barred for lack of justifiable reliance, and, for reasons outlined below, the Court concurs.
Discussion Standard of Review Under Rule 12(b)(6)
A motion to dismiss for failure to state a claim pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure should be granted only if it "appears beyond doubt that the plaintiff can prove no set of facts in support of his claim that would entitle him to relief." Cooper v. Parsky, 140 F.3d 433, 440 (2d Cir. 1998) (quoting Conley v. Gibson, 355 U.S. 41, 45— 46 (1957)). The factual allegations set forth in the complaint must be accepted as true, see Zinermon v. Burch, 494 U.S. 113, 118 (1990), and the court must draw all reasonable inferences in favor of plaintiff. See Thomas v. City of New York, 143 F.3d 31, 36 (2d Cir. 1998). The issue on a motion to dismiss "is not whether . . . plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims." Villager Pond, Inc. v. Town of Darien, 56 F.3d 375, 378 (2d Cir. 1995) (citation omitted). The complaint must contain allegations concerning each of the material elements necessary to sustain recovery under a viable legal theory. See Connolly v. Havens, 763 F. Supp. 6, 9 (S.D.N.Y. 1991).
Plaintiff's Common Law Fraud Claim
Plaintiff's Second Amended Complaint alleges one claim of common law fraud. Butvin claims that DoubleClick deliberately withheld the company Stock Option Plan, which contained restrictions on post-termination exercisability of options, in order to deceive him into thinking he held an indefeasible interest in his stock options. Furthermore, Butvin alleges that DoubleClick officials later lied to him, stating that the Option Plan didn't even exist, and supplied him with documents (the Employment Letter, Option Agreement and Amendment Agreement) that indicated that his stock options were indefeasible when they were not.
DoubleClick disputes Butvin's interpretation of these documents, maintaining that the Option Agreement "itself establishes that invested options cannot be exercised post-termination," Def. Memo. at 9, and arguing that there was no fraud since the allegedly hidden document was not at variance with documents Butvin acknowledges receiving.
As a threshold matter, the Defense argues that this claim is time-barred since it has been more than two years since Plaintiff learned of the alleged fraud. See Def.'s Mem. at 6. The Court must disagree. It is well settled law that claims for fraud under New York law must be brought "within six years from the time of the fraud or within two years from the time the fraud was, or with reasonable diligence could have been, discovered, whichever is longer." Yatter v. William Morris Agency, Inc., 702 N.Y.S.2d 243, 244 (App.Div. 2000) (emphasis added). Consequently, since it has been less than six years since May of 1996, the first possible date of any alleged fraud by the Defendant, Plaintiff's fraud claim is not time-barred.
Nevertheless the Court must dismiss Plaintiff's fraud claim because, as a matter of law, Plaintiff was not justified in relying on DoubleClick's allegedly fraudulent statements. Under New York law, to establish a claim for fraud "a plaintiff must show (1) that defendant made a material false representation, (2) the defendant intended to defraud the plaintiff thereby, (3) the plaintiff reasonably relied upon the representation, and (4) the plaintiff suffered damage as a result of such reliance."Bridgestone/Firestone, Inc. V. Recovery Credit Serv. Inc., 98 F.3d 13, 19 (2d Cir. 1996) (quoting Bangue Arabe et Internationale D'Investissement v. Maryland Nat'l Bank, 57 F.3d 146, 153 (2d Cir. 1995)); see also Belin v. Weissler, No. 97 Civ. 8787, 1998 WL 391114, at 5 (S.D.N.Y. July 14, 1998); Red Ball Interior Demolition Corp. v. Palmadessa, 874 F. Supp. 576, 588 (S.D.N Y 1995) (dismissing Plaintiff's claim for common law fraud because Plaintiff's reliance on the alleged material omissions was unreasonable); Sudul v. Computer Outsourcing Servs., 868 F. Supp. 59, 61 (S.D.N.Y. 1994) (dismissing claim for fraud because Plaintiff's reliance on Defendants' alleged misrepresentations was unjustified). Although Butvin states that his reliance on DoubleClick's alleged misrepresentations was reasonable and justified, see 2d Am. Compl. ¶ 22, the Court disagrees.
Noting that Plaintiff's Employment Letter clearly stated that proposed stock options would be granted "in accordance with the DoubleClick Stock Option Plan," see 2d Am. Compl., Ex. 1, this Court has already found that Butvin was on notice, from the inception of his employment, that there was a Stock Option Plan that controlled his stock option interests. See June Order at 26. Both the Option Agreement and the Amendment Agreement, which Butvin acknowledges receiving in May of 1997, also refer to the Option Plan. Furthermore, paragraph 1 of the Option Agreement specifically incorporates the Option Plan into the Option Agreement, establishes that provisions of the Option Plan would govern should any inconsistences arise between the Plan and the Agreement, and includes an express acknowledgment by the Optionee of receipt of or access to the Option Plan. See 2d Am. Compl., Ex. 2 ¶ 1.
Butvin admits that he was aware of these references to the Option Plan, but argues that he was justified in believing that the Plan actually did not exist because that is what DoubleClick officials told him. See 2d Am. Compl. ¶ 22. Assuming that Butvin's allegations of DoubleClick's duplicity are true, as the Court must for the purposes of this motion, his frustration at having been tricked by DoubleClick is understandable. Nevertheless, under New York law he cannot make a case for fraud. "[W]here . . . a party has been put on notice of the existence of material facts which have not been documented and he nevertheless proceeds with a transaction without securing the available documentation or inserting appropriate language in the agreement for his protection, he may truly be said to have willingly assumed the business risk that the fact may not be as represented." Lazard Freres Co. V. Protective Life Ins. Co., 108 F.3d 1531 (2d Cir. 1997). The law simply does not protect someone who willingly signs an agreement which references and incorporates other controlling documents which he or she has not seen." [A] party will not be heard to complain that he has been defrauded when it is his own evident lack of due care which is responsible for his predicament." Id.
Butvin argues that he, as an employee, had no access to the Option Plan and had no choice but to accept DoubleClick's representation that the Plan did not exist. Plaintiff also asserts that he was not even "required to investigate further because all the information regarding the . . . Plan was in the defendant's possession. Pl.'s Mem. in Opp'n at 8. Whether or not he had access to the relevant information, however, Butvin could have simply refused to sign the Option Agreement until he was provided with a copy of the Option Plan or until language referring to and incorporating the Option Plan was removed. When one party to an agreement has no reason to suspect that the other party has exclusive knowledge regarding material facts affecting an agreement, Courts have protected the ignorant party by vacating the agreement. The Plaintiff in this case merits no such protection, however, since it was simply not prudent for him to sign documents referencing and specifically acknowledging receipt of or access to an Option Plan which he believed did not exist and which he now claims not to have received.
DoubleClick counters that Butvin actually did have access to the Option Plan, since a copy was filed with the Securities and Exchange Commission in December 1997. See Def.'s Reply Mem. at 5.
In Stambovsky v. Ackley, 572 N.Y.S.2d 672, 677 (N.Y.App.Div. 199 1), the court permitted the Plaintiff to back out of a contract for the sale of a house after discovering that the seller had widely publicized his belief that it was haunted. Recognizing that it is both impossible to inspect for poltergeists and unreasonable to expect the prudent home buyer to attempt to do so, the Court held that "there is no sound policy reason to deny plaintiff relief for failing to discover a state of affairs which the most prudent purchaser would not be expected to even contemplate." Id. at 676.
For the reasons discussed above, the Court holds that Butvin cannot maintain a claim of fraud against DoubleClick since he cannot establish that he justifiably relied on the Defendant's allegedly fraudulent misrepresentations. Consequently, Plaintiff's Second Amended Complaint must be dismissed.
PLAINTIFF'S MOTION FOR LEAVE TO FILE A THIRD AMENDED COMPLAINT
Plaintiff now -moves for leave to file a Third Amended Complaint which adds a claim for Breach of Covenant of Good Faith and Fair Dealing. Butvin asserts that DoubleClick violated the covenant 1) by deliberately informing him that the Option Plan did not exist, thereby withholding information which under the Plan itself DoubleClick was required to disclose, and 2) by refusing to permit Butvin to exercise his previously invested options within three months of his termination as was allegedly provided in the Option Agreement. See Stelnick Aff., Ex. A ¶¶ 48, 54.
Discussion Standard for Granting Leave to Amend
The decision regarding whether to grant leave to amend is within the discretion of the Court, and the Court may deny leave for reasons such as "undue delay, bad faith, . . . [or] futility of amendment" Foman v. Davis, 371 U.S. 178, 182 (1962). Although leave to amend should be liberally granted, the "liberal rules of pleading in the federal system are not without limits." Levitch v. Columbia Broadcasting Sys., Inc., 94 F.R.D. 292, 295 (S.D.N Y 1982), aff'd, 697 F.2d 495 (2d Cir. 1983). In this case, because Butvin's proposed additional claim would be futile, the Court must deny his Motion to File and Serve a Third Amended Complaint.
Plaintiff's Motion to Amend
In this Court's June Order, Plaintiff was granted until August 7, 2000 to file a Second Amended Complaint, but he was barred from repleading his claims for breach of contract, negligent misrepresentation or unjust enrichment because those claims would be futile. According to the Affidavit submitted by Plaintiff's attorney, Plaintiff did not include a claim for breach of covenant of good faith and fair dealing when filing his Second Amended Complaint because, under New York law, it could be considered duplicative of Butvin's dismissed breach of contract claim. Stelnick Aff. ¶ 5. Plaintiff's counsel maintains that he misunderstood the June Order, thinking that it barred future pleading of a claim for breach of the covenant of good faith and fair dealing, and requests that the Court treat this misunderstanding as "excusable neglect" and permit Butvin to amend his complaint. See F.R.C.P. 6(b) (granting courts the discretion to enlarge time to meet deadlines in the face of excusable neglect); see also Pl.'s Mem. in Supp. of Cross-Mot. at 9.
DoubleClick argues that Plaintiff's mistake does not constitute excusable neglect, and that Butvin should not be granted leave to further Amend his complaint because of undue delay. Def.'s Mem. in Opp. to Cross-Mot. at 3-4. The Court agrees. There was nothing in the Court's June Order precluding Plaintiff from filing a claim for breach of covenant of good faith and fair dealing. Butvin now argues that Delaware law applies to the Option Agreement because of a choice of law provision, and Delaware law does not necessarily treat breach of the covenant of good faith and fair dealing as duplicative of breach of contract claims. See Pl.'s Mem. in Supp. of Cross-Mot. at 2. Since the Court had previously made no choice of law determination, Plaintiff could certainly have filed a claim based on Delaware law before the Court imposed deadline. Plaintiff could also have argued, as he does now, see id. at 6-7, that his proposed breach of covenant claim is distinct from the dismissed breach of contract claim and so would not be barred by New York law. However, because the Court now holds that the proposed claim for breach of covenant of good faith and fair dealing would be futile, it is not necessary to decide whether leave to Amend should be denied simply on the basis of undue delay.
Covenant of Good Faith and Fair Dealing
Underlying every contract is a duty to perform in good faith, see Restatement (Second) of Contracts § 205 (1981) , and Butvin now seeks compensation from DoubleClick for breach of this implied covenant of good faith and fair dealing. Although his proposed Third Amended Complaint appears to conflate the two, Butvin entered into two separate contracts with DoubleClick, the Option Agreement and his employment contract. In order to determine whether Plaintiff has properly alleged that DoubleClick violated the covenant with respect to either contract, the Court will consider each in turn.
1. The Option Agreement
Turning first to the Option Agreement, the Court notes that the parties indicated in that agreement that it would be governed and construed according to Delaware law. See 2d Am. Compl., Ex. 2 ¶ 12. However under New York conflict of law rules, which this Court must apply, "a contractual choice of law provision . . . does not bind the parties with respect to non-contractual causes of action." Plymack v. Copley Pharmaceutical, Inc., No. 93 Civ. 2655, 1995 WL 606272 at 5 (S.D.N.Y. Oct. 12. 1995). Unless the express language of the provision is broad enough to "encompass the entire relationship between the contracting parties," Krock v. Lipsay, 97 F.3d 640, 645 (2d Cir. 1996), the choice of law provision applies only to the interpretation and enforcement of the contract itself. Therefore, in order to decide whether the choice of law provision is binding, the Court must first determine whether the Plaintiff's claim is contractual. Since "the implied covenant of good faith . . . is a rule of interpretation rather than a separate obligation," In re Schick, 235 B.R. 318, 327 (Bankr. S.D.N Y 1999)., the Court holds that a claim for breach of the covenant is a contractual cause of action and therefore Delaware law applies to Butvin's claim regarding the Option Agreement.
Federal courts sitting in diversity cases must apply the conflict of laws rules of the forum state. See Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941).
In oral argument before this Court, DoubleClick cited a recent Southern District case, Bernard v. Netegrity, No. 00 Civ. 3001, 2000 WL 1760796 (S.D.N.Y. Nov. 30, 2000) for the proposition that the choice of law provision should not be determinative Bernard is distinguishable from the instant case, however, because the Plaintiff in Bernard brought claims for noncontractual causes of action (wrongful termination and bad-faith discharge). See id. at 1.
Delaware law recognizes a cause of action for breach of the covenant of good faith and fair dealing that is distinct from a claim for breach of the underlying contract. "The covenant of good faith and fair dealing requires a party in a contractual relationship to refrain from arbitrary and unreasonable conduct that has the effect of preventing the other party to the contract from receiving the fruits of the contract."Wilmington N.R.R. Co. v. Delaware Valley R.R. Co., No. 97C-09297, 1999 WL 463705 at 6 (Del.Super. March 30, 1999). When faced with allegedly "arbitrary and unreasonable conduct," a court will imply contractual obligations which are consistent with the language and spirit of the contract, as long as it is obvious that the parties would have assumed those obligations had the issue arisen during negotiations. "[I]t is not the proper role of the Court to rewrite or supply provisions to a written agreement." Id.
Plaintiff argues that DoubleClick breached the covenant of good faith and fair dealing by failing to provide him with the Option Plan and falsely stating that it did not exist. See Pl.'s Mem. In Supp. of Cross-Mot. at 3-4. Assuming that Butvin's allegations are correct and DoubleClick intentionally concealed the Option Plan from him, that conduct could possibly be viewed as "arbitrary and unreasonable," but it did not prevent Butvin from "receiving the fruits of the contract." Id. Butvin received everything to which he was entitled under the Option Plan and Option Agreement, and there are no allegations that DoubleClick attempted in any way to interfere with Butvin's exercise of his vested options.
The Option Plan also contains a choice of law provision designating Delaware law as controlling. See 2d Am. Compl., Ex. 3 § 4.5.
Citing Section 1.13 of the Option Plan, which provides that "[a]t the time of a grant of an Option, the Committee/Administrator shall require a Participant to enter into a written agreement with the Company. . . . Such agreement shall reflect the Participant's agreement to the terms and conditions of the Plan," 2d Am. Compl., Ex. 3 § 1.13, Butvin insists that DoubleClick had an obligation to inform employees of the provisions of the Option Plan. In fact, the plain language of the Option Plan creates no such obligation. Section 1.13 simply mandates that employees accepting an option grant sign an agreement "reflect[ing] the Participant's agreement to the terms and conditions of the Plan," Id., and the DoubleClick Option Agreement did just that; when he signed the Option Agreement, Butvin expressly agreed to be bound by the terms and conditions of the Option Plan. The only obligation arguably created by Section 1.13 of the Option Plan was the common-sense obligation of the employee to examine the Option Plan before signing a document agreeing to its terms.
Paragraph 1 of the Option Agreement states, in part, that "[t]he Option is granted pursuant to the [Stock Option] Plan and is subject to the terms and conditions thereof, which are incorporated herein by this reference. . . . The Optionee hereby acknowledges receipt of, or access to, a copy of the Plan." 2d Am. Compl., Ex. 2 ¶ 1 (emphasis added).
It is a well settled principle of contract law that a "contractor must stand by the words of his contract; and, if he will not read what he signs, he alone is responsible for his omission." Upton v. Tribilcock, 91 U.S. 45, 50 (1875); see also Graham v. State Farm Nut. Auto. Ins. Co., 565 A.2d 908, 913 (Del. 1989) (noting that "a party's failure to read a contract [cannot] justify its avoidance."). Butvin alleges he had not read the Option Plan because of DoubleClick's deception, but the responsibility for reading it was squarely his. As was noted earlier, if he truly believed the Option Plan didn't exist then he shouldn't have signed the Option Agreement until language referring to the Plan was removed.
Since Butvin received the benefit of the contract that he signed, and since he cannot point either to any implied contractual obligation breached by DoubleClick's alleged deception or to any conduct by DoubleClick aimed at preventing him from exercising his vested options, this Court holds that Butvin has failed to state a valid claim that DoubleClick violated the Covenant of Good Faith and Fair Dealing.
2. The Employment Contract
Butvin further alleges that DoubleClick breached the covenant of good faith and fair dealing by giving him the mistaken impression that his equity interest in the company was indefeasible when, in fact, it was not. See Stelnick Aff., Ex. A ¶ 34. By concealing the Option Plan and stating, when asked, that it did not exist, DoubleClick allegedly caused Butvin to work long, intensive and irregular hours and to forego other lucrative employment opportunities. See id. at ¶¶ 25-26. Butvin attempts to raise these claims in connection with the Option Agreement, arguing that the Option Plan which it incorporated was an employment contract since its purpose was to serve as an incentive for employees.See Pl.'s Mem. in Supp. of Cross-Mot. at 5-6. The Court must disagree. Regardless of its purpose, the Option Agreement was a contract governing the grant of stock options, not an employment contract. Therefore the allegations that DoubleClick unfairly induced Butvin to commence or continue his employment implicate not the Option Agreement but Butvin's employment contract with Doubleclick.
New York law, which governs Butvin's employment relationship with DoubleClick, generally considers the breach of the covenant of good faith and fair dealing to be a breach of the underlying contract itself, and doesn't permit plaintiffs to bring a separate cause of action for breach of the covenant. See Fasolino Foods Co. v. Banca Nazionale Del Lavoro, 961 F.2d 1052, 1056 (2d Cir. 1992) New York courts have recognized a separate cause of action for breach of the covenant of good faith and fair dealing, however, in cases involving efforts by one party to a contract to subvert the contract itself. See, e.g. Aventine Investment Mgmt., Inc. v. Canadian Imperial Bank of Commerce, 697 N Y Supp. 2d 128, 130 (App.Div. 1999); see also Sauer v. Xerox Corp., 95 F. Supp. 125, 132 (W.D.N.Y. 2000) ("[S]uch a claim may be brought . . . only where one party's conduct, though not breaching the terms of the contract in a technical sense, nonetheless deprived the other party of the benefit of its bargain.") (emphasis added).
Since no choice of law provision applies to this contract, the Court must determine which forum has the greatest interest in the litigation in order to decide what law to apply. See Krock v. Lipsay, 97 F.3d 640, 645-46 (2d Cir. 1996); Benard v. Netegrity, Inc., No. 00 Civ. 3001, 2000 WL 1760796 at 2 (S.D.N.Y. Nov. 30, 2000). Since Butvin was recruited, hired and fired in New York, New York clearly has the greatest interest in the employment relationship between Butvin and DoubleClick, and New York law should govern.
Since he does not even allege that DoubleClick sought to deprive him of the benefit of the employment contract, Butvin does not state a claim for breach of the covenant of good faith and fair dealing with regard to his employment contract with DoubleClick. Under New York law, "where an employment is for an indefinite term it is presumed to be a hiring at will which may be freely terminated by either party at any time for any reason or even for no reason." Murphy v. American Home Products Corp., 58 N.Y.2d 293, 300 (N.Y. 1983). New York does not recognize a cause of action for abusive discharge, see id. at 297, nor does it establish a fiduciary relationship between employer and employee. See Grappo v. Alitalia Linee Aeree Italiane, S.p.A., 56 F.3d 427, 432 (2d Cir. 1995); Budet v. Tiffany Co., 547 N.Y.S.2d 81, 82 (App.Div. 1989). Since Butvin received all the agreed upon benefits of his employment contract during his employment and he had no cause to contest DoubleClick's decision to terminate that employment, Butvin cannot claim DoubleClick deprived him of the benefit of the employment bargain.
New York does permit claims for fraudulent inducement of an employment contract, see Stewart v. Jackson Nash, 976 F.2d 86, 87 (2d Cir. 1992), but, as was discussed earlier, Butvin cannot state a claim for fraud because he cannot establish justifiable reliance. In addition, DoubleClick's alleged misrepresentations took place long after Butvin started working at DoubleClick.
Butvin mistakenly asserts that DoubleClick, its officers and directors were fiduciaries with respect to Butvin since, from the inception of his employment, he "became the owner of a minority stockholder interest in DoubleClick." See Stelnick Aff., Ex. A ¶¶ 16-17. In fact, Butvin did not become a minority stockholder in DoubleClick until he exercised his stock options in July of 1997. See id. at ¶ 28.
Butvin nevertheless tries to establish that DoubleClick sought to "deprive [him] of [his] Doubleclick stock options by merely terminating [his] employment," Stelnick Aff., Exhibit A, ¶ 34, but in fact he had no ownership interest in stock options before they vested; when DoubleClick fired Butvin before all his stock options vested he might feel ill-used but he cannot argue that he had been deprived of anything to which he was entitled. Similarly, Butvin' s argument that DoubleClick breached the covenant by failing to permit him to exercise his entire Option post-termination fails because Butvin was not entitled to exercise his entire Option after he was fired and the Court cannot impose an obligation that was not agreed to by the parties. See Murphy v. American Home Products Corp., 58 N.Y.2d 293, 304 (N.Y. 1983) ("No obligation can be implied . . . which would be inconsistent with other terms of the contractual relationship."). Since Butvin cannot establish that DoubleClick acted to subvert either the Option Agreement or the employment contract, the Court must deny as futile Plaintiff's motion to further amend his Complaint to include a claim for breach of the covenant of good faith and fair dealing.
Despite this Court's unambiguous holding to the contrary in its June Order, Butvin continues to maintain that he received an equity interest in DoubleClick when he started working for the company. He asserts that his Employment Offer promised him 13,000 shares of DoubleClick stock, see Stelnick Aff., Ex. A, ¶ 13, when in fact he was simply granted an option for 13,000 shares.
Conclusion
For the reasons discussed above, Defendant's motion to dismiss the Second Amended Complaint is granted in its entirety. Plaintiff's Cross-Motion for Leave to Serve and File A Proposed Third Amended Complaint is denied.