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denying motion to dismiss breach-of-contract claim where "it [was] not apparent from the face of the Complaint that there was 'mutual consent"
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Civ. No. 04-1557 (RHK/AJB).
January 11, 2005
Eric D. Satre, Connor, Satre Schaff, Eagan, Minnesota, for Plaintiffs.
David M. Wilk, Kathleen M. Mahoney, and Sarah L. Beuning, Larson King, St. Paul, Minnesota, for Defendant.
MEMORANDUM OPINION AND ORDER
INTRODUCTION
Plaintiffs Judy Jackson, Chad Carter, Nicholas Polychronis, Pam Polychronis, and J² Group (collectively "Plaintiffs") commenced this action against Defendant Navitaire, Inc. ("Navitaire") after Navitaire terminated the individual plaintiffs' employment. The Complaint alleges claims of (1) breach of contract, (2) promissory estoppel, (3) fraud, (4) violation of Minn. Stat. § 181.64, (5) unjust enrichment, and (6) tortious interference with contract. Before the Court is Navitaire's Motion to Dismiss, or in the Alternative, for Summary Judgment. Because the parties have not commenced discovery, the Court will treat the Motion as one for dismissal, and will accept as true all factual allegations contained in the Complaint. For the reasons that follow, Navitaire's Motion will be denied.
Plaintiffs' Complaint was removed to this Court on April 13, 2004. In lieu of filing an answer, Navitaire moved to dismiss the Complaint on April 20, 2004, but failed to secure a briefing schedule or a hearing date. The instant Motion was noticed for hearing on October 15, 2004. In the interim, the parties have not had a pretrial conference, nor have they commenced discovery. The Court indicated at oral argument that it does not favor this type of motion practice; in the present case, the parties have made no progress to speak of since April 2004.
BACKGROUND
The individual plaintiffs formed J² Group, a Utah-based company providing "relationship-marketing" services to other businesses. (Compl. ¶ 16.) Jackson was the company's President, Nick Polychronis was Vice President of Sales, and Chad Carter was Vice President of Marketing. (Id. ¶¶ 7-10.) The formation of J² Group was highly successful, and in 2001 and 2002 the business was still developing. (Id. ¶ 16.)
Pamela Polychronis's position at J² Group is not apparent from the Complaint.
"Relationship-marketing" involves marketing to high-level executives of potential customer-companies at special events. (Id.) Navitaire, a Minnesota-based company providing services to "a broad range of customers" in the airline industry, began working with J² Group in September 2001. (Id. ¶ 11; Mem. in Supp. at 2.) Navitaire hired J² Group to implement relationship-marketing services at the 2002 winter Olympics in Salt Lake City. (Compl. ¶ 17.) J² Group also planned other relationship-marketing events or conferences for Navitaire in Utah, California, Florida, and Switzerland. (Id.)
J² Group forged this working relationship with Navitaire through Tom McClain, who was Navitaire's Chief Executive Officer ("CEO") at the time. (See id. ¶ 18.) McClain began "courting" Plaintiffs to become employees of Navitaire in late 2001. (Id.) Despite attempts by Plaintiffs to maintain a business relationship with Navitaire from Utah, McClain insisted that Plaintiffs move to Minnesota to work for Navitaire. (Id. ¶ 22.) In May 2002, Navitaire paid for Jackson's plane ticket to Minnesota to look for housing. (Id. ¶ 20.) That same month, McClain sent Jackson an e-mail verifying her employment with Navitaire so that Jackson could obtain a mortgage in Minnesota. (Id. ¶ 21.) Carter received a similar e-mail on August 4, 2002, verifying that he would be a full time employee with Navitaire in the position of Marketing Director. (Id. ¶ 25.)
From December 2001 through August 2002 — the period of time during which McClain was actively recruiting Plaintiffs to join Navitaire in Minnesota — McClain made promises about the terms of the individual plaintiffs' employment with the company. (Id. ¶ 15.) Among the promises were representations that:
1) stock options of various amounts would be issued to each of the individual plaintiffs;
2) Plaintiffs "were part of CEO McClain's 5-year plan";
3) Jackson would hold a position reporting directly to the CEO of Navitaire;
4) the mortgage on Jackson's home in Utah would be paid by Navitaire until she sold the home;
5) annual bonuses of various sizes would be awarded to each of the individual plaintiffs; and
6) Carter, Nick Polychronis, and Pamela Polychronis would receive health benefits as part of their employment packages.
(Id.) Plaintiffs eventually decided to accept Navitaire's offers. In August 2002, they "packed four households and moved to Minnesota" to begin employment with Navitaire. (Id. ¶ 23.) Plaintiffs' decisions to move to Minnesota and begin employment with Navitaire were made in reliance upon these promises — all of which were made by Navitaire prior to their move in August 2002. (Id.)
On August 7, 2002, in the midst of Plaintiffs' transition to Minnesota and to Navitaire, McClain received an e-mail from C. Scott Killips of Navitaire's "parent company" expressing his surprise "that [McClain] extended an offer to [Jackson]." (Id. ¶ 26.) Killips stated that he "would have expected [McClain] to explain to the board why [McClain] thought that a full time senior person like [Jackson] made sense for a company the size of Navitaire before extending the offer." (Id.) On August 11, 2002, after receiving Killips's e-mail, McClain continued to move forward with his plan, and informed Allied Moving Vans that Navitaire would pay for the individual plaintiffs' moves to Minnesota. (Id. ¶ 25.)
In late August 2002, once they had moved to Minnesota, the individual plaintiffs were provided "new written offers for their services, which were far different from what they had negotiated for to come to Minnesota" (the "signed agreements"). (Id. ¶ 28.) Jackson signed her agreement on August 18, 2002, Carter on September 1, 2002, Nicholas Polychronis on September 2, 2002, and Pamela Polychronis on August 30, 2002. (Mahoney Aff. Exs. A-D.) Plaintiffs were told that the signed agreements were temporary — that they would be in effect "until a new business organization could be setup to bring J² into Navitaire." (Compl. ¶ 28.)
Jackson's signed agreement provides that her "employment with Navitaire at all times will be `at will.'" It grants her 450,000 stock options "subject to Board of Directors approval," and a fixed amount of money for "relocation assistance." The signed agreement also states that it "supersedes all prior offers, both verbal and written." (Mahoney Aff. Ex. A.)
The three other plaintiffs' signed agreements differ from Jackson's but are identical to each other (except as to specific monetary and wage provisions). The agreements provide that the signing party is an independent-contractor "and not . . . a Company employee for any purpose, and . . . not . . . eligible for any Company employee benefits of any kind." The independent-contractor relationship between the parties could be terminated "for any reason upon 30 days written notice." The signed agreements also contain an integration clause providing that they "supersede any and all prior and/or contemporaneous agreements and understandings, oral or written, between the parties." Each independent-contractor was granted a certain number of Navitaire shares "subject to the board's approval of both the option award and an increase in the total number of shares available for options under the [stock option] Plan." (Id. Exs. B-D.)
In mid-September 2002, McClain was terminated as Navitaire's CEO. (Compl. ¶ 29.) On November 21, 2002, Plaintiffs' were terminated. (Id. ¶ 33.) Between those two dates, Navitaire cancelled events that J² Group had arranged with outside vendors and that Navitaire had previously approved. (Id. ¶ 30.) Navitaire also refused to pay previously authorized bills to vendors involved in those cancellations. (Id. ¶ 32.) Plaintiffs were embarrassed and their business relationships were harmed "by the refusal of Navitaire to honor its commitments and its refusal to . . . let the vendors know that it was not going to pay for events" that it had previously committed to. (Id. ¶¶ 30-31.)
Plaintiffs filed the instant suit alleging claims arising from their termination. Navitaire claims that because any actions it took were clearly authorized by the signed agreements, the Complaint should be dismissed for failure to state a claim.
STANDARD OF REVIEW
Under Rule 12(b)(6), all factual allegations must be accepted as true and every reasonable inference must be made in favor of the complainant. Fed.R.Civ.P. 12(b)(6); see Midwestern Mach., Inc. v. Northwest Airlines, Inc., 167 F.3d 439, 441 (8th Cir. 1999); Carney v. Houston, 33 F.3d 893, 894 (8th Cir. 1994). "[D]ismissal under Rule 12(b)(6) serves to eliminate actions which are fatally flawed in their legal premises and destined to fail, thereby sparing litigants the burden of unnecessary pretrial and trial activity." Young v. City of St. Charles, Mo., 244 F.3d 623, 627 (8th Cir. 2001) (citation omitted). A cause of action "should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff cannot prove any set of facts in support of his claim that would entitle him to relief." Schaller Tel. Co. v. Golden Sky Sys., Inc., 298 F.3d 736, 740 (8th Cir. 2002) (citations omitted).
ANALYSIS
I. Breach of Contract and Promissory EstoppelNavitaire contends that the signed agreements are valid and enforceable. It argues that Plaintiffs' breach of contract and promissory estoppel claims must, therefore, be dismissed because Plaintiffs do not allege that the signed agreements were breached. Instead, Plaintiffs claim that the promises alleged in the Complaint, coupled with their move to Minnesota in reliance thereon, formed employment agreements prior to and independent of the signed agreements; they argue that these prior agreements — not the signed agreements — were breached. Navitaire urges that the signed agreements supersede any prior agreements.
At this early stage in the litigation, the Court cannot determine that the signed agreements are valid and enforceable as a matter of law. The agreements were signed after Plaintiffs moved their homes and arrived in Minnesota to begin work at Navitaire. While it is true that under some circumstances "[p]arties may by mutual consent modify existing employment contracts without consideration," Freeman v. Duluth Clinic, Ltd., 334 N.W.2d 626, 630 (Minn. 1983), it is not apparent from the face of the Complaint that there was "mutual consent" in this case. The Minnesota courts have recognized, in the context of non-compete agreements, "that employers and employees have unequal bargaining power." Sanborn Mfg. Co. v. Currie, 500 N.W.2d 161, 164 (Minn.Ct.App. 1993). Such concerns are amplified where it appears, as here, that a contract was signed or agreed to after an employee accepted an offer of employment under other terms. See National Recruiters, Inc. v. Cashman, 323 N.W.2d 736, 741 (Minn. 1982) ("The practice of not telling prospective employees all of the conditions of employment until after the employees have accepted the job . . . takes undue advantage of the inequality between the parties."). Accordingly, Navitaire's argument that Plaintiffs' breach of contract and promissory estoppel claims must be dismissed because the signed agreements are valid and enforceable is rejected due to the alleged circumstances surrounding the execution of the signed agreements.
Plaintiffs' breach of contract and promissory estoppel claims are otherwise sufficient to survive Navitaire's Motion. Plaintiffs' Complaint cites numerous clear and definite promises that, if proven, could support such claims. (See, e.g., Compl. ¶¶ 15, 21, 24 (citing statements made and e-mails sent to the individual plaintiffs regarding the terms of their future employment with Navitaire).) The promises referred to in the Complaint are not "general statements of policy." Poff v. Western Nat'l Mut. Ins. Co., 13 F.3d 1189, 1191 (8th Cir. 1994) (stating that, to overcome the presumption of at-will employment, the plaintiff must "prove that [the employer] made oral or written statements with specific and definite provisions, and not general statements of policy" (internal quotation omitted)). Further, Navitaire's promises are distinguishable from those that have been found to lack clarity or definiteness. See, e.g., Fox v. T-H Cont'l Ltd. P'ship, 78 F.3d 409, 413-14 (8th Cir. 1996) (holding that offer of "permanent" position as opposed to a temporary position is not sufficiently clear and definite to constitute an offer for "continued employment terminable only for cause"); Rudd v. Great Plains Supply, Inc., 526 N.W.2d 369, 370, 372 (Minn. 1995) (no clear and definite promise for permanent employment where employer told employee "good employees are taken care of"). Thus, Navitaire's Motion to dismiss Plaintiffs' breach of contract and promissory estoppel claims will be denied.
II. Fraud
To state a claim for fraud, Plaintiffs must demonstrate that (1) Navitaire made a false representation of past or present material fact that is susceptible to knowledge; (2) Navitaire either knew the representation was false or asserted it as true without knowing it was true or false; (3) Navitaire intended to induce Plaintiffs to act on the false representation; (4) Plaintiffs did, in fact, act in justifiable reliance on the false representation; and (5) Plaintiffs suffered damages as a proximate cause of the representation. Evertz v. Aspen Med. Group, 169 F. Supp. 2d 1027, 1030 (D. Minn. 2001) (Tunheim, J.) (citing cases).
Plaintiffs must also state "the circumstances constituting fraud or mistake" with sufficient "particularity" to survive a motion to dismiss. Fed.R.Civ.P. 9(b). The "circumstances constituting fraud" include "such matters as the time, place and contents of false representations, as well as the identity of the person making the misrepresentation and what was obtained or given up thereby. . . . [C]onclusory allegations that a defendant's conduct was fraudulent and deceptive are not sufficient to satisfy the rule." Parnes v. Gateway 2000, Inc., 122 F.3d 539, 549 (8th Cir. 1997) (internal quotation omitted).
The Court determines that Plaintiffs' allegations state a claim for fraud and meet the requirements of Rule 9(b). Plaintiffs allege that McClain made promises both within a general time frame — from December 2001 through August 2002 — and on specific dates. McClain is alleged to have made these promises with the intent to induce Plaintiffs' reliance. Facts are also alleged which indicate that McClain knew that the promises were false. Finally, Plaintiffs claim that they gave up their business, the good standing of some of their business relationships, and their homes because of the promises made by McClain.
Navitaire argues that Plaintiffs cannot show justifiable reliance as a matter of law because of the existence of the signed agreements. The Court disagrees. Although Navitaire may be correct that Plaintiffs could not reasonably rely on representations in the face of a signed contract to the contrary, Plaintiffs' claims of fraudulent misrepresentations are based solely on promises made before they moved to Minnesota and signed the agreements. Cf. Hanks v. Hubbard Broad., Inc., 493 N.W.2d 302, 310 (Minn.Ct.App. 1992) (recognizing that a promise "in plain contradiction of a contract" may not allow a finding of legal reliance in a case where fraudulent representations were made after contract was signed). Because Plaintiffs' reliance on the promises alleged in the Complaint occurred before they saw, much less signed, the agreements, the signed agreements do not negate Plaintiffs' allegations of fraud as a matter of law. Accordingly, Navitaire's Motion to dismiss this claim will be denied.
While Navitaire also emphasizes the integration clause in the signed agreements, such a clause "does not prevent proof of fraudulent representations by a party to a contract." Hanks, 493 N.W.2d at 310 (citation omitted). Further, "fraud in inducing a contract and a later breach of that contract represent two distinct causes of action under Minnesota law." McDonald v. Johnson Johnson, 776 F.2d 767, 770 (8th Cir. 1985) (citing cases).
III. Violation of Minn. Stat. § 181.64
Plaintiffs make the related claim that Navitaire made false representations in violation of Minn. Stat. § 181.64. Under Minn. Stat. § 181.64, it is unlawful for any person or company doing business in Minnesota "to induce, influence, persuade, or engage any person . . . to change from any place in any state . . . to any place in [Minnesota], to work in any branch of labor through or by means of knowingly false representations . . . concerning the kind or character of such work, [or] the compensation therefor." An individual who was induced, influenced, or persuaded "to enter or change employment . . . through or by means of any of the things prohibited in section 181.64" is entitled to recover damages sustained as a result of the false representations. Minn. Stat. § 181.65. To prevail, Plaintiffs must show that Navitaire "made a knowingly false representation about the kind or character of the work at [each] job or its compensation." Ferris v. Bodycote Lindberg Corp., Civ. No. 01-1689, 2003 WL 21517363, at *5 (D. Minn. June 30, 2003) (Frank, J.).
Plaintiffs allege that they were induced to move from Utah to Minnesota. They also allege that Navitaire made false promises in order to induce this move, some of which involve the kind or character of the employment (for example, the promise that Carter would be a full-time employee) and compensation (for example, the receipt of stock options). Accordingly, the Court determines that Plaintiffs' Complaint states a claim upon which relief can be granted under Minn. Stat. § 181.64, and Navitaire's Motion as to this claim will be denied.
IV. Unjust Enrichment
"An action for unjust enrichment may be based on failure of consideration, fraud, mistake, and situations where it would be morally wrong for one party to enrich himself at the expense of another." Anderson v. DeLisle, 352 N.W.2d 794, 796 (Minn.Ct.App. 1984) (citation omitted). Such a claim "does not lie simply because one party benefits from the actions of another; rather, the term `unjust enrichment' is used in the sense that the benefit has been gained illegally or unlawfully." Holman v. CPT Corp., 457 N.W.2d 740, 745 (Minn.Ct.App. 1990) (citation omitted). "Where the rights of the parties are governed by a valid contract, a claim for unjust enrichment must fail."Colangelo v. Norwest Mortgage, Inc., 598 N.W.2d 14, 19 (Minn.Ct.App. 1999) (citation omitted).
Plaintiffs allege that in August 2002, Carter and Nick Polychronis "were traveling to various locations to perform work" for Navitaire based on the promises made by Navitaire. (Compl. ¶ 24.) They claim that Navitaire has been unjustly enriched by the services provided by Plaintiffs because Plaintiffs have not been properly compensated for the services. (Id. ¶ 39.) They further allege that Navitaire acted fraudulently in procuring such benefit from Plaintiffs' efforts. (Id. ¶ 46.) Accordingly, Navitaire's Motion to dismiss this claim will be denied.
V. Tortious Interference with Contract
Under Minnesota law, a claim for tortious interference with contract involves: 1) the existence of a contract; 2) knowledge of the contract; 3) intentional procurement of the contract's breach; 4) absence of justification; and 5) damages caused by the breach. See Furlev Sales Assoc., Inc. v. North Am. Auto. Warehouse, Inc., 325 N.W.2d 20, 25 (Minn. 1982). "The general rule is that a party cannot [tortiously] interfere with its own contract." Nordling v. Northern States Power Co., 478 N.W.2d 498, 505 (Minn. 1991).
Plaintiffs allege that Navitaire "cancelled events [it] had approved and authorized" and that Plaintiffs had arranged. (Compl. ¶ 30.) The cancellations "hurt J²'s business relationships," and when Plaintiffs confronted managers at Navitaire about the behavior, the managers responded "that the vendors would have to sue [Navitaire]." (Id. ¶¶ 30, 32.) To the extent that Navitaire's actions with regard to events Plaintiffs arranged affected contracts between Plaintiffs and the vendors (as opposed to contracts between Navitaire and the vendors), Plaintiffs' have stated a claim for tortious interference with contract. Accordingly, Navitaire's Motion to dismiss this claim will be denied.
To the extent that Plaintiffs allege Navitaire's actions interfered with Plaintiffs' prospective business relationships, the Court determines that the Complaint states such a claim as well. See, e.g., Hunt v. University of Minn., 465 N.W.2d 88, 95 (Minn.Ct.App. 1991) ("To establish a claim of tortious interference with a prospective business relationship, a plaintiff must prove the defendant intentionally committed a wrongful act which improperly interfered with the prospective relationship." (citation omitted)).
CONCLUSION
Based on the foregoing, and all the files, records and proceedings herein IT IS ORDERED that Navitaire, Inc.'s Motions to Dismiss, or in the Alternative, for Summary Judgment (Doc. Nos. 2 and 3) are DENIED.