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finding a post-contractual promise via e-mail to be ineffective to alter a contract because New York enforces provisions requiring amendments to be signed and in writing
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01 Civ. 9295 (RMB)(GWG)
October 29, 2002
REPORT AND RECOMMENDATION
Defendants Radian Group, Inc. ("Radian") and Enhance Financial Services Group, Inc. ("Enhance") move for a judgment dismissing in part the Second Amended Complaint (the "Complaint") pursuant to Fed.R.Civ.P. 12(b)(6) for failure to state a claim upon which relief can be granted. For the following reasons, the motion should be granted in part and denied in part.
I. BACKGROUND
For purposes of this motion, the Court accepts as true the facts alleged in the Complaint.
A. The Allegations in the Complaint
1. Kleinberg's Employment
Plaintiff Brian Kleinberg began his employment with Enhance in January 1999. Complaint, ¶ 18. On January 4, 1999, the parties executed a letter agreement ("Employment Letter") setting forth the specific employment terms. Id., ¶ 1. After a brief transition period during which he worked part-time, Kleinberg assumed the positions of Executive Vice President of Enhance and Chief Executive Officer at Singer Asset Finance Company, LLC ("Singer"), a wholly-owned subsidiary of Enhance. Id., ¶ 18; Employment Letter at 1 (reproduced in Complaint Ex. B). In addition to a base salary of $300,000 per year, the Employment Letter provided that Kleinberg would receive, inter alia, "[a]n annual target bonus for calendar periods of not less than 50% of then base salary" and "[a]dditional compensation based on specific financial goals of Singer/ECF as outlined by the Company prior to the commencement of your employment and to each anniversary thereof." Employment Letter at 1-2. Kleinberg was paid a $500,000 bonus for 1999. Complaint, ¶ 6.
2. The Change-in-Control Agreement
In order to provide severance benefits in the event of a change-in-control at the company, Kleinberg and Enhance entered into a written agreement on November 15, 1999. Complaint, ¶ 19-20. The agreement was amended on December 8, 1999, and further revised as of March 23, 2000. Id., ¶ 19. The change-in-control agreement as amended in March 2000, Complaint, Ex. A (the "Agreement"), provided that, if a "Termination Event" occurred within two years following a change-in-control, Kleinberg would be entitled to a lump-sum payment that included three times his "Annual Cash Compensation" plus a pro-rated bonus calculated as follows:
the greater of (i) the Adjusted Bonus paid [Kleinberg] in respect of the calendar year immediately preceding the Date of Termination, (ii) the Adjusted Bonus paid [Kleinberg] in the year preceding the calendar year in which the Change in Control Date occurs . . . pro-rated over the period beginning January 1 in the year in which the Notice of Termination is given and ending on the Date of Termination.
Agreement at § I.1. A "Termination Event" included a resignation for "Good Reason," which was defined in § X.12 of the Agreement. The Agreement defined "Adjusted Bonus" principally as the Executive's "actually paid or actual target bonus (as applicable) for the relevant prior period." Agreement at § X.2.
The Agreement contains a separate provision, which forms the basis of one of Kleinberg's claims, requiring the defendants to make certain "Tax Reimbursement Payments" either directly to Kleinberg or into a "rabbi trust" for his benefit. Complaint, ¶ 57; Agreement at § 1.5.
According to § IX. 1, no provision of the Agreement could be "amended, modified, waived or discharged unless such amendment, modification, waiver or discharge is approved by the Board and is agreed to in writing and signed by the Executive and such officer of [Enhance] as may be specifically designated by the Board subsequent to the Board's approval of such amendment, modification[,] waiver or discharge." It also contained a merger clause providing that the Agreement "contains the entire agreement of the parties concerning the subject matter, and all promises, representations, understandings, arrangements and prior agreements concerning the subject matter are merged herein and superseded hereby." Agreement at § IX.2.
3. The Alleged Modifications to the Agreement
In light of his role at Singer, Kleinberg wanted to be certain that his entitlement to severance benefits would apply to a change-in-control at Singer — not merely to a change-in-control at its parent company, Enhance, which was the only change-in-control contemplated by the Agreement. Complaint, ¶ 23. Accordingly, prior to executing the Agreement Kleinberg sought and received verbal assurances from Daniel Gross (then president of Enhance) that Kleinberg would be protected "in the event of a change-in-control at Singer, in the same manner, and to the same extent, as if there were a change-in-control at Enhance." Complaint, ¶¶ 23-24. Kleinberg noted this promise in a contemporaneous handwritten notation ("per discussion with Dan Gross regarding Singer") in the margin of his copy of the Agreement, after which he returned the Agreement to Enhance. Complaint, ¶ 25. Mr. Gross told Kleinberg that the Board of Directors at Enhance was too "busy with other issues" for the matter to be brought to their attention but "orally assured Mr. Kleinberg that he was in fact so protected." Complaint, ¶ 28. Other senior executives, namely Elaine Eisenman and Samuel Bergman, were also aware of this issue. Complaint, ¶¶ 29-30.
On July 28, 2000, sometime after executing the Agreement, Kleinberg sent an email to Mr. Gross that stated in part:
As we have discussed, should there be a situation whereby [there is a change in control at] Singer . . . you would support and anticipate a change in control would be enacted for me and you would take the necessary actions to ensure implementation.
July 28, 2000 Email (reproduced in Complaint Ex. D); see Complaint, ¶ 26. Neither Mr. Gross nor anyone else at Enhance objected to the contents of this email. Complaint, ¶ 27.
4. Kleinberg's Resignation
In September 2000, the Board of Directors of Enhance "approved a plan to wind down, sell or otherwise dispose of Singer's operations." Complaint, ¶ 38. In November 2000, Radian announced its planned acquisition of Enhance. Defendants' Motion to Dismiss the Second Amended Complaint, dated July 19, 2002 ("Def. Motion"), at 6. For the year 2000, Kleinberg received a bonus of $125,000. Complaint, ¶ 6.
On December 29, 2000, Kleinberg submitted a Notice of Termination Letter that indicated the "Good Reason" for his resignation was "the diminution and impending elimination of [his] duties and responsibilities as Chief Executive Officer of [Singer] and as Executive Vice President of [Enhance]," as well as the company's failure to pay him certain stock options. Notice of Termination Letter, dated December 29, 2000 ("Notice Letter") (reproduced in Complaint Ex. E), at 1; Complaint, ¶ 48. The defendants did not object to the Notice Letter as they were permitted to do under § VI.3 of the Agreement; nor did they dispute the "Good Reason" Kleinberg provided. Complaint, ¶ 51. The Notice Letter went on to demand the severance benefits provided for in § I of the Agreement given that a "'Change in Control' . . . [had] occurred, due to the sale of the assets of Singer, and the recent announcement concerning the sale of [Enhance]." Notice Letter at 1. Pursuant to the terms of the Agreement, the termination became effective February 27, 2001 — that is, 60 days from the date of the Notice Letter Id; see Agreement at § VI. 1.
On April 2, 2001, Enhance paid Kleinberg a severance bonus of $2,762,667. See Withholding Statement, dated April 2, 2001 (reproduced in Complaint Ex. C). Defendants calculated the bonus amount based on the change-in-control that occurred at Enhance in 2001 and not the change at Singer in 2000. Complaint, ¶ 55. Accordingly, defendants paid Kleinberg his severance based on a pro-rated portion of his bonus of $125,000 for the year 2000, not based on his $500,000 bonus for 1999. See id.
B. Procedural History
On October 22, 2001, Kleinberg filed a complaint seeking damages and declaratory relief. He filed a First Amended Complaint on December 18, 2001. After the defendants moved to dismiss this complaint on January 11, 2002, Kleinberg filed the Second Amended Complaint. The Second Amended Complaint principally seeks to recover the difference between (a) what Kleinberg would have been paid had his bonus been calculated based on the change-in-control at Singer and (b) what he would have been paid had his bonus been calculated based on the change-in-control at Enhance. Complaint, ¶ 55. Defendants have moved to dismiss for failure to state a claim.
II. DISCUSSION
A. The Rule 12(b)(6) Standard
Defendants move under Fed.R.Civ.P. 12(b)(6) to dismiss the Complaint for failure to state a claim upon which relief can be granted. Dismissal is appropriate 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 See, e.g., Strougo v. Bassini, 282 F.3d 162, 167 (2d Cir. 2002). The issue is not whether the plaintiff will ultimately prevail in the action but whether the plaintiff is entitled to offer evidence to support his claims. See, e.g., Villager Pond, Inc. v. Town of Darien, 56 F.3d 375, 378 (2d Cir. 1995), cert. denied, 519 U.S. 808 (1996). In deciding a motion to dismiss pursuant to Rule 12(b)(6) the Court must accept all factual allegations in the complaint as true and draw all reasonable inferences in favor of the plaintiff. See, e.g., Koppel v. 4987 Corp., 167 F.3d 125, 130 (2d Cir. 1999); Jaghory v. N.Y. Dep't of Educ., 131 F.3d 326, 329 (2d Cir. 1997). Moreover, the Court must confine its consideration to matters contained in the complaint, in documents attached thereto, and to matters of which the Court may take judicial notice. Leonard F. v. Israel Disc. Bank of N.Y., 199 F.3d 99, 107 (2d Cir. 1999); Hayden v. County of Nassau, 180 F.3d 42, 54 (2d Cir. 1999).
Kleinberg opposes the motion to dismiss on the ground that dismissal is "usually reserved" for cases in which "the complaint is so confused, ambiguous, vague, or otherwise unintelligible that its true substance, if any, is well disguised." Memorandum in Opposition to Defendants' Motion to Dismiss the Second Amended Complaint, dated August 12, 2002 ("Mem. Opp."), at 8. In fact, no such principle exists with respect to a motion to dismiss under Fed.R.Civ.P. 12(b)(6). The case Kleinberg cites for this proposition, Kittay v. Kornstein, 230 F.3d 531, 541 (2d Cir. 2000), dealt only with a dismissal under Fed.R.Civ.P. 8, which requires that a complaint contain "a short and plain statement of the claim showing that the pleader is entitled to relief." See Fed.R.Civ.P. 8(a)(2).
B. Kleinberg's Causes-of-Action
Kleinberg has raised the following causes of action: 1) breach of the Agreement, 2) breach of the Employment Letter, 3) promissory estoppel, and 4) compensation for attorney's fees as provided for under § V of the Agreement. The defendants have moved to dismiss each of these claims, with the exception of the portion of the first cause of action that seeks compensation for late payment of his severance benefit. See Complaint,¶ 11; see Def Motion at 1 n. 1.
The parties agree that New York law applies to this action. In addition, § 1X.3 of the Agreement provides that the "validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of New York." Accordingly, the Court will analyze plaintiffs claims under New York law See, e.g., VKK Corp. v. Nat'l Football League, 244 F.3d 114, 129 n. 10 (2d Cir. 2001).
1. Breach of the Agreement
To state a claim for breach of contract under New York law, a plaintiff must show (1) the existence of an agreement, (2) performance of the contract by the plaintiff, (3) breach by the defendant, and (4) damages.Harsco Corp. v. Segui, 91 F.3d 337, 348 (2d Cir. 1996). With respect to his allegation that defendants breached the Agreement, Kleinberg raises essentially two claims. First, he alleges that defendants breached the Agreement because they "ignored the fact that the operative change-in-control had occurred in 2000, not 2001," resulting in a payment that was $400,000 less than it otherwise would have been. Complaint, ¶¶ 55-56. In addition, Kleinberg maintains that defendants were required, pursuant to the express terms of the Agreement, to make certain "Tax Reimbursement Payments" either directly to him or into a "rabbi trust" for his benefit. Complaint, ¶ see also Agreement at § 1.5. Each claim is discussed in turn.
a. Change-in-Control Date. The principal claim for breach of the Agreement concerns the dispute as to whether the severance payments under § 1.1 were triggered by the change-incontrol at Singer in 2000 or the change-in-control at Enhance in 2001. If the change-in-control at Singer had been implicated, Kleinberg alleges that his "dramatically higher [$500,000] bonus for 1999" should have been used to compute his severance bonus. Mem. Opp. at 5. Indeed, the Agreement specifically provided that Kleinberg was entitled to the greater of i) the Adjusted Bonus paid in the year preceding the Date of Termination (here, $125,000 for the year 2000) or ii) the Adjusted Bonus paid in the year preceding the calendar year in which the change-incontrol occurred. Agreement at § I. 1; Mem. Opp. at 5-6. Kleinberg maintains that by using the change-in-control date at Enhance rather than the change-in-control date at Singer the defendants breached the Agreement.
Plaintiff's motion papers do not contest that the defendants acted properly if the written terms of the Agreement governed since these terms apply only to a change-in-control at Enhance. Kleinberg seeks to avoid the written terms of the Agreement by arguing that the change-incontrol date at Singer applies because of (1) the oral promise by Mr. Gross; (2) the handwritten notation in the margin of Kleinberg's copy of the contract; and (3) the email he sent to Mr. Gross.
None of these circumstances, however, permit plaintiff to avoid the terms of the written Agreement. Absent a showing of ambiguity or mutual mistake — neither of which is alleged here — it is well-settled that where contracting parties have "reduced their agreement to an integrated writing, the parol evidence rule operates to exclude evidence of all prior or contemporaneous negotiations or agreements offered to contradict or modify the terms of their writing." Adler Shavkin v. Wachner, 721 F. Supp. 472, 476 (S.D.N.Y. 1988); accord Wayland Inv. Fund. LLC v. Millenium Seacarriers, Inc., 111 F. Supp.2d 450, 454 (S.D.N.Y. 2000). In New York, a merger clause is "definitive proof of integration." Wechsler v. Hunt Health Systems. Ltd., 1999 WL 397751, at *7 (S.D.N.Y June 16, 1999); accord Phoenix Racing. LTD v. Lebanon Valley Auto Racing Corp., 53 F. Supp.2d 199, 213 (N.D.N.Y. 1999). Thus, Kleinberg is barred from relying on any oral representations made either prior to or contemporaneously with the execution of the Agreement.
Evidence of the post-contractual promises is equally ineffective to alter the terms of the Agreement. According to the express language of § IX. 1 of Agreement, no portion could be "amended, modified, waived or discharged" unless approved by Enhance's Board of Directors and signed by an authorized executive. This provision falls squarely within the terms of New York General Obligations Law ("GOL") § 15-301.1, which provides that an agreement with a clause of this kind "cannot be changed by an executory agreement unless such executory agreement is in writing and signed by the party against whom enforcement of the change is sought." See Rose v. Spa Realty Assocs., 42 N.Y.2d 338, 343 (1977). Here, the alleged promises were not reduced to writing. See Complaint, ¶¶ 1, 28. New York law is clear that "[w]hen a written contract provides that it can only be changed by a signed writing, an oral modification of that agreement . . . is not enforceable." Tierney v. Capricorn Investors. L.P., 189 A.D.2d 629, 631 (1st Dep't 1993). Nor can it be argued that Kleinberg's handwritten notation in the margin of the Agreement constituted a valid modification given that it was not signed by the defendants (let alone approved by the Board of Directors) as required under both § IX. 1 of the Agreement and GOL § 15-301.1. Thus, Kleinberg has not stated a claim for relief based on the defendants' use of the change-in-control date at Enhance rather than at Singer.
Any argument that Mr. Gross' representations merely supplemented the terms of the Agreement would be unavailing because "to add terms to an agreement would clearly vary that agreement's terms, insofar as the terms of the 'supplemented' agreement would no longer be the same as the terms of the written one." Phoenix Racing, 53 F. Supp.2d at 214.
b. Target Bonus. Kleinberg separately claims that the severance bonus was calculated incorrectly regardless of which change-in-control date is used because defendants failed to set a target bonus for 2000. Mem. Opp. at 7, 19-21; Complaint, ¶ 5-8, 22, 47, 55. This claim turns on the definition of "Adjusted Bonus" appearing in § X.2 of the Agreement. This provision defines "Adjusted Bonus" to mean "[Kleinberg's] actually paid or actual target bonus (as applicable) for the relevant prior period . . . ." Kleinberg argues that the term "as applicable" is ambiguous because the Agreement "never elaborates" on its meaning. Mem. Opp. at 20. Kleinberg therefore concludes that the language indicates he was "entitled to have his Severance Bonus calculated based on the greater of his actually paid bonus or target bonus." Id. (emphasis in original).
The determination of whether a contract term is ambiguous is a question of law for the Court. E.g., Garza v. Marine Transport Lines, Inc., 861 F.2d 23, 27 (2d Cir. 1988); Thaver v. Dial Indus. Sales, Inc., 85 F. Supp.2d 263, 269 (S.D.N.Y. 2000). Ambiguity exists when the word or phrase "is capable of more than a single meaning 'when viewed objectively by a reasonably intelligent person who has examined the context of the entire integrated agreement.'" Garza, 861 F.2d at 27 (quoting Walk-In Medical Centers, Inc. v. Breuer Capital Corp., 818 F.2d 260, 263 (2d Cir. 1987)). "The mere assertion of an ambiguity does not suffice to make an issue of fact." Thompson v. Gjivoje, 896 F.2d 716, 721 (2d Cir. 1990); accord Garza, 861 F.2d at 27.
Having reviewed the entire agreement, the Court is unable to conclude that there is anything ambiguous about the term "as applicable." The contract defines the "Adjusted Bonus" to be one of two things: (a) the actually paid bonus or (b) the "target" bonus for a particular period. The Agreement is equally clear that only one of these — that is, the one that "appli[es]" is to be used for the calculation of the Adjusted Bonus. A "target" in this context can only mean a "goal to be reached." See Random House Webster's College Dictionary 1336 (2d ed. 1999). Because the required calculation had to be made either based on a goal of what was to be paid or based on the amount actually paid, the question becomes which of these two items is "applicable." Which item is "applicable" in turn depends upon the particular set of circumstances that arises. Under a common sense reading of the Agreement, where no amount has been actually paid then the target or goal is the only one of the two items that is applicable. But where an amount has been paid, that amount must be the one that is "applicable" within the normal understanding of this term. Any other interpretation necessarily renders the phrase "as applicable" meaningless.
Kleinberg's more specific argument that the phrase "as applicable" should be construed to mean "the greater of," Mem. Opp. at 20, is completely at odds with the ordinary meaning of the term "applicable." It is also separately belied by the fact that the defendants used express terminology elsewhere in the Agreement when they intended to grant Kleinberg the "greater" of two options, see § § I.1 and X.2. See generally Int'l Fidelity Ins. Co. v. County of Rockland, 98 F. Supp.2d 400, 412 (S.D.N.Y. 2000) (drafters of sophisticated contracts "must be presumed to know how to use parallel construction and identical wording to impart identical meaning when they intend to do so, and how to use different words and construction to establish distinctions in meaning").
c. Tax Reimbursement Payment. The remaining element of Kleinberg's breach of contract claim is a more specific claim relating to the Tax Reimbursement Payment ("TRP") required under the Agreement. See Complaint, ¶ 57; Mem. Opp. at 21-23. Section 1.5 of the Agreement provided that if any severance benefit paid to Kleinberg became subject to an "Excise Tax" under § 4999 of the Internal Revenue Code (or any similar tax), Enhance was obligated to either "pay to the Executive or contribute for the benefit of the Executive to a 'rabbi' trust established by [Enhance] prior to the Change in Control Date . . . the Tax Reimbursement Payment."
Defendants note that the provision is illegal because a payment of this kind violates the Internal Revenue Code. Def. Motion at 15-16; Defendants' Reply Memorandum of Law in Further Support of Their Motion to Dismiss the Second Amended Complaint, dated August 26, 2002 ("Def. Reply Mem."), at 8-9. The Internal Revenue Code provides that "[i]n the case of any excess parachute payment which is wages (within the meaning of section 3401) the amount deducted and withheld under section 3402 shall be increased by the amount of the tax imposed by this section on such payment." 26 U.S.C. § 4999(c)(1). Section 3402 provides that "every employer making payment of wages shall deduct and withhold upon such wages a tax determined in accordance with tables or computational procedures prescribed by the Secretary." 26 U.S.C. § 3402(a)(1) (emphasis added). Thus the defendants contend that all "parachute payments such as the one disputed here must be withheld by the employer" and must be paid directly to the government in the same manner as taxes from ordinary wages. Def. Motion at 15-16.
Kleinberg does not contest the illegality of this clause; nor does he argue that the terms of the Agreement should have been followed. Mem. Opp. at 21-23. Indeed, under New York law, "a party to an illegal contract cannot ask a court of law to help him carry out his illegal object, nor can such a person plead or prove in any court a case in which he, as a basis for his claim, must show forth his illegal purpose." McConnell v. Commonwealth Pictures Corp., 7 N.Y.2d 465, 469 (1960) (citations and internal quotation marks omitted); Valenza v. Emmelle Coutier, Inc., 288 A.D.2d 114 (1st Dep't 2001) ("party to an illegal contract cannot resort to a court of law for help in obtaining its enforcement").
Instead, he argues that the mere "specter of contract illegality" should not in itself result in a dismissal of this contract claim because there could exist other grounds for enforcement. Mem. Opp. at 22-23. He maintains that he "had no way of knowing that the TRP provision . . . might violate the excise tax provisions of the Internal Revenue Code."Id. at 23. Thus, he urges this Court to "enforce the contract so as to give effect — within the bounds of the law — to the intent of the parties." Id. at 22.
Had the defendants made no payment at all under this provision on the ground that it was illegal, Kleinberg would certainly have a strong argument that he would be inequitably harmed by such conduct and that the payment should be made as contemplated by the statute — that is, directly to the Internal Revenue Service. Such an argument certainly finds support in New York case law, which holds that "[a]s a general rule . . . forfeitures by operation of law are disfavored, particularly where a defaulting party seeks to raise illegality as 'a sword for personal gain rather than a shield for the public good.'" Lloyd Capital Corp. v. Pat Henchar, Inc., 80 N.Y.2d 124, 128 (1992); see also Katz v. Zuckermann, 119 A.D.2d 732, 733 (2d Dep't 1986) (allowing for recovery despite illegal contract under theory of unjust enrichment).
Here, however, the defendants in fact paid the money to the Internal Revenue Service as required by statute — a fact that is implicitly conceded by Kleinberg. See Mem. Opp. at 2, 23. Thus, Kleinberg's claim is not that defendants failed in their obligation to pay the appropriate taxes on his severance package pursuant to the Agreement or that he has incurred personal tax liability as a result. Rather, he argues that defendants are obligated to give him the benefit of the time value of the money associated with the tax payments: that is, "the interest [Kleinberg] would have earned on this amount for the period between the date the TRP was due to be paid to him (i.e., April 12, 2001) and the date that payment was due to the government, approximately one year later." Id. at 23.
The task before the Court is to determine the appropriate remedy for plaintiff given that the TRP provision of the Agreement is illegal under federal tax law. Principles of contract law appear to give to the Court, acting as a court in equity, the power to determine an appropriate reformation of a contract or to permit an appropriate restitution based on the illegal provision. See Joseph M. Perillo, Corbin on Contracts, Avoidance and Reformation, § 28.49, at 348 (2002). If the defendants had refused to make any payment at all, the Court certainly would have required that it be made to the Internal Revenue Service directly on the theory that any other result would work an improper forfeiture. See Lloyd Capital, 80 N.Y.2d at 128.
But the contract itself in fact provides guidance as to the appropriate result in this situation. In a separate provision, it provides that defendants are entitled to withhold from "any" payments made under the Agreement any federal taxes that "the Company determines it is required to withhold under law." Agreement at § IX.4. This is precisely what occurred in this situation. In the absence of the enforceability of § 1.5, it is reasonable to view § IX. 4 as governing. It is also consistent with the very IRS statute that rendered § 1.5 illegal. See 26 U.S.C. § 3402(a)(1) (requiring employers who pay wages to withhold taxes due). To the extent there is any culpability in agreeing to this illegal contract, the culpability is equal on both sides and this result properly "leave[s] both parties where [the Court] found them." Diversified Group Inc. v. Sahn, 259 A.D.2d 47, 52 (1st Dep't 1999); accord Braunstein v. Jason Tarantella, Inc., 87 A.D.2d 203, 207 (2d Dep't 1982) (where the parties' arrangement is illegal, "the law will not extend its aid to either of the parties . . . or listen to their complaints against each other, but will leave them where their own acts have placed them").
The cases upon which Kleinberg relies are either consistent with these principles or irrelevant. For example, American Buying Ins. Servs., Inc. v. S. Kornreich Sons, Inc., 944 F. Supp. 240 (S.D.N.Y. 1996) involved a fraud claim that "sound[ed] in tort, not contract." Id. at 244. In Murray Walter, Inc. v. Sarkisian Bros., Inc., 107 A.D.2d 173 (3rd Dep't 1985), the defendants "took unfair advantage of their superior bargaining position and the ill health of [the plaintiff]." Id. at 177. In addition, and "most importantly," the Murray Walter court noted that "refusal to enforce the [challenged] clause would work a substantial forfeiture upon plaintiff." Id. at 177-78. There is no claim here that defendants took advantage of Kleinberg or that he has suffered a "substantial forfeiture." To the contrary, Kleinberg received precisely what the express terms of the contract show to be the parties' intent: that Kleinberg would assume no responsibility for the taxes associated with his severance compensation.
2. Breach of the Employment Letter
Kleinberg makes a separate claim regarding breach of the Employment Letter. He maintains that i) a target bonus was required to be set, including the additional "Singer Compensation," ii) it was not set, and in) this failure resulted in the under payment of the severance bonus in that the severance bonus is "expressly based on the target bonus." Mem. Opp. at 19-20. It is further urged that the process by which this target bonus was to be calculated is "complex . . . [and] will be an issue for the finder of fact." Id. at 21.
The Court accepts the first two elements of Kleinberg's syllogism. His claim fails, however, because no reasonable reading of the provisions of the Agreement supports the third element: i.e., that the failure to set Kleinberg's "target" bonus resulted in the under payment of the severance bonus (i.e., the "Adjusted Bonus"). Section X.2 of the Agreement defined "Adjusted Bonus" as the "actually paid or actual target bonus (as applicable)." As discussed in § II.B. 1(b) above, this provision unambiguously provides only the "applicable" bonus must be considered for severance purposes. If a bonus was actually paid, the "actually paid" bonus is necessarily applicable. In other words, it would be a pointless act to require the defendants to set a "target" bonus for Kleinberg now (as was required by the Employment Letter). Even if the defendants set that bonus today, Kleinberg's Adjusted Bonus would still have to be based on the "applicable" bonus, which was the bonus that was "actually paid."
3. Promissory Estoppel
Kleinberg also seeks damages based on a theory of promissory estoppel. As a threshold issue, the Court notes considerable authority for the position that an action for promissory estoppel could not be pursued here given that the Agreement has been found unambiguous and enforceable as written. See, e.g., Foxley v. Sotheby's Inc., 893 F. Supp. 1224, 1234 (S.D.N.Y. 1995) (dismissing promissory estoppel claim because "an express contract was in effect"); Bell v. Leakas, 1993 WL 77320, at *9 (S.D.N.Y. Mar. 13, 1993) ("Promissory estoppel is a legal fiction designed to substitute for contractual consideration where one party relied on another's promise without having entered into an enforceable contract.") (quoting Hartford Fire Ins. Co. v. Federated Dep't Stores, Inc., 723 F. Supp. 976, 993 (S.D.N.Y. 1989)); Cyberchron Corp. v. Calldata Systems Development, Inc., 831 F. Supp. 94, 112 (E.D.N.Y. 1993) ("In New York, the doctrine of promissory estoppel . . . [is] a rule applicable only in the absence of an enforceable contract."), aff'd in relevant part, 47 F.3d 39, 45 (2d Cir. 1995); NCC Sunday Inserts, Inc. v. World Color Press, Inc., 759 F. Supp. 1004, 1011 (S.D.N.Y. 1991) ("An action for promissory estoppel generally lies when there is no written contract, or the contract cannot be enforced for one reason or another. Thus, it is an action outside the contract. When an enforceable contract does exist, the parties cannot assert a claim for promissory estoppel based on alleged promises that contradict the written contract.") (applying Illinois and Connecticut law); see also All-Tech Telecom, Inc. v. Amway Corp., 174 F.3d 862, 869-870 (7th Cir. 1999) ("Promissory estoppel is not a doctrine designed to give a party . . . a second bite at the apple in the event it fails to prove a breach of contract.") (quotingWalker v. KFC Corp., 728 F.2d 1215, 1220 (9th Cir. 1984)). Indeed, to allow promissory estoppel to establish contractual obligations in situations "where a comprehensive contract exists would contravene the fundamental rules that extrinsic evidence cannot be used to vary the unambiguous terms of a contract and that obligations inconsistent with the terms of a contract cannot be implied." Hartford Fire Ins. Co., 723 F. Supp. at 993 (internal citation omitted).
Even if the Court were to consider the elements of promissory estoppel, as might be permitted under some case law, see, e.g., Sathe v. Bank of N.Y., 1990 WL 58862, at *2, *5-6 (S.D.N.Y. May 2, 1990) (motion to dismiss promissory estoppel claim denied even though court found, for purposes of the motion, that a valid contract existed); D'Accord Fin. Servs., Inc. v. Metsa-Serla Oy, 1999 WL 58916, at *4 n. 5 (S.D.N.Y. Feb. 8, 1999) (suggesting that the Second Circuit has "implicitly" treated claims under promissory estoppel and quasi-contract as distinct theories of recovery) (citations omitted), Kleinberg's claim still could not proceed. In New York, a promissory estoppel claim has three elements: a clear and unambiguous promise; reasonable and foreseeable reliance; and injury stemming from the reliance. E.g., Cyberchron Corp. v. Candata Systems Development, 47 F.3d 39, 44 (2d Cir. 1995). It is a narrow doctrine often applied only where there is an "unconscionable injury" or when otherwise "necessary to avoid injustice." Id., (citing cases);accord Bell, 1993 WL 77320, at *9. Accepting the facts alleged in the Complaint as true, Kleinberg has not satisfied the second element: specifically, that he reasonably" relied on the various extra-contractual communications that allegedly altered the Agreement. His reliance was not reasonable precisely because this action involves an unambiguous and comprehensive contract (which had been amended by the parties three times prior to its execution) that expressly precluded oral modification. See Freeman v. MBL Life Assurance Corp., 60 F. Supp.2d 259, 264 n. 2. (S.D.N.Y. 1999) ("Under New York law, an unambiguous contract precludes a plaintiffs promissory estoppel claim based upon a subsequent inconsistent written or oral representation. Hence, any reliance upon such mistaken representation is unreasonable as a matter of law."); D'Accord Fin. Servs., Inc., 1999 WL 58916, at *4 (no reasonable reliance on post-contractual promises where there existed a "comprehensive written contract . . . between the parties").
The Agreement contained a second element that made Kleinberg's reliance on the oral representations independently unreasonable: the explicit requirement that any change in the Agreement had to be approved by Enhance's Board of Directors. Agreement at § IX. 1. None of the extra-contractual representations that form the basis of Kleinberg's claim were made by the Board of Directors. See generally Bernstein v. Centaur Ins. Co., 644 F. Supp. 1361 (S.D.N.Y. 1986) (plaintiff could not reasonably rely on assurances of agent that plaintiff knew lacked authority). In fact, some of Mr. Gross' representations made specific reference to the Fact that only the Board of Directors could change the Agreement, Complaint, ¶ 28, and Kleinberg himself recognized this to be the case. Complaint, Ex. D.
Kleinberg' s attempt to circumvent § IX.1-2 of the Agreement by relying on Urban Holding Corp. v. Haberman, 162 A.D.2d 230 (1st Dep't 1990) is unavailing. The contract in Urban Holding Corp. contained a merger clause "of a very general nature" such that the court was unable to ascertain "whether the parties intended [the] merger clause to encompass all the agreements in issue." Id. at 231. Here, by contrast, the merger and no oral modification clauses are clear on their face and are plainly intended to apply to the whole Agreement. The comprehensiveness of the language in the Agreement bears directly on the reasonableness of Kleinberg's reliance. See generally D'Accord Fin. Servs., Inc.,1999 WL 58916, at *4 (reasonable reliance cannot occur where comprehensive written contract exists). Other cases cited by Kleinberg involved agreements without a no-oral-modification clause,see, e.g., Murphy v. Gutfreund, 583 F. Supp. 957 (S.D.N.Y. 1984); involved active representations by the defendant following the execution of the agreement (as opposed to the mere silence alleged here), see, e.g., Northeastern Power Co. v. Balcke-Durr, Inc., 1999 WL 674332 (E.D. Pa. Aug. 23, 1999); and/or arise under the law of other jurisdictions,see, e.g., id, Thus, they do not provide persuasive authority for this case.
Because Kleinberg's reliance on the purported promises was unreasonable in light of the merger and no oral modification clauses, the claim for promissory estoppel must fail.
4. Attorney's Fees
In the Complaint's fourth cause of action, Kleinberg seeks compensation for attorney's fees pursuant to § V of the Agreement. Complaint, ¶ 84(2). Section V of the Agreement provides that Enhance "shall pay all reasonable attorney fees and expenses incurred by the Executive in connection with, but not limited to, a bona fide dispute regarding the application of any and all the provisions under this Agreement, [or] the Executive's seeking to obtain or enforce any right or benefit provided under this Agreement."
Defendants contend that only a "bona fide" or "reasonable" dispute is eligible for attorney's fees. See Def. Motion at 17-18; Def. Reply Mem. at 9-10. Even accepting this contention arguendo, their motion to dismiss still must be denied. The terms "bona fide" and "reasonable" are broad ones. While this Court has determined that Kleinberg's claims should be dismissed, it certainly cannot be said as a matter of law that the claims are not "bona fide" or "reasonable." In McGuire v. Russell Miller, Inc., 1 F.3d 1306 (2d Cir. 1993), the Second Circuit made clear that the trier of fact must determine whether a party is entitled to receive an award of attorneys' fees provided for in a contract. See id. at 1313. Accordingly, because Kleinberg has plead sufficient facts to meet even the defendants' contention that he show that a "bona fide" or reasonable" dispute exists, the defendants' motion to dismiss this claim must be denied.
III. CONCLUSION
For the foregoing reasons, defendants' motion to dismiss Kleinberg's first, second and third causes of action should be granted, with the exception of Kleinberg's claim to compensation for late payment of his severance benefit. Defendants' motion to dismiss the fourth cause of action — the request for attorney's fees — should be denied.
PROCEDURE FOR FILING OBJECTIONS TO THIS REPORT AND RECOMMENDATION
Pursuant to 28 U.S.C. § 636(b)(1) and Rule 72(b) of the Federal Rules of Civil Procedure, the parties have ten (10) days from service of this Report to file any objections. See also Fed.R.Civ.P. 6(a), (e). Such objections (and any responses to objections) shall be filed with the Clerk of the Court, with extra copies sent to the Honorable Richard M. Berman, 40 Centre Street, New York, New York 10007, and to the undersigned at the same address. Any request for an extension of time to file objections must be directed to Judge Berman. If a party fails to file timely objections, that party will not be permitted to raise any objections to this Report and Recommendation on appeal. See Thomas v. Arn, 474 U.S. 140 (1985).