Opinion
99 Civ. 11277 (CM)(LMS)
February 16, 2001
MEMORANDUM DECISION AND ORDER DISMISSING COMPLAINT
Plaintiff Linda Koch brings this action seeking to recover on an alleged contract between herself (doing business as Effective Management Associates) and defendant MultiPlan, Inc., a Preferred Provider Organization (PPO) engaged in the business of negotiating discounted rates between medical service providers and payors such as insurance companies. Koch claims to have co-brokered MultiPlan's business arrangement with Aetna covering services provided through Aetna's medical providers to the employees of Trans World Airlines (TWA), pursuant to an agreement that provided, inter alia, for a commission-sharing arrangement extending to any contract that MultiPlan procured as a result of plaintiff's efforts. MultiPlan argues, in a motion to dismiss and/or for summary judgment, that no such contract exists, and than even if it did, its arrangements with Aetna vis-a-vis TWA predated any involvement defendant had with plaintiff.
This matter was referred to The Hon. Lisa Margaret Smith for all purposes permitted by law, and Judge Smith issued a report and recommendation on the pending motion to dismiss and/or for summary judgment on December 6, 2000. I have reviewed the Report and Recommendation, as well as the objections thereto filed by defendant. I conclude that New York's Statute of Frauds bars recovery by plaintiff in this action, and order that the case be dismissed. In so doing, I accept in part and reject in part the recommendations of Judge Smith.
Statement of Facts
Viewed most favorably to plaintiff, the critical facts, for purposes of the pending motion, are these:
1. In August 1996, Linda Koch, her husband Robert Koch, Chairman of the Board of EMA, and Donald Rubin, Chairman of MultiPlan, met in Rubin's offices to discuss having plaintiff use her best efforts to assist MultiPlan in bringing in new clients. According to plaintiff, they discussed EMA's brokering a deal between TWA, Aetna and MultiPlan, whereby the discounted rates of MultiPlan's providers would be made available to TWA not only through its present third party administrator, Benefit Plan Administrators (BPA), but also through Aetna in areas outside of New York. Rubin indicated that he would send a standard form contract for their review and changes.
2. On September 3, 1996, plaintiff spoke with Larry Cleveland of TWA to encourage the proposed arrangement between Aetna and the providers in MultiPlan's network. On or about September 11, 1996, Cleveland sent a letter to Aetna, expressing that TWA wished to start having members of the TWA Universal Health Plan begin receiving the benefits of MultiPlan's discounts. Robert Koch also reached out to Soren Davis at MultiPlan and Roger Cassidy, Aetna's National Marketing Director, and mailed them a copy of Cleveland's September 11 letter.
3. Plaintiff received from Rubin a standard "Marketing Service Agreement" dated September 15, 1996. Robert Koch spoke with Rubin by phone and suggested several changes. On or about October 24, 1996, Robert Koch wrote a letter to Rubin, outlining his changes to the Marketing Service Agreement. He wrote: "We've inserted 20% as the commission we earn. So that we are both understanding of what that percentage represents, the following description is set forth. Of the total amount of net savings you generate for TWA, in this case, MultiPlan will pay Effective Management Associates Inc. twenty percent (20%) of those savings." Koch signed this letter, but representatives of MultiPlan did not.
4. On or about November 15, 1996, Donald Rubin sent a letter to plaintiff stating: "I think before we finalize anything, it would be important to have a meeting which would include Al Isernio. I don't want to inadvertently step on each other's shoes." Al Isernio represented TWA's present third party administrator, BPA. No such meeting occurred.
5. Rubin sent a revised draft Marketing Service Agreement to plaintiff dated December 1, 1996. The agreement provided that MultiPlan would compensate EMA based on fees generated by TWA/Aetna. The amount of the compensation was to be 10% of MultiPlan fees per client per year. Robert Koch returned the draft to Rubin with changes by letter dated December 3, 1996.
6. On or about January 15, 1997, Rubin sent a letter to Robert Koch that enclosed a redraft of the Marketing Service Agreement, and said: "We will not be able to include TWA under this agreement." All references to TWA and Aetna were redacted from the agreement.
7. Robert Koch allegedly called Rubin to ask why defendant was not going forward with the TWA deal. Rubin responded that he had too much to lose by alienating BPA and Isernio, who was threatening to withdraw substantial amounts of business from MultiPlan if it proceeded with the deal with EMA for the national TWA business.
8. According to plaintiff, she learned in August of 1999 that the deal between Aetna and TWA had been successfully completed in 1997, making MultiPlan available to Aetna clients nationwide.
The parties vigorously dispute whether any meeting of the minds was reached. MultiPlan contends that it already had a relationship with Aetna and TWA, and that there is no single document, signed by both parties, which memorialized the entirety of any agreement that the parties may have reached. Koch argues that an agreement was reached in the August 1996 meeting, and was memorialized in the series of writings which included the draft contracts.
Standards for Summary Judgment
As the parties have supplemented the record extensively, I elect (as did Judge Smith) to treat this as a motion for summary judgment pursuant to Fed.R.Civ.P. 12(c).
A party is entitled to summary judgment when there is no "genuine issue of material fact" and the undisputed facts warrant judgment for the moving party as a matter of law. Fed.R.Civ.P. 56(c), Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986). In addressing a motion for summary judgment, "the court must view the evidence in the light most favorable to the party against whom summary judgment is sought and must draw all reasonable inferences in [its] favor." Matsushita Elec. Indus. Co. Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). Whether any disputed issue of fact exists is for the Court to determine. Balderman v. United States Veterans Admin., 870 F.2d 57, 60 (2d Cir. 1989). The moving party has the initial burden or demonstrating the absence of a disputed issue of material fact. Celotex v. Catrett, 477 U.S. 317, 323 (1986). Once such a showing has been made, the non-moving party must present "specific facts showing that there is a genuine issue for trial. Fed.R.Civ.P. 56(e). The party opposing summary judgment "may not rely on conclusory allegations or unsubstantiated speculation." Scotto v. Almenas, 143 F.3d 105, 114 (2d Cir. 1998). Moreover, not every disputed factual issue is material in light of the substantive law that governs the case. "Only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude summary judgment." Anderson, 477 U.S. at 248.
Conclusions of Law
As Judge Smith correctly concluded, New York's Statute of Frauds, Gen. Oblig. Law § 5-701(a)(10) (McKinney 2000), requires that brokerage contracts, including contracts to procure an introduction to a party to a transaction or to assist in the negotiation of that transaction, be committed to a writing signed by the party to be charged in order to be enforceable. There is no dispute that no single document meeting this criterion exists in this case. Nonetheless, plaintiff contends that she is entitled to be paid a commission for the MultiPlan's Aetna/TWA arrangement because her situation visa-vis MultiPlan falls within a narrow exception to the Statute of Frauds. That exception, the so-called Dura exception (named for Dura v. Walker, Hart Co., 27 N.Y.2d 347 (1971), provides that the Statute of Frauds does not apply to agreements between "finders who pool their efforts and share the fee received by one finder from its principal." Train v. Arshiel Associates, Inc., 635 F. Supp. 274, 277-78 (S.D.N.Y.), aff'd, 805 F.2d 391 (2d Cir. 1986). Put colloquially, the Dura exception permits co-finders and co-brokers who pool their resources in the procurement of business to split commissions absent any written agreement.
Judge Smith concluded that there was a disputed issue of material fact about whether Koch and MultiPlan were co-brokers or co-finders. It is here that I part company with the learned Magistrate Judge. Assuming, arguendo, that the facts are as Koch asserts, and that she and MultiPlan had agreed that she was to act as a facilitator in securing a contract between MultiPlan and Aetna for MultiPlan to provide services to members of the TWA employee benefit plan, I cannot agree that she was MultiPlan's co-finder or co-broker as a matter of law and within the meaning of Dura. Therefore, the exception does not apply.
The only evidence cited by the Magistrate Judge to support a finding of co-finder or co-broker was the fact that the parties evidently anticipated splitting commissions in the event that Koch's efforts landed MultiPlan some new business (or, more precisely, anticipated that Koch would be paid a set percentage of whatever MultiPlan earned from its clients). It is, of course, true that commission-splitting is one indicium of a co-brokering relationship. However, a commission-splitting arrangement, without more, does not create a co-finder relationship as a matter of law. Rather, there has to be some evidence that the parties intended to "pool their efforts and share the benefits" in order for a relationship to fall within Dura.
In Freedman v. Chemical Construction Corp., 43 N.Y.2d 260, 401 N.Y.S.2d 176 (1977), a case that post-dates Dura, the New York Court of Appeals refined its definition of "co-finder" or "co-broker" for purposes of the Statute of Frauds. In particular, it made clear that one whose role in a transaction is limited to using ". . .his `connections,' his `ability,' and his `knowledge,' to arrange for [one party] to meet `appropriate persons' and somehow procure for it the opportunity to [enter into a business arrangement]. . ." is not a co-founder or co-broker within the meaning of Dura. Id. at 181.
This is exactly what Koch did in the present case. According to plaintiff, she spoke with Larry Cleveland of TWA to discuss the proposed arrangement between Aetna and the providers in MultiPlan's network. She allegedly persuaded Cleveland that the arrangement would be beneficial for TWA, and he agreed to send a letter to Aetna in an attempt to win Aetna's agreement and to obtain the MultiPlan discounts. In short, Koch used her connections to help TWA to benefit from MultiPlan's discounts. Whether the proposed arrangement qualifies as "commission splitting" is dubious. At most, she procured the opportunity for MultiPlan to do business with TWA. MultiPlan was not going to act as Koch's co-"finder" or co-"broker" under this arrangement in the way that two real estate brokers bring their respective clients (buyer and seller) together. It was going to do business on behalf of TWA in which Koch would play no part. Under Dura, such procurement does not make her a co-founder or co-broker, so this case presents no exception to the requirements of the Statute of Frauds.
Having concluded as a matter of law that the Statute of Frauds applies, I agree wholeheartedly with Judge Smith that the evidence presented is insufficient to permit a factfinder to conclude that there exists a writing or group of writings signed by the party to be charged (MultiPlan) sufficient to satisfy the Statute of Frauds. There has been no proffer of a particular note or memorandum signed by defendant or its authorized agent that sets forth an agreement containing all the terms required by law. Indeed, as Judge Smith observes, there is no writing that affirmatively establishes an agreed rate of compensation. Neither is there any writing signed by MultiPlan representatives indicating that the TWA business was to be comprehended within the parties' arrangement (there is, however, a document signed by MultiPlan that excludes the TWA business from the proposed Koch/MultiPlan arrangement, which is hardly helpful to plaintiff's cause).
I further agree with Judge Smith that plaintiff cannot avail herself of the part-performance doctrine to take herself out of the Statute of Frauds. This doctrine applies "only if plaintiff's actions can be characterized as unequivocally referable to the agreement alleged. It is not sufficient . . . that the oral agreement gives significance to plaintiff's actions. Rather, the actions alone must be unintelligible or at least extraordinary, explainable only with reference to the oral agreement." Anostario v. Vicinazo, 59 N.Y.2d 662, 664 (1983). Plaintiff's preliminary contact with Cleveland, and her husband's equally preliminary contact with MultiPlan and Aetna, cannot be said to be "unintelligible or at least extraordinary" and "explainable only with reference to the oral agreement," especially in light of the fact that plaintiff's business success appears to be based on her ability to network and to bring people together. Persons having no formal agreement attempt to broker arrangements all the time in the hope that some reward will be forthcoming. While a purported oral agreement between plaintiff and defendants can be said to lend some significance to plaintiff's communications with TWA, it is equally explainable as preparatory to the consummation of an agreement that was, in fact, never consummated. For the foregoing reasons, defendant's motion for summary judgment on the breach of contract claim is granted.
This leaves only plaintiff's claim for quantum meruit. The New York Court of Appeals has held that even if a party is unable to recover on a contract claim by virtue of the Statute of Frauds, under some circumstances the finder may still recover in quantum meruit for the reasonable value of the services rendered. Morris Cohon Co. v. Russell, 23 N.Y.2d 569, 575-76, 297 N.Y.S.2d 947, 953 (1969). Following Morris Cohon, courts have permitted quantum meruit claims to proceed even if the writing relied upon does not reflect all material terms of the parties' agreement, "so long as the writing evidences the defendant's engagement of the plaintiff's services in connection with a transaction that was later brought to fruition." Springwell Corp. v. Falcon Drilling Co., Inc., 16 F. Supp.2d 300, 314 (S.D.N.Y. 1998). See also Shapiro v. Dictaphone Corp., 66 A.D.2d 882, 885, 411 N.Y.S.2d 669, 673 (2d Dep't 1978) (to sustain a quantum meruit claim, "[t]he writings need not evidence an actual intention to pay. It is sufficient if the evidence demonstrates that services were requested and the parties reasonably expected that such services were not to be performed gratuitously."); Perfect Trading Co., Inc. v. Goldman, Sachs Co., 236 A.D.2d 221, 222, 653 N.Y.S.2d 116, 116 (1st Dep't 1997) (dismissing contract claim, but permitting quantum meruit claim, where writings "did not provide the material terms of the contract related to the compensation and duration," but reflected defendants' acceptance of and benefit from the plaintiff's services).
In Morris Cohon, the court permitted a broker to recover compensation in quantum meruit where the writing relied upon identified all material terms of the brokerage agreement except the rate of compensation. Id. "In an action for quantum meruit," the Court stated, "if it does not appear that there has been an agreement on the rate of compensation, a sufficient memorandum [to satisfy the Statute of Frauds] need only evidence the fact of plaintiff's employment by defendant to render the alleged services." Id. The Morris Cohon court found the memorandum to be sufficient to sustain a quantum meruit claim because "[i]t identifies the buyer, it identifies the defendant as one of the sellers, it establishes the fact of plaintiff's employment, it identifies the plaintiff as the broker, it establishes the subject matter of the transaction and, most important, it acknowledges performance by the plaintiff in bringing about the sale of defendant's stock." Id.
Like the memorandum in Morris Cohon, in the case at bar, there is no writing that affirmatively establishes a rate of compensation. However, the documents exchanged by plaintiff and defendant fall far short of the "all but the compensation" standard of Morris Cohon. Here, there is not even a writing signed by MultiPlan representatives indicating that the TWA business was to be comprehended within the parties' arrangement (only a document that expressly indicated the contrary), Springwell, 16 F. Supp.2d at 315, and there remained significant disagreement about the duration of the contract. The number of unresolved issues in the case at bar is significantly greater than those in Morris Cohon. Plaintiff's claim in quantum meruit is therefore dismissed.
The defendant's motion for summary judgment dismissing the complaint is granted, and the case is dismissed. The Clerk of the Court is directed to enter judgment for defendant and to close the case on the Court's docket.