Opinion
00 Civ. 7872 (SAS)
June 26, 2002
Andrew J. Rossman, Esq., Samidh Guha, Esq., Sapna Mirchandani, Esq., Akin, Gump, Strauss, Hauer Feld, L.L.P., New York, New York, for plaintiff.
Jaculin Aaron, Esq., Daniel Schimmel, Esq., Shearman Sterling, New York, New York, for defendant.
OPINION AND ORDER
I. INTRODUCTION
This case is a consolidation of two lawsuits — one suit filed by Andersen Weinroth Co., L.P. and its two partners, G. Chris Andersen and Stephen D. Weinroth (collectively AW), against their former employee Rohit Phansalkar, and a second suit filed by Phansalkar against AW. The case was bifurcated for trial purposes. The first phase of the non-jury trial took place in September 2001 and, in November, this Court issued an opinion with respect to that phase of trial. See Phansalkar v. Andersen Weinroth Co., L.P., No. 00 Civ. 7872, 2001 WL 1524479 (S.D.N.Y. Nov. 29, 2001) ("Phansalkar I"). Familiarity with that opinion is presumed and all terms used in this opinion are the same.
The second phase of trial took place on April 1-3, 5, 12 and 15, 2002. This phase addressed the following outstanding issues:
(1) Phansalkar's claims against AW which are unrelated to his MCEL Shares, including claims for breach of contract, quantum meruit and unjust enrichment;
(2) damages due to AW as a result of Phansalkar's acts of disloyalty;
(3) AW's affirmative claims against Phansalkar for breach of contract, breach of fiduciary duty and conversion.
The following constitutes the Court's rulings on the parties' evidentiary motions, as well as its supplemental findings of fact and conclusions of law.
II. EVIDENTIARY MOTIONS
A. AW's Motion to Preclude
Prior to the second phase of trial, AW moved in limine to preclude the introduction into evidence of approximately 40 documents produced by Phansalkar a few days before the filing of the Second Joint-Pre-Trial Order ("JPTO") and to exclude any live testimony regarding these documents. See JPTO ¶ 15b; 3/22/02 Letter from Daniel Schimmel, attorney for AW, to the Court ("AW's 3/22/02 Ltr."). On April 1, 2002, the Court made a preliminary ruling from the bench, denying AW's motion but indicating that Phansalkar's late production might warrant limited sanctions. See 4/1/02 Transcript ("Tr.") at 96-87. The Court stated, however, that it would reconsider its ruling when it received additional information from Phansalkar relating to an August 27th discovery order issued by Magistrate Judge James C. Francis. See id. at 101. Having now reviewed this information, I find that, pursuant to the August 27th Order, Phansalkar was not required to produce the documents at issue here. See Order, Ex. B. to 5/2/02 Letter from Andrew J. Rossman, attorney for Phansalkar, to the Court ("Phansalkar's 5/2/02 Ltr."); see also 5/6/02 Letter from Jacqueline Aaron, attorney for AW, to the Court ("AW's 5/6/02 Ltr."). Therefore, upon reconsideration, the Court reconfirms its decision not to preclude those documents and finds that sanctions are not warranted.
The documents relate to Osicom's internal corporate policy regulating the trading of securities by Osicom employees.
The Order states that, "[w]ith respect to all document requests propounded by Andersen Weinroth," Phansalkar must produce:
. . . all responsive documents within his possession, custody or control, which shall include: (1) all e-mails or other electronically stored documents contained in any computer, personal or corporate, that Mr. Phansalkar normally utilizes; and (2) all documents located in any corporate office used by Mr. Phansalkar or maintained for him by an administrative assistant.
Order, Ex. B. to Phansalkar's 5/2/02 Ltr. This Order was intended to limit the scope of Phansalkar's production obligation to the documents specifically described in (1) and (2). Phansalkar has represented to the Court that the documents at issue here did not come from Phansalkar's files and that they were produced by Phansalkar to AW the same day that they came into his possession, see id. at 2, and AW has not contested this assertion.
B. Phansalkar's Daubert Motion
Prior to trial, Phansalkar informed the Court that he intended to movein limine to exclude the testimony of AW's damages expert pursuant toDaubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993), andKumho Tire Co. v. Carmichael, 526 U.S. 137 (1999). See JPTO ¶ 5a. He agreed, however, to have this evidentiary motion heard after trial. As further discussed below, this motion is now moot because the Court finds that it is not necessary to calculate the value of Phansalkar's Zip Options, Zip Shares, Osicom Options, Sorrento Options, or Entrada Options. See infra Part IV.C.
III. FINDINGS OF FACT
B. AW's Vesting Policy for Partners
A. Phansalkar's Position at AW
1. Phansalkar joined AW in February 1998 "with the title of 'partner' [but] he was not legally a partner" because he never signed AW's written partnership agreement. Phansalkar I at *3; see also Proposed Statement of Undisputed Facts, Ex. A to JPTO ("Undisputed Facts") ¶ 1; Transcript of Testimony of Rohit Phansalkar from the first phase of trial ("Phansalkar Tr. I") at 1012-13.
2. AW could not have been mistaken about whether or not Phansalkar was actually a partner in the legal sense "because Anderson and Weinroth were well aware that they never amended the firm's limited partnership agreement" to make him a partner. Phansalkar I at *28.
3. Phansalkar had a high status at AW and a relationship of trust and confidence with the other AW partners. He joined AW with the title of "partner" and attended partners' meetings and partners' dinners where firm policy was discussed. See Phansalkar Tr. I at 1022; Transcript of Testimony of G. Chris Andersen from the first phase of trial ("Andersen Tr. I") at 127-128; Transcript of Testimony of Stephen D. Weinroth from the first phase of trial ("Weinroth Tr. I") at 798-99. He was privy to confidential information, see Andersen Tr. I at 127-128, 133; and he was offered opportunities to invest in transactions that were not offered to other AW staff, such as Headway and MCEL, see Phansalkar I at *3, *5; Weinroth Tr. I at 799.
4. Phansalkar exercised senior responsibilities at AW. He was the primary senior person at AW involved in the Zip Transaction, see Phansalkar I at *6; he introduced the Osicom Private Placement to AW, see id. at *8; Andersen Tr. I at 134-35; he was designated as AW's representative to several Boards of Directors, see Phansalkar I at *17*18; Andersen Tr. I at 133; he solicited investors for AW deals, see Transcript of Testimony of James Rawlings, an AW partner ("Rawlings Tr. I") at 527-28; Transcript of Testimony of Lorretta Loomie, an AW employee, from the first phase of trial ("Loomie Tr. I") at 542-43; he was responsible for structuring transactions, see Transcript of Testimony of Rohit Phansalkar from the second phase of trial ("Phansalkar Tr. II") at 350; Loomie Tr. I at 542-43, 551-52, 56, 58; and he held himself out to the outside world as "a senior banker who could make judgments and decision[s] for the firm," Phansalkar Tr. I. at 1014.
5. Under AW's vesting policy for partners, Partner Allocations are distributed when AW "monetizes" its interest in a particular transaction. Phansalkar Tr. I at 1021; see also Weinroth Tr. I at 872; Andersen Tr. I at 144; Cf. Ex. P09Y (explaining that staff interests in the Employee Pool would be distributed "as these securities become realized"). When a "liquidity event" occurs, the Partner Allocations are calculated as a percentage of the profit realized on those interests, net of any costs and expenses. See Transcript of Testimony of Stephen D. Weinroth from the second phase of trial ("Weinroth Tr. II") at 81-82. Fees and expenses include those that are "incurred by AW and not otherwise reimbursed." Id. at 82.
6. There is no specific time frame in which AW will monetize its interests in any particular transaction. See Phanslakar Tr. I at 1021; Supplemental Proposed Findings of Fact of AW ("AW Proposed Facts") ¶ 50.
7. When Phansalkar joined AW in 1998, he was told that his compensation would include an annual salary of $250,000 as well as Partner Allocations. See Phansalkar I at *3
8. Like other partners at AW, Phansalkar would receive the "opportunity to invest in AW deals." See id. at *1.
9. Phansalkar was aware of AW's vesting policy for Partner Allocations, see id. at *10, which was a "ter[m] of Phansalkar's compensation" agreement, AW Proposed Facts ¶ 49(d); see also Corrected Post-Trial Memorandum of Rohit Phansalkar for the Second Phase of Trial ("Phansalkar Mem.") at 5.
10. Another "ter[m] of Phansalkar's compensation" agreement was that decisions about Partner Allocations would be made jointly by Andersen and Weinroth. AW Proposed Facts ¶ 49(d); see also Phansalkar I at *1. There is no evidence that, at the time Phansalkar joined the firm, the parties agreed to any specific amount or range for Phansalkar's Partner Allocations.
11. In December 1999, Phansalkar, Andersen and Weinroth engaged in discussions about his compensation for 2000. See id. at *5; Phansalkar Tr. II at 347-48; Testimony of G. Chris Andersen from the second phase of. trial ("Andersen Tr. II") at 302. However, they never came to an-agreement. See Andersen Tr. II at 302; Weinroth Tr. II at 99; Corrected and Amended Proposed Finding of Fact of Rohit Phansalkar for the Second Phase of Trial ("Phansalkar Proposed Facts") ¶¶ 62, 107.
12. There is no support for Phansalkar's contention that Andersen and Weinroth agreed that his allocations for deals consummated in 2000 would be between 30 and 40 percent. See Phansalkar I at *16 n. 12. Andersen admits that he told Phansalkar that his allocations would be increased for 2000, compared to 1999. See Andersen Tr. II at 303; see also Phansalkar Tr. II at 348. But there is no evidence that Weinroth promised Phansalkar any such increase.
13. The June 19th Memo did not modify AW's policy regarding vesting of Partner Allocations. In drafts of that Memo, Andersen and Phansalkar proposed changes to the firm's vesting policy, but "the parties never agreed on the terms of the June 19th Memo" and never intended to be bound by them. Phansalkar I at *15; see also id. at *25-*26.
14. When he left AW, Phansalkar understood that his Partner Allocations were still subject to the firm's vesting policy. Although he proposed changes to the vesting policy in the June 19th memo, he never deleted the word "vesting" or indicated in any way that vesting was inapplicable. See Exs. 303, 305, 306, P01I.
15. In 1999, Phansalkar was the primary senior person at AW working on the Zip Transaction and the Osicom Private Placement. He introduced the Zip Transaction to the firm, see Phansalkar Tr. I at 1036, 1038, 1080; Andersen Tr. I at 129; Loomie Tr. I at 557; he set up AW Zip, LLC (the vehicle created to invest in Zip), see Phansalkar Tr. I at 1043; Phansalakar I at *3; and he took the lead in structuring the Zip Transaction on behalf of AW, see Phansalkar Tr. I at 1038, 1043; Phansalkar I at *3 (citing Testimony of Alan Brumberger, an AW employee, for the first phase of trial ("Brumberger Tr. I") at 781). He introduced AW to the Osicom Private Placement, see Andersen Tr. I at 134-35; Phansalkar Tr. I at 1956; Loomie Tr. I at 557; and he was responsible for negotiating, structuring and arranging for the financing of that deal, see Phansalkar Tr. I at 1956-1058, 1080; Ex. P09A (Phansalkar signed the engagement letter on behalf of AW).
16. The Zip Transaction and the Osicom Private Placement were completed in 1999 and they generated significant value for AW. See Phansalkar I at *3-*4.
17. In December 1999, Phansalkar was told that his Partner Allocations for 1999 would be as follows: "20% of the warrants that AW received from the Zip Transaction, 17.5% of the carried interest in the Osicom Private Placement, and 7.5% of AW's interest in Treasure Master (another transaction AW completed in 1999)." Id. at *5.
18. To date, Phansalkar has not received any of his Partner Allocations for 1999. See Phansalkar Tr. II at 336, 338.
19. By letter dated November 29, 2000, Phansalkar requested that AW distribute his 17.5% allocation from the remaining Osicom shares held by FIBR Holdings. See Ex. 24M; Phansalkar Tr. II at 241. AW did not give Phansalkar these shares. See Phansalkar Tr. II at 241.
20. Phansalkar received his $250,000 salary for 1999. See Andersen Tr. I at 129.
21. AW has not proven by a preponderance of the evidence that Phansalkar's $250,000 salary was earned for his work on any particular transaction(s). When Andersen offered Phansalkar a position at AW, he referred to Phansalkar's $250,000 salary as "annual compensation" that would be "payable monthly." Ex. P02K. Andersen did not indicate in any way that this salary would be tied to work on particular transactions. See id. Nor did any witness testify that the $250,000 salary was intended to be tied to Phansalkar's work on particular deals. Finally, when AW informed Phansalkar of his Partner Allocations for deals completed in 1999, there was no mention of his $250,000 salary. See Ex. P11A.
22. In the first half of 2000, Phansalkar worked to generate business for AW. He introduced the Sorrento Private Placement to AW and handled "all phases" of that deal on AW's behalf. Phansalkar Tr. II at 350; see also Loomie Tr. I at 558 (describing the Sorrento Private Placement as a "Phansalkar Transaction"). "[H]e was 'extremely helpful' in raising funds for the May 2000 round of private financing [for MCEL] and [he] helped the firm to solicit underwriters for the MCEL IPO." Phansalkar I at *34 (quoting Rawlings Tr. I at 527-28). He brought in investors for the Entrada Transaction and was the lead person at AW involved in negotiating that deal. See Loomie Tr. I at 542-43, 551-52, 568.
23. Phansalkar did not receive any salary or Partner Allocations for 2000. See Phansalkar Tr. II at 352.
24. In 2000, Phansalkar was offered the opportunity to invest in MCEL, which he accepted. See Phansalkar I at *5-*6. His MCEL Shares were part of his compensation. See id. at *30.
25. Because Andersen and Weinroth knew that Phansalkar was not a partner, see Findings of Fact ("FOF") ¶ 2, AW has not proven that the Headway opportunity was made available to Phansalkar based on the mistaken belief that he was a partner, see AW Proposed Facts ¶ 51; AW's Supplemental Proposed Conclusions of Law ("AW Proposed Law") ¶¶ 55-58.
26. "[P]ursuant to AW's policy, all directors' compensation awarded to AW employees belonged to the firm." Phansalkar I at *16; see also Undisputed Facts ¶ 3. Because directors' "options are not always transferable," AW adopted a special rule for those options. Phansalkar I at *16. "[E]ach partner could maintain the options in his own name," and "when the options were realized, the economic value of those options would belong to the firm." Id. (quotation marks omitted); see also Weinroth Tr. II at 193.
27. Prior to exercise, directors' options received by AW employees were not reflected on AW's profit and loss statement. See Andersen Tr. I at 657-59; Brumberger Tr. I at 748-49; Weinroth Tr. II at 88-89. When the options were exercised, any profits realized were reflected on the balance sheet as income of the firm. See Weinroth Tr. II at 88-89; Brumberger Tr. I at 748-49. As Weinroth explained, "[i]f no options are exercised and the underlying stock isn't sold, there is no benefit for the firm" (i.e. no economic value for the firm to realize). Weinroth Tr. I at 974.
28. Under AW's policy, directors' options "needed to be reported to the firm." Phansalkar I at *16; see also Ex. 19; Undisputed Facts ¶ 2. Prior to exercise, this disclosure was "sufficient" to comply with the firm's policy. Ex. 19; see also Weinroth Tr. I at 980 (stating that Phansalkar would have "discharged that [reporting] obligation" by providing Weinroth's secretary with a copy of the SEC Form 4 that disclosed his options).
29. AW has not proven by a preponderance of the evidence that the firm had the right to control the directors' options held in an employee's name prior to exercise. There is no written policy regarding who has the right to exercise those options. Indeed, Weinroth testified that AW's partners never addressed the issue. See Weinroth Tr. II at 140. Nor did AW collect the type of information about directors' options that would have allowed it to make such decisions. While employees were required to "repor[t]" the options they received, see Phansalkar I at *16 (citing Ex. 19), there is no evidence that AW maintained the type of information that would allow it to make economic decisions about the options, such as exercise price, maturity date or restrictions on transfers and transferability. Finally, there is no evidence that AW ever directed any employee to exercise or otherwise act with respect to options held in his or her. name. Indeed, AW was aware of Phansalkar's 100,000 Sorrento Options yet never directed him to exercise or otherwise act with respect to those options. See FOF ¶ 65.
30. AW has not proven by a preponderance of the evidence that it could realize economic value from options held by employees prior to exercise by hedging against those options. See AW Proposed Facts ¶¶ 27(v), 60, 141. First, the only evidence presented by AW that allegedly proved that the firm engaged in hedging against options related to options held in Andersen's name; they were not held in an employee's name. See AW Proposed Facts ¶ 141; Weinroth Tr. II at 188-89; Andersen Tr. II at 290-91. Second, there is no evidence that AW collected the type of information about options held in an employee's name that it would need to engage in such a hedging strategy. See FOF ¶ 31.
31. If Phansalkar had complied with the firm's requirement that options held in an employee's name must be disclosed, AW would not have had control over those options and would not have been able to derive economic value from those options prior to exercise. See FOF ¶¶ 29-31, supra.
32. Pursuant to AW's policy on directors' compensation, "all directors' fees received by the partners should be contributed to the firm." Phansalkar I at *16; Ex. 19. Employees were expected to deliver the fees to AW and those fees would be reflected on the firm's balance sheet. See Ex. P06L.
33. There is no evidence to suggest that AW's rule for options — that the securities could be maintained in an employee's name until the economic value was realized — also applied to freely transferrable stock.
34. The Zip Transaction closed in September 1999. See Phansalkar I at *3.
35. Phansalkar was informed of his allocations for the Zip Transaction in December 1999. See id. at *5
36. The right to a Zip Board seat was part of the consideration that AW earned on the Zip Transaction. See id. at *3. Therefore, Phansalkar's position on the Zip Board, and the compensation he earned as a Board member, was part of this transaction.
37. In his capacity as a director of Zip, Phansalkar was given the opportunity to purchase 600 shares of Zip Telecom Holdings, Ltd. at a nominal price, approximately $160 (the "Zip Shares"). See Phansalkar I at *3; Phansalkar Tr. I at 1049, 1701-03; Ex. 139; Phansalkar Proposed Facts ¶ 229; AW Proposed Facts ¶ 35. Phansalkar was given notice of this opportunity no later than January 14, 2000. See Phansalkar Tr. I at 1703-04; Ex. 139; Phansalkar Proposed Facts ¶ 229; AW Proposed Facts ¶ 35.
38. Zip Telecom Holdings, an Indian entity, is a holding company of Ravi Kailas, the CEO and founder of Zip. See Phansalkar Tr. II at 398-99; Brumberger Tr. II at 66. It is comprised of six shareholders. See Phansalkar Tr. II at 398-99; Ex. P18J. Kailas has an approximately 94% interest in the company. See Phansalkar Tr. II at 431.
39. Phansalkar's 600 Zip Shares gave him a 1% equity interest in Zip Telecom Holdings. See id. at 399-400.
40. Zip Telecom Holdings holds approximately six million shares of Zip Global Networks. See id. at 400.
41. Phansalkar never asked Kailas to deliver the Zip Shares, and has not physically received them. See Phansalkar Tr. I at 1055; Phansalkar Tr. II at 432.
42. Zip documents confirm that the Zip Shares were granted to Phansalkar. See Ex. 18J; Phansalkar Tr. II at 398-99.
43. Zip Shares are not publicly traded. See Phansalkar Tr. I at 401; Brumberger Tr. II at 67.
44. Phansalkar has not proven by a preponderance of the evidence that Indian law restricted him from transferring or selling his Zip Shares. See Phansalkar Proposed Facts ¶ 255. He admitted at trial that Kailas never informed him of any such restrictions and that he has no documentation of such restrictions. See Phansalkar Tr. II at 431.
45. Phansalkar's disloyalty with respect to the Zip Transaction first occurred when he received the Zip Options on October 15, 1999, see Ex. P08U; Phansalkar Tr. I at 1050-51, and failed to disclose them to AW, see Phansalkar I at *18.
46. Phansalkar's disloyalty with respect to the Zip Transaction also occurred when he was given notice of the opportunity to purchase the Zip Shares no later than January 14, 2000, see FOF ¶ 40, and failed to disclose that opportunity to AW, see Phansalkar I at *18.
47. AW became aware of Phansalkar's ownership of the Zip Shares in the fall of 2000, when Brumberger received a draft agreement regarding the AIG financing which reflected Phansalkar's receipt of the Zip Shares. See Brumberger Tr. I at 751.
48. There is no evidence that Phansalkar ever exercised his Zip Options.
49. When Phansalkar's Zip Options are exercised, the economic value of those options will belong to AW. See FOF ¶ 29.
50. There is no evidence that Phansalkar ever sold or otherwise transferred his Zip Shares.
51. From September 1999 to the present, AW has held significant positions in Zip but has made., no attempt to try to sell any of these positions. See Brumberger Tr. II at 61-62. Nor has AW taken any other steps to realize value from its positions in Zip.
52. The Osicom Private Placement was consummated in December 1999. See Phansalkar I at *4
53. The Osicom Board seat for which Phansalkar was selected was obtained by AW (via FIBR Holdings, LLC) as part of the Osicom Private Placement. See id. at *4, *18. The right to the Board seat was part of the consideration that AW earned on this transaction. See id. at *4. Therefore, Phansalkar's position on the Osicom Board, and the compensation he earned as a Board member, was part of this transaction.
54. Phansalkar's disloyalty with respect to the Osicom Private Placement occurred no earlier than January 6, 2000, when Osicom granted him 35,000 Osicom Options that he failed to disclose. See Phansalkar Tr. I at 1706; AW Proposed Facts ¶ 55; Phansalkar I at *19 n. 16; Undisputed Facts ¶ 9.
55. Phansalkar testified that his $3,000 in Osicom Board fees were received for meetings attended around April, May and June of 2000. See Phansalkar Tr. I at 1706. Absent any evidence as to when he actually came into possession of those fees, it is likely that he received $1,000 in Osicom Board Fees at the end of April, $1,000 at the end of May, and $1,000 at the end of June.
56. There is no evidence that Phansalkar ever exercised his Osicom Options.
57. While Phansalkar testified that FIBR Holdings, LLC (which AW managed) distributed some of the Osicom shares it held to its investors in February 2000, see Phansalkar Tr. II at 339-40, he produced no evidence that AW has monetized its own interest in the Osicom transaction.
58. Phansalkar served on the Sorrento Advisory Board as a representative of AW and was granted the 300,000 Sorrento Options in that capacity. See Phansalkar I at *6-*7. He did not breach any duty to AW with respect to this grant. See id. at *20, *28 n. 35.
59. Phansalkar only received 100,000 of the 300,000 Sorrento Options granted to him in his capacity as an Advisory Board member (the "100,000 Sorrento Options"). See Ex. 306; Phansalkar Tr. I at 1171-72; Transcript of Testimony of Leonard Hecht for the first phase of trial ("Hecht Tr. I") at 1431; Phansalkar I at *20 n. 17. The Sorrento Board never delivered the remaining 200,000 options to him. See Hecht Tr. I at 1440; Phansalkar Tr. I at 1174.
60. The 200,000 Sorrento Options Phansalkar received in August 2000 were granted to him in his capacity as President and CEO of Osicom. See Hecht Tr. I at 1441; Phansalkar Tr. I at 1174-75.
61. There is no evidence that Phansalkar ever exercised his 100,000 Sorrento Options.
62. Upon exercise, the economic value of Phansalkar's 100,000 Sorrento Options will belong to AW. See FOF ¶ 29.
63. Although AW was aware of Phansalkar's 100,000 Sorrento options, see Phansalkar I at *20; Ex. 306, no one ever instructed Phansalkar to exercise, sell or otherwise dispose of those options, see Phansalkar Tr. II at 1209.
64. AW was given the opportunity to invest 1.5 million in the Sorrento Private Placement, an "oversubscribed" deal that investors were "clamouring to get into." Phansalkar Tr. I at 1095-96.
65. Only AW's so-called 'partners' were offered the opportunity to participate in AW's $1.5 million investment in the Sorrento Private Placement. See id. at 1097.
66. Phansalkar considered the Sorrento Private Placement an "extremely" promising deal and the investment a "real bargain." Id. at 1091. Thus, although he was "very selective" when choosing whether or not to invest in AW deals, he decided to invest $60,000 in the Sorrento transaction. Id. at 1027; see also Phansalkar I at *6, *12.
67. The opportunity to invest in the Sorrento Private Placement was a form of compensation to Phansalkar. See Phansalkar I at *30 (holding that the opportunity to invest that is offered only to a few is compensation as long as the employee "clearly believes it to be a good buy," regardless of whether the price is actually a bargain) (quoting United States v. Ostrander, 999 F.2d 27, 30 (2d Cir. 1993)); cf. United States v. Williams, 705 F.2d 603, 622-23 (2d Cir. 1983) (holding that worthless shares of stock were nonetheless a "thing of value" under bribery statute where recipient expected shares to have substantial value).
68. Half of the $1.5 million that AW directly invested in the Sorrento Private Placement came from a loan taken out by AW. See Phansalkar I at *6. That loan was guaranteed by Andersen and Weinroth personally, and is secured by the Sorrento Series A Shares that AW acquired in this transaction. See Andersen Tr. I at 1938; Weinroth Tr. I at 1948-49, 1967-70; Exs. P01G, P01J. The loan has not been repaid. See Weinroth Tr. I at 1069-70.
69. Phansalkar produced no evidence that any AW partner has received any of the Series A Preferred Shares or any profit from the sale of those shares.
70. There are fees and expenses associated with the $750,000 loan, such as interest payments and legal fees. See Weinroth Tr. I at 1968; Exs. P01J, P01G.
71. Once the $750,000 loan and any fees and expenses associated with that loan are repaid, all investors will receive their pro rata share of the total investment. See Weinroth Tr. I at 1948-49, 1969-70, 1971-75; Weinroth Tr. II at 84; Exs. P01J, P01G. If the ultimate realization is more than $1.5 million, each investor will receive his or her pro rata share of the profits on the transaction. See Weinroth Tr. II at 84. If the ultimate realization is less than $1.5 million, each investor will receive less than the amount he or she invested. See id. If the ultimate realization is quite low, Andersen and Weinroth may be personally responsible for repaying that loan. See Andersen Tr. I at 1938.
72. Phansalkar provided no support for his contention that his $60,000 investment in Sorrento was independent of the $750,000 loan. See Phansalkar's Contentions, Ex. B1 to JPTO, ¶ 23. He provided no reason why he should share in the potential "benefit of th[e] leverage," id.; see also Weinroth Tr. I at 1973, but should not bear the risk of that leverage, see Weinroth Tr. I at 1973 ("[Phansalkar] would likely get the benefit of the leverage in the same way he would suffer the consequence of the leverage if there was a loss.")
73. Because Phansalkar's $60,000 investment in Sorrento was not subject to vesting, he did not forego his rights to the proceeds of that investment when he left AW. See Phansalkar I at *6; Phansalkar Tr. I at 1027; Weinroth Tr. I at 1969.
74. The Entrada Transaction was consummated in 2000, some time prior to August 31st. See Phansalkar I at *7. The Sync/AW deal closed on May 12, 2000. See id. at *21 n. 19.
75. Phansalkar's disloyal acts with regard to the Entrada Transaction occurred around April/May 2000, when he was offered the Sync Board Seat and the Entrada Networks Board Seat. See id. at *20-*21 n. 19.
76. AW has offered no evidence that it was harmed by Phansalkar's failure to disclose the offer of a Sync Board seat made during negotiations between Sync and AW. The Sync/Entrada Merger occurred within a few months, Id. at *7, and there is no evidence that AW would have been entitled to a Board seat on the merged entity.
77. Phansalkar was offered the Entrada Board seat in April/May 2000, and was appointed to the Entrada Board in August 2000. Id. at *8, *20-21 n. 19. "AW was never offered a seat on the Board of Entrada Networks." Id. at *21 AW offered no evidence that Phansalkar could have secured a Board seat for AW it he had sought to do so.
78. Phansalkar received his 100,000 Entrada Options after he left AW, in his capacity as a director of Entrada Networks. See id. at *21. He did not hold this position as a representative of AW. See id.
79. In December 1999, Phansalkar was allocated 7.5% of AW's interest in Treasure Masters. See id. at *5 AW maintained a 15% interest in the Treasure Masters investment. See Weinroth Tr. II at 84. Therefore, Phansalkar's allocation equaled 1.125% of the total profit realized on that investment.
80. When Phansalkar left AW, one-third of his interest in Treasure Masters had vested. See id. His vested interest equaled .375% of the profit made on the Treasure Masters investment. See id.
81. To date, no AW partners or employees have received any distribution on account of Treasure Masters. See id. at 84-85.
82. The parties agree that, on April 17, 2000, Phansalkar obtained a $100,000 loan from AW, which had a term of four months and an interest rate of 8% per annum (the "Loan Agreement"). See Phansalkar Proposed Facts ¶ 285; AW Proposed Facts ¶ 153. The loan became due on August 17, 2000. See Weinroth Tr. II at 85.
83. Phansalkar has not fully repaid the $100,000 debt. See Undisputed Facts ¶ 12; Phansalkar Tr. I at 1124; Weinroth Tr. I at 831.
84. In a letter dated September 6, 2000, Andersen informed Phansalkar "that AW would offset the $60,000 Phansalkar paid for his MCEL interest against the $100,000 note." Phansalkar I at *10; see also Weinroth Tr. I at 831; Andersen Tr. I at 339-40.
85. In 2000, AW offered Phansalkar and other so-called "partners' the opportunity to invest in Headway. See Phansalkar I at *5; Andersen Tr. I at 154. The opportunity was made available at a substantial discount to the publicly traded price of Headway. See Andersen Tr. I at 153-54.
86. When Phansalkar invested in Headway, he believed the investment involved no risk and he expected to make a substantial return on that investment. See Phansalkar Tr. I at 1670. He ultimately made a $40,000 profit on that investment. See id.
87. The opportunity to invest in Headway was a form of compensation for Phansalkar. See FOF ¶¶ 86-87; see also Phanslkar I at *30 (holding that the opportunity to invest at a below-market price which is offered only to a few is compensation).
88. On or about March 16, 2000, Phansalkar received a memorandum from Weinroth addressed to Andersen, Brumberger, Phansalkar and Rawlings which discussed the firm's purchase of 500,000 shares of Headway common stock. See Ex. 200; Phansalkar Tr. I at 1291. The total amount of capital contributed by the firm for this purchase was :$570,000. See Ex. 200. The "total purchase price [for the shares] including commissions was $562,000." Id.
89. In addition to commissions, there were other expenses incurred with respect to the Headway Transaction. See Ex. 306. Those expenses are reflected in the difference between the $570,000 raised by the firm and the $563,000 purchase price.
90. Phansalkar knew that there were substantial expenses and brokerage commissions associated with the Headway Transaction. See Phansalkar I at *15; Phansalkar Tr. I at 1124, 1288, 1290; Exs. 200, 306.
91. Phansalkar was aware that these expenses and commissions would be shared by the AW partners who invested in the Headway Transaction. See Exs. 303, 305, 306, P01I; Phansalkar Tr. I at 1288-90; Andersen Tr. I at 291.
92. Phansalkar paid $50,000 for his portion of AW's investment in Headway. See Phansalkar I at *5; Ex. 200. This $50,000 represented 8.77% of the firm's total contribution of $570,000.
At trial, Weinroth seemed to suggest that he and Andersen had the discretion to decide what percentage, if any, of this investment is returned to Phansalkar. See Weinroth Tr. I at 1972-76. To the extent that AW presses this contention, it is rejected because: (1) when Weinroth was questioned on this issue, he denied that this was his position, see id. at 1973-74, and (2) in his draft of the June 19th Memo, Andersen indicated that Phansalkar has a right to fixed percentage "of the shares remaining after repayment of debt, fees and expenses etc.," Ex. P01J.
Phansalkar's assertion that Andersen agreed to extend the due date of the loan to sixty days from the delivery of Headway shares to Phansalkar is rejected. See Phansalkar Proposed Facts ¶ 286; Phansalkar Tr. I at 1124, 1668. First, this contention is undermined by the fact that, at his deposition, Phansalkar initially took the position that Andersen and Weinroth had agreed to an indefinite extension of the due date. See Phansalkar Tr. I at 1668-69. Second, Phansalkar cannot rely on Andersen's representations in drafts of the June 19th Memo because the parties never agreed upon the terms of that Memo. See Phansalkar I at *26. Third, Phansalkar testified that his $100,000 loan was "secured by the Headway shares." Phansalkar Tr. I at 1124; see also id. at 1668; Andersen Tr. I at 339.
93. 8.77 percent of 500,000 shares is 43,860 shares.
94. In August 2000, AW delivered to Phansalkar 44,000 shares of Headway common stock. See Phansalkar Tr. I at 1135; Phansalkar Proposed Facts ¶ 284; AW Proposed Facts ¶ 121. This amount correctly represents (and slightly exceeds) Phansalkar's 6.77% contribution to the Headway transaction.
IV. CONCLUSIONS OF LAW
A. Claims with Respect to Phansalkar's 1999 Compensation
Phansalkar contends that AW breached its contract with him by refusing to deliver his Partner Allocations for 1999. See Phansalkar Mem. at 1. He seeks an award of specific performance or damages resulting from AW's breach. See id. at 3-4. AW argues that, as a result of Phansalkar's disloyalty, all of these Allocations are subject to forfeiture. See AW Proposed Law ¶¶ 71-73, 77, 79, 86. It also insists that Phansalkar must forfeit a portion of the $250,000 salary he received for 1999. See id. ¶¶ 52-54. If Phansalkar is entitled to any of his 1999 Allocations, AW maintains that they are subject to the firm's vesting policy, see id. ¶¶ 74, 78, 80-83, and that any vested interest need not be distributed at this time, see id. ¶¶ 75-76, 78, 83-85.
1. Phansalkar's Breach of Contract Claim
To prove a claim for breach of contract under New York law, Phansalkar must prove: (1) the existence of a contract; (2) performance of the contract by Phansalkar; (3) breach by AW and (4) damages to Phansalkar.Fromer v. Yogel, 50 F. Supp.2d 227, 244 (S.D.N.Y. 1999) (citing First Investors Corp. v. Liberty Mutual Insur. Co., 152 F.3d 162, 168 (2d Cir. 1998)).
In 1999, Phansalkar's employment agreement included the following terms: (1) he would receive a base salary of $250,000; (2) he would receive Partner Allocations which would be subject to AW's vesting policy; and (3) Andersen and Weinroth would make all decisions about Partner Allocations. See FOF ¶¶ 7, 9-10. In December 1999, AW informed Phansalkar that he would receive certain allocations for the Zip Transaction, the Osicom Private Placement, and the Treasure Masters Transaction. See id. ¶ 17. Assuming, arguendo, that Phansalkar's employment agreement was an enforceable contract, his claim nevertheless fails because he has not proven that AW breached that agreement. Pursuant to AW's vesting policy, only one-third of Phansalkar's 1999 Allocations vested at the end of 1999. See Phansalkar I at *10. AW is only required to distribute Phansalkar's vested interests when they are monetized. See FOF ¶¶ 5-6. Because there is no evidence that AW has monetized its interests resulting from the Zip Transaction, the Osicom Private Placement or from Treasure Masters, see FOF ¶¶ 51, 57, 81, it has not breached Phansalkar's employment agreement by not delivering his vested interests at this time.
2. AW's Forfeiture Defense
Pursuant to his employment agreement, Phansalkar would ordinarily be entitled to his vested interests in the Zip, Osicom and Treasure Masters transactions once those interests are monetized. See id. ¶ 5. AW insists that all of these interests are subject to forfeiture, however, as a result of Phansalkar's disloyalty. See AW Proposed Law ¶¶ 70-72, 76, 78, 85.
This Court has already found that Phansalkar breached his duty of loyalty and good faith to AW by failing to disclose his Zip Options, Zip Shares, Osicom Board Fees and Osicom Options, and by failing to disclose the offer of a Sync Board seat and the offer to him personally of an Entrada Networks Board seat. See Phansalkar I at *27 Because these "isolated misdeeds did not constitute a scheme to defraud AW" or "permeate his service at AW or taint his other transactions while at the firm," Phansalkar need only forfeit the compensation he earned on "the specific transactions where he was disloyal." Id. at *34, *38.
Phansalkar maintains that forfeiture of compensation should be limited not only to the specific transactions on which he was disloyal, but also to the time period of disloyalty. See Phansalkar Proposed Law ¶ 59 (citing Herman v. Branch Motor Express Co., 323 N.Y.S.2d 794, 796 (Civ. Ct. N.Y. Co. 1971); Musico v. Champion Credit Corp., 764 F.2d 102, 113-14 (2d Cir. 1988); Sequa Corp. v. GBJ Corp., No. 91 Civ. 8675, 1996 WL 745338, at *99 (S.D.N.Y. 1996), aff'd in part. reversed in part, 156 F.3d 136 (2d Cir. 1998)); Phansalkar Mem. at 3. He argues that he "earned" his Allocations for a particular transaction on the date the transaction was completed and that he should-not . . . have to forfeit any Allocations "earned" prior to the date of his disloyalty. Phansalkar Proposed Facts ¶¶ 17, 26; see also Phansalkar Mem. at 3. The Zip Transaction closed in September 1999, and Phansalkar's disloyalty with respect to that transaction first occurred around October 15, 1999. See FOF ¶ 34, 45-46. The Osicom Private Placement was consummated in December 1999, and Phansalkar's disloyalty with respect to that transaction occurred no earlier than January 6, 2000. See id. ¶¶ 52, 54. Thus, according to Phansalkar, he would not have to forfeit any of the Partner Allocations he received for the Zip Transaction or the Osicom Private Placement.
Contrary to Phansalkar's argument, however, courts have not held that forfeiture must be limited to the time period of disloyalty. "New York courts have allowed the apportionment of forfeiture to those time periods during which an employee was disloyal," Phansalkar I at *30 (citingMusico, 764 F.2d at 113) (emphasis added), but this method of apportionment is but one of two alternative ways of apportioning forfeited compensation. In Musico, the Second Circuit explained that there are "two situations" where apportionment may be appropriate. 764 F.2d at 113. "[W]here compensation is allocated to periods of time," courts have "allow[ed] the forfeiture to be correspondingly apportioned" to the periods of disloyalty. Id. (citing cases). Where compensation is allocated to "the completion of specified items of work," however, forfeiture may be allocated to the specific transactions in which an employee was disloyal. Id. (quoting Restatement (Second) of Agency § 456, comment b (1958)). Accordingly, Musico makes clear that a court caneither apportion forfeited compensation by time periods or by transaction, depending on how the disloyal employee is compensated.
This method of apportionment is only appropriate if "(1) an employee did not engage in a 'wide-ranging scheme' to defraud his employer, and (2) the incidents of disloyalty "did not extend to or taint all the dealings between the parties.'" Phansalkar I at *33 (quotingSequa, 1996 WL 745338, at *79 and Musico, 764 F.2d at 114).
The Restatement (Second) of Agency, cited approvingly in Musico, makes it clear that these two situations are distinct alternatives. The Restatements states, in pertinent part:
If an agent is paid a salary apportioned to periods of time, or compensation apportioned to the completion of specified items of work, he is entitled to receive the stipulated compensation for periods or items properly completed before his renunciation or discharge. This is true even if, because of unfaithfulness or insubordination, the agent forfeits his compensation for subsequent periods or items.Musico, 764 F.2d at 133 (quoting Restatement (Second) of Agency § 456, Comment b (1958)) (emphasis added).
Phansalkar's argument that forfeiture should be limited by time period and by transaction is further belied by the very case law upon which he relies. See Phansalkar Proposed Law ¶ 59 (citing Sequa, 1996 WL 745448, at *99). Sequa involved a defendant who was under contract to provide consulting and brokerage services to plaintiff. Pursuant to that contract, the defendant completed forty-two leveraged lease transactions and "fulfilled his duty" to structure the leveraged leases and to recommend economically attractive leases to plaintiff. Id. at *10, *60. The defendant's single act of disloyalty involved misrepresentations on an invoice submitted thirteen days after the completion of one of the forty-two completed transactions. See id. at *79. Even though the act of disloyalty occurred after completion of the transaction for which defendant was paid, the court ordered defendant to forfeit all compensation earned on that transaction. See id. at *79, *99,
As in Sequa, Phansalkar's acts of disloyalty with respect to the Zip Transaction and the Osicom Private Placement occurred after the completion of the transactions for which he earned his Allocations. See FOF ¶¶ 34, 45-46, 52, 54. But the disloyalty — failing to disclose board compensation — was directly related to those transactions. See id. ¶¶ 36, 53. Phansalkar is therefore required to forfeit all Partner Allocations earned on these transactions. See Sequa, 1996 WL 745448, at *79, *99,
Phansalkar need not forfeit his interest in Treasure Masters, however, because he was not disloyal with respect to that transaction. When the Treasure Masters investment is monetized, he will be entitled to .375% of the profit net of costs and expenses. See FOP ¶¶ 5, 80. Nor must Phansalkar forfeit any portion of the $250,000 salary he received in 1999 because AW has not proved that this salary was linked to any particular transaction, let alone the transactions on which he was disloyal. See id. ¶ 21.
B. Claims with Respect to Phanslakar's 2000 Compensation
Phansalkar seeks compensation for work he did in the first half of 2000, before he left the firm. See Phansalkar Mem. at 5-7. As Phansalkar recognizes, this Court's ruling that he was disloyal on the Entrada Transaction means that he must forfeit his claim to any compensation related to that transaction. See Phansalkar Contentions ¶ 14. He claims, however, that he is entitled to compensation for the work he did on the Sorrento Private Placement, the MCEL IPO, and other AW deals in the first half of 2000. See Phansalkar Proposed Law ¶ 10. Phansalkar argues that because there was no agreement as to his 2000 compensation, he is entitled to recovery under an unjust enrichment, quantum meruit, or promissory estoppel theory. See Phansalkar Mem. at 5; Phansalkar Proposed Facts ¶ 9.
Because Phansalkar's 150,000 Entrada Options are unrelated to his service at AW, see Phansalkar I at *21, they need not be forfeited.
Phansalkar's contention that he is entitled to compensation in connection with the American Marine Rail transaction is rejected. See Phansalkar Proposed Law ¶ 17. There is no evidence that Phansalkar worked on this deal, and any alleged promises contained in the June 19th Memo are unenforceable. See Phansalkar I at *26.
In the alternative, Phansalkar argues that AW breached the compensation agreement arrived at in the June 19th Memo. See Phansalkar Proposed Law ¶ 2. As Phansalkar recognizes, however, this Court has already held that Phansalkar cannot base a breach of contract claim on the June 19th Memo. See id.; Phansalkar I at *25-*26.
AW insists that Phansalkar is not entitled to any compensation for 2000. First, it argues that his compensation for 2000 was governed by an "existing agreement" under which: (a) none of his Partner Allocations for transactions completed in 2000 would have vested when he left the firm mid-year, and (b) Andersen and Weinroth had the discretion to allocate nothing to Phansalkar for his work in 2000. See AW Proposed Facts ¶¶ 90-91. Second, it argues that Phansalkar is not entitled to additional compensation for 2000 because he received substantial compensation in 2000 in the form of opportunities to invest in AW deals. See AW Proposed Law ¶ 105. Third, AW maintains that recovery under the equitable doctrines of quantum meruit and unjust enrichment are inappropriate because Phansalkar did not perform his services in good faith and he has "unclean hands". Id. ¶¶ 104-07. Fourth, AW insists that, even if Phansalkar is entitled to compensation for 2000, it must all be forfeited as a result of his disloyalty. See id. ¶ 92.
1. There Was No Enforceable Contract Governing Phansalkar's 2000 Compensation
If Phansalkar's employment in 2000 was covered by an express employment agreement setting the terms of his compensation, he may not recover under a theory of quantum meruit or unjust enrichment. See Ashkir v. Wilson, No. 98 Civ. 2632, 1999 WL 710788, at *7 (S.D.N.Y. Sep. 13, 1999) ("[Q]uantum meruit claims are non-contractual, equitable remedies that are inapplicable if there is an enforceable contract governing the subject matter." (quotation marks omitted)); Scavenger, Inc. v. GT Interactive Software Corp., 734 N.Y.S.2d 141, 142 (1st Dep't 2001) (finding unjust enrichment claim "untenable" where the matters in dispute were governed by an express contract); Martin H. Bauman Assoc., Inc. v. H M Intern. Transport, Inc., 567 N.Y.S.2d 404, 408 (1st Dep't 1991) ("A cause of action under a quasi contract theory only applies in the absence of an express agreement . . ." (quotation marks omitted)); Feigen v. Advance Capital Mgmt. Corp., 541 N.Y.S.2d 797, 799 (1st Dep't 1989) ("[T]he existence of a valid and enforceable written contract governing a particular subject matter ordinarily precludes recovery in quasi contract for events arising out of the same subject matter." (quotation marks omitted)). If his employment contract is unenforceable due to indefiniteness, however, he may seek recovery under a quasi-contract theory based on the reasonable value of the services he rendered. See Benevento, II v. RJR Nabisco, Inc., No. 89 Civ. 6266, 1993 WL 126424, at *4 (S.D.N.Y. Apr. 1, 1993) (citing Mar Oil, S.A. v. Morrissey, 982 F.2d 830, 840-41 (2d Cir. 1993)); Seymore v. Reader's Digest Assoc., Inc., 493 F. Supp. 257, 264 (S.D.N.Y. 1980); Varney v. Ditmars, 217 N.Y. 223 (1916) (page numbers unavailable).
Phansalkar argues that, even if his employment in 2000 was covered by his original employment agreement, he is still entitled to equitable relief under the theory of unjust enrichment because he was "fraudulently induced" into working at AW in 2000. Phansalkar Proposed Law ¶ 13 (citing Chrysler Cap. Corp. v. Century Power Corp., 778 F. Supp. 1260, 1272 (S.D.N.Y. 1991)). Phansalkar cannot prove fraudulent inducement, however, because he cannot prove that AW made a "false representation of a material fact" upon which he relied. Phansalkar I at *28 (setting out elements of fraudulent inducement). Phansalkar claims that Andersen and Weinroth falsely represented to him "that he would be entitled to receive higher allocations in 2000," but, because he left the firm before Andersen and/or Weinroth announced Partner Alloctions for 2000, he cannot prove that this representation was "false'. Phansalkar Proposed Law ¶ 13.
Phansalkar relies on two facts to support his position that no employment agreement covered his 2000 compensation. First, he notes that AW decided to terminate his $250,000 salary at the end of 1999, which was an essential term of his employment agreement. See Phansalkar Proposed Law ¶ 3; see also FOF ¶ 7. Having done so, Phansalkar argues, "AW cannot selectively enforce certain aspects of the prior employment agreement, such as the vesting condition." Phansalkar Proposed Law ¶ 6. This argument is unavailing because, under New York law, an employer is "free to modify the terms of [an at-will] employee's employment, subject only to the employee's right to leave his employment if he found the new terms unacceptable." Sherman v. HarperCollins Publishers, Inc., No. 98 Civ. 2809, 1998 WL 437158, at *3 (S.D.N.Y. Jul. 31, 1998) (quoting International Paper Co. v. Suwyn 951 F. Supp. 445, 448 (S.D.N.Y. 1997)); see also Bottini v. Lewis Judge Co., 621 N.Y.S.2d 753, 754 (2d Dep't 1995). An employment is presumed to be at-will, and terminable by either party at any time, "unless the duration of [the] employment contract is set forth explicitly." International Paper Co., 951 F. Supp. at 448. There is no evidence that Phansalkar's employment was anything but an employment at-will. Therefore, AW was free to eliminate the salary component of his employment agreement and Phansalkar was free to leave the firm. Although Phansalkar was not happy with Andersen and Weinroth's decision to eliminate his salary, he decided to continue working at the firm. See Phansalkar I at *5. By "opt[ing] to remain employed at [AW] for a number of months, he effectively assented to the modification and commenced employment under new terms." International Paper Co., 951 F. Supp. at 448 (citing Bottini, 621 N.Y.S.2d at 754; General Electric Technical Svcs., 577 N.Y.S.2d 719, 720 (3d Dep't 1991)).
While there must be some consideration for an employer's unilateral modification to be enforceable, New York courts have held that "because in an at-will employment the employer has the right to discharge the employee . . . without cause, and without being subject to inquiry as to his motives . . . forbearance of that right is a legal detriment which can stand as consideration for" such a modification. International Paper Co., 951 F. Supp. at 448 (quoting Zellner v. Stephen D. Conrad, 589 N.Y.S.2d 903, 906 (2d Dep't 1992)).
Phansalkar also argues that no agreement governed his 2000 compensation because the parties never came to an agreement with respect to his Partner Allocations for 2000. See Phansalkar Proposed Facts ¶¶ 2-3. Under New York law, "a court cannot enforce a contract unless it is able to determine what in fact the parties have agreed to." 166 Mamaroneck Avenue Corp. v. 151 East Post Road Corp., 78 N.Y.2d 88, 91 (1991); see also Benevento, II, 1993 WL 126424, at *4, "If an agreement is not reasonably certain in its material terms, there can be no legally enforceable contract." Cobble Hill Nursing Home, Inc. v. Henry Warren Corp., 74 N.Y.2d 475, 482 (1989). At the same time, New York courts do not rigidly apply the doctrine of definiteness, see Benevento, II, 1993 WL 126424, at *4, and an agreement will not be deemed indefinite if it can be rendered reasonably certain by reference to extrinsic sources that make its meaning clear, see Cobble Hill Nursing Home, 74 N.Y.2d at 483;Lee v. Joseph E. Seagram Sons., Inc., 413 F. Supp. 693, 698 (S.D.N.Y. 1976). Thus, "[a] compensation term is not indefinite simply because it fails to specify a dollar figure or a particular compensation formula to be employed in calculating compensation." Benevento, II, 1993 WL 126424, at *5 Rather, a compensation term will be sufficiently definite to be. enforceable "if the amount can be determined objectively without the need for new expression by the parties." Cobble Hill Nursing Home, 74 N.Y.2d at 483. For example, a method for reducing uncertainty may be "found within the agreement or ascertained by reference to an extrinsic event, commercial practice or trade usage." Id.
When Phansalkar began working at AW, he was promised compensation in the form of an annual salary of $250,000 and Partner Allocations to be determined jointly by Andersen and Weinroth. See FOF ¶¶ 7, 10. At the end of 1999, when AW decided to eliminate the salary component of Phansalkar's compensation, there was no agreement reached regarding Phansalkar's Partner Allocations for 2000. See Phansalkar I at *16 n. 12; FOF ¶¶ 11-12. While Andersen told Phansalkar that his allocations would be increased in 2000, he did not promise any specific amount and Weinroth never agreed to an increase. See FOF ¶ 12. Thus, in 2000, the only compensation promised to Phansalkar was an unspecified percentage of the profits made on AW transactions, with complete discretion vested in Andersen and Weinroth.
While a contract giving one of the parties broad discretion may be enforceable, see. e.g., Lee, 413 F. Supp. at 697 ("[C]ourts of New York State will not shy away from enforcing a contract [where] broad discretion vested in one of the parties."); Knapp v. McFarland, 344 F. Supp. 601, 611-12 (S.D.N.Y. 1972) (enforcing employment agreement promising employee a fixed salary and a discretionary bonus), New York courts have refused to enforce agreements where an employer merely promises to give an employee some unspecified share of the profits, see also Von Reitzenstein v. Tomlinson, 249 N.Y. 60, 64 (1928) (holding that promise to pay plaintiff "an appropriate percentage" of defendant's gains was too indefinite to be enforceable); Varney v. Ditmars, 217 N.Y. 223 (page numbers unavailable); Glanzer v. Keilin Bloom LLC, 722 N.Y.S.2d 540, 541 (1st Dep't 2001) (holding that investment bank's alleged promise to pay employees an "equity interest in the firm" was "too indefinite to permit enforcement"); Freedman v. Pearlman, 706 N.Y.S.2d 405, 408 (1st Dep't 2000) (upholding lower court's determination that agreement "to provide 'fair compensation' and to 'equitably' divide the draw w[as] too indefinite to be enforced"); Bluemner v. Garvin, 104 N.Y.S. 1009, 120 A.D. 29, 30-34 (1st Dep't 1907) (holding that defendant's promise to "fairly share with plaintiff the commissions received by defendant" was too "vague and indefinite to constitute a valid contract" where there was nothing in the promise that would define what a fair division would be);Mackintosh v. Thompson, 68 N.Y.S. 492, 58 A.D. 25, 26-30 (1st Dep't 1901) (holding that employer's promise of "a reasonable interest" in the profits, in addition to employee's salary, was not an enforceable agreement). As the New York Court of Appeals has explained:.
A fair share of the defendants' profits may be any amount from a nominal sum to a material part according to the particular views of the person whose guess is considered. . . . The court cannot aid the parties in such a case when they are unable or unwilling to agree upon the terms of their own proposed contract. . . .Varney v. Ditmars, 217 N.Y. 223 (page numbers unavailable).
Here, the parties have not agreed on Phansalkar's Partner Allocations for 2000 — the only compensation specifically promised to him in return for his services that year. And the mere fact that AW did in fact grant Phansalkar certain Partner Allocations in the previous year does not establish the sort of prior course of dealing that would render this term of his employment agreement reasonably definite. See Freedman v. Pearlman, 706 N.Y.S.2d at 408 (holding that employer's promise of "fair compensation" and equitable portion of profits was unenforceable, despite the fact that employee had "in fact received compensation" throughout the parties' relationship). Without any other external source which would add certainty to this material term of Phansalkar's employment agreement, that agreement cannot be enforced. See Cobble Hill Nursing Home, 74 N.Y.2d at 483; Lee, 413 F. Supp. at 698.
2. Phansalkar May Not Recover Under an Unjust Enrichment or Quantum Meruit Theory
Under New York law, where an employer's promise to pay an employee a share of the profits is unenforceable for indefiniteness, the employee may be able to recover the reasonable value of any services performed under a quasi contract theory, such as quantum meruit. See Benevento, II, 1993 WL 126424, at *8 (S.D.N.Y. 1993) (quoting 1 E. Allen Farnsworth, Farnsworth on Contracts § 3.30, at 371 (1990)); see also Varney v. Ditmars, 217 N.Y. 223 (page numbers unavailable). "Though presented here as separate claims, 'quantum meruit and unjust enrichment are not separate causes of action. Rather, unjust enrichment is a required element for an implied-in-law, or quasi contract, and quantum meruit, meaning as much as he deserves, is one measure of liability.'"Industrial Acoustics Co., Inc. v. Energy Svcs, Inc., No. 93 Civ. 2865, 1995 WL 274432, at *7 (S.D.N.Y. May 9, 1995) (quoting Seiden Assocs., Inc. v. ANC Holdings, Inc., 768 F. Supp. 89, 96 (S.D.N.Y. 1991), rev'd on other grounds, 959 F.2d 425 (2d Cir. 1992)); see also Thayer v. Dial Indus. Sales, Inc., 189 F. Supp.2d 81, 91 (S.D.N.Y. 2002). To prove unjust enrichment, Phansalkar must show that: (1) AW was enriched; (2) the enrichment was at Phansalkar's expense; and (3) "the circumstances were such that equity and good conscience require defendant to make restitution." Universal Acupuncture Pain Svces., P.C. v. State Farm Mut. Auto. Ins. Co., 196 F. Supp.2d 378, 387 (S.D.N.Y. 2002) (quotation marks omitted); see also R.B. Ventures, Ltd. v. Shane, 112 F.3d 54, 60 (2d Cir. 1997).
AW certainly received a benefit from Phansalkar's efforts in the first half of 2000, as he worked to generate significant business for AW which resulted in substantial fees and other consideration for the firm. See FOP ¶ 22; Phansalkar I at *5-*7, *36. However Phansalkar has not proved that AW was unjustly "enriched at [Phansalkar's] expense." R.B. Ventures, Ltd., 112 F.3d at 60. Although Phansalkar received no salary or Partner Allocations for his work in 2000, see FOF ¶ 23, he received substantial compensation in the form of opportunities to invest in various AW deals. Most significantly, Phansalkar received the opportunity to invest in MCEL. This opportunity to invest was "part of his 'compensation'" and this Court has ruled that Phansalkar is entitled to $4.4 million from that investment. Phansalkar I at *30; see also id. at *38. The opportunity to invest in Headway was also a form of compensation, and Phansalkar has made a profit of $40,000 on that investment. See FOF ¶¶ 86-88. Finally, the opportunity to invest in the Sorrento Private Placement was a form of compensation. See id. ¶¶ 64-67. Given that he received significant compensation, and that he is not entitled to any compensation for work on the Entrada Transaction, see supra, "equity and good conscience" do not require that Phansalkar receive any additional compensation for his six months of work at AW in 2000. Universal Acupuncture Pain Svces., 196 F. Supp.2d at 387;R.B. Ventures, Ltd., 112 F.3d at 60. Accordingly, he cannot recover under the theories of unjust enrichment or quantum meruit. See Clark-Fitzpatrick. Inc. v. Long Island R.R., 70 N.Y.2d 382, 388 (1987) (holding that unjust enrichment is a prerequisite for any action on a quasi contract); see also Seiden Associates, Inc. v. ANC Holdings, Inc., 754 F. Supp. 37, 38 n. 1 (S.D.N.Y. 1991); 22 N.Y.Jur.2d, Contracts, § 447, at 376 (1982).
3. Phansalkar May Not Recover Under Promissory Estoppel
Phansalkar claims that he is entitled to recover under a theory of promissory estoppel because he relied on AW's representations that he would receive higher allocations for 2000. See Phansalkar Proposed Law ¶ 9. To recover under this theory, Phansalkar must show that: (1) AW made a clear and unambiguous promise; (2) he reasonably and foreseeably relied on that promise; and (3) he sustained an injury by reason of his reliance. See Arcadian Phosphates, Inc. v. Arcadian Corp., 884 F.2d 69, 72 (2d Cir. 1989); Thayer v. Dial Indus. Sales, Inc., 85 F. Supp.2d 263, 271 (S.D.N.Y. 2000). Phansalkar's claim fails for several reasons.First, "New York does not recognize promissory estoppel as a valid cause action in the employment context." Miller v. Citicorp, No. 95 Civ. 9728, 1997 WL 96569, at *1 (S.D.N.Y. Mar. 4, 1997); Van Brunt v. Rauschenberg, 799 F. Supp. 1467, 1474 (S.D.N.Y. 1992); Pancza v. Remco Baby, Inc., 761 F. Supp. 1164, 1172 (D.N.J. 1991) (applying New York law); Dalton v. Union Bank of Switzerland, 520 N.Y.S.2d 764, 766 (1st Dep't 1987).Second, Phansalkar has not proven that he reasonably relied on a clear and unambiguous promise. Phansalkar knew that all decisions about Partner Allocations were made jointly by Andersen and Weinroth, he was unhappy with his Allocations for 1999, and he knew that Andersen and Weinroth would not commit to specific Allocations for 2000. See FOF ¶¶ 10-12;Phansalkar I at *5, Thus, it was not reasonable for Phansalkar to have made an important employment decision based solely on Andersen's vague statement about his 2000 Partner Allocations. Third, Phansalkar cannot show that he was injured as a result of his reliance. Even if Phansalkar was induced by Andersen to stay at AW, he ultimately received substantial compensation for the work he performed during the remainder of his employ. See supra Part III.B.2.
4. Phansalkar Need Not Forfeit the Compensation He Received in 2000
To the extent that AW argues that Phansalkar's disloyalty requires him to forfeit the compensation he received in the form of opportunities to invest in AW deals, that claim is rejected. Phansalkar need only forfeit compensation earned on transactions in which he was disloyal, see Phansalkar I at *38, and AW has not proven that he was disloyal on any 2000 transaction other than the Entrada Transaction.
C. AW's Claims with Respect to Phansalkar's Directors' Compensation
AW claims that Phansalkar is liable to the firm for damages resulting from his failure to disclose and remit certain board compensation and his failure to disclose certain board seat opportunities. It asserts claims for breach of contract, breach of fiduciary duty, and conversion.
1. Conversion
AW cannot maintain a claim for conversion with respect to Phansalkar's directors' compensation because it "cannot prove that it ever had 'ownership, possession or control' of any directors' compensation it seeks from Phansalkar." Phansalkar I at *28 (quoting Briarpatch Ltd., LP v. Geisler Roberdeau, Inc. 148 F. Supp.2d 321, 327 (S.D.N.Y. 2001)). Similarly, AW has proved that it ever had "ownership, possession or control" of Sync Board seat or the Entrada Networks Board seat offered to Phansalkar. Briarpatch Ltd., LP, 148 F. Supp.2d at 327; see also Pioneer Commercial Funding Corp. v. United Airlines, Inc., 122 B.R. 871, 883 (S.D.N.Y. 1991).
In the first phase of trial, which only included Phansalkar's claims to his MCEL Shares and AW's affirmative defenses to those claims, the Court did not directly address AW's breach of contract arguments because they were "simply alternative arguments that Phansalkar was a 'faithless employee'" and could therefore be "incorporated into the Court's analysis of AW's [affirmative defense] that Phansalkar breached his duties to his employer." Phansalkar I at *26 n. 31. Now that-AW has presented its affirmative claims, the breach of contract claims are addressed as a distinct legal issue.
To prove a claim for breach of contract under New York law, AW must prove: (1) the existence of a contract between the parties; (2) performance of the contract by AW; (3) breach by Phansalkar; and (4) damages to AW. See Fromer, 50 F. Supp.2d at 244 (citing First Investors Corp., 152 F.3d at 168).
To the extent that AW's claim is based on Phansalkar's failure to disclose the Osicom or Zip Options, its claim fails because it has not proven that it suffered cognizable damages. AW argues that it was harmed because it was deprived of the ability to make decisions regarding these options and to derive any economic benefit from them. See AW Contentions ¶¶ 5, 19. However, Phansalkar has not exercised his Zip or Osicom Options, see FOF ¶¶ 48, 56, and AW has not proven that it had a right to make decisions regarding unexercised options or that it could derive economic value from such options (i.e. by hedging). See id. ¶¶ 29-30. Under AW's policy on directors' compensation, Phansalkar was only required to report the grant of these options. See id. ¶ 28. Had he complied with that policy by disclosing his Zip and Osicom Options, AW would be in the same position that it is today — the holder of a contingent right to the economic value of those options once they are realized. Thus, AW has not proven that it was damaged by Phansalkar's breach.
Nor has AW proven that it was harmed by Phansalkar's failure to disclose the offer of a Sync Board seat or that Phansalkar could have secured an Entrada Board seat for AW if he had sought to do so. See id. ¶¶ 76-77. Thus, AW has not proven that it was damaged by Phansalkar's breaches with respect to these opportunities.
Phansalkar is liable to AW, however, for breach of contract with respect to the Osicom Fees and the Zip Shares. Phansalkar received $3,000 as a director of Osicom that he failed to remit to AW, as required under the firm's policy on directors' compensation. See id. ¶¶ 26, 32. This breach of the firm's policy damaged AW because it denied the firm $3,000 which would have been reflected on its balance sheet. See id. Similarly, Phansalkar owned 600 Zip Shares that he failed to remit to AW in violation of the firm's policy. See id. ¶¶ 27, 34; see also Lucente v. International Business Machines, 146 F. Supp.2d 298, 305 (S.D.N.Y. 2001) (holding that plaintiff "owned shares" as soon as they were "awarded" to him, regardless of physical possession). This breach of the firm's policy damaged AW by denying it property that rightfully belonged to the firm.
2. Breach of Fiduciary Duty
To prove breach of fiduciary duty under New York law, AW must prove that: (1) Phansalkar owed a fiduciary duty to AW; (2) Phansalkar breached that duty; (3) AW suffered damages; and (4) Phansalkar's "act or omission was a substantial factor in causing [AW's] loss." Fromer, 50 F. Supp.2d at 248 (citing Northwestern Nat'l Ins. v. Alberts, 769 F. Supp. 498, 506 (S.D.N.Y. 1991)). To the extent that AW's claim is based on Phansalkar's failure to disclose the Osicom and Zip Options, the Sync Board seat or the Entrada Board seat, its claim fails because it has not proven that it suffered cognizable damages. See supra Part IV.C.1. Phansalkar is liable to AW, however, for breach of fiduciary duty with respect to the Osicom Fees and the Zip Shares.
Under New York law, "an employee owes his employer a fiduciary duty."Nutronics Imaging, Inc. v. Danan, No. 96 Civ. 2950, 1998 WL 426570, at *3 (E.D.N.Y. June 10, 1998) (quoting Burnett Process, Inc. v. Richlar Indus., Inc., 390 N.Y.S.2d 282, 283 (4th Dep't 1976)); see also Adams Book Co. v. Ney, No. 97-CV-4418, 1998 WL 564384, at *5 (E.D.N.Y. June 30, 1998). This is particularly true here, where Phansalkar had a close relationship of trust and confidence with his so-called "partners' at AW and served as AW's representative and agent on various boards of directors. See FOF ¶¶ 3-4; U.S. v. Falcone, 257 F.3d 226, 234 (2d Cir. 2001) (holding that the existence of a "relationship of trust and confidence between the parties" is evidence of a fiduciary relationship); North American Knitting Mills, Inc. v. International Women's Apparel, Inc., No. 99 Civ. 4643, 2000 WL 1290608, at *4 (S.D.N.Y. Sep. 12, 2000) (considering a party's "duty to act for or to give advice for the benefit of another" when determining whether a fiduciary relationship exists). Phansalkar breached that duty when he failed to disclose and remit his Osicom Fees and Zip Shares, as required by AW's policy on directors' compensation. See FOF ¶¶ 26, 32-33;Western Elec. Co. v. Brenner, 392 N.Y.S.2d 409, 411 (1977) (holding that a "fundamental aspect" of an employee's duty is that he is "prohibited from acting in any manner inconsistent with his agency or trust");Rodgers v. Lenox Hill Hosp., 657 N.Y.S.2d 616, 617-18 (1st Dep't 1997) ("[A]bsent an agreement otherwise," an employee must remit to his employer any "profit" or "benefit in connection with transactions conducted by him on behalf of his employer."). Finally, Phansalkar's breach was a "substantial factor in causing" AW's damages because, absent Phansalkar's breach, AW would have been in possession of $3,000 in Osicom fees and 600 Zip Shares. Fromer, 50 F. Supp.2d at 248.
3. Damages
a. Osicom Directors' Fees
Under New York law, the remedy for the improper withholding of money is "the principal owed plus damages in the form of interest at the prevailing legal rate." Tevdorachvili v. Chase Manhattan Bank, 103 F. Supp.2d 632 (E.D.N.Y. 2000); see also Parkway Windows, Inc. v. River Tower Assoc., 485 N.Y.S.2d 755, 759 (1st Dep't 1985). Phansalkar is therefore liable to AW for $3,000 plus interest measured from the date of breach. See Brushton-Moira Cent. Sch. Dist. v. Fred H. Thomas Assoc., P.C., 91 N.Y.2d 256, 261 (1998) (holding that damages are generally measured from the date of breach). Because Phansalkar's breach occurred on the date his Osicom Directors' Fees were received, interest will be calculated by the Clerk of the Court at a rate of 9% per annum on $1,000 received on May 31, 2000, $1,000 received on June 30, 2000, and $1,000 received on July 2000. See FOF ¶ 55.
b. Zip Shares
AW argues that the proper measure of damages for Phansalkar's failure to deliver the Zip Shares is the "highest intermediate value" method set forth in Schultz v. Commodity Fututes Trading Comm'n, 716 F.2d 136 (2d Cir. 1983). In Schultz, the Second Circuit stated:
[t]he measure of damages for wrongful conversion of stock is either (1) its value at the time of conversion or (2) its highest intermediate value between notice of the conversion and a reasonable time thereafter during which the stock could have been replaced had that been desired, whichever of (1) or (2) is higher.Id. at 141. It added that this measure of damages — based on the highest intermediate value of the stock — applies not only in conversion cases, but also in cases where securities are "not delivered according to contractual or-other legal obligation, or [are] otherwise improperly manipulated." Id. Accordingly, courts in this circuit have relied on the Schultz methodology in cases where defendant breached a contract to deliver securities, see Commonwealth Assoc. v. Palomar Medical Tech., Inc., 982 F. Supp. 205, 210 (S.D.N.Y. 1997) (failure to deliver warrants); Flickinger v. Harold C. Brown, 789 F. Supp. 616, 620 (W.D.N.Y. 1992) (failure to deliver stock), or where defendant otherwise caused the wrongful purchase or sale of securities, see Halifax Fund, L.P. v. MRV Communications, Inc., No. 00 Civ. 4878, 2001 WL 1622261, at *5 (S.D.N.Y. Dec. 18, 2001) (equitable estoppel claim where a defendant's failure to disclose information about plaintiff's securities caused plaintiff to pursue a less profitable trading strategy).
But see Skully v. U.S. Watts Inc., 238 F.3d 497 (3d Cir. 2001) (refusing to apply the Schultz methodology to breach of contract cases).
Courts have refused to apply Schultz's methodology, however, where doing so would give plaintiff a "windfall." Phansalkar I, 2001 WL 1524479, at *35, The Second Circuit has made clear that damage awards should only place the injured party "in the position he would have been had not his rights been violated." Schultz, 716 F.2d at 139-40 (quotingGallagher v. Jones, 129 U.S. 193, 200 (1989)). Thus, as this Court explained in Phansalkar I, a court should not calculate damages using the "highest intermediate value" when doing so would give plaintiff a value that he could not have otherwise attained. See id. at *35-*35 (evidence showed that claimant was restricted from selling stock for a certain time period); see also Lucente, 146 F. Supp.2d at 304 (refusing to award highest intermediate value to restricted securities); Palomar, 982 F. Supp. at 212 (extending "reasonable time period' where evidence showed that investor could not immediately repurchase his converted securities upon learning of the conversion).
Phansalkar asks the Court to take this reasoning one step further. He argues that if damages should not be calculated using a price that a party could not have attained, it makes no sense to calculate damages at a price that a party would not have attained. See Phansalkar Mem. at 12-13; Phansalkar Proposed Law ¶ 27. Here, AW has made no effort to derive value from any of its interests in Zip. See FOF ¶ 51. Thus, according to Phansalkar, AW would not have derived value from Phansalkar's Zip Shares if they had been in the firm's possession.
AW insists that Phansalkar's argument is "without basis." Post-Trial Memorandum of Law of Plaintiff AW ("AW Mem.") at 7. "In awarding damages based on the 'highest intermediate value' of the stock," AW contends, "courts have not engaged in an analysis of whether the injured party indeed would have sold, or held, the securities in the absence of the breaching party's misconduct. Id. at 6. Rather, AW claims that "courts have ignored the actual investment strategy of the injured party." Id. (emphasis added).
Phansalkar's position is the more persuasive one. First, the case law cited by AW does not support the proposition that courts should "ignore" evidence of the actions a plaintiff would have taken absent defendant's breach. In Gallagher, Schultz, Lucente, Payne v. Wood, No. 94-1230, 1995 WL 461786, at *7 (6th Cir. Aug. 2, 1995) and McKinley v. Williams, 74 F. 94 (8th Cir. 1896), the courts awarded "lost profit damages" without requiring the claimant to prove that he "actually replace[d] his stock," that he tried to cover his losses, or that he would have actually attained the highest intermediate value. Schultz, 716 F.2d at 140 (discussing Gallagher); see also Lucente, 117 F. Supp.2d at 336, Payne, 1995 WL 461786, at *7; cf. McKinley, 74 F. at 94. However, there was no compelling evidence in an y of these cases of how the claimant would have acted absent defendant's wrongdoing.
Indeed, when such evidence was offered, courts in this circuit have given the evidence serious consideration. In Kaufman v. Diversified Indus., Inc., 460 F.2d 1331, 1337 n. 8 (2d Cir. 1972), the Second Circuit refused to award damages for failure to timely deliver shares of stock where the evidence clearly showed that plaintiff had "made no attempt to dispose of the [shares] which he already owned." As the court explained, "it could not be assumed that resale would have followed in the normal course of events" where "the record in th[e] case [did] not permit an inference that [plaintiff] would have sold the [withheld] shares if he had received them [when he should have]." Id. at 1336-37. Compare Madison Fund v. Charter Co., 427 F. Supp. 597, 608 (S.D.N.Y. 1977) (holding that plaintiff was entitled to damages in breach of contract action where the record supported "an inference that [plaintiff] desired to sell [his shares] during th[e] [relevant] period.").
Similarly, in Palomar, the court rejected plaintiff's argument that he "would have sold at the height of the market" because that assumption "was not supported by the evidence." 982 F. Supp. at 212 n. 5. To determine damages in a breach of contract case, the court explained, a court must "look to what would most probably have occurred if [defendant] had performed as required by the contract." Id. at 208. Where there is "specific and persuasive evidence" as to what would have happened absent defendant's breach, that evidence must be considered when determining the appropriate value for calculating damages. Id.
The evidence here clearly shows that during the time period in question, AW showed "no desire to realize" any value from its interests in Zip. Schultz, 716 F.2d at 140 (quoting In re Salmon Weed Co., 53 F.2d 335, 341-42 (2d Cir. 1931) (per curiam)). Because AW "made no attempt to dispose of" or. otherwise realize value from the Zip securities which it already owned, I cannot infer that it "would have sold" Phansalkar's Zip Shares if it had received them. See Kaufman, 460 F.2d at 1337 n. 8. Accordingly, an award of monetary damages is inappropriate. Id. Instead, Phansalkar must remit the Zip Shares to AW immediatly.
Because no monetary damages are awarded, AW's claim to prejudgment interest is also rejected.
D. The Parties' Claims to Other Items
1. Phansalkar's Headway Shares
AW contends that it is entitled to the profits Phansalkar earned in connection with the Headway transaction because: (1) Phansalkar was a disloyal employee; (2) there was a "mutual mistake of the parties regarding Phansalkar's status as a partner of AW;" and (3) AW made a "unilateral mistake about Phansalkar's position as a partner." AW Proposed Law ¶¶ 55-69. None of these contentions are viable.
First, I have previously held that Phansalkar need only forfeit compensation earned on those transactions on which he was disloyal. See Phansalkar I at *38. Because there is no evidence that Phansalkar was disloyal with respect to Headway, there is no need for him to forfeit the profits earned on that investment. Second, the arguments of mutual or unilateral mistake are rejected for the same reasons they were previously rejected. See id. at *28.
Phansalkar contends that AW breached its contract regarding Headway by delivering only 44,000 shares to him rather than 50,000 shares. See Phansalkar Contentions ¶¶ 24-25. But I have already found that the 44,000 shares received by Phansalkar properly reflected (and slightly exceeded) Phansalkar's 8.77% contribution to the firm's transaction. See FOF ¶ 94.
2. The $100,000 Loan
The parties agree that, pursuant to the Loan Agreement, AW loaned Phansalkar $100,000 at an interest rate of 8% and that loan became due on August 17, 2000. See id. ¶ 82. Because Phansalkar has not fully repaid that loan, see id. ¶ 83, he has breached the Loan Agreement.
Where a defendant has breached a contract by failing to pay money, the proper remedy is "the principal owed plus damages in the form of interest at the prevailing legal rate." Tevdorachvili, 103 F. Supp.2d at 632; see also Parkway Windows Inc., 485 N.Y.S.2d at 759. Because this is a diversity case, AW is also entitled to prejudgment interest "as a matter of right." Phansalkar I at *37, Prejudgment interest must be computed as of "the earliest ascertainable date the cause of action existed," which is August 17, 2000, the date the loan became due. Id. at *38 (quoting N.Y. C.P.L.R. § 5001(b)); FOF ¶ 79. Accordingly, Phansalkar is liable to AW for the principal amount of $100,000, with interest to be calculated by the Clerk of the Court at a rate of 8% until August 17, 2000 and at the 9% prejudgment interest rate thereafter.
AW insists that the principal amount due is $75,000, rather than $100,000. See AW Proposed Law ¶¶ 50-51. It argues that because Phansalkar is not entitled to the portion of his MCEL investment that he sold to Arthur Kowoloff for $25,000, the firm was entitled to set off $25,000 from the principal amount owed by Phansalkar under the loan. See AW Contentions ¶ 40. AW's contention is rejected. Phansalkar purchased his 637,902 MCEL Shares for $60,000. See Phansalkar I at *14. "Upon purchasing [those] MCEL Shares from AW, Phansalkar owned [the] Shares outright." Id. at *24. Because Phansalkar sold 252,000 of his MCEL Shares to Arthur Kowoloff for a price of $25,000, he gave up his right to those Shares. See id. at *14; see also id. at *36 (holding that Phansalkar was only entitled to damages for conversion of the 385,902 MCEL Shares that he did not sell to Kowoloff). There is no evidence, however, that this sale to Kowoloff affected AW's right to any portion of the $60,000, and Phansalkar has not claimed that he is entitled to a return of any. of those funds. Thus, AW has no basis for setting off the loan obligation by $25,000.
3. Phansalkar's Series A Preferred Stock in Sorrento
With respect to his $60,000 investment in the Sorrento Series A Preferred Shares, Phansalkar claims that AW is either liable for conversion or for breach of contract for failing to deliver the number of shares corresponding to his investment. See Phansalkar Proposed Law ¶¶ 15-16. Like all other investors, Phansalkar will be entitled to his pro rata share of the investment when the loan (and associated fees and expenses) are repaid and any profits are realized. See FOF ¶¶ 70-72. Because this event has not yet occurred, see FOF ¶ 69, his claims are rejected.
AW's argument that Phansalkar's claim should fail because it was not pleaded in the Amended Complaint is rejected. See AW Contentions ¶ 80. The Amended Complaint describes the Series A Shares and Phansalkar's contribution to the Sorrento transaction, and alleges that AW has failed to deliver to Phansalkar "any share of the AW fees andother benefits arising out of the Sorrento transaction." Phansalkar Amended Complaint ¶¶ 48-52, 82. This pleading was sufficient to put AW on notice of Phansalkar's claims.
V. CONCLUSION
For the reasons stated above:
(1) Phansalkar's claims for breach of contract with respect to his Partner Allocations for 1999 are DENIED. However, when AW's interest in Treasure Masters is monetized, Phansalkar is entitled to .375% of the profit net of costs and expenses.
(2) AW's claim to Phansalkar's $250,000 received for his work in 1999 is DENIED.
(3) Phansalkar's claims for breach of contract, quantum meruit, unjust enrichment, and promissory estoppel with respect to compensation for 2000 are DENIED.
(4) AW's conversion claim is DENIED.
(5) AW's claims for breach of contract and breach of fiduciary duty with respect to Phansalkar's failure to disclose his Zip Options, Osicom Options, the offer of a Sync Board seat and the Entrada Board seat are DENIED.
(6) Phansalkar is liable to AW for breach of contract and breach of fiduciary duty with respect to his failure to disclose and remit his Osicom Board Fees and his Zip Shares. As a result, it is ORDERED that:
(a) AW recover from Phansalkar judgment in its favor in the amount of $3,000 plus interest at a rate of 9% per annum on $1,000 from May 31, 2000 to the date of judgment, on $1,000 from June 30, 2000 to the date of judgment, and on $1,000 from July 2000 to the date of judgment.
(b) Phansalkar must remit his 600 Zip Shares to AW immediately.
(7) AW's claim to Phansalkar's Headway shares is DENIED.
(8) Phansalkar's claim to additional Headway shares is DENIED.
(9) Phansalkar is liable to AW for breach of contract with respect to the $100,000 loan. As a result, it is ORDERED that AW recover from Phansalkar judgment in its favor in the amount of $100,000 plus interest at a rate of 8% per annum from April 17, 2000 until August 17, 2000, and at a rate of 9% per annum from August 18, 2000 to the date of judgment.
(10) Phansalkar's breach of contract claim with respect to his Sorrento Series A Preferred Shares is DENIED.
The Clerk of the Court is ordered to enter judgment consistent with this opinion and the opinion in Phansakar I, and to close the case.