Kyle Connaughton, Appellant,v.Chipotle Mexican Grill, Inc., et al., Respondents.BriefN.Y.March 21, 2017ORIGINAL To Be Argued By: DANIEL J. KAISER Time Requested: 30 Minutes New York County Clerk's Index No. 115106/2013 ~4~ STATE OF NEW YORK APL-2016-00036 KYLE CONNAUGHTON, Plaintiff-Appellant, -against- CHIPOTLE MEXICAN GRILL, INC. and STEVEN ELLS, Defendants-Respondents. BRIEF FOR PLAINTIFF-APPELLANT Of Counsel: Daniel J. Kaiser Henry L. Saurborn, Jr. March 24,2016 KAISER SAURBORN & MAIR, P.C. 111 Broadway, Suite 1805 New York, New York 10006 Telephone: (212) 338-9100 Facsimile: (212) 338-9088 Attorneys for Plaintiff-Appellant TABLE OF CONTENTS PRELIMINARY STATEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 QUESTIONS PRESENTED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 STATEMENT OF JURISDICTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 STATEMENT OF THE CASE ....................................... 6 A. Underlying Factual Background . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 1. Kyle Connaughton . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 2. Connaughton develops the ramen concept . . . . . . . . . . . . . . 6 3. Connaughton and Ells reach an agreement . . . . . . . . . . . . . . 7 4. Connaughton begins to implement his ramen concept 9 5. Connaughton first learns of the prior business dealings between Momofuku and Chipotle . . . . . . . . . . . . 1 0 6. Defendants' withheld material information from Connaughton before he began at Chipotle . . . . . . . . . . . . . 12 7. Connaughton confronts Ells about Momofuku and his employment is terminated . . . . . . . . . . . . . . . . . . . . 14 B. Procedural History of this Action . . . . . . . . . . . . . . . . . . . . . . . . . 15 POINTS AND AUTHORITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 POINT I IN CONCLUDING THAT MR. CONNAUGHTON COULD NOT PROVE DAMAGES, THE MAJORITY DECISION WRONGLY ASSUMED THE ROLE OF FACT FINDER AT THE PLEADING STAGE, FAILED TO CONSTRUE THE COMPLAINT IN PLAINTIFF'S FAVOR AND DREW ALL REASONABLE INFERENCES AGAINST HIM . . . . . . . . . . . . . 17 A. Notice Pleading Rule Applies to Plaintiffs Obligation to Plead Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 B. It Was Not Within the Court's Province to Find at the Pleading Stage That Plaintiffs Damages Were Speculative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 C. Plaintiffs Damages for Lost Business Opportunities May Be Recovered as Reliance Damages in his Fraudulent Inducement Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 D. Plaintiff May Recover At Least Nominal Damages for Fraudulent Inducement . . . . . . . . . . . . . . . . . . . . . . 21 POINT II DEFENDANTS' FAILURE TO DISCLOSE TO PLAINTIFF THAT IT HAD AN EXISTING AGREEMENT WITH A DIFFERENT CHEF TO DEVELOP A RAMEN NOODLE CONCEPT CONSTITUTED A FRAUDULENT OMISSION UPON WHICH MR. CONNAUGHTON REASONABLY RELIED TO HIS DETRIMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 A. At Will Employees May Claim Fraudulent Inducement . . . . . . . . 22 11 B. Where a Defendant Possess Superior Knowledge, and Conceals it to the Detriment of the Plaintiff, a Claim for Fraudulent Inducement Lies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 111 TABLE OF AUTHORITIES Cases 511 West 232nd Street Owners v. Jennifer Realty Co., 98 N.Y.2d 144 (2002) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 ABN AMRO Bank, NV. v. MBIA Inc., 17 N.Y.3d 208 (2011) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 ACA Financial Guaranty Corp. v. Goldman Sachs & Co., 25 N.Y.3d 1043 (2015) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24, 25 Caruso, Caruso & Branda, P. C. v. Hirsch, 41 A.D.3d 407 (2nd Dep't 2007) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Centro Empresarial Cempresa S.A. v. America M6vil, S.A.B. de C. V., 17 N.Y.3d 269 (2011) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Commerzanstalt v. Telewide Systems, Inc., 880 F.2d 642 (2nd Cir. 1989) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 DDJ Management LLC v. Rhone Group, LLC, 15 N.Y.3d 147 (2010) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Enzo Biochem, Inc. v. Johnson & Johnson, No. 87 Civ. 6125 (KW), 1992 WL 309613 (S.D.N.Y. Oct. 15, 1992) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Fort Howard Paper Co. v. Wm. D. Witter, Inc.-, 787 F.2d 784 (2nd Cir. 1986) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Kronos, Inc. v. AVXCorp., 81 N.Y.2d 90 (1993) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 IV Kwon v. Yun, 2006 WL 416375, No. 05 Civ. 1142 (GEL) (S.D.N.Y. Feb. 21, 2006) ................................... 19-20 Leon v. Martinez, 84 N.Y.2d 83 (1994) . . . .. . .. . .. .. . . . .. . .. . .. .. .. . .. .. .. .. .. . 18 Luduzinski v. Alvarez & Marsal Tax/and LLC, 132 A.D.3d 164 (Pt Dep't 2015) . . . . . . . . . . . .. .. . . .. . . . . . . . . . 22, 23 Rani LLC v. Arfa, 18 N.Y.3d 846 (2011) . . .. . .. . .. . . . . .. . . .. . .. .. .. . .. . . . . .. .. . 18 Schonfeld v. Hilliard, 218 F.3d 164 (2nd Cir. 2000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Shiffman v. Empire Blue Cross, 256 A.D.2d 131 (1st Dep't 1998) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Smalley v. Dryfus Corp., 10 N.Y.3d 55 (2008) ......................................... 23 Stevenson Equipment, Inc. v. Chening Constr. Corp., 79 N.Y.2d 989 (1992) . . . .. . .. . .. . . . .. . . .. . .. .. .. .. .. .. . .. .. . 24 Statutes New York Civil Practice Law and Rules§ 3026 . . . . .. . . . . . . . . . . . . . . . . . . 18 New York Civil Practice Law and Rules§ 5601(a) . . . . . . . . . . . . . . . . . . . . . . . 5 v PRELIMINARY STATEMENT Kyle Connaughton, a world-renowned chef, was fraudulently induced into working for Defendant-Appellant Chipotle, when Chipotle's founder and majority owner, Steven Ells, intentionally withheld critical information about their dealings with David Chang, another acclaimed chef, in order to induce him to provide Chipotle with his strategic vision for a new food platfonn. The majority of the intermediate appellate court affirmed the motion court's dismissal of his claims, though not because they determined that the basic elements of a fraudulent inducement claim were inadequately pled. Rather, the majority upheld the dismissal ofMr. Connaughton's claims under CPLR § 32ll(a) because he could not prove damages. As the dissent pointed out, the majority was wrong because: 1) Mr. Connaughton was not required to detail his damages at the initial pleading stage; 2) the categories of damages alleged in the complaint were reasonable; and entirely plausible, and only discovery could reveal whether such damages were provable; and 3) in any event, nominal damages were available to Mr. Connaughton if he were successful in demonstrating the elements of his fraud claim. Hence, the majority in the Appellate Division decided the appeal improperly, based on an undeveloped record and the factual question of Mr. Connaughton's damages. Even though Mr. Connaughton was not required to plead his damages, present or future, in any detail, the majority nevertheless upheld the dismissal of his claims without affording him the opportunity to proffer or develop evidence of his injuries. Those injuries included the damage to Mr. Connaughton's reputation and professional career; and the lost business opportunities he passed over to work for Chipotle. Any judicial conclusions to be reached about those injuries required there to be a developed factual record after affording Mr. Connaughton the fundamental opportunity to develop same, neither of which occurred here. As explained in detail below, the legal elements of a fraudulent inducement claim were pled adequately. The appellate court below, save for its conclusion that damages could not be proven, failed to credit or adopt the Defendants- Respondents' remaining argument that the alleged fraudulent omission could not sustain Mr. Connaughton's fraudulent inducement contention. Hence, Mr. Connaughton is entitled to his day in court in order to demonstrate how Chipotle's fraud caused him injury. 2 QUESTIONS PRESENTED 1. Did the Plaintiff allege properly a claim for fraudulent inducement? The Supreme Court and the Appellate Division both ruled in the negative, and plaintiff (and the dissenting Appellate Division justices) contends that this ruling was erroneous. 2. In view of the notice pleading requirements and liberal construction principles ofCPLR §§ 3013 and 3026, and the requirement that all reasonable inferences be construed in plaintiffs favor, may damages be reasonably inferred from the allegations of the complaint herein? The Supreme Court did not specifically address this issue and the majority of Appellate Division ruled in the negative and plaintiff (and the dissenting Appellate Division justices) contend this was erroneous. 3. May an at-will employee assert a claim for fraudulent inducement? The Supreme Court ruled in the negative and the Appellate Division majority did not rule on this issue directly, but plaintiff (and the dissenting Appellate Division justices) contends that this issue should have been determined in his favor. 4. Are the damages flowing from abandoned business opportunities and injury to professional reputation recoverable as reliance damages on a claim for 3 fraudulent inducement? The Supreme Court did not address this issue directly and the majority of the Appellate Division ruled in the negative, but plaintiff contends that this ruling was erroneous. 5. Are nominal damages recoverable for fraudulent inducement? The Supreme Court and the majority of the Appellate Division ruled in the negative, and plaintiff (and the dissenting Appellate Division justices) contends that this ruling was erroneous. 6. Can the superior knowledge of a contracting defendant support a claim of fraudulent inducement based upon fraudulent concealment? The Supreme Court did not address this issue, and the majority of the Appellate Division did not reach this issue, but plaintiff (and the dissenting Appellate Division justices) contends that this issue should have been determined in his favor. 4 STATEMENT OF JURISDICTION Plaintiff appealed to this Court from the January 19, 2016 Decision and Order of the Appellate Division, First Department, which affirmed a decision and order of the Supreme Court dismissing the plaintiffs first and second causes of action sounding in fraudulent inducement and unjust enrichment. [CA. 122-23] Two justices on that panel dissented and voted to reinstate Plaintiffs claim for fraudulent inducement. [CA. 123] This Court has jurisdiction to hear this appeal under CPLR § 5601(a), which provides that "[a]n appeal may be taken to the court of appeals as of right in an action originating in the supreme court ... from an order of the appellate division which finally determines the action, where there is a dissent by at least two justices on a question of law in favor of the party taking such appeal." 5 STATEMENT OF THE CASE A. Underlying Factual Background. 1. Kyle Connaughton. Mr. Connaughton is a renowned chef who has worked in some of the world's most prestigious restaurants. [R. 15 at~ 7] Mr. Connaughton's employment history includes serving as Head Chef at The Fat Duck Restaurant in Bray, England- voted "Best Restaurant in the World" in 2006 and 2007 under his leadership; as cheftournant for Michel Bras Toya, in Hokkaido, Japan- consistently ranked among the "Best 10 Restaurants in the World"; and as the co- author of several highly acclaimed books and co-presenter on several television programs in the United Kingdom. [R. 15 at~ 8] It was Mr. Connaughton's stellar international reputation as a chef that prompted the defendants to solicit him for employment with Chipotle. [Id. at~ 9] 2. Connaughton develops the ramen concept. During 2010, Mr. Connaughton conceived of and developed a restaurant concept based upon ramen food products. [R. 16 at ~ 1 0] He envisioned a chain of fast food-type restaurants that would serve high quality ramen cuisine. [I d. at~ 11] In or about August 2010, Mr. Connaughton prepared and presented his ramen concept to Lettuce Entertain You Enterprise and to Maverick Cuisine. Maverick 6 Cuisine assisted Mr. Connaughton in preparing the ramen concept for sale to a restaurant group by developing a business plan with him, particularly a kitchen designed to his specifications. Several restaurant groups, including Chipotle, expressed an interest in Mr. Connaughton's concept. When Mr. Ells requested to extend an exclusive offer, Mr. Connaughton focused on consummating a deal with Chipotle. [Id. at~~ 12-14] 3. Connaughton and Ells reach an agreement. In November 2010, the owners of Maverick Cuisine introduced Mr. Connaughton to Mr. Ells. At their initial meeting, Mr. Connaughton described in detail his ramen concept. In tum, Mr. Ells expressed his significant interest. In the weeks following, Mr. Connaughton prepared a confidential business plan conceived around the existing Chipotle service platform under the registered domain name "Ramen Yokocho." On November 20, 2010, the plan was submitted to Mr. Ells. [R. 16-17 at~~ 15-18] Maverick Cuisine provided detailed kitchen schematics to Mr. Connaughton's specifications based upon Chipotle's service platform. Between November 2010 and January 2011, Messrs. Connaughton and Ells had several meetings and documented communications to discuss the menu, the service platform, and the ramen concept generally. On January 2, 2011, Mr. Ells 7 sent to Mr. Connaughton a formal request to purchase the ramen concept. In connection with the offer, Mr. Connaughton obtained legal and personal counsel. [R. 1 7 at ~~ 19-21] Mr. Ells' proposed that Mr. Connaughton be compensated for the ramen concept through an employment contract in which he would be paid a substantial amount of equity in the form of company stock (RSU and SAR grants). Initially, Mr. Connaughton was not interested because he preferred to be freelance, and thus able to continue work on other non-ramen-related consulting projects. Mr. Ells told him that this was not possible because the contemplated stock grants required that he be an employee. [!d. at~~ 22-23] Mr. Connaughton agreed to the employment contract, which was signed in February 2011. While his contract explicitly permitted him to engage in certain outside work, Mr. Connaughton was specifically no longer permitted to engage in the ramen concept for anyone but the defendants, nor was he to work on any other ramen-related projects outside of Chipotle. [!d. at~ 24] The equity granted to Mr. Connaughton under the employment contract was expressly paid in exchange for his work on the ramen project, vesting over two and three years (for the initial grants) and continuing annually so long as he remained employed and working on the ramen project. Mr. Connaughton was 8 given the title of "Culinary Director," a new position within the company, in principle respect to execute the new ramen concept. His name and likeness were used in several publications, including The Wall Street Journal, Fortune Magazine, and Time Magazine, to promote the hiring of a high level chef as marketing material for the Chipotle Mexican Grill and ShopHouse brand. [R. 17- 18 at~~ 25-27] Mr. Connaughton was also asked to speak with journalists and to appear publically in Chipotle-sponsored events and to give demonstrations and talks to promote Chipotle and ShopHouse. The principle reason for utilizing his likeness and name was to prepare the groundwork for the launch of the ramen restaurants. [R. 18 at~~ 28-29] 4. Connaughton begins to implement his ramen concept. Throughout 2011, Mr. Connaughton continued development work on the ramen concept. In December 20 11, he and a development team toured Japan visiting ramen restaurants and ingredient suppliers to prepare them specifically for the ramen project. In February 2012, Mr. Connaughton received his first annual review from Mr. Ells. The review was entirely positive and he received his full bonus and additional stock grants. Mr. Ells stated to Mr. Connaughton that this was the year to open ramen restaurants. In May 2012, Mr. Connaughton again 9 returned to Japan, along with a development team and Mr. Ells, to visit ramen restaurants and suppliers. Also on this Japan trip, he took a one-week private course that he arranged and co-developed with Yamato, a ramen noodle equipment manufacturer. [R. 18-19 at~~ 30-35] Upon his return from Japan, Mr. Connaughton began working intensively on the ramen concept. Mr. Ells reiterated in several communications that he was excited about opening ramen restaurants. Mr. Connaughton scheduled several ramen tastings, purchased development equipment, began development of proprietary ramen service equipment and systems, and prepared samples with suppliers. In September 2012, a lease was executed for a potential flagship ramen concept store located on 12th Street and University in Manhattan. The site was approved by both Mr. Connaughton and Mr. Ells for a ramen restaurant. [R. 19 at ~~ 36-39] 5. Connaughton first learns of the prior business dealings between Momofuku and Chipotle. In October 20 12, Mr. Connaughton, Mark Crumpaker, Chief Marketing Officer, and Tim Wildin, New Concept Development Director, had dinner at Momofuku Noodle Bar to taste food and meet the outgoing head chef whom Mr. Connaughton had proposed as a possible hire in the development of the ramen concept. At this dinner, Mr. Crumpaker confided to Mr. Connaughton that 10 Chipotle would not hire any former Momofuku employees, that Momofuku would sue Chipotle when the ramen concept opened, but that Mr. Ells had made a decision to proceed anyway. This was the first time Mr. Connaughton was made aware of a prior professional relationship between Momofuku and Chipotle. [R. 19-20 at~~ 39-41] At this dinner, Mr. Connaughton learned that back in 2008 Mr. Ellis and David Chang, the owner of Momofuku, had entered into a confidential business relationship whereby Mr. Chang agreed to develop a ramen concept. The ramen concept was identical in its basic business purpose and design as the one Mr. Ells contracted with Mr. Connaughton to design. [R. 20 at~~ 42-43] The non-disclosure agreement Mr. Ells signed required him to maintain as confidential the details of Mr. Chang's ramen concept, including menus and other business development ideas. Further, Momofuku also worked on the design for Chipotle's Dupont Circle property that later became the flagship restaurant for ShopHouse. [Id. at~~ 44-45] Mr. Chang never consented to the use of his design work for the opening of ShopHouse. Chipotle simply converted his work for its own utilization without any compensation. Mr. Chang also did not authorize Chipotle to use of any of his confidential work for the purpose of opening a ramen specific restaurant. Mr. 11 Connaughton also learned that when it became apparent that Mr. Chang and Mr. Ells could not agree upon financial terms for implementation of the ramen concept, Ells demanded that Chang tear up the non-disclosure agreement. [!d. at~~ 46-4 7] Mr. Chang refused to do so. Mr. Connaughton only learned of this following his termination by Chipotle. [Id. at~~ 48-49] 6. Defendants' withheld material information from Connaughton before he began at Chipotle. Mr. Ells never disclosed to Mr. Connaughton his prior business dealings with Mr. Chang when he entered into a business/employment relationship with him for his ramen concept. His prior business dealings with Mr. Chang were a material fact that substantially impacted Mr. Connaughton's ability to implement his own ramen concept with Mr. Ells. During his Chipotle employment, Mr. Connaughton regularly exchanged information directly with Mr. Ells, and other Chipotle staff, concerning his Ramen concept ideas, including menus, kitchen design, service platform, restaurant interior, and packaging specific to ramen. Likewise, as part of the collaborative process, Mr. Ells and other Chipotle staff communicated to Mr. Connaughton their own ideas concerning menu items, kitchen designs, service platform, restaurant interior, and packaging specific to ramen. [R. 21 at~~ 50-53] Upon information and belief, the information communicated by Chipotle 12 staff to Mr. Connaughton was information originally provided to Chipotle by Momofuku. Any implementation by Mr. Connaughton of his ramen concept while employed by Chipotle would inevitably violate the non-disclosure agreement between Chipotle and Momofuku. At a minimum, Mr. Connaughton and Chipotle, after implementation of the ramen concept, would be accused by Momofuku of violating its non-disclosure agreement with Chipotle and thereby stealing its ramen concepts. [R. 21-22 at~~ 54-56] Mr. Ells had a plain duty to fully disclose to Mr. Connaughton, prior to commencement of his employment, his prior business dealings with Mr. Chang because it materially and adversely impacted the fundamental business purpose for which he agreed to become employed. If Mr. Connaughton forged ahead and implemented his ramen concept at Chipotle despite its prior business dealings with Momofuku, his professional reputation would be ruined and, in all likelihood, he would have been subject to litigation. [R. 22 at~~ 57-58] He could never escape the accusation that he had stolen Momofuku's ramen concepts. IfChipotle's prior business dealings had been disclosed, Mr. Connaughton could have properly weighed the employment opportunity with Chipotle and decided whether he could realistically pursue his ramen proposal with Chipotle. [!d. at~~ 59-60] 13 7. Connaughton confronts Ells about Momofuku and his employment is terminated. In October 2012, Mr. Connaughton, without speaking to Mr. Chang or anyone else in the Momofuku organization, confronted Mr. Ells with the information he had received from Mr. Crumpacker concerning the agreement with Mr. Chang. Mr. Ells did not deny these prior business dealings. Instead, he ordered Mr. Connaughton to proceed with the ramen concept anyway, perfectly willing to drag Mr. Connaughton into a lawsuit despite the grave risks to him and his reputation. Mr. Connaughton was stunned that Mr. Ells had brazenly ordered him to proceed when he knew it would result in litigation. [!d. at~~ 61-64] On November 17, 2012, Mr. Ells, in the presence ofMr. Wildin, communicated to Mr. Connaughton that his employment was terminated. Ells stated that he was being fired because: (i) he was working for other clients [an untrue accusation, although it was permitted by his employment agreement] and (ii) he no longer had confidence in the ramen concept. [R. 22-23 at~~ 65-66] Mr. Ells certainly had good cause to lose confidence in the ramen concept- the revelation of his undisclosed deal with Mr. Chang destroyed any chance that he would be successful in continuing to induce Mr. Connaughton into unlawfully implementing the ramen concept. Mr. Connaughton was terminated because he confronted Mr. Ells concerning the fraud in which he had engaged - fraudulently 14 inducing Mr. Connaughton into entering into an employment relationship with defendants. [R. 23 at ~~ 67 -69] Mr. Connaughton reasonably relied upon defendants' misrepresentations to his material detriment. Defendants' failure to disclose to him its prior business dealings with Momofuku was purposeful and designed to induce Mr. Connaughton into working for Chipotle and, in particular, to induce him to work on his ramen concept for Chipotle. [!d. at ~~ 71-72] By his claims, Mr. Connaughton does not seek damages as a consequence of his termination. Rather, he seeks reliance damages because Chipotle and Ells fraudulently induced him into accepting employment with Chipotle, and forego alternative business opportunities and suffering damage to his professional reputation. [R. 23-24 at ~~ 7 4-7 6, 13-14] B. Procedural History of this Action. Mr. Connaughton commenced this action by filing a summons and complaint on June 3, 2012 [R. 13-25] On August 7, 2012, the defendants moved in lieu of an answer to dismiss the complaint, pursuant to CPLR Rule 3211(a)(l) and (7) and CPLR Rule 3016. [R. 1-2] The motion court heard oral argument on January 28,2014 and decided the motion orally [R. 84, 10 1-02] followed by a written decision and order entered 15 January 29, 2014 [R. 83] that was served with notice of entry on March 13, 2014. [R. 1 05-08] The decision and order was appealed to the Appellate Division, First Department, by a notice of appeal filed March 6, 2014. [R. 1 03-04] On January 19, 2016, the First Department determined the appeal in favor of respondents, as embodied in its decision and order, which was served with notice of entry on January 28, 2016. [CA. 111-13 8] The notice of appeal to this Court was filed on February 28, 2016. [CA. 139] 16 POINTS AND AUTHORITIES POINT I IN CONCLUDING THAT MR. CONNAUGHTON COULD NOT PROVE DAMAGES, THE MAJORITY DECISION WRONGLY ASSUMED THE ROLE OF FACT FINDER AT THE PLEADING STAGE, FAILED TO CONSTRUE THE COMPLAINT IN PLAINTIFF'S FAVOR AND DREW ALL REASONABLE INFERENCES AGAINST HIM A. Notice Pleading Rule Applies to Plaintiff's Obligation to Plead Damages Without question, Mr. Connaughton's complaint satisfied the liberal pleading standards of Article 30 of the CPLR and the case law interpreting same, as it related to his damages. The factual allegations concerning the damages he suffered were referenced in the complaint as follows: 5 .... [P]laintiffrelied upon the fact that defendants had made proper disclosure and invested a year and a half of his time with Chipotle, resulting in substantial financial injury and irreparable damage to his professional career. * * * 12. In or about August 2010, Mr. Connaughton prepared and presented his ramen concept to Lettuce Entertain You Enterprise ad to Maverick Cuisine. Maverick Cuisine assisted Mr. Connaughton in preparing the ramen concept for sale to a restaurant group, developing a business plan with him, particularly a kitchen design to his specifications. 17 13. Several restaurant groups, including Chipotle, expressed interest in Mr. Connaughton's ramen concept. 14. When Mr. Ells, however, requested to extend an exclusive offer, Mr. Connaughton focused on consummating a deal with Chipotle. [R. 14, 16] This was sufficient. See, Rani LLC v. Arfa, 18 N.Y.3d 846 (2011); 511 West 232nd Street Owners v. Jennifer Realty Co., 98 N.Y.2d 144 (2002). As the dissent noted, Mr. Connaughton was entitled to have his complaint liberally construed and all available inferences drawn in his favor. [CA. 124, 136]; CPLR § 3026; ABN AMRO Bank, N. V. v. MBIA Inc., 17 N.Y.3d 208,227 (2011); Leon v. Martinez, 84 N.Y.2d 83, 87-88 (1994). That did not happen here. Despite this longstanding rule, the majority refused to construe Mr. Connaughton's complaint liberally, instead finding without the benefit of a developed record that he suffered no damages and that any future injury was speculative. The majority decision demanded that Mr. Connaughton plead his damages in detail- a standard not required under CPLR § 3013 or Rule 3016. As the dissent explained: [D]amages need not be demonstrated at the pleading stage as long as the possibility of damages may reasonably be inferred. CPLR 3016 (b) only requires that "the circumstances constituting the wrong shall be stated in detail"; it does not require that a plaintiffs damages be stated in detail. 18 * * * A reasonable inference of general damages may be "implicit by the facts alleged" and does not need to be explicitly stated .... Here, it is implicit from the allegations contained in the pleaded complaint, which must, according to law, be construed liberally, that the position in which plaintiff was placed due to defendant's conduct may cause him, or may have already caused him, compensable damages, particularly the possibility of damage to his reputation, and perhaps even future legal expenses. [CA. 134-35] (citations omitted) (emphasis original). B. It Was Not Within the Court's Province to Find at the Pleading Stage That Plaintiff's Damages Were Speculative While Mr. Connaughton described with particularity the nature of his reliance injuries, including his lost business opportunities and injury to his professional reputation resulting from his acceptance of the Chipotle offer, he need only have alleged damages generally. Certainly, he is not required to prove his damages at the inception of the litigation. See, Caruso, Caruso & Branda, P. C. v. Hirsch, 41 A.D.3d 407 (2nd Dep't 2007) (at the pleading stage, damages need not be proven but only generally inferred from the allegations); Shiffman v. Empire Blue Cross, 256 A.D.2d 131 (1st Dep't 1998) (dismissal of complaint for failure to plead actual damages held improper). As the District Court reasoned in Kwon v. Yun, 2006 WL 416375, No. 05 Civ. 1142 (GEL) (S.D.N.Y. Feb. 21, 19 2006): Whether or not a plaintiff can assert a claim for a particular reputational or prospective loss, therefore, will often require a close assessment of the facts concerning, among other things, the certainty of the loss and the potential for its quantification. In this case, a more complete factual record is necessary before the Court can decide whether Kwon may claim relief for injury to business reputation, lost career prospects, and loss of future income. 2006 WL 416375 at* 12. The extent and nature of plaintiffs injuries cannot be judicially decided at the pleading stage. Record evidence, developed through discovery, will eventually substantiate the manner and the quantum ofMr. Connaughton's injuries. Neither the lAS Court nor the majority in the Appellate Division was in a position to find that the alleged damages, as pled, were speculative. C. Plaintiff's Damages for Lost Business Opportunities May Be Recovered as Reliance Damages in his Fraudulent Inducement Claim Because Mr. Connaughton, as pled in his complaint, passed up alternative business opportunities in order to work with Chipotle, these alternative missed business dealings falls squarely within reliance damages and thus recoverable. Enzo Biochem, Inc. v. Johnson & Johnson, No. 87 Civ. 6125 (KW), 1992 WL 309613 (S.D.N.Y. Oct. 15, 1992) ("[d]amages for fraud include the costs incurred 20 in preparing for, performing, or passing up other business opportunity, as well as costs incurred in making reasonable efforts to mitigate damages.") (quoting Commerzanstalt v. Telewide Systems, Inc., 880 F.2d 642, 648 (2nd Cir. 1989)). In finding against Mr. Connaughton, the Appellate Division reasoned that he could not recover his lost business opportunity damages. [CA. 117-18, 133-34] However, in reaching that conclusion, neither the majority nor the dissenting opinions of the Appellate Division distinguished between expectation and reliance damages. While it is correct that Mr. Connaughton would be precluded from recovering for expectation damages, in the form of a business loss, he can still recover for his reliance damages flowing from business deals he abandoned to pursue the Chipotle opportunity. If Mr. Connaughton proves that such alternative opportunities would likely have come to fruition, then his loss is recoverable as a category of reliance damages. Schonfeld v. Hilliard, 218 F .3d 164, 183 (2nd Cir. 2000); Fort Howard Paper Co. v. Wm. D. Witter, Inc., 787 F .2d 784, 793 n.6 (2nd Cir. 1986). D. Plaintiff May Recover At Least Nominal Damages for Fraudulent Inducement While nominal damages are not typically available in a tort action, they may be available in a fraud action when necessary to protect an "important technical right." Kronos v. AVX, 81 N.Y.2d 90, 95 (1993). The right not to be fraudulently 21 induced into committing one's time and talent to a fraudulent enterprise is an important "technical right." In any event, a liberal construction of the pleadings here at the commencement of the action allows an inference that nominal damages are available. At a minimum, however, the possibility of a nominal damages award renders dismissal of the complaint improper. POINT II DEFENDANTS' FAILURE TO DISCLOSE TO PLAINTIFF THAT IT HAD AN EXISTING AGREEMENT WITH A DIFFERENT CHEF TO DEVELOP A RAMEN NOODLE CONCEPT CONSTITUTED A FRAUDULENT OMISSION UPON WHICH MR. CONNAUGHTON REASONABLY RELIED TO HIS DETRIMENT A. At Will Employees May Claim Fraudulent Inducement. The majority opinion in the court below took no issue with the factual allegations supporting Mr. Connaughton's claims- that the defendants' intentional failure to disclose their secret business dealings with a different chef to develop the exact same ramen noodle concept as Mr. Connaughton satisfied sufficiently the elements of a claim for fraudulent inducement. Recently, the First Department confirmed that such claims are actionable in the context of an at-will employment relationship. Luduzinski v. Alvarez & Marsal Tax/and LLC, 132 A.D.3d 164{1 81 Dep't2015). 22 In Luduzinski, the court held: [ w ]here an at-will employee alleges an injury "separate and distinct from termination of the [his] employment," he may have a cause of action for fraudulent inducement (Smalley, 10 N.Y.3d at 59, 853 N.Y.S.2d 270, 882 N.E.2d 882 [emphasis added]; see e.g., Stewart v. Jackson & Nash, 976 F.2d 86 [2d Cir.1992]; see also Arbeeny v. Kennedy Exec. Search, Inc., 71 A.D.3d 177, 184, 893 N.Y.S. 2d 39 [1st Dept. 2010] [reviving at-will employee's claim of breach of contract for earned commissions] ). The at-will employee must allege not that his employer wrongly fired him, but that "[he] would not have taken the job in the first place if the true facts had been revealed to [him]" (Navaretta v. Group Health, 191 A.D.2d 953, 954, 595 N.Y.S.2d 839 [3d Dept. 1993]). 132 A.D.2d at 168 (emphasis original). While this Court has not explicitly addressed the viability of a fraudulent inducement claim in the context of employment at will, it did suggest in Smalley v. Dreyfus Corp., 10 N.Y.3d 55 (2008) that had an at-will employee alleged an injury distinct and separate from his termination, his claim would have survived. In this case, Mr. Connaughton has alleged reliance damages separate and apart from his termination. B. Where a Defendant Possess Superior Knowledge, and Intentionally Conceals it to the Detriment of the Plaintiff, a Claim for Fraudulent Inducement Lies Moreover, this Court has held that a contracting party's withholding of 23 superior knowledge may support a fraudulent inducement claim by the victim. ACA Financial Guaranty Corp. v. Goldman Sachs & Co., 25 N.Y.3d 1043 (2015); Stevenson Equipment, Inc. v. Chening Constr. Corp., 79 N.Y.2d 989 (1992). As the dissent below noted, because defendants herein possessed superior knowledge of their own business dealings with chef David Chang, a viable fraudulent inducement claim was alleged. [CA. 131-33] The dissent also correctly reasoned that the issue whether Mr. Connaughton "should have affirmatively asked" about other business dealings at the time of hire -an issue of fact- cannot be answered at this stage of the proceedings on the pleadings alone. Indeed, there could be numerous reasons why it would not have been reasonable to make that inquiry at the time and would depend on testimony from the parties concerning their communications. In ACA Financial, this Court reiterated that whether a plaintiff has failed to exercise reasonable diligence to investigate information not in his possession is not a question that can be resolved on the pleadings: "when the party to whom a misrepresentation is made has hints of its falsity, a heightened degree of diligence is required of it. It cannot reasonably rely on such representations without making additional inquiry to determine their accuracy". Nevertheless, the question of what constitutes reasonable reliance is not generally a question to be resolved as a matter of law on a motion to dismiss. 24 25 N.Y.3d at 1044-45 (quoting Centro Empresarial Cempresa S.A. v. America M6vil, S.A.B. de C. V., 17 N.Y.3d 269,279 (2011); DDJ Management, LLC v. Rhone GroupLLC, 15 N.Y.3d 147, 156 (2010). Although Mr. Connaughton had no reason to suspect that Chipotle was hiding any information from him, at a minimum he should have the same opportunity as the plaintiff in A CA Financial to continue to pursue his claims and at the appropriate time proffer evidence of his justifiable reliance and his damages. Because a fraudulent inducement claim may properly rest upon the superior knowledge of a defendant, which is intentionally withheld from a plaintiff to his detriment, Mr. Connaughton's fraudulent inducement claim was pled sufficiently and should not have been dismissed. 25 CONCLUSION It is respectfully submitted that, for the reasons set forth above, the order of the Appellate Division, First Department, entered January 19,2016, should be reversed, the second cause of action for fraudulent inducement should be reinstated, and the action should be remanded to the Supreme Court for discovery and trial. Dated: New York, New York March 24, 2016 Of counsel: Daniel J. Kaiser Henry L. Saurbom, Jr. KAISER SAURBORN & MAIR, P.C. Daniel J. Kaiser A Member of the Firm 111 Broadway, Suite 1805 New York, New York 10006 Telephone: (212) 338-9100 Facsimile: (212) 338-9088 Attorneys for Plaintiff-Appellant 26 AFFIDAVIT OF SERVICE BY MAIL Sharon Bruck, being duly sworn, deposes and says, that she is not a party to the within action, is over 18 years of age and resides in New York State. That on the 241h day of March, 2016, affiant served three copies of the within BRIEF FOR PLAINTIFF APPELLANT upon counsel for defendants-respondents by mailing a true copy of same to their offices via Fed Ex, in a sealed envelope with postage prepaid thereon, addressed to: MESSNER REEVES LLP 733 Third Avenue New York, New York 10017-5639 MORVILLO ABRAMOWITZ GRAND IASON & ANELLO P.C. 565 Fifth A venue New York, New York 10017 Sworn to before me this 241h day of March, 2016 ~.Q NOTARY PUBLIC HENRY L. SAURBORN JR. Notary Public, State of New York No. 31-49b3532 Qualified in New Yorl~ County /A Commission Expires July 1, 20 ~