Zutrau v. Ice Sys. Inc.

Supreme Court, Suffolk CountyOct 28, 2011
37576-09 (N.Y. Sup. Ct. 2011)
37576-092011 N.Y. Slip Op. 51942

37576-09

10-28-2011

Leilani Zutrau, Individually and on behalf of Ice Systems, Inc., Plaintiff, v. Ice Systems, Inc. and John C. Jansing, Defendants.

LIDDLE & ROBINSON, L.L.P. Attorneys for Plaintiff. LITTLER MENDELSON, P.C. Attorneys for Defendants.


LIDDLE & ROBINSON, L.L.P. Attorneys for Plaintiff.

LITTLER MENDELSON, P.C. Attorneys for Defendants.

Elizabeth H. Emerson, J.

ORDERED that the motion by the defendants for summary judgment dismissing the complaint is granted to the extent indicated below; and it is further

ORDERED that the motion is otherwise denied.

The defendant ICE Systems, Inc. ("ICE"), which operates under the name "Proxytrust," provides proxy processing and related information services to the U.S. trust banking industry. The defendant John Jansing is ICE's President and majority shareholder. The plaintiff began working for ICE in 2000 as a consultant. In 2001, Jansing promised the plaintiff that he would grant her an equity interest in ICE if she worked with him to rehabilitate the company until it became profitable and could be sold. The plaintiff agreed. In 2004, she received a 22% equity interest in ICE and was appointed ICE's Treasurer and Secretary. Jansing reiterated that the purpose of her equity position was to ensure the plaintiff's continued employment with ICE until the company was sold. In February 2005, the plaintiff's job duties were expanded to Executive Vice President.

As an Executive Vice President and shareholder, the plaintiff was responsible for ICE's human resource and payroll functions, among other things. She instituted timekeeping software to track employee hours and attendance, in part, to ensure the proper payment of overtime to those employees who worked in excess of 40 hours a week. Jansing objected to her attempts to comply with the wage-and-hour laws. In early June 2007, he told the plaintiff to stop tracking the hours of certain non-exempt employees, including Walter Lotspeich, whom she supervised. When she refused, Jansing removed her as Lotspeich's supervisor, and her employment was terminated shortly thereafter.

At the end of 2005, the plaintiff advised Jansing that she had breast cancer. She continued to perform her functions as Executive Vice President, taking time off as needed for medical appointments and treatment. In December 2006, she discovered a lump in her lymph nodes that was subsequently diagnosed as cancerous. She informed Jansing and commenced drug therapy. At the end of May 2007, the plaintiff advised Jansing that she needed to take a two-month leave of absence for treatment. Her leave of absence was scheduled to begin on June 15, 2007, but she postponed it until June 30, 2007, to work on an internal audit. The defendants terminated her employment on June 20, 2007.

The plaintiff commenced this action on behalf of herself individually and on behalf of ICE derivatively. The amended complaint contains 10 causes of action. The plaintiff's individual claims are found in the first six causes of action, and the derivative claims in causes of action seven through ten. The defendants now move for summary judgment dismissing the complaint.

Although the defendants seek dismissal of the complaint in its entirety, their papers in support of the motion do not address the fifth cause of action for an accounting.

The First Cause of Action for Sex Discrimination

The parties agree that the plaintiff and Jansing had a consensual relationship that was sexual in nature between 2001 and 2003. While Jansing contends that the relationship ended in 2003, the plaintiff contends that it continued as a platonic relationship until 2007. The plaintiff also contends that, three weeks after she ended her platonic relationship with Jansing in 2007, he terminated her employment. The plaintiff further contends that, after she ended their relationship but before Jansing terminated her employment, he attempted to rekindle the relationship by calling her on the telephone and discussing personal matters with her. The plaintiff does not contend that the personal matters they discussed were sexual in nature.

Executive Law § 296 (1) (a) makes it an unlawful discriminatory practice for an employer to refuse to hire, to discharge, or to discriminate in compensation or in terms, conditions, or privileges of employment because of the sex of any individual (Mauro v Orville, 259 AD2d 89, 91). Under the current state of the law, a plaintiff seeking to recover for sexual harassment must proceed under one of two theories, i.e., sexual harassment by reason of a hostile work environment or quid-pro-quo sexual harassment (Id.).

Sexual harassment by reason of a hostile work environment occurs when an employer's conduct has the purpose or effect of unreasonably interfering with an individual's work performance or creating an intimidating, hostile, or offensive working environment (Id.). The law is violated when the workplace is permeated with discriminatory intimidation, ridicule, and insult that is sufficiently severe or pervasive to alter the conditions of the victim's employment and create an abusive working environment (Id.). The plaintiff makes no such allegations. Thus, she must proceed under the quid-pro-quo theory.

To make out a prima facie case of quid-pro-quo sexual harassment, the plaintiff must present evidence that she was subjected to unwelcome sexual conduct and that her reaction to that conduct was then used as a basis for her termination (Id. at 91-21). The gravamen of any sexual harassment claim is that the alleged sexual advances were unwelcome (Kahn v Objective Solutions, Intl., 86 F Supp 2d 377, *381; Mauro v Orville, supra at 93). Thus, discrimination against an employee on the basis of a failed voluntary sexual relationship does not, of itself, constitute discrimination because of sex (Id. at 92). Sexual harassment of the quid-pro-quo type occurs when unwelcome sexual conduct, whether requests for sexual favors, sexual demands or conduct of a sexual nature, is used either explicitly or implicitly as a basis for employment decisions affecting compensation, terms, conditions, or privileges of employment (18 NY Jur 2d, Civil Rights § 94, citing Fella v County of Rockland, 297 AD2d 813, Mauro v Orville, supra).

The plaintiff does not claim that a continued sexual relationship with Jansing was a condition of her employment. Indeed, she cannot make such a claim since it is undisputed that her employment with ICE continued for four years after her sexual relationship with Jansing had ended. Nor does the plaintiff claim that she was discharged because she refused to submit to Jansing's requests for sexual favors or sexual demands. Rather, she asserts that she was discharged because she terminated their platonic relationship and rebuffed Jansing's attempts to rekindle that relationship. This does not constitute quid-pro-quo sexual harassment. Accordingly, the defendants are entitled to summary judgment dismissing the first cause of action for sex discrimination.

The Fourth Cause of Action for Breach of Fiduciary Duty

The parties agree that Delaware Law applies to this cause of action. Although Delaware law recognizes that a shareholder owes a fiduciary duty to other shareholders when he owns a majority interest in or exercises control over the business affairs of the corporation (Ivanhoe Partners v Newmont Mining Corp., 535 A2d 1334, 1344), a shareholder of a closely held corporation who is also an employee cannot recover for a breach of fiduciary duty under Delaware law when the claim is based solely on an employment dispute (Wall Street Systems, Inc. v Lemence, US Dist Ct, SDNY, Sept. 2, 2005, Rakoff, J., at *8 , citing Riblet Prod. Corp. v Nagy, 683 A2d 37, 39-40). In Riblet, the Supreme Court of Delaware declined to hold the majority stockholders of a Delaware corporation liable for violating a fiduciary duty to a minority stockholder who was also an employee of the corporation with respect to issues involving his employment. The Riblet court recognized that, while the majority stockholders may have owed a fiduciary duty to the minority stockholder, the minority stockholder did not allege that his termination amounted to a wrongful freeze-out of his stock interest (Riblet at 40; see also, Clemmer v Cullinane, 62 Mass App Ct 904 [interpreting Riblet and Delaware law]).

A review of the plaintiff's fourth cause of action for breach of fiduciary duty reveals that the allegations consist of actions taken against the plaintiff as an employee, allegations that are derivative in nature , and allegations that the plaintiff was excluded from participation in the management of ICE and denied shareholder distributions. The court finds that the plaintiff may maintain the fourth cause of action only to the extent that she alleges she was excluded from participation in the management of ICE and denied shareholder distributions (see, Clemmer v Cullinane, supra at *905). The remaining allegations are either duplicative of her derivative claims or related to her employment claims. Accordingly, they are dismissed.

Allegations (d) and (e) are derivative and duplicative of the same allegations in the ninth cause of action, which is the plaintiff's derivative claim for breach of fiduciary duty.
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The Sixth Cause of Action for Breach of Contract

The plaintiff seeks to enforce a purported oral agreement to employ her for as long as she owned stock in ICE. The plaintiff contends that the agreement was entered into in 2001, when Jansing promised her an equity interest in ICE if she worked with him to rehabilitate the company until it became profitable and could be sold. The plaintiff further contends that Jansing reiterated his oral promise to continue to employ her until the company could be sold in 2004, when the parties executed a restricted stock agreement giving the plaintiff an equity interest in ICE. The restricted stock agreement provides, in pertinent part, as follows:

Neither the execution of this Agreement nor the issuance of the Shares hereunder constitute an agreement by the Company to employ or to continue to employ the [plaintiff] during the entire term of this Agreement (or any portion thereof), including but not limited to any period during which any Shares are outstanding.

* * *

This Agreement together with the Plan contain the entire agreement and understanding of the parties relating to the subject matter hereof, and supercede all prior agreements, understandings, representations, warranties and covenants of any kind between the parties with respect to this subject matter.

There is a heavy presumption that a deliberately prepared and executed written instrument manifests the true intention of the parties, and a correspondingly high order of evidence is required to overcome that presumption (Chimart Assoc. v Paul, 66 NY2d 570, 574). Thus, when parties set down their agreement in a clear and complete document, their writing should be enforced according to its terms. Evidence outside the four corners of the document as to what was really intended, but unstated or misstated, is generally inadmissible to add to or vary the writing (W.W.W. Assocs., Inc., v Giancontieri, 77 NY2d 157, 162). The parol evidence rule bars the consideration of extrinsic evidence of the meaning of a complete written agreement if the terms of that agreement, when considered in isolation, are clear and unambiguous (Id. at 162-163). The court finds that the parties' restricted stock agreement is clear and unambiguous. Moreover, it contains a merger clause. The purpose of a merger clause is to require full application of the parol evidence rule in order to bar the introduction of extrinsic evidence to vary or contradict the terms of the writing (Primex Intl. Corp. v Wal-Mart Stores, 89 NY2d 594, 599). The merger clause accomplishes this objective by establishing the parties' intent that the agreement is to be considered a completely integrated writing (Id. at 599-600). A completely integrated contract precludes extrinsic proof to add or vary its terms (Id. at 600). Thus, contrary to the plaintiff's contentions, the parol evidence rules bars evidence of the prior and contemporaneous oral agreement of the parties. Accordingly, the defendants are entitled to summary judgment dismissing the sixth cause of action.

The Derivative Causes of Action

As the defendants correctly contend, any individual claims raised by a shareholder in a derivative action present an impermissible conflict of interest such that she cannot adequately represent the other shareholders (see, Tuscano v Tuscano, 403 F Supp 2d 214, 223 [and cases cited therein]; see also, Baker v Andover Assocs. Mgmt., 30 Misc 3d 1218[A] at *16; JFK Family Ltd. Partnership v Millbrae Natural Gas Dev. Fund 2005, L.P., 21 Misc 3d 1102 [A] at * 15). The conflict arises because the derivative action seeks to enhance the value of the corporation generally by seeking recovery for the corporation on its own behalf. Conversely, the plaintiff-shareholder seeks a recovery against the corporation. Naturally, the plaintiff will pursue more vigorously the claim, individual or derivative, that will bring her the greatest economic benefit, and vigorous presentation of one claim will suffer (Id). Therefore, an individual shareholder cannot adequately represent other shareholders when she simultaneously brings a direct and derivative action (Wall Street Systems, Inc. v Lemence, US Dist Ct, SDNY, Feb. 8, 2005, Rakoff, J., at *3 ). While there is some authority to the contrary, this is the rule in Delaware, and the plaintiff's standing to maintain the derivative causes of action is governed by Delaware law since ICE is a Delaware corporation (JFK Family Ltd. Partnership, supra at *14-*15). Accordingly, the derivative causes of action (seven through ten) are dismissed without prejudice, and the plaintiff may recommence a separate derivative action if she be so advised.

The Remaining Causes of Action

The court finds that triable issues of fact preclude an award of summary judgment to the defendants on the second and third causes of action for disability discrimination and retaliatory discharge, respectively. Moreover, the court adheres to its prior determination that the plaintiff's retaliatory-discharge claim is support by alleged violations of the Labor Law, specifically §§ 195(4) and 679, which require employers to keep records of the hours worked and wages paid to employees. Accordingly, summary judgment is denied as to the second and third causes of action.

J.S.C.