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Court Finds the Exchange of Consideration With Respect to Alleged Oral Agreement Involving An At-Will Employee

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  • Posted on: Jun 19 2024

By: Jeffrey M. Haber

In Noto v. Planck, LLC, 2024 N.Y. Slip Op. 03340 (1st Dept. June 18, 2024) (here), the Appellate Division, First Department examined an at-will employee’s decision to refrain from leaving his employment with the company that employed him and whether that decision constituted consideration sufficient to support the formation of a contract. As discussed, the First Department held that such action sufficed.

Noto arose from an alleged agreement whereby defendants agreed, but failed, to pay plaintiff commissions and additional equity in the company for his expertise in the media industry.

In 2014, plaintiff began working for Planck, LLC (d/b/a Patch Media) (“Patch”) in accordance with an employment agreement signed by plaintiff and Patch’s then-CEO and managing partner. The agreement provided for a base salary, a guaranteed bonus determined as a fixed percentage of said salary, and “10 fully vested Class C Unit(s) of equity in [Patch].” The agreement further described plaintiff’s employment as “at-will.”

According to plaintiff, after he began working for Patch, Patch’s CEO agreed to provide plaintiff with an additional 75 units of equity in the company but did not reduce this promise to a written document. In 2016, a new CEO took over the reins of the company. Shortly thereafter, the new CEO sought plaintiff’s expertise in increasing Patch’s advertising revenue and agreed to pay plaintiff a ten-percent commission on the gross revenue that Patch received from his “then existing and future sales and revenue partnerships he personally generated.” Plaintiff alleged that he accepted this proposal, but the new CEO and Patch refused to provide written confirmation of the oral agreement for the commissions and later failed to tender the commissions owed.

Later in 2016, the former CEO and his partner, who together own DMEP Corporation (d/b/a Hale Global) (“Hale Global”), approached plaintiff to “assist them in their efforts to turn around the financial performance of one of their operating companies” known as Hawking LLC (d/b/a Market News International (“MNI”). They promised that in return for his work, plaintiff would receive a three percent equity interest in MNI. Plaintiff accepted the offer, however, plaintiff did not receive written confirmation of the agreement. According to plaintiff, when pressed for a writing, plaintiff was told “we will get you the agreement, but don’t worry about it, even if I have to pay you out of my own pocket you will receive your equity in Market News.” Despite these assurances, plaintiff alleged that he never received the equity interest in MNI.

In June 2022, plaintiff brought suit against defendants, asserting six causes of action over defendants’ failure to, among other things: (1) provide the 75 units of equity in Patch that was promised to plaintiff; (2) pay commissions owed as part of plaintiff’s agreement to increase the company’s advertising revenue; and (3) give the three-percent equity interest in MNI. These causes of action included, among others, breach of contract.

Defendants moved to dismiss each cause of action under CPLR 3211, which plaintiff opposed. The motion court granted the motion with regard to the breach of contract claims.

As an initial matter, the motion court dismissed plaintiff’s breach of contract cause of action based on the alleged agreements for commissions and for 75 units of equity as against Hale Global and MNI, as they were not parties to the agreements about which plaintiff complained. Additionally, the motion court dismissed plaintiff’s breach of contract cause of action based on the three-percent equity agreement against Patch and MNI, as they were not parties to an agreement about which plaintiff complained.

Regarding Patch, the motion court found that there was no exchange of consideration to support plaintiff’s breach of contract claim.[1] Consideration consists of either a benefit to the promisor or a detriment to the promisee.[2] In an “at-will” employment context, consideration may consist of an at-will employee’s decision to continue his employment or to refrain from doing an act that the employee has a legal right to do.[3]

In the complaint, plaintiff alleged that he was hired in late January 2014, and that soon thereafter, the CEO “agreed to grant Mr. Noto an additional 75 units of [Patch], though Patch never provided any documents or other written acknowledgement.” In the supplemental affidavit submitted in connection with the motion, plaintiff added, “My two equity claims … were intended as further compensation to me for my continued, additional efforts on behalf of Patch, as well as my added responsibilities for MNI.”

Defendants contended that these allegations did not indicate a promise from plaintiff to (a) do something which he was not already obligated to do, or (b) forgo certain rights to his legal detriment and, therefore, plaintiff did not allege the existence of a valid agreement for the equity units. More specifically, while acknowledging that an at-will employee’s decision to “continue employment” or “refrain from leaving” may constitute valid consideration,[4] defendants argued that plaintiff never offered consideration of that type. Rather, since he had just been hired by Patch, plaintiff was never considering leaving when he was offered the additional 75 units, meaning the “continued, additional efforts” amount to obligations that plaintiff already committed to performing in his employment contract.

The motion court agreed with defendants. The motion court explained that “[i]n the absence of allegations as to how plaintiff’s employment changed—for example, that defendants required plaintiff to take on new responsibilities or a new position, that the work was somehow more demanding or his performance expectations changed—the Court cannot find that, in exchange for the 75 units, plaintiff promised anything other than to perform obligations already expected of him.” The motion court found plaintiff’s argument in opposition—that plaintiff “refrained from resigning,” thereby creating consideration—to be “unpersuasive.” There were no allegations that plaintiff contemplated resigning or believed it to be an option at that time because plaintiff had just begun working for Patch, said the motion court.

“Since contracts must be supported by valid consideration to be enforceable, and plaintiff has not sufficiently pled this element of a contract,” concluded the motion court, “defendants have demonstrated entitlement to dismissal of plaintiff’s breach of contract claim based on this alleged agreement.”

On appeal, the First Department modified the order against Patch and otherwise affirmed.

The Court held that the “motion court should have denied defendants’ motion to dismiss plaintiff’s claim for 75 equity units in Planck, LLC d/b/a Patch Media (Patch) as against Patch.”[5] The Court found that the “complaint, supported by plaintiff’s [supplemental] affidavit, allege[d] that plaintiff was promised 75 equity units in Patch by Patch’s CEO, in part, as consideration to refrain from leaving his employment with the company.” As such, the Court held that plaintiff had “sufficiently pled a cause of action against Patch [Media] for breach of contract with respect to the 75 equity units in Patch.”[6]

With respect to plaintiff’s claim for 75 equity units in Patch as against MNI and Hale Global and his claim for 3% of MNI as against Patch and MNI, the Court held that the motion court properly dismissed the claims.[7] Like the motion court, the Court found that “plaintiff did not allege that MNI and Hale Global were parties to the oral agreement for 75 equity units in Patch, and did not allege that Patch and MNI were parties to the oral agreement for 3% of MNI.”[8] Accordingly, dismissal of those claims was appropriate.[9]

____________________________

Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP.

This article is for informational purposes and is not intended to be and should not be taken as legal advice.


[1] The elements of a cause of action for breach of contract are “the existence of a contract, the plaintiff’s performance thereunder, the defendant’s breach thereof, and resulting damages.” Harris v. Seward Park Hous. Corp., 79 A.D.3d 425, 426 (1st Dept. 2010).

[2] Lebedev v. Blavatnik, 193 A.D.3d 175, 183 (1st Dept. 2021).

[3] See Halliwell v. Gordon, 61 A.D.3d 932, 933-934 (2d Dept. 2009); cf Tierney v. Capricorn Investors, LP, 189 A.D.2d 629 (1st Dept. 1993) (no consideration for alleged promise to pay employee compensation greater than that set forth in the employment agreement as plaintiff already obliged to continue employment under written employment contract).

[4] Halliwell, 61 A.D.3d at 933.

[5] Slip Op. at *1.

[6] Id.

[7] Id.

[8] Id. at *1-*2 (citing Chestnut Holdings of N.Y., Inc., v. LNR Partners, LLC, 106 A.D.3d 575 (1st Dept. 2013), lv. denied, 21 N.Y.3d 866 (2013)).

[9] Id. at *1.

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