PA Bergner & Co. v. Martinez
| Decision Date | 25 May 1993 |
| Docket Number | No. 92 Civ. 6501 (RWS).,92 Civ. 6501 (RWS). |
| Parties | P.A. BERGNER & CO., Plaintiff, v. Arthur C. MARTINEZ and Sears, Roebuck & Co., Defendants. |
| Court | U.S. District Court — Southern District of New York |
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Weil, Gotshal & Manges, New York City by Michael A. Epstein, of counsel, for plaintiff.
Sullivan & Cromwell, New York City by Gandolfo V. DiBlasi, of counsel, for defendants.
Defendants, Arthur C. Martinez ("Martinez") and Sears, Roebuck & Co. ("Sears"), have moved to dismiss the complaint of Plaintiff P.A. Bergner & Co. ("Bergner") pursuant to Rule 12(b)(6) and Rule 9(b), Fed. R.Civ.P. For the reasons given below, the motion is denied.
On a motion to dismiss, the court will accept the facts supplied by the non-movant and draw all inferences in the opposing party's favor. These facts, accordingly, are drawn from the Plaintiff's Complaint and Memorandum in Opposition, and do not represent findings of fact by this Court.
Bergner, an Illinois corporation indirectly but wholly owned by a Swiss company, Maus Freres, S.A. ("Maus Freres"), owns and operates together with its subsidiaries some 68 department stores in Wisconsin, Illinois, Indiana and Minnesota. On August 23, 1991, Bergner filed a voluntary petition for reorganization and protection from its creditors under Chapter 11 of the United States Code in the Eastern District of Wisconsin. As part of its restructuring, Bergner and its creditors have been searching for a new and appropriate CEO (its former CEO resigned on May 6, 1991).
On May 1, 1992, Bertrand Maus ("Maus"), Chairman of Bergner, met with Arthur Martinez, then Vice Chairman of Saks & Co., which owns and operates Saks Fifth Avenue ("Saks"). Martinez's employment contract with Saks was terminable at will, but it also specified certain severance benefits if Saks terminated Martinez without cause. On May 9, Martinez met with two other partners of Maus Freres, Didier Maus and Philippe Nordmann. By May 15, Martinez and Bertrand Maus were engaged in negotiating the terms of Martinez's employment agreement as CEO of Bergner. On May 27, Martinez sent a term sheet to Maus listing his initial terms and conditions for employment, and on June 9, Maus sent Martinez Bergner's term sheet. On June 19 and 20, 1992, Martinez went to Geneva, Switzerland, to meet with the partners of Maus Freres and to discuss the details of Bergner's plan of reorganization.
On June 20, 1992, after extensive negotiations, Bergner alleges that Martinez and the three partners of Maus Freres orally agreed on specific terms of employment which Bergner alleges were set down in full in a 24-page draft employment agreement (the "Draft Employment Agreement"). The Draft Employment Agreement was labeled "privileged and confidential" per Martinez's request; plans were also made to file the motion requesting Bankruptcy Court approval of Martinez as CEO of Bergner either in camera or under seal.
The Bankruptcy Court had to approve Martinez's appointment and the terms of his contract because Bergner was in reorganization under Chapter 11 (see, e.g., 11 U.S.C. § 1108). Martinez requested an indemnification agreement to protect him in the event that Saks were to terminate his employment because of his negotiations with Bergner, but Maus refused to provide one until Martinez committed to becoming CEO. Once Martinez orally committed himself to becoming CEO, Maus supplied an indemnification agreement. On July 6, 1992, Maus in his capacity as Partner of Maus Freres and Martinez entered into a formal written agreement that if (i) the Bankruptcy Court did not approve the appointment of Martinez as Bergner's CEO on or before September 15, 1992, and (ii) Saks terminated Martinez's employment without cause and failed to honor certain obligations to him, then Maus Freres would indemnify Martinez for certain losses (the "Indemnification Agreement"). These losses, enumerated in the Indemnification Agreement, included any amounts due but unpaid to Martinez from Saks, unpaid severance, the cost of Saks' stock purchased by Martinez which he had a right to require Saks to repurchase, and all out-of-pocket costs incurred by Martinez in pursuing his rights against Saks. The Indemnity Agreement gives an exact number only for the cost of stock, which it states that Martinez has represented as being worth $972,900, but it clear that, all told, Maus could easily be liable for more than a million dollars under the Indemnity Agreement. The Indemnification Agreement did require Martinez to first attempt to collect these sums from Saks.
The Indemnification Agreement stated that it was based on Martinez's "willingness to enter into such agreement of employment as and when it is approved by the Bankruptcy Court." However, it also stated that, "although you have not legally committed to do so, you have advised Bergner that it is your present intention to enter into the Employment Agreement with Bergner if and when it is approved by the Bankruptcy Court and thereupon terminate your employment with Saks." (Def.Aff.Ex. A at 30).
That same day, as soon as the ink was dry on the Indemnification Agreement, Martinez informed Bergner that he had notified senior officer at Saks that he was terminating his employment agreement with Saks to become Bergner's CEO (Pl.Compl. ¶ 25). However, he told Saks that he would complete several projects that he was working on for them at the time.
On July 7, 1992 (the day after the Indemnification Agreement was signed and Martinez quit his employment with Saks), Martinez met in New York with the management team of Bergner and reviewed Bergner's business and strategic plans. On July 13, 1992, the Board of Directors of Bergner appointed Martinez to serve as CEO and approved the Employment Agreement; this was subject, of course, to the Bankruptcy Court's approval. Finally, in mid-July 1992, Martinez and his counsel reviewed and approved a joint press release for use if the parties' intentions became public, announcing Martinez's appointment as CEO of Bergner and stating that Martinez was "enthusiastic about the opportunity to join the P.A. Bergner organization." During this time, however, Martinez responded to a request for comment about rumors of his departure from his current position by a leading trade newspaper for the apparel industry by stating that, "I don't plan to leave" on July 9, 1992.
Between July 20 and July 24, Bergner and the two creditors' committees set up in Bergner's bankruptcy case, the Bank Creditors' Committee and the Trade Creditors' Committee, met in order to secure the committees' support for Martinez's appointment as Bergner's CEO. On July 27, the Bank Creditors' Committee announced its approval of the appointment of Martinez as CEO. When counsel for Bergner tried to reach Martinez with this news on July 28, however, they were informed that Martinez was negotiating about becoming CEO with Sears. Maus called Martinez about this on July 29, and Martinez assured him that the call from Sears was unsolicited, that he was committed to Bergner, and that he would break off all talks with Sears immediately. (Pl.Compl. at ¶ 38).
On August 5, 1992, counsel for Bergner filed a motion with the United States Bankruptcy Court for the Eastern District of Wisconsin, requesting approval for the appointment of Martinez as CEO of Bergner. Hearing on the motion was scheduled for August 11, 1992, and arrangements were made for Martinez to be in Wisconsin on Monday, August 10, to prepare for the hearing.
On August 10, 1992, counsel for Martinez called Bergner's attorneys and informed that Martinez had already accepted and signed an employment agreement with Sears. This lawsuit followed.
Bergner alleges seven causes of action altogether, four against Martinez (misrepresentation and fraud, detrimental reliance, breach of the indemnification agreement, and breach of the oral agreement to enter into an employment agreement) and three against Sears (tortious interference with contractual relation for each of two contracts and another for prospective business advantage). All parties agree that all claims are governed by New York law and that Bergner, as the intended third-party beneficiary of the Indemnification Agreement between Maus and Martinez, has standing to sue on the Indemnification Agreement.
Bergner alleges that Martinez breached two contracts with Bergner, and did so through misrepresentation and fraud. Martinez asserts that neither set of circumstances alleged by Bergner constitutes a contract between the parties, denies the allegations of fraud, and asserts that the incidental business expenses to which Bergner was put cannot justify Bergner's claim for detrimental reliance.
There are at least two distinct types of preliminary contracts with binding force. Teachers Ins. & Annuity Ass'n v. Tribune Co., 670 F.Supp. 491, 498 (S.D.N.Y.1987). The first type occurs when the parties have reached complete agreement on all the issues which require negotiation. Id. Such an unwritten agreement may take effect before the formal writing is drawn up and signed, since the parties have intended the informal agreement itself to be the contract and the writing is a mere memorialization of it. Id.; see also V'Soske v. Barwick, 404 F.2d 495, 499 (2d Cir.1968), cert. denied, 394 U.S. 921, 89 S.Ct. 1197, 22 L.Ed.2d 454 (1969), quoting Restatement (Second) of Contracts § 26 , 1 Corbin on Contracts § 30 (1950), 1 Williston on Contracts § 28 (2d ed. 1957).
Bergner alleges that the existence of the Draft Employment...
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