Stewart v. Jackson & Nash
| Decision Date | 23 September 1992 |
| Docket Number | D,No. 1347,1347 |
| Citation | 976 F.2d 86 |
| Parties | , 127 Lab.Cas. P 57,631, 7 IER Cases 1322 Victoria A. STEWART, Plaintiff-Appellant, v. JACKSON & NASH; Laurence G. Bodkin, Jr., Paul H. Decoster; William R. Dunlop; Ronald S. Herzog; Susan Frank Kelley; Albert L. Lingelbach; Edward Maguire, Jr., Joseph Michaels IV, C. Frederick Rogge III, Christopher S. Rooney, Roger D. Smith, and Jeffrey G. Steinberg, Defendants-Appellees. ocket 92-7056. |
| Court | U.S. Court of Appeals — Second Circuit |
Neal Brickman, New York City for plaintiff-appellant.
Ronald S. Herzog, Jackson & Nash, New York City, for defendants-appellees.
Before: OAKES, WALKER, Circuit Judges, and LEVAL, District Judge *.
Victoria A. Stewart appeals from a December 3, 1991 Judgment of the United States District Court for the Southern District of New York (Charles S. Haight, Judge ) dismissing Stewart's complaint pursuant to Fed.R.Civ.Pro. 12(b)(6) for failure to state a claim upon which relief can be granted. 778 F.Supp. 790. We agree that Stewart fails to state a claim for negligent representation, but hold that she does state a claim for fraudulent inducement. We accordingly affirm in part, and reverse and remand in part.
Plaintiff Victoria A. Stewart alleges the following facts which, for purposes of this appeal from a Rule 12(b)(6) dismissal, we take to be true. LaBounty v. Adler, 933 F.2d 121, 123 (2d Cir.1991). Stewart, who currently resides in California, is an attorney admitted to practice law in the State of New York. Prior to October 1988, she was employed in the environmental law department of the New York law firm of Phillips, Nizer, Benjamin, Krim & Ballon. Ronald Herzog, a partner in the firm of Jackson & Nash, defendants-appellees in this action, contacted Stewart while at Phillips, Nizer regarding the possibility of employment with his firm. Herzog allegedly "represented to Stewart that Jackson had recently secured a large environmental law client, that Jackson was in the process of establishing an environmental law department, and that Stewart would head the environmental law department, and be expected to service the firm's substantial existing environmental law client." Stewart asserts that, in reliance on these representations, she resigned her position with Phillips, Nizer in October 1988 and the following month began work at Jackson & Nash.
Upon her arrival, Stewart alleges that Jackson & Nash put her to work primarily on general litigation matters. When she inquired about the promised environmental work, Herzog repeatedly assured her that it would be forthcoming and "also consistently advised [her] that she would be promoted to a position as head of Jackson's environmental law department." The major environmental law client and substantial environmental case work, however, never materialized. Finally, in May 1990, a Jackson & Nash partner allegedly informed Stewart that "Jackson had never 'really' had this 'type' of work, nor had [it], in fact, secured an environmental law client." Jackson & Nash dismissed Stewart on December 31, 1990. Jackson & Nash, in its affidavit in support of the motion to dismiss, asserts that it engaged in a year-long effort to acquire environmental work but concedes that it failed to achieve this end.
Count I of Stewart's complaint, filed April 11, 1991, alleges that Jackson & Nash fraudulently induced her to enter into and remain in its employ. Stewart asserts that she took the position with the firm in reliance on its knowing misrepresentations, as outlined above. She claims that her "career objective--continuing to specialize in environmental law--was thwarted and grossly undermined during her employment with Jackson," and that she suffered "loss of professional opportunity, loss of professional reputation" and damage to her "career growth and potential." Count II alleges negligent misrepresentation. Stewart requests compensatory and punitive damages.
The district court, in an opinion entered November 27, 1991, granted defendants' Fed.R.Civ.Pro. 12(b)(6) motion and dismissed Stewart's complaint for failure to state a claim upon which relief can be granted. On December 2, 1991, the court entered judgment. Stewart appeals.
On a motion to dismiss under Rule 12(b)(6), "all factual allegations in the complaint must be taken as true and construed favorably to the plaintiff." LaBounty v. Adler, 933 F.2d 121, 123 (2d Cir.1991). The motion must be denied "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 102, 2 L.Ed.2d 80 (1957). While we agree with the district court's dismissal of the negligent
misrepresentation claim alleged in Count II, we conclude that the Count I fraud claim survives the motion to dismiss.
The district court found that Stewart's fraud claim arose from her termination from the firm and dismissed Count I on the authority of Murphy v. American Home Prod. Corp., 58 N.Y.2d 293, 461 N.Y.S.2d 232, 448 N.E.2d 86 (1983). Murphy held that because at-will employees "may be freely terminated ... at any time for any reason or even for no reason," they can neither challenge their termination in a contract action nor "bootstrap" themselves around this bar by alleging that the firing was in some way tortious. Id. at 300, 304, 461 N.Y.S.2d at 235, 237, 448 N.E.2d at 89, 91. Following Murphy, the court concluded that Stewart, an at-will employee, could not state a fraud claim based on facts arising out of her termination.
We find Murphy distinguishable. In Murphy, the plaintiff, an at-will employee of the defendant, claimed that he had been fired in a tortious manner. He alleged that his firing " 'was deliberately and viciously insulting, was designed to and did embarrass and humiliate plaintiff and was intended to and did cause plaintiff severe mental and emotional distress thereby damaging plaintiff.' " Id. 58 N.Y.2d at 298, 461 N.Y.S.2d at 234, 448 N.E.2d at 88 (quoting from complaint). These tort allegations, springing as they do directly from the termination itself, are a transparent attempt to restate the forbidden contractual challenge in the guise of tort.
Stewart's alleged injuries, on the other hand, commenced well before her termination and were, in several important respects, unrelated to it. According to the complaint, Jackson & Nash's misrepresentations caused Stewart, a budding environmental lawyer, to leave a firm with an environmental practice and spend two years at one in which she was largely unable to work in her chosen specialty. The resulting damage to her career development was independent of her later termination from Jackson & Nash and began while she was still at the firm. As stated in her complaint, Stewart's "career objective--continuing to specialize in environmental law--was thwarted and grossly undermined during her employment with Jackson." (Emphasis added). Although Murphy precludes an award of damages for injuries caused by her termination, it does not prevent her from recovering for injuries that resulted from her reliance on the defendants' false statements. Calloway v. Munzer, 57 Misc.2d 163, 291 N.Y.S.2d 589 (Sup.Ct.1968).
Appellees Jackson & Nash urge a second ground for dismissal of Count I. They contend that Stewart's alleged injuries, both pre-termination and termination-related, result in substance from broken contractual promises regarding the terms and conditions of her employment. Such broken promises, they contend, cannot support a fraud claim because 60 N.Y.Jur.2d Fraud and Deceit § 19 at 455-56 (1987); see also Dalton v. Union Bank of Switzerland, 134 A.D.2d 174, 176, 520 N.Y.S.2d 764, 766 (1st Dept.1987); Tesoro Petroleum Corp. v. Holborn Oil Co. Ltd., 108 A.D.2d 607, 484 N.Y.S.2d 834 (1st Dept.1985) (mem.); Chase v. United Hospital, 60 A.D.2d 558, 400 N.Y.S.2d 343, 344 (App.Div.1977); Miller v. Volk & Huxley, Inc., 44 A.D.2d 810, 355 N.Y.S.2d 605, 606-607 (1st Dept.1974) (per curiam). Appellees' argument boils down to an assertion that Stewart's claim is nothing more than a contract action which, since it is based on an oral agreement, is not enforceable under New York's Statute of Frauds. See N.Y.Gen.Obligations L. § 5-701 (McKinney 1989).
Stewart contends that the firm's misrepresentations are actionable under a theory of fraud in the inducement. She correctly points out that under New York law "[i]t is elementary that where a contract or transaction was induced by false representations, the representations and the contract are distinct and separable.... Thus, fraud Stewart alleges four misrepresentations: (1) "Jackson had recently secured a large environmental law client"; (2) "Jackson was in the process of establishing an environmental law department"; (3) "Stewart would head the environmental law department"; and (4) "[Stewart would] be expected to service the firm's substantial existing environmental law client."
in the inducement of a written contract is not merged therein so as to preclude an action for fraud." 60 N.Y.Jur.2d Fraud and Deceit § 206 at 740 (1987) (citing cases)
As to representations (1) and (2), we find dispositive the New York Court of Appeals' distinction between a prospective business partner's "promissory statement[s] as to what will be done in the...
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