Bigda v. Fischbach Corp.

• Decision Date: 08 June 1995
• Docket Number: No. 92 Civ. 2226 (RLC).,92 Civ. 2226 (RLC).
• Citation: 898 F. Supp. 1004
• Parties: John P. BIGDA, Plaintiff, v. FISCHBACH CORPORATION, Defendant.
• Court: U.S. District Court — Southern District of New York

898 F. Supp. 1004

John P. BIGDA, Plaintiff, v. FISCHBACH CORPORATION, Defendant.

No. 92 Civ. 2226 (RLC).

United States District Court, S.D. New York.

June 8, 1995.

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COPYRIGHT MATERIAL OMITTED

Andrew S. O'Connor, New York City, for Plaintiff.

Patterson, Belknap, Webb & Tyler, New York City, (Ellen M. Martin, of counsel), for Defendant.

OPINION

ROBERT L. CARTER, District Judge.

Plaintiff, John Bigda, alleges the breach of his employment agreement and the termination of the stipulation of settlement entered into between defendant Fischbach Corporation ("Fischbach") and Victor Posner which, while allowing Posner to gain control of Fischbach, sought to bar his interference with the company's management and operations. In his first cause of action, Bigda seeks liquidated damages consisting of $601,377, an amount equal to three times plaintiff's annual salary; $112,661, the present value of three additional years of credited service; $7,644, the cost of the continuation for three years of plaintiff's health insurance benefits; and the legal fees and expenses incurred as a result of the termination of the employment agreement. In his eighth cause of action, he seeks a declaratory judgment that the forfeiture clause of the Senior Executive Benefit Plan is unenforceable.¹

Defendant contends that Bigda's claims should be dismissed because the employment agreement has not been breached; that in any event Bigda continued to perform under the contract up to and after he terminated the employment agreement on October 3, 1990; that the liquidated damages provision in the employment agreement constitutes a penalty and is therefore unenforceable; and that plaintiff is guilty of breaches of good faith. Moreover, defendant contends that plaintiff is liable for breach of fiduciary duty extending from May 1989, to December 31, 1991 inclusive, entitling defendant to damages on its counterclaim in the amount of $519,701.76, the equivalent of the salary paid to him by Fischbach during the period in question.

I. Background

The background facts in this controversy preceding those at issue at this stage of the proceedings have been detailed in the court's April 19, 1994 opinion, reported at 849 F.Supp. 895, with which familiarity is assumed, and will be repeated here only as is necessary for clarity and understanding of the current disposition.

In 1980, Victor Posner, who had already gained considerable notoriety as a corporate rapist, began to purchase Fischbach's outstanding stock through Pennsylvania Engineering Corporation ("PEC"), one of the companies Posner controlled. To ward off a takeover, Fischbach and PEC entered into an agreement limiting the percentage of outstanding stock PEC and its allies could acquire. In 1984, Posner and his allies brought suit in Florida to set aside the limiting agreement. In January, 1985, the dispute was resolved in a stipulation of settlement that gave ultimate control of the company to Posner but sought to rein in that control by keeping full operational responsibility and authority in the hands of those who had managed the company before Posner's intrusion. In particular, it was stipulated that Alfred R. Manville would remain as President and CEO of Fischbach, that he would provide for management continuity, and that he would designate a successor. Certain employees were given five-year employment contracts providing them with job security and generous prerogatives and entitlements if their employment agreements were breached or terminated. Plaintiff was the recipient of one of those employment contracts, and his agreement, dated October 25, 1985, is the focus of this litigation.

Once in control, Posner repudiated the stipulation. He dismissed the Manville people from the Board, refused to honor the commitment to appoint Manville's designated successor, Edwin Wilinski, as CEO, and took over Fischbach's bank accounts. Under Posner's five-year stewardship, the defendant accumulated enormous debt and came close to collapse.

In November, 1989, American Insurance Group ("AIG") entered into an option agreement with Posner to buy out his shares in Fischbach. On July 17, 1990, AIG acquired 94.9% of Fischbach's stock. On August 15, 1990, Fischbach became a subsidiary of AIG. Plaintiff remained an employee of Fischbach until December, 1991.

By letter dated October 3, 1990, however, plaintiff terminated the October 25, 1985 employment agreement, and he brings this action to secure various entitlements specified in the agreement. Initially, Bigda sought to recover for breaches occurring during the Posner regime as well as those which took place after the AIG takeover. In its April 1, 1994 opinion, the court held that plaintiff had no cause of action for breaches during the Posner era on the grounds that Bigda had elected to continue performing under the agreement and could not now sue for its breach. Bigda v. Fischbach Corporation, 849 F.Supp. 895, 901 (S.D.N.Y.1994) (citing Filmline (Cross-Country) Prods., Inc. v. United Artists Corp., 662 F.Supp. 798, 805 (S.D.N.Y.1987) (Sprizzo, J.), aff'd, 865 F.2d 513 (2d Cir.1989)). Summary judgment was granted to defendant on all matters relating to the Posner era, but the court allowed Bigda to present evidence at trial regarding breaches that may have occurred during the AIG era, reserving judgment regarding whether he had elected to continue his contract during that era as well. Id. These issues, along with defendant's counterclaim, were tried to the court and are now the focus of inquiry.

II. Breaches of the Employment Agreement

After its takeover, AIG installed Donald Brenner as President and Chief Executive Officer ("CEO") of the company. On assuming office, Brenner met with the staff and invited each of them to meet with him privately to discuss their personal situations. Bigda sought to meet with Brenner for this discussion, but according to Bigda's testimony, the meeting never took place.

Brenner distributed a questionnaire to the employees requesting them to list their duties, functions, reporting responsibilities and critical matters needing his immediate attention. Plaintiff responded, describing his duties as Secretary and General Counsel as being

responsible for all Secretarial and legal matters, including litigation, involving the Corporation and its subsidiaries. I direct the activities of scores of law firms throughout the country in the handling of our litigation and other legal matters. I am an officer and director of all subsidiaries; Security Clearance Officer for the Fischbach facility here at 485 Lexington Avenue; and Anti-Trust Compliance Counsel for F & M a subsidiary of Fischbach under its agreement with the Dept. of the Army.

(Pl.Ex. 25.)

Plaintiff identified the following as critical matters needing Brenner's immediate attention: implementation of the merger and formation of Fischbach/Natkin Associates (see discussion infra at 1009); delisting of the company's common stock on the N.Y.S.E.; deregistration by the S.E.C.; claims by DWG (a Posner company), Posner and the Manville estate; settlements of lawsuits by Aetna and Travelers Insurance Company ("Travelers"); the Florida lawsuit; anti-trust litigation; and legal matters arising in the normal course of business. (Pl.Ex. 25.) In addition, he listed as important the designation of outside counsel and his continued employment. (Id.; Tr. at 101-02.) Brenner never replied to this communication or met with plaintiff on any of these matters. Some of these matters were handled without consultation with plaintiff by third parties or employees in whose selection or designation plaintiff played no part.

When AIG acquired Fischbach, negotiations were taking place between AIG and Peter Kiewitt & Sons ("Kiewitt") to form a joint venture to which some of Fischbach's assets would be sold. In anticipation of the joint venture, a new company, Fischbach/Natkin Associates ("NEWCO"), was incorporated. In early September, 1990, a meeting was held in Denver, Colorado to usher in the new enterprise. The plaintiff was invited to attend this meeting but declined to do so. At that meeting, an organizational chart of NEWCO was distributed showing another lawyer, Tom Shea, as reporting to NEWCO's chief operating officer, making Shea general or chief counsel of this new company. On September 13, 1990, after seeing the chart, Bigda faxed the chart to Richard D'Alessandri, an AIG attorney, along with an inquiry as to whether he had been replaced as Fischbach's General Counsel. D'Alessandri responded by phone, explaining that the chart referred to NEWCO and that Bigda would continue as Fischbach's General Counsel. (The joint venture never came to fruition and NEWCO was abandoned shortly after the Denver meeting.)

On September 14, 1990, Bigda again wrote to D'Alessandri, inquiring whether AIG would be interested in extending his employment agreement. (Tr. at 438-39.) As a result of this letter, Bigda met with D'Alessandri, Brenner and Mark Reagan, a senior AIG executive dealing with Fischbach issues, on September 26, 1990. Reagan presented a proposal for Bigda's continued employment. Bigda stated that he believed that he had a cause of action for breaches of his employment agreement by Posner which would enable him to secure termination benefits. The other parties did not wish to talk about that. Bigda said that other employees, for example Robert Niehaus, former Acting President of Fischbach, were receiving or had received better deals than the one that was being proposed for him. Reagan told him to think about what was being proposed for him, and the meeting ended. (Tr. at 722-23.) On October 2, 1990, Bigda wrote to D'Alessandri regarding severance pay. On October 3, 1990, he sent a letter, addressed to the chairman of Fischbach, terminating his contract. At the time, Fischbach had no chairman, and the termination letter was received by the company's receptionist....