Canet v. Gooch Ware Travelstead

Decision Date21 February 1996
Docket NumberNo. CV-89-2610 (DGT).,CV-89-2610 (DGT).
Citation917 F. Supp. 969
PartiesEduardo CANET, Plaintiff, v. GOOCH WARE TRAVELSTEAD, Defendant.
CourtU.S. District Court — Eastern District of New York


Daniel A. Pollack, Martin I. Kaminsky and W. Hans Kobelt, Pollack & Kaminsky, New York City, for plaintiff.

Jack G. Stern, Wendy Z. Brenner, Duker & Barrett, New York City, for defendant.


TRAGER, District Judge:

This action presents issues regarding the enforceability, under New York law, of an oral contract of employment that included terms promising bonuses and equity participations in projects undertaken by the employee for his employer, a real estate developer.

The lawsuit was filed in 1989 by Eduardo Canet, a New York resident, against Gooch Ware Travelstead, a Connecticut resident who was Canet's former employer. Jurisdiction was based on diversity of citizenship under 28 U.S.C. § 1332. The complaint sought damages for breach of contract and requested a declaratory judgment prohibiting the defendant from collecting on his promissory note until he paid the plaintiff's 1988 bonus. The defendant asserted a counterclaim for immediate payment of the promissory note. The liability portion of this lawsuit was tried to the court for five days from September 28, 1995 to October 5, 1995.

Although plaintiff worked on assignments in Florida, Kuwait, England and Spain for substantial periods, and while arguments could be made that some of these laws, if different, should be applied, both parties have relied upon New York law throughout these proceedings without objection. Moreover, it is conceded that the original oral employment contract between Travelstead and Canet, whatever its terms, was made in New York, as were most of the subsequent promises detailing terms missing from the original agreement.

For reasons more fully set forth below, Canet is entitled to recover on his claim for his 1988 bonus and to pursue his claim for an accounting with regard to his ten percent interest in the 712 Fifth Avenue project to determine if he received the full amount he was promised. Although a limited partnership was not formed by Travelstead's oral grants to Canet of percentage participations in his projects, Canet's claims with regard to the Barcelona project may be enforced as a joint venture between Canet and Travelstead. In addition, Canet's claims with regard to that project as well as the others may be enforced as "a payout of a profit interest," as promised by Travelstead, Tr. at 337, or, alternatively, as a term of the original employment contract that included incentive compensation in the form of equity participation. Travelstead is entitled to collect on his mortgage on the Canets' Remsenberg house.

I. Findings of Fact

Plaintiff, Eduardo Canet (Canet), an MBA graduate of Columbia University, first met the Defendant, Gooch Ware Travelstead (Travelstead), sometime about 1978-79 when they worked together on a development project for Grupo Alfa, a Mexican company. The project involved the building of new corporate headquarters for Grupo Alfa in Monterrey, Mexico. Canet was then employed by Grupo Alfa, and Travelstead was a consultant to First Boston.1 Canet at 207-09. Canet had worked for First Boston prior to joining Grupo Alfa. Canet at 212.

A. Travelstead's Offer of Employment to Canet

In November 1981, Travelstead invited Canet to leave Grupo Alfa to work for him. At a dinner at the Piccolo Mondo restaurant in Manhattan, attended by their wives, Edythe Travelstead and Sherrill Canet, Travelstead asked Canet to join him in order to "help him in financing, so forth, so he could spend more time looking for new projects." Canet at 211-12. At the time of the dinner, Travelstead was working for First Boston in an unusual role, chairing First Boston's real estate group although he was not a First Boston staff member. The relationship also included an arrangement whereby First Boston became Travelstead's "partner in various real estate ventures, with the right of first refusal." E. Travelstead at 59. See also, M. Travelstead at 486. While a number of First Boston staff members worked under Travelstead's supervision, Travelstead's and Canet's discussions contemplated that Canet would work directly for Travelstead. Canet accepted Travelstead's offer; Travelstead then ordered champagne, and the two couples toasted their new relationship. E. Travelstead at 61, Canet at 212.

Canet worked with Travelstead from 1982 to 1989, serving as "his right-hand man, his assistant, his number one chief executive." E. Travelstead at 64-65. Bruce Colley, who was the son (and business associate) of Eugene Colley, a frequent financial backer of Travelstead, and who also worked for Travelstead for several years, described the relationship: "Ware was the concept genius and Eduardo was the man that got the task done, got the project done." Bruce Colley at 528. Frank Dunlevy, who as a vice president of First Boston knew both Canet and Travelstead, recalled Travelstead saying: "that he considered Eduardo his partner in all of those ventures; they operated like a partnership; shared all of the duties." Dunlevy at 171. Malcolm Travelstead, the defendant's brother, testified that, during the early 1980's, Canet was the only person involved in deal-making who was working directly for Travelstead — as distinguished from First Boston staff. M. Travelstead at 511.

Over time, the Canets and the Travelsteads became very close friends; the line between business and social occasions was often blurred. Referring to the Piccolo Mondo dinner at which Canet accepted Travelstead's offer of employment, Edythe Travelstead testified: "We were all out to dinner, and, which was our custom, because the days were filled with negotiations and so forth, and Ware and I both would spend the evening with clients or potential clients or recruiting people ..." E. Travelstead at 59. Dunlevy also testified as to the closeness of the relationship (at 173):

You know, they worked about as close together as you possibly can, and they worked on a lot of exciting projects and they socialized together. Their wives were close friends, close friends with his brother Malcolm. You know, everybody sent birthday and Christmas presents to each other's kids. It was, you know, as close a knit group as you could ever see.
B. The Terms of Canet's Employment Contract with Travelstead

The content and enforceability of the employment contract formed at the Piccolo Mondo dinner is the crux of the litigation. Canet testified that Travelstead offered him: "A salary of $100,000. He also promised me a bonus every year, and he also promised me a piece of his interest in the ongoing — on the projects that we were going to be developing. That was the lure, to be able to get a piece of the projects." Canet at 211. Edythe Travelstead's testimony was substantially the same as Canet's, but she added: "Travelstead offered Canet a bonus that would become a multiple of the $100,000 salary, because the expectations were that enormous sums of money would come into the group. At the same time, he offered him a percentage of the projects that he would work on." E. Travelstead at 60. Sherrill Canet also testified concerning the employment offer accepted by her husband at the Piccolo Mondo dinner in November 1981: "Travelstead asked Eduardo if he would like to be his right-hand man and work for him, and he offered him a salary of $100,000, and a guaranteed cash bonus at the end of every year, and equity participation in the projects he worked on." S. Canet at 96.

Travelstead professed only a vague recollection of the dinner and denied offering Canet equity participation as a term of employment. Travelstead at 336, 341-42. Travelstead stated he had told Canet that, although "the bonus is totally up to me, discretionary, but you should certainly anticipate a bonus if you are doing a good job, otherwise you won't have a job in that sense, so." Travelstead at 336-37.

Canet stated that the equity participation "was the lure, to be able to get a piece of the projects." Id. The importance of the offer of equity participation to Canet was supported by the testimony of Frank Dunlevy, who described conversations with Canet (at 181):

... I would say, it was much safer having a job at First Boston because it was a bigger, more established entity and that Canet was taking a higher risk. And he would say, you know, higher risk gets higher return and that there were, you know, significant tax advantages, as I think all of us are aware, to real estate and real estate partnerships, certainly prior to the change in the tax law.

Canet's wife also noted: "Instead of going to work for an investment bank, as he had done before, the equity participation was certainly a big attraction to the terms of the employment." S. Canet at 97. As noted by the defendant, Canet has pursued a successful career in investment banking following the termination of his employment with Travelstead. Def. Post-Trial Resp.Brf. at 16.

Travelstead stated that "equity participation in real estate projects" could take a number of forms: "It can be a payout of a profit interest, or it can be a full partnership as a general partner, or owning a piece of a corporation that is doing a real estate development. It could be a limited partner." Travelstead at 337. Canet's testimony as to the nature of the interests he was granted, although essentially consistent with the categories stated by Travelstead, used a variety of terms to describe them: "a carried interest, and also, you know, I would have been on the hook for some notes, non-recourse notes in Southshore," Canet at 215; "a piece of Ware's partnership into the overall partnership, into the overall vehicle in Silas Creek," Canet at 223; "Ware gave me a piece — gave me half of 1 percent of his interest in Tower 49," Canet at 229; "7½ percent of his share in Canary Wharf," Cane...

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