Duse v. Int'l Bus. Mach. Corp., PLAINTIFF-APPELLANT

• Decision Date: 01 August 2000
• Docket Number: PLAINTIFF-APPELLANT,DEFENDANT-APPELLEE,Docket No. 00-7158
• Citation: 252 F.3d 151
• Parties: (2nd Cir. 2001) BERNARD C. DUSE, JR.,, v. INTERNATIONAL BUSINESS MACHINES CORPORATION,
• Court: U.S. Court of Appeals — Second Circuit

Page 151

252 F.3d 151 (2nd Cir. 2001)

BERNARD C. DUSE, JR., PLAINTIFF-APPELLANT, v. INTERNATIONAL BUSINESS MACHINES CORPORATION, DEFENDANT-APPELLEE.

Docket No. 00-7158

August Term, 2000

UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT

Argued: December 8, 2000

Decided June 5, 2001

Appeal from a final judgment of the United States District Court for the District of Connecticut, Janet Bond Arterton, Judge, dismissing complaint seeking damages for breach of settlement agreement and intentional infliction of emotional distress.

Affirmed.

Fred R. Profeta, Jr., New York, New York (Profeta & Eisenstein, New York, New York, Christopher C. Burdett, Stamford, Connecticut, on the brief), for Plaintiff-Appellant.

Patrick W. Shea, Stamford, Connecticut (Peter M. Schultz, Paul, Hastings, Janofsky & Walker, Stamford, Connecticut, on the brief), for Defendant-Appellee.

Before: Oakes, Kearse, and Winter, Circuit Judges.

Kearse, Circuit Judge

Plaintiff Bernard C. Duse, Jr., appeals from a judgment of the United States District Court for the District of Connecticut, Janet Bond Arterton, Judge, dismissing his complaint seeking compensatory and punitive damages from defendant International Business Machines Corporation, Inc. ("IBM" or the "Company"), for emotional distress caused by IBM's alleged (1) breach of a confidentiality provision in a settlement agreement and (2) intentional infliction of emotional distress. The district court, though concluding that IBM had breached the confidentiality provision, granted summary judgment (a) dismissing the contract claim on the ground that, under Connecticut law, damages for mental distress are not available for a breach of contract, and (b) dismissing the tort claim for intentional infliction of emotional distress claim on the ground that there was no evidence that IBM either acted with intent to cause Duse emotional distress or was aware that its breach of the confidentiality provision would have that effect. On appeal Duse contends that the district court erred both in its interpretation of Connecticut contract law and in its ruling that there was no genuine issue to be tried as to IBM's awareness and intent. For the reasons that follow, we affirm the dismissal of both claims because IBM's disclosure did not breach the settlement agreement.

I. BACKGROUND

The present litigation centers on a July 1992 agreement between the parties, settling prior disputes. Duse contends that IBM breached a confidentiality provision of the settlement agreement by filing a Form 1099 with the Internal Revenue Service ("IRS"), reporting the amount of the settlement. The following facts, taken largely from court pleadings and rulings, are not substantially in dispute.

A. The Prior Litigations

Duse, an African-American, was employed by IBM from 1970 to 1984. In 1984 and 1986, he brought actions in federal court against IBM and certain individuals alleging that from 1977, the Company had discriminated against him on the basis of his race and retaliated against him because of his complaints of racial discrimination, in violation of 42 U.S.C. § 1981 (1982) ("All persons within the jurisdiction of the United States shall have the same right in every State and Territory to make and enforce contracts . . . and to the full and equal benefit of all laws and proceedings for the security of persons and property as is enjoyed by white citizens, . . . ."). In those actions, which were consolidated (collectively the "1980s litigation"), Duse alleged that the Company had discriminated against him by, inter alia, failing to promote him despite his qualifications, falsifying records in order to justify the failure to promote, demoting him, inducing one of his subordinates to make false allegations of sexual harassment against him, and harassing him through racially debasing remarks, preventing him from properly performing his job responsibilities. He alleged further that when IBM terminated his employment in 1984, entitling him to severance pay and other benefits, it withheld those sums until mid-1985 but nonetheless reported to the IRS that they had been paid in 1984, thereby unjustifiably exposing him to the possibility of tax liability and an IRS audit, and causing him substantial emotional distress. Duse also alleged that IBM had invaded his privacy and violated his property rights by subjecting him to unlawful around-the-clock surveillance, and threatening him with physical harm. In 1989, Duse commenced a suit against IBM in state court alleging the conduct that was the subject of the federal actions but seeking relief on different theories.

With respect to the invasions of his privacy, Duse also successfully sued a security firm and its employees in a state-court action to which IBM was not a party. See Duse v. LSI, Inc., No. D.N. CV87 0088004 S (Conn. Sup. Ct. May 5, 1989) (finding numerous acts of harassment, trespass, and invasions of privacy by defendant security firm that was paid more than $500,000 by IBM to perform investigations and surveillance of Duse; and awarding Duse a total of $3,266,666.64 in compensatory, statutory, and punitive damages, and attorneys' fees).

B. The Settlement Agreement and the Form 1099

On July 3, 1992, the eve of trial in the consolidated federal cases, Duse and IBM entered into an agreement ("July 3 Agreement") to settle all of Duse's pending or potential claims, "including but not limited to Duse's current complaints before the Connecticut Commission on Human Rights and Opportunities; related charges filed before the Equal Employment Opportunity Commission, an action filed in Connecticut Superior Court; and, any other potential for [sic] claims Duse may have." (July 3 Agreement at 1.) IBM agreed to pay Duse a specified sum, and the parties agreed to execute a formal document reflecting the other terms of their agreement, including a confidentiality agreement which was to contain clauses dealing with, inter alia, "tax indemnification." (Id. at 2.)

The parties executed the formal document on July 10, 1992 (the "Settlement Agreement" or "Agreement"). It stated that

[t]his Settlement Agreement applies, but is not limited, to claims arising under any federal, state or local law or ordinance dealing with discrimination in employment on the basis of sex, race, national origin, religion, disability or age, including (i) Title VII of the Civil Rights Act of 1964; (ii) the Civil Rights Act of 1866, 42 U.S.C. § 1981; (iii) the Connecticut Human Rights and Opportunities Act; (iv) the Rehabilitation Act of 1973; (v) the Equal Pay Act; and (vii) Executive order 11246. This Settlement Agreement also covers claims based on theories of contract or tort, whether based on the common law or otherwise. This Settlement Agreement also covers all claims arising under the Employee Retirement Income Security Act of 1974, other than Duse's vested rights in the IBM Retirement Plan.

(Settlement Agreement, Clause 3, at 4-5.) Duse sought to have the payment from IBM characterized in such a way as to exclude it from his taxable income. Accordingly, Clause 6 of the Agreement provided, in pertinent part, as follows:

The parties agree that the payment provided for in the July 3 Agreement does not constitute wages. Rather, the payment constitutes compensation for personal injuries, emotional distress and pain and suffering and therefore is not subject to withholding taxes. Duse agrees to indemnify and hold IBM harmless from any portion of Duse's tax liability that IBM may be required to pay to the Internal Revenue Service, or any other taxing authority, as a result of not withholding from the payment specified in the July 3 Agreement. (Settlement Agreement, Clause 6, at 5-6 ("Compensation Clause") (emphasis added).)

Clause 9 of the Settlement Agreement provided that the settlement amount specified in the July 3 Agreement was to be kept confidential by both parties except as provided in the Settlement Agreement. The penultimate paragraph of that Clause provided as follows:

IBM agrees that it will not disclose to any person, organization or entity, except as may be required by law or by business necessity, the amount of the payment set forth in the July 3 agreement; provided, however, that it may disclose such information to its attorneys, auditors, financial advisors and to persons within IBM with a reasonable business need to know, all of whom shall first agree to keep such information confidential.

(Settlement Agreement, Clause 9, at 7 (emphasis added).)

During the week of July 6, 1992, IBM made the payment called for in the July 3 Agreement. Its check was payable to Duse and his attorneys Andrew B. Bowman and David S. Golub, as payees.

In January 1993, IBM filed a Form 1099-MISC ("Form 1099") with the IRS, reporting as "Miscellaneous Income" the amount paid to Duse, Bowman, and Golub in settlement of Duse's various suits and claims. IBM sent a copy of the form to Bowman, who relayed it to Duse in February 1993. Duse had filed his 1992 federal and state income tax returns in January 1993 and had not referred to the settlement payment from IBM in either return.

Duse, upset upon learning of the filing of the Form 1099, promptly telephoned Bowman, who said he would have the matter corrected. Some months later, Bowman wrote to IBM counsel, stating that the filing of the Form 1099 breached the Settlement Agreement:

Paragraph 6 of the Agreement provides that the payment from IBM does not constitute wages. "Rather, the payment constitutes compensation for personal injuries, emotional distress and pain and suffering. . .". The issuance of a 1099 is contrary to both the written agreement between the parties and the law relating to compensation for personal injuries, emotional distress and pain and suffering.

(Letter from Andrew B. Bowman to John S. McGueeney, June 10, 1993.) IBM, through counsel, responded that IBM was

required by 25 [sic] U.S.C. § 6041 to report all payments made to...