Economu v. Borg-Warner Corp.

• Decision Date: 29 January 1987
• Docket Number: Civ. No. H-84-463 (PCD).
• Citation: 652 F. Supp. 1242
• Parties: Ralph C. ECONOMU v. BORG-WARNER CORPORATION, et al.
• Court: U.S. District Court — District of Connecticut

652 F. Supp. 1242

Ralph C. ECONOMU v. BORG-WARNER CORPORATION, et al.

Civ. No. H-84-463 (PCD).

United States District Court, D. Connecticut.

January 29, 1987.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

William M. Laviano, Ridgefield, Conn., for plaintiff.

Henry P. Baer, Skadden, Arps, Slate, Meagher & Flom, New York City, for defendants.

RULING ON MOTION FOR SUMMARY JUDGMENT

DORSEY, District Judge.

I. Facts

Plaintiff was hired by defendant Burns International Security Services, Inc. ("Burns") on May 3, 1976, as corporate comptroller. He was later promoted to Executive Vice-President and Chief Financial Officer. He left the company in July 1982. In 1981, Burns became a target for acquisition by defendant Borg-Warner Corporation ("Borg-Warner"). Negotiations took place between executives of both corporations and, on April 26, 1982, the Directors of Burns unanimously voted to approve the merger. On May 19, 1982, Burns became a subsidiary of Borg-Warner.

Prior to the merger, Burns' Directors approved new employment contracts for its senior executives which provided specified benefits if, as a result of a future acquisition, their employment was terminated or their duties reduced. Plaintiff's contract was approved by the Board on December 4, 1981, and signed by plaintiff on December 21, 1981.

Subsequent to the merger, Robert Gordon was appointed Executive Vice-President and Chief Operating Officer of Burns. Malcolm Baker was appointed Chairman of the Executive Committee and Chief Executive Officer of Burns. Gordon had been disappointed with plaintiff's performance and obtained Baker's permission to restructure the management information system department and the comptroller's office. On June 15, 1982, Baker and Gordon informed plaintiff that they would be hiring a new comptroller but that he could remain as Chief Financial Officer. Feeling that the restructuring constituted an "involuntary termination" under the Employment Agreement, plaintiff left his employment on July 18, 1982.

Plaintiff commenced this action on April 18, 1984, asserting six claims. Counts two and five have previously been dismissed. Plaintiff's remaining claims may be summarized accordingly:

Count One: Plaintiff claims that he was fraudulently induced to sign the 1981 contract based on defendants' false representations that he would be retained after any merger that might occur when, in fact, defendants had already decided to terminate plaintiff after the merger.

Count Three: Plaintiff claims that defendants' promises that he would be retained estop them from reneging on those promises. He also asserts a breach of a "just cause" standard for discharge applicable to him.

Count Four: Plaintiff claims that the denial of reimbursement for medical expenses for his daughter constitutes an intentional infliction of emotional distress.

Count Six: Plaintiff claims that defendants' actions constitute a breach of the implied covenant of good faith and fair dealing embodied in his employment relationship.

II. Procedural Posture

Defendants have moved for summary judgment as to the remaining counts. "Rule 56(c) mandates the entry of summary judgment, ... against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex Corp. v. Catrett, ___ U.S. ___, 106 S.Ct. 2548, 2552-53, 91 L.Ed.2d 265 (1986). The purpose "is to isolate and dispose of factually unsupported claims or defenses." Id. at 2553. The non-moving party must go beyond his pleading and produce proof to support his claims. Id. Defendants have the basic burden of showing the absence of any genuine issue of material fact.

III. Choice of Law

The threshold issue is the law to be applied.

A federal court sitting in diversity is bound to apply the law of the forum state. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 1021, 85 L.Ed. 1477 (1941). This includes the conflict of laws principles. SCA Serv., Inc. v. Lucky Stores, 599 F.2d 178, 180 (7th Cir.1979); CBS, Inc. v. Film Corp. of America, 545 F.Supp. 1382, 1385 (E.D.Pa. 1982); 1 Restatement (Second) of Conflict of Laws § 7 (1971 and Supp.1985-86). Plaintiff argues that New York's conflict principles apply because Section 12 of the Employment Agreement specifically provided that disputes arising out of the employment relationship would be governed by New York law. According to plaintiff, this would require the court to apply the whole law of New York and not merely its substantive law. Plaintiff claims that this compels the conclusion under New York's conflict principles that Connecticut's substantive law and not New York's should apply. See 1 Restatement (Second) of Conflicts § 4 (1971 and Supp. 1985-86) ("local law" is defined as the substantive rules and principles of a jurisdiction exclusive of the conflict of laws; "law" is defined as the local law plus the conflicts principles). Plaintiff provides no authority for his convoluted proposition nor has any been found.¹

When parties ... choose the state which is to furnish the law governing the validity of their contract, the parties almost certainly have the "local law," rather than the "law," of that state, in mind.... To apply the "law" of the chosen state would introduce the uncertainties of choice of law into the proceedings and would serve to defeat the basic objectives, namely those of certainty and predictability, which the choice-of-law provision was designed to achieve.

1 Restatement (Second) Conflict of Laws § 187 comment h (1971 and Supp. 1985-86); see also SCA Serv., Inc., 599 F.2d at 180; Sullivan v. Savin Business Machines Corp., 560 F.Supp. 938, 939 (N.D.Ind.1983); LaBeach v. Beatrice Foods Co., 461 F.Supp. 152, 156 (S.D.N.Y.1978). If plaintiff were correct, by resort to New York's conflicts principles, New York's substantive law would not apply in this case, leading to the obviously unintended result that the substantive law to be applied would be subject to the vagaries of each fact situation which could change over the course of the agreement. It would also result in the sole application of New York's conflicts principles to the derogation of New York's substantive law when the latter must have been uppermost in the minds of the parties in choosing the forum, the law of which they agreed should apply.

A. Contract Claims

Connecticut conflict of laws principles prompts the conclusion that New York law should apply. Traditionally, Connecticut has followed the "vested rights" approach to choice of law problems holding that "in contract actions the laws of the place of contracting governs substantive issues, ... and in tort actions the law of the place of injury governs substantive issues." Schirm v. Auclair, 597 F.Supp. 202, 205 (D.Conn.1984) (citations omitted); see also DeFourneaux v. Sturm, Ruger & Co., 503 F.Supp. 2, 4 (D.Conn.1980) (tort), aff'd, 639 F.2d 768 (2d Cir.), cert. denied, 451 U.S. 908, 101 S.Ct. 1975, 68 L.Ed.2d 295 (1981); Gibson v. Fullin, 172 Conn. 407, 411, 374 A.2d 1061, 1064 (1977) (tort); Dick v. Dick, 167 Conn. 210, 223, 355 A.2d 110, 117 (1974) (contract); Breen v. Aetna Cas. & Sur. Co., 153 Conn. 633, 637, 220 A.2d 254, 256 (1966) (contract). However, beginning with Gibson, the Connecticut Supreme Court questioned the lex loci analysis and referred to the choice of law analysis embodied in the 1 Restatement (Second) Conflicts of Laws § 145 (1971 and Supp. 1985-86) for tort actions.² Gibson, 172 Conn. at 411, 374 A.2d at 1064; see also Simaistis v. Flood, 182 Conn. 24, 33, 437 A.2d 828, 832-33 (1980). In Halstead v. United States, 535 F.Supp. 782, 786-87 (D.Conn. 1982), aff'd sub nom. Saloomey v. Jeppesen & Co., 707 F.2d 671 (2d. Cir.1983) (tort), the court considered the Gibson dicta and concluded that the Connecticut Supreme Court would adopt the Restatement approach. The Restatement test in choice of law decisions has been adopted "for those cases in which application of lex loci would produce an arbitrary, irrational result." O'Connor, 201 Conn. at 650, 519 A.2d at 22 (tort). A similar reliance on the Restatement's approach to contract choice of law problems is suggested where application of the lex loci approach "would produce arbitrary, irrational results." Id. The Restatement approach to contractual choice of law problems is embodied in §§ 187 and 188. Section 187 provides that the law of the state chosen by the parties shall govern unless the state whose law was chosen either has nothing to do with the transaction, or application of that state's law would contradict a fundamental policy of a state which has a greater interest in the action and whose law would otherwise apply had it not been for the parties' choice. If the parties do not specify a choice of law, § 188 would apply the local law of the state having the most significant relationship to the transaction.³

In both §§ 145 and 188, the relevant factors are manifestations of the general principles outlined in § 6.⁴O'Connor assessed the § 145 principles against the perceived strengths of the lex loci approach and concluded the Restatement approach to be the better rule. 201 Conn. at 643-48, 519 A.2d at 18-21. The same analysis is equally applicable to and counsels against "the categorical allegiance to the doctrine of lex loci in contract ... actions." Id. at 648, 519 A.2d at 21.

As to plaintiff's claim of promissory estoppel, breach of contract and breach of the implied covenant of good faith and fair dealing, New York law applies. First, Section 12 of the Employment Agreement provides that "the validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the state of New York." This choice of law must be given due regard unless the choice of law provision is part of an adhesion contract or the product of fraud, duress, coercion or mistake.⁵ 1 Restatement...