Gomez v. Bicknell

• Decision Date: 23 December 2002
• Citation: 756 N.Y.S.2d 209,302 A.D.2d 107
• Court: New York Supreme Court — Appellate Division
• Parties: CHRISTIAN H. GOMEZ, Respondent-Appellant,<BR>v.<BR>NEIL C. BICKNELL, Defendant, and<BR>BICKNELL ADVISORY SERVICES, INC., Appellant-Respondent.

302 A.D.2d 107

756 N.Y.S.2d 209

CHRISTIAN H. GOMEZ, Respondent-Appellant,

v. NEIL C. BICKNELL, Defendant, andBICKNELL ADVISORY SERVICES, INC., Appellant-Respondent.

CRANE, J.

December 23, 2002.

Mischel, Neuman & Horn, P.C., New York City (Scott T. Horn of counsel), for appellant-respondent.

Wilson, Elser, Moskowitz, Edelman & Dicker, LLP, New York City (Edward J. Boyle and Peter J. Larkin of counsel), for respondent-appellant.

FEUERSTEIN, J.P., SCHMIDT and ADAMS, JJ., concur.

OPINION OF THE COURT

CRANE, J.

This case presents us with the opportunity, the first in this Department of the Appellate Division, to express our view of the law of damages for an employee's breach of the duty of loyalty in converting to himself a corporate opportunity. It allows us to contrast the law of damages applicable to an employer's recovery for breach of an employee's covenant not to compete after the termination of his employment.

The defendant, Bicknell Advisory Services, Inc. (hereinafter BAS), appeals, and the plaintiff, Christian Gomez, cross-appeals, from a judgment entered after a jury trial. The jury awarded Gomez $601,189.91 on his cause of action to recover damages for breach of a profit-sharing agreement. It also awarded BAS $5,000 upon its counterclaim to recover damages for Gomez's breach of his duty of loyalty. On his cross appeal, Gomez seeks further relief on his claim for a 50% equity interest in BAS, and he seeks to set aside the jury verdict on BAS's first counterclaim for breach of the duty of loyalty. BAS on its appeal seeks further recovery on its counterclaim for Gomez's breach of the duty of loyalty, restoration of its second counterclaim to recover damages for breach of the covenant not to compete, and reversal of the award in favor of Gomez.

This Court concludes that Gomez's recovery was not supported by legally sufficient evidence; that he did not prove the existence of a fully-formed agreement to bestow on him a 50% equity interest in BAS; and that BAS failed to prove lost profits, a necessary element of its counterclaim to recover damages for breach of the covenant not to compete. This Court remits the matter to the Supreme Court, Westchester County, for a new trial on damages only on BAS's counterclaim alleging the breach of the duty of loyalty because it was established by legally sufficient evidence, and the trial court erred in its charge on the law of damages. In any event, the jury's award of only $5,000 on this counterclaim was against the weight of the evidence.

FACTS

BAS by its president and sole shareholder, the codefendant Neil C. Bicknell, hired Gomez in its business of providing merger and acquisition advisory services specializing in the information services industry. A letter dated February 5, 1995, specified Gomez's starting salary subject to increase pursuant to an incentive formula. The letter ended on an optimistic note: "We have discussed and look forward to offering you future equity participation in the business at a mutually agreeable time." By separate agreement dated February 6, 1995, Gomez accepted a provision prohibiting competition with BAS for two years after termination of his employment for any reason.

Gomez requested from BAS in March and April 1996 a more regular working arrangement. At the same time, the acquisition of U.S. Pension Services, a deal that had been in the works for several years, was consummated. One of the conditions imposed by the investors in U.S. Pension Services was that Bicknell serve as Chief Executive Officer (hereinafter CEO) of the acquired company until such time as this company would be divested. In this context, BAS drafted a new working agreement with Gomez dated April 28, 1996. This working agreement increased Gomez's salary and provided for a division of income "[b]ased on results through calendar year-end" on the assumption that Bicknell would continue as CEO of U.S. Pension Services. Gomez was apportioned one third of the first $500,000 of income and one half of the excess.

BAS took its commission in the U.S. Pension Services acquisition in the form of an investment in the acquired entity. In the April 28, 1996, working agreement, BAS gave Gomez a 25% interest in that investment. When U.S. Pension Services was sold in 1998, Gomez received $700,000 as a result of this provision.

In January 1997 Gomez wrote to Bicknell demanding a basic salary of $200,000. This demand was not met, but when Gomez renewed the demand in January 1998 BAS agreed. At the same time, Gomez claimed that BAS also orally agreed to a 50/50 split of profits of BAS on a transaction-by-transaction basis.

Gomez further asserted that the parties had agreed on a split of equity, basically in BAS, by which Gomez was entitled to 50%. Gomez aggressively pursued the 50% equity. On May 20, 1998, Bicknell and Gomez met with Gomez's attorney, and on June 3, 1998, they met with an accountant to further their discussions concerning Gomez's equity participation. Leading up to these discussions, Gomez was threatening to resign. By the time of his resignation on June 8, 1998, Gomez had received no equity and no payout of profits, although two transactions had previously closed in that calendar year. His resignation accompanied delivery of the payment of BAS's compensation for a third deal with Sigma Marketing Group, Inc. (hereinafter Sigma), and its president, David Stirling, worth almost $500,000.

Stirling had offered to reveal the name of another prospect for a merger and acquisition transaction in Atlanta, Georgia, but not before the closing of the Sigma transaction. Gomez related this development to BAS. Then, several days before the scheduled June 5, 1998, closing of the Sigma sale, Stirling gave Gomez the name of the Atlanta prospect (Gordon Bailey & Associates). Gomez placed a nine-minute telephone call to Gordon Bailey & Associates from his home in the early morning of June 3, 1998, the same day he and Bicknell later met with the accountant to discuss equity participation. This was the posture of the relationship until the Sigma transaction closed, and Gomez resigned on June 8, 1998, ostensibly because he had not received his 50% equity interest. Some weeks later Gomez, now a former employee, secured a contract with Gordon Bailey & Associates, generating a gross fee of $353,000 and a net profit of $260,000.

PLEADINGS AND PROCEEDINGS

Gomez alleged a breach of the February 5, 1995, letter agreement in the first cause of action. The second cause of action, as amended, pleaded the breach of the working agreement dated April 28, 1996. The third cause of action claimed a breach of contract based on Gomez asserting a right to one half of the profits on a transaction-by-transaction basis. The fourth cause of action alleged promissory estoppel.

The trial court dismissed Gomez's claim that he was contractually entitled to an equity participation, assuming that it had been pleaded, on the ground that the trial evidence did not support it. Since his claim for an equity participation, which Gomez placed under the first cause of action, was being dismissed, the trial court found no other basis to sustain that cause of action or the continued presence of Bicknell as a defendant.

The trial court denied BAS's motion to dismiss the second cause of action. For this claim, the trial court submitted to the jury, in the alternative, the question of whether the April 28, 1996, working agreement as written had been breached or whether it had been orally amended in 1998 and, if so, whether the amended version had been breached. This effectively embraced the third cause of action as well.

The trial court dismissed the fourth and final cause of action to recover damages based on promissory estoppel, for reasons that need no further discussion since Gomez is not raising any point of error with regard to this decision.

BAS interposed a number of counterclaims. Only the first and second are germane to its appeal. The first counterclaim alleges a breach of Gomez's duty of loyalty when he was still in the employ of BAS by diverting business opportunities belonging to it. The second counterclaim alleged a violation of the prohibition against competition in the February 6, 1995, letter agreement.

A the end of the defense case, Gomez moved to dismiss these counterclaims. The trial court granted that branch of the motion which was to dismiss the counterclaim alleging breach of the agreement not to compete because BAS failed to prove its loss of profits or other damages for this claim. On the other hand, the trial court denied that branch of the motion which was to dismiss the breach of loyalty counterclaim and rejected Gomez's argument, repeated on appeal, that since he did not acquire Gordon Bailey & Associates as a client until after he resigned, he could not be guilty of disloyalty, as alleged in the first counterclaim.

BAS had been advocating a disgorgement of Gomez's profits as the proper measure of damages for breach of loyalty, whereas Gomez contended that the correct measure was the loss of profits to BAS between June 3 and June 5, 1998, of which there was no proof. In a conference on damages, the trial court appropriately articulated that the jury must consider the profit made by Gomez in measuring the damages for breach of the duty of loyalty. When, however, the trial court charged the jury with respect to the first counterclaim, it told the jury "you may consider as a measure of damages the profits earned by Christian Gomez through his corporate entity in the transaction with Gordon Bailey and Associates." This gave the jury only an option to consider Gomez's profits. BAS's trial counsel took an exception on the ground that the damages which the jury must consider were, exactly, Gomez's profits.

The jury reached a verdict in favor of Gomez in the principal amount of $601,189.91 on his claim to recover damages for breach of the profit-sharing agreement as orally amended. The jurors affirmatively...