Mandelblatt v. Devon Stores, Inc.

• Decision Date: 08 December 1987
• Citation: 521 N.Y.S.2d 672,132 A.D.2d 162
• Parties: Michael MANDELBLATT, Plaintiff-Respondent, v. DEVON STORES, INC. and Revlon Group, Inc., Defendants-Appellants. Michael MANDELBLATT, Plaintiff, v. REVLON GROUP, INC., Defendant.
• Court: New York Supreme Court — Appellate Division

Page 672

521 N.Y.S.2d 672

132 A.D.2d 162

Michael MANDELBLATT, Plaintiff-Respondent, v. DEVON STORES, INC. and Revlon Group, Inc., Defendants-Appellants.

Michael MANDELBLATT, Plaintiff, v. REVLON GROUP, INC., Defendant.

Supreme Court, Appellate Division First Department.

Dec. 8, 1987.

Daniel Rhoades, of counsel (Rhoades and Rhoades, P.C. attorneys) for plaintiff-respondent.

John P. Furfaro, of counsel (Henry P. Baer and Maury B. Josephson with him on the brief; Skadden, Arps, Slate, Meagher & Flom, attorneys) for defendants-appellants.

Before KUPFERMAN, J.P., and SULLIVAN, CARRO, MILONAS and ROSENBERGER, JJ.

ROSENBERGER, Justice.

Plaintiff-respondent, Michael Mandelblatt, served as the Chief Financial Officer of Pantry Pride, Inc., which, in 1984, acquired defendant-appellant Devon Stores, Inc., a retail chain that sells consumer goods to military personnel. Respondent then became President and Chief Executive Officer of Devon. In June 1985 Pantry Pride was acquired by the MacAndrews & Forbes Group, Inc., and, at that time, respondent was asked to resign his posts with Pantry Pride and Devon. He was retained, however, as a consultant to Pantry Pride (which subsequently changed its name to Revlon Group Incorporated) pursuant to a contract entered into on July 26, 1985.

Under the terms of that agreement, respondent was to provide consulting services "in connection with the management, operation and disposition" of Devon Stores, which its parent company was attempting to sell. Respondent was to receive a base fee of $250,000, payable in monthly installments during the term of the contract from August 1, 1985 to June 11, 1986.

Respondent was also to be paid additional compensation as follows: if there was no disposition of Devon on or before June 11, 1986, he would receive $543,000; however, in the event Devon was liquidated, merged, or its stock or assets sold, either to an affiliate of Pantry Pride or to a third party, or if respondent was discharged other than for cause, all on or before June 11, 1986, he would receive $693,000; and in the event that a third party acquired Devon on or before June 11, 1986, he would also receive 1.25% of the proceeds in excess of $35,000,000 up to a maximum of $250,000. However, in the event respondent was terminated for cause, he was to receive his base fee to the date of discharge plus an additional fee of $700,000.

Paragraph seven of the agreement provides that respondent "may be discharged as a consultant to the Company without any breach of this Agreement": upon expiration of the contract; upon respondent's death; in the event of respondent's incapacity due to illness; or for "cause". The agreement defined "cause" as: "the willful and continued failure by Mandelblatt to substantially provide the services" called for under the contract after a demand for performance had been delivered by the directors of the company; or, "the willful engaging by Mandelblatt, in his capacity as a consultant, in gross misconduct materially injurious to Pantry Pride monetarily or otherwise"; or, respondent's conviction of a felony under federal or state law.

Respondent was discharged for cause by appellant Revlon's Board of Directors on May 20, 1986. The notice of termination cited respondent's "threats to fail to perform" his duties unless he received "a new and more lucrative contract" and respondent's "lack of cooperation with and discouragement of prospective purchasers of Devon Stores, Inc." after his demand for a new contract was rejected by appellants. The Board deemed respondent's misconduct willful and materially injurious to the corporation. Thereafter, appellant tendered $714,785 to respondent, as required by the contract, conditioned upon his return of the company car and the execution of a release absolving appellant of all liability under the contract.

Respondent rejected the payment tendered, refused to execute the release, and retained the automobile which was then valued at $25,000. He instituted this action for breach of contract alleging that appellants had, without his consent, attempted to change the scope of services he was to provide under the agreement and that he had been wrongfully discharged. The complaint demanded compensatory and punitive damages in excess of $11,000,000. Appellants answered and asserted one counterclaim for conversion of the automobile. Later they moved to amend the answer to state three additional counterclaims for breach of contract, breach of fiduciary duty, and intentional interference with prospective economic advantage and prima facie tort.

In support of the motion to amend, appellants submitted the affidavit of Bruce Slovin, President of MacAndrews & Forbes Group Incorporated, who had discussed with respondent his demand for a three year agreement with increased salary and bonuses. At one time, Slovin alleged, respondent requested ten percent of the proceeds in excess of $35,000,000 if Devon were sold. On various occasions, respondent allegedly expressed dissatisfaction with his position and disparaged Devon as an inferior company. Appellants rejected his demand for a long-term contract because it would have been inconsistent with their desire to sell Devon as quickly as possible. They did, however, offer respondent an extension of his contract through the end of 1986. This was unacceptable to respondent who allegedly told Slovin that he had no enthusiasm for managing Devon and would not actively assist appellants' efforts to sell it.

A few days after this conversation, Slovin learned from the broker who had referred three prospective purchasers for Devon that respondent had disparaged Devon's business and financial condition in meetings with the prospective buyers. They then cancelled or postponed trips scheduled to inspect Devon's assets and operations. These acts by respondent were the basis for appellants' added counterclaims in the amended answer.

Respondent opposed the motion to amend and moved for partial summary judgment on his claim for compensation equal to the termination fee previously tendered by appellants, less the value of the automobile which he had kept. The court below granted respondent partial summary judgment, finding that even if respondent was properly discharged for cause, he was nevertheless entitled to the $700,000 payment under the terms of the agreement. Appellants' motion for leave to amend their answer was denied.

The court rejected the counterclaim for breach of contract on the ground that it would be "wholly inconsistent" to allow appellants "a recovery for breach of contract on the same transaction which they intended to accept as a basis for compensated severance." Finding the language of paragraph 7 unambiguous, the court determined "from the terms of the Agreement between the parties that these acts would fall within the definition of 'cause' for which plaintiff could be discharged with severance as provided." Appellants' counterclaim for tortious interference was rejected because there was no allegations that respondent had used improper or wrongful means, and the counterclaim for prima facie tort was also found deficient because it failed to allege that respondent's acts were without excuse or justification. The court did not state what deficiency it found in the counterclaim for breach of fiduciary duty.

We reverse the order denying appellants leave to amend their answer and awarding respondent partial summary judgment. We cannot agree that the intention of the parties with respect to the termination provision was so clearly and unambiguously expressed in the agreement that it could be determined as a matter of law. The provision in paragraph 7 that "Mandelblatt may be discharged as a consultant to the company without any breach of this agreement" leaves open the question: "without any breach of the agreement" by whom--Mandelblatt or the Company? This uncertain wording raises a question as to what the parties to the contract intended. Given the ambiguity in this language, the court below erred in determining, as a matter of law, the intention of the parties therefrom.

The construction given paragraph 7 by the court, moreover, produces an unreasonable result which would, in effect, place one party to the contract at the mercy of the other. This is "against the general policy of the law" (Fair Pavilions, Inc. v. First National City Bank, 19 N.Y.2d 512, 518, 281 N.Y.S.2d 23, 227 N.E.2d 839 [1967]; Spear v. Plaza South Studios, Inc., 59 A.D.2d 778, 398 N.Y.S.2d 900 [2d Dept 1977] ). Willful and gross misconduct which causes material harm to the cocontracting party, or the willful failure to perform the services called for under a personal services agreement, are acts which normally constitute breach of contract for which the defaulting party must answer in damages and, if "morally culpable," punitive damages (Hubbell v. Trans World Life Ins. Co. of N.Y., 50 N.Y.2d 899, 901, 430 N.Y.S.2d 589, 408 N.E.2d 918 [1980] ). The court below, however, construed paragraph 7 as effecting a waiver of appellants' right to sue respondent for any damages which his conduct might cause.

It does not necessarily follow that the inclusion of a broad definition of "cause" was intended to relieve respondent of liability for damages resulting from conduct which falls within the definition. If the motion court's interpretation were correct, respondent would be free to cause willful injury to appellant and, in so doing, be sure of receiving more substantial severance compensation than the compensation he would have earned had he failed to effect a sale of Devon despite his best efforts. Such a construction appears unreasonable and would produce an inequitable result which should not be presumed by the court to have been what the parties intended. ¹ (Fleischman v. Furgueson, 223 N.Y. 235, 241, 119 N.E. 400 [1918] ["A court will endeavor to give the construction most equitable to both parties instead of...