Manley v. Ambase Corp.
| Decision Date | 28 July 2003 |
| Docket Number | Docket No. 02-7032. |
| Citation | 337 F.3d 237 |
| Parties | Marshall MANLEY, Plaintiff-Counter-Defendant-Appellant, v. AMBASE CORPORATION (formerly known as The Home Group, Inc.), Defendant-Counter-Claimant-Appellee. |
| Court | U.S. Court of Appeals — Second Circuit |
William Simon, McCullough, Goldberger & Staudt, LLP, White Plains, New York (Anne De Sutter, on the brief), for Plaintiff-Counter-Defendant-Appellant.
Mark R. Kravitz, Wiggin & Dana LLP, New Haven, Connecticut (Jonathan M. Freiman, on the brief) and Philip Halpern, Collier, Halpern, Newberg, Nolletti & Bock, LLP, White Plains, New York, for Defendant-Counter-Claimant-Appellee.
Before: NEWMAN, KATZMANN, and RAGGI, Circuit Judges.
Appellant Marshall Manley sued his former employer, appellee AmBase Corporation, for breach of contract in connection with AmBase's failure to indemnify Manley for $2.43 million paid to settle claims by the bankrupt estate of Finley, Kumble, Wagner, Heine & Underberg ("Finley Kumble"), formerly one of the nation's largest law firms. This case was tried twice as a result of a ruling by the United States District Court for the Southern District of New York (Robert J. Ward, Judge) after the first trial that a jury verdict in favor of Manley was against the weight of the evidence. See Manley v. AmBase Corp., 121 F.Supp.2d 758, 764-71 (S.D.N.Y.2000): Now appealing from the December 3, 2001 final judgment entered in favor of AmBase after the second trial, Manley asserts that the district court erred in four respects: (1) by setting aside the initial jury verdict in his favor and ordering a new trial; (2) by refusing to allow Manley to offer into evidence at the second trial statements made by former AmBase chairman, George Scharffenberger, at a discovery deposition; (3) by giving an erroneous limiting instruction regarding certain documentary evidence at the second trial; and (4) by denying his motion for a new trial on the ground that the second jury had been tainted by contact between a court employee and a deliberating juror.
Because we conclude that the district court's challenged actions were all within its discretion, we affirm.
Marshall Manley had practiced law for thirteen years and already served as a partner at two separate firms when, in 1978, he joined Finley Kumble to open its California office. A proficient "rainmaker," Manley accounted for substantial annual Finley Kumble billings — in excess of $14 million in 1984 — and he earned more than any other Finley Kumble partner, frequently over $1 million per year. He served as managing partner of the firm's California operations, co-managing partner of the entire firm, and a member of its management committee. For a time, the firm even bore his name: Finley, Kumble, Wagner, Heine, Underberg, Manley, Myerson & Casey.
In 1981, Manley incorporated a professional personal service corporation, Marshall Manley, P.C. ("Manley P.C."), of which he was the sole officer, director, shareholder, and employee. From 1982 forward, Manley P.C., not Manley individually, was a partner at Finley Kumble.
Both before and after joining Finley Kumble, Manley performed legal work for City Investing Company, a conglomerate that owned Home Group, Inc., the predecessor to AmBase.1 In 1984, in connection with a plan to liquidate City Investing, AmBase chairman George Scharffenberger recruited Manley to serve as president of AmBase, offering a starting annual salary of $350,000, a potential $187,500 bonus, and an interest-free loan to assist Manley in acquiring a New York residence. Although initially reluctant to move to New York or to take such a large pay cut, Manley eventually accepted Scharffenberger's offer and, on March 8, 1985, became president of AmBase.
One factor influencing Manley's decision was an understanding that he would continue to be compensated by Finley Kumble while running AmBase. At trial, Manley testified that he had been eager to serve his relationship with Finley Kumble but remained at Scharffenberger's request. Scharffenberger, on the other hand, insisted that it was Manley who asked to continue at Finley Kumble while working for AmBase. No matter where the idea originated, AmBase's corporate minutes document Scharffenberger's March 18, 1986 statement to the board's personnel committee that Manley was "a Senior Partner in one of the Country's largest law firms and that it was his [i.e., Scharffenberger's] desire to have Mr. Manley continue to serve in that role." Mar. 18, 1986 Personnel Comm. Minutes at 1.
In 1987, Finley Kumble increased Manley P.C.'s annual compensation to $1.5 million. Under the partnership agreement, this obligated Manley P.C. to make an additional capital contribution to the firm. Manley refused. He also refused to treat his AmBase compensation as partnership income or personally to guarantee Finley Kumble's obligations.2 As a result of these disagreements, in August 1987, Manley P.C. resigned as a Finley Kumble partner and became "of counsel" to the firm.
Scharffenberger reported these changed circumstances to the AmBase personnel committee, and, in December 1987, AmBase increased Manley's annual salary to $900,000, awarded him an $850,000 incentive bonus, and agreed to a "rolling" five-year employment contract.
A few months later, in February 1988, Finley Kumble's creditors forced the firm into involuntary bankruptcy, with numerous lawsuits filed against Manley, Manley P.C., and the firm's other partners, either individually or in the names of their professional corporations. Consolidating these claims into two actions, the bankruptcy trustee charged, inter alia, that Manley had effectively ceased to practice law for Finley Kumble after becoming president of AmBase and sued to recover over $5 million paid by the law firm to Manley P.C. in 1985-87. The trustee further asserted that any monies Manley received from AmBase while he was still a Finley Kumble partner were recoverable by the bankrupt estate as partnership income.
Scharffenberger directed AmBase's attorneys to represent Manley in the Finley Kumble bankruptcy proceeding, which action was formally ratified by the AmBase board on May 20, 1988. Meanwhile, in April 1988, Manley, through counsel, advised the trustee that he could not be held personally liable on any bankruptcy claims since he had not been a partner of Finley Kumble at the relevant time and had not executed any agreement assuming personal liability for the firm's obligations. Only Manley P.C. had been the firm's partner, and even it could not be liable on the bankruptcy claims because its 1987 agreement withdrawing from the partnership absolved it of any responsibility for the costs or expenses of the firm. Indeed, counsel claimed Manley P.C. was a creditor of the law firm, owed in excess of $500,000 pursuant to the withdrawal agreement.
The Finley Kumble bankruptcy proceeding generated considerable adverse media attention for Manley, prompting commercial banks that had extended credit to AmBase to seek his ouster from the corporation. When AmBase terminated Manley's employment on March 15, 1990, Manley threatened suit for breach of his employment contract.
On January 31, 1991, the parties entered into a written settlement whereby, in return for Manley's voluntary resignation, AmBase paid its former president over $3 million and forgave approximately $4 million in outstanding loans. AmBase also agreed to continue paying his legal fees in connection with the Finley Kumble bankruptcy proceeding and to "indemnify and defend [Manley] in connection with matters arising from [his] service as a Director, officer or employee of AmBase." Jan. 31, 1991 Agreement at 5.
Concerned about his ability to pierce the corporate veils of Finley Kumble's professional corporation partners, the bankruptcy trustee actively pursued settlement negotiations. On September 24, 1991, the trustee entered into a written agreement with Manley and Manley P.C. that settled the bankrupt estate's claims against both for $4.5 million, payable through a combination of promissory notes executed by Manley and a percentage of his future income.
The following month, in October 1991, Manley sued AmBase to recover certain long-term compensation and retirement benefits and to demand indemnification in eighteen enumerated lawsuits. Not included among the suits for which Manley sought indemnification was his recent settlement in the Finley Kumble bankruptcy proceeding. After extensive negotiations, the parties entered into an agreement on May 27, 1993, whereby AmBase paid Manley another $600,000 and, with respect to indemnification, agreed as follows:
If Manley has been or is made a party... to any action, suit or proceeding ... by reason of the fact that he was a director or officer of AmBase ... or by reason of the fact that he was serving at the request of AmBase as a director, officer, member, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise,... he shall be indemnified and held harmless by AmBase ... against all expense, liability and loss (including, without limitation, attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by Manley in connection therewith....
May 27, 1993 Settlement Agreement at ¶ 5(a). It is this indemnification provision that is at issue in this case.3
In July 1992, Manley approached the Finley Kumble tr...
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