Morris v. Schroder Capital Mgmt. Intern.

Decision Date18 April 2006
Docket NumberDocket No. 05-0823-CV.
CourtU.S. Court of Appeals — Second Circuit

Frank H. Wright, Frank H. Wright & Associates, P.C., New York, NY, for Plaintiff-Appellant.

Mark G. Hanchet (Christine N. Kearns, Julia E. Judish, Pillsbury Winthrop Shaw Pittman LLP, Washington, DC, on the brief), Pillsbury Winthrop Shaw Pittman LLP, New York, NY, for Defendants-Appellees.

Before: McLAUGHLIN, CALABRESI and B.D. PARKER, Circuit Judges.

B.D. PARKER, JR., Circuit Judge.

We conclude that this case turns on an undecided question of New York law: Is the factual determination of whether an employee was voluntarily or involuntarily terminated under the New York common law employee choice doctrine governed by the "constructive discharge" test from federal employment discrimination law, and, if not, what test should courts apply? We therefore certify this question to the New York Court of Appeals.


The facts are taken from Appellant Paul M. Morris' complaint, and for purposes of this appeal are presumed true. Appellees Schroder Capital Management International ("SCMI") and Schroder Investment Management North America, Inc. ("SIMNA") are wholly owned subsidiaries of Schroders plc ("Schroders"), an investment banking and asset management company with headquarters in the United Kingdom. In January 1997, SCMI hired Morris as a Senior Vice President and head of domestic equities to manage large- and mid-cap United States equity investments and various other segments of SCMI's and Schroders' global operations. SCMI also gave him the responsibility for managing and expanding its United States equity research operations. At that time, Morris had management or advisory responsibility for approximately $6 billion in assets. By the end of 1998, that total had grown to over $7.5 billion. SCMI was merged into SIMNA in 1999, and Morris continued in his position for SIMNA.

In each of Morris' three full years at SCMI and SIMNA — 1997, 1998, and 1999he was paid an annual salary of $225,000 and a year-end bonus, which was significantly larger than his annual salary. Each year, SCMI or SIMNA deferred a portion of the bonus and designated it as a deferred compensation award. Various deferred compensation plans governed these awards. Under each plan, deferred compensation did not vest for three years. The plans also contained forfeiture provisions that would trigger if an employee voluntarily quit before the end of the three-year vesting period and accepted employment with a firm Schroders considered a competitor.1

In early 1998, SCMI awarded Morris $37,500 as deferred compensation for the calendar year 1997; in early 1999, SCMI awarded him $234,000 for 1998; and, in early 2000, SIMNA awarded him $217,000 for 1999. As previously noted, each of these awards would vest only after three years. In 2000, Morris received a one-time special award from SIMNA of 26,302.62 shares of Schroders stock, which was also scheduled to vest three years later.

Morris elected to invest the cash portion of his deferred compensation in one of Schroders' mutual funds. As a result of this cash investment and the increase in the price of his stock, the cumulative accrued value of Morris' awards as of the day they were scheduled to vest was approximately $2.9 million.

In February 2000, Morris informed SIMNA that he intended to leave the firm to form a hedge fund, but assured SIMNA that he would remain at SIMNA as long as was necessary to ensure a smooth transition. On April 6, 2000, SIMNA informed Morris that his resignation would be effective April 13, 2000.

Morris claims that he did not leave his job voluntarily, rather SIMNA forced him to leave "because various decisions made by the management of SIMNA and its London based parent company, Schroders plc, in 1999 and early 2000 had the dual effect of emasculating Morris' position and duties as Head of U.S. equities and of ensuring the ultimate demise of the mid and large cap U.S. Equity operation that Morris headed." Compl. at ¶ 59. Morris specifically claimed that SIMNA: (1) reduced the amount of assets over which he had responsibility from $7.5 billion to $1.5 billion; (2) decided to sell off or reduce support to certain of Morris' client groups, which would have further reduced the amount of assets over which he had responsibility to only $800 million; and (3) eliminated the funding for Morris' U.S. Equity research operation. Morris claims that by early 2000 it was clear to him that SIMNA was going to eliminate his position as Head of U.S. Equities and dispose of the entire operation. For these reasons, Morris claims that it was apparent that the company was no longer willing to employ him in the same high level position, with the responsibilities, compensation and career potential he previously enjoyed. Believing he was stuck in a "dead-end job, with drastically reduced responsibilities and income potential," he concluded he had "no practical alternative but to involuntarily leave SIMNA." Id. at ¶ 78.

After leaving SIMNA, Morris established a hedge fund in New York, which he alleges was neither in actual nor potential competition with SIMNA. On May 23, 2000, the then-Chairman of SIMNA, Ms. Sharon Haugh, notified Morris that he had forfeited his deferred compensation benefits by engaging in a business that competed with Schroders.2

Morris then sued for breach of contract to recover his deferred compensation. The district court (George B. Daniels, J.) dismissed Morris' claims on the pleadings pursuant to Rule 12(c) of the Federal Rules of Civil Procedure. See Morris v. Schroder Capital Mgmt. Int'l, 2005 WL 167608 (S.D.N.Y. Jan.25, 2005). The district court recognized that the New York employee choice doctrine applied to this case, and stated that this doctrine "protects covenants not to compete only where the employee voluntarily left his employment." Id. at *3. The district court characterized Morris' argument as follows: "[Morris] argues that SIMNA's covenant not to compete is unenforceable because he was involuntarily terminated through the mechanism of constructive discharge." Id. The district court looked to federal employment discrimination law to discern the applicable standards for a claim of constructive discharge in the employee choice doctrine context. See id. at *4; see, e.g., Pa. State Police v. Suders, 542 U.S. 129, 134, 124 S.Ct. 2342, 159 L.Ed.2d 204 (2004) ("[T]o establish `constructive discharge,' the plaintiff . . . must show that the abusive working environment became so intolerable that her resignation qualified as a fitting response."); Whidbee v. Garzarelli Food Specialties, Inc., 223 F.3d 62, 73 (2d Cir.2000) ("To find that an employee's resignation amounted to a constructive discharge, the trier of fact must be satisfied that the working conditions would have been so difficult or unpleasant that a reasonable person in the employee's shoes would have felt compelled to resign.") (internal quotation marks and alteration omitted).

The district court ultimately held that Morris' complaint could not "state a claim of constructive discharge, even taking all factual allegations as true," because his "working conditions at the time of his resignation were not so intolerable that a reasonable person would have been forced to leave the job." Morris, 2005 WL 167608, at *4. The district court specifically noted that Morris "retained the same job title, received the same salary, and received bonuses each year he worked," and that "in the year 1999 when [Morris] contends his responsibilities were decreased, he was awarded $217,000 in deferred cash compensation and over 26,000 shares of deferred stock." Id. The district court concluded that under Second Circuit law, "such circumstances are insufficient to create objectively intolerable working conditions." Id.; see, e.g., Petrosino v. Bell Atl., 385 F.3d 210, 231 (2d Cir.2004) (rejecting constructive discharge claim based on employee's reduced promotion opportunities, where employee retained her job title, pay, and seniority); Stetson v. NYNEX Serv. Co., 995 F.2d 355, 361 (2d Cir.1993) (rejecting constructive discharge claim based on employee's dissatisfaction with work assignments, where employee suffered no reduction in salary or rank, and had been given bonuses or raises yearly); Pena v. Brattleboro Retreat, 702 F.2d 322, 325-26 (2d Cir.1983) (rejecting constructive discharge claim based on change in employee's authority and responsibilities, where employee suffered no reduction in salary or rank and disagreement between employee and employer largely concerned business judgments).

This appeal followed.


We review a dismissal under Fed. R.Civ.P. 12(c) "using the same de novo standard applicable to dismissals pursuant to Fed.R.Civ.P. 12(b)(6)." Greco v. Trauner, Cohen & Thomas, L.L.P., 412 F.3d 360, 363 (2d Cir.2005). A complaint may not be dismissed under Rule 12(c) "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Id. (internal quotation marks omitted).

I. Issue presented by this appeal

Neither party disputes that New York law applies in this diversity case. The narrow question before this Court is whether "involuntary termination" in the context of New York's employee choice doctrine should be governed by the "constructive discharge" test from federal employment discrimination law.

A. The New York common law employee choice doctrine

We explored the contours of New York's common law employee choice doctrine in Lucente v. IBM Corp., 310 F.3d 243 (2d Cir.2002). As a general rule, "New York courts disfavor restrictive covenants in the employment context and will generally enforce them only to the extent ...

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