Mulder v. Donaldson, Lufkin & Jenrette

• Decision Date: 07 March 1995
• Court: New York Supreme Court — Appellate Division
• Parties: , 10 IER Cases 631 Joseph M. MULDER, Plaintiff-Respondent-Appellant, v. DONALDSON, LUFKIN & JENRETTE, Defendant-Appellant-Respondent, and Robert Albano, Defendant-Respondent.

Page 560

623 N.Y.S.2d 560

208 A.D.2d 301, 10 IER Cases 631

Joseph M. MULDER, Plaintiff-Respondent-Appellant, v. DONALDSON, LUFKIN & JENRETTE, Defendant-Appellant-Respondent, and Robert Albano, Defendant-Respondent.

Supreme Court, Appellate Division,

First Department.

March 7, 1995.

L. Trager, New York City, of counsel (Morely & Trager, attorneys), for plaintiff-respondent-appellant.

D. Scott Wise, New York City, of counsel (Stephen D. Hibbard, Deborah A. Torrisi and Rita M. Costabile, on the brief, Davis Polk & Wardwell, attorneys), for defendant-appellant-respondent.

Before ELLERIN, J.P., and WALLACH, ASCH and NARDELLI, JJ.

ASCH, Justice.

The facts set forth herein are taken from the plaintiff's complaint. Since we are dealing with an appeal from an order granting, in part, and denying, in part, a motion to dismiss that complaint for failure to state a cause of action, we must assume for the purposes of this appeal that all of these facts are true, and resolve all inferences reasonably flowing from them in favor of the plaintiff (Sanders v. Winship, 57 N.Y.2d 391, 394, 456 N.Y.S.2d 720, 442 N.E.2d 1231).

Plaintiff auditor has been a member of the Securities Industry Association for over twenty years and an employee of the defendant brokerage house, Donaldson, Lufkin & Jenrette (DLJ), for over 13 years. Plaintiff, in the course of his duties, in auditing the Miami office of the defendant DLJ reported violations of brokerage policies, and, indeed, of the rules of the Securities and Exchange Commission, the New York Stock Exchange and the laws of the United States.

Plaintiff's report disclosed, inter alia, that a corporate account was controlled by three lawyers, one of whom was linked to a money "laundering" scheme in an indictment of the drug lord, Pablo Escobar. After the public release of the information concerning Escobar, plaintiff's immediate superior was informed that the account, containing about $10,000,000 in government backed securities, would leave the defendant brokerage but come back "repackaged" as an offshore trust. Subsequently, the account did return with the same securities as an offshore corporation. In violation of Securities and Exchange Commission and New York Stock Exchange rules, none of the persons in control of the corporation were listed but the officers for the offshore corporation were solely listed as three other offshore corporations.

Money was accepted from third parties and sent to other third parties who had no apparent relationship to accounts at the defendant brokerage. Many of the accounts in which this took place were not involved with securities transactions at all. The wiring of funds to third parties and the receipt of third party checks violated the brokerage's rules.

Large amounts of money were wired overseas to third parties to accounts in countries known as "secrecy" countries. In a number of instances, the funds were wired in such a manner as to conceal the true name of the brokerage customer wiring the funds.

Checks payable to customers were delivered to salesmen and in many cases endorsed over to third parties, in violation of the accepted practice in the securities industry and the rules of defendant brokerage. Subsequent to the issuance of his report, plaintiff discovered that blank checks were being filled in as to payee, date and amount by a salesman in the Miami office for funds exceeding $400,000, in some cases. In addition, a check for $80,000 issued by the defendant DLJ to one of the customers in the Miami office was deposited in a account seized by the Federal government as containing drug-related proceeds, in connection with the Pablo Escobar indictment. The customer had purchased $90,000 of government securities from the Miami office which then margined the account and issued the $80,000 check, deposited in the seized account. The securities paid a rate of 8 and 3/8%, and the brokerage charged a margin interest rate of 10 and 1/2%, causing an apparent loss to the customer.

A meeting was held to discuss some of the issues raised by plaintiff's report in March 1991. As a result of this meeting, it was decided that third party wires and receipts would no longer be allowed to continue. A memorandum was issued by defendant Mr. Robert Albano, the Compliance Director of DLJ to the national sales manager, Mr. Michael Campbell, who in turn, distributed the memorandum to employees directing that this practice of receiving third party checks and making wires to third parties not be allowed any longer, except in unusual circumstances and with written permission of both parties. The plaintiff, however, found that the operating rules pursuant to this memorandum were not being followed. He wrote a memorandum to Mr. Albano, asking where the required written authorizations were for the third party wires and checks. Not hearing from Albano, plaintiff called him and Albano hung up on him after using an expletive indicating he did not want to be bothered any further. Two weeks later, plaintiff was fired by Albano.

In August of 1991, plaintiff met with the vice chairman of the brokerage, Mr. Carl Menges, and gave him a letter informing him of his investigation. Thereafter, plaintiff was asked by Menges to work unofficially with him and with DLJ's attorneys, Davis Polk & Wardwell, in gathering additional information. Plaintiff was informed by an attorney from the firm that he had done an excellent job. Both Menges and Davis Polk & Wardwell promised plaintiff that they would "do the right thing" for him. When it became apparent, however, that nothing further was being done, plaintiff commenced an arbitration proceeding before the New York Stock Exchange which resulted in an award to him of $114,668 and costs of $1,000.

In the matter directly before us, the IAS court denied defendants' motion, made pursuant to CPLR 3211(a)(7), to dismiss the complaint, as to the first cause of action seeking punitive damages. It granted that motion as to the second and third causes of action seeking compensatory and punitive damages for slander, finding that the absolute privilege of Civil Rights Law § 74 applied.

With respect to the first cause of action, the IAS court found that the exception to the "at will" employment doctrine recognized by the Court of Appeals for licensed attorneys (Wieder v. Skala, 80 N.Y.2d 628, 593 N.Y.S.2d 752, 609 N.E.2d 105), should be extended to securities dealers and "most probably, to any licensed business or profession whose continued practice is subject to compliance with laws or regulations governing the conduct of such business or profession" (Mulder v. Donaldson, Lufkin & Jenrette, 161 Misc.2d 698, 703, 611 N.Y.S.2d 1019). We disagree with that expansive construction of Wieder v. Skala.

It is well-settled that in the absence of a written employment contract, an employee is deemed to be an "at will" employee and may be terminated (or leave her employment), at any time, for any reason or even for no reason (Martin v. New York Life Ins. Co., 148 N.Y. 117, 121, 42 N.E. 416). The Court of Appeals, in a case involving the alleged wrongful discharge of an employee who was a "whistle-blower", held that an employer's right at any time to terminate an employment at will remains unimpaired in New York, absent a constitutionally impermissible purpose, a statutory proscription or an express limitation in the applicable contract of employment [cf., Weiner v. McGraw-Hill, Inc., 57 N.Y.2d 458, 457 N.Y.S.2d 193, 443 N.E.2d 441] (Murphy v. American Home Prod., 58 N.Y.2d 293, 305, 461 N.Y.S.2d 232, 448 N.E.2d 86).

The Court reaffirmed, in Sabetay v. Sterling Drug, Inc., 69 N.Y.2d 329, 514 N.Y.S.2d 209, 506 N.E.2d 919, the Murphy rejection of implied covenants in employment relationships and its refusal to relax the Weiner requirements or to expand the Weiner holding into the implied contract category (id., at 337, 514 N.Y.S.2d 209, 506 N.E.2d 919).

In Wieder v. Skala, supra, the Court of Appeals held that an attorney employed at will by a law firm stated a cause of action for breach of contract when his employment was terminated, since the termination was alleged to have occurred because he insisted that the firm report professional misconduct to the Disciplinary Committee allegedly committed by another associate. The Court agreed with the defendants that plaintiff's complaint did not contain allegations which would come under the Weiner exception for express contractual limitations. However, the court noted that in contrast to the plaintiffs in Murphy v. American Home Products Corp., supra, and Sabetay v. Sterling Drug, supra, who performed accounting services in the financial departments of large companies as part of corporate management, the plaintiff attorney's performance of professional activities as a duly admitted member of the Bar was "at the very core and, indeed, the only purpose of his association with defendants", and, further recognized the importance that attorneys "remain independent officers of the court responsible in a broader public sense for their professional obligations". (Wieder v. Skala, supra, 80 N.Y.2d at 635, 593 N.Y.S.2d 752, 609 N.E.2d 105). The court concluded:

"We agree with plaintiff that these unique characteristics of the legal profession in respect to this core Disciplinary Rule [DR 1-103(A) ] make the relationship of an associate to a law firm employer intrinsically different from that of the financial managers to the corporate employers in Murphy and Sabetay. The critical question is whether this distinction calls for a different rule regarding the implied obligation of good faith and fair dealing from that applied in Murphy and Sabetay." (id., at 637, 593 N.Y.S.2d 752, 609 N.E.2d 105).

The court decided that the distinction did require a different rule and concluded that plaintiff stated a valid claim for breach of contract based on an implied-in-law obligation in his relationship with the law firm (id.,...