Rudman v. Cowles Communications, Inc.

• Decision Date: 09 February 1972
• Citation: 30 N.Y.2d 1,280 N.E.2d 867,330 N.Y.S.2d 33
• Parties: , 280 N.E.2d 867, 63 A.L.R.3d 527 Jack RUDMAN et al., Appellants, v. COWLES COMMUNICATIONS, INC., et al., Respondents.
• Court: New York Court of Appeals Court of Appeals

Page 33

330 N.Y.S.2d 33

30 N.Y.2d 1

280 N.E.2d 867

Jack RUDMAN et al., Appellants, v. COWLES COMMUNICATIONS, INC., et al., Respondents.

Court of Appeals of New York.

Feb. 9, 1972.

Martin Kleinbard, Rye, and Mark Alcott, New York City, for appellants.

John F. Cannon, New York City, for respondents.

BREITEL, Judge.

The controversy arises from the acquisition by Cowles Communications, Inc., of a small but successful test book publishing company and the ensuing employment by separate agreement of its principal, Rudman. In their action for damages for wrongful discharge and rescission for fraud plaintiffs, Rudman and others, appeal. ^*

The trial court dismissed the fraud causes of action but awarded plaintiff Rudman damages of $87,503.99 for breach of the employment agreement. On cross appeals, the Appellate Division modified, one Justice dissenting, and dismissed the cause of action for wrongful discharge, thus denying plaintiffs any relief, 35 A.D.2d 213, 315 N.Y.S.2d 409.

The principal issues turn on alleged insubordination by Rudman and misrepresentations of intention by Cowles in acquiring the Rudman enterprise.

With respect to the cause of action for wrongful discharge the weight of the evidence sustains the finding by the Referee of wrongful discharge and the absence of inexcusable insubordination on the part of Rudman. Despite plaintiffs' contentions to the contrary, fraud was not made out as a matter of law, and in the light of the affirmed findings of fact by the courts below, there is no further power to review in this court. Consequently, the order of the Appellate Division should be modified to reinstate the cause of action for wrongful discharge, and otherwise affirmed as to the dismissal of the causes of action for fraud.

Rudman, with 30 years' experience as a school teacher and college instructor, began publishing examination test manuals on a part-time basis in 1954. In 1961, by which time he was publishing several hundred titles, he started to devote full time to the business. His books prepared readers for aptitude tests; State, Federal, and local civil service positions; high school admissions; and graduate, professional and business school examinations. He also published model lesson plans and specialty materials for teachers.

Rudman, with the assistance of his wife and half a dozen part-time employees, operated from a Brooklyn loft. His sales rose from $86,543.19 for the whole of 1963 to $105,216.82 for the first six months of 1966, with correspondingly increased profits.

Rudman, realizing that his small enterprise reached but a fraction of the potential market, engaged a financial consultant, one Zoes, to advise him how to expand. Preferring merger to alternatives for raising capital, Zoes sought to interest various large publishers, including McGraw Hill, Crowell-Collier, Holt Reinhardt, and Cowles.

Cowles was a diversified broadcasting and periodical publishing enterprise, then with gross sales of about $135,000,000. It owned Look and Family Circle magazines, television and radio stations, newspapers, and trade papers. Cowles became interested when shown samples of Rudman's publications and financial statements, and after visiting his plant. Impressed with Rudman's prolific output of some 600 titles, Maurer, a high Cowles executive, offered for Cowles to purchase the company and employ Rudman.

Maurer and Whitney, an editor of the Cowles educational division, had some reservations: the books, they thought, were not well written, were pegged at too high an intellectual level, and would have to be revised. But these reservations did not discourage them because they attributed existing shortcomings to Rudman's lack of personnel, market research, and design talent; and, in any event, they wished and were even anxious for Rudman to continue as editor of his publications. They wanted the prolific Rudman to join Cowles as editorial head of a proposed test book division, and concededly told Rudman, at the outset, that he would be a 'number one man' in some context.

Two separate agreements, one for acquisition of the company and the other for Rudman's employment, were executed in June, 1966. Plaintiffs received 9,000 shares of restricted Cowles stock, with a then market value, if unrestricted, of $157,500. Under the plan plaintiffs conveyed the company assets to College Publishing Corporation, a wholly-owned subsidiary of Cowles. By the employment agreement Rudman undertook to perform 'such executive and administrative services in the educational publishing operations of (Cowles) or its wholly-owned subsidiaries as shall from time to time be reasonably assigned to him by the Company's Board of Directors and subject to the instructions, direction and control of senior executives of the Company'. The agreement provided no further detail as to Rudman's duties. The employment was for five years, subject to renewal at the company's option, at an annual salary of $30,000 with an increment based on sales. Mrs. Rudman was also to be employed by Cowles.

After the closing, Rudman continued for the summer months in the Brooklyn loft. The new subsidiary, College Publishing, with Rudman as vice-president, was placed under the educational division of Cowles. Maurer was vice-president of the division, Whitney the editor, and one Francine Klagsbrun the managing editor. In July, Maurer directed Rudman to clear most matters through Whitney during the summer months. During this period Rudman was requested by Whitney to furnish detailed information about his customers, to annotate the source materials for about 200 of his 600 manuals, and, at Rudman's suggestion, to prepare a new publication to be called the College Entrance Examination Series. Rudman was to prepare the manuscript in installments, with the last installment due in August, followed by publication in September.

By the end of the summer the scheduling of the College Entrance Series was far behind, and Whitney was not satisfied with the source annotations. This prompted a meeting among Maurer, Whitney and Rudman. On September 2 the parties attempted to realign the scheduling and allay the trouble over source materials. No satisfactory conclusion was reached but Maurer and Whitney remained optimistic.

Later that September, revised copy of two old books was forwarded to Rudman by Mrs. Klagsbrun, the so-called managing editor of the educational division and actually a young assistant to Whitney, who was supervising revisions. Rudman was upset by the magnitude of the revisions and the inclusion of new test questions without his prior approval. When he visited Klagsbrun at the Look offices in Manhattan, he was amazed to see a staff of 20 to 30 people under Klagsbrun working on his books. The offense to him was compounded by discovery that he was not to be listed as author on the cover of the manuals. Rudman voiced vehement objections to Whitney that the latter's staff was tampering with his material.

Concerned with these objections, a meeting was arranged for September 29 among Maurer, Whitney, Klagsbrun and Rudman. Before the meeting, Maurer had an organizational chart drafted which showed College Publishing as a subsidiary under the educational division, and more important, Rudman under the supervision of Klagsbrun and Whitney. Rudman remonstrated and refused to accept the proposed organizational structure. He said Whitney and Klagsbrun were inferior in rank to him and he would perform his duties only if he did not have to report to Whitney; any other arrangement would be inconsistent with his status as editor and vice-president of College Publishing. Maurer met again the next day with Rudman in a private attempt at reconciliation. Rudman then presented Maurer with his own organizational chart giving him direct access to Maurer in accord with his view of the employment agreement. Maurer told him that it was unacceptable and that Rudman was expected to conform to Maurer's chart and 'cooperate' with Whitney and Klagsbrun.

Four days later, October 4, 1966, Rudman wrote Maurer summarizing his position and reasons. He offered reconciliation but asserted that Maurer's organizational chart was 'irrevocably unacceptable'. He refused to take directions from Whitney or Klagsbrun, and wanted sole responsibility for the content of his books.

Following these events, Rudman was largely ignored by Cowles, and it was recognized that they might have to discharge him. On October 30 Rudman moved into the Look building in Manhattan. There Rudman had no subordinates, except his wife, no editorial staff to supervise, and his new work and his old books were handled by others over whom he had no control or direction. On his first day in Manhattan he refused to accept a memorandum from Whitney. On December 14 he restated his views in a letter to Maurer. Then, on January 12, 1967, he was discharged.

Within three weeks Rudman set up a new publishing company, National Learning Corporation, with a considerable number of new titles and had initiated arrangements for public financing. As might be anticipated, in its early stages it did not show great return, gross or net. On the other hand, Cowles appears thereafter to have done quite well with the Rudman titles it had taken over. The gross sales figures of the Cowles-produced Rudman books in 1967 and 1968 were respectively $699,400 and $796,000 with 'gross profit' of $387,000 and $520,100.

Rudman rests on the agreement that he was employed to perform executive and administrative functions subject only to the supervision of 'senior executives of (Cowles)' and that Whitney and Klagsbrun were not 'senior executives'. Consequently, his refusal to work under either was not insubordination. Moreover, plaintiffs contend there were misrepresentations, established as a matter of law, in the acquisition of the business entitling plaintiffs to rescission.

Following trial the Special Referee determined that pla...