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Hoffman v. Nutmeg Music, Inc.

United States District Court, D. Connecticut

September 18, 2018

KAREN GOYETTE HOFFMAN, Plaintiff,
v.
NUTMEG MUSIC INC., Defendants.

          MEMORANDUM OF DECISION GRANTING IN PART AND DENYING IN PART DEFENDANT'S MOTION TO DISMISS THE AMENDED COMPLAINT [DKT. 34].

          Hon. Vanessa L. Bryant United States District Judge.

         I. Introduction

         Plaintiff, Karen Goyette Hoffman (“Hoffman”) brings this action against Defendant Nutmeg Music, Inc. (“Nutmeg”) asserting contract and common law claims. Hoffman filed her original Complaint in the State of Connecticut Superior Court on October 4, 2017. [Dkt. 1-1, at 2]. Nutmeg removed Plaintiff's action to this Court on November 3, 2017. [Dkt. 1]. Nutmeg filed a Motion to Dismiss on November 9, 2017. In response, Hoffman filed her Amended Complaint on December 13, 2017. [Dkt. 28]. Nutmeg filed the instant motion to dismiss on January 12, 2018. [Dkt. 34]. For the reasons stated below, the Motion to Dismiss is GRANTED IN PART AND DENIED IN PART.

         Hoffman asserts five claims in her Amended Complaint. She claims Nutmeg: (1) breached the implied covenant of good faith and fair dealing in the Employment Agreement by refusing to concur that Hoffman terminated the agreement for “good reason” under Section 7(c); (2) breached the implied covenant of good faith and fair dealing in the Employment Agreement by constructively discharging her in order to avoid paying her the severance due if she were terminated “Without Cause” pursuant to Section 7(d); (3) violated New York Labor Law;[1] (4) breached the Stock Purchase Agreement by taking actions diminishing the value of Hoffman's earn-out payments; and (5) was unjustly enriched by the actions it took.

         Nutmeg filed this Motion to Dismiss Plaintiff's Amended Complaint on January 12, 2018. [Dkt. 34]. Nutmeg argues that: (1) Hoffman's claim regarding Section 7(c) of the Employment Agreement uses the obligation of good faith and fair dealing in a manner inconsistent with the contract; (2) Hoffman's second claim improperly imports constructive discharge doctrine into the parties' contractual relationship; (3) New York Labor Law does not apply to Hoffman; (4) Hoffman does not sufficiently plead damages to sustain a claim for breach of the Stock Purchase Agreement; and (5) Hoffman cannot bring a claim for unjust enrichment where neither party disputes the validity of the contracts at issue. For the reasons that follow, Defendant's Motion to Dismiss Counts Three and Five is GRANTED. Defendant's Motion to Dismiss Counts One, Two, and Four is DENIED.

         II. Factual Background

         The following facts and allegations are taken from Hoffman's Amended Complaint [Dkt. 28] and the exhibits attached to her original Complaint [Dkt. 1-1]. Hoffman, a citizen of Connecticut, was majority owner of a Connecticut corporation named GW Hoffman, Inc. (“GWH”) from June 2005 to August 4, 2016. [Dkt. 28 (Plaintiff's Am. Complaint) ¶¶ 6, 8, 10]. GWH was a consulting firm providing marketing, advertising, branding, strategic positioning, and other services. [Dkt. 28, ¶ 7]. Hoffman's husband founded GWH in December 1983 and remained a co-owner until the sale of GWH. [Id., ¶¶ 7, 8]. On August 4, 2016, Hoffman and her husband sold GWH to Nutmeg, Inc. (“Nutmeg”). [Dkt. 28, ¶ 10]. Nutmeg is a brand marketing and production studio incorporated in New York. [Id.]

         The parties executed two agreements for the sale of GWH. These were a Stock Purchase Agreement and an Employment Agreement (collectively the “Agreements”). [Dkt. 28, ¶ 12]. The Stock Purchase Agreement provided the terms by which Plaintiff and her husband would sell all their outstanding shares in GWH to Nutmeg. [Id., ¶ 13]. The Employment Agreement provided the terms by which Nutmeg would hire Plaintiff following the sale. [Id., ¶¶ 11, 13]. The new company formed from the sale was to be known as “Finn Ripley”. [Id., ¶ 21].

         The Stock Purchase Agreement provided that Plaintiff would receive yearly “earn-out” payments for the first two years after the stock sale, which earn-outs would amount to a percentage of yearly net revenues from existing GWH clients, known as “GWH Legacy Clients, ” that Finn Ripley would continue to service. [Dkt. 28, ¶ 25; Dkt. 1-1 (Stock Purchase Agreement) Art. 1, § 1.2(b)]. The Stock Purchase Agreement obligated Nutmeg not to “take any action which [had] the direct or indirect purpose of deferring revenues or otherwise improperly reducing GWH Legacy Client Net Revenues.” [Dkt. 1-1 (Stock Purchase Agreement) Art. I, § 1.2(b)(viii)].

         The Stock Purchase Agreement also required Nutmeg to hire a number of personnel. The agreement obligates Nutmeg to maintain the employment of certain existing GWH employees. [Dkt. 1-1 (Stock Purchase Agreement) Art. I, § 1.3 (a)]. Nutmeg also agreed to “enter into a consulting agreement with ATB/Lilypad Group[.]” [Dkt. 1-1 (Stock Purchase Agreement) Art. I, § 1.3 (b)].

         The Employment Agreement stated that Plaintiff was to be “a member, and have the duties associated with, the senior management of [Nutmeg], managing a group of employees, including, but not limited to . . . serving as co-leader in the development and implementation of a new growth strategy for the new Unified Company.” [Dkt. 28 ¶ 27; Dkt. 1-1 (Employment Agreement) § 2]. Plaintiff was to be responsible for “developing and executing a strategic plan, as directed by [Nutmeg CEO] Anthony Spaneo[.]” [Dkt. 28 ¶ 29; Dkt. 1-1 (Employment Agreement) § 2].

         Under the Employment Agreement, Hoffman was entitled to severance payments in two instances. First, Hoffman could terminate the Employment Agreement for “Good Reason” if Nutmeg i) materially diminished Hoffman's “duties, position, authority, or responsibilities” without Hoffman's consent, or ii) breached any of the material provisions of the Employment Agreement. [Dkt. 28 ¶ 30] The Employment Agreement states:

The Employee may terminate this Agreement for “Good Reason” if she resigns from her employment hereunder following the occurrence of one of the following: (i) The Company materially diminishes the duties, position, authority, or responsibilities of Employee without her consent (provided that, in any such case, Employee shall have provided President, his designee or his successor and/or Board of Directors of Company with written notice of such condition and not less than thirty (30) days to cure such condition), (ii) a material breach by the Company under this Agreement of any of its material provisions (provided that, in any such case, Employee shall have provided the President, his designee or his successor and/or Board of Directors of Company with written notice of such condition and not less than thirty (30) days to cure such condition) . . . If the Employee terminates her employment hereunder for Good Reason pursuant to this Section and to the concurrence of the Company, the Employee shall be entitled to receive such payments/benefits if Company terminated Employee's employment under this Agreement Without Cause. [Dkt. 1-1 (Employment Agreement) § 7(c)].

         Second, Hoffman could recover severance if Nutmeg terminated her employment “Without Cause”:

Company may terminate Employee's employment under this Agreement at any time other than (i) for “Just Cause” as described in Section 7(b) above or (ii) upon death or disability as described in Section 7(a) above, by delivery of written notice to Employee specifying that Employee's employment hereunder is being terminated “Without Cause” pursuant to this Section 7(d). [Dkt 1-1 (Employment Agreement) § 7(d)].

         Hoffman's right to severance payments is stipulated in Section 7(e) of the Employment Agreement:

In the event Employee's employment is terminated (i) by the Company “Without Cause, ” or (ii) by the Employee for “Good Reason, ” the Company shall continue to pay to you, as severance pay, the base Salary in effect at the time of such termination for the remaining period of the Term . . . Such severance payments shall be made in substantially equal installments in accordance with the Company's normal payroll practices during the Severance Period. [Dkt. 1-1 (Employment Agreement) § 7(e)].

         On April 25, 2017, Anthony Spaneo sent Plaintiff a letter stating that Nutmeg wished to extricate themselves from the merger with GWH [Dkt. 1-1, at 147]. The letter communicated that Spaneo felt Hoffman's “philosophy regarding the merger, combined with a fiercely territorial management style has made the concept of Finn-Ripley unworkable in its present state.” [Id.] Spaneo told Hoffman that if she were “unwilling to discuss a termination of the agreement, we will be forced to move forward with drastic changes based on profitability[.]” [Id.]. Among these promised changes were dissolving all aspects of GWH, eliminating GWH employee Dan Walker's position, terminating the agreement with Ann Buivid and the Lilypad Group, terminating Hoffman's entire “interactive sales team, ” and replacing Hoffman as the head of creative at Finn Ripley [Id. at 147-48].

         On or prior to the April 25 letter, Spaneo followed through with the intentions expressed in the letter. Before sending the letter, Spaneo conducted high-level conversations about the management and staffing of Finn Ripley without Plaintiff's participation. [Dkt. 28, ¶ 36(c)]. On April 27, 2017, Spaneo terminated the contract of Ann T. Buivid, principal of a consulting firm known as the Lilypad Group. [Dkt. 28, ¶ 36(a)]. On or about May 26, 2017, Spaneo terminated the five members of the interactive team. [Dkt. 28, ¶ 36(b)]. On May 3, 2017, ...


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