United States District Court, D. Connecticut
MEMORANDUM OF DECISION GRANTING IN PART AND DENYING
IN PART DEFENDANT'S MOTION TO DISMISS THE AMENDED
COMPLAINT [DKT. 34].
Vanessa L. Bryant United States District Judge.
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.
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; (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.
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.
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
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.,
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)].
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)].
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) §
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)].
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)].
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) §
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].
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, ...