Hoffman v. Nutmeg Music, Inc.

Filing 60

ORDER granting in part 34 Motion to Dismiss as to Counts Three and Five and denying in part as to Counts One, Two, and Four. This case is administratively closed without prejudice to re-opening when the 11 U.S. Code § 362 Automatic Bankruptcy Stay is no longer in effect. Signed by Judge Vanessa L. Bryant on 09/18/2018. (Shafer, J.)

UNITED STATES DISTRICT COURT
DISTRICT OF CONNECTICUT
KAREN GOYETTE HOFFMAN,
Plaintiff,
v.
NUTMEG MUSIC INC.,
Defendants.

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CIVIL ACTION NO.
3:17-cv-01848 (VLB)

September 18, 2018

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

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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.

Hoffman withdrew this claim in her Memorandum in Opposition to Defendant’s
Mot. to Dismiss. [See Dkt. 44 at 1 n. 1].

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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,

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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

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“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
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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,

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2017, Spaneo’s executive committee designee, Dave Rogan, demanded that the
interactive team pull conversations away from Plaintiff. [Dkt. 28, ¶ 36(d)].
On June 21, 2017, Plaintiff requested in writing that Nutmeg cure each of its
alleged breaches. [Dkt. 28, ¶ 37]. As of August 17, 2017, Nutmeg did not take the
action Plaintiff requested. [Dkt. 28, ¶ 39]. Instead, on August 22, 2017, Spaneo
informed Plaintiff: “[y]ou are hereby being placed on suspension effective
immediately, Tuesday, August 22, 2017, with continuing effect until further
notice.” [Dkt. 1-1, at 118]. Between August 22 and September 28, 2017, Nutmeg
did not elaborate on the reasons for the suspension. [Dkt. 28, ¶ 44].
These actions led Plaintiff to terminate the Employment Agreement. On
September 8, 2017, Plaintiff sent Nutmeg notice deeming the Employment
Agreement terminated for “Good Reason” or alternatively “Without Cause.” [Dkt.
28, ¶ 48]. Hoffman demanded payment of wages and severance. [Dkt. 28, ¶ 48].
On September 13, 2017, Nutmeg informed Hoffman that it would be “making no
further salary payments.” [Dkt. 28, ¶ 49].
III.

Standard of Review
“‘To survive a motion to dismiss, a complaint must contain sufficient

factual matter, accepted as true, to state a claim to relief that is plausible on its
face.’” Sarmiento v. U.S., 678 F.3d 147 (2d Cir. 2012) (quoting Ashcroft v. Iqbal,
556 U.S. 662, 678 (2009)). While Rule 8 does not require detailed factual
allegations, “[a] pleading that offers ‘labels and conclusions’ or ‘formulaic
recitation of the elements of a cause of action will not do.’ Nor does a complaint
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suffice if it tenders ‘naked assertion[s]’ devoid of ‘further factual enhancement.’”
Iqbal, 556 U.S. at 678 (citations and internal quotations omitted). “Where a
complaint pleads facts that are ‘merely consistent with’ a defendant's liability, it
‘stops short of the line between possibility and plausibility of ‘entitlement to
relief.’” Id. (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 557 (2007)). “A claim
has facial plausibility when the plaintiff pleads factual content that allows the
court to draw the reasonable inference that the defendant is liable for the
misconduct alleged.” Id. (internal citations omitted).
In considering a motion to dismiss for failure to state a claim, the Court
should follow a “two-pronged approach” to evaluate the sufficiency of the
complaint. Hayden v. Paterson, 594 F.3d 150, 161 (2d Cir. 2010). “A court ‘can
choose to begin by identifying pleadings that, because they are no more than
conclusions, are not entitled to the assumption of truth.’” Id. (quoting Iqbal, 556
U.S. at 679). “At the second step, a court should determine whether the ‘wellpleaded factual allegations,’ assumed to be true, ‘plausibly give rise to an
entitlement to relief.’” Id. (quoting Iqbal, 556 U.S. at 679). “The plausibility
standard is not akin to a probability requirement, but it asks for more than a sheer
possibility that a defendant has acted unlawfully.” Iqbal, 556 U.S. at 678 (internal
quotations omitted).
In general, the Court’s review on a motion to dismiss pursuant to Rule
12(b)(6) “is limited to the facts as asserted within the four corners of the
complaint, the documents attached to the complaint as exhibits, and any
documents incorporated in the complaint by reference.” McCarthy v. Dun &
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Bradstreet Corp., 482 F.3d 184, 191 (2d Cir. 2007). The Court may also consider
“matters of which judicial notice may be taken” and “documents either in
plaintiffs' possession or of which plaintiffs had knowledge and relied on in
bringing suit.” Brass v. Am. Film Techs., Inc., 987 F.2d 142, 150 (2d Cir.1993);
Patrowicz v. Transamerica HomeFirst, Inc., 359 F. Supp. 2d 140, 144 (D. Conn.
2005) (MRK).
Both Agreements stipulate that they are to be governed and construed in
accordance with the laws of the state of New York. [Dkt. 1-1 (Employment
Agreement) § 20; Dkt. 1-1 (Stock Purchase Agreement) ¶ 6.7].
IV.

Discussion
a. Count One: Breach of the Implied Covenant of Good Faith and Fair
Dealing – Employment Agreement Section 7(c): Termination for
“Good Reason”
The Court first examines Hoffman’s claim that Nutmeg acted in bad faith by

taking the alleged actions and refusing to concur that “good reason” existed for
Hoffman’s termination. Nutmeg argues that the implied covenant of good faith
and fair dealing does not create “independent substantive rights” in contracts.
[Dkt. 34 at 14 (citing Mohegan Lake Motors, Inc. v. Maoli, No. 16-cv-06717 (NSR),
2017 WL 6335905 (S.D.N.Y. Dec. 7, 2017) and Thompson v. Combined Systems,
Inc., No. 6:17-CV-7009, 2017 WL 2546611 (W.D.N.Y. June 13, 2017))]. Nutmeg is
correct that a plaintiff may not allege a breach of the implied covenant if such a
claim either creates a new substantive right under the agreement or is duplicative

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of a claim alleging a breach of an express covenant in the contract. See Harris v.
Provident Life and Acc. Ins. Co., 310 F.3d 73, 80 (2d. Cir. 2002). However, Hoffman
does not allege a breach of the Employment Agreement on the same facts as her
claims for breach of the implied covenant of good faith and fair dealing.
Furthermore, Hoffman’s claim for a breach of the implied covenant in the
Employment Agreement does not create an “independent substantive right” in
the contract, for the following reasons.
New York recognizes the covenant of good faith and fair dealing as implied
in all contracts. The covenant “encompasses promises which a reasonable
person in the position of the promisee would be justified in understanding were
included” in a contract. Moran v. Erk, 901 N.E. 2d 187, 190 (N.Y. 2008). “‘[N]either
party shall do anything which will have the effect of destroying or injuring the
right of the other party to receive the fruits of the contract.’” Security Plans, Inc.
v. CUNA Mut. Ins. Soc., 769 F.3d 807, 810 (2d Cir. 2014) (quoting Moran, 901
N.E.2d at 190).
“Where a contract contemplates the exercise of discretion, this pledge
includes a promise not to act arbitrarily or irrationally in exercising that
discretion.” State Street Bank and Trust Co. v. Inversiones Errazuriz Limitada, 374
F.3d 158, 169 (2d. Cir. 2004) (quoting Dalton v. Educational Testing Service, 87
N.E. 2d 289, 291 (1995)); Fishoff v. Coty, Inc. 634 F.3d 647, 653 (2d Cir. 2011) (the
covenant of good faith and fair dealing requires exercising discretion “reasonably
and with proper motive, … not … arbitrarily, capriciously, or in a manner
inconsistent with the reasonable expectations of the parties.”) (internal
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quotations omitted). An implied covenant of good faith and fair dealing applied to
the exercise of discretion is “not without limits, and no obligation can be implied
that would be inconsistent with other terms of the contractual relationship.” State
Street Bank, 374 F.3d at 170 (internal quotations omitted).
Nutmeg cites authority to support the proposition that the covenant of
good faith and fair dealing never restricts a party’s exercise of discretion unless
the contract explicitly limits that discretion. [See Dkt. 48 (Reply Memorandum in
Support of Mot. to Dismiss) at 3-5]. These cases are distinguishable from the
present circumstance. In each case, the party asserting the breach of the implied
covenant attempted to create an obligation that was inconsistent with the parties’
contractual relationship. Furthermore, in none of these instances did the court
find that it could reasonably infer bad faith on the part of the party exercising
discretion. The Court addresses four of these cases to illustrate the distinction.
Nutmeg cites Teachers Ins. and Annuity Ass’n of America v. Wometco
Enterprises, Inc., 833 F.Supp. 344 (S.D.N.Y. 1993). [Dkt. 48, at 4]. In that case, the
plaintiff alleged a violation of the implied covenant when Defendant refused to
consent to a refinancing transaction. Id. at 349. The plaintiff did not allege, as
here, a series of disingenuous and subversive actions undertaken in bad faith to
circumvent the terms of the contract and deprive the plaintiff of rights under the
contract.
Nutmeg also relies on State Street Bank and Trust Co. v. Inversiones
Errazuriz Limitada, 374 F.3d 158 (2d Cir. 2004). [Dkt. 48 at 4]. This case

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concerned a credit agreement which provided “that neither [Defendant Inverraz]
nor its ‘Restricted Subsidiaries’ could sell, transfer, or otherwise dispose of any
assets where, inter alia, Inverraz had defaulted on the loans enumerated in the
agreements.” State Street Bank, 374 F.3d at 168. When Inverraz defaulted on the
relevant loans, plaintiff State Street Bank was entitled, by the express terms of
the contract, to prohibit sale of assets. Id. at 170. The Second Circuit’s opinion
focused on the contractual relationship at issue. Finding a violation of the implied
covenant in that scenario would have required State Street Bank to consent to a
blatant breach of the contract’s terms by allowing Inverraz to sell assets. In
contrast, Nutmeg’s disputed conduct includes certain actions which were not
within its contractual discretion – such as terminating employees and
diminishing Hoffman’s duties – and Hoffman’s claim does not require Nutmeg to
approve of a breach of the Employment Agreement.
Cookware Company (USA), LLC v. Austin, Case No. 15-cv-5796 (DAB), 2016
WL 7378762 (S.D.N.Y. December 8, 2016) (cited in [Dkt. 48 at 2]) also addresses a
situation in which finding a violation of the implied covenant of good faith and fair
dealing would contravene the express terms of a contract. The contract at issue
gave one party the discretion to set prices, stating that Hudson “shall only use…
the prices provided and updated by [Defendant’s Agent] Greenpan” and that
Hudson “shall not make any change in Greenpan’s quotations or terms of sales
without the prior written approval of Greenpan.” Cookware Company (USA), 2016
WL 7378762 at *8. The court did not find that Greenpan took a series of actions
that contradicted promises the plaintiff reasonably would have expected when
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the contract was executed. To the contrary, the plaintiff in Cookware Company
(USA) asked the court to disregard the terms of the contract.
Finally, Overseas Private Investment Corp. v. Gerwe¸ Case No. 12-cv-5833
(RA), 2016 WL 1259564 (S.D.N.Y. March 28, 2016), relies, in part, on the New York
Court of Appeals’ decision in Moran v. Erk, 901 N.E.2d 187, 190 (N.Y. 2008). Moran
declined to find a breach of the covenant of good faith and fair dealing where a
contract granted an attorney discretion to approve of a real estate sale. Id. at 191.
The court in Gerwe relied on Moran and State Street Bank in finding that the
obligation of good faith and fair dealing did not require the plaintiff to grant the
defendant’s request for a loan forbearance. Gerwe at *7. The defendant in Gerwe
requested the forbearance in order to buy out the minority shareholders of a joint
stock company in order to sell the company to pay its debt to the Plaintiff. Id at
*3. Again, Gerwe concerns a scenario in which the party asserting the breach of
the implied covenant was, in effect, asking the Court to approve a breach of the
contract.
In each of these cases, the party invoking the covenant of good faith and
fair dealing was asking the Court to interpret the contract in a manner that would
frustrate the intentions of the parties. In Teachers Ass’n, State Street Bank, and
Gerwe, the party invoking the obligation of good faith and fair dealing was asking
the other party to consent to a breach of the contract. In Cookware Company
(USA), the plaintiff’s interpretation of the obligation of good faith and fair dealing
would have negated the contract’s language granting the defendant the right to
set prices.
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The instant motion presents the Court with the reverse scenario–
dismissing the Plaintiff’s claim of a breach of the obligation of good faith and fair
dealing would negate the purpose of the “good reason” clause and would
frustrate Plaintiff’s right to be compensated for selling GWH and offering her
services to Nutmeg. Nutmeg argues that, because the Employment Agreement
contains no explicit limitation on the requirement that Nutmeg “concur” with
Hoffman that her resignation is for “good reason”, this Court must hold that
Nutmeg was free to act in bad faith to frustrate Hoffman’s ability to achieve the
benefits of the Employment Agreement. [Dkt. 48 at 3-6]. The Court declines to do
so.
Nutmeg does not establish precedent which binds this Court to so
drastically weaken the implied covenant of good faith and fair dealing under New
York law. Courts in this circuit continue to hold that the covenant of good faith
and fair dealing prohibits a party from exercising its discretion in bad faith. See
Valley Stream Foreign Cars, Inc. v. American Honda Motor Co., Inc., 209
F.Supp.3d 547, 555 (E.D.N.Y. 2015) (“Where a contract contemplates the exercise
of discretion, courts have equated the covenant of good faith and fair dealing
with an obligation to exercise that discretion reasonably and with proper motive”)
(internal quotations omitted); Safka Holdings LLC v. iPlay, Inc., 42 F.Supp.3d 488,
494 (S.D.N.Y. 2013); In Re Lehman Brothers holdings Inc., 541 B.R. 551, 568
(S.D.N.Y. 2015). New York state courts also uphold the obligation of good faith
and fair dealing as a limit on the exercise of contractual discretion. See, e.g.
Legend Autorama, Ltd. V. Audi of America, Inc., 100 A.D.3d 714, 716, 954 N.Y.S.2d
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141, 143-44 ) (N.Y.App.Div.2d 2012) (“[E]ven an explicitly discretionary contract
right may not be exercised in bad faith so as to frustrate the other party’s right to
the benefit under the agreement.”).
Finally, Plaintiff’s suggested interpretation of the covenant of good faith
and fair dealing diverges from the approach taken in the vast majority of states.
See, e.g. Bohne v. Computer Associates Intern., Inc., 514 F.3d 141, 143 (1st Cir.
2008) (Under Massachusetts law, “the doctrine of good faith and fair dealing . . .
constrains a party’s discretion so that the objectives of the contract [are]
realized.”) (internal quotations omitted); Kinzel v. Bank of America, 850 F.3d 275,
283 (6th Cir. 2017) (Under Utah law, “where a contract grants one party sole
discretion in making a decision, but does not provide any express standard for
exercising that discretion, the covenant imposes an objective standard of
reasonableness.”) (internal quotations omitted); Wilson v. Career Education
Corporation, 844 F.3d 686, 691 (7th Cir. 2016) (the covenant of good faith and fair
dealing under Illinois law requires that “discretion be exercised reasonably with
proper motive rather than arbitrarily or capriciously or in a manner inconsistent
with reasonable expectations.”); Stokes v. DISH Network, L.L.C., 838 F.3d 948,
952 (8th Cir. 2016) (Under Colorado law, the “implied duty of good faith and fair
dealing requires that a party vested with contractual discretion exercise that
discretion reasonably.”)(internal quotations omitted); Kelly v. Skytel
Communications, Inc., 32 Fed. Appx. 283, 286 (9th Cir. 2002) (Under California
law, “the implied covenant of good faith and fair dealing governs SkyTel’s
exercise of its discretionary powers.”); Scribner v. Worldcom, Inc., 249 F.3d 902,
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910 (9th Cir. 2001)(Under Washington law, “[g]ood faith limits the authority of a
party retaining discretion to interpret contract terms; it does not provide a blank
check for that party to define terms however it chooses.”); Ernie Haire Ford, Inc.
v. Ford Motor Co., 260 F.3d 1285, 1291 (11th Cir. 2001) (Under Florida law, “With
the implied covenant, one party cannot capriciously exercise discretion accorded
it under a contract so as to thwart the contracting parties’ reasonable
expectations.”).
The Implied Covenant of Good Faith and Fair Dealing does not require that
Nutmeg concur under any circumstance, but it does prevent Nutmeg from acting
in bad faith to induce Hoffman to terminate so that Nutmeg can avoid fulfilling its
obligations. The Employment Agreement grants Hoffman the right to terminate
for “Good Reason” and provides for the payment of severance if good reason
exists. [Dkt. 1-1 (Employment Agreement) § 7(c) (“If Employee terminates her
employment hereunder for Good Reason and to the concurrence of the Company,
the Employee shall be entitled to receive the payments/benefits to the same
extent that Employee would have been entitled to receive such payments/benefits
if Company terminated Employee’s employment under this Agreement Without
Cause.”); 7(e)(“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[.]”). If
Nutmeg could unreasonably withhold its concurrence, the Employment
Agreement entitles Nutmeg to acquire GWH, frustrate Plaintiff’s ability to perform
16

her duties until she terminates, then refrain from paying Plaintiff as originally
agreed. Hoffman would have no contractual remedy if Nutmeg frustrated
Plaintiff’s ability to perform, as alleged here.
Defendant, in its Motion to Dismiss, focuses chiefly on Nutmeg’s decision
to concur or not to concur and ignores the pattern of bad faith Plaintiff alleges.
Defendant raises a number of arguments regarding whether Hoffman “actually
requested Nutmeg’s concurrence”, whether Hoffman’s notification of termination
constituted a “request for concurrence”, and whether this concurrence should
“coincide with the actual termination of employment.” [Dkt. 35 at 12-13]. This
approach artificially narrows the inquiry.
Nutmeg’s withholding of its concurrence is salient only in the context of
Nutmeg’s actions preceding Hoffman’s termination of the Agreement. Nutmeg’s
refusal to concur is the final link in the causal chain allegedly depriving Hoffman
of the fruits of her bargain, but the concurrence decision should not be examined
in a vacuum. The relevant inquiry is whether all of Nutmeg’s alleged actions,
collectively, resulted in a breach of the implied covenant. Plaintiff’s Amended
Complaint states a facially plausible claim that Defendant violated the implied
covenant of good faith and fair dealing by refusing to concur that Hoffman
terminated the Employment Agreement for Good Reason under Section 7(c).

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b. Count Two - Breach of Implied Covenant of Good Faith and Fair
Dealing – Employment Agreement Section 7(d): Termination
“Without Cause”
Section 7(d) of the Employment Agreement stipulates that Hoffman’s
employment will be deemed terminated “Without Cause” if Nutmeg “deliver[s]
written notice to [Hoffman] specifying that [Hoffman’s] employment hereunder is
being terminated “Without Cause.” [Dkt. 1-1 (Employment Agreement) § 7(d).
Hoffman claims that implied in Section 7(d) “was a requirement not to refuse
sending written notice of termination to Plaintiff as part of a bad faith scheme to
prevent Plaintiff from realizing her severance benefits.” [Dkt. 28, ¶ 72]. Nutmeg
argues that Plaintiff’s claim that she is entitled to severance because she was
“constructively discharged” defies the operative terms of the Employment
Agreement. [Dkt. 34, at 16]. Defendant states “Invocation of the implied covenant
of good faith and fair dealing as a means of incorporating common law
constructive discharge principles into the Employment Agreement would
unquestionably be inconsistent with the express terms and structure of the
“Good Reason” clause since it would allow for an entitlement to severance pay
even in circumstances where “Good Reason” as defined in the Employment
Agreement, was not present and regardless of whether the “concurrence”
condition was satisfied.” [Id.].
Constructive discharge occurs when an employer, “rather than acting
directly, deliberately makes an employee’s working conditions so intolerable that
the employee is forced into an involuntary resignation.” Pena v. Brattleboro
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Retreat, 702 F.d 322, 325 (2d Cir. 1983); See also Sure-Tan Inv. v. N.L.R.B, 467 U.S.
883, 894, 104 S.Ct. 2803, 2810 (1984) (holding that an employer violates § 158(a)(3)
of the National Labor Relations Act when it “purposefully creates working
conditions so intolerable that the employee has no option but to resign – a socalled “constructive discharge.”). Courts can apply the constructive discharge
test to determine entitlement to severance in cases involving employment
contracts. See Scott v. Harris Interactive, Inc. 512 Fed.Appx. 25, 28 (2d Cir. 2013)
(holding that an employee could pursue a claim for constructive discharge when
the employee’s contract “stated that if [the plaintiff] were terminated for any
reason other than ‘cause,’ [the defendant] would provide severance benefits of
six months’ salary and continued health care benefits (or their cash
equivalent).”); Robinson v. Kingston Hosp., 55 A.D. 3d 1121, 1123, 866 N.Y.S.2d
387, 388 (N.Y.App.Div.3d 2008) (allowing a plaintiff’s claim for constructive
discharge when the letter offering Plaintiff employment constituted a contract
obligating the employer to pay Plaintiff severance if terminated).
The contractual language of Section 7(c) does not preclude Hoffman from
asserting a constructive discharge claim under Section 7(d). Nutmeg argues that
allowing the constructive discharge claim to go forward “would unquestionably
be inconsistent with the express terms and structure of the “Good Reason”
clause since it would allow for an entitlement to severance pay even in
circumstances where “Good Reason,” as defined in the Employment Agreement,
was not present and regardless of whether the “concurrence” condition was
satisfied. [Dkt. 48, at 7-8]. The obligation to refrain from inducing Hoffman to
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terminate the Employment Agreement in order to avoid carrying out the Section
7(d) process for termination is certainly consistent with the other provisions of
the agreement. There are actions Nutmeg could take which may not satisfy the
“Good Reason” provision of Section 7(c), but could satisfy a constructive
discharge claim under Section 7(d). Recognizing this obligation protects
Hoffman’s rights under Section 7(d) and under the Employment Agreement as a
whole.
Nutmeg also argues that the legal standard for constructive discharge
requires more egregious conduct than that alleged in Plaintiff’s Amended
Complaint. [Mot. to Dismiss at 15]. This is a factual argument about whether
constructive discharge occurred, not an argument about whether Plaintiff is
entitled to pursue her claim as a matter of law. The Court agrees with Plaintiff’s
statement that “the issue of whether a constructive discharge occurred is a
heavily fact-intensive inquiry. It should not be determined at this stage of the
proceedings.” [Dkt. 44, at 21]. Hoffman has pleaded sufficient facts to sustain her
second claim for relief.
c. Count Three: New York Labor Law
Plaintiff concedes to dismissal of Count Three. [Dkt. 44, at 1 n. 1].
Accordingly, the Court dismisses Count Three on consent without opining on the
applicability of New York Labor Law to Plaintiff’s facts.

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d. Count Four: Breach of Stock Purchase Agreement
In her fourth claim for relief, Hoffman alleges that Nutmeg improperly
reduced GWH Legacy Client net revenues by isolating Hoffman from her
employees and the clients. [Dkt. 28, ¶ 88; Dkt. 44 at 24-25]. The Stock Purchase
Agreement provides that Hoffman will receive annual “earn-out” payments equal
to a percentage of yearly net revenues from “GWH Legacy Clients.” [Dkt. 1-1
(Stock Purchase Agreement) Art. I, ¶ 1.2(b)]. Furthermore, the agreement
prohibits Nutmeg from taking “any action which has the direct or indirect
purpose of deferring revenues or otherwise improperly reduc[ing] GWH Legacy
Client Net Revenues.” [Dkt. 1-1 (Stock Purchase Agreement) Art. 1, ¶ 1.2(b)(viii)].
Nutmeg argues that Hoffman’s Fourth Count does not plead sufficient facts to
establish Hoffman’s damages. [Dkt. 34 at 21-23]. Nutmeg argues that “the
Amended Complaint is devoid of factual allegations sufficient to establish that
any [diminution of value of the Second Year earn-out payment] has actually
occurred”. [Dkt. 34 at 21].
Plaintiff need not plead her damages with particularity because Plaintiff
seeks only “general damages”, as opposed to “consequential damages.”
General damages are “the natural and probable consequences of the breach,
while special damages are extraordinary in that they do not directly flow from the
breach.” American List Corp. v. U.S. News and World Report, Inc., 549 N.E. 2d
1161, 1164 (N.Y. 1989). “Lost profits may be either general or consequential
damages, depending on whether the non-breaching party bargained for such
profits and they are the direct and immediate fruits of the contract.” Biotronik
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A.G. v. Conor Medsystems Ireland, Ltd. 11 N.E.3d 676,680 (N.Y. 2014) (internal
quotations omitted). It is well-settled New York law that the amount or extent of
general damages need not be pleaded with particularity. See Kurak v. Traiche,
123 N.E. 377, 377, 226 N.Y. 266, 268 (N.Y. 1919).
Hoffman’s alleged damages are the natural and probable consequences of
Nutmeg’s alleged breach of the Stock Purchase Agreement. The alleged
damages are not, as Nutmeg argues, “an indirect by-product of Nutmeg’s alleged
contractual breaches.” [See Dkt. 48, at 11]. They are somewhat analogous to lost
profits. Because the Stock Purchase Agreement expressly prohibits Nutmeg
from taking action to improperly reduce GWH Legacy Client net revenues and
provides that Plaintiff’s yearly earn-out payments are calculated entirely based on
that revenue, damages flowing from a breach of that provision are general
damages. The Court will allow Hoffman to determine the extent of damages
through discovery.
a. Count Five: Unjust Enrichment
Unjust enrichment is a quasi-contractual claim that is “an obligation
imposed by equity to prevent injustice, in the absence of an actual agreement
between the parties concerned.” IDT Corp. v. Morgan Stanley Dean Witter & Co.,
907 N.E.2d 268, 274 (N.Y. 2009). “New York law does not permit recovery in
quantum meruit . . . if the parties have a valid, enforceable contract that governs
the same subject matter as the quantum meruit claim.” Mid-Hudson Catskill
Rural Migrant Ministry, Inc. v. Fine Host Corp., 418 F.3d 168, 175 (2d Cir. 2005);

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IDT Corp., 907 N.E.2d at 274 (citing Clark-Fitzpatrick, Inc. v. Long Island R. Co.,
516 N.E.2d 190, 193 (N.Y. 1987)). A plaintiff may not “seek damages in an action
sounding in quasi contract where the suing party has fully performed on a valid
written agreement, the existence of which is undisputed, and the scope of which
clearly covers the dispute between the parties.” Clark-Fitzpatrick, 516 N.E.2d at
193.
Neither party disputes the existence or validity of the Employment
Agreement or the Stock Purchase Agreement. The Agreements address
Hoffman’s employment relationship, her entitlement to severance benefits, and
her entitlement to compensation from her sale of stock. Hoffman cannot plead a
claim for unjust enrichment because the parties’ dispute is clearly governed by
these provisions of the Agreements. Count Five is dismissed.
V.

Conclusion
For the foregoing reasons, Defendants’ [Dkt. 34] Motion to Dismiss the

[Dkt. 28] Amended Complaint is GRANTED as to Counts Three and Five and
DENIED as to Counts One, Two, and Four.
IT IS SO ORDERED.

________/s/______________
Hon. Vanessa L. Bryant
United States District Judge
Dated at Hartford, Connecticut: September 18, 2018

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