JOHN G. KOELTL, District Judge.
The appellants, Maximilian Coreth and Olivia Bam, appeal from Orders of the United States Bankruptcy Court for the Southern District of New York (Peck, J.), dated March 8, 2011, dismissing the appellants' complaints in two adversary proceedings. The Orders were based on a Memorandum Decision dated February 22, 2011. The appellants are two former employees of Lehman Brothers Inc. ("LBI") who seek to recover certain guaranteed minimum bonus payments they claim they are owed following their termination without cause from Barclays Capital Inc. ("Barclays"), where they were employed as "Transferred Employees" after Barclays bought LBI's business by way of an Asset Purchase Agreement ("APA") following Lehman's bankruptcy in September, 2008.
The Bankruptcy Court dismissed both appellants' adversary complaints, concluding that the appellants did not have standing to sue Barclays because they were third-party beneficiaries under the APA and that, in any event, Barclays did not assume the obligation to pay the guaranteed minimum bonuses owed under the
In April, 2008, Maximilian Coreth entered into a contract with LBI for his employment as a Managing Director in LBI's Fixed Income Division. (Coreth R. 1 Ex. A.) Coreth's employment contract with LBI provided that, for each of performance years 2008 and 2009, Coreth would receive an annualized base salary of $200,000 and a "bonus in the amount of $9,800,000." Id. at 1. The agreement also provided that, "[f]or the avoidance of doubt, in the event your employment is terminated by [LBI] without Cause before the payment in full of the guaranteed minimum bonus for performance years 2008 and 2009, you will be paid on the applicable bonus payment dates any unpaid guaranteed minimum bonus for such years, payable part in cash and part in conditional equity awards...." Id. at 2.
In March, 2008, Olivia Bam entered into a contract with LBI for her employment as a Salesperson with the corporate title of Vice President in LBI's Fixed Income Division. (Appendix to Plaintiff-Appellant's Brief ("Bam R.") at A-14.) Bam's employment contract with LBI provided that, for performance year 2008, Bam would receive a bi-weekly base salary of $4,423.08 and a "minimum bonus in the amount of $185,000." Id. The agreement provided that "[t]he bonus amount set forth above will be paid at the time and in the amount stated except that it will not be payable... if, before the date of scheduled payment, you have resigned or have been terminated from [LBI] because of misconduct, breach of [LBI] policies or rules" or other circumstances constituting "Cause." Id.
Lehman had a severance plan, pursuant to which Lehman "may offer severance pay, notice pay, accrued unused vacation pay and/or other separation payments if employment with the Firm is terminated involuntarily due to a `reduction in force.'" (Bam R. at A-118.) Under the severance plan, an employee was ineligible to receive severance if, among other circumstances, that individual "will receive further payments pursuant to a compensation agreement (compensation `guarantee') in an amount equal to or in excess of the total amount of severance ... for which the employee might otherwise be eligible under the Plan." Id. Severance pay was to be "based on `years of service,' `base salary,' and corporate title" and the Plan Administrator was to have "sole and absolute discretion" to decide "whether an employee involved in a reduction in force will be offered an additional special separation payment" and to determine the amount of any such payment. (Bam R. at A-119.)
On September 15, 2008, Lehman Brothers Holdings Inc. filed a voluntary petition for bankruptcy relief pursuant to Chapter 11 of the Bankruptcy Code. In re Lehman Bros. Holdings Inc., Nos. 09-1045(JMP), 09-1130(JMP), 2011 WL 722601, at *3 (Bankr.S.D.N.Y. Feb. 22, 2011). On September 16, 2008, Lehman Brothers Holdings Inc., LBI, LB 745 LLC (collectively "Lehman"), and Barclays entered into an Asset Purchase Agreement, pursuant to which Barclays agreed to purchase certain assets and undertake certain obligations related to LBI's North American broker-dealer and investment banking operations. Id. at *2-3. The APA provided that Barclays "shall assume, effective as of the Closing, and shall timely perform and discharge
Article IX enumerated certain obligations owed to employees of LBI. Specifically, Barclays agreed to continue to employ or offer employment to all active employees of LBI, with certain exceptions not applicable here. (APA § 9.1(a).) All such employees who accepted Barclays's offer of employment were to be referred to as "Transferred Employees." Id. Barclays also undertook to provide the Transferred Employees with certain severance benefits. Specifically, the APA provided that Barclays would provide to each Transferred Employee whose employment was terminated by Barclays during the period from the Closing to December 31, 2008 "by reason of a `reduction in force' or a `job elimination'":
(APA § 9.1(b).)
The APA made clear that, other than those employment-related liabilities "expressly assumed pursuant to Article IX [of the APA]," Barclays would not assume or be liable for any "Liabilities relating to the employment, potential employment or termination of employment of any Person relating to or arising out of any period prior to the Closing, including without limitation any Liability under or relating to any employee benefit plan, program, agreement or arrangement." (APA § 2.4(d).) At the time the APA was executed, both Coreth and Bam were employees of LBI.
The APA also contained a no third-party beneficiary clause which provided that: "Nothing in this Agreement shall create or be deemed to create any third party beneficiary rights in any Person or entity not a party to this Agreement except as provided below." (APA § 13.9.) The APA provided that it was to be governed by New York Law. (APA § 13.6.)
On September 20, 2008, following a lengthy hearing, the Bankruptcy Court signed the Sale Order approving the APA ("the Sale Order"). In re Lehman Bros. Holdings Inc., 2011 WL 722601, at *3. The Sale Order included a paragraph titled "No Successor Liability," which provided that:
(Bam R. at A-99 ("Sale Order"), at ¶ S.) The Sale Order also enjoined the assertion of claims against Barclays arising from Barclays's purchase of Lehman's assets. It provided that:
(Sale Order at ¶ 7.)
On September 22, 2008, both Bam and Coreth received offers of employment from Barclays. The offer of employment, which was sent in the form of a generic email to all former Lehman employees, stated that "[a]s a Barclays employee, you will continue to receive your current base salary or applicable commission based remuneration." (Bam R. A-116; Coreth R. 1 Ex. E.) The emails also provided that "[y]ou will be an `at will' employee of Barclays. This means that either you or Barclays can end our employment relationship at any time, with or without reason." Id. The offer was to be accepted by attending work on September 22, 2008 and by sending an email indicating an intention to accept. Id. The offers did not make any specific mention of bonus payments, severance payments, or other terms of employment, besides those mentioned above. Id. Both Coreth and Bam accepted Barclays's offer of employment.
On October 14, 2008 and November 20, 2008, respectively, Barclays terminated Coreth's and Bam's employment pursuant to a reduction in force in accordance with the terms of the Purchase Agreement. In re Lehman Bros. Holdings Inc., 2011 WL 722601, at *4 & n. 8. Barclays offered Coreth a separation package that included continuation of salary and benefits until the earlier of June 27, 2009 or new employment, and a "special lump sum payment" of $1,960,000. (Coreth R. 1, Ex. F.) Barclays also offered Bam a separation package that included a severance payment in the amount of approximately $50,000. (Bam R. A-9, at ¶ 25.) Barclays contends, and the appellants do not dispute, that these severance payment offers were calculated in accordance with Lehman's company-wide severance plan. Both Coreth and Bam rejected these severance offers, which were contingent on a waiver and general release of legal claims against Barclays. In re Lehman Bros. Holdings Inc., 2011 WL 722601, at *4. Barclays did not offer to pay the bonus guarantees set forth in Coreth's or Bam's LBI employment agreements.
In February, 2009, Coreth commenced an adversary proceeding against Barclays in the United States Bankruptcy Court for the Southern District of New York. Coreth's adversary complaint asserted one claim for breach of contract under the APA. (Coreth R. 1, at ¶¶ 25-30.) In March, 2009, Barclays filed a motion to dismiss Coreth's adversary complaint. (Coreth R. 8.)
In February, 2009, Bam commenced an action in the New York State Supreme Court, New York County, asserting claims against Barclays under Section 193(1) of the New York Labor Law and for breach of contract. In re Lehman Bros. Holdings Inc., 2011 WL 722601, at *5. On March 20, 2009, Barclays filed a notice of removal of this action pursuant to 28 U.S.C. § 1452(a) and this case was subsequently referred to the Bankruptcy Court. Id. In April, 2009, Barclays moved to dismiss Bam's adversary
On February 22, 2011, the Bankruptcy Court issued a Memorandum Decision granting Barclays's motions to dismiss. In re Lehman Bros. Holdings Inc., Nos. 09-1045(JMP), 09-1130(JMP), 2011 WL 722601 (Bankr.S.D.N.Y. Feb. 22, 2011). The Bankruptcy Court concluded that the appellants lacked standing to assert claims under the APA because they were not parties to that agreement and because the agreement contained a no third-party beneficiary clause, which the Bankruptcy Court concluded was a decisive bar to enforcement of the agreement by third parties. Id. at *5-8. The Bankruptcy Court also concluded that, independently of the appellants' lack of standing, they had failed to state viable claims against Barclays because Barclays did not assume their employment agreements with LBI and because the severance obligations that Barclays did undertake under § 9.1(b) of the APA did not include the obligation to pay the appellants' guaranteed minimum bonuses. Id. at *7-9. The Bankruptcy Court also rejected Bam's separate claim that Barclays breached its September 2008 offer of employment to her by failing to pay the guaranteed minimum bonus set forth in her LBI employment agreement. Id. at *9. Finally, the Bankruptcy Court dismissed Bam's claim under New York Labor Law § 193(a), concluding that Bam had no contractual right to the wages she sought, which was fatal to her New York Labor Law claim. Id. at *10. On March 8, 2011, the Bankruptcy Court issued separate orders dismissing the adversary complaints brought by Coreth and Bam. (A-219-20.)
On March 18, 2011, and March 22, 2011, respectively, Coreth and Bam filed notices of appeal from the March 8 Orders of the Bankruptcy Court. (Coreth R. 27; Bam R. A-221-22.)
When reviewing a decision of the Bankruptcy Court, this Court reviews the Bankruptcy Court's conclusions of law de novo but accepts its findings of fact unless they are clearly erroneous. See Fed. R. Bankr.P. 8013; In re Halstead Energy Corp., 367 F.3d 110, 114 (2d Cir.2004).
The Bankruptcy Court dismissed the adversary complaints by Coreth and Bam pursuant to Federal Rule of Civil Procedure 12(b)(6).
When presented with a motion to dismiss pursuant to Rule 12(b)(6), the Court may consider documents that are referenced in the complaint, documents that the plaintiff relied on in bringing suit and that are either in the plaintiff's possession or that the plaintiff knew of when bringing suit, or matters of which judicial notice may be taken. See Chambers v. Time Warner, Inc., 282 F.3d 147, 153 (2d Cir.2002); Taylor v. Vt. Dep't of Educ., 313 F.3d 768, 776 (2d Cir.2002).
The initial inquiry is whether the appellants have standing to sue Barclays for breach of contract. The Bankruptcy Court concluded that the appellants did not have standing to assert claims under the APA because they were not parties to that agreement and because the agreement contained a no third-party beneficiary clause, which the Bankruptcy Court concluded was a decisive bar to enforcement of the agreement by third parties.
Under New York law, "[a] party asserting rights as a third-party beneficiary must establish `(1) the existence of a valid and binding contact between other parties, (2) that the contract was intended for his benefit and (3) that the benefit to him is sufficiently immediate, rather than incidental, to indicate the assumption by the contracting parties of a duty to compensate him if the benefit is lost.'" Madeira v. Affordable Hous. Found., Inc., 469 F.3d 219, 251 (2d Cir.2006) (quoting Cal. Pub. Employees' Ret. Sys. v. Shearman & Sterling, 95 N.Y.2d 427, 718 N.Y.S.2d 256, 741 N.E.2d 101 (2000)). The APA contained a "negating clause," which provided that: "Nothing in this Agreement shall create or be deemed to create any third party beneficiary rights in any Person or entity not a party to this Agreement except as provided below." (APA § 13.9.) "Under New York law, the effectiveness of a negating clause to preclude third-party beneficiary status is well-established: `[w]here a provision exists in an agreement expressly negating an intent to permit enforcement by third parties, ... that provision is decisive.'" India.com v. Dalal, 412 F.3d 315, 321 (2d Cir.2005) (quoting Nepco Forged Prods., Inc. v. Consol. Edison Co. of N.Y., Inc., 99 A.D.2d 508, 470 N.Y.S.2d 680, 681 (1984)).
The appellants contend that the negating clause does not preclude their claims against Barclays. First, the appellants argue that persons to whom obligations are expressly owed by the language of an agreement have standing to sue under that agreement, notwithstanding any negating clause to the contrary. Thus, they contend, the specific recitation of obligations in § 9.1(b) of the APA to pay "severance payments and benefits" to Transferred Employees "trumped" the general disclaimer of third-party beneficiary rights in the negating clause. However, courts applying New York law have consistently found that, even where a contract expressly sets forth obligations to specific individuals or categories of individuals, those individuals do not have standing to enforce those obligations by suing
The appellants contend, however, that, even if they cannot sue Barclays under the APA as third-party beneficiaries, they can sue Barclays directly under a theory of successor liability. Specifically, they contend that, when a purchase contract provides for the buyer to assume a seller's obligation to a third party, the third party can have a direct claim against the buyer, despite the existence of a negating clause in the contract. The appellants rely on Union Carbide Corp. v. Siemens Westinghouse Power Corp., No. 99 Civ. 12003 (LNM), 2001 WL 91714 (S.D.N.Y. Feb. 2, 2001). In that case, the plaintiff attempted to sue Siemens for breach of certain obligations it claimed Siemens assumed as Westinghouse's corporate successor following an asset purchase agreement between Siemens and Westinghouse. The court concluded that the plaintiff could not sue Siemens under the asset purchase agreement between Siemens and Westinghouse, because that agreement contained a negating clause, which constituted a decisive bar to enforcement by third parties such as the plaintiff. Id. at *3. However, the court noted that the plaintiff also alleged that, under the terms of the asset purchase agreement, Siemens "assumed and succeeded all of Westinghouse's liabilities and obligations" owed under a separate purchase order, which the plaintiff claimed Siemens breached. Id. The court concluded that the plaintiff could sue Siemens for breach of this separate purchase order, notwithstanding the negating clause in the asset purchase agreement. Id.; see also Feldstein v. Nash Cmty. Health Servs. Inc., 51 F.Supp.2d 673, 692-93 (E.D.N.C. 1999) (applying North Carolina law); In re Safety-Kleen Corp., 380 B.R. 716, 740 (Bankr.D.Del.2008) (applying Delaware law).
These cases are of no help to the appellants. In each of them, the plaintiffs sued on the basis of a contract that had been assumed by the defendant. As the Bankruptcy Court correctly concluded, Barclays did not assume the appellants' LBI employment contracts. In re Lehman Bros. Holdings Inc., 2011 WL 722601, at *6. Indeed, the structure of the APA provided that potential liabilities relating to employment or termination of employment of LBI employees were expressly excluded from the APA, except as expressly assumed in Article IX. (APA § 2.4(d).) In Article IX, Barclays undertook to provide the former LBI employees with certain severance benefits. But this provision did not purport to assume the specific employment contracts of the former LBI employees or provisions of those contracts. It was an undertaking of what Barclays would provide to the former LBI employees. The appellants are left to sue on the promise Barclays made to LBI, but the negating provision prevents them from doing so. To accept the appellants' argument in this case would undercut the cases affirming the importance of a negating provision under New York law. Accordingly, the Bankruptcy Court correctly concluded that the appellants lacked standing to assert claims under the APA due to the APA's negating clause, which constituted a decisive bar to enforcement of the agreement by third parties.
Bam argues, however, that Barclays did in fact assume her entire employment agreement with LBI, including the obligation to pay her guaranteed minimum bonus, by agreeing to employ Transferred Employees from Lehman in § 9.1(a) of the APA, and by employing Bam until November, 2008 under the terms of employment that applied to her at LBI. However, the language of the APA does not support this
Bam also argues, in an argument that forms the basis for her second breach of contract claim, that Barclays's September 22, 2008 offer of employment to her incorporated by reference the bonus obligation set forth in her LBI employment agreement and that Barclays therefore breached this new contract when it failed to pay this bonus. Specifically, Bam contends that, because Barclays's employment offer omitted material terms concerning her employment that were set out in her LBI contract, such as her salary and position title, the two documents should be construed as one agreement. Under New York law, "[w]hether multiple writings should be construed as one agreement depends upon the intent of the parties." TVT Records v. Island Def Jam Music Grp., 412 F.3d 82, 89 (2d Cir.2005) (quoting Commander Oil Corp. v. Advance Food Serv. Equip., 991 F.2d 49, 52-53 (2d Cir. 1993)). While the intent of the parties "is typically a question of fact for the jury," where "the documents in question reflect no ambiguity as to whether they should be read as a single contract, the question is a matter of law for the court." Id.
Bam's third cause of action alleges that, by failing to pay her guaranteed minimum bonus, Barclays reduced her wages in violation of New York Labor Law § 193(1). However, as explained above, Barclays had no contractual obligation to pay Bam's guaranteed minimum bonus under her LBI employment contract. A "plaintiff cannot assert a statutory claim for wages under the Labor Law if [s]he has no enforceable contractual right to those wages." Tierney v. Capricorn Invs., L.P., 189 A.D.2d 629, 592 N.Y.S.2d 700, 703 (1993). Thus, Barclays's failure to pay Bam's LBI bonus does not constitute a violation of New York Labor Law § 193(1), and the Bankruptcy Court did not err in dismissing Bam's third cause of action.
The Court has considered all of the arguments of the parties. To the extent not specifically addressed above, the remaining arguments are either moot or without merit. For the reasons explained above, the Orders of the Bankruptcy Court are