Opinion ID: 764886
Heading Depth: 2
Heading Rank: 1

Heading: Quantum Meruit and Contract Damages

Text: 23 NatWest argues that, as a matter of law, Reilly should not have been entitled to quantum meruit damages. We agree. 24 New York substantive law governs this diversity suit. See Gasperini v. Center for Humanities, Inc., 518 U.S. 415, 427 (1996). We review a district court's interpretation of state law de novo. See New York v. Blank, 27 F.3d 783, 788 (2d Cir. 1994). 25 Under New York law, the existence of an express contract governing a particular subject matter ordinarily precludes recovery in quantum meruit for events arising out of the same subject matter. See Clark Fitzpatrick, Inc. v. Long Island R.R. Co., 521 N.Y.S.2d 653, 656 (N.Y. 1987). New York courts, however, have recognized an exception to this general rule and have held that in some circumstances the non-breaching party may timely rescind and seek recovery in quantum meruit. Id. Thus, in the employment context, an employee who is wrongfully discharged and prevented from completing the performance of his contract may choose between suing for breach of contract or for the value of the services rendered. See Carvatt v. Lippner, 439 N.Y.S.2d 681, 683 (2d Dep't 1981).
26 The parties dispute whether in the circumstances of this case, Reilly could elect to rescind the contract and take his quantum meruit recovery after the damages trial. Reilly points to some authority suggesting that quantum meruit damages are always available as an alternative remedy upon any breach. See Seymore v. Reader's Digest Assn., Inc., 493 F.Supp. 257, 264 (S.D.N.Y. 1980). If that were so, any employee could, upon any breach however trivial, abandon the bargain memorialized by a valid contract and gamble on a higher quantum meruit recovery, secure in the knowledge that if he loses the gamble he may still recover under the contract. New York law does not countenance such a rule. See Clark Fitzpatrick, 521 N.Y.S.2d at 656; Babylon Assocs. v. County of Suffolk, 475 N.Y.S.2d 869, 874 (2d Dep't. 1984); H.B.L.R, Inc. v. Command Broadcast Inc., 548 N.Y.S.2d 198, 199 (1st Dep't 1989) (citing La Rose v. Backer, 203 N.Y.S.2d 740, 746 (3rd Dep't 1960), aff'd, 226 N.Y.S.2d 695 (N.Y. 1962)). 27 NatWest, for its part, maintains that where an employee has substantially performed under the contract he loses the right to rescind and seek a quantum meruit remedy. While not entirely without support, see La Rose, 203 N.Y.S.2d at 745-46, no New York court has endorsed this specific doctrine (nor has NatWest ever proved that Reilly did substantially perform under his contract). We agree with NatWest, however, that a victim of a breach may not rescind in the absence of compelling equitable grounds. H.B.L.R, Inc., 548 N.Y.S.2d at 199; see Babylon Assocs., 475 N.Y.S.2d at 874 (identifying the grounds for recission under New York law as failure of consideration, fraud in the inducement, inability to perform, or a breach that substantially defeats the purpose). 28 We need not decide these academic issues, interesting though they be, for the simple reason that Reilly never timely rescinded his express contract. Although a plaintiff may sometimes defer the election of remedies and seek damages from a jury on alternative theories of breach of contract and quantum meruit, see David D. Siegel, Practice Commentaries C3002:5, N.Y. C.P.L.R. § 3002 (McKinney 1991), Rule v. Brine, Inc., 85 F.3d 1002, 1011 (2d Cir. 1996), this is true only where there is a dispute over the existence, scope, or enforceability of the putative contract. See id.; 22 N.Y. Jur.2d, Contracts § 532 (1996). Conceptually, the two remedies are mutually exclusive, and the express contract controls. 22 N.Y. Jur.2d, Contracts § 532; see Clark-Fitzpatrick, 521 N.Y.S.2d at 656; H.B.L.R, Inc., 548 N.Y.S.2d at 199; A. Corbin, Corbin on Contracts, § 1110, at 590-91 (1964). 29 In this case, the liability jury determined that Reilly had an enforceable contract that governed his termination. Once that jury found that Reilly had an enforceable contract, he could not seek to recover under quantum meruit in the subsequent damages trial. Although it might be argued that Reilly could have elected to rescind his contract after the liability verdict, see N.Y. C.P.L.R. § 3002(e) (McKinney 1991), no grounds for such a recission are urged, nor do we find any. See Babylon Assocs., 475 N.Y.S.2d at 874. A 'recission' amounts to the unmaking of a contract, or an undoing of it from the beginning, and not merely a termination. Black's Law Dictionary 1174 (5th ed. 1979). Endeavoring to enforce one's right to damages under a valid contract that expressly governs the subject at issue - as Reilly did here - is simply irreconcilable with rescinding or unmaking it from the beginning and suing in quantum meruit. Id.; see Clark-Fitzpatrick, 521 N.Y.S.2d at 656. Because Reilly chose not to rescind the agreement his recovery is limited by the terms of his express contract. Clark-Fitzpatrick, 521 N.Y.S.2d at 656,516 N.E.2d 190.
30 Turning to the issue of how much Reilly was entitled to recover under the terms of the contract, we find it unclear how the jury arrived at $2.054 million as contract damages. That amount, when added to the $1.4 million NatWest actually paid Reilly, fixes his total compensation for 1994 and 1995 at $3.454 million, some $484,000 more than the $2.97 million provided for by the unambiguous terms of the contract. While the jury's finding in this regard may have been erroneous, we will not tarry over this issue. As is evident from NatWest's briefs, and as counsel conceded at oral argument, NatWest does not challenge the amount of contract damages awarded. Accordingly, any cavil that NatWest may now have with respect to the jury's award of contract damages has been waived. See Norton v. Sam's Club, 145 F.3d 114, 117 (2d Cir. 1998).