Court Opinion

ID: 2761876
Source: CourtListenerOpinion
Date Created: 2014-12-17 18:00:32.067235+00
Date Added: 2024-06-11T10:41:54.541605
License: Public Domain

NOT PRECEDENTIAL

                       UNITED STATES COURT OF APPEALS
                            FOR THE THIRD CIRCUIT
                                  __________

                                       No. 13-4688
                                       __________

                                     BRUCE TOLL,

                                                  Appellant

                                             v.

                              LEONARD TANNENBAUM
                                   __________

                     On Appeal from the United States District Court
                         for the Eastern District of Pennsylvania
                                (D.C. No. 2-11-cv-07141)
                     District Judge: Honorable Eduardo C. Robreno

                       Submitted Under Third Circuit LAR 34.1(a)
                                    June 24, 2014

     BEFORE: FUENTES, GREENAWAY, JR., and NYGAARD, Circuit Judges

                               (Filed: December 17, 2014)
                                       __________

                                        OPINION*
                                       __________

NYGAARD, Circuit Judge.

       Appellant Bruce Toll builds luxury homes. He sued his former son-in-law,

Leonard Tannenbaum, over a multi-million dollar business deal gone badly. Toll alleged

*
 This disposition is not an opinion of the full Court and pursuant to I.O.P. 5.7 does not
constitute binding precedent.
that he made an oral agreement with Tannenbaum to personally guarantee loans for one

of Tannenbaum’s ventures provided that Toll’s daughter (and Tannenbaum’s wife) share

equally in the profits. Toll asked the District Court to enforce this purported oral

agreement or, in the alternative, for equitable relief. Applying New York law, the

District Court granted summary judgment to Tannenbaum on all of Toll’s claims. Toll

has appealed and we will affirm.

                                             I.

       Tannenbaum married Toll’s daughter Elizabeth in 1997 and soon thereafter began

doing business with his new father-in-law. Toll agreed to help Tannenbaum start an

investment fund and the two agreed to split the profits, with Toll receiving the lion’s

share. Tannenbaum set up a management company to oversee this fund. The venture

was successful and both father-in-law and son-in-law made millions.

       Tannenbaum went to his father-in-law again in 2004, this time asking for a $60

million investment in another fund. Toll balked at the $60 million request, agreeing

instead to invest $20 million and to personally guarantee a $6.7 million loan to the new

fund. Toll did not have a profit sharing arrangement with Tannenbaum in this new

venture. Another management company was set up for this fund; a company which again

collected management fees from the fund that were directly paid to Tannenbaum.

       Tannenbaum again asked Toll to invest in a third fund which was launched in

2007. This venture, Fifth Street Mezzanine Partners, III, L.P., was also an investment

fund and was incorporated in Delaware. As he had done previously, Tannenbaum

                                              2
established a management company, Fifth Street Management LLC, to administer the

fund and to collect certain fees. Tannenbaum took this fund public in January of 2008.

       Toll played a part in this third business venture by investing $25 million to finance

the fund and by guaranteeing a $50 million line of credit to the fund. He also provided a

short term “bridge loan” to the fund at an interest rate of 12 percent. Toll further

guaranteed $15 million in loans to Tannenbaum personally. The instant litigation grew

out of the circumstances surrounding this loan. Toll maintains that his son-in-law asked

him to personally guarantee $15 million in loans from Wachovia Bank and that instead of

taking a share of the profits, he and Tannenbaum agreed the profits would be equally split

between Tannenbaum and his wife, Elizabeth. After several months of discussion, Toll

alleges that he and Tannenbaum reached an oral agreement to that effect. This

agreement, however, was never reduced to writing.

       These Wachovia loans consisted of two promissory notes, one for $12 million, and

one for $3 million. When these notes came due in 2009, Tannenbaum still owed the bank

$12 million. The bank gave Tannenbaum two options: pay off the balance owed, or have

his father-in-law execute another personal guarantee for the remaining $12 million. By

his own account, Toll was reluctant to sign another guarantee and asked to be released

from the deal. Tannenbaum left him little choice, however, by threatening to default on

the loan. Toll signed the second guarantee, he said, to secure Elizabeth’s profit sharing

position with Tannenbaum.

       However, within months of executing this second agreement, Tannenbaum filed

for divorce from Elizabeth. As part of the separation agreement, Elizabeth disclaimed

                                              3
any interest in Tannenbaum’s businesses and released any and all claims she had against

him. Tannenbaum has never shared any profits from his company with Elizabeth. Toll

sued, arguing that his now former son-in-law breached their oral agreement to share

profits with Elizabeth. However, Toll sought damages only for himself, not on behalf of

his daughter. For his part, Tannenbaum maintained that he never reached an oral

agreement with his former father-in-law.

                                            II.

       Toll first filed suit in the Montgomery County Court of Common Pleas, raising

claims for breach of contract, unjust enrichment, quantum meruit, promissory estoppel,

and fraud. Tannenbaum removed the matter to the United States District Court for the

Eastern District of Pennsylvania based on diversity jurisdiction and moved to dismiss

Toll’s complaint.1 Tannenbaum maintained that the District Court should use New York

law to resolve Toll’s claims and that, under New York law, Toll’s claims should fail

because New York does not recognize an oral contract that cannot be performed within

one year. The District Court agreed with Tannenbaum that if New York law applied,

Toll’s claims would be barred by that state’s Statute of Frauds. Initially sidestepping the

choice of law issues, the District Court granted Tannenbaum’s motion and dismissed

Toll’s breach of contract claim, holding that only Elizabeth Toll-Tannenbaum, the third-

1
 Diversity jurisdiction was proper under 28 U.S.C. § 1332 as Toll is a citizen of Florida
and Tannenbaum a citizen of Connecticut and the amount in controversy exceeds
$75,000.00. We have jurisdiction pursuant to 28 U.S.C. § 1291.

                                             4
party beneficiary, could recover damages. Toll was granted leave, however, to amend his

claim to bring a claim for specific performance and associated damages.

       Toll filed an amended complaint which again raised claims of breach of contract,

unjust enrichment, quantum meruit, estoppel, and fraud. Specifically, Toll asked for

damages for the devaluation of his share in Tannenbaum’s company and “for the loss of

the ability to otherwise invest the money subject to the guaranty.” Toll v. Tannenbaum,

982 F.Supp.2d 541, 547 (E.D. Pa. 2013). Toll also asked the District Court to compel

Tannenbaum to provide 50 percent of Fifth Street Management’s past, present and future

profits to Elizabeth Toll-Tannenbaum. On his equitable claims, Toll asked for restitution

in an amount equal to 90 percent of Fifth Street Management’s profits since May of 2007.

       Tannenbaum moved for summary judgment, and the pivotal choice-of-law

question quickly reasserted itself. Tannenbaum argued that New York law controlled

Toll’s contract claim. Because Toll’s claim was based on an alleged oral contract, it

would be barred by that state’s Statute of Frauds. Toll countered that Pennsylvania law

was applicable and would not prohibit his claim.

       The District Court held two hearings on the choice-of-law issues. The first

hearing focused on the standard the court should use to resolve disputed factual matters

which underlie the choice-of-law question. Because that question is a legal one, the

District Court concluded that it, as opposed to a jury, would decide any factual disputes,

using a preponderance of the evidence standard. At a subsequent hearing, the District

Court reviewed evidence on the factual disputes underlying the choice-of-law inquiry.

                                             5
       The District Court granted Tannenbaum summary judgment on all of Toll’s

claims.

                                             III.

       On appeal, Toll challenges the District Court’s determination that New York law

governs the resolution of his breach of contract claim. He also challenges the District

Court’s dismissal of his quasi-contract claims. We begin our review with the choice-of-

law issue, utilizing plenary review. Hammersmith v. TIG Ins. Co., 480 F.3d 220, 226 (3d

Cir. 2007

                           A.     Choice of Law Determination

       Because we are a federal court sitting in diversity, we apply the choice of law rules

of the forum state: Pennsylvania. See, e.g., Pac. Employers Ins. Co. v. Global

Reinsurance Corp. of Am., 693 F.3d 417, 432 (3d Cir. 2012). Pennsylvania’s approach to

choice-of-law questions has two steps. First, we must apply Section 188(2) of the

Restatement (Second) of Conflict of Laws (1971) to identify the relevant contacts

between each state, the parties, and the subject matter. Then, we weigh those contacts

according to the policy-oriented factors of Section 6 of the Restatement, discussed below.

       Section 188(2) sets forth the contacts we consider: (a) “the place of contracting;”

(b) “the place of negotiation of the contract;” (c) “the place of performance;” (d) “the

location of the subject matter of the contract,” and (e) “the domicile, residence,

nationality, place of incorporation and place of business of the parties.” Id. Toll’s

challenge to the choice-of-law determination is narrowly focused. He does not, for

example, argue that there is no conflict between Pennsylvania and New York law on the

                                              6
question of oral contracts. Nor could he because New York and Pennsylvania laws are

polar opposites as they pertain to oral contracts: New York’s statute of frauds invalidates

oral contracts that cannot be performed in a year where Pennsylvania has no such

limitation.2 Compare N.Y. Gen. Oblig. Law § 5-701(a)(1) (2014), with 33 Pa. Cons. Stat.

§§ 1-6 (2011). Toll does not fault the District Court’s use of the Restatement (Second) of

Conflicts §6 to determine which state has the greater interest in seeing its laws enforced.

Lastly, Toll accepts the procedure used by the District Court to resolve factual disputes as

they relate to the choice-of-law determination. Instead, Toll hones his challenge to two

points of the choice-of-law analysis undertaken by the District Court: the “most

significant relationship” inquiry, and the “relative inquiries and policies” determination.

       The District Court, in going through the above factors, concluded that it was a

wash. The analysis did not conclusively point to either New York or Pennsylvania as the

applicable law, in part because there was conflicting evidence as to whether the alleged

oral contract was agreed. Our review confirms that determination. Toll himself concedes

that several of the Restatement factors are of little importance (the place of negotiation,

for example) and Toll does not argue on appeal the importance of other factors (the place

of negotiation and the parties’ domicile and residence, to name two).

       We further agree with the District Court that the place of performance is entitled to

little weight because, without more, perceived performance in Pennsylvania cancels out

2
 Toll does not contest that the alleged oral contract between him and Tannenbaum could
not be performed within a year. Any such oral agreement would, therefore, be void under
New York Law.

                                              7
perceived performance in New York. This leaves Toll’s argument that because the place

of contracting was so clearly Pennsylvania, the Commonwealth’s laws should apply. He

submits that the District Court should have ended its inquiry and analysis on this point

alone. Again, we agree with the District Court that, assuming Pennsylvania was the

location of contracting, that factor alone has little significance in the overall scheme of

things. The commentary to § 188 of the Restatement clarifies the importance of the place

of contracting among the factors relevant to the choice of law analysis:

              Standing alone, the place of contracting is a relatively
              insignificant contact. To be sure, in the absence of an
              effective choice of law by the parties, issues involving the
              validity of a contract will, in perhaps the majority of
              situations, be determined in accordance with the local law of
              the state of contracting. In such situations, however, this state
              will be the state of the applicable law for reasons additional to
              the fact that it happens to be the place where occurred the last
              act necessary to give the contract binding effect. The place of
              contracting, in other words, rarely stands alone and, almost
              invariably, is but one of several contacts in the state.

Restatement (Second) of Conflicts of Laws § 188, cmt. e (emphasis added). The place of

contracting could have easily been New York, or any of the several other states in which

Toll spends time. He testified to his desire to spend more time each year in Florida, for

example, where he has his primary residence and pays taxes. Indeed, the record here

shows that Toll spends only 25 percent of his time in Pennsylvania. Because the

evidence is indeterminate on the place of contracting, and because this factor is “a

relatively insignificant contact,” the place of contracting here adds little, if anything, to

the choice-of-law determination.

                                               8
       Toll argues that the guaranty he gave to the Wachovia Bank loan bolsters his

connections with Pennsylvania. This argument is a distraction. Our focus for the choice-

of-law question, Tannenbaum rightly points out, is not the formation of the Wachovia

loan, but rather the circumstances surrounding the formation of the purported oral

agreement. The Wachovia loans Toll references are distinct written agreements between

Tannenbaum and the bank. We cannot see how these agreements, to which Toll was not

even a party, tip the balance in favor of Pennsylvania in the choice-of-law analysis.3 An

analysis of the choice-of-law factors, as the District Court found, does not conclusively

point to either New York or Pennsylvania law. We must, therefore, shift our analysis to

the relative interests and policies of each jurisdiction. See Blakesley v. Wolford, 789 F.2d

236, 238-39 (3d Cir. 1986); see also Restatement (Second) of Conflict of Laws § 188(1)

(1971) (requiring a court to consider the Section 188(2) contacts in light of the policies

3
  Toll also argues on appeal that the District Court inappropriately changed some of its
choice-of-law factual conclusions at summary judgment from those it relied on to decide
Tannenbaum’s motion to dismiss. Any such change is quite permissible and stems not
from a judge’s caprice or disregard for the actual facts, but instead from the change in the
legal standards to be applied. When reviewing a motion to dismiss, a district court is
required to accept all allegations pleaded in the complaint as true and to confine its
analysis to those averments. See Great W. Mining & Mineral Co. v. Fox Rothschild,
LLP, 615 F.3d 159, 177 (3d Cir. 2010) (quotations omitted). Any inferences drawn from
the complaint are to be in the plaintiff’s favor. Foglia v. Renal Ventures Management,
LLC, 754 F.3d 153, 154 n.1 (3d Cir. 2014). There is a significant difference between the
standard of review and the procedural posture for a motion to dismiss and that for a
motion for summary judgment. At the summary judgment stage, the parties have
engaged in discovery and may present a complete factual record to the court. See
Guidotti v. Legal Helpers Debt Resolution, L.L.C., 716 F.3d 764, 772-73 (3d Cir. 2013).
At summary judgment, some important facts differed in how they were presented in the
complaint. For example, Toll’s complaint stated that the negotiations took place in
Pennsylvania. A different picture emerged after the completion of discovery where Toll
testified that the negotiations took place in several locations and were not just limited to
the Commonwealth. The District Court acted properly and we find no error.
                                             9
identified in Section 6). Among the factors a court may consider are: (a) “the needs of

the interstate and international systems;” (b) “the relevant policies of the forum;” (c) “the

relevant policies of other interested states and the relative interests of those states in the

determination of the particular issue;” (d) “the protection of justified expectations;” (e)

“the basic policies underlying the particular field of law;” (f) “certainty, predictability

and uniformity of result;” and (g) “the ease in the determination and application of the

law to be applied.” Restatement (Second) of Conflicts of Laws § 6(2) (1971).

       No one disputes that Pennsylvania and New York’s laws conflict on oral contracts

and that each state has an interest in seeing its own laws enforced. Toll argues that

Pennsylvania’s interests in permitting oral agreements are paramount, and that the

District Court erred by applying New York law: not so. New York’s interests in

prohibiting oral contracts are more compelling.

       First, New York law better fits the expectations of the parties. The District Court

determined that because the parties selected New York law when they formalized other

agreements based on the same subject matter, “they could reasonably and justifiably

expect New York law to apply to other agreements as well.” Toll, 982 F. Supp. 2d at

556. We agree. Toll and Tannenbaum chose New York law when they wrote up the $50

million loan guaranty fee agreement. Furthermore, the record contains testimony that

New York law was always invoked in agreements drafted by Tannenbaum’s

representatives and that Toll signed those agreements without objection. Toll, therefore,

should not be surprised to learn that New York law applies to his claims.

                                               10
       Next, we consider certainty, predictability, and uniformity of result. Like New

York, most jurisdictions in this country require that parties memorialize all contracts of

definite duration that cannot be completed within one year. See Restatement (Second) of

Contracts § 130 (1981) (and cases cited therein). Pennsylvania is in the distinct minority.

Thus, we think that to promote certainty, predictability, and uniformity of result, New

York law should apply here.

       Next, the basic policies underlying the particular field of law, contract law here,

should be reviewed. Contract jurisprudence contains several policies which favor written

instruments over oral agreements. Reducing an agreement to writing not only prevents

fraud and perjury but also can prevent courtroom errors that might arise due to the

fallibility of human memory or the unavailability of witnesses. Furthermore, requiring

written contracts ensures that the parties act with caution and deliberation. Lastly, by

requiring written agreements, the parties are further compelled to set out in one document

all of the material terms and conditions to their agreement. This, therefore, can avert any

future disputes and litigation. In short, major policies underlying contract law favor the

application of New York law.

       So, taking into consideration the factors outlined in Section 6, applying New York

law makes the most sense. In our view, the policies underlying New York’s Statute of

Frauds trump any interest Pennsylvania may have here in protecting Toll as he attempts

to enforce an oral agreement.4 New York law will not only protect the justified

4
  Again, Toll points to the District Court’s initial determination that New York policy
interests in requiring written contracts were diminished when compared against
                                             11
expectations of the parties, but will also advance the relevant policies of that state.

Further, using New York law to resolve this dispute will promote predictability and

advance basic policies underlying contract law.

       Toll has consistently acknowledged that his agreement with his former son-in-law

was never reduced to writing and that its terms would not permit performance within one

year of its inception. Therefore, under New York law, any such agreement is void. The

District Court committed no error by granting Tannenbaum summary judgment on Toll's

breach of contract claim.

                              B. The Quasi-Contract Claims

       Toll also attempts to recover compensation on the legal principles of restitution,

quantum meruit, and unjust enrichment, all of which sound in quasi contract.5 Claims for

Pennsylvania’s and the District Court wrongly changed its thinking post-discovery on
summary judgment. And again, we note that the District Court was obligated to limit its
thinking to the allegations set out in the complaint, giving every favorable inference to
Toll. One such allegation was that “in discussions occurring in Montgomery County,
Pennsylvania, there was a meeting of the minds between Toll and Tannenbaum as to the
terms of their agreement.” Toll, 982 F.Suppp.2d at 555. The District Court, based on this
allegation, cannot be faulted for believing that Tannenbaum “reached into Pennsylvania
to negotiate and complete the alleged contract.” Id. This is not the picture that emerged
after discovery, however, wherein Toll testified that the negotiations with his son-in-law
took place in a variety of locales, and that maybe only one business discussion took place
in Montgomery County. Also, Toll changed his story, indicating that the final meeting of
the minds took place over the telephone – not in person in Montgomery County. Given
these circumstances, the District Court could no longer hold that Tannenbaum “reached
into” Pennsylvania and that, as a result, New York’s interests were diminished. This was
not an error, but an evaluation made at a different stage of the litigation and with a vastly
expanded record and a vastly expanded point-of-view for the District Court.
5
 The District Court also found that Toll’s claim based on promissory estoppel was
unfounded and Toll has not appealed this determination.

                                              12
quantum meruit and unjust enrichment have been analyzed as a single claim under New

York law. 6 See, e.g., Mid–Hudson Catskill Rural Migrant Ministry, Inc. v. Fine Host

Corp., 418 F.3d 168, 175 (2d Cir. 2005) (analyzing the two causes of action “as a single

quasi contract claim”). Unjust enrichment in New York is established where a plaintiff

demonstrates (1) “that the defendant benefitted; (2) at the plaintiff's expense; and (3) that

equity and good conscience require restitution.” Beth Israel Med. Ctr. v. Horizon Blue

Cross & Blue Shield of N.J., Inc., 448 F.3d 573, 586 (2d Cir. 2006). Similarly, to recover

in quantum meruit under New York law, Toll must establish: “(1) the performance of

services in good faith, (2) the acceptance of the services by the person to whom they are

rendered, (3) an expectation of compensation therefore, and (4) the reasonable value of

the services.” Mid–Hudson Catskill, 418 F.3d at 175 (internal quotation marks omitted).

       We do not need to delve deeply into the elements of each claim or determine their

overlap to affirm the District Court’s conclusion that Toll was not entitled to relief. As to

6
  We follow the Restatement (Second) of Conflicts of Laws, which counsels that when
reviewing claims based on quasi-contract theory, we look to: “(a) the place where the
parties’ relationship was centered; (b) the state where defendants received the alleged
benefit or enrichment; (c) the location where the act bestowing the enrichment or benefit
was done; (d) the parties' domicile, residence, place of business, and place of
incorporation; and (e) the jurisdiction “where a physical thing ..., which was substantially
related to the enrichment, was situated at the time of the enrichment.” Id. § 221(2)
(1971). Like the District Court, we find these contacts reminiscent of those we used to
determine which state’s law applies to Toll’s breach of contract claim. Inasmuch as we
applied New York law to that claim, we will do so again to these claims. We note further
that the District Court did the same. Toll points out in his brief that if we were to decide
that Pennsylvania law controls the breach of contract claim, and apply that law to these
equitable claims, the quantum meruit analysis would be a bit different, excluding any
analysis of his reasonable expectation of compensation. That, however, is not an
argument that New York law should not apply to these claims. We do not see either
party as raising a specific objection to the application of New York law to the quasi-
contract claims on appeal and will apply that state’s law accordingly.
                                             13
Toll’s claim for unjust enrichment, the District Court focused on the question of whether

equity and good conscience required that Toll receive restitution. We agree with the

District Court that Toll suffered no inequity and therefore has no claim for unjust

enrichment or quantum meruit. Toll provided loan guarantees because, he alleges,

Tannenbaum agreed to share half the profits with Toll’s daughter--not with Toll himself.

Toll also admits to advising his daughter on her divorce settlement, which disclaimed any

actions against Tannenbaum and/or his company. In other words, he seeks restitution for

himself even though his daughter has relinquished her claims. Therefore, we see no

inequity. Also, Toll did receive a benefit from guaranteeing the loans: his guarantee

helped attract other investors to Tannenbaum’s fund--a fund in which Toll was a major

investor. Because Toll has rendered a service from which he received a benefit, there is

no inequity to compensate. Furthermore, Toll suffered no injury by guaranteeing the

loans to Tannenbaum. Tannenbaum never defaulted on the loans and Toll himself

testified that in making the loan guarantees, he had neither out-of-pocket expense nor lost

investment opportunity as a result of making these loan guarantees. And, the record

reveals that Toll had provided loan guarantees for Tannenbaum before without asking for

any compensation. We see no inequity and the District Court correctly granted summary

judgment to Tannenbaum on these claims.

       Toll fares no better under quantum meruit. First, Toll did not seek recovery for

the value of services he rendered to Tannenbaum. Toll admits on the record that he never

expected to be compensated directly for providing the loan guarantees, but that his

daughter, Elizabeth, would receive investment fund profits instead. Toll calls our

                                            14
attention to other loan guarantees he made on behalf of Tannenbaum’s business, but in

those situations Toll himself received direct compensation for himself and not a third

party. We agree with the District Court’s analysis which concluded that Toll offered no

evidence that he expected compensation prior to the performance of his services.

       The District Court also faulted Toll for not alleging damages that could have been

recoverable under quasi-contract theory. Toll asked for damages for the reasonable value

of the interest he would have had in Tannenbaum’s company had his son-in-law not

promised Elizabeth half the profits. The District Court found this request incompatible

with unjust enrichment as it was based on the existence of a contract. We agree. Toll

does not take issue with the District Court’s analysis, but instead argues that he should

have been permitted to amend his complaint post-summary judgment so as to allege

appropriate damages, this even though Toll never asked the District Court for such leave.

       Toll’s arguments here are unavailing and we see no error. First, Toll bears the

responsibility of moving to amend his complaint under FED.R.CIV.P. 15; it is not the

District Court’s task to encourage any such amendment. That Toll may have changed his

theory of recovery more than a year before Tannenbaum’s summary judgment motion

was filed does not change the fact that Toll’s complaint needed amending in order to

reflect that change in legal theory. Additionally, Toll’s argument that the District Court

would have freely granted him leave to file an amended complaint is not convincing.

This decision is within the discretion of the District Court, Lake v. Arnold, 232 F..3d 360,

373 (3d Cir. 2014), and we find no abuse of that discretion here. Toll’s quasi-contract

claims had been found lacking for various reasons that stand independent from the

                                             15
question of appropriate damages. Any amendment was likely futile and would have

caused undue delay here.

       In sum, none of Toll’s claims for quasi-contract relief are meritorious and the

District Court did not err by granting summary judgment to Toll.

                                       IV. Conclusion

       In summary, New York law applies to Toll’s breach of contract claim. Therefore,

the District Court correctly granted summary judgment to Tannenbaum because the

alleged oral contract could not be performed, by Toll’s own admission, within one year of

its making. Further, Toll’s claims under quasi-contract theory are meritless and the

District Court rightly granted summary judgment to Tannenbaum. We have considered

all issues that were raised by Appellant and find no merit to any of them. We will,

therefore, affirm the decision of the District Court.

                                             16