Court Opinion

ID: 9821173
Source: CourtListenerOpinion
Date Created: 2023-09-01 07:51:58.787988+00
Date Added: 2024-06-11T07:38:48.638527
License: Public Domain

Acosta, J.P., and Saxe, J.,
dissent in part in a memorandum by Saxe, J., as follows: This case illustrates the consequences of getting ensnared in a web of deceit by embarking upon a business relationship with parties who possess important information that they do not share with regard to risks of the enterprise. This appeal raises the issues of whether plaintiff’s status as an at-will employee precludes him, as a matter of law, from bringing a claim against defendants for fraudulent inducement, and exactly what must be alleged to support an inference of damages.
*541Defendant Chipotle Mexican Grill, Inc. franchises chain Mexican restaurants across the nation; codefendant Steven Ells is its founder and CEO. Plaintiff Kyle Connaughton, who was employed by Chipotle, appeals from an order granting defendants’ motion pursuant to CPLR 3211 to dismiss his complaint for fraudulent inducement and unjust enrichment.
For purposes of this appeal, we must accept as true the facts as alleged in the complaint, accord the plaintiff the benefit of every possible favorable inference, and determine whether the alleged facts fit within any cognizable legal theory (see Gabriel v Therapists Unlimited, 218 AD2d 614, 615 [1st Dept 1995]). According to the complaint, plaintiff is a well-known chef who has worked for some of the most prestigious restaurants in the world. In 2010, plaintiff conceived of and began developing an idea for a fast food restaurant chain that would serve ramen noodle products. Chipotle expressed interest in the concept, and in November 2010 plaintiff met with Ells. During their initial meeting, plaintiff described his ramen restaurant concept to Ells, who expressed significant interest in the idea. In the following weeks, plaintiff prepared a confidential business plan under the registered domain name “Ramen Yokocho,” conceived around the existing service platform of the Chipotle Mexican Grill restaurants: fast food restaurants that serve high-quality food. On November 20, 2010, plaintiff submitted his plan to Ells.
Between November 2010 and January 2011, plaintiff and Ells met and discussed the menu, the service platform, and plaintiff’s ideas generally regarding a ramen restaurant, and on January 2, 2011, Ells formally extended an exclusive offer by which Chipotle would proceed with plaintiff’s ramen concept. Plaintiff obtained counsel to represent him in the ensuing negotiations.
The proposal Ells conveyed was that plaintiff would be compensated for the concept through an employment contract in which he would be paid a base salary as well as equity in the form of Chipotle company stock, to be paid out annually pursuant to a set schedule over his years there, as long as plaintiff remained employed by Chipotle on the ramen project. Although initially plaintiff was not interested in that proposal, when Ells told him that the contemplated stock grants required that he be an employee, plaintiff agreed. Plaintiff signed the employment contract in February 2011.
A letter from Ells to plaintiff dated January 24, 2011 provides details of the employment agreement; it states that plaintiff’s employment with Chipotle was at will and that both parties *542retained the option of ending the employment at any time, with or without notice or cause. A “Restricted Stock Units Agreement” signed in February 2011 states that the granting of stock to plaintiff “shall not be construed as granting to [plaintiff] any right with respect to continuance of employment with the Company” and that “the right of the Company to terminate plaintiffs employment with it at any time (whether by dismissal, discharge, retirement or otherwise) is specifically reserved by the Company and acknowledged by plaintiff.” Plaintiff was given the title of “Culinary Director,” a new position. His name and likeness were used in marketing materials for both Chipotle and the ShopHouse brand, the name given to the anticipated ramen noodle restaurant.
Plaintiff continued developing the ramen concept for Chipotle throughout 2011. In December 2011, he and a development team toured Japan to visit ramen restaurants and ingredient suppliers to prepare for the project. In February 2012, plaintiff received his first annual review from Ells, which was “entirely positive.” He received his full bonus, and additional stock grants. Ells told plaintiff that this was the year to open the ramen restaurants. In May 2012, plaintiff returned to Japan, along with the development team and Ells, to visit ramen restaurants and suppliers. Upon his return to the U.S., plaintiff began working more intensively on the ramen concept. In September 2012, a lease was executed for a potential flagship ramen noodle restaurant to be located on 12th Street at University Place in Manhattan.
Plaintiff alleges that in October 2012, he first learned that Chipotle had a prior business relationship with David Chang, the owner of a restaurant called Momofuku Noodle Bar, concerning a similar ramen concept. Specifically, plaintiff alleges, some time that month he had dinner at Momofuku Noodle Bar with Mark Crumpacker, Chief Marketing Officer of Chipotle, and Tim Wildin, Chipotle’s New Concept Development Director, to taste food and meet Momofuku’s outgoing head chef, whom plaintiff had proposed as a possible hire for Chipotle’s ramen restaurants. During that dinner, Crumpacker confided in plaintiff that Chipotle would not hire any former Momofuku employees, and that Momofuku would sue Chipotle when it opened the ramen restaurant, but that Ells had decided to proceed with plaintiffs concept anyway.
Specifically, plaintiff learned from Crumpacker that in 2008, Ells had entered into a confidential business deal with David Chang, under which Chang agreed to develop a ramen restaurant concept like the one plaintiff was developing. In conjunc*543tion with that deal, Ells had signed a nondisclosure agreement which required him to maintain as confidential the details of Chang’s ramen concept, including menus and other business development ideas. Further, Chang had worked on the design for a Dupont Circle property that later became a flagship ShopHouse restaurant, the name Chipotle gave to its ramen noodle restaurant. According to plaintiff, he was informed by Crumpacker that Chang never consented to the use of his design work for the opening of ShopHouse, and did not authorize the use of any of his confidential work with Chipotle for the purpose of opening a ramen restaurant, but that Chipotle nevertheless converted Chang’s work for its own use.
After learning the foregoing information in October 2012, plaintiff confronted Ells concerning Chipotle’s prior agreement with Chang. Ells did not deny the preexisting business dealings, but simply ordered plaintiff to proceed with the ramen concept. Plaintiff was concerned that by continuing to work with Chipotle to open the ramen restaurant, he would become a party to a lawsuit that would be brought by David Chang and Momofuku. On November 17, 2012, Ells terminated plaintiff’s employment, and this action followed.
The crux of plaintiff’s fraudulent inducement claim against defendants is that by failing to disclose to plaintiff Chipotle’s prior business relationship with Chang before plaintiff and Ells entered into their business relationship, Ells omitted a material fact that would substantially impact plaintiff’s ability to successfully implement his ramen concept. Plaintiff reasons that Ells and other Chipotle staff, while exchanging information and ideas with him during the collaborative process, had conveyed information to him that had been communicated to them by David Chang. Therefore, any implementation by plaintiff of his ramen concept while employed by Chipotle would make plaintiff an active participant in the violation of the nondisclosure agreement between Chipotle and Momofuku. Further, if plaintiff implemented his ramen concept at Chipotle despite its prior business dealings with Chang, his professional reputation would be ruined, and he could never escape the accusation that he had stolen Chang’s ramen concepts.
It is plaintiff’s position that if Chipotle’s prior business dealings with Momofuku had been disclosed, plaintiff could have properly weighed the offered business opportunity and decided whether he could realistically pursue his ramen proposal to a successful conclusion with Chipotle. He asserts that he “would never have accepted employment with Chipotle” if defendants had disclosed the material fact of their prior dealings with Chang.
*544As to his unjust enrichment claim, plaintiff alleged that Chipotle had been unjustly enriched, as it had “received the benefit of plaintiff’s ramen concept and has not compensated him for it.”
Defendants’ motion to dismiss the complaint pursuant to CPLR 3211 was granted, on the ground that plaintiff’s status as an “at will” employee precluded the claims, and that plaintiff’s claimed damages were speculative. The majority here agrees.
With respect to plaintiff’s cause of action for unjust enrichment, I agree. The doctrine of unjust enrichment does not apply where a contract governs the subject matter (Pappas v Tzolis, 20 NY3d 228, 234 [2012]). Inasmuch as plaintiff had a contract with defendants providing for compensation for his work, which compensation he received for the period in which he worked for them, no cause of action for unjust enrichment lies (see Meghan Beard, Inc. v Fadina, 82 AD3d 591 [1st Dept 2011]; Mackie v La Salle Indus., 92 AD2d 821 [1st Dept 1983]).
However, as to the claim for fraudulent inducement, I reject defendants’ argument that it is deficient; the absence of either an affirmative misrepresentation or a fiduciary duty does not absolutely foreclose such a claim in this instance.
To state a claim for fraudulent inducement, a plaintiff must allege “a misrepresentation or a material omission of fact which was false and known to be false by defendant, made for the purpose of inducing the other party to rely upon it, justifiable reliance of the other party on the misrepresentation or material omission, and injury” (Lama Holding Co. v Smith Barney, 88 NY2d 413, 421 [1996]). If fraud is claimed based on an omission, as opposed to affirmative misrepresentation of material fact, the complaint must normally allege the existence of a fiduciary or confidential relationship (see Mandarin Trading Ltd. v Wildenstein, 16 NY3d 173, 179 [2011]; Cobalt Partners, L.P. v GSC Capital Corp., 97 AD3d 35, 42-43 [1st Dept 2012]).
However, this Court has recognized the existence of an alternative basis for allowing fraud claims to proceed based on omissions, even in arm’s length transactions in the absence of a fiduciary or confidential relationship, “where one party’s superior knowledge of essential facts renders a transaction without disclosure inherently unfair” (see e.g. P.T. Bank Cent. Asia, N.Y. Branch v ABN AMRO Bank N.V., 301 AD2d 373, 378 [1st Dept 2003]), when the party with special knowledge knows that the other party would act differently if possessed of that knowledge (see Swersky v Dreyer & Traub, 219 AD2d 321 [1st Dept 1996]). For instance, in Swersky, the plaintiffs alleged *545that they had purchased shares of stock of QMAX Technology Group, following negotiations between Swersky and defendant Howard Morse on behalf of QMAX, but that Morse had failed to inform Swersky during their negotiations that QMAX had granted Morse an option for 100,000 of the type of ESOP shares Swersky sought but Morse said were unavailable. This Court reinstated the plaintiffs’ fraudulent concealment claim based on those allegations.
The allegations here are sufficient to support a claim that defendants possessed “superior knowledge” with regard to material information regarding Chipotle’s prior business dealings with Chang, including the existence of a nondisclosure agreement, and withheld such information in order to induce plaintiff to accept the offered position with Chipotle.
Defendants rely on the argument that the superior knowledge doctrine is inapplicable where the undisclosed material information was discoverable by the plaintiff through the “exercise of ordinary intelligence” (Jana L. v West 129th St. Realty Corp., 22 AD3d 274, 278 [1st Dept 2005] [internal quotation marks omitted]); they contend that plaintiff could have discovered the truth through the simple expedient of asking defendants whether they had a previous agreement with anyone else. This argument does not warrant dismissal at this juncture. While it may seem, in hindsight, as if it would be commonplace to pose such a question, there is an issue of fact as to whether, in this context, such a question would be expected of a person in plaintiff’s position entering into such an agreement (see Black v Chittenden, 69 NY2d 665, 669 [1986]).
Plaintiff’s at-will employment status does not preclude a claim for fraudulent inducement, since he is not claiming a violation of his employment contract, or seeking damages arising from his termination.
A litigant with a fraud claim may seek damages consisting of the “actual pecuniary loss sustained as [a] direct result of the wrong” (Lama Holding, 88 NY2d at 421). However, damages for fraud cannot be used to compensate a plaintiff for “profits which would have been realized in the absence of fraud” (id.). That is, “[d]amages are to be calculated to compensate plaintiffs for what they lost because of the fraud, not to compensate them for what they might have gained” (id.). Therefore, plaintiff may not obtain damages based on the amount he could have realized had he followed through to completion the creation of the ramen restaurant plan with some other, unencumbered restaurant group, rather than ac*546cepting the Chipotle offer; that theory of damages amounts to an impermissible claim for profits that would have been realized in the absence of fraud.
However, damages need not be demonstrated at the pleading stage as long as the possibility of damages may reasonably be inferred (see Caruso, Caruso & Branda, P. C. v Hirsch, 41 AD3d 407, 410 [2d Dept 2007]). CPLR 3016 (b) only requires that “the circumstances constituting the wrong shall be stated in detail”; it does not require that a plaintiff’s damages be stated in detail. In Lama Holding, it was clear from the pleadings that the plaintiff could not have suffered losses from the alleged fraud (88 NY2d at 422). Here, unlike in Lama Holding, we cannot pronounce with certainty at this stage of the litigation that plaintiff will suffer no compensable losses as a result of defendants’ alleged fraud. A reasonable inference of general damages may be “implicit by the facts alleged” and does not need to be explicitly stated (see Kronos, Inc. v AVX Corp., 81 NY2d 90, 97 [1993]; see also Caruso, 41 AD3d 407). Here, it is implicit from the allegations contained in the pleaded complaint, which must, according to law, be construed liberally, that the position in which plaintiff was placed due to defendant’s conduct may cause him, or may have already caused him, compensable damages, particularly the possibility of damage to his reputation, and perhaps even future legal expenses. By conceding that the allegations of the complaint allow an inference of future injury, and yet definitively asserting that those same allegations do not allow an inference of present injury, the majority fails to construe the complaint liberally and accord plaintiff every possible favorable inference as we are required to do (see 511 W. 232nd Owners Corp. v Jennifer Realty Co., 98 NY2d 144, 152 [2002]).
In addition, “when a party to a contract perpetrates a fraud he commits a wrong for which he is liable to the defrauded party in at least nominal damages, even though no actual damages be shown” (Pryor v Foster, 130 NY 171, 178 [1891]; Northrop v Hill, 57 NY 351, 354 [1874]). Notwithstanding the conclusion in Kronos, Inc. v AVX Corp. (81 NY2d at 95) that nominal damages are not available for tort claims, if a fraud plaintiff establishes at trial that he was defrauded, he may be entitled to nominal damages even if he is unable to establish that he was financially injured by the fraud (see Clearview Concrete Prods. Corp. v S. Charles Gherardi, Inc., 88 AD2d 461, 470 [2d Dept 1982]). Notably, the Court in Kronos carved out an exception allowing nominal damages for fraud claims “when needed to protect an ‘important technical right’ ” (81 *547NY2d at 95, 97), and that exception was used to award nominal damages on a fraud claim in Imaging Intl. v Hell Graphic Sys., Inc. (17 Misc 3d 1123[A], 2007 NY Slip Op 52120[U] [Sup Ct, NY County 2007], affd 60 AD3d 450 [1st Dept 2009]). While this possibility does not eliminate the need to plead damages, it should encourage us to construe the allegations of the complaint as liberally as possible when considering whether plaintiff sufficiently pleaded damages.
Should plaintiff be unable to establish his damages claim at trial or on a summary judgment motion, that issue can be addressed at that juncture. But his allegations suffice to establish the possibility of damages for the present purposes. I would therefore modify in order to deny defendants’ motion to dismiss the cause of action for fraudulent inducement.