Court Opinion

ID: 4096054
Source: CourtListenerOpinion
Date Created: 2016-11-07 16:00:38.197244+00
Date Added: 2024-06-11T07:45:31.186781
License: Public Domain

15-3323-cv
Ferguson v. Ferrante

                          UNITED STATES COURT OF APPEALS
                              FOR THE SECOND CIRCUIT

                                        SUMMARY ORDER

RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A
SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED
BY FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURT’S LOCAL RULE 32.1.1.
WHEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY
MUST CITE EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE
NOTATION “SUMMARY ORDER”). A PARTY CITING A SUMMARY ORDER MUST SERVE A COPY
OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.

       At a stated term of the United States Court of Appeals for the Second Circuit, held
at the Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of New
York, on the 7th day of November, two thousand sixteen.

PRESENT: PIERRE N. LEVAL,
                 ROBERT D. SACK,
                 REENA RAGGI,
                                 Circuit Judges.
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DOUGLAS FERGUSON,
        Plaintiff-Counterclaim-Defendant-Appellee,

                        v.                                                  No. 15-3323-cv

MATTHEW FERRANTE, individually, AURORA
INFORMATION SECURITY & RISK, LLC, a New York
Limited Liability Company,
      Defendants-Counter-Claimants-Appellants,*

----------------------------------------------------------------------
FOR APPELLANTS:                                   Peter A. Ouda, Peter       A.   Ouda,   LLC,
                                                  Somerville, New Jersey.

FOR APPELLEE:                                    Randall L. Rasey and William Kang, Barton
                                                 LLP, New York, New York.

*
    The Clerk of Court is directed to amend the caption as set forth above.

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       Appeal from a judgment of the United States District Court for the Southern

District of New York (Valerie E. Caproni, Judge).

       UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED,

AND DECREED that the judgment entered on October 9, 2015, is AFFIRMED.

       Defendants Matthew Ferrante and Aurora Information Security & Risk, LLC

(“Aurora”) appeal from a judgment entered after a bench trial in favor of plaintiff

Douglas Ferguson. Defendants challenge (1) the denial of Ferrante’s pre-trial motion for

summary judgment on Ferguson’s fraudulent-inducement claim and the grant of

summary judgment to Ferguson on two of Ferrante’s affirmative defenses; (2) the trial

findings that (a) Ferrante fraudulently induced Ferguson to leave his position at Barclays

Bank to work for defendant Aurora, and (b) Ferguson did not breach his duty of loyalty

to Aurora; and (3) the failure to award Aurora $736,000 in expectation damages for

Ferguson’s breach of a settlement agreement.

       After trial, we review a denial of summary judgment de novo only where an

appellant claims a pure error of law. See Schaefer v. State Ins. Fund, 207 F.3d 139, 142

(2d Cir. 2000). When reviewing a judgment following a bench trial, we review a district

court’s conclusions of law de novo and its findings of fact for clear error, without second-

guessing its credibility determinations. See Krist v. Kolombos Rest Inc., 688 F.3d 89, 95

(2d Cir. 2012). In applying these principles, we assume the parties’ familiarity with the

facts and record of prior proceedings, which we reference only as necessary to explain

our decision to affirm.

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1.     Summary Judgment Challenge

       Ferrante claims that he was entitled to summary judgment on Ferguson’s

fraudulent-inducement claim because a January 12, 2012 settlement agreement (the

“Settlement Agreement”) released and resolved all claims against all parties in this action

and barred Ferguson from attempting to impose personal liability on Ferrante. On de

novo review, we conclude that the Settlement Agreement did not foreclose Ferguson’s

fraudulent-inducement claim against Ferrante because Ferrante was not a party to the

Settlement Agreement.

       Under New York law, which controls here, settlement agreements must be

enforced according to the plain meaning of their language. See Brad H. v. City of New

York, 17 N.Y.3d 180, 185, 928 N.Y.S.2d 221, 224 (2011). The Settlement Agreement

states that “the parties agree to release each other from all actions, causes of action, suits,

debts, dues, sums of money, accounts, bills, covenants, contracts, controversies,

agreements, promises, damages, judgments, claims, counterclaims and demands

whatsoever (collectively, ‘Claims’), except for claims arising out of the breach of this

Agreement or those arising as a direct result of gross negligence, fraudulent conduct or

willful misconduct of a party hereto (including its principals, employees and agents).”

Appellants’ App’x 429 (emphasis added). Thus, by its plain language, the Settlement

Agreement releases only certain claims between “the parties,” and the Agreement defines

“parties” as “Aurora and Doug [Ferguson].” Id. at 426; see id. (“Whereas, Aurora and

Doug wish to terminate their relationship and resolve outstanding issues between them.”

(emphases added)); id.      (“Aurora and Doug wish to enter into this Agreement.”).

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Accordingly, Ferguson’s fraudulent-inducement claim against Ferrante, a non-party to

the Agreement and a principal of Aurora, was not barred by the Settlement Agreement’s

release. See Bank of Am. Nat’l Tr. & Sav. Ass’n v. Gillaizeau, 766 F.2d 709, 713 (2d

Cir. 1985) (noting that New York law requires release to contain “explicit, unequivocal

statement of a present promise to release defendant from liability” (internal quotation

marks omitted)). In sum, the plain language of the Settlement Agreement does not

support Ferrante’s summary judgment motions and, in fact, supports summary judgment

for Ferguson on the Twentieth Affirmative Defense.1

      In urging otherwise, Ferrante persists in his Thirteenth Affirmative Defense, i.e.,

that Ferguson’s fraudulent-inducement claim was duplicative of his settled breach of

contract claim.   But, as already explained, the Settlement Agreement resolved only

claims between Ferguson and Aurora, and expressly did not cover fraud claims against

Aurora or its principals, employees, or agents. Thus, there is no duplication. See

Richbell Info. Servs. v. Jupiter Partners, 309 A.D.2d 288, 305, 765 N.Y.S.2d 575, 589

(1st Dep’t 2003) (“[F]raud claim may be dismissed as duplicative only as against a
1
  No different conclusion is warranted by the fact that Ferrante signed the Settlement
Agreement or by a provision in the Settlement Agreement providing that Aurora’s
principals would not “be personally responsible for any of the obligations set forth”
therein. See Appellants’ App’x 430–31. Although Ferrante twice signed the Settlement
Agreement, he signed in his individual capacity only “with respect to paragraph 17,” the
“no personal liability” provision. This express limitation defeats any argument that
Ferrante’s signature made him a party to the entire Settlement Agreement. As for the “no
personal liability” provision, its plain language makes clear that, as Aurora’s principal,
Ferrante could not be held personally responsible for any of the obligations set forth in
the Settlement Agreement, which language is completely consistent with Ferrante not
being a party to the Settlement Agreement. The provision says nothing about Ferrante’s
personal liability as to claims Ferguson had against him in his individual capacity, let
alone his potential personal liability for fraudulent conduct.

                                            4
defendant against whom the related contract claim is viable.” (emphasis in original)).

Moreover, the fraudulent-inducement claim is based on alleged misconduct that predates

the Settlement Agreement’s execution and is unconnected with its alleged breach.

       Accordingly, we identify no error of law in the denial of Ferrante’s motion for

summary judgment on Ferguson’s fraudulent-inducement claim or in the award of

summary judgment in favor of Ferguson on defendants’ Thirteenth and Twentieth

Affirmative Defenses.

2.     Fraudulent Inducement

       Ferrante argues that the evidence is insufficient to support the district court’s trial

finding that he fraudulently induced Ferguson to terminate employment at Barclays Bank

and to join Aurora. The argument fails because the district court expressly credited

Ferguson’s testimony that Ferrante promised Ferguson a 40% equity interest in Aurora,

which testimony, it noted, was corroborated by, among other things, (1) mock business

cards that Ferrante created for Ferguson, listing Ferguson as Aurora’s “Co-

Founder/Managing Director,” a similar title to that Ferrante held, Appellees’ App’x 1355,

1359; (2) an August 9, 2010 Skype conversation in which Ferrante told Ferguson that he

would ask his lawyers “for a quote to have [Ferguson] added as a partner” and discussed

the possibility of issuing Ferguson “[p]hantom stock” so as to retain Aurora’s status as a

limited liability company, id. at 988; (3) emails dated November 23 and 24, 2010, in

which the two men discussed Ferguson contributing capital for Aurora’s “core expenses,”

id. at 1420–21; and (4) an August 23, 2011 email in which Ferrante asked Ferguson to

confirm that he was “committed at this point to the profits . . . as well as to the expenses”

                                              5
and noted that he would not “take all the risk with [his] capital” alone and then divide “all

the profits,” id. at 996, as well as evidence that Ferrante made the promises intending not

to carry them out. The district court also credited Ferguson’s testimony that he would not

have resigned from Barclays but for Ferrante’s representation that Ferguson could have

“‘40 percent equity ownership’ of Aurora.” Findings of Fact & Conclusions of Law at 8,

Ferguson v. Ferrante, No. 13-cv-4468 (VEC) (S.D.N.Y. Oct. 8, 2015), ECF No. 142.

       By contrast, the district court found much of Ferrante’s testimony not credible.

See, e.g., id. at 19 (observing that Ferrante was “largely not credible” in that he adhered

to “an implausible narrative,” and his demeanor “bespoke a witness who had

predetermined what testimony he thought would be favorable and was resolved to

provide it, without regard to whether it was true”).         The district court ultimately

concluded that “Ferrante told Ferguson whatever Ferrante thought he wanted to hear in

order to persuade him to join Aurora and that Ferrante never intended to follow through

on what he claimed he was already doing with regard to bringing Ferguson in as an

equity partner.” Id. at 8.

       Thus, the record here, especially when reviewed in light of the district court’s

credibility findings, precludes our finding that “there [was] such a complete absence of

evidence supporting the verdict” that no “reasonable and fair minded person[]” could

have found in Ferguson’s favor. Vangas v. Montefiore Med. Ctr., 823 F.3d 174, 180 (2d

Cir. 2016) (internal quotation marks and alteration omitted); see Ipcon Collections LLC

v. Costco Wholesale Corp., 698 F.3d 58, 62 (2d Cir. 2012) (listing elements of

fraudulent-inducement claim under New York law as (1) material misrepresentation of

                                             6
presently existing or past fact, (2) intent to deceive, (3) reasonable reliance on

misrepresentation, and (4) resulting damages). Accordingly, we affirm the district court’s

trial judgment in favor of Ferguson on the fraudulent-inducement claim.

3.     Duty of Loyalty

       Aurora challenges the bench-trial decision in favor of Ferguson on its breach-of-

duty-of-loyalty claim, arguing that the district court clearly erred in finding that Ferguson

did not solicit any of Aurora’s clients. We will not upset such a finding of fact “unless

we are left with the definite and firm conviction that a mistake has been committed.”

Mota v. Castillo, 692 F.3d 108, 114 (2d Cir. 2012) (internal quotation marks omitted).

We have no such conviction here. Aurora’s claim that Ferguson’s mere act of notifying

certain clients of his departure “r[o]se to the level of solicitation,” Appellants’ Br. 43, is

contrary to law, see Muhlstock v. Cole, 245 A.D.2d 55, 59, 666 N.Y.S.2d 116, 120 (1st

Dep’t 1997) (rejecting claim that plaintiff breached duty of loyalty or solicited clients

because “departing members of an accounting firm should at least be allowed to inform

firm clients with whom they have a prior professional relationship about their impending

withdrawal and new practice” (internal quotation marks omitted)).

       Thus, we cannot conclude that the district court erred, much less that it clearly

erred, in finding that Ferguson did not breach his duty of loyalty to Aurora.

4.     Damages

       Aurora faults the district court for not including $736,000 expended on network

security in its calculation of damages resulting from Ferguson’s breach of the Settlement

Agreement. We review such a challenge for clear error, see Wolff & Munier, Inc. v.

                                              7
Whiting-Turner Contracting Co., 946 F.2d 1003, 1009 (2d Cir. 1991) (noting that

“amount of recoverable damages is a question of fact”), which we do not identify here.

For substantially the reasons stated by the district court, we conclude that the expense

Aurora incurred to protect its network from a possible hack by Ferguson was neither a

natural and probable consequence of Ferguson’s breach nor a cost within the

contemplation of the parties at the time of the Settlement Agreement and, therefore, was

not recoverable. See Findings of Fact & Conclusions of Law at 31, Ferguson v. Ferrante,

No. 13-cv-4468 (VEC) (S.D.N.Y. Oct. 8, 2015), ECF No. 142; see also Kenford Co. v.

County of Erie, 73 N.Y.2d 312, 319, 540 N.Y.S.2d 1, 3–4 (1989) (explaining that

nonbreaching party typically may recover only “general damages which are the natural

and probable consequence of the breach” but that “unusual or extraordinary damages”

may be recovered where they were “within the contemplation of the parties as the

probable result of a breach at the time of or prior to contracting” (internal quotation

marks omitted)).

5.    Conclusion

      We have considered defendants’ remaining arguments and conclude that they are

without merit. We, therefore, AFFIRM the judgment of the district court.

                                 FOR THE COURT:
                                 CATHERINE O’HAGAN WOLFE, Clerk of Court

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